YUKOS CAPITAL S.A.R.L., YUKOS HYDROCARBONS INVESTMENTS LIMITED, STICHTING ADMINISTRATIEKANTOOR YUKOS INTERNATIONAL, STICHTING ADMINISTRATIEKANTOOR FINANCIAL PERFORMANCE HOLDINGS, Plaintiffs-Counter-Defendants-Appellees-Cross-Appellants, MARK FLEISCHMAN, AS TRUSTEE OF THE 2015 SECURITY TRUST, AS SUCCESSOR IN INTEREST TO THE 2014 SECURITY TRUST, Plaintiff-Third-Party-Defendant-Counter-Defendant-Appellee-Cross-Appellant, LUXTONA LIMITED, Plaintiff-Counter-Defendant-Appellee-Cross-Appellant, v. DANIEL CALEB FELDMAN, Defendant-Third-Party-Plaintiff-Counter-Claimant-Appellant-Cross-Appellee, DAVID GODFREY, STEVEN THEEDE, FAIR OAKS TRADE AND INVEST LIMITED, Third-Party-Defendants-Cross-Appellees, DIRECTORS PROTECTION LTD., FINANCIAL PERFORMANCE HOLDINGS B.V., GRETCHEN KING, MICHEL DE GUILLENCHMIDT, BRUCE MISAMORE, Third-Party-Defendants.
Docket Nos. 19-1109(L), 19-1254(XAP)
United States Court of Appeals for the Second Circuit
October 8, 2020
August Term 2019
Argued: February 28, 2020
YUKOS CAPITAL S.A.R.L., YUKOS HYDROCARBONS INVESTMENTS LIMITED, STICHTING ADMINISTRATIEKANTOOR YUKOS INTERNATIONAL, STICHTING ADMINISTRATIEKANTOOR FINANCIAL PERFORMANCE HOLDINGS,
Plaintiffs-Counter-Defendants-Appellees-Cross-Appellants,
MARK FLEISCHMAN, AS TRUSTEE OF THE 2015 SECURITY TRUST, AS SUCCESSOR IN INTEREST TO THE 2014 SECURITY TRUST,
Plaintiff-Third-Party-Defendant-Counter-Defendant-Appellee-Cross-Appellant,
LUXTONA LIMITED,
Plaintiff-Counter-Defendant-Appellee-Cross-Appellant,
v.
DANIEL CALEB FELDMAN,
Defendant-Third-Party-Plaintiff-Counter-Claimant-Appellant-Cross-Appellee,
DAVID GODFREY, STEVEN THEEDE, FAIR OAKS TRADE AND INVEST LIMITED,
Third-Party-Defendants-Cross-Appellees,
DIRECTORS PROTECTION LTD., FINANCIAL PERFORMANCE HOLDINGS B.V., GRETCHEN KING, MICHEL DE GUILLENCHMIDT, BRUCE MISAMORE,
Third-Party-Defendants.*
On Appeal from the United States District Court for the Southern District of New York.
No. 15-cv-4964 — Lewis A. Kaplan, Judge.
Before: LIVINGSTON and PARK, Circuit Judges, and UNDERHILL, District Judge.+
Defendant-Appellant, Daniel Feldman, appeals from two judgments—one following a jury trial and one at summary judgment—entered by the United States District Court for the Southern District of New York (Kaplan, J.). Regarding the first, Feldman argues that the district court erred in allowing the jury to consider certain of the breach of fiduciary duty claims against him. Regarding the second, Feldman argues that the district court erred in granting summary judgment to a Third-Party-Defendant-Cross-Appellee, David Godfrey, on Feldman‘s third-party claim under the Stored Communications Act. Plaintiffs-Appellees, Yukos Capital S.A.R.L., et al., cross-appeal from the district court‘s decisions (1) not to impose discovery sanctions on Feldman and (2) to instruct the jury on the incorrect standard regarding disgorgement of a faithless servant‘s compensation. We AFFIRM in all respects except one; we REVERSE in part because we agree with Feldman that the district court‘s decision to allow the jury to consider certain breach of fiduciary duty claims brought by (1) Stichting Administratiekantoor Yukos International and (2) Stichting Administratiekantoor Financial Performance Holdings was error. Thus, we AFFIRM in substantial part and REVERSE in part.
JEFFREY D. BROOKS (Mary E. Flynn, on the brief), Morrison Cohen LLP, New York, NY, for Plaintiffs-Counter-Defendants-Appellees-Cross-Appellants, Plaintiff-Third-Party-Defendant-Counter-Defendant-Appellee-Cross-Appellant, and Third-Party-Defendants-Cross-Appellees.
ROBERT GLUNT (Rishi Bhandari, on the brief), Mandel Bhandari LLP, New York, NY, for Defendant-Third-Party-Plaintiff-Counter-Claimant-Appellant-Cross-Appellee.
This is a case about a disloyal employee, Daniel Feldman, the Defendant.1
After trial, a jury found that Feldman had, through his actions in two distinct schemes, breached his fiduciary duty to (1) Yukos Capital S.A.R.L. (“Yukos Capital“), Yukos Hydrocarbons Investments Limited (“YHIL“), Stichting Administratiekantoor Yukos International (“Foundation 1“), and Stichting Administratiekantoor Financial Performance
Feldman appeals from the district court‘s decision to deny his
Before trial, Feldman brought a third-party claim against David Godfrey.5 In that third-party claim, Feldman alleged that Godfrey had directed a third-party forensic accounting firm to access Feldman‘s gmail account without authorization, which violated the Stored Communications Act (the “SCA“),
Also before trial, the district court denied the Plaintiffs’ request that it impose sanctions on Feldman for perjurious deposition testimony and improper withholding of documents. The Plaintiffs appeal that decision.
We AFFIRM the district court‘s granting summary judgment to Godfrey, its non-imposition of sanctions, and its decision to instruct the jury as it did regarding the standard for disgorgement of a faithless servant‘s compensation. However, because we conclude that Foundation 1 and Foundation 2 (together, the “Foundations“) failed to prove breach of fiduciary duty claims against Feldman, we REVERSE the district court‘s denial of Feldman‘s
I. BACKGROUND
A. Facts
Based in Moscow, the Yukos Oil Company (“Yukos Oil“) was founded in the mid-1990s, and it became Russia‘s largest exporter of crude oil. Beginning in 2003, the Russian Federation alleged that Yukos Oil had underpaid its taxes over many years by billions of dollars. Yukos Oil rapidly became bankrupt and its assets were sold at auction. The Plaintiffs believe that the bankruptcy and auction were politically motivated and that the Russian Federation had simply appropriated Yukos Oil‘s assets. As relevant to this case, some of Yukos Oil‘s foreign assets were purchased by OOO Promneftstroy (“Promneftstroy“).
The Defendant in this case—Daniel Feldman—is an American lawyer who worked as a corporate secretary for Yukos Oil. Between Yukos Oil‘s 2006 dissolution and 2014, Feldman was involved in the leadership structure of several Yukos Group entities. More specifically, Feldman was the corporate secretary for the Foundations. He also served as the sole director of Yukos Capital from 2007 to 2014 and as one of several directors of YHIL from 2006 to 2012. Yukos Capital was a wholly-owned subsidiary of Foundation 1. And YHIL was a wholly-owned subsidiary of Foundation 2. Feldman was also the trustee of the 2015 Security Trust (and its predecessor) from 2006 to 2013.
