CITY COURT OF THE CITY OF RENSSELAER COUNTY OF RENSSELAER

NORTH GREENBUSH DEMOCRATIC COMMITTEE,

Plaintiff,

-against-

DECISION

JEFFREY SPAIN,

JUDGMENT

Defendant.

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(City Court, City of Rensselaer) Index No. SC-9043

(Judge Carmelo Laquidara, Presiding)

APPEARANCES:

Michael 1. Derevlany, Esq. Attorney for Plaintiff

James E. Walsh, Esq. Attorney for Defendant

(of counsel to A. Joshua Ehrlich)

LAQUIDARA, J.:

Plaintiff North Greenbush Democratic Committee (the Committee) commenced the

instant small claim action seeking to recover $4,051.71 from defendant Jeffrey Spain, alleging a

breach of fiduciary duty, conversion, and negligence. Following joinder of issue and a decision

denying defendant's motion to dismiss, the Court transferred this matter to the commercial part

(see Uniform City Court Act § 1805 [2]; article I8-A). On May 4, 2010, the Court held a

hearing on the commercial small claim and decides the matter as follows.

This claim arises [rom allegations that defendant - the then-Chair Person of the

Committee - improperly liquidated the Committee's account following a Committee leadership

change. Plaintiff contends that, during the relevant time period of September 2008, defendant

had control of the Committee's financial records, and, after making large contributions to

different charitable organizations and paying an unnecessary web browser fee, left the Committee

with 45 cents in its account.

At the hearing, Charles B. Smith (Smith), the Committee's treasurer solely testified on its

behalf, first explaining that, on September 9, 2008 (at the primary election), a new majority of

seats on the Committee went to persons loyal to Mr. Ashley over defendant (tr at 3). Further,

Smith testified that

the duly elected committee sent a letter to then chairman Spain advising him of his fiduciary responsibility to the committee to protect its funds in its accounts. Just two years prior when Mr. Spain became chairman I was treasurer, I turned over the party's checking account and nearly $1,000 in funds in that account to Mr. Spain and his treasurer, I believe Mr. Devery. We expected the same process would take place (tr at 4).

He further added that the letter warned defendant that "he would be held personally responsible if

money was misspent," also noting that the letter was signed by eight to ten committee persons (tr

at 5). Smith recalled that the letter was sent on September 10, 2008. J

I Although marked for identification, the referred to letter was never moved into evidence.

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Smith testified that, after the letter was sent, the Committee "learned through financial

filings filed with the State Board of Elections that Mr. Spain had, under his own authority

apparently, expended the vast majority of the party funds in sometimes thousand dollar

increments or more to various charities, and he left the committee checking account the sum of

forty-five cents" (tr at 5). Smith noted that, in his eighteen years or so of experience in this

matter, that such large contributions to charities were "unprecedented" (tr at 6). Although Smith

acknowledged that the Committee had, in the past, given charitable donations and such were not

illegal, he explained that generally they are "small in nature" (tr at 6-7). He noted that usually a

charitable contribution would be around $100 (tr at 7). He testified: "Never have I seen

donations of this nature. And never have I seen them after a primary election in a lame duck

situation where the chairman ~ you know, we believe his intent was to liquidate and cripple the

committee" (tr at 7). In support of this testimony, the Committee introduced into evidence

Plaintiffs Exhibit I, which consisted ofa "NYS Board of Elections Financial Disclosure

Report." In that report, and as uncontested during the hearing, the following donations were

noted: (I) $1,000 to the Fast Break Fund; (2) $1,200 to the Amanda's Journey fund; (3) $1,000

to Patriot Flight, Inc.; (4) $337.00 to Twin Town Little League; and (5) $338.00 to Classic

Lassies, totaling $3,875 in donations. Smith noted that these donations were given by checks

signed by defendant. 2

2 Smith also testified that defendant had set up a web browser account with Godaddy.com with a recurring charge. Smith noted that the Committee had, prior to that time, used a free service. Although the testimony surrounding this issue was somewhat confusing, this service was apparently being paid through another checking account that, at the time ofthc change on the Committee, had approximately $178 in it. Smith testified that defendant refused to turn over this account, which was eventually closed by the bank after the final amount went to Godaddy.com (see tr at 11-13).

