Opinion ID: 1226463
Heading Depth: 3
Heading Rank: 2

Heading: Participation in Kaufman's Breach of Fiduciary Duty to the Tribe

Text: The Catskill Group further contends that Park Place used wrongful means insofar as it knowingly participated in a breach of fiduciary duty owed to the Tribe by Kaufman as the principal of the manager of the Tribe's Akwesasne casino. More specifically, the Catskill Group contends that Kaufman improperly used his position at Akwesasne to slow that casino's payroll, in an attempt to put a financial squeeze on the Tribe, with the ultimate aim of inducing the Tribe to look to Park Place for a financial bailout. The Catskill Group contends that Kaufman was motivated by the significant fee allegedly promised to him by Park Place in the event that Park Place took over the management contract at Akwesasne and/or entered into a contract with the Tribe for a new casino in the Catskills. In Hannex Corp., we recognized that the commission of the tort of knowing participation in a breach of fiduciary duty supports a finding of wrongful means. 140 F.3d at 206. The elements of that tort are: (1) a breach by a fiduciary of obligations to another; (2) the defendant's knowing inducement of or participation in the breach; and (3) damages suffered by the plaintiff from the breach. Id. at 203. With respect to the second element, [o]ne participates in a fiduciary's breach if he or she affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables it to proceed. Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 284 (2d Cir.1992), overruled on other grounds by Gerosa v. Savasta & Co., 329 F.3d 317, 319 (2d Cir.2003). As factual support for its claim that Park Place knowingly participated in Kaufman's alleged breach of duty to the Tribe, the Catskill Group relies almost exclusively on an excerpt from a taped conversation on February 16, 2000 between Kaufman and Cummis: KAUFMAN: . . . But you got to remember the pressure on them with how we're squeezing them in Akwesasne is huge. I mean theyyou know, I have kind of delayed their payrolls and CUMMIS: Yeah. KAUFMAN:slowed it down so badly that, you know, they're looking at Arthur as the savior [i.e., Arthur Goldberg, Park Place's then-CEO]. CUMMIS: Yep, they are. KAUFMAN: And it is great. I mean I never would have thought that you would have gotten where you have gotten, but I guess Arthur is a genius. CUMMIS: He's pretty good. I'm not bad. He's pretty good. KAUFMAN: You must be a hell of a team. CUMMIS: Yeah. KAUFMAN: I mean I have been around a little bit, but not as much as you guys. But to take a situation like thisremember we started with our letter of intent and they said never would they give an exclusive. CUMMIS: Yeah. KAUFMAN: But you guys can maneuver. I'm impressed. CUMMIS: They've given it to us now. Now, we had better get together about the financial situation.    The Catskill Group contends that reasonable jurors could infer from this conversation that Park Place: (1) devised the alleged scheme to financially squeeze the Tribe; (2) provided advice or encouragement to act; (3) provided financial comfort to Kaufman by offering him money in the event that Park Place took over the management of Akwesasne; and (4) ratified Kaufman's breach by entering into agreements with the Tribe notwithstanding Park Place's knowledge of Kaufman's breach. The first two contentions warrant little discussion. The tape at most suggests that Park Place knew about Kaufman's plan to financially squeeze the Tribe through payroll slowdown. There is no evidence, however, that Park Place devised the scheme. Moreover, given that the conversation in the tape occurred after the payroll slowdowns, the tape itself cannot be used to demonstrate that Park Place provided advice or encouragement to act. The Catskill Group's remaining contentions warrant closer scrutiny, however. With respect to their financial support theory, the Catskill Group principally relies on S & K Sales Co. v. Nike, Inc. 816 F.2d 843 (2d Cir.1987), in which we held that the defendant had participated in the breach of a third-party's fiduciary duty to his employer, the plaintiff. Id. at 850. Although it is fair to assume from the facts of that case that the third-party took comfort in breaching his duty to plaintiff in light of defendants' offer of employment to the third-party, it was not on that basis and certainly not on that basis alonethat we found the defendant to have knowingly participated in the breach of fiduciary duty. Rather, unlike in this case, the evidence in S & K Sales Co. was that the defendant directly and concretely participated in the breach of duty by, inter alia, (1) sending misleading letters to the plaintiff on the basis of the third-party fiduciary's request, and (2) authorizing the third-party fiduciary to solicit the plaintiff's employees to work for defendant. Id. Thus, even if Park Place had assured Kaufman of financial comfort to induce his alleged breach of duty, we believe that assurance is insufficient, on its own, to establish the participation necessary to support a claim. Nor is Park Place's alleged ratification of Kaufman's breach sufficient, either alone or in combination with plaintiff's other assertions, to establish wrongful means. The Catskill Group's ratification theory is drawn principally from Diduck, in which we affirmed the district court's finding that a defendant had participated in a union official's breach of fiduciary duty to an ERISA fund. 974 F.2d at 284. We held that the defendant's continued association with the union official and underpayments to the union, after the defendant was put on notice of the breach, crossed the threshold of tortious participation: Once put on notice of the breach, [the defendant] could not continue its association with [the union official] as if his conduct were not questionable. Its failure to inquire into the propriety of that conduct and take appropriate action was a substantial factor facilitating the breach. Making payments that [the defendant] knew or should have known short-changed the funds effectively ratified [the union official's] conduct. Id. Diduck is distinguishable, however, because the defendants' conduct of, inter alia, making short payments to the ERISA fund proximately caused a portion of the alleged injury. See id. In stark contrast, Park Place's dealings with Kaufman after the alleged breach occurred were not a substantial factor causing the Catskill Group any harm. Moreover, the Catskill Group's claim that Park Place should be accountable simply because it continued associating with Kaufman after, and with knowledge of, his alleged breach cannot be squared with our decision in S & K Sales Co. There, we questioned the propriety of a jury instruction that permitted a finding of liability if the defendant participated in [the third party's] breach of his duty of loyalty, or that [defendant] knowingly accepted the benefits of [the third-party's] breach of his duty of loyalty. S & K Sales Co., 816 F.2d at 849. It was the instruction's disjunctive orand in particular the knowing[] accept[ance] prong of itthat troubled us. Ultimately, we did not in S & K resolve the issue of whether the challenged instruction was legally erroneous, because we found no prejudice to the defendant in light of the charge as a whole, which made clear that liability could attach only if the defendant both participated in the third-party's breach and if the defendant accepted the benefits of the breach. Id. at 849-50. We now hold what we intimated in S & K Sales Co.: the knowing acceptance of benefits alone is insufficient to sustain a claim for participating in the breach of a fiduciary duty. See id. at 849 (Nike could not have been prejudiced because the charge as a whole correctly conveyed to the jury the proper standard and emphasized the element of `participation' as the essence of the claim.).