The Plaintiffs allege that Feldman stole money from them in numerous ways over the years. (At trial, the Plaintiffs alleged that Feldman perpetrated eight separate, duplicitous schemes.) Feldman maintained that this case was a cover-up: The Plaintiffs were fabricating Feldman‘s disloyalty to hide their own disloyalty. Feldman thus brought counterclaims against the Plaintiffs and third-party claims against several individuals associated with the Yukos Group for SCA violations and defamation. (None of those counterclaims or third-party claims made it to trial, but one is at issue in this appeal.)
Three schemes are relevant here. The first is the Promneftstroy Scheme. As described above, the Yukos Group and its affiliates were engaged in litigation with Promneftstroy in the Netherlands. Due to his personal connections with individuals at Promneftstroy, Feldman was tapped to broker a settlement. The Plaintiffs alleged that Feldman sought a cash payment from Promneftstroy before negotiating with them. The jury found Feldman not liable for breach of fiduciary duty in the Promneftstroy Scheme, but it is relevant to the discussion below regarding the district court‘s decision not to impose sanctions.
The second is the Trust Scheme. The Plaintiffs alleged that when Feldman was serving as trustee of the 2004 Security Trust (the “Trust“)—a Yukos-affiliated entity that held money for the Yukos Group‘s future litigation expenses—Feldman withdrew $500,000 and invested it under his own name in a hedge fund for three years. Feldman did not tell the Trust‘s protector that he was investing the Trust‘s assets in his own name. When the Trust‘s protector discovered what Feldman had done, the protector demanded that Feldman return the funds to the Trust‘s account, and Feldman was removed as trustee. The investment that Feldman made had almost doubled in value. As a result, the Plaintiffs did not seek compensatory damages from Feldman for his role in the Trust Scheme. At trial, the jury found Feldman liable for breach of fiduciary duty in the Trust Scheme.
The third is the Julius Baer Scheme. Julius Baer is a Swiss bank that agreed to hold some of the Yukos Group‘s assets. A Yukos Group employee—Dmitri Merinson—had secured that arrangement with Julius Baer. Feldman subsequently approved a $2.6 million “finder‘s fee” payment
B. Procedural History
1. Summary Judgment
In October 2016, the Plaintiffs and several Third-Party-Defendants made a motion for partial summary judgment on Feldman‘s counterclaims and third-party claims, which, as relevant here, asserted a claim under the SCA against David Godfrey,6 the former general counsel of Yukos Oil and the de facto general counsel of the Yukos Group and its affiliates. Feldman claimed that Godfrey had improperly directed a third-party forensic accounting firm to access without authorization certain of Feldman‘s emails.
In 2014, Godfrey determined that an internal investigation into YHIL was warranted because of potential impropriety by Feldman (and others). YHIL retained the law firm Gibson Dunn & Crutcher LLP (“Gibson Dunn“) to conduct the internal investigation. In turn, Gibson Dunn engaged a forensic accounting firm, Crowe Horwath LLP (“Crowe Horwath“). Godfrey instructed all YHIL directors—not only Feldman—to make their business emails and documents available to Crowe Horwath. Because YHIL did not have its own internal email system, YHIL personnel used their personal email accounts to conduct business.
On May 28, 2014, Feldman met with a representative of Crowe Horwath—Tim Bryan—at Crowe Horwath‘s offices in New York City. Both parties understood that the purpose of the meeting was for Bryan to sit with Feldman and to capture any YHIL-related emails from Feldman‘s personal gmail account. Feldman‘s service as a director of YHIL ceased on September 12, 2012, and so Feldman asked that Bryan download no emails post-dating September 12, 2012. Bryan informed Feldman that he did not have the technical capability to limit his downloads in that way. The parties disagree about whether Bryan then made an explicit promise that, if Feldman allowed Bryan to download his emails wholesale, Bryan and Crowe Horwath would not examine any emails post-dating September 12, 2012. Regardless, Feldman provided his gmail account information, and Bryan downloaded about 6,500 emails, without regard to their dates.
In the days following the May 28 meeting, several emails passed between Bryan and Feldman. On May 30, 2014, Feldman wrote to Bryan and another Crowe Horwath employee:
As a follow up to my meeting with Tim, I would like to confirm / memorialize that I gave my assent for you to download my emails only with the agreement that you not read any emails past September 12, 2012 as that was my last day working for Yukos Hydrocarbons / YHIL. I asked Tim to not download any emails past that date but he stated that he could not limit the downloads by date.
App‘x at 566. On June 2, 2014, Feldman wrote to Bryan and two other Crowe Horwath employees:
Just following up on my previous email and voicemail. Please confirm that you will limit your search up to September 12, 2012 and will not read emails which include . . . my lawyer. I agreed to let Tim download my emails with those conditions. He said that a time limit could not be done mechanically with the program he used.
App‘x at 2859 (filed under seal). After Bryan emailed Feldman regarding a different topic on June 5, Feldman emailed Bryan and two other Crowe Horwath employees on June 6:
Please respond to my numerous requests to confirm our agreement that you limit your review of my emails to the time period I was a director of [YHIL]. I am nonplussed that you would repeatedly ignore my requests and then send me the below email and not reference or explain your lack of response and boldly ask for my response “ASAP.”
Tim, I appreciate you confirming our agreement to limit your review of my emails, during our phone conversation earlier this week, but I would like it acknowledged by email. This is a threshold issue for me. Otherwise, I feel completely deceived. I took you at your word, which you repeatedly assured me was solid.
App‘x at 572. On June 9, 2014, Bryan responded to Feldman:
Regarding the limitation you are seeking, I want to set the record straight regarding our discussion of the email search process that was to commence subsequent to our collection meeting on May 28. During our meeting you requested that I only collect your email for a timeframe which you represented as being your YHIL employment period. I indicated that I could not limit my collection to a specific timeframe but rather could limit the collection based on a set of search terms, which you agreed to. At no time during our conversation at that meeting did I commit to you that any subsequent review of the email collected would be limited to a specific timeframe. Further, during our brief phone conversation last week, I also did not commit to you that we would limit our review to a specific timeframe.
App‘x at 574. In response, Feldman said:7
There are so many misrepresentations and incorrect facts in your lengthy email. I am so disappointed in you. You got me to trust you during our meeting. I agreed to let you go through my emails with the understanding that you would put in the date restriction when going through the documents as you said you could not do so during the search. I feel suckered. I guess shame on me for falling for your assurances when I do not know you or your character.
Id.
The district court granted the Plaintiffs’ and Third-Party-Defendants’ motion for
Feldman‘s emails are entirely clear. They unequivocally and repeatedly demonstrate that he agreed to Crowe Horwath accessing and downloading his emails without restriction as to date, albeit with the understanding that Bryan would not read any email past September 12, 2012. Thus, there was no violation of the SCA because Crowe Horwath did not access Feldman‘s email without his authority or exceed the authority Feldman gave. While Crowe Horwath, if it read emails post-dating September 12, 2012, may have acted inappropriately or even tortiously, it did not thereby violate the SCA, a sine qua non of such a violation being improper accessing of stored electronic communications, as opposed to reading previously and properly accessed communications in breach of an agreement not to do so.
