Ian Pai was an early participant in the Blue Man Group (“BMG”). Between 1989 and 1991, he met and began collaborating with the founders of BMG, namely, Chris Wink, Phillip Stanton and Matt Goldman. Pai claims to have made significant contributions to BMG’s creative and musical aspects over the decades-long relationship he had with the group, having ultimately assumed the duties of Music Director and Conductor. In 2014, Pai’s royalty checks were abruptly cut in half without explanation. Ultimately, Pai filed a complaint against BMG and its founders, claiming breach of fiduciary duty, breach of contract, accounting, quantum meruit and unjust enrichment. Following discovery, defendants moved for summary judgment on all counts. Justice Barry Ostrager denied the motion in part, but granted summary judgment dismissing the two counts premised upon the existence of a fiduciary duty: breach of fiduciary duty and accounting. The remaining claims survived the motion, and trial is now scheduled for April 9, 2018.
Pai concedes that his fiduciary duty and accounting claims are not based upon a “formal” fiduciary relationship, but rather on his decades-old personal relationship with the three founders, and the founders’ alleged representations that they would “take care” of him. In sum, his fiduciary duty claims were based solely upon the close relationship they developed over the years. The defendants denied a fiduciary relationship ever existed, but did admit they had a long close-knit relationship with Pai.
So, can a mere close personal relationship create a fiduciary duty? Maybe! Indeed, as the Court recognized, citing Kohan v. Nehmadi, a fiduciary relationship can be found to exist between close friends under certain circumstances. Here, the Court considered that “Pai’s age, lack of financial experience, and trust in the Individual Defendants to look out for him” may very well have given rise to a fiduciary relationship. However, fatal to Pai’s claims was applicable six-year statute of limitations which barred any claims he may have had in the 1990s. The Court reasoned that since 2009, Pai has been represented by counsel, negotiating agreements between Pai and BMG, all at arms-length. The result is that the contract-based claims survive for trial, but the fiduciary relationship-based do not.
The concept of a close personal relationship giving rise to fiduciary duty is not new. Whether a fiduciary relationship exists is, of course, a very fact-intensive inquiry. The Court in the Pai case recognized this and, in the end, did not have to decide whether the early relationship in fact gave rise to a fiduciary one since it was time barred. A good overview of this very issue — how New York courts determine the existence of a fiduciary duty — is found in an EDNY case, St. John’s Univ. v. Bolton (Garaufis, J., 2010) (“a fiduciary relationship embraces not only those the law has long adopted . . . but also more informal relationships where it can be readily seen that one party reasonably trusted another”). The starting point (and maybe the ending one too) is whether there is an agreement between the parties governing their rights and obligations. In the absence of such, a close personal relationship intertwined with a business one can very well create at least issues of fact whether a fiduciary relationship exists between them.