On December 29, 2023, Justice Cohen of the New York County Commercial Division issued a decision in Kruchten v. Eastman Kodak Co., 2023 NY Slip Op. 34556(U), holding a stock plan administrator liable for negligence in administering the plan, explaining:
In his Fourth Cause of Action, Plaintiff alleges Computershare owed a duty to use reasonable care to ensure that Plaintiff’s options were accurately recorded, and Computershare failed to do so. Defendants primarily contest this claim arguing Computershare had no independent duty to Plaintiff sounding in tort and that all of Computershare’s obligations relating to the administration of Kodak’s stock-incentive program were governed by contracts including the Agency Services Agreement. Specifically, with respect to the Agency Services Agreement, Defendants contend that as a non-party, Plaintiff cannot hold Computershare liable in tort for breaching a provision therein.
While generally, a nonparty cannot impose tort liability upon a party to a contract for breach thereof, the Court of Appeals has permitted actions sounding in negligence despite the absence of a contract between the parties, where the plaintiffs intended reliance, on the information directly transmitted by the other party, created a bond so closely approaching privity that it was, in practical effect, virtually indistinguishable therefrom. Accordingly, Plaintiff’s claim that Computershare owed a duty to use reasonable care to ensure that Plaintiff’s options were accurately recorded under the Agency Services Agreement, and failed to do so can stand where, as here, Plaintiffs use of the information provided by Computershare was not an indirect or collateral consequence of Computershare’ s actions but rather was a consequence which to Computershare’s knowledge, was the end and aim of the Agency Services Agreement.
Specifically, under the Agency Services Agreement, Computershare was engaged to: host Kodak’s system of record for a recordkeeping system to maintain all participant award data; provide participant’s access to the recordkeeping system via a website which may be used by Participants to, view grant status, view grant detail and submit option exercise requests; provide Participants with access to customer service representatives; process forfeitures and cancellations of stock options and restricted awards based on instructions received from Kodak and determine the number of shares that have been validly exercised. These services bespoke an affirmative assumption of a duty of care to a specific party, for a specific purpose, regardless of whether there was a contractual relationship. Stated differently, Computershare assumed these obligations with the very end and aim of shaping the conduct of another. As a result, diligence was owing, not only to him who ordered i.e., Kodak, but to him who also relied i.e., Plaintiff.
The evidence adduced at trial establishes that Computershare negligently failed to accurately record and account for Plaintiff’s NSQOs and that Plaintiff detrimentally relied on the information directly transmitted by Computershare when Plaintiff exercised his options on the July 30, 2020 phone call. Accordingly, Computershare breached its duty of care owed to Plaintiff that his options were accurately recorded, and Plaintiff was injured as a result.
(Internal quotations and citations omitted).