On October 2, 2018, the Nassau County Supreme Court granted Jaspan Schlesinger’s motion to dismiss an action brought by an employer against its former employees alleging breach of fiduciary duty and tortious interference with contracts.
In Dual Purpose Corp. v. Hadjandreas, et al. (Nassau County Index No 602818/16), the Court found that the employer’s claim that its former employees breached their fiduciary duty by paying personal expenses from the corporate checkbook without authorization was unsustainable as a matter of law, because the employer had taken a deduction on its corporate tax returns for those very same expenditures. Under the doctrine of tax estoppel, the employer was barred from taking a position in court that differed from the one taken in sworn documents filed with the Internal Revenue Service.
The Court further held, in only the second known decision to address the issue, that the employer’s filing of amended tax returns that reclassified the expenditures did not change the result. Hon Stephen A. Bucaria held that “…it appears the purpose of these amended returns is to re-characterize the defendants’ fringe benefits as “embezzled income” and later in the decision declared “…self-serving affidavits are insufficient to defeat a summary judgement motion . . . [as] are the amended tax returns, which were prepared on March 1, 2018, after defendants’ motion for summary judgment had been filed.”
The Court also dismissed the employer’s tortious interference with contracts claim finding that, even if there had been such interference, the employer suffered no damages as a result.