Source: http://www.sgalaw.com/news-and-views/2014/1/29/the-equitable-accounting-remedy.html
Timestamp: 2019-04-20 22:16:34+00:00

Document:
The right to an accounting has its basis both in common law and in statute.
“The body of law on equitable accountings is conflicting and muddled.” - Evans v. Perl, 2009 N.Y. Slip. Op. 31413, 2009 WL 1905169 (N.Y. Sup. Ct. June 23, 2009).
What is the “accounting” remedy?
Under New York law, as well as equity practice in most other common law jurisdictions, an action for an accounting is a two-step process. The first step is to establish the right to an accounting. See Wood v. Cross Properties, Inc., 5 A.D.2d 853 (2d Dep't 1958). This requires the plaintiff initially to establish that he and the defendant had a fiduciary or trust-based relationship concerning the general subject matter of the controversy. See Village of Hoosick Falls v. Allard, 249 A.D.2d 876, 879 (3d Dep't 1998). . . .
Once a plaintiff establishes that he has a right to an accounting, the second step is for the Court to "true-up" the partners' individual accounts to make sure that each has been allocated his fair share of partnership distributions, "fair share" referring to the allocation agreed between the partners or required by law. . . . In connection with this second step, the Court can also consider whether an asset which one partner contends is not within the scope of the partnership should in fact be included in the adjustment of the partners' individual accounts. . . .
There is surprisingly little New York authority on how a court is to determine what property is within or without a partnership.
When is a party entitled to an accounting?
"The right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest."
See, also, Ctr. For Rehabilitation and Nursing at Richwood, LLC v. S & L Birchwood LLC, 92 AD3d 711, 713 (2d Dep’t 2012); Scirica v. Colantonio, 2013 NY Slip Op 32098(U), 2013 WL 4767374 (N.Y. Sup. Ct. Aug. 29, 2013).
"An allegation of wrongdoing is not an indispensable element of a demand for an accounting where the complaint indicates a fiduciary relationship between the parties or some other special circumstance warranting equitable relief' (citing Morgulas v Yudell Realty, 161 A.D.2d 211, 213-214 (1st Dep’t 1990)).
Under normal circumstances, where there is no obvious fiduciary relationship, accounting should not be granted. (citing Elghanian v. Elghanian, 277 A.D.2d 162, 162 (1st Dep't 2000)). However, the right to an accounting may also lie: (i) in the case of a joint venture agreement, in a situation in which the seller is to participate in losses as well as profits; or (ii) where special circumstances are present warranting equitable relief in the interest of justice. (citing Grossman v Laurence Handprints-N.J., 90 A.D.2d 95, 104 (2d Dep’t 1982); see also Kaminsky v. Kahn, 23 A.D.2d 231, 237 (1st Dep't 1965) (an accounting may be ordered by the court based upon the "true character and over-all effect of the transaction between the parties, and in light of the nature, quality and effect of the defendant's wrongful acts in derogation of the plaintiff's rights.")).
Noryb Ventures, Inc. v. Mankovsky, 2014 NY Slip. Op. 30087, 2014 WL 176814 (N.Y. Sup. Ct., Jan. 16, 2014).
Must a party seeking an accounting make a prior demand for one before seeking judicial relief?
The IAS court dismissed plaintiff's fourth cause of action for an accounting due to their failure to demand one prior to commencing the action. The court correctly noted that a court of equity will not intervene to vindicate a partner's right to an accounting in the absence of a showing that a demand for one was made and rejected by the partner in possession of the books, records, profits or other assets of the partnership (citing McMahan & Co. v. Bass, 250 A.D.2d 460, 463, lv. denied 92 N.Y.2d 1013 (1998)).
Giving plaintiffs' allegations their most favorable intendment (citing Arrington v. New York Times Co., 55 N.Y.2d 433, 442, cert. denied 459 U.S. 1146 (1982)), plaintiffs' informal demands upon Cohen to explain what he got out of the deal from which plaintiffs were excluded was sufficient to state a cause of action for an accounting (citing Conroy v. Cadillac Fairview Shopping Ctr. Properties, Inc., 143 A.D.2d 726, 726–27, (1988) (complaint sufficiently pleaded a prior demand for and refusal of an accounting by alleging a demand for and refusal of “true and full information” about the financial affairs of the partnership); see also Non–Linear Trading Co., Inc. v. Braddis Assocs., 243 A.D.2d 107, 119 (1998) (record sufficiently reflects defendant's failure to provide complete information regarding disposition of partnership funds so as to support cause of action for an accounting)).
Must a party demonstrate that it has no adequate remedy at law to be entitled to an equitable accounting?
Unitel Telecard Distribution Corp. v. Nunez, 90 A.D.3d 568, 569 (1st Dep’t 2011).
Evans v. Perl, 2009 N.Y. Slip. Op. 31413, 2009 WL 1905169 (N.Y. Sup. Ct. June 23, 2009).

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