Berger v Scharf

[*1] Berger v Scharf 2006 NY Slip Op 50519(U) [11 Misc 3d 1072(A)] Decided on March 29, 2006 Supreme Court, New York County Fried, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on March 29, 2006
Supreme Court, New York County

Paul Berger, Plaintiff,

against

Michael J. Scharf, GILBERT D. SCHARF, FRANK ARCHER, GERALD L. COHN, ANDREW R. HEYER, DOUGLAS T. TANSILL, AND NIAGARA CORP., Defendants.



Spring Partners, L.L.C., ON BEHALF OF ITSELF AND ALL OTHERS SIMILARLY SITUATED, Plaintiffs, -against-

against

Michael J. Scharf, GILBERT D. SCHARF, FRANK ARCHER, GERALD L. COHN, ANDREW R. HEYER, DOUGLAS T. TANSILL, AND NIAGARA CORP., Defendants.



600935-2005



Paskowitz & Associates, New York City (Laurence D. Paskowitz of counsel) and Roy Jacobs & Associates, New York City (Roy L. Jacobs of counsel), for Plaintiff Paul Berger. Law Offices of Christopher J. Gray, P.C., New York City (Christopher J. Gray of counsel), for Plaintiff Spring Partners, LLC. Skadden, Arps, Slate, Meaghor & Flom LLP, New York City (Samuel Kadet and Maya Alperowicz of counsel), for Defendants.

Bernard J. Fried, J.

In these actions, both plaintiffs assert causes of action for breach of fiduciary duty based on the delisting of defendant Niagara Corp.'s ("Niagara") stock from the NASDAQ stock exchange.[FN1] However, plaintiffs are differently situated because the class of plaintiffs represented [*2]by Spring Partners, LLC ("Spring Partners") no longer hold stock in Niagara, while the class of plaintiffs represented by Paul Berger ("Berger") still hold stock in the company. In addition, Spring Partners brings a claim for unjust enrichment.

In motion sequence 001, I denied defendants' motion to dismiss the Spring Partners' complaint ("Spring Partners complaint"), but granted leave to apply the motion to dismiss to Berger's newly filed amended complaint ("amended Berger complaint"). The facts set out in the prior decision have not been repeated here.

At this time, defendants have decided to move to dismiss the amended Berger complaint on grounds of forum non conveniens, failure to state a valid cause of action, and justiciability. (Berger Motion Seq. No. 003). Defendants also move to renew their motion to dismiss the Spring Partners complaint on grounds of forum non conveniens. (Spring Partners Motion Seq. No. 003).[FN2] I will consider first, the argument that each complaint should be dismissed for forum non conveniens and then the remaining arguments for dismissal of the amended Berger complaint.

Motion to Dismiss Both Complaints Based on Forum Non Conveniens

Defendants move to dismiss the Berger complaint, and to renew their motion to dismiss the Spring Partners complaint, pursuant to CPLR 327(a). They urge dismissal in favor of a proceeding before the Delaware Court of Chancery, where one Wynnefield, a Niagara shareholder independent of the plaintiffs in this case, filed a books and records action subsequent to the filing of the actions here. In support of their motion, they provided, among other things, a portion of the transcript of the proceedings in the Delaware books and records action. A decision has yet to be rendered in the books and records action.

Defendants argue that dismissal is justified because this action is substantially related to the Delaware action.[FN3] They posit that Delaware law governs the substance of this action, the Delaware court has jurisdiction over all the parties, and the existence of actions in two forums gives rise to a risk of inconsistent results. Specifically, defendants argue that an inconsistency would arise if the Delaware court denies the cause of action for books and records but I allow the cause of action for breach of fiduciary duty in this case. Noting that both cases rest on similar factual allegations, defendants argue that such a result would be inconsistent because if [*3]Wynnefield, a shareholder like Berger, cannot meet the minimal standard in the books and record action, which requires only a credible basis supporting a finding of possible wrongdoing, then it would be illogical to find that plaintiffs here state a valid claim when it is required that they allege, among other things, particularized facts showing that defendants delisted Niagara for an improper purpose.