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As to the effect of the various donations on the committee, Smith testified:

Well, we were left with forty-five cents. . .. And we had to start from scratch. Those monies were donated, I think in good faith, by various donors to the party for the purpose of electing the party's candidates to elective office in the Town of North Greenbush. And no one, to my knowledge, donates to a political party with the intent of having that money in turn donated to a charity, no matter how noble. And these are fine charities; we have no quarrel with them. And so we were left to start from nothing. We had to open a new checking account and start the process of'fundraising for critical town elections with forty-five cents in the bank (tr at 13).

On cross, Smith clarified that the Committee expected that defendant would only spend

money during the transition period on items directly related to the party's business. Further,

Smith acknowledged that it is permissible and legal under the Election Law for the Committee to

make donations to charities. When asked about his activities at the time of 2006 leadership

change, Smith acknowledged that he had written several checks from Committee funds, but

adamantly testified that they were for legitimate campaign or Committee expenses (see tr at

20·38).3 Further, Smith testified that the Committee had not attempted to contact the various

charities for the return of the funds at issue in this matter but, instead, had determined that it

would look to defendant for such recovery (tr at 39).

Once plaintiff rested and the Court denied defendant's motion to dismiss, defendant

testified in his behalf, noting that he served as chair to the Committee for two years. Defendant

testified that, when he took over as chairman, there was approximately $900 in the bank account.

Defendant explained that the goal of the Committee "was to promote the North Greenbush

Democratic Committee party and to elect good democratic candidates" (tr at 52). He also

3 With regard to this testimony, defendant's Exhibits A, B, D and H were admitted into evidence, which are copies of certain Committee checks and a page from a bank statement for the Committee.

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testified that he was not the sole individual who could sign checks but that the treasurer at the

time could also sign on the account (tr 53). Further, defendant opined that, at the time he took

over the Committee in 2006, there had been a depletion of the checking account funds (tr at 54).

As to the contributions at issue in this matter, defendant testified that, prior to making

them, he caJled the New York State Board of Elections and "asked specifically if [he] could write

checks to legitimate charities who were registered within the Stale of New York," to which

inquiry it affirmatively responded (tr at 55). He further testified that he thought the various

charitable organizations to which he gave Committee funds were legitimate and essentially

causes the Committee should support (tr at 56-60). In addition, he noted he thought such

donations would help the standing of the Committee in the eyes of the community, While on

cross he acknowledged that such donations were not publicized, he did explain that often when

the donations were made several people were around to witness it." He also acknowledged that

he had not discussed with the Board of Elections the appropriate size of a donation to a charitable

organization (tr at 63). However, defendant testified that, prior to making the donations, he

spoke with some Committee members who agreed that the donations should be made.

At the close of testimony, defendant argued that what is presented in this matter is a legal

use of campaign funds given to charities. Defendant maintained:

There can be no showing that it's a breach of fiduciary duty because it's not an illegal use. It's not illegal by the State Board's definition, it's not illegal by anything within the State Election Law in Article 14. It's not an illegal use of funds. Therefore, your Honor, I would again submit that we don't have a matter that actively's [sic] pending that has jurisdiction (tr at 73).

The Committee argued that this is not an Election Law matter but, rather, "[i]t is a simple

4 On redirect, defendant testified that approximately 500-750 people attended one of the

events.

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breach of a fiduciary duty matter" (tr at 73). The Committee also explained it does not dispute the legality of such donations but, rather, questions "the timing and the amount" of the donations (tr at 73). Here, the Committee contends that depletion of the account breached defendant's duty to keep the funds whole for the incoming group (tr at 73).