App‘x at 705. The district court also rested its decision on an alternative ground: Godfrey could not be held liable for Crowe Horwath‘s SCA violation (even if there were one) because Crowe Horwath was not acting as Godfrey‘s agent. Feldman appeals the district court‘s decision.
2. Discovery Sanctions
In December 2017, the Plaintiffs made a motion asking the district court to impose discovery sanctions on Feldman pursuant to both
The district court denied the Plaintiffs’ motion insofar as it sought sanctions pursuant to Rule 37 because a prerequisite of the rule—that the transgressing party must have defied a prior order—was not met. The district court also declined to impose discovery sanctions pursuant to its inherent powers. The Plaintiffs appeal that decision.
The Plaintiffs claimed that Feldman committed perjury regarding the Julius Baer Scheme. At a June 2016 deposition, Feldman denied having ever received any “kickbacks from banks or financial institutions that held Yukos funds” and stated that he did not know whether Dmitri Merinson had received “some form of introductory fee or kickback.” App‘x at 1133–34. At an October 2017 deposition, Feldman testified that he had (1) received two “loans” from Merinson totaling over $1.2 million, and (2) known about—and personally approved—the $2.6 million finder‘s fee that Julius Baer paid to Merinson. The Plaintiffs argued that Feldman‘s October 2017 deposition testimony proved that Feldman had committed perjury in his June 2016 deposition because the $1.2 million that Feldman received from Merinson was a kickback, and—because Feldman personally approved Merinson‘s finder‘s fee agreement with Julius Baer—Feldman
Feldman argued that he testified truthfully because the $1.2 million he received from Merinson was not a kickback but, rather, a loan governed by two promissory notes on which Feldman paid interest. Further, Feldman claimed that he testified that he did not know whether Merinson had received any “introductory fees or kickbacks” because he thought the Plaintiffs’ counsel was inquiring about illicit payments, and the finder‘s fee payment that he approved was not illicit.
The district court denied the Plaintiffs’ request to impose sanctions for Feldman‘s alleged perjury regarding the Julius Baer Scheme. The court noted that it need not decide whether Feldman committed perjury by denying knowledge of the finder‘s fee agreement “because plaintiffs may impeach Feldman on the stand and accomplish the same end without the imposition of sanctions by the Court.” App‘x at 1256. The district court also wrote that “[t]he case for sanctions with respect to the alleged loans Feldman received from Merinson is even weaker” because the “Plaintiffs have not presented evidence that is sufficiently persuasive to the Court that the payments were kickbacks rather than loans.” Id. As a result, the district court remarked, “[t]he nature of the alleged payments is a question for the jury rather than the Court.” Id.
The Plaintiffs also alleged that Feldman committed perjury regarding the Promneftstroy Scheme. Feldman testified at a December 2015 deposition that he did not “promise to give . . . any [] person or entity associated with Promneftstroy information concerning the Yukos [G]roup” and did not know why Promneftstroy had agreed to pay his legal fees in this case. See App‘x at 823–25. After that deposition testimony, Feldman produced two cooperation agreements that he had signed with Promneftstroy. In the cooperation agreements—one executed in July 2015 and the other in November 2015—Promneftstroy agreed to pay Feldman‘s legal expenses in this case, and Feldman “agree[d] to cooperate fully . . . by providing complete and truthful information regarding his role and actions related to” the Yukos Group and its affiliates. App‘x at 883, 889. The Plaintiffs alleged that Feldman‘s explicit obligations under the cooperation agreements—i.e., to provide Promneftstroy with information—prove that he committed perjury in his December 2015 testimony. As a sanction for such conduct, the Plaintiffs asked the district court to cabin Feldman‘s potential testimony regarding his motivation for seeking assistance from Promneftstroy.
Even though the district court found Feldman‘s testimony “troubling,” it rejected the Plaintiffs’ requests for sanctions because it could not “see the point of foreclosing Feldman from testifying as to why he sought assistance from Promneftstroy.” App‘x at 1257. If Feldman had testified falsely, “the jury presumably will understand that and act accordingly at trial.” Id.
Finally, the Plaintiffs believed they should have received documents revealing the existence of the Julius Baer Scheme in response to their written discovery requests made in 2015.8 The Plaintiffs did
3. Trial
a. Feldman‘s Rule 50 Motion
After the close of evidence, Feldman made a motion for judgment as a matter of law on the Plaintiffs’ breach of fiduciary duty claims for which there was no proof of compensatory damages. The Plaintiffs did not offer evidence of compensatory damages for Feldman‘s breach of fiduciary duty in either the Trust Scheme or the Julius Baer Scheme. As noted above, the money Feldman invested under his own name in the Trust Scheme nearly doubled in value and was returned to the Plaintiffs. And the money that the Plaintiffs would have sought to recover from Feldman as compensatory damages in the Julius Baer Scheme had already been paid to them pursuant to a settlement with Julius Baer.
The district court denied Feldman‘s
b. Plaintiffs’ Challenge to the Jury Instructions
New York‘s faithless servant doctrine holds that “[o]ne who owes a duty of fidelity to a principal and who is faithless in the performance of his services is generally disentitled to recover his compensation, whether commissions or salary.” Phansalkar v. Andersen Weinroth & Co., L.P., 344 F.3d 184, 200 (2d Cir. 2003) (quoting Feiger v. Iral Jewelry, Ltd., 41 N.Y.2d 928, 928 (1977)). Pursuant to the faithless servant doctrine, the Plaintiffs sought to require Feldman to disgorge his compensation. The district court‘s jury instructions directed the jury to award the Plaintiffs disgorgement of Feldman‘s compensation only if the jury found that Feldman has been disloyal “in substantial respects.” App‘x at 2773
(“If you do find that Mr. Feldman acted disloyally in substantial respects . . . , then that plaintiff is entitled to recover the compensation that it paid to Mr. Feldman . . . .“). The verdict sheet was consistent with that instruction. See App‘x at 2814–15 (asking jury if “Feldman acted disloyally in substantial respects“).
II. DISCUSSION
A. Summary Judgment
The Second Circuit reviews a district court‘s grant of summary judgment de novo. See Reyes v. Lincoln Auto. Fin. Servs., 861 F.3d 51, 54 (2d Cir. 2017) (citing Gallo v. Prudential Residential Servs., Ltd. P‘ship, 22 F.3d 1219, 1224 (2d Cir. 1994)). The district court granted the Plaintiffs’ and Third-Party-Defendants’ motion for summary judgment on Feldman‘s SCA claim because there had been no SCA violation and, in any event, Godfrey could not be held liable for such a violation as a principal of Crowe Horwath. Feldman appeals that decision. We affirm because there was no SCA violation. Thus, we need not address the district court‘s alternative holding based on agency law.