Plaintiffs oppose dismissal in favor of the subsequently-filed books and records action in Delaware, arguing that most of the witnesses live in New York, Niagara's books and records are located in New York, Niagara's board of directors meet regularly in New York, and Wynnefield, the plaintiff in Delaware, is not related to the plaintiffs here. In response to the argument based on inconsistency, plaintiffs contend that the claims here present no risk of inconsistent results because they involve different legal issues and were brought in a plenary action rather than an expedited proceeding like the books and records action in Delaware.

New York courts may dismiss an action, "on any conditions that may be just," on a finding that in the interest of substantial justice the action should be heard in another forum. (CPLR 327 [a]). New York courts consider factors, including the existence of an adequate alternative forum; the state of incorporation; the existence of a substantial nexus between New York and the action; potential hardship to the defendant; and the burden on New York courts. (See Islamic Republic of Iran v. Pahlavi, 62 NY2d 474, 479 [1984]; Sturman v. Singer, 213 AD2d 324, 325 [1st Dept, 1995]; Broida v. Bancroft, 103 AD2d 88, 92 [2d Dep't 1984]).

Incorporation in a foreign state weighs in favor of dismissal but does not by itself necessitate forum non conveniens dismissal. Certainly where an action involves the internal affairs of a foreign corporation, the state of incorporation has a "paramount interest" in hearing the claim, (Sturman v. Singer, 213 AD2d 324, 325 [1st Dept, 1995] [citing Hart v. General Motors, 129 AD2d 179, 185 [1st Dep't 1987] ]); nonetheless, a New York "court will exercise jurisdiction over [the] action . . . unless it is an inappropriate or an inconvenient forum for the trial of the action." (Broida v. Bancroft, 103 AD2d 88, 92 [2nd Dep't 1984] [citing Restatement, Conflict of Laws 2d, § 313]). Dismissal of an action on forum non conveniens grounds in favor of the state of incorporation most often occurs when related actions have already been commenced in the state of incorporation. (See Sturman v. Stringer, 213 AD2d at 325; Hart v. General Motors, 129 AD2d at 185).

Here, several factors weigh in favor of retaining jurisdiction over these actions: Niagara's headquarters are located in New York. Its board of directors meets regularly in New York. Niagara keeps its books and records in New York. Many potential witnesses, including several of the individual defendants, are located in New York. These allegations are sufficient to establish a substantial nexus with New York.

Few factors weigh in favor of dismissal on grounds of forum non conveniens. Niagara is a Delaware corporation, but the state of incorporation is no longer determinative in deciding a motion to dismiss for forum non conveniens. (See Broida v. Bancroft, 103 AD2d at 92 [citing Restatement (Second) Conflict of Laws § 313]). Moreover, the fact that similar factual allegations were offered to support the books and records claim in Delaware does not demand dismissal because the actions here present legal issues different from that in Delaware.

Defendants, relying on certain statements made by the Vice Chancellor presiding over the subsequent books and records action in Delaware, raise the issue of inconsistent results, arguing [*4]that a denial of the request for books and records in the Delaware action would be inconsistent with a possible ruling in this case that the plaintiffs state a valid claim for breach of fiduciary duty. Defendants offer a few pages of the transcript of proceedings in the books and records action, in which Vice Chancellor Parsons, Jr. states that, "[i]n listening to the testimony, I don't believe that I've heard anything that in my mind would amount to a credible showing that there is possible wrongdoing in connection with [the] decision [to delist]." (Kadet Aff., Ex. O, at p.336).

