Legal Memorandum: Fiduciary Conduct and "Self Dealing"

Issue: Would a fiduciary’s conduct that benefitted him indirectly, at the expense of the estate, be considered ‘self dealing?’

Area of Law: Estate Planning & Probate
Keywords: Fiduciary's conduct; Self dealing; Act of disloyalty
Jurisdiction:  New York
Cited Cases: 392 N.Y.S.2d 870; 43 N.Y.2d 305; 401 N.Y.S.2d 449
Cited Statutes: None
Date: 03/01/2010


In In re Estate of Rothko, 84 Misc. 2d 830, 844, 379 N.Y.S.2d 923, 940 (Sur. Ct. 1975), decree modified, 56 A.D.2d 499, 392 N.Y.S.2d 870 (1st Dep’t), aff’d, 43 N.Y.2d 305, 372 N.E.2d 291, 401 N.Y.S.2d 449 (N.Y. 1977), a case that is cited as precedential in subsequent cases, the court concluded that a fiduciary’s conduct that benefitted him indirectly, at the expense of the estate, was “the equivalent of self dealing.”  Although the fiduciary, who had a clear conflict of interest, did not engage in self-dealing in the classic sense—that is, “in the sense of buying or selling assets directly to or from the estate for his own personal account”—the court deemed his actions a “breach of loyalty” and equivalent to self-dealing.  Id., 84 Misc. 2d at 844, 379 N.Y.S.2d at 940.  “The use of his fiduciary position to gain a benefit for a third person … constitutes an act of disloyalty.”  Id. at 838, 379 N.Y.S.2d at 935.  Specifically, he was both executor of an estate and a director and officer of a consignee; he engaged in actions detrimental to his duty to the estate while strengthening the corporation consignee.  Id. at 841-842, 379 N.Y.S.2d at 937-38.  He was not to use his dual position in the disposition of trust property, concluded the court, without prior court approval.  Id. at 838, 379 N.Y.S.2d at 935.


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