Under the
Feldman argues that Bryan exceeded the scope of his authorization to access Feldman‘s gmail account when Bryan downloaded emails post-dating September 12, 2012. Feldman points out that some courts have held access to be unauthorized in analogous circumstances. For instance, in Anzaldua v. Northeast Ambulance & Fire Protection District, 793 F.3d 822, 838–39 (8th Cir. 2015), the plaintiff had given his gmail
Feldman also cites several cases—some of which regard a different statute, the
Feldman also argues that, even if Bryan obtained his authority to access emails post-dating September 12, 2012, Bryan obtained that authority by deceit, and that is no authority at all. Feldman explains that Godfrey “claimed that access to Feldman‘s email was necessary to preserve YHIL‘s business records,” but “[t]his was false” because “[i]n reality,” Godfrey had the “secret, unauthorized purpose” of “pilfer[ing] Feldman‘s communications for future use against him.” Appellant‘s Br. at 33–34. Feldman relies primarily on Theofel v. Farey-Jones, in which a defendant subpoenaed emails from the plaintiffs’ internet service provider (“ISP“). 359 F.3d 1066, 1071 (9th Cir. 2004). The plaintiffs’ ISP, unrepresented by counsel at that point, partially complied with the subpoena and offered defendants a sample of the requested messages that included many unrelated, privileged, and personal communications. See id. The Ninth Circuit, though, held that the subpoena was invalid because it was so egregiously broad in its requests. See id. at 1071–75. Thus, the plaintiffs’ ISP‘s “authorization” had been vitiated because “[t]he subpoena‘s falsity transformed the access [to emails] from a bona fide state-sanctioned inspection into private snooping.” Id. at 1073. The Theofel court explained: “Permission to access a stored communication does not constitute valid authorization if it would not defeat a trespass claim in analogous circumstances.
The Plaintiffs counter, first, that the SCA does not prohibit improper uses of electronic communications after they have already been accessed and thus are no longer “in electronic storage in such system.” See, e.g., Thompson v. Ross, 2010 WL 3896533, at *4–6 (W.D. Pa. Sept. 30, 2010) (no violation when defendants accessed plaintiff‘s old email messages on personal laptop‘s hard drive); Hilderman v. Enea TekSci, Inc., 551 F. Supp. 2d 1183, 1204–05 (S.D. Cal. 2008) (similar); Garback v. Lossing, No. 09-cv-12407, 2010 WL 3733971, at *6 (E.D. Mich. Sept. 20, 2010) (no violation when wife‘s lawyer used information obtained by unauthorized computer hacker in divorce proceedings). Similarly,
The Plaintiffs point out that there is essentially no dispute that Feldman authorized Bryan to access all his emails. The only contrary fact—Feldman‘s statement in his declaration that “I told Bryan to limit his search to emails prior to September 13, 2012 and only authorized him to download the emails that were responsive to that search“—was belied entirely by Feldman‘s contemporaneous emails. App‘x at 642. Finally, the Plaintiffs emphasize that no one deceived Feldman into authorizing access to his gmail account. Feldman‘s only evidence for his claim that Godfrey wanted to “pilfer” his emails is Feldman‘s own declaration, in which not a single statement indicates that Crowe Horwath deceived Feldman. Further, the Plaintiffs distinguish Theofel because the authorization there was obtained by a patently unlawful subpoena to the plaintiffs’ ISP, whereas, in this case, Feldman himself granted Crowe Horwath‘s reasonable request to download his emails.
We affirm. The Plaintiffs are correct that Godfrey‘s allegedly improper use of Feldman‘s downloaded emails does not implicate the SCA because, once Feldman‘s emails were downloaded onto Crowe Horwath‘s computers, they were not “in electronic storage” within the meaning of the statute. See Cohen v. Casper Sleep Inc., 2018 WL 3392877, at *5–6 (S.D.N.Y. July 12, 2018) (citing, inter alia, In re DoubleClick Inc. Privacy Litig., 154 F. Supp. 2d 497, 511–13 (S.D.N.Y. 2001)); Garcia v. City of Laredo, 702 F.3d 788, 793 (5th Cir. 2012). “The general purpose of the [SCA] was to create a cause of action against ‘computer hackers (e.g., electronic trespassers).‘” Salton Maxim Housewares, 94 F. Supp. 2d at 820 (quoting State Wide Photocopy Corp. v. Tokai Fin. Servs., Inc., 909 F. Supp. 137, 145 (S.D.N.Y. 1995)). “[T]he sort of trespasses to which the Stored Communications Act applies are those in which the trespasser gains access to information to which he is not entitled to see, not those in which the trespasser uses the information in an unauthorized way.” Educ. Testing Serv. v. Stanley H. Kaplan, Educ. Ctr., Ltd., 965 F. Supp. 731, 740 (D. Md. 1997). “Put another way, the wrongful acts targeted by the Stored Communications Act are those committed while a user is in electronic ‘contact’ with a computer facility, not those committed after the user has signed off.” Id.
To the extent that Feldman claims that the review of his emails after they were downloaded onto Crowe Horwath‘s computers violated the SCA, he is incorrect. Feldman contends neither that his emails were being stored on Crowe Horwath‘s computers “incidental to . . . electronic transmission,” nor that Crowe Horwath is an “electronic communication service” that stored his emails “for purposes of backup protection.”
Accordingly, to the extent Feldman‘s SCA claim is based on the post-download review
The district court also properly rejected Feldman‘s SCA claim because Feldman authorized Bryan to access Feldman‘s full gmail account. The only indication that Feldman did not authorize Bryan to access his full gmail account comes from Feldman‘s declaration.11 We agree with the district court that Feldman‘s statement is belied by other facts, including contemporaneous emails. The parties agree that, on May 28, Bryan downloaded some 6,500 of Feldman‘s emails while Feldman was sitting right next to him. On May 30, Feldman wrote to Bryan, in part: “I would like to confirm / memorialize that I gave my assent for you to download my emails only with the agreement that you not read any emails past September 12, 2012.” App‘x at 566. That email alone—the closest in time to May 28—confirms that Feldman “assent[ed]” to Bryan‘s accessing his gmail account.
Later emails confirm the same. On June 6, Feldman asked that Bryan “[p]lease . . . confirm our agreement that you limit your review of my emails to the time period I was a director of” YHIL and thanked Bryan for, in Feldman‘s view, “confirming our agreement to limit your review of my emails.” App‘x at 572. In response to a reply email from Bryan on June 9, Feldman wrote: “I agreed to let you go through my emails with the understanding that you would put in the date restriction when going through the documents as you said you could not do so during the search.” App‘x at 574. Finally, Feldman‘s own reply brief appears to concede that he authorized Crowe Horwath to download all his emails. See Appellant‘s Reply Br. at 5 (“While Feldman provided access to his email account to Crowe Horwath . . . Feldman did not authorize Godfrey or his agents to review all of his email . . . .“). The record clearly reflects that on May 28, 2014, Bryan downloaded Feldman‘s emails with Feldman‘s authorization without respect to timeframe.
It is equally clear that Crowe Horwath did not obtain Feldman‘s authorization through deceit. There is no evidence of deceit in the record. Feldman argues that Godfrey‘s stated rationale for preserving Feldman‘s emails—“necessary to preserve YHIL‘s business records“—was simply pretext for the “secret, unauthorized purpose” of “pilfer[ing] Feldman‘s communications for future use against him.” Appellant‘s Br. at 33–34. Feldman‘s only support for those statements comes from his declaration, which simply does not—even inferentially—support that speculation. Furthermore, although Bryan and Feldman may have had a genuine misunderstanding about the scope of review that would take place, no facts indicate that Bryan “tricked” or intentionally misled Feldman. A misunderstanding would not rise to the level of deceit. See Theofel, 359 F.3d at 1073 (explaining that only “invited mistakes” that “extend to the essential character of the act itself” can rise to the level of deceit required to vitiate consent) (cleaned up). Indeed, even by Feldman‘s own account, it was only on June 9 that
B. Sanctions
This court reviews a district court‘s imposition of sanctions pursuant to both
Huebner v. Midland Credit Mgmt., Inc., 897 F.3d 42, 53 (2d Cir. 2018) (quoting Mark Mgmt., Inc. v. Koon Chun Hing Kee Soy & Sauce Factory, Ltd., 682 F.3d 170, 175 (2d Cir. 2012)) (cleaned up).
