Deblinger v Sani-Pine Prods. Co. Inc.
2012 NY Slip Op 31033(U)
April 11, 2012
Supreme Court, Nassau County
Docket Number: 01239/11
Judge: Stephen A. Bucaria
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[* 1]
SHORT FORM ORDER
SUPREME COURT - STATE OF NEW YORK
Present:
HON. STEPHEN A. BUCARIA
Justice
TRIAL/IAS, PART
NASSAU COUNTY
JAY 1. DEB LINGER, individually, and as a
shareholder of SANI-PIN PRODUCTS CO.
INC. and LEEMA LEASING CORP. , suing
on behalf of himself and all other shareholders
of SANI- PINE PRODUCTS CO. INC. and
LEEMA LEASING CORP. similarly situated
and derivatively on behalf of SANI- PIN
PRODUCTS CO. INC. and LEEMA LEASING
CORP.
INEX No.
012391/11
MOTION DATE: Feb. 28, 2012
Motion Sequence # 002
Plaintiffs
-againstSANI- PIN PRODUCTS CO. INC., LEEMA
LEASING CORP. and H. CECILE DEB LINGER
a/a HELEN CECILE DEB LINGER,
Defendants.
The following papers read on this motion:
Notice of Motion....................................... X
Affirmation in Opposition......................... X
Reply Affirmation........... """,,,,,,,,,,,,,,,,,,,,, X
Memorandum of Law................................. X
Motion by defendant H. Cecile Deblinger to dismiss the complaint for lack of capacity
denied in part.
or failure to state a cause of action is
2ranted in par and
[* 2]
DEBLINGER, et al v SANI-PINE PRODUCTS CO. INC., et al Index
no. 012391/11
This is a shareholder derivative action on behalf of two closely held corporations.
Plaintiff Jay 1. Deblinger holds 1/3 of the stock of Sani- Pine Products Co. Inc. and Leemar
Leasing Corp. Defendant H. Cecile Deblinger , Jay s sister , is also a 1/3 shareholder of both
corporations. The remaining 1/3 interest in both companies is held by the other sister, Jo
Deblinger , who is not a par to the action. Sani- Pine was engaged in the business of selling
disinfectants and cat litter. The corporation owned rental properties in Manasset and
Manhattan. Leemar was engaged in the business ofleasing automobiles and also owned two
rental properties in Manasset. Although all three stockholders were officers and directors
of the companies , Cecile was responsible for the operation of the businesses.
On December 21 , 2007 ,
the stockholders held a meeting by telephone and agreed to
the liquidation of the corporations. It was further agreed that Cecile would offer the rental
properties for sale and that, once a bona fide offer was received , any of the stockholders
would have the right to purchase the propert at that price.
Jay purchased the properties held by Leemar on June 20 , 2008. The Sani- Pine
Manhattan propert was sold to a third-par on August 12 , and the Sani- Pine Manhasset
propert was sold to a third-par on September 17 , 2008. Approximately $1. 5 milion was
realized upon the sale of the Sani- Pine properties.
On February 2 , 2010 , Cecile brought a petition for the judicial dissolution of both
Sani- Pine and Leemar on the ground that dissolution would be beneficial to the shareholders.
Neither Jay nor Jo An objected to dissolution , but Jay reserved his right to assert breach of
fiduciary duty claims against Cecile and requested that the claims be adjudicated in the
dissolution proceedings.
By order dated August 19 2010 , the court granted the petitions and directed Cecile
to submit
separate judgments of dissolution for each corporation on notice
to other
shareholders. Because Jay s breach of fiduciar duty claims had not been alleged in detail
the court declined to exercise jurisdiction over the claims in the context of the dissolution
proceeding. On September 27 2010 , the court issued final judgments of dissolution as to
Sani- Pine and Leemar and directed that the propert of each corporation be distributed to the
shareholders on a 1/3 basis.
2010 , Cecile made an initial distribution of assets and distributed to
Jay $776 916 , representing his share of Sani-Pine , and $100 000 , representing his share of
Leemar. Final distrbution was made on Aril4 , 2011 after Cecile received confirmation that
the judgments of dissolution had been fied by the Deparent of State.
