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In Pari Delicto Bars Co-Conspirator/Former Employer’s Claims Against Former Employee: Teneyck v Rosenberg

Posted in Breach of Fiduciary Duty, CPLR 3211, Faithless Servant, In pari delicto, Industry: construction, Industry: public utility, Justice Kapnick, Barbara R., Motion to Dismiss, New York, Ratification, Statute of Limitations

In a January 10, 2013 decision by Justice Kapnick, the court granted the defendant’s motion to dismiss the complaint. Rosenberg served as the President of Teneyck, a wholesale distributor of pipes, valves, and fittings. In a separate criminal action, Rosenberg pled guilty to conspiracy to commit bribery and wire fraud, pursuant to 18 U.S.C. § 371, for his role brokering a deal between Teneyck and the Deputy Manager of Con Edison’s purchasing department, whereby Teneyck would pay the ConEd employee a bribe in exchange for competitive bid information that allowed Teneyck to underbid other vendors and still win a five-year pipe supply contract.

The complaint asserted causes of action against Rosenberg for faithless servant and breach of employee fiduciary duty, and sought to recover over $1.5 million from Rosenberg for: the commissions Rosenberg received for the sales to Con Edison; base salary; medical expense reimbursement payments; and sales and related business expenses that Rosenberg received in the five years that the bribes were paid. On his motion to dismiss, Rosenberg argued that the complaint was barred by in pari delicto, the ratification doctrine, and the applicable statute of limitations.

The court found unavailing Teneyck’s argument that in pari delicto did not apply because Teneyck was less at fault than Rosenberg was, explaining that Teneyck also pled guilty to the same exact charges in the criminal action as did Rosenberg. The court also held that the “adverse interest exception”, which Teneyck argued barred dismissal, did not apply. The court explained that the exception “is an exception to the imputation of an insider’s acts to a corporation, not a direct exception to the in pari delicto doctrine,” and, in any event, did not apply because the fraud in this case was committed on behalf of the corporation, not against it.

Teneyck, Inc. f/k/a Neill Supply Co., Inc., v. Robert D. Rosenberg. Sup Ct, New York County, January 10, 2013, Kapnick, J, Index No. 650853/12