The Albany County Commercial Division has finally taken a years-long, intra-family dispute over the sale of several upstate Dunkin’ Donuts coffee shops off the boil.  On February 9, 2023, Justice Richard Platkin granted defendant Ray E. Aley’s (“Aley”) motion for summary judgment to dismiss a complaint brought by two companies controlled by his father-in-law, David White (“White”), in White Mgt. Corp., et al., v. Aley.[1]  White’s complaint alleged that Aley, who was previously an employee and director of two of White’s companies, breached his fiduciary duty to those companies by transmitting their financial information to a third party.  Despite these allegations, however, after extensive discovery, Justice Platkin held that the plaintiffs failed to marshal any evidence Aley transmitted the information with the intention to harm the plaintiff companies or usurp a corporate opportunity, or that the transmissions caused any damages to the companies. 

Background

David White is the controlling shareholder/member of a network of food service companies, among them M & W Foods, Inc. (“M & W”), and Plattsburgh Taco Inc. (“Plattsburgh Taco”) (collectively, “White Companies”).[2]  Together, the White Companies own and operate approximately thirty restaurants in upstate New York.[3]  All White Companies share a computer system known as the “White Network,” which stores each company’s financial information, including payroll, accounting, and employee information.[4] 

David White runs the White Companies as a family business, appointing family members to key positions and ensuring that the White family maintains primary membership and share interests in all White Companies.[5]  Consistent with this practice, White asked Aley—White’s son-in-law and husband to White’s daughter, Cheryl—to manage the restaurants owned and operated by M & W in or around 2000, after White’s brother-in-law was terminated from the position.[6]  Aley agreed, and became Vice President of Operations at M & W and a minority shareholder.[7]  In addition, Aley became an employee, director, and minority shareholder in Plattsburgh Taco.[8]

In 2005, Aley and his wife, Cheryl, established Aley Restaurant Management, LLC (“ARM”). ARM owned and operated seven Dunkin’ Donuts restaurants and one KFC.[9]  Although ARM was not a member of the White Companies, ARM stored financial information for its restaurants on the White Network.[10]

In 2017, Aley began looking to downsize his role in both M & W and ARM.  To that end, White and Aley began looking to sell the assets associated with the eleven Dunkin’ Donuts owned by M & W and the seven Dunkin’ Donuts owned by ARM (collectively, the “Dunkin’ Network”).[11]  The only potential buyer for the Dunkin’ Network was Ever Santana, another restauranteur with whom White, Aley and Santana engaged in negotiations for the purchase of the Dunkin’ Network between May 2018 and April 2019.[12]   The White Companies and ARM frequently shared financial information pertaining to the eighteen Dunkin’ Network restaurants with Santana during the course of these negotiations, subject to a confidentiality and nondisclosure agreement between the parties.[13]

In February 2019, Santana offered to purchase the Dunkin’ Network for $17 million.[14]  Unsatisfied with the offer, White exercised an irrevocable proxy over his daughter Cheryl’s shares of M & W, providing White with control over sufficient M & W shares to quash the deal with Santana.[15] 

Instead, White informed Ray and Cheryl Aley that White would purchase their interest in M & W for the same net price that the Aleys would have received from Santana.[16]  Over the spring and summer of 2019, White and the Aleys engaged in negotiations over a transaction to extricate the Aleys and ARM from the White Companies.[17]   

Fearful that a deal with White would not materialize, Aley reconnected with Santana to ask if Santana would consider purchasing only the seven Dunkin’ Donuts owned and operated by ARM.[18]  In the course of these renewed ARM–Santana negotiations, Aley sent Santana a series of emails containing financial information for ARM’s Dunkin’ Donuts restaurants, which Aley exported from the White Network.[19]  Aley’s emails, however, also contained financial information for restaurants owned and operated by M & W and Plattsburgh Taco.[20] 

Eventually, White and the Aley’s reconciled—at least long enough to execute the transfer of the Dunkin’ Network from the Aleys to White.  In September of 2019, White and the Aleys consummated an agreement whereby ARM’s seven Dunkin’ Donut restaurants were transferred to M & W, and White purchased all of the Aley’s shares in M & W.[21]

But in June 2020, the long-simmering familial tension between White and the Aleys, apparently cooled by the balm of agreement, returned to a roaring boil.  White, along with the White Companies, brought the present suit against Aley, alleging that Aley’s transmission of M & W’s and Plattsburgh Taco’s financial information to Santana was actionable as a breach of Aley’s fiduciary duty and under the faithless servant doctrine, and that plaintiffs were entitled to an equitable accounting.[22]  White’s suit sought $2 million in compensatory damages and $3 million in punitive damages from Aley.[23]

Discussion

Justice Platkin’s first order of business was narrowing the aperture of the case by dismissing the majority of the plaintiffs from the action.  Although White had originally named himself and all of the White Companies as co-plaintiffs, Justice Platkin found that M & W and Plattsburgh Taco were the only named entities to whom Aley owed a fiduciary duty, and were therefore the only proper plaintiffs to the case.[24]

Breach of Fiduciary Duty – Fiduciary Misconduct

Next, Justice Platkin considered whether Aley’s transmission of M & W’s and Plattsburgh Taco’s financial information to Santana constituted a breach of Aley’s fiduciary duty to those entities.  Under New York law, a claim for breach of fiduciary duty “requires the existence of a fiduciary relationship, misconduct by the defendant[] and damages directly caused by the misconduct.”[25]  Justice Platkin first weighed Aley’s argument that, while Aley concededly owed a fiduciary duty to M & W and Plattsburgh Taco, there was no evidence that Aley’s transmission of M & W’s and Plattsburgh Taco’s financial information constituted misconduct. 

