Breach of Fiduciary Claim Dismissed on Pleading and Statute of Limitations Grounds

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Posted on: Sep 17 2025

In Celauro v. Celauro, 2025 N.Y. Slip Op. 04870 (Sept. 10, 2025) (here), a minority shareholder of a family-owned business alleged that company executives operated an illicit cash business, diverted profits and deprived shareholders of distributions/dividends. Plaintiff relied on dated deposition testimony, documents, and financial statements to support claims of ongoing misconduct. However, the motion court dismissed most of the breach of fiduciary duty claim,[1] finding many of the allegations to be time-barred under the six-year statute of limitations and the surviving claims too speculative. The motion court rejected application of the continuing wrong doctrine and found plaintiff’s evidence—including financial statements and an accountant affidavit—insufficient to infer ongoing unreported cash sales or misappropriation. The Appellate Division, Second Department affirmed, agreeing that the claims were either untimely or lacked factual support to reasonably infer misconduct within the limitations period.

Background

Celauro is a shareholder derivative litigation brought by plaintiff, Nathan Celauro, a minority shareholder of 4C Foods Corp. (“4C Foods”), a closely held family-owned business that manufactures and distributes food products, pursuant to Business Corporation Law § 626. Plaintiff alleged that defendants, the officers and directors of 4C Foods, have been running 4C Foods as an illicit cash business.

Plaintiff alleged that defendants had (a) failed to report income on its tax returns because it was improperly running 4C Foods as a cash business, and (b) hid 4C Foods’ true profits by diverting the company’s hidden profits to its executives, thus depriving 4C Foods’ shareholders, including plaintiff, of dividends/distributions. Plaintiff contended that he observed the alleged improper cash operation as an employee of 4C Foods and that this operation expanded when one of the defendants took over the company as president in 1991. Plaintiff maintained that by 2005, 4C Foods had approximately half a million dollars per year in unreported cash sales.

In asserting his claims, plaintiff relied on deposition testimony taken in 2005 and 2006 and handwritten documents relating to such payments. One of the defendants had testified, however, that he stopped 4C Foods’ cash practices in 2005 as the result of a settlement with the IRS.

Nevertheless, plaintiff asserted that 4C Foods continued to run a sizable illicit cash business. In support of this assertion, plaintiff submitted deposition testimony from 2011 in which it was conceded that 4C Foods still received some cash payments, but because the amount of such payments was small, defendants kept the cash and wrote a check in that amount to 4C Foods.

Plaintiff also pointed to two bills of lading relating to a “Customer A”’ from 2010 and 2011 and copies of two checks relating to that customer from one of the defendants, one from 2010 and the other from 2011. Plaintiff also relied on an affirmation involving a valuation and appraisal process (“Appraisal”) relating to 4C Foods and an affidavit concerning 4C Foods’ cash business.

Plaintiff alleged that 4C Foods’ income statements from 2017 and 2018 showed that the cash operation and other improper practices continued.

Based upon the foregoing, plaintiff brought suit, alleging causes of action for breach of fiduciary duty, conversion, unjust enrichment, and accounting.

Defendants moved to dismiss claiming, inter alia, plaintiff’s claims were time barred and otherwise failed to state a claim.

The Motion Court’s Decision and Order

The motion court held that most of plaintiff’s fiduciary duty claim was barred by the statute of limitations.

The motion court found that defendants demonstrated the action was untimely with respect to defendants’ acts occurring more than six years before the September 21, 2020 commencement date of the action. The motion court held that the action was governed by the six-year statute of limitations applicable to actions brought by or on behalf of a corporation against directors, officers or stockholders.[2]

The motion court explained that “nearly all of the factual allegations in the complaint relate to purported cash sales that occurred before September 21, 2014.” The motion court rejected plaintiffs’ argument that the continuing wrong doctrine would entitle it to damages beyond six years: “While plaintiff asserts that the statute of limitations is tolled by the continuing wrong doctrine, even if that doctrine applies here, it would not extend plaintiffs entitlement to damages beyond six years prior to the commencement of the action.”[3]

Regarding the breach of fiduciary duty claim, the motion court held that plaintiff’s allegations concerning the cash transactions were “conclusory”. The motion court found that plaintiff failed to demonstrate that defendants committed any misconduct or that plaintiff suffered any damages during the limitations period. In that regard, explained the motion court, almost all of the allegations, including those based on documents produced for the Appraisal, were dated before September 21, 2014. The motion court noted that the only allegation suggesting that cash sales occurred after that date was the statement made by the representative of “Customer A”. The motion court concluded that while the statement “may suggest that some cash sales may possibly have occurred during the limitations period, the statement, in and of itself, fail[ed] to show, or allow a non-speculative inference, that defendants misappropriated such sales income or otherwise failed to properly include the cash sales in 4C Foods’ income.”

“Similarly,” said the motion court, the income statements from 2018 and 2019 were “cryptic” and did not create an inference that “defendants continue[d] to engage in cash sales, or that any such sales [were] not included as income.” In so doing, the motion court rejected plaintiff’s accountant who opined that it was “evident from the extreme fluctuations in the company’s profit, particularly during 2017 and 2018, that the cash operation is ongoing.” “A company with relatively consistent net sales such as 4C [Foods] does not have yearly swing of its net income to the tune of millions of dollars without some outside influence, such as increased unrecorded cash sales.” “Given the cryptic nature of the financial statements,” said the motion court, “it is hard to see how [the accountant was] able to draw any inference from the financial statements, let alone an inference that cash sales [were] a factor in the profit fluctuations.”

“Under these circumstances,” concluded the motion court, “the conclusory assertions made in [the accountant’s] affidavit [were] insufficient to allow an inference that cash sales [had] continued, or, if they have continued, that such sales [were] not properly recorded as income.” (Citations omitted.)

The Second Department’s Decision and Order

On appeal, the Second Department affirmed.

The Court agreed with the motion court’s findings that “allegations of wrongdoing that occurred more than six years before the commencement of [the] action were time-barred.”[4]

The Court also agreed that plaintiff failed to state a claim for breach of fiduciary duty, holding: “the allegations of wrongdoing within the limitations period [were] … ‘based on speculation and conjecture and thus, [were] insufficient to permit a reasonable inference of the alleged misconduct.’”[5]

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] This BLOG has written numerous articles addressing claims for a breach of fiduciary duty claim. To find such articles, please see the BLOG tile on our website and search for “breach of fiduciary duty” or any other commercial litigation issue that may be of interest you.

[2] CPLR 213(7); see also Retirement Plan for Gen. Empls. of N. Miami Beach v. McGraw, 158 A.D.3d 494, 496 (1st Dept. 2018); Matter of Skorr v. Skorr Steel Co., Inc., 29 A.D. 3d 594, 595 (2d Dept. 2006); Toscano v. Toscano, 285 A.D.2d 590, 591 (2d Dept. 2001).

[3] Butler v. Gibbons, 173 A.D.2d 352, 353 (1st Dept. 1991); see also Garron v. Bristol House, Inc., 162 A.D.3d 857, 859 (2d Dept. 2018); Henry v. Bank of Am., 147 A.D.3d 599, 601-602 (1st Dept. 2017); Rupert v. Tigue, 259 A.D.2d 946, 947 (4th Dept. 1999).

[4] Slip Op. at *2 (citations omitted).

[5] Id. (quoting Clevenger v. Yuzek, 222 A.D.3d 931, 935 (internal quotation marks omitted)).

Tagged with: Breach of Fiduciary Duty, Business Disputes, Business Litigation, Commercial Litigation