“Faithless Servant” Counterclaim Survives Dismissal

In Arbelaez v. Champion Parking 230 LLC, No. 161188/20, 2021 WL 2772385 (N.Y. Sup Ct, New York County July 02, 2021), the court held that defendants’ counterclaim for breach of the “faithless servant doctrine” was sufficiently alleged.

Plaintiff, who was terminated from his job as a manager of a parking garage owned by Champion Parking, alleges causes of action for national origin discrimination, race discrimination, and retaliation. In its answer, Champion asserted three counterclaims, namely, breach of fiduciary duty and faithless servant doctrine; breach of the duty of loyalty; and tortious interference. Defendants alleged that, in sum, while an employee, plaintiff Orlandy Arbelaez repeatedly approached a Champion employee and attempted to obtain information regarding leases for a number of defendant’s parking garages, and offered to pay the employee for the requested information.

Plaintiff moved to dismiss defendants’ counterclaims. The court denied plaintiff’s motion to dismiss defendants’ “breach of fiduciary duty” and “breach of duty of loyalty/faithless servant” counterclaims, but granted it with respect to defendants’ “tortious interference” counterclaim.

As to defendants’ duty of loyalty/faithless servant counterclaim, the court explained:

“[I]t is axiomatic that an employee is ‘prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his duties’ ” CBS Corp. v Dumsday, 268 AD2d 350, 702 NYS2d 248 [1st Dept 2000], quoting Lamdin v Broadway Surface Adv. Corp., 272 NY 133, 138 [1936]; see W. Elec. Co. v Brenner, 41 NY2d 291, 392 NYS2d 409 [1977] [“Fundamental to [the employer-employee] relationship is the proposition that an employee is to be loyal to his employer and is prohibited from acting in any manner inconsistent with his agency or trust and is at all times bound to exercise the utmost good faith and loyalty in the performance of his duties”] [internal citation omitted]).

It is well established that in order to state a cause of action under the faithless servant doctrine an employee must be alleged to have worked against her employer’s interest and to her own benefit. The Court of Appeals summarized the faithless servant doctrine as follows:

“One who owes a duty of fidelity to a principal and who is faithless in the performance of his services is generally disentitled to recover his compensation, whether commissions or salary (Restatement, Agency 2d, s 469). Nor does it make any difference that the services were beneficial to the principal, or that the principal suffered no provable damage as a result of the breach of fidelity by the agent (see Wechsler v. Bowman, 285 N.Y. 284, 291-292, 34 N.E.2d 322, 325-326, remittitur and 286 N.Y 582, 35 N.E.2d 930; Lamdin v. Broadway Surface Adv. Corp., 272 N.Y. 133, 138-139, 5 N.E.2d 66, 67); Feiger v. Iral Jewelry, Ltd., 41 N.Y2d 928, 928-29, 363 N.E.2d 350, 394 N.YS.2d 626 (1977)).

Plaintiff argues that the counterclaims contain overbroad and vague language and that the allegations are “not only complete unfounded, but also egregiously vague and fail to establish a knowing breach of plaintiff’s duty or damages resulting therefrom”. Defendants oppose and argue that Champion has alleged in detail that plaintiff acted adversely to his employer, that plaintiff, as an at-will employee and manager owed a fiduciary duty to Champion, that plaintiff acted in a manner inconsistent with that position of trust, more specifically that he sought to obtain non-public, proprietary garage lease and customer information presumably to sell for his own benefit. Defendants further contend that these allegations are sufficient to state a faithless servant claim.

The court agrees with defendants. Here, defendants allege that Orlandy acted disloyally by attempting to obtain defendant’s confidential information, specifically client/customer lists for his own benefit, and that he offered an employee of defendant money for the information to sell to a competitor, that even after plaintiff was terminated in 2018 he continued to attempt to obtain this information to encourage existing customers to terminate their business relationship with defendant, which caused defendant to allegedly suffer business loss.

The court concluded that “[p]laintiff merely refutes these allegations through his attorney who lacks any personal information or knowledge and is therefore insufficient to warrant dismissal of this counterclaim,” and therefore denied plaintiff’s motion to dismiss this counterclaim.

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