In Corridor v Middleton, Manhattan Industrial Division Justice Jennifer G. Schecter granted a $1 million punitive-damages award towards defendant Middleton as a result of presence of such circumstances.
Veritaseum, Inc. (the “Firm”) is a monetary know-how firm that makes use of blockchain-based markets to allow transactions between people. Throughout preliminary conversations between plaintiff Charles Corridor (“Corridor”) and the Firm’s CEO, Reggie Middleton (“Middleton”), Middleton made representations to Corridor in regards to the Firm’s pending patent purposes for proprietary know-how regarding using block-chain know-how and cryptocurrencies for the execution of good contracts, to entice Corridor to spend money on the Firm. Middleton represented to buyers that the Firm had pending patent purposes, inflicting them to imagine that they might be investing in an organization that might ultimately personal the patents.
Corridor commenced the motion derivatively on behalf of the Firm towards Middleton for breach of his fiduciary duties to the Firm by misappropriating the Firm’s belongings, together with its mental property.
After trial, the Court docket discovered that Middleton “breached his fiduciary obligation of loyalty to the Firm by diverting possession of the patents to himself.” Justice Schecter additional decided that the Firm (and never Middleton) ought to have owned the patents and thus different entities’ use of the patents would entitle the Firm (and never Middleton) to a licensing payment.
Throughout trial, Middleton argued that, regardless of the fiduciary relationship between the events, there needn’t be belief in cryptocurrency transactions as a result of such transactions are inherently “unbreakable guarantees.” The Court docket disagreed, stating that there’s a want for belief amongst fiduciaries. The Court docket additional famous that when belief is flagrantly violated, “there have to be actual, significant penalties to make sure that it doesn’t occur once more. Something in need of important punitive damages would additional, not thwart, duplicity.”
To be entitled to punitive damages, “a defendant’s conduct have to be directed on the public usually” (see Sherry Assocs. v Sherry-Netherland, Inc., 273 A.D.2nd 14, 15, 708 N.Y.S.2nd 105 [1st Dept 2000]). Punitive damages are meant as punishment for gross misbehavior for the nice of the general public and to discourage the defendant from repeating the wrongful act (see Le Mistral, Inc. v Columbia Broad. Sys., 61 AD2d 491, 494–95 [1st Dept 1978]).
In Corridor, the Court docket decided that as a result of Middleton clearly breached his fiduciary obligation of loyalty to the Firm, he could also be held accountable for punitive damages “no matter whether or not his conduct was aimed on the public usually.” The Court docket famous that Middleton’s conduct impacted the general public as a result of he solicited investments from the general public based mostly on his misrepresentations in regards to the Firm’s possession of the patents in addition to carried out an unlawful preliminary coin providing that resulted within the SEC issuing a consent order, thus destroying the worth of the Firm. Justice Schecter additional decided that:
Punitive damages are warranted as a result of Middleton’s diversion of belongings in breach of his fiduciary obligation to the Firm was intentional and deliberate, the associated securities-law violations represent aggravating and outrageous circumstances and his tried scheme to successfully steal the patents for himself was impelled by a fraudulent motive.
In finally deciding that the plaintiff was entitled to punitive damages, the Court docket thought-about that the SEC had ordered Middleton to pay greater than $8 million in disgorgement and a $1 million penalty. Thus, the Court docket held {that a} $1 million punitive-damages award was “justified.”
Though punitive damages are not often awarded in New York, practitioners ought to take word that the Industrial Division shouldn’t be afraid to grant such cures when circumstances, like these on show in Corridor, require them to.
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