Co-owner of Real Estate Business Faces Liability of up to $16 Million for Self-Dealing at the Expense of the Business’ Other Owner

By Lewis Tesser, Partner, and Timothy Nolen, Associate, of Tesser, Ryan & Rochman, LLP

A recent Nassau County Supreme Court case demonstrates how corporate officers could face substantial liability in cases of self-dealing. The case, involving a shareholder dispute, involves issues of partnership law, business law, and real estate law.

The case, Gitlin v. Chirinkin, NYLJ 1202500464786 (Sup. Ct. Nassau County, June 29, 2011), involved two owners of a business, the plaintiff and one defendant, which held real property in Nevada and New York. The defendant business owner transferred the properties in part to another company he owned and in part to a third party without compensating the company that the plaintiff owned with the defendant. The defendant co-owner and the third party then sold the properties. The two properties eventually sold for $1.6 million and $15.8 million, even though they had been purchased by the plaintiff and the defendant business partner for approximately $1.1 million and $522,900. Justice Bucaria granted the plaintiff’s motion for summary judgment against the defendant business partner, noting that the transfer of the title to these properties—without the plaintiff’s consent and without compensation—proved the plaintiff’s claims for breach of fiduciary duty, breach of contract, unjust enrichment and fraud against the co-owner. Justice Bucaria, however, determined that issues of fact remained regarding the amount of profit and whether the third-party buyer had been unjustly enriched by the transaction.

Although it is unclear how much, if anything, the plaintiff may recover from his business partner or the third-party buyer, Gitlin should provide caution to business owners who engage in self-dealing at the expense of co-owners.