Frydman LLC recently secured a multi-million dollar recovery for our client in an arbitration claim against a former partner. One of FLLC’s practice concentrations is “business divorces,” where one or more partners leave a company. Our client was a 50/50 member with his business partner in a real estate development company in the New York City metro area. The company had successfully co-developed a sizeable residential project and was advancing a co-development of a large ground up mixed-use project. The partners accused each other of misconduct, and ended up bringing claims against each other pursuant to an arbitration provision in the company’s operating agreement. On behalf of our client, we alleged causes of action including breach of fiduciary duty and usurpation of corporate opportunity, claiming the former partner abandoned the company and cut out our client by co-developing the mixed-use project through a different entity – one wholly owned by the former partner.
Discovery in the arbitration was hard fought, eventually leading the Panel to appoint a “Big Four” accounting firm to act as electronic discovery master. We engaged in repeated discovery motion practice and, after months of document discovery disputes, engaged in the exchange of approximately twenty gigabytes of electronic data, comprising well over 100,000 documents. After completion of depositions of the parties, we conducted a two week arbitration hearing before the three member arbitration Panel. The hearing included the testimony of seven witnesses, some 300 exhibits and extensive closing argument. We also engaged in months of post hearing briefing, amounting to over 120 pages of fact and legal argument.
In its reasoned twenty-one page Award, the Panel granted our client’s claims and dismissed the claims of the former partner. The Panel found that the former partner stole the mixed-use development project from the company, cut out our client and acted as a “faithless servant.” Among other relief, the Panel awarded our client $400,000 of punitive damages based upon the former partner’s egregious breaches of fiduciary duty, assessed discovery costs against the former partner for electronic discovery violations and placed the contested interest in the mixed-use project in a constructive trust for the benefit of the company and our client. We successfully confirmed the Award in New York State Court, which entered judgment on the Award.
After a formal mediation and months of negotiation, the parties recently closed a settlement whereby our client kept the company and its interest in the completed residential project, and the former partner kept the interest in the mixed-use project while making a multi-million dollar cash settlement payment to our client. Although the resolution took a number of years and much intensive work, we are gratified that our client was vindicated and justly received significant compensation.
Prior results do not guarantee a similar outcome.