But, defendants misplace their reliance on these statements. The Vice Chancellor's statement is only that of a judge thinking aloud, it is not a ruling. No decision has yet been rendered by the Vice Chancellor. Furthermore, it appears that Wynnefield did not seek access to Niagara's books and records for the purpose of establishing a breach of fiduciary duty claim on the basis of the decision to delist. Rather, Wynnefield's complaint shows that he sought access to Niagara books and records "to (a) determine whether the Reverse Stock Split and the Forward Stock Split were valid and effective, (b) determine whether . . . the Corporation has a continuing reporting obligation under [SEC regulations] and (c) investigate potential mismanagement, wrongdoing, and breaches of fiduciary duty in connection with the Reverse and Forward Split.'" (Kadet Aff., Ex. N, at ¶ 7). Wynnefield alleged that his demands were "narrowly tailored to suit the purpose" a books and records action. (Kadet Aff., Ex. N, at ¶ 10). From the books and records complaint, and the limited record provided by the parties, the Delaware action focused on the stock splits that occurred during late 2004 and early 2005, not the decision to delist. And, with respect to Wynnefield's "narrowly tailored" request regarding the stock splits, the Vice Chancellor stated, "I think what we are saying and what I'm inclined to conclude is that for purposes of a [books and records] action, we have a shareholder that has an interest in information as to exactly what happened with respect to those reverse split[s] [and] forward split[s]. . . ." (See Kadet Aff., Ex. O, at p.334). Clearly, this is an indication that there may be a credible basis to support an ultimate finding of possible wrongdoing with respect to the stock splits.

Here, plaintiffs present a different legal issue, a claim for breach of fiduciary duty focused on the decision to delist Niagara. The facts regarding the stock splits alleged in plaintiffs' complaints were included to support their claims based on the decision to delist. Thus, although the actions here may, upon a cursory review of the factual allegations, appear facially related to the Delaware books and records action, a closer analysis shows that they are different. Moreover, it is significant that the Delaware action was filed after the actions here. (Compare Kadet Aff., Ex. B and C with Ex. N). It seems evident that a subsequent action, filed by an unrelated party, cannot warrant dismissal of the actions here.

In short, a substantial nexus exists between New York and both the Spring Partners and Berger actions. There is no showing of a potential hardship to the defendant. Furthermore, there is no excessive burden on New York courts because this case has already been before the court. Thus, the defendant's motions to dismiss the amended Berger complaint and the Spring Partners complaint, based on forum non conveniens, is denied.

Motion to Dismiss The Amended Berger Complaint [*5]

Defendants move to dismiss the amended Berger complaint pursuant to CPLR 3211(a)(7) for failure to state a cause of action and pursuant to CPLR 3211(a)(2) for lack of justiciability.[FN4]

Berger's amended complaint sets forth many of the same allegations that survived the first motion to dismiss the Spring Partners complaint. Berger alleges that, before delisting its stock, defendant Niagara, a Delaware corporation, reported excellent financial performance, performance that differed greatly with its historically poor performance. Despite such good performance, Niagara decided to delist its stock and cease filing reports with the SEC. The value of Berger's holdings in Niagara fell after the delisting and remains artificially low. Berger has learned that, in the second quarter of 2005, the board of directors granted 345,000 stock options to certain executives [FN5] and has retained financial advisors to explore the possibility of selling the company.

The complaint alleges that individual defendants Michael Scharf, Gilbert Scharf, and Frank Archer are not disinterested directors because Michael and Gilbert Scharf are related and Frank Archer is an employee of Michael Scharf. Moreover, the complaint asserts that these self-interested directors decided to deregister the company for improper purposes. Berger asserts that, by delisting the company, Michael Scharf has gained a benefit in that he is now able to arrange corporate transactions so that he would receive unfair compensation at the expense of minority shareholders, such as the plaintiffs.

The amended complaint seeks damages and injunctive relief for breach of fiduciary duty based on the directors' decision to delist Niagara. However, the Wherefore Clause contains two new claims for relief:[FN6] The first claim is for damages resulting from the issuance of the stock options. The second is for declaratory judgment regarding the standard that must apply to any sale of Niagara.

Plaintiffs did not plead the two additional claims for relief as separately numbered causes of action, (see CPLR 3014), and argued, during oral argument, that the additional claims were actually related to the original cause of action for breach of fiduciary duty based on delisting.[FN7] I construe the amended Berger complaint, in its current form, as presenting only one cause of [*6]action for breach of fiduciary duty based on the deregistration of Niagara shares for improper or inequitable purposes, the cause of action on which Berger bases his additional claim for damages from the issuance of stock options.

