In Tiny 1, Ltd. v. Samfet Marble, No. 14948, 2022 WL 24305, at *2 (1st Dep’t. Jan. 4, 2022), the Appellate Division, First Department held that “unique circumstances” of an arms-length transaction gave rise to fiduciary duties. This holding diverges from the well-established principle that arms-length transactions generally do not create fiduciary obligations and arguably raises the bar for fiduciaries by expanding the scope of liability stemming from transactions that would ordinarily be shielded from scrutiny. Tiny I follows another similar decision in Pennsylvania, suggesting a potential trend towards expansion of fiduciary duty relationships in traditional arms-length transactions and an issue to keep an eye on.

In Tiny 1, one of the plaintiffs, the sole owner and president of a tile and marble company, suffered an illness and decided to sell his company to defendants. While still contemplating the sale, because of plaintiff’s illness, the two prospective buyers, took over certain financial operations of the company to complete due diligence before finalizing the transaction. The complaint alleges that defendants then engaged in a fraudulent scheme to manipulate the company’s financials ultimately forcing plaintiff to sell the company for far less than it was originally worth. Plaintiffs allege that defendants acted in their own self-interest for their own financial benefit and fraudulently concealed wire transfers from the company to one of their controlled entities, increased the company’s debt, and denied plaintiffs timely access to the company’s books and records, which had been falsified to artificially reduce the company’s value.

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