“Faithless Servant Doctrine” Claim Dismissed

In Babbitt v. Koeppel Nissan, Inc., 2020 WL 3183895 (E.D.N.Y. June 15, 2020), the court, inter alia, dismissed defendants’ counterclaim asserting that plaintiff violated the “faithless servant doctrine.” Plaintiff alleged, among other things, that defendants subjected her to sex discrimination and retaliation.

The court explained the applicable law:

Under the faithless servant doctrine, “[o]ne who owes a duty of fidelity to a principal and who is faithless in the performance of [her] services is generally disentitled to recover [her] compensation, whether commissions or salary.” Doe v. Solera Capital LLC, No. 18-cv-1769 (ER), 2019 WL 1437520, at *9 (S.D.N.Y. Mar. 31, 2019). In New York, courts “continue to apply two alternative standards for determining whether an employee’s conduct warrants forfeiture under the faithless servant doctrine.” Carco Grp., Inc. v. Maconachy, 383 F. App’x 73, 76 (2d Cir. 2010).
The first standard requires that “the misconduct and unfaithfulness … substantially violates the contract of service” such that it “permeates the employee’s service in its most material and substantial part.” Solera Capital LLC, 2019 WL 1437520 at *9. While New York courts have not defined the “material and substantial standard,” courts have “found disloyalty not be ‘substantial’ when the behavior consisted of a single act of disloyalty, as opposed to a persistent pattern, or when the employer knew of and tolerated the behavior.” Id. (collecting cases). The second standard requires only “misconduct … that rises to the level of a breach of a duty of loyalty or good faith.” Phansalkar v. Andersen Weinroth & Co., 344 F.3d 184, 202 (2d Cir. 2003). This standard is met when an employee “acts adversely to [her] employer in any part of the transaction, or omits to disclose any interest which would naturally influence [her] conduct in dealing with the subject of [her] employment.” Id. “New York courts have not reconciled any differences between [the two standards], or defined the circumstances, if any, in which one standard should apply rather than the other.” Id. Solera Capital LLC explains that “the two Second Circuit cases that highlight the conflict, the court simply noted that the defendant in each case was liable because he qualified as a faithless servant under either test.” Solera Capital LLC, 2019 WL 1437520, at *9 (citing Carco Grp., 383 F. App’x at 76); see also Khaldei v. Kaspiev, 135 F. Supp. 3d 70, 84 (S.D.N.Y. 2015).

Applying the law, the court held that defendants’ faithless servant claim failed for substantially the same reason that it dismissed defendants’ fiduciary duty claim.

As to the first faithless servant standard, defendants “fail to provide any further detail beyond conclusory allegations such as ‘Babbitt’s disloyalty permeated her services in its most material and substantial part.'” As to the second standard, “the same analysis conducted as to Defendants’ fiduciary duty claim applies, because the second standard requires a showing of misconduct that ‘rises to the level of a breach of loyalty or good faith.’” Based on its determination that defendants failed to adequately plead such a claim, it dismissed defendants’ faithless servant claim.

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