Thus, there is no need to consider whether the allegations regarding the issuance of stock options, by themselves, state a valid cause of action separate from the cause of action based in the decision to delist.

With regard to the cause of action for breach of fiduciary duty based on the decision to delist, defendants argue that the complaint fails to validly state this cause of action because Berger does not allege with particularity facts sufficient to overcome the business judgment rule. Specifically, the defendants argue that there are no particular allegations showing that Michael Scharf had any self-interest in the decision to deregister. Defendants argue that Michael Scharf, as the largest shareholder, was equally affected by the decrease in share price because the change in price affected all shares equally.

Plaintiffs argue that the complaint alleges with sufficient particularity that Michael Scharf had a self-interest in the deregistration decision. They allege that, despite the equal decrease in share price, delisting affected Michael Scharf differently because he dominated the board of directors through his influence over two other directors, Gilbert Scharf and Frank Archer. As the dominant director, Michael Scharf gained a benefit comprising the ability to control his own compensation and engage in "transactions . . . which are disadvantageous to unrelated minority shareholders." (Amended Berger Compl., at ¶ 5). Berger claims that his allegations are further supported by the disclosures about the issuance of stock options and the possible sale of the company.

When deciding a motion to dismiss pursuant to CPLR 3211(a)(7), the facts as alleged in the complaint and opposition papers must be accepted as true. A court must accord the plaintiff "the benefit of every possible favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory." (E.g, Sokoloff v. Harriman Estates Development Corp., 96 NY2d 409, 414 [2001]; Leon v. Martinez, 84 NY2d 83, 87-88 [1994]). Claims alleging breach of fiduciary duty must "be stated in detail." (CPLR § 3016[b])(Simon v. Becherer, 7 AD3d 66, 72 [1st Dep't 2004] [dismissing a complaint against particular executives because it did not support with, "specific facts," its assertions that the defendants approved of the transactions at issue]).

As discussed in the previous decision relating to Spring Partners, while New York law governs the procedural aspects of the action, the law of Delaware applies to the substance of the claims. (Lewis v. Dicker, 118 Misc 2d 28, 31 [Sup. Ct. 1982]).

Delaware law allows actions such as this one to proceed without a prior demand of a corporation's board of directors if the "plaintiff . . . allege[s] with particularity facts creating a reasonable doubt that (1) the directors are disinterested and independent and (2) whether the transaction at issue resulted from a valid exercise of business judgment." (Aronson v. Lewis, 473 A.2d 805, 814 [Del., 1984]; Brehm v. Eisner, 746 A.2d 244, 256 [Del. 2000]).

Under Aronson, a plaintiff "create[s] a reasonable doubt that a director is [not] disinterested" by pleading "particular facts to demonstrate that a director will receive a personal financial benefit from a transaction that is not equally shared by the stockholders' or, conversely, [*7]that a corporate decision will have a materially detrimental impact on a director, but not on the corporation and the stockholders.'" (In re Walt Disney Co. Derivative Litigation, 731 A.2d 342, 354 [Del. Ch. 1998] [citing Rales v. Blasband, Del.Supr., 634 A.2d 927, 936 [1993] ]). Only "well-pleaded allegations of fact and the reasonable inferences that can be drawn from them" shall be considered in determining whether a director is disinterested. (Id.).

Berger provides specific reasons supporting his assertion that the delisting was motivated by personal self-interest, rather than by a disinterested decision: "Insiders like Scharf can benefit from a company going dark because they have information the public shareholders do not, and can engage in transactions and receive compensation without revealing the details the SEC would require." (Amd. Berger Complaint, at ¶ 5). "The reason given for going dark, the benefits of saving money, was pretextual, as it is plain that public shareholders have suffered substantial harm from these actions, while defendant Scharf stands to gain in ways unavailable to non-insiders." (Id., at ¶ 7). "Going dark served the interests only of the controlling Scharf family, who can now conduct the affairs of Niagara out of the spotlight of public scrutiny, and can even arrange to buy in shares or take the company private at an unfairly depressed stock price." (Id., at ¶ 27). The complaint alleges that the price of Niagara remains artificially low and that the company recently announced plans to investigate the possibility of selling the company. (Id., at ¶ 29). These allegations establish that Michael Scharf was not disinterested in the decision to delist.

