Kaminsky v. Kahn, 23 N.Y.2d 516 (1969)

An accounting is not warranted in a contract dispute where the relationship between the parties is solely that of seller and buyer, and no fiduciary duty exists, even if profits and dividends are to be shared as part of the consideration.

Summary

Kaminsky and Kahn were parties to a contract involving the sale of stock. A dispute arose, and Kaminsky sought an accounting from Kahn. The Court of Appeals held that an accounting was not warranted because the relationship between Kaminsky and Kahn was solely contractual, lacking the fiduciary duty necessary to justify equitable relief. While the contract provided for profit and dividend sharing, the court construed these provisions as relating to the final consideration Kahn would pay, rather than establishing a joint venture or fiduciary relationship. The court reversed the lower court’s order and remanded the case to allow for a jury trial on the legal issues.

Facts

Kaminsky, Kahn, Cowen, and Golding jointly purchased shares of Spear & Company. Kahn and Kaminsky agreed to indemnify Golding for a portion of his investment. Cowen transferred his interest to Kaminsky. Kahn then transferred his interest to Kaminsky, with Kaminsky agreeing to indemnify Kahn against certain obligations, including the amount owed to Southern Bedding Accessories, Inc. Kahn later purchased the controlling shares of Spear stock from Kaminsky via a contract. The agreement stipulated Kahn would satisfy the Southern Bedding judgment and release Kaminsky from obligations. Kaminsky was granted a first option to purchase the shares if Kahn decided to sell, and was entitled to one-third of the net proceeds after Kahn recouped expenses, and one-third of the dividends. Kahn later merged Spear with Acme-Hamilton Manufacturing Corp. A dispute arose regarding the sale of shares, leading Kaminsky to seek an accounting.

Procedural History

The initial complaint was dismissed by Special Term, a decision affirmed by the Appellate Division and Court of Appeals. Kaminsky then amended his complaint, which survived a motion to dismiss, with the Appellate Division affirming. After a non-jury trial, the Supreme Court ruled in favor of Kaminsky and directed an accounting. This interlocutory judgment was affirmed (with modifications) by the Appellate Division. The Appellate Division then modified the judgment, reducing the award, leading to cross-appeals to the Court of Appeals.

Issue(s)

Whether an accounting is warranted in a contract dispute where the relationship between the parties is solely that of seller and buyer, and no fiduciary duty exists, despite provisions for sharing profits and dividends.

Holding

No, because the transaction was a contract of sale, not a joint venture, and the agreement to share profits and dividends related only to the final consideration Kahn would pay, not to creating a fiduciary duty.

Court’s Reasoning

The Court of Appeals found that the Appellate Division erred in maintaining the amended complaint. The key determination was that the relationship between the parties was purely contractual and did not establish a fiduciary duty. The court emphasized that the provision for sharing profits and dividends was part of the final consideration Kahn agreed to pay, not an indication of a joint venture or a fiduciary relationship. The court stated, “The transaction here involved was exclusively a contract of sale between the parties… The provision providing that the parties share any profits and split any dividends is to be construed, it seems clear, as relating solely to the final consideration that Kahn would pay, not as criteria for establishing a joint venture or a fiduciary relationship. Under such circumstances an accounting is not available.” The court recognized that under CPLR 103(a) the distinctions between law and equity have been abolished, and instead of dismissing the complaint, it allowed the plaintiff to pursue legal relief in the form of a breach of contract claim. Because the defendant has a right to a jury trial in legal actions under CPLR 4103, the case was remanded to allow the defendant the opportunity to demand a trial by jury. The court also determined that Kahn was only liable to the extent that he disposed of Spear Equity shares without giving Kaminsky a right of first refusal. The Court also ruled that the damages should reflect the actual sales price of the unregistered shares since there was nothing in the contract that said they should be registered first.