In the district court, the Plaintiffs sought sanctions against Feldman pursuant to both
1. Rule 37
If a party “fails to obey an order to provide or permit discovery,” a district court may sanction the transgressing party in numerous ways of varying severity, up to and including dismissing the action.
2. Inherent Power
A court may sanction a party under its inherent power to deter abuse of the judicial process and prevent a party from perpetrating a fraud on the court. See Knox v. United States, 2016 WL 4033086, at *4 (D. Conn. July 27, 2016); Shangold v. Walt Disney Co., 2006 WL 71672, at *4 (S.D.N.Y. Jan. 12, 2006). “Sanctions for fraud are warranted if it is established by clear and convincing evidence that [a party] has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system‘s ability impartially to adjudicate the action.” N.Y. Credit & Fin. Mgmt. Grp. v. Parson Ctr. Pharmacy, Inc., 432 F. App‘x 25, 25 (2d Cir. 2011) (cleaned up). Thus, clear and convincing evidence of bad faith is a prerequisite to an award of sanctions under the court‘s inherent power.
This court reviews a district court‘s decision not to impose sanctions pursuant to its inherent power for abuse of discretion. Caselaw and the purpose of courts’ inherent power confirm that our review is highly deferential. First, the Plaintiffs cite not a single case in their briefs in which a court of appeals reversed a district court declining to impose sanctions pursuant to its inherent authority. The Plaintiffs also acknowledged at oral argument that they were unable to find such a case. See Oral Arg. at 20:45–21:08. We are also unaware of any such case.13
Second, a court‘s inherent power to sanction bad faith litigation abuse “stems from the very nature of courts and their need to be able to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.” United States v. Int‘l Bhd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir. 1991) (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991)) (cleaned up). “Inherent power sanctions ‘vindicat[e] judicial authority without resort to the more drastic sanctions available for contempt of court.‘” Gregory P. Joseph, Sanctions: The
Federal Law of Litigation Abuse 535 (6th ed. 2020) (quoting Chambers, 501 U.S. at 46). The imposition of sanctions pursuant to a court‘s inherent authority is truly discretionary. See Murray v. City of Columbus, 534 F. App‘x 479, 485 (6th Cir. 2013) (“Because the court‘s inherent power to impose sanctions is discretionary, the court is not required to sanction a party or attorney even if it has determined that some wrongdoing has occurred.“). Finally, the Supreme Court has made clear that courts should impose sanctions pursuant to their inherent authority only in rare circumstances. See Chambers, 501 U.S. at 44 (“Because of their very potency, inherent powers must be exercised with restraint and discretion.“).
In the discovery context, that discretion should be exercised with even more restraint than usual.
The Plaintiffs argue that the district court abused its discretion in declining to impose sanctions pursuant to the court‘s inherent power for Feldman‘s perjury and unlawful withholding of responsive documents. In support, the Plaintiffs re-hash the arguments that they raised in the district court: They point to the same snippets of deposition testimony (described above) and claim that a comparison establishes by clear and convincing evidence that Feldman lied. The Plaintiffs also argue that the district court erred in relying on impeachment and cross-examination as appropriate alternatives to the imposition of sanctions.
Feldman also re-asserts the arguments that he made below. Feldman argues first that his testimony was consistent and honest. With respect to Feldman‘s claimed ignorance of the “finder‘s fee” that Julius Baer paid to Merinson, Feldman explains that he understood the Plaintiffs to be asking only if he knew of such an illicit payment. Feldman testified to the same effect at trial. Seemingly, the jury rejected Feldman‘s explanation because it found that Feldman had breached his fiduciary duty to the Yukos Group in the Julius Baer Scheme. Feldman argues further, with respect to his testimony regarding his obligations to Promneftstroy under the cooperation agreements, that his later deposition testimony and trial testimony—even if seemingly incredible to the Plaintiffs—was consistent with his testimony before producing the cooperation agreements. At trial, the Plaintiffs impeached Feldman on this point, but the jury found that Feldman had not breached his fiduciary duty based on his role in the Promneftstroy Scheme.
Finally, Feldman argues that he did not withhold documents detailing the Julius Baer Scheme, let alone do so in bad faith. First, Feldman points out that it is unsurprising that the Plaintiffs’ written discovery requests did not return documents regarding the Julius Baer Scheme because the requests were extremely broad and did not refer to banking relationships specifically or even inferentially. Second, Feldman highlights that he ran all the search terms that Plaintiffs requested (over four dozen) in addition to his own, and those searches returned no documents regarding Julius Baer.
In none of the above instances did the district court believe that Feldman had perpetrated a fraud on the court. The district court acknowledged that some reasonable jurors might conclude that Feldman had perjured himself, and other reasonable jurors might not. That is precisely how it played out at trial: The jury found that Feldman had breached his fiduciary duty to the Plaintiffs with respect to the Julius Baer Scheme and that he had not done so with respect to the Promneftstroy Scheme. The district court made the acceptable choice to leave “questions of fact” and “credibility determinations” to the jury at trial. See App‘x at 1257; Miesenbock v. Chase Bank USA N.A., 2008 WL 4923182, at *2 (D. Conn. Nov. 14, 2008) (noting the alternative remedies of impeachment by cross-examination and
C. Jury Instructions
This court applies a “plain error” standard when reviewing unpreserved objections to jury instructions in civil
The Plaintiffs claim that the district court erred in instructing the jury that the Plaintiffs were entitled to disgorge Feldman‘s compensation pursuant to the faithless servant doctrine only if Feldman had breached his duty of loyalty to the Plaintiffs “in substantial respects.” Rejecting that position, we affirm: It was not plain error for the district court to instruct the jury as it did because the instruction accurately reflects one of the two prominent branches of New York law articulating the faithless servant doctrine.
When a defendant is found liable under the faithless servant doctrine, a plaintiff is entitled to recover some amount of that defendant‘s compensation. “New York courts have used two different standards to determine whether an employee‘s misbehavior warrants forfeiture,” and the New York Court of Appeals has not resolved which one applies in particular circumstances. See Phansalkar, 344 F.3d at 201–02. The distinction between the two regards whether a servant‘s breach of fiduciary duty must be “substantial.”
The Court of Appeals laid out the first standard in dicta in 1885: “[A] disloyal employee forfeits promised compensation only when the ‘misconduct and unfaithfulness . . . substantially violates the contract of service.‘” Id. (quoting Turner v. Kouwenhoven, 100 N.Y. 115, 120 (1885)). Under the Turner standard, courts have “found disloyalty not to be ‘substantial’ only where the disloyalty consisted of a single act, or where the employer knew of and tolerated the behavior.” Id. at 201–02. The Court of Appeals articulated the second standard in 1886:
An agent is held to uberrima fides in his dealings with his principal, and if he acts adversely to his employer in any part of the transaction, or omits to disclose any interest which would naturally influence his conduct in dealing with the subject of the employment, it amounts to such a fraud upon the principal, as to forfeit any right to compensation for services.