The allegations regarding the grant of stock options also establish a lack of disinterestedness. Berger alleges that, in the second quarter report for 2005, Niagara granted 345,000 options to several "insiders." Although Michael Scharf did not receive any options, it may reasonably be inferred that Frank Archer, an insider executive, received options, which would establish that he lacked disinterest.[FN8] Thus, the complaint pleads, with particularity, that disinterested reasons did not motivate the delisting.

A plaintiff making a claim for breach of fiduciary duty must also assert particularized facts showing that the directors did not act "independently." Independence' involves an inquiry into whether the director's decision resulted from that director being controlled by another. A director can be controlled by another if in fact he is dominated by that other party, whether through close personal or familial relationship or through force of will. A director can also be controlled by another if the challenged director is beholden to the allegedly controlling entity. A director may be considered beholden to (and thus controlled by) another when the allegedly controlling entity has the unilateral power (whether direct or indirect through control over other decision makers), to decide whether the challenged director continues to receive a benefit, financial or otherwise, upon which the challenged director is so dependent or is of such subjective material importance to him that the threatened loss of that benefit might create a reason to [*8]question whether the controlled director is able to consider the corporate merits of the challenged transaction objectively.

(Orman v. Cullman, 794 A.2d 5, 25 n.50 [Del. Ch. 2002]). This requires an allegation that at least half of the board of directors lacked independence. (Orman v. Cullman, supra, 794 A.2d at 24-25; In re Walt Disney Co. Derivative Litigation, 731 A.2d 342, 354 [Del. Ch. [1998]).

Here, the complaint adequately alleges that at least half of Niagara's six directors lacked independence in deciding to delist. Berger asserts that two members of Niagara's board had strong connections to the board's Chair, Michael Scharf, who allegedly made the decision to delist. Not only does the complaint allege that Michael Scharf "dominates" the board, but it also asserts that he is the brother of a second director, Gilbert Scharf, and that Michael Scharf employs a third director, Frank Archer, who serves as an executive in two subsidiaries of Niagara, Niagara LaSalle and LaSalle Steel Corp.[FN9] (Amd. Berger Complaint, at ¶ 13). These allegations are sufficient to establish a lack of independence on the part of half of the board of directors.

The second prong of the Aronson test requires allegations sufficient to overcome the business judgment rule, which presumes that a board of directors acts on an informed basis, in good faith, and in the honest belief that the action taken was in the best interests of the corporation. (Aronson, 473 A.2d at 812). Directors' decisions will be respected by courts unless it is particularly alleged that the directors are "interested or lack independence relative to the decision, do not act in good faith, act in a manner that cannot be attributed to a rational business purpose, or reach their decision by a grossly negligent process that includes the failure to consider all material facts reasonably available." (Brehm v. Eisner, 746 A.2d at 264 n.66). "Essentially, the duty of loyalty mandates that the best interest of the corporation and its shareholders takes precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the stockholders generally."(Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 [Del.,1993]). "Classic examples of director self-interest in a business transaction involve either a director appearing on both sides of a transaction or a director receiving a personal benefit from a transaction not received by the shareholders generally." (Id., at 362).

Describing the burden to plead that a board of directors has acted beyond the scope of the activity protected by the Business Judgment Rule, the Delaware Court of Chancery held that, "[a]s a general matter, the business judgment rule presumption that a board acted loyally can be rebutted by alleging facts which, if accepted as true, establish that the board was either interested in the outcome of the transaction or lacked the independence to consider objectively whether the transaction was in the best interest of its company and all of its shareholders." (Orman v Cullman, supra, 794 A.2d at 22).

