In a recent Commercial Division decision, Pozner v Fox Broadcasting Company, (2018 NY Slip Op 28102 [Sup Ct, NY County Apr. 2, 2018]), Justice Saliann Scarpulla declined to extend the application of the faithless servant doctrine to a circumstance where no New York court has applied it before.
Cliff Pozner (“Pozner”), a former Executive Vice President at Fox Broadcasting Company (“Fox”), was terminated from his employment based on sexual harassment complaints from several current and former Fox employees. He then commenced an action against Fox for allegedly breaching his employment agreement and discriminating against him on the basis of his religion. In response, Fox asserted two counterclaims against Pozner: breach of contract based on Pozner’s alleged failure to abide by the company’s policies regarding sexual harassment, and breach of fiduciary duty, which, according to Fox, included the duty to refrain from conduct inconsistent with Fox’s policies regarding a harassment-free workplace.
Pozner moved to dismiss the counterclaims. With respect to Fox’s breach of fiduciary duty claim, Pozner argued that he did not violate any duty owed to Fox under the faithless servant doctrine or as a breach of fiduciary duty, since he did not unfairly compete, divert business opportunities, or accept improper kickbacks.
Justice Scarpulla sustained Fox’s first counterclaim for breach of contract, but held that Fox’s breach of fiduciary duty counterclaim was “not tenable.” As the Court explained, although Pozner, as a Fox executive and employee, owed a duty of loyalty to Fox, that duty “has only been extended to cases where the employee ‘act[s] directly against the employer’s interests – as in embezzlement, improperly competing with the current employer, or usurping business opportunities.’” Accordingly, the Court held that sexual harassment by an executive, without more, cannot form the basis of a breach of fiduciary duty claim resulting in the employer’s recovery of the employee’s salary under the faithless servant doctrine.
In reaching its conclusion, the Court noted the lack of New York case law on point and easily distinguished the cases relied upon by Fox. For example, in Astra USA, Inc. v Bildman, (455 Mass 116 ), which the Court acknowledged was not controlling, the Massachusetts court found that the CEO and President of plaintiff’s company had, in addition to engaging in sexual harassment, committed acts directly against the company’s interest, including stealing company funds, financial records and other documents, destroying company property, and erasing data from computers (id. at 123-124, & n 13).
Similarly, in Colliton v Cravath, Swaine & Moore, LLP (2008 WL 4386764, 2008 US Dist LEXIS 74388 [SD NY Sept. 24, 2008]), the Court found the plaintiff’s admitted criminal activity (which resulted in a plea allocution) constituted a violation of his ethical duties under the New York Rules of Professional Responsibility. Given these ethical violations, the plaintiff in Colliton was not ethically permitted to work as an attorney and thus, “his employment was the product of fraudulent concealment” (id. at *15).
Recognizing Fox’s failure to plead allegations of fraud, financial waste, or embezzlement, Justice Scarpulla declined to extend the faithless servant doctrine to cover instances where the only wrongdoing alleged is sexual harassment. While it is possible that Fox’s counsel was looking to extend the law in light of recent news events, Justice Scarpulla was not so inclined.