In a hearing on a commercial claim, such as the one here, the Court is required "to do substantial justice between the parties according to the rules of substantive law" (Uniform City Court Act § 1804-A; see also Blair v Five Points Shopping Plaza, Inc., 51 AD2d 167, 168-169 [3d Dept 1976]). Further, the plaintiff bears the burden of proving its claim (see Coldwell Banker Prime Props. v Abai, 17 Misc 3d 1103A at *2 [Albany City Ct 2007]). Here, as noted above, plaintiffs claim for damages rests on three legal theories, namely, conversion, negligence and breach of a fiduciary duty.

Given plaintiff's arguments at the conclusion of the hearing, the primary issue is whether defendant breached a fiduciary duty. "<ln order to establish a breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary relationship, misconduct by the defendant, and damages that were directly caused by the defendant's misconduct'" (Daly v Kochanowicz, 67 AD3d 78, 95 [2d Dept 2009], quoting Kurtzman v Bergstol, 40 AD3d 588, 590 [Zd Dept 2007]). Further, settled case law holds that "it is elemental that a fiduciary owes a duty of undivided and

undiluted loyalty to those whose interests the fiduciary is to protect" (Birnbaum v Birnbaum, 73 NY2d 461,466 [1989]). In this action, the Committee established that defendant had a fiduciary relationship with it by virtue of defendant's status as chair of the Committee (cfHowardv Carr, 222 AD2d 843, 845 [3d Dept 1995]). Thus, the issue becomes whether defendant breached that duty by making charitable contributions in excess of what is generally acceptable thereby

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depleting the Committee's account.

Here, credible testimony by Smith established that the day after the primary election, when the change in membership on the Committee took place, the Committee sent defendant a letter notifying him not to waste Committee funds. Further, credible testimony established that, after that notice, defendant expended $3,875 in donations (0 five charitable organizations, which, according to Smith who has extended experience in this area, were unprecedented with regard to the high monetary value of the donations. Smith also testified that usual amount of such a charitable donation would be in the range of$100. While it is undisputed that defendant had the legal ability to make charitable donations and that the charities to which he donated were worthwhile, the testimony established that the size and number of such donations depleted the Committee's accounts. Although the Defendant testified that such were given to essentially raise the stature of the Committee in the eyes of the community, the Court found such testimony incredible. Moreover, even if it were to accept such a rationale, that goal could have been met with more modest donations that would not deplete the Committee's funds. In addition, the depletion of the Committee's funds left it without immediate means to satisfy its overriding purpose, which, as defendant himself testified, is electing" good democratic candidates" (tr at 52). In addition, the timing of defendant's actions is also noteworthy since the funds were depleted during the height of the campaign season - right after the primary and just before the general election, further hindering the Committee from performing its primary function.

Given the above-discussed factors, the Court concludes that defendant's actioris were not intended to benefit the Committee but, instead, defendant's act of depleting the Committee's funds was intended to hinder the new leadership, which was replacing defendant (see generally

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Birnbaum, 73 NY2d at 466). This conclusion is further supported by defendant's own testimony

in which he noted he was doing nothing more than he perceived was done at the last leadership

change.' The Court infers from this testimony that defendant's actions were in retaliation for

this perceived treatment or, stated another way, were taken to promote defendant's personal

leadership interest over the interest of the Committee, to which defendant owed a duty ofloyalty

(see Adirondack Capital Mgt. Inc. v Ruberti, Girvin and Ferlazzo, PiC; 43 AD3d 1211, 1215

[3d Dept 2007J, Iv denied 9 NY3d 817 [2008]). Accordingly, the Court concludes that

defendant did breach his fiduciary duty to the Committee by giving charitable contributions in

the amount of$3,875 that effectively depleted the Committee's account just prior to the critical

general election period."