A plaintiff states a valid claim under Delaware law for breach of fiduciary duty by alleging particular facts showing that the directors decided to delist for self-interested reasons rather than "to avoid the continuing expense of complying with the reporting requirements of the [Securities] Exchange Act." (Hamilton v. Nozko, 1994 WL 413299, at *6 [Del.Ch., 1994]). Delisting a corporation's stock, "even where legally permissible, will be proscribed if taken for an [*9]inequitable purpose." (Id. [citing Schnell v. Chris-Craft Industries, Inc., 285 A.2d 437, 439 [Del. Supr. 1971] and Rabkin v. Philip A. Hunt Chemical Corp., 498 A.2d 1099, 1107 [Del. Supr. 1985] ]). In Hamilton, a Delaware court upheld a cause of action for breach of fiduciary duty based on deregistration, because the deregistration by a self-interested and dominate director made the minority shareholders unable "to liquidate their shares at a fair price, and . . . vulnerable to a forced sale at an unfair price. . . ." (Hamilton, 1994 WL 413299, at *6).

Berger alleges facts, as mentioned above, showing that the decision to delist was taken for inequitable purposes and resulted in a personal benefit to Michael Scharf in that he now has the power to engage in corporate activity that would be financially beneficial to himself and unfair to the plaintiffs. Berger also asserts that the defendants "unfairly time[d] [the deregistration] to disadvantage public shareholders," granted stock options that diluted the public shareholders interests and allowed insiders to make extra profit, and intend to sell the corporation at an artificially low price. The complaint alleges that Niagara's delisted shares currently sell at a discount compared to what they would sell for in a public market.

These allegations sufficiently support Berger's claim that defendants' suggested motivation for delisting, to eliminate the cost of reporting, was pretextual. The amended Berger complaint provides more than conclusory assertions that the board of directors' decision to delist the corporation's stock was not a "valid exercise of business judgment," because the complaint asserts, with particularity, that the decision by at least half of Niagara's board to delist the corporation's stock lacked both independence and disinterestedness.

Defendants argue that Berger failed to show self-interest on the part of Michael Scharf and the individual defendants because any decrease in share price would equally affect both the individual defendants' stake in the company and Berger's interest. However, this argument fails to persuade because the negative impact on the share price "affect[s] the defendant shareholders differently." (Hamilton v. Nozko, supra, 1994 WL 413299, at *7). Even though Michael Scharf's shares suffered the same drop in price as Berger's, Scharf, as a director who dominates the board, now has sufficient control over Niagara to structure any sale so that he receives an unfair amount of compensation. Berger's allegations are sufficiently particular to show that Michael Scharf improperly used the corporation machinery to acquire the ability to engage in such transactions or to otherwise cause Niagara to award himself an unfair amount of compensation.

The motion to dismiss the claim for breach of fiduciary duty based on the decision to delist is denied.

With regard to the claim for declaratory judgment regarding a possible sale of Niagara, defendants argue that no subject matter jurisdiction exists over such a claim for relief because it is based on only the possibility that Niagara will be sold and is, therefore, contingent upon a future event. The complaint seeks judgment "enjoining Niagara and all defendants from carrying out a sale of the Company in a manner which does not comport with the standards of entire fairness, and awarding damages if they do sell Niagara at a price which does not reflect fair dealing and a fair price."

Defendants argue that such a controversy cannot be justiciable because the "exploration of strategic alternatives" does not constitute an actual controversy that would affect plaintiffs' [*10]rights. They note that no sale has been announced and that, should a sale take place, it is entirely possible that its terms could be fair to the plaintiffs.

Berger contends that his claim is justiciable now because the defendants are preparing to sell the company while the price is artificially low. Based on a public statement by Niagara that the company may be sold, plaintiffs allege that "[t]he Company did not rule out a sale to the controlling Scharf family or other insiders." Berger also argues that a sale of the company, regardless of the purchaser, would cause shareholders to lose the benefit of a premium sales price that would exist if the company was publically traded.

