Kliger v Drucker

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Kliger v Drucker 2011 NY Slip Op 33649(U) October 5, 2011 Supreme Court, Nassau County Docket Number: 003304-11 Judge: Timothy S. Driscoll Republished from New York State Unified Court System's E-Courts Service. Search E-Courts (http://www.nycourts.gov/ecourts) for any additional information on this case. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT- STATE OF NEW YORK SHORT FORM ORDER Present: HON. TIMOTHY S. DRISCOLL Justice Supreme Court ------------------------------------------------------------------- x SAM KLIGER, individually and derivatively on behalf of KWI Merchant Services, Inc. TRIAL/IAS PART: 20 NASSAU COUNTY Plaintiff, -against- Index No: 003304- Motion Seq. Nos. 2, 3, 4, 5, 6, 7 Submission Date: 8/19/11 DAVID DRUCKER and CAPITAL PAYMENTS, LLC, Defendants. -------------------------------------------------------------------- x The following papers having been read on these motions: Notice of Motion , Affirmation in Support and Exhibits.......................... Affirmation in Opposition and Exhibits........................................................ Reply Affirmation in Support and Exhibit................................................... Notice of Motion, Memorandum of Law in Support and Exhibits.......... Affirmation in Opposition and Exhibits........................................................ Plaintiff's Memorandum of Law in Opposition.................................. Plaintiff's Supplemental Memorandum of Law (mot. seqs. 3 and 6)........ Notice of Motion , Affirmation in Support and Exhibits......................... Affirmation in Opposition and Exhibits........................................................ Notice of Motion, Affirmation, Supporting Affidavit and Exhibits......... Affidavit in Opposition and Exhibits............................................................. Memorandum of Law in Opposition.............................................................x Rep Iy Affirma tio D........... ................... ....................... [* 2] Notice of Motion, Affidavit in Support, Affirmation in Support and Exhibits............................................................. Supplemental Affirmation in Opposition and Exhibits.......................... Reply Affirmation in Further Support.......................................................... Supplemental Memorandum of Law in Support................................. Notice of Motion, Affidavit in Support and Exhibits............................... Memorandum of Law in Support.................................................................. Memorandum of Law in Opposition............................................................. Reply Affirmation in Further Support.......................................................... Ths matter is before the Cour for decision on 1) the motion filed by Defendant Capital Payments , LLC (" Capital" ) Qn March 22 2011 (motion sequence # 2), 2) the motion fied by Defendant David Drucker (" Drucker ) on April 13 , 2011 (motion sequence # 3), 3) the motion filed by Capital on May 6 2011 (motion sequence # 4), 4) the motion fied by Plaintiff Sam Kliger , individually and derivatively on behalf ofKWI Merchant Services , Inc. (" Kliger" or Plaintiff' ) on June 27 2011 (motion sequence # 5), 5) the motion filed by Drucker on June 28 , 2011 (motion sequence # 6), and 6) the motion fied by Drucker on July 18 2011 , all of which were submitted on August 19 , 2011 following oral arguent before the Cour. The Cour denies , as moot , motion sequence #s 2 and 3 , in light of the subsequent filing of the Amended Complaint. The Cour 1) grants motion sequence # 4 to the extent that the Cour dismisses the Four, Fift and Seventh Causes of Action as to Defendant Capital; 2) denies motion sequence # 5; 3) grants motion sequence # 6 to the extent that the Cour dismisses the Second , Four and Fifth Causes of Action as to Defendant Drucker; and 4) grants motion sequence # 7 to the extent that the Cour directs that Drucker is entitled to advancement of attorney s fees , costs and expenses he has incured , or wil incur , in the defense of this action, and fuher directs that this matter shall be set down for a hearing to detennine a) the sums already expended by Drucker in the defense of this action , and b) the sums that should be advanced to him in the future , subject to repayment should Plaintiff ultimately prevail on his claims against Drucker as asserted in the Amended Complaint. [* 3] BACKGROUND Relief Sought A. In light of the Cour' s determination that motion sequence numbers 2 and 3 are dismissed as moot , the Cour wil not outline the relief sought therein. Capital moves for an Order , pursuant to CPLR 3211(a)(7), dismissing the Fourh , Fifth and Seventh Causes of Action in the First Amended Verified Complaint (" Amended Complaint" Plaintiff moves for an Order 1) scheduling a hearing on Plaintiff s application , pursuant to Business Corporation Law (" BCL" 706 and 716 , removing Drucker as an officer and director ofKWI Merchant Services , Inc. (" KWI"); 2