On December 7
[* 3]
DEBLINGER, et al v SANI-PINE PRODUCTS CO. INC., et al Index
no. 012391/11
was
commenced around November of 20 11. Jay alleges that Cecile breached her fiduciary duty
This breach of fiduciar duty action asserted on behalf of the corporations
by I) continuing
to pay herself salary and a management fee between the time that the
corporations ceased active business operations and the time their assets were distributed , 2)
delaying the distribution of corporate assets, and 3) commencing "unnecessar" dissolution
proceedings. Additionally, Jay alleges that Cecile failed to sell certain stock held by SaniPine in a timely fashion resulting in a loss to the shareholders.
Defendant moves to dismiss the complaint for lack of capacity and failure to state a
cause of action. Defendant argues that because plaintiff characterized his claims as personal
in order to avoid having them decided within the dissolution proceedings , plaintiff is bared
from asserting the claims as derivative by the doctrine of judicial estoppel. Additionally,
defendant argues that plaintiff s claims are bared by the business judgment rule and failure
to serve a demand on the directors that the corporations bring the action.
The doctrine of inconsistent positions , or judicial estoppel , precludes a part, who has
taken a position in a prior legal proceeding and secured a favorable judgment , from assuming
(Rosario v
a contrary position in another action simply because its interests have changed
76 AD3d 963 (2d Dept 2010)). In the present action , Jay is
asserting derivative breach of fiduciar duty claims , which he originally characterized as
individual in natue. However , because the cour declined as a matter of discretion to
exercise jurisdiction over the breach of fiduciar duty claims in the dissolution proceeding,
Jay did not obtain a judgment in his favor. Accordingly, the doctrine of judicial estoppel
does not bar the present action.
Montalvo
Son Auto Repair
The business judgment doctrine bars judicial inquir into actions of corporate
directors taken in good faith and in the exercise of honest judgment in the lawful and
legitimate fuherance of corporate
372 (2005)). Such
puroses
Consumers Union v New York
NY3d 327
matters include questions of policy of management, expediency of
contracts or action , adequacy of consideration , and lawful appropriation of corporate funds
to advance corporate interests (Id).
The court concludes that Cecile s decision to seek dissolution of Sani- Pine and
Leemar , the timing of her distribution of the corporate assets , and her decision to hold and
then sell Sani- Pine
judgment. Thus ,
s stock were all taken in good faith and in the exercise
of honest
the business judgment rule bars judicial inquiry into those actions.
[* 4]
DEBLINGER, et al v SANI- PINE PRODUCTS CO. INC., et al Index
no. 012391/11
Defendant'
eranted
to the extent that plaintiff asserts breach of fiduciar duty claims based upon dissolution of
the corporations , delay in distributing assets, and delay in sale of Sani- Pine s stock.
s motion to dismiss the complaint for failure to state a cause of action is
The cour wil not undertake to review the fairness of official salaries , at the suit of
a shareholder attacking them as excessive , unless wrongdoing and oppression or possible
(Marx v Akers 88 NY2d 189 , 203 (1996)).
However, the cour may review the salary of an officer or director at the instace of the
abuse of a fiduciar position
are shown
corporation or a shareholder in extreme cases , such as where the directors draw the entire
corporate income as salary and leave nothing for the shareholders (Id). The compensation
rates must be excessive on their face or plaintiff must allege other facts which call into
question whether the compensation was fair to the corporation when approved, the good faith
ofthe directors setting those rates , or that the decision to set the compensation could not have
been the product of valid business judgment (Id).
Plaintiff alleges that after the corporations ceased doing business Cecile continued to
draw $40 000 from each corporation , for a total offcial salary of approximately $80 000.
This salar is clearly not excessive on its face. However , because ofthe acrimony between
the paries , it may be inferred that Cecile s decision to continue to draw her salar after
corporations ceased doing business was not taken in good faith.
Demand is futile ,
and excused ,
when the directors are incapable of making an
(Bansbach v Zinn 1 NY3d 1 (2003)). Demand
is excused when a majority ofthe board is inter ted in the challenged transaction , the board
did not fully inform itself of the transactionTo the extent reasonably appropriate , or the
transaction is egregious on its face.
impartial decision as to whether to bring suit
Clearly, Cecile was interested in her management salar while the dissolution was
pending. Accordingly, it would have been futile to demand that Cecile bring an action
challenging her own compensation.
Defendant's motion to dismiss for failure to state a cause of action is
plaintiffs excessive
compensation claim.
So ordered.
Dated
I/
4fi
Zd/l-
ENTERE
AP 13 202
NASSAU COUNT1
couNT CLi RK'S OFfiCE
denied as to