A justiciable controversy exists where it affects the legally protectable interests of the plaintiff and an actual controversy exists between the parties. (See Board of Cooperative Education Services v. Golden, 38 AD2d 267, 272 [2d Dep't 1972]; Initiative for Cooperative Energy v. Long Island Power Authority, 178 Misc 2d 979, 998 [NY Sup. Ct. 1988]). New York courts will not render a decision regarding a future event where "any decree that the court might issue will become effective only upon the occurrence of a future event that may or may not come to pass." (New York Public Interest Research Group, Inc. v. Carey, 42 NY2d 527, 531 [1977] [citations omitted]). Such a decision would be merely "an opinion advising what the law would be upon a hypothetical state of facts." (1 New York Civil Practice: CPLR P 3001.05 [2005] [quoting Aetna Life Insurance Co. v. Haworth, 300 U.S. 227 [1937] ]).

Despite Berger's argument that his interest is presently at risk because of the artificially low stock price, his claim for declaratory relief presents only a demand for "an opinion advising what the law would be upon a hypothetical state of facts." (Id.). The claim for declaratory relief seeks an order stating what legal standard must apply to any possible sale of the company, a sale that, at this point, remains hypothetical. Therefore, defendants motion to dismiss the claim for declaratory judgment is granted.

Accordingly, it is

ORDERED that the portion of Berger motion sequence number 003 (Index No. 600935/2005) seeking to dismiss the claim for declaratory judgment is granted; and it is further

ORDERED that the remaining portion of motion sequence number 003 (Index No. 600935/2005) is denied; and it is further

ORDERED that motion sequence number 003 (Index No. 601004/2005) seeking to renew is denied; and it is further

ORDERED that defendants shall, in accordance with the CPLR, serve and file answers in both actions; and it is further

ORDERED that motion sequence 004 (Index No. 600935/2005) and motion sequence 004 (Index No. 601004/2005) are denied as moot.

Dated: March 29, 2006ENTER:

______________________________

J.S.C. Footnotes

Footnote 1: Both actions have been consolidated with respect to pre-trial matters. (Motion Seq. No. 001).

Footnote 2:Defendants, in motion sequence 004 (Index No. 600935/2005) and motion sequence 004 (Index No. 601004/2005), move to stay disclosure pending the issuance of this decision. These motions are now moot.

Footnote 3:Defendants also note that Wynnefield filed a second action in December 2005, asserting a cause of action for breach of fiduciary duty. Despite the fact that this action and the second Delaware action both involve claims for breach of fiduciary duty, they are not related because the Delaware action is based on different circumstances: The claims here are based on an improper delisting whereas the claim in Wynnefield's second action was based on Niagara's failure to comply with Securities Exchange Commission regulations. In any case, the second Wynnefield action has since been withdrawn.

Footnote 4:Defendants have waived any claim to the defense of improper service. (Tr. of February 3, 2006, at p.35).

Footnote 5:Berger does not allege that Michael Scharf received any of these options.

Footnote 6:The Spring Partners' complaint does not assert either of these claims for relief.

Footnote 7:With respect to the possibility of a sale of the corporation, counsel for plaintiff stated, "[T]he proposed transaction is the icing on the cake . . . . The gravamen of this claim is wrongful delisting and that damages the public shareholders." (Tr. of February 3, 2006, at p.44-45). The allegation of the possibility of an unfair sale "is one more fact in the complaint supporting the wrongful deregistration." (Id.). With respect to the stock options, counsel for plaintiff stated, "[T]he damage is that the insiders get a benefit [because the] . . . option prices [are] very low. . . ." and "[t]he [minority] shareholders . . . lost . . . the value . . . [their] shares would have had if they were public shares." (Tr. of February 3, 2006, at p.43-44).

Footnote 8:It should be noted that, defendants state, in their memorandum of law, that "[a] comparison of Niagara's 2004 and 2005 proxy statements reveals that the only Niagara director who was awarded any of the stock options was Frank Archer, who is also a full-time employee of a Niagara subsidiary." (Defendants' Supplemental Memorandum of Law In Response To Plaintiff Berger's Amended Complaint, at p.12 n.8).

Footnote 9:Frank Archer also serves as a director for those two Niagara subsidiaries.