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Wednesday, May 04, 2011

School district’s lawsuit against former members of a school board for alleged fiscal mismanagement held subject to a six-year statute of limitations and thus was timely filed

School district’s lawsuit against former members of a school board for alleged fiscal mismanagement held subject to a six-year statute of limitations and thus was timely filed 
Roslyn Union Free School Dist. v Barkan, 2011 NY Slip Op 03646, Court of Appeals

The issue in this appeal was whether a three or six-year statute of limitations applies to causes of action for negligence and breach of fiduciary duty by a school district against a former member of its school board. The Court of Appeals held the six-year limitations period in CPLR 213(7) is applicable and, therefore, this action was timely commenced by the School District against a former member of the school board.*

The School District’s action against a number of members of the school board stemmed from what the Court of Appeals characterized as a long-running conspiracy to loot the school district's coffers by a number of school district administrators. An extensive forensic audit by the State Comptroller determined that, from 1998 through 2004, approximately $11 million had been misappropriated: Assistant Superintendent for Business Pamela Gluckin had stolen over $4.6 million; Superintendent Frank Tassone had taken more than $2.4 million; and Account Clerk Deborah Rigano had received about $300,000. Various sums had been funneled to more than two dozen people.

The court noted that one of the defendants in this action, Carol Margaritis, was a member of the Board for approximately one year, beginning in 2000 and left the Board before Gluckin's criminal activities came to light. Further, said the court, there are no allegations that Margaritis knew about the ongoing illegal scheme, benefited from the theft of the school district's funds or received any portion of the stolen monies. Her only link to the situation was that she was a member of the Board during a time period that funds were being stolen by school district employees.

In any event, Margaritis moved to dismiss the complaint against her, arguing that the causes of action were time-barred because the school district's claims were subject to the three-year statute of limitations in CPLR 214 (4) and the complaint was filed more than three years after she ceased being a school board member. This argument was rejected by the high court and it ruled that the six-year statute of limitations controlled and thus the lawsuit against her was timely.

The Court of Appeals commented that this was “an unusual case because it is rare for school districts to engage in litigation against the individuals who voluntarily seek election to serve on school boards. Such public service is commendable and a vital component of our state's legal and moral duty to educate its children. The filing of a lawsuit by a school district against the members of its school board is certainly a disincentive for attracting qualified candidates to perform this important civic function.”

The court attributed this action by the district as responding to a particularly egregious set of facts involving severe financial mismanagement — over $11 million was stolen from taxpayers in a criminal conspiracy operated by two high-ranking school district employees and certain members of the Board were allegedly complicit because they may have breached the duties that were entrusted to them to protect the school district's assets.

Although the complaint here was not barred by the statute of limitations, the court agree with the Appellate Division that the school district's allegations did not state a cause of action against Margaritis for an accounting. “This equitable remedy is designed to require a person in possession of financial records to produce them, demonstrate how money was expended and return pilfered funds in his or her possession.”

As the State Comptroller was able to trace countless financial transactions in order to determine how the vast bulk of the stolen monies was used and the identity of the individuals who received the funds, the court ruled that there appeared to be no need for an accounting by Margaritis, but reinstated the causes of action for breach of fiduciary duty, common-law negligence and declaratory judgment as against her as having been timely filed.

* The question before the Court of Appeals was not whether any board member bears a degree of responsibility for the financial losses suffered by Roslyn Union Free School District but whether the case against the former members of the school board was timely filed.

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