Id. at 202 (quoting Murray v. Beard, 102 N.Y. 505, 508 (1886)). The Murray standard “suggests that misconduct by an employee that rises to the level of a breach of a duty of loyalty or good faith is sufficient to warrant forfeiture.” Id.
In Phansalkar, we noted that “New York courts have not reconciled any differences between” the Turner and Murray standards “or defined the circumstances, if any, in which one standard should apply rather than the other.” Id. In Phansalkar, we also did not choose between them. See
The Plaintiffs argue that it was plain error for the district court to instruct the jury on the Turner standard because the Murray standard is the correct articulation of the faithless servant doctrine in New York. Feldman disagrees and points out that numerous New York courts have relied on the Turner standard in recent years.15 Feldman has the better of the argument. In Phansalkar, we noted that lower New York courts applied both standards and that the circumstances in which each standard applied was an open question. 344 F.3d at 202. Feldman is correct that the question remains open. See, e.g., Johnson v. Summit Acquisitions, LLC, 2019 WL 1427273, at *9 (N.D.N.Y. Mar. 29, 2019) (noting that “New York courts apply two alternative standards to faithless servant claims“). Because the circumstances under which the Turner and Murray standards apply to claims under the faithless servant doctrine remains an unsettled question of law, it was not plain error for the district court to instruct the jury on the Turner standard.
The Plaintiffs’ alternative argument is also unavailing. The Plaintiffs argue that it was error for the district court to instruct the jury on the Turner standard with respect to the Julius Baer Scheme16 because no rational trier of fact could find that Feldman‘s breach of loyalty was not “substantial.” The Plaintiffs note that, under the Turner standard, courts “have found disloyalty not to be ‘substantial’ only where the disloyalty consisted of a single act, or where the employer knew of and tolerated the behavior.” Phansalkar, 344 F.3d at 201–02. According to the Plaintiffs, Feldman‘s disloyalty in the Julius Baer Scheme was not a “single act” because Feldman authorized “two undisclosed kickbacks” to Merinson “over at least a four month period.” Appellee‘s Br. at 24–25.
The Plaintiffs also emphasize that embezzling $2.6 million must constitute “substantial” disloyalty. The Plaintiffs cite Morgan Stanley v. Skowron, 989 F. Supp. 2d 356 (S.D.N.Y. 2013), for support. In Morgan Stanley, the defendant was a portfolio manager at Morgan Stanley who “pled guilty to conspiracy to commit insider trading from at least April 2007 through
Feldman argues that a rational juror could conclude that Feldman‘s breach of fiduciary duty in the Julius Baer Scheme was not “substantial.” In general, Feldman notes that the jury heard ample evidence indicating that Feldman was a good employee and that, in any event, his misconduct in the Julius Baer Scheme was a single incident (approving Merinson‘s finder‘s fee) spanning a period of a few months.
Reasonable minds could disagree about whether the Julius Baer Scheme was a “substantial and material” violation of the duty of loyalty as a matter of law. Our own precedent does not suggest otherwise. In Phansalkar, we held that Phansalkar‘s disloyalty was substantial because it was not “limited to a single, isolated incident, but rather occurred repeatedly, in nearly every transaction on which he worked.” 344 F.3d at 202. We concluded that “where disloyalty occurs in four out [of] five of an employee‘s primary areas of responsibility and continues over many months, it ‘substantially violates’ the terms of an employee‘s service.” Id.; see also Carco Grp., Inc. v. Maconachy, 383 F. App‘x 73, 77 (2d Cir. 2010) (holding that it was not error for the district court to conclude that defendant‘s disloyalty was “substantial” when the defendant had altered “over one hundred weekly reports“).
We have set no bright-line rule and agree with district courts in our circuit that have pointed out that New York courts have not “specifically defined” the “material and substantial” standard under Turner, thus “leaving it to case-by-case determination whether the employee‘s conduct so far infringed on her job performance as to constitute a violation of the doctrine.” Johnson, 2019 WL 1427273, at *10 (quoting Sanders v. Madison Square Garden, L.P., 2007 WL 1933933, at *4 (S.D.N.Y. July 2, 2007)) (cleaned up).
Here, even if Feldman‘s disloyalty in the Julius Baer Scheme seems “substantial” to us, precedent does not clearly dictate that it was substantial as a matter of law. Indeed, factually analogous precedent is scarce. Morgan Stanley, the case on which the Plaintiffs rely, is of limited import here. Most importantly, the defendant in Morgan Stanley had already been convicted of a crime and was sentenced to five years in prison. 989 F. Supp. 2d at 358. In this case, a civil jury found Feldman not liable on most of the schemes that the Plaintiffs alleged. And Morgan Stanley actually cuts against the Plaintiffs’ argument that Feldman‘s involvement in the Julius Baer Scheme was not a “single act.” Indeed, in a criminal proceeding in the Morgan Stanley case, the court characterized multiple insider trades as a single instance of faithlessness. See United States v. Skowron, 839 F. Supp. 2d 740, 745–46 (S.D.N.Y. 2012) (characterizing Skowron‘s conduct as an insider trading “scheme,” consisting of multiple “trades“); Morgan Stanley, 989 F. Supp. 2d at 362 (explaining that “Skowron only admitted to one instance of insider trading“). And, whereas the single act in Morgan Stanley went to “the heart of [the defendant‘s] primary areas of responsibility,” Plaintiffs offered no comparable evidence that the Julius Baer Scheme amounted to “the ultimate abuse of [Feldman‘s] position and privileges.” Morgan Stanley, 989 F. Supp. 2d at 362 (cleaned up). In sum, Feldman‘s involvement in the Julius Baer Scheme was not necessarily “substantial” as a matter of law. Accordingly, we hold that the district court did not commit plain error by delivering the jury instructions that it did.
D. Rule 50 Motion
After the close of evidence, Feldman made a motion for judgment as a matter of law on the Plaintiffs’ breach of fiduciary duty claims, principally arguing that certain Plaintiffs offered no evidence of compensatory damages, which Feldman argued are “an element of breach of fiduciary duty.” App‘x at 2590. As relevant here, the Trust did not seek or prove compensatory damages for Feldman‘s breach of fiduciary duty in the Trust Scheme. Indeed, the money Feldman invested under his own name in the Trust Scheme nearly doubled in value and was returned to the Trust. The four entities in the Yukos Group also did not seek or prove compensatory damages for Feldman‘s breach of fiduciary duty in the Julius Baer Scheme. The compensatory damages that the Yukos Group entities might have sought to recover had already been paid to them pursuant to a settlement with Julius Baer.
The district court denied Feldman‘s Rule 50 motion apparently because it believed that compensatory damages were not a required element of a breach of fiduciary duty claim and that, in any event, nominal damages could substitute in the absence of compensatory damages. The district court also may have viewed “recoupment of compensation” pursuant to the faithless servant doctrine as an acceptable substitute for compensatory damages in a breach of fiduciary duty action. Feldman appeals the district court‘s denial of his Rule 50 motion requesting judgment as a matter of law on the two schemes on which he was ultimately found liable.
