Whitney v. Citibank, N.A.

In October 1977, Robert B. Whitney (plaintiff) formed a partnership with Carl Berger and Richard Timpone (defendants), known as Urban Recycle One Associates (URO). The partnership agreement provided that major decisions, including the divestment of property, should be made by a majority vote of the partners. Although Whitney was designated as the manager of URO, the partners agreed in writing that each would inform the others of all partnership-related matters. URO’s objective was to acquire and develop a parcel of land known as the Alcoa property. In December 1977, URO’s option to purchase the Alcoa property expired. The following June, the owner of the Alcoa property, Tri-Terminal, defaulted on its mortgage to Citibank, N.A. (defendant) and conveyed to Citibank the deed in lieu of foreclosure. Subsequently, a limited partnership, known as Edgewater Associates (Edgewater), was formed for the purpose of acquiring the property. URO was a 25 percent limited partner, and Kenneth Gladstone was the general partner. On October 4, 1978, Edgewater purchased the property from Citibank, taking out a mortgage from Citibank to do so. On April 1, 1980, Edgewater defaulted on the mortgage. Citibank initiated foreclosure proceedings but indicated that it preferred to obtain a deed in lieu of foreclosure. Gladstone, as general partner, consented to provide a deed in lieu of foreclosure, but Citibank still wanted URO’s consent in order to convey clear title. Whitney, still URO’s manager at the time, refused to consent but instead negotiated a proceeds-sharing arrangement with Citibank. Berger and Timpone refused to vote in favor of the transaction, leading Whitney to resign as manager. Berger then became manager. Thereafter, without Whitney’s knowledge, Citibank negotiated with Berger and Timpone for their consents as URO partners. Through a side agreement, Citibank agreed to pay a total of $200,000 in exchange for Berger’s and Timpone’s consents. Whitney sued Berger and Timpone for breach of fiduciary duty and also sued Citibank for inducement of the alleged breach. The district court ruled in favor of Whitney. Citibank appealed, arguing that there was no evidence that Citibank knowingly participated in Berger and Timpone’s breach of their fiduciary duty.