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A Commercial Division judge held Nov. 23 that a corporate executive owes no fiduciary duty to company creditors in a case in which a supplier sued a bankrupt company for sending it bad checks. From Jan. 27 to Feb. 2, 2002, Alan Firestone, the owner and president of Firestone Plywood Corp., sent seven checks to his plywood supplier, Columbia Forest Products. All seven checks, totalling $73,417, bounced because company bank accounts lacked adequate funds, the decision said. Columbia claimed Firestone was personally liable for the debt because he owed a fiduciary duty to his supplier and that he had committed fraud by issuing checks knowing that the company’s bank accounts lacked the money. In Columbia Forest Products v. Firestone Plywood Corp., 4545/02, both parties moved for summary judgment. Justice Leonard Austin of the Nassau County Supreme Court Commercial Division ruled in favor of co-defendants Firestone Plywood and Firestone. Justice Austin relied on a straightforward application of New York law in dismissing Columbia’s assertion that Firestone owed it a fiduciary duty as a debtor. “This is not the law of New York,” the judge wrote, referring to a Delaware case that Columbia relied on in its filings. “In New York, the fiduciary duty of corporate officers and directors runs to the corporation and its shareholders. … New York courts have not extended the fiduciary duty of a director or officer to creditors.” Since Firestone Plywood was incorporated in New York and Columbia failed to produce any New York case law supporting its contention, Austin declined to stretch this area of the law. “The fiduciary duties and obligations of a corporate officer or director should not be expanded or extended by judicial fiat,” he ruled. “If such duties are to be imposed, the Legislature should do so.” The fraud claim was different. “A corporate officer who issues a corporate check with knowledge that there are insufficient funds in the account to cover the check commits fraud,” Justice Austin. In order to determine whether Firestone was liable for fraud, the judge had to analyze the facts surrounding the seven checks. Columbia ultimately failed to provide enough evidence indicative of fraudulent intent by Firestone. Firestone, the judge said, had relied on his bookkeeper, Florence Ostrowsky to maintain the company’s bank accounts. She would write the checks, have Firestone sign them, and then Ostrowsky would send them out to Columbia. Ostrowsky testified in her deposition that she did not know the checks had bounced. Likewise, Firestone signed the checks with the understanding that the company had the necessary funds. “There is no evidence in the record from which the Court could infer that [Mr.] Firestone had knowledge of the fact that there [were] insufficient funds in the account to cover these checks when they were issued,” wrote Austin. “To sustain its claim for fraud, Columbia had to establish [Mr.] Firestone’s fraudulent intent through evidentiary facts. Fraudulent intent cannot be inferred. It must be established by facts set forth in the affidavits.” Since Columbia failed to provide these facts, its motion for summary judgment was denied and Firestone’s was granted, thereby dismissing the claims against him. Wanda Borges of Borges Donovan in Syosset represented Columbia. Ted Tanenbaum of Goldstein, Tanenbaum & D’Errico of Carle Place represented Firestone.

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