Because we believe compensation paid by a principal to a faithless servant can satisfy the “damage” element of a breach of fiduciary duty claim, we affirm the district court‘s decision to deny Feldman‘s Rule 50 motion with respect to those entities that paid Feldman compensation. More specifically, we affirm the district court‘s decision with respect to (1) the Trust in the Trust Scheme and (2) Yukos Capital and YHIL in the Julius Baer Scheme. However, we reverse the district court‘s decision with respect to the Foundations in the Julius Baer Scheme because there is no evidence in the record that they paid Feldman any compensation, and nominal damages cannot satisfy the “damage” element of a breach of fiduciary duty claim under New York law. We thus remand the case for the limited purpose of entering judgment in favor of Feldman on the Foundations’ breach of fiduciary duty claims regarding the Julius Baer Scheme.
This court reviews de novo a district court‘s denial of a Rule 50 motion for judgment as a matter of law. See Townsend v. Benjamin Enters., Inc., 679 F.3d 41, 51 (2d Cir. 2012) (citing Parrot v. Guardian Life Ins. Co. of Am., 338 F.3d 140, 142 (2d Cir. 2003)). “We will reverse the denial of judgment as a matter of law only if, notwithstanding making all credibility assessments and drawing all inferences in favor of the non-moving party, a reasonable juror would be compelled to accept the view of the moving party.” Id. (quoting Medforms, Inc. v. Healthcare Mgmt. Sols., Inc., 290 F.3d 98, 109 (2d Cir. 2002)) (cleaned up). “We may affirm on any ground with support in the record, even if it was not the ground relied on by the District Court.” Palmer v. Occidental Chem. Corp., 356 F.3d 235, 236 (2d Cir. 2004).
“To state a cause of action to recover damages for breach of fiduciary duty, a plaintiff must allege: ‘(1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant‘s misconduct.‘” United States Fire Ins. Co. v. Raia, 942 N.Y.S.2d 543, 545 (2d Dep‘t 2012) (quoting Rut v. Young Adult Inst., Inc., 901 N.Y.S.2d 715, 717 (2d Dep‘t 2010)); see also Johnson v. Nextel Commc‘ns, Inc., 660 F.3d 131, 138 (2d Cir. 2011) (“The elements of a claim for breach of a fiduciary obligation are: (i) the existence of a fiduciary relationship; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom.“) (citing Barrett v. Freifeld, 883 N.Y.S.2d 305, 308 (2d Dep‘t 2009)).
The only issue in this case regards the third element. Even though most New York courts refer to that element as requiring “damages,” as we explain below, in our view that element more precisely requires proof of “damage” (harm or injury), and so we refer to it as the “damage” element of a breach of fiduciary duty claim.
Although the New York Court of Appeals has never addressed the issue squarely, we believe that it would hold as follows: When a principal seeks to recover compensation from an unfaithful servant, the principal need not allege damage other than the compensation it paid the servant to satisfy the “damage” element of a claim for breach of fiduciary duty under New York law. The New York Court of Appeals has explained that a faithless servant “is generally disentitled to recover his compensation,” even if “the principal suffered no provable damage as a result of the breach of fidelity.” Feiger, 41 N.Y.2d at 928–29; see also Diamond v. Oreamuno, 24 N.Y.2d 494, 498 (1969); Lamdin v. Broadway Surface Advert. Corp., 272 N.Y. 133, 138 (1936) (applying the Murray standard and holding that a servant “forfeits his right to compensation for services rendered by him if he proves disloyal“). Indeed, the New York Court of Appeals has said that a plaintiff may assert a claim for breach of fiduciary duty in the absence of any allegation of compensatory damages because
the function of such an action, unlike an ordinary tort or contract case, is not merely to compensate the plaintiff for wrongs committed by the defendant but . . . to prevent them, by removing from agents and trustees all inducement to attempt dealing for their own benefit in matters which they have undertaken for others, or to which their agency or trust relates.
Diamond, 24 N.Y.2d at 498 (quoting Dutton v. Willner, 52 N.Y. 312, 319 (1873)) (cleaned up). We have previously extrapolated from that articulation and explained that “[a]n action for breach of fiduciary duty is a prophylactic rule intended to remove all incentive to breach—not simply to compensate for damages in the event of a
The close relationship and overlap between the breach of fiduciary duty claim and the faithless servant doctrine also indicate that a faithless servant‘s compensation may satisfy the “damage” element of a breach of fiduciary duty claim. It is true that some lower New York courts and some federal courts treat breach of fiduciary duty claims and claims based on the faithless servant doctrine as doctrinally distinct. See, e.g., Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F. Supp. 2d 489, 524–25 (S.D.N.Y. 2011) (“Unlike a traditional breach of fiduciary duty claim, which requires a showing of actual damages, to prove a violation of New York‘s faithless servant doctrine, an employer is not obligated to show that it ‘suffered . . . provable damage as a result of the breach of fidelity by the agent.‘“) (quoting Feiger, 41 N.Y.2d at 929). But many courts do not so distinguish the two claims, and some even note that they are essentially the same. See, e.g., Johnson, 2019 WL 1427273, at *9 (“Breach of duty of loyalty and violation of the faithless servant doctrine are essentially the same claims, except that under the faithless servant doctrine, the employer need not show that the employee caused damages.“); Schanfield v. Sojitz Corp. of Am., 663 F. Supp. 2d 305, 348 (S.D.N.Y. 2009) (noting that “a claim of breach of the duty of loyalty in New York” is “sometimes referred to as the ‘faithless servant doctrine‘“); City of Binghamton v. Whalen, 32 N.Y.S.3d 727, 728 (3d Dep‘t 2016) (explaining that plaintiff had brought an “action sounding in breach of fiduciary duty seeking to recover all compensation paid to defendant . . . [as] damages under the faithless servant doctrine“).
Relatedly, in cases involving both a breach of fiduciary duty claim and the faithless servant doctrine, numerous lower New York courts and federal courts conflate compensation (forfeitable only under the faithless servant doctrine) and “damage” (the third element of a breach of fiduciary duty claim). See, e.g., City of Binghamton, 32 N.Y.S.3d at 728, 730 (explaining that the “amount of damages” for the plaintiff‘s “action sounding in breach of fiduciary duty” was the amount plaintiff “paid defendant . . . in compensation“); Visual Arts Found., Inc. v. Egnasko, 939 N.Y.S.2d 13, 14 (1st Dep‘t 2012) (noting that “damages” on the plaintiff‘s “faithless servant cause of action” were “the amount of compensation” the defendant was paid during the disloyal period); Beach v. Touradji Capital Mgmt., LP, 42 N.Y.S.3d 96, 102 (1st Dep‘t 2016) (explaining that, on a breach of fiduciary duty claim, the principal‘s “damages are not limited to” a particular loss because “under the faithless servant doctrine,” the principal “could seek to recover the compensation it paid to” the servants); Consol. Edison Co. v. Zebler, 975 N.Y.S.2d 708 (Table) (N.Y. Sup. Ct. Aug. 20, 2013) (characterizing agent‘s compensation to be forfeited under faithless servant doctrine as “compensatory damages“).
As the above recounting suggests, New York courts are far from clear regarding the contours of—and interplay between—a claim for breach of fiduciary duty and the faithless servant doctrine. Thus, we encourage the New York Court of Appeals to clarify those boundaries in an appropriate future case. Our review of the caselaw suggests that, when the New York Court of Appeals does clarify those boundaries, it will hold that compensation under the faithless servant doctrine can satisfy the “damage” element of a breach of fiduciary duty claim.
