ESCROW AGENTS - BREACH OF FIDUCIARY DUTY OR BREACH OF CONTRACT

Sometimes the most neglected clause in a contract is the provisions regarding amounts held in escrow because usually the escrow agent is a third party or an attorney for one of the contracting parties. And note that in Takayama v. Schaefer, 240 AD 2d 21 - NY: Appellate Div., 2nd Dept. 1998, the court held that where the escrow agreement is silent as to his or her duties in the event of a dispute,  the escrow agent under certain circumstances may not be required to deposit the funds in court pursuant to CPLR 1006 to avoid liability for interest and costs. 

MEXICO INFRASTRUCTURE FINANCE, LLC v. CORPORATION OF HAMILTON, Dist. Court, SD New York August 7, 2020:

"....BNYM seeks a judgment on the pleadings that Plaintiff's breach of fiduciary duty claim is duplicative of its breach of contract claim. In light of the Escrow Agreement, I find that Plaintiff's breach of fiduciary duty claim against BNYM is duplicative of its breach of contract claim.

"Under New York law, an escrow agreement creates a fiduciary relationship between the escrow agent and the parties to the escrow transaction." Qube Films Ltd v. Padell, No. 13-CV-8405 (AJN), 2016 WL 881128, at *4 (S.D.N.Y. Mar. 1, 2016) (quoting Ray Legal Consulting Grp. v. DiJoseph, 37 F. Supp. 3d 704, 728 (S.D.N.Y. 2014) (citing Greenapple v. Capital One, N.A., 939 N.Y.S.2d 351, 352 (1st Dep't 2012))); see also Ramiro Aviles v. S & P Glob., Inc., 380 F. Supp. 3d 221, 300 (S.D.N.Y. 2019) ("[A]n escrow agent has fiduciary obligations as escrowee." (citation omitted)). However, "New York courts have repeatedly noted that `[a]n escrow agreement is a contract' like any other." H & H Acquisition Corp. v. Fin. Intranet Holdings, 669 F. Supp. 2d 351, 363 (S.D.N.Y. 2009) (quoting Egnotovich v. Katten Muchin Zavis & Roseman LLP, 856 N.Y.S.2d 497 (N.Y. Sup. Ct. 2008); see also Animalfeeds Int'l, Inc. v. Banco Espirito Santo E Comercial De Lisboa, 420 N.Y.S.2d 954, 957 (N.Y. Sup. Ct. 1979) ("An escrow agreement, while imposing a fiduciary relationship, . . . is in essence a contractual undertaking."). For this reason, parties to an escrow agreement "cannot impose upon [the escrow agent] any obligations in addition to its limited duties under the express terms of its contract." Qube Films Ltd, 2016 WL 881128, at *4; Id. (quoting H & H Acquisition Corp., 669 F. Supp. 2d at 363). Instead, the "scope of an Escrow Agent's fiduciary duty is defined by the scope of its contractual duty under the Escrow Agreement." Id.; see also Ray Legal, 37 F. Supp. 3d at 729 (if an Escrow Agent "act[s] in accordance with its obligations under the escrow agreement, it has not breached its fiduciary duty"); T.T.S.G., Inc. v. Kubic, 639 N.Y.S.2d 825, 826 (1st Dep't 1996) (noting that "[a]s escrow agent, defendant owe[d] a fiduciary duty to the parties to the transaction" and that an escrow agent breaches its fiduciary duties if it "pay[s] escrow funds to others. . . rather than meeting [its] obligation" under the escrow agreement); Greenapple, 939 N.Y.S.2d at 355 ("[A]n escrow agent has a duty not to deliver the monies in escrow except upon strict compliance with the conditions imposed by the controlling agreement."). Furthermore, New York courts adopt the general rule that "where parties have entered into a contract, courts look to that agreement to discover. . . the nexus of [the parties'] relationship. . . ." EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19-20 (2005) (internal quotation marks omitted).

"A breach of fiduciary duty claim is duplicative when it is based on allegations of fiduciary wrongdoing that are expressly raised in plaintiff's breach of contract claim." N. Shipping Funds I, LLC v. Icon Capital Corp., 921 F. Supp. 2d 94, 105 (S.D.N.Y. 2013) (citation and quotation marks omitted); see also Uni-World Capital, L.P. v. Preferred Fragrance, Inc., 43 F. Supp. 3d 236, 244 (S.D.N.Y. 2014) (dismissing fiduciary duty claim as duplicative of breach of contract claim because "plaintiffs do not allege or point to a single fact supporting the proposed breach of fiduciary duty claim that is not already included in the proposed breach of contract claim"); Sheppard v. Manhattan Club Timeshare Ass'n, Inc., No. 11 Civ. 4362(PKC), 2012 WL 1890388, at *9 (S.D.N.Y. May 23, 2012) ("[T]o the extent that the Complaint's fiduciary duty claim is premised upon failure to perform under the agreed terms of a contract, the plaintiffs fail to state a claim under New York law." (citing Celle v. Barclays Bank P.L.C., 48 A.D.3d 301, 302 (1st Dep't 2008) ("The breach of fiduciary duty claim was properly dismissed as the agreement covers the precise subject matter of the alleged fiduciary duty.") (quotation marks and alterations omitted))). Therefore, a fiduciary duty claim that is "merely a restatement, albeit in slightly different language, of the [] contractual obligations asserted in [a] cause of action for breach of contract. . . is merely duplicative of [the] breach of contract claim [and] cannot stand." Ellington Credit Fund, Ltd. v. Select Portfolio Servicing, Inc., 837 F. Supp. 2d 162, 193 (S.D.N.Y. 2011) (citation omitted). Plaintiff's only authority to the contrary states that "an escrow agent can be held liable for breach of the escrow agreement as well as for breach of fiduciary duty as escrowee." Barbi v. Dweck, 2004 NYLJ LEXIS 4964, at *9 (Sup. Ct. N.Y. Cty. Jan. 8, 2004) (citing Takayama v. Schaefer, 240 A.D.2d 21, 25 (2d Dep't 1998)). However, Takayama, the case on which Plaintiff's authority relies, clearly stated that the case involved a situation "where the escrow agreement [was] silent as to [the escrow agent's] duties." Takayama, 240 A.D.2d at 22. Thus, although the case posited that "[a]n escrow agent not only has a contractual duty to follow the escrow agreement, but additionally becomes a trustee of anyone with a beneficial interest in the trust. . . with the duty not to deliver the escrow to anyone except upon strict compliance with the conditions imposed," id. at 25 (internal quotations omitted), because the escrow agreement in question imposed no relevant conditions, the breach of fiduciary duty claim necessarily did not rest on provisions contained in the contract, and was therefore not duplicative.

Here, however, the parties' Escrow Agreement is not silent concerning BNYM's duties, and imposes various conditions defining BNYM's duties, all of which are encompassed by Plaintiff's breach of contract claim.^[5] Thus, because both claims are premised upon the same facts and seek the same damages for BNYM's alleged breaches, I dismiss the breach of fiduciary duty claim as duplicative. See E-Global Alliances, LLC v. Anderson, No. 10 Civ. 2844(KMK)(PED), 2011 WL 8879268, at *9 (S.D.N.Y. May 11, 2011) (dismissing breach of fiduciary duty claim seeking same damages for same alleged conduct as breach of contract claim)."