As to defendant's contention that plaintiff's claim is barred by unclean hands, the Court

finds that defendant failed to substantiate this argument. First, as the Court noted in prior

motion practice, this doctrine "applies when the complaining party shows that the offending party

is • guilty of immoral, unconscionable conduct and even then only when the conduct relied on is

directly related to the subject matter in litigation and the party seeking to invoke the doctrine was

injured by such conduct''' (Kopsidas v Krokos, 294 AD2d 406, 407 [2d Dept 2002), quoting

National Distillers & Chern. Corp. v Seyopp Corp., 17 NY2d 12, 15-16 [1966]; see Welch v Di

Blasi, 289 AD2d 964, 965 [4th Dept 20011). Here, all that defendant submitted in support of this

5 As will be discussed further below, the Court notes that defendant failed to substantiate this claim at the hearing.

b On the other hand, the Court is not convinced that by paying for the services of Godaddy.com that Smith breached any duty to the Committee. That payment appeared to be in the furtherance of legitimate Committee business.

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theory are checks showing certain expenditures made at the time of the 2006 leadership change but nothing that details how these expenditures were either improper or how they specifically harmed defendant (see Sutter v Lane, 61 AD3d 1310, 1313 [3d Dept 2009)). Furthermore, Smith testified that the expenditures, as far as he could remember, were for legitimate Committee expenses, and, thus, without any evidence to refute such testimony, defendant's claims to the contrary are merely speculative (see e.g. Blueberry Investors Co. v Ilana Realty Inc., 184 AD2d 906, 907 13d Dept 1992]).

Having concluded that defendant breached his fiduciary duty to the Committee, the Court must now determine damages. Generally, the measure of damages for breach of fiduciary duty

is the amount of loss sustained by reasons of the faithless fiduciary's conduct (105 E. Second St. Assocs. v Bobrow, 175 AD2d 746, 746-747 [I" Dept 1991], citing E. W. Bruno Co. v Friedberg, 21 AD2d 336, 341 [1st Dept 1964]; see also Carella v Scholet, 34 AD3d 915, 917 [3d Dept 2006]; Hol/is v Charlew Constr. Co., 302 AD2d 700, 702 [3d Dept 2003]). Further, "the purpose of this type of action' is not merely to compensate the plaintiff for wrongs committed but also to prevent them by removing from [the defendant fiduciary] all inducement to attempt dealing for their own benefit in matters which they have undertaken for others or to which their agency or trust relates'" (Gibbs v Breed, Abbott & Morgan, 271 AD2d 180, 188-189 [1'1 Dept 2000], quoting Diamond v Oreanuno, 24 NY2d 494, 498 [1969] [emphasis in original]).

Here, the Committee seeks to recover $3,875 - the amount of charitable donations given by defendant that led to the depletion of the Committee's account. At the hearing, this was the amount of loss the Committee established that it sustained due to defendant's breach. However, the record also shows that the Committee would not have objected to the charitable gifts had they been limited to a reasonable amount, which testimony indicated was approximately $100 per

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charitable gift. Thus, allowing for gifts of$100 to each of the five charities, the remaining

amount depleted from the account totals $3,375. Accordingly, the Court directs that to effect

substantial justice between the parties the Committee is awarded a judgment in the amount of

$),375 as against defendant.

Otherwise, the Court has considered the parties' remaining arguments and finds them

either without merit or unnecessary to reach given the Court's decision.' Accordingly, it is

ORDERED and ADJUDGED that plaintiff North Greenbush Democratic Committee is

awarded a judgment in the amount of$3,375 as against defendant Jeffrey Spain.

This shall constitute the Decision and Judgment of the Court This Decision and Judgment is being returned to the attorneys for plaintiff. The signing of this Decision and Judgment shall not constitute entry or tiling under CPLR 2220. Counsel are not relieved from the applicable provisions of that rule relating to filing, entry, and notice of entry.

SO ORDERED! ENTER

Dated: '" J I I ~O I 0 Rensselaer, New York

Q~r:;,!),~

City Court Judge

7 This includes reaching the merits of the Committee's theories of recovery based on conversion and negligence since the Committee has recovered under a theory of breach of fiduciary duty. Tn any event, the Committee failed to meet its prima facie burden with respect to the conversion claim since the use of the Committee's funds was not unauthorized per se (see e.g. Miller v Marchuska, 31 AD3d 949,950 [3d Dept 2006]; Tinsley v State, 192 AD2d 701, 702 [2d Dept 1993], tv denied 82 NY2d 655 [1993 D.

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