But we must reverse the district court‘s denial of Feldman‘s Rule 50 motion with respect to the Foundations in the Julius Baer Scheme because there is no evidence that the Foundations—for whom Feldman worked as a corporate secretary—ever compensated Feldman. Indeed, the Foundations did not seek to recoup any money that they had paid to Feldman. Because the Foundations did not pay Feldman compensation, and because no evidence in the record suggests that they suffered “damage” from Feldman‘s disloyalty, we reverse the district court‘s denial of Feldman‘s Rule 50 motion with respect to the Foundations in the Julius Baer Scheme.
The Plaintiffs argue that, because nominal damages can satisfy the “damage” element of a breach of fiduciary duty claim under New York law, the district court‘s denial of Feldman‘s Rule 50 motion with respect to the Foundations was proper. But the Plaintiffs are incorrect: Nominal damages cannot satisfy the “damage” element of a breach of fiduciary duty claim.
Two cases from the New York Court of Appeals establish that rule. In Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d 137 (2017), the New York Court of Appeals affirmed the dismissal of the plaintiff‘s fraudulent inducement claim. Id. at 144. To prove the tort of fraudulent inducement, a plaintiff must show “injury,” or “actual harm.” See id. at 142, 144 (citing Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 (1996); Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)). In Connaughton, the plaintiff‘s harm consisted of lost future opportunities and potential future expenses, which are too speculative to amount to “actual harm” under New York law. Id. at 143. Nor could the plaintiff rely on nominal damages to establish his claim for fraudulent inducement: The Connaughton Court explained that the plaintiff was not “entitled to nominal damages” because “[n]ominal damages are not available when actual harm is an element of the tort.” Id. Thus, the plaintiff had “failed to plead a cause of action for fraudulent inducement.” Id. at 144. In our view—although, as discussed below, the language is imprecise—Connaughton stands for the proposition that nominal damages cannot satisfy the “damage” element of a tort that requires actual harm.
In Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90 (1993), the New York Court of Appeals considered whether the plaintiff‘s claim for tortious inducement of breach of contract was time-barred. Id. at 92. The answer depended on when the tort accrued. Because “damage is an essential element of” tortious inducement of breach of contract, the question was when the plaintiff suffered “damage,” or “injury.” Id. at 94–96. The defendant argued that “all the elements of the tort claim were present” at the time of the contractual breach, which occurred years before any “allegation of damage,” because, in relevant part, “the law always infers at least nominal damages at a contractual
Because nominal damages cannot satisfy the “damage” element of a breach of fiduciary duty claim, the Foundations cannot rely on the potential availability of nominal damages to establish a claim for breach of fiduciary duty. Thus, it was error for the district court to deny Feldman‘s Rule 50 motion with respect to the Foundations in the Julius Baer Scheme.
Even though nominal damages cannot satisfy the “damage” element of a breach of fiduciary duty claim under New York law, nominal damages can be available as a remedy, in limited circumstances, to plaintiffs who have already established a claim for breach of fiduciary duty but who cannot recover compensable damages. Thus, it was proper for the district court to award nominal damages to the Trust, Yukos Capital, and YHIL. In general, a court may award a plaintiff nominal damages when “a cause of action for a tort exists but no harm has been caused by the tort or the amount of harm is not significant or is not so established that compensatory damages can be given.” Restatement (Second) of Torts § 907 cmt. a (Am. Law Inst. 1979); see also 22 Am. Jur. 2d Damages § 8 (explaining that the term “nominal damages” describes “two types of awards: (1) those damages recoverable where a legal right is to be vindicated against an invasion that has produced no actual, present loss of any kind; and (2) the very different allowance made when actual loss or injury is shown, but the plaintiff fails to prove the amount of damages“). It is the second type of nominal damages award—where a cause of action exists but compensatory damages cannot be proved—that is at issue in this case.
New York courts have awarded nominal damages to plaintiffs who proved a breach of fiduciary duty claim but who could not recover compensatory damages. For instance, in Brian E. Weiss, D.D.S., P.C. v. Miller, the court affirmed a nominal damages award to a plaintiff who proved a breach of fiduciary duty claim but whose “proof of damages” made the calculation of damages “too speculative.” 564 N.Y.S.2d 110, 111 (1st Dep‘t 1990). Indeed, this court has explained that a nominal damages award would be available to a plaintiff who had proved a breach of fiduciary duty
Other principles of New York law also indicate that nominal damages must be available in the circumstances presented in this case, particularly to Yukos Capital and YHIL. As already mentioned, had Julius Baer not settled with the Yukos Group for the full amount of their out-of-pocket loss, Yukos Capital and YHIL would have sought to recover that loss from Feldman as compensatory damages for Feldman‘s breach of fiduciary duty in the Julius Baer Scheme. In New York, a plaintiff may recover nominal damages from a joint tortfeasor even if another joint tortfeasor has already settled with the plaintiff for the full amount of the plaintiff‘s harm. See Butler v. Lutheran Med. Ctr., 319 N.Y.S.2d 291, 293 (2d Dep‘t 1971);
The related principle of avoiding double recoveries also indicates that an award of nominal damages must have been available to Yukos Capital and YHIL. Under New York law, to avoid double recoveries on tort claims, a plaintiff‘s recovery against a successive, non-settling tortfeasor “will be reduced by the amount of the settlement or the equitable share of the released tortfeasor‘s liability for damages.”
To sum up: The district court did not err in awarding nominal damages to the Trust, Yukos Capital, and YHIL. Each of those plaintiffs established a claim for breach of fiduciary duty, and none of those plaintiffs could recover compensatory damages as an award.18
The parties’ briefing reveals some confusion regarding the role of nominal damages in tort cases in New York. That confusion is understandable because in this area court decisions have sometimes lacked precision. More specifically, courts sometimes conflate the concept of “damage” (harm suffered) and “damages” (compensation for harm suffered).19 But those
because it is the fact of harm or damage to the plaintiff which completes the tort and creates the legal right to damages“) (emphases added); Amato v. City of Saratoga Springs, 170 F.3d 311, 318 (2d Cir. 1999) (explaining that, because “[t]he central goal of tort law is . . . to compensate persons for the injuries caused by the breach of certain commonly recognized duties,” for “the vast majority of torts, injury is . . . a substantive element of the cause of action, and the amount of damages awardable is decided by the amount of injury caused“).
It is nevertheless understandable that courts often conflate the concepts of “damage” and “damages” in tort actions because, in most cases, the two concepts overlap entirely. That is, the easiest way for a plaintiff to prove that she suffered “damage” will often be to show that she incurred compensable damages. Indeed, if a plaintiff shows that she suffered an out-of-pocket loss, she has proved both that she suffered “damage” and “damages.”
Even if the concepts fully overlap in most cases, they are analytically distinct, and that distinction becomes important in a case like this one. As discussed above, nominal damages cannot satisfy the “damage” element of a tort that requires actual harm, but when the “damage” element is otherwise established and the plaintiff is not entitled to compensable damages—as in this case—nominal damages are available.
III. CONCLUSION
For the foregoing reasons, the judgment of the district court is AFFIRMED in large part and REVERSED in part. The case is remanded to the district court for entry of judgment in favor of Feldman on the Foundations’ claims of breach of fiduciary duty regarding the Julius Baer Scheme.