After consideration of the evidence produced in discovery, Justice Platkin agreed with Aley that the transmission did not constitute fiduciary misconduct.[26]  Justice Platkin found that the proof adduced by Aley showed, prima facie, that Aley’s transmission of M & W’s and Plattsburgh Taco’s financial information occurred entirely within the context of Aley’s legitimate efforts to reach a deal with Santana over the sale of ARM’s seven Dunkin’ Donut restaurants, and that the discussions between Aley and Santana did not pertain to any restaurants owned by M & W or Plattsburgh Taco.[27]  Justice Platkin further found that the potential sale of ARM’s Dunkin’ Donuts restaurants was not a corporate opportunity for either M & W or Plattsburgh Taco, nor were Aley’s actions in conflict with the duties he owed to either entity.[28]  Justice Platkin also agreed with Aley that the transmission of M & W’s and Plattsburgh Taco’s financial information was inadvertent, and was a product of ARM storing its financial information on the White Network along with the White Companies, together with a failure by Aley to properly redact the exported information before sending it to Santana.[29]

In the face of the evidence produced by Aley, Justice Platkin rejected White’s assertions that Aley willfully sent M & W’s and Plattsburgh Taco’s financial information to Santana on account of the intrafamilial tension between White and Aley as lacking evidentiary support.[30]  Highlighting that, after two years of discovery, White’s proof of Aley’s ulterior motives amount to “nothing more than speculation,” Justice Platkin held that White’s claims of breach of fiduciary must be dismissed for failure to demonstrate evidence of Aley’s fiduciary misconduct.[31]  Justice Platkin did recognize that “caution is warranted in granting summary judgment where state of mind is at issue,” but emphasized that the implausibility of—and total lack of evidentiary support for—White’s assertions of Aley’s willfulness and malevolence made the decision appropriate.[32]

Breach of Fiduciary Duty – Injury or Loss

Justice Platkin also found, separately, that no breach of fiduciary duty occurred because Aley’s transmission has not caused the plaintiff entities any loss or damages.[33]  Justice Platkin began by observing, “first and foremost,” that the disclosure did not prevent the transfer of the Aley’s interests in the Dunkin’ Network to White in September 2019.[34]  Justice Platkin further observed that Santana did not use or benefit from Aley’s transmission of M & W’s or Plattsburgh Taco’s financial information, highlighting that Santana did not even recall receiving any information from Aley about M & W and Plattsburgh Taco during their negotiations about ARM’s Dunkin’ Donuts.[35]   Justice Platkin then turned to the paucity of White’s articulation of the basis for their damages, pointing to White’s own admission that “there are no numbers” to demonstrate a $2 million financial loss arising from Aley’s transmission commensurate with White’s demand for damages.[36]  Justice Platkin also rejected out of hand White’s claims that they could recover damages for Aley’s “improper use” of the White Network to transmit M & W’s and Plattsburgh Taco’s financial information to Santana, finding that such claims were inapplicable when White had granted Aley broad access to use the White Network.[37]

Other Claims

Justice Platkin next considered whether Aley’s conduct was actionable under the faithless servant doctrine.  Under New York law, “one who owes a duty of fidelity to a principal and who is faithless in the performance of his or her services is generally disentitled to recover his or her compensation, whether commissions or salary.”[38]  Justice Platkin concluded that this claim was “equally unavailing” as the claim of breach of fiduciary duty for the same reasons articulated above: years of discovery had produced no evidence that Aley breached any fiduciary obligations to either M & W or Plattsburgh Taco so as to warrant a forfeiture of Aley’s compensation.[39]

Finally, Justice Platkin disposed of the plaintiffs’ final claim for an equitable accounting—an equitable remedy “designed to require a person in possession of financial records to produce them, demonstrate how money was expended and return pilfered funds in his or her possession.”[40]  In granting dismissal of this claim, Justice Pitkin observed that “[p]laintiffs have neither alleged nor proven that they entrusted money to defendant under circumstances giving rise to a duty to account.”[41]

Conclusion

The Commercial Division’s ruling may have finally put White and the Aleys’ dispute over the Dunkin’ Network’s coffee shops over ice, but the case should not be read as reducing the threshold for dismissing claims for a breach of fiduciary duty claim.  Rather, this ruling demonstrates that while courts remain loathe to dismiss claims based on issues related to state of mind, plaintiffs still must adduce some evidence of ulterior motives in order to survive summary judgment for claims related to intentional wrongdoing.  As Justice Platkin repeatedly noted, the ruling is the culmination of two years of discovery which yielded no evidentiary support for any of White’s claims, but rather exposed that they rested only on “speculation and surmise.”[42]