Ohr Somayach/Joseph Tanenbaum Educational Center v. Farleigh International…

Background

Ohr Somayach/Joseph Tanenbaum Educational Center sued Farleigh International Limited seeking a declaration that Farleigh’s donations to Ohr Somayach were irrevocable and that Farleigh had no rights connected to them. Farleigh asserted three counterclaims—claims brought by the opposing party in the same case—for breach of contract, breach of fiduciary duty, and an accounting.

Farleigh alleged that it made a $250,000 restricted gift in 2005 to help build a Jewish educational center. It alleged that the written deed and additional oral terms required the center to be used for designated non-profit religious educational purposes, prohibited mortgages or other encumbrances, and required the center to be named for Mr. Shvidler’s family. Farleigh further alleged that it later made additional gifts, totaling at least $6,650,000, under the same terms. According to Farleigh, the center was left vacant or rented commercially and was mortgaged or otherwise encumbered.

Motion and preliminary issues

Ohr Somayach moved to dismiss all three counterclaims under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal when a pleading does not state a legally sufficient claim. The court denied Ohr Somayach’s request to convert the motion into a motion for summary judgment because the parties’ submissions showed disputed facts. The court also denied Farleigh’s request for oral argument.

The court held that Farleigh had standing, meaning the legal ability to bring its claims. It rejected Ohr Somayach’s argument that only the New York Attorney General could challenge the use of charitable donations. The court relied on New York authority recognizing a donor’s ability to enforce the conditions of the donor’s gift.

The court also held that the dispute was not barred at the pleading stage by the religious-entanglement rule. Although the case involved a religious organization and religious educational purposes, the court concluded that the dispute appeared to be a contract dispute that could be resolved using neutral contract principles rather than religious doctrine.

The court rejected Ohr Somayach’s argument that New York’s statute of frauds, which requires certain real-estate transactions to be written, barred the alleged oral terms. Farleigh did not claim that it obtained an ownership interest in the educational center or other real property; it claimed contractual restrictions on how the center could be used. The court therefore held that the alleged oral terms were not barred by that statute at this stage.

The court also declined to apply the parol evidence rule to dismiss the contract claim. That rule generally prevents a party from using prior or simultaneous oral agreements to contradict a written agreement. The court found that the deed had no merger or integration clause and that the available allegations and documents did not establish whether the deed was intended to contain the parties’ entire agreement or to cover the later donations. The court stated that discovery could provide additional evidence about those questions.

Statute of limitations

Applying New York law for purposes of the motion, the court held that the six-year limitations period barred claims based on the 2006 and 2009 mortgages. The court also held that any breach concerning the center’s educational use that occurred before January 14, 2014, was time-barred. The court did not determine when later alleged breaches concerning educational use occurred.

Counterclaims

Breach of contract. The court held that Farleigh plausibly alleged a contract claim. Farleigh alleged an agreement, its own performance by making the donations, breaches involving the center’s use and encumbrances, and damages. The court did not decide whether Farleigh would ultimately prove the alleged oral terms or breaches. It held only that the claim could proceed because the issues could not be resolved on the motion to dismiss. The court denied Ohr Somayach’s motion to dismiss this counterclaim.

Breach of fiduciary duty. The court dismissed this counterclaim. Under New York law, a fiduciary-duty claim requires a duty separate from the duty to perform a contract. The court found that Farleigh based this claim on the same alleged conduct as its contract claim—using the gifts for allegedly improper purposes and encumbering the center. Because the fiduciary-duty claim duplicated the contract claim, the court dismissed it.

Accounting. An accounting is a request for financial information or an accounting of property or funds. The court dismissed this counterclaim as well. It held that an accounting generally requires a fiduciary or confidential relationship, which Farleigh had not adequately alleged. The court also noted that the deed gave Farleigh a right to receive an annual analysis of how the donation was used and that Farleigh could seek information through the contract claim, leaving no separate need for an equitable accounting claim.

Disposition

The court granted in part Ohr Somayach’s motion to dismiss Farleigh’s counterclaims. It dismissed Farleigh’s second counterclaim for breach of fiduciary duty and third counterclaim for an accounting. The breach-of-contract counterclaim was not dismissed. Ohr Somayach was directed to file a reply to the counterclaims within 10 days, and the Clerk was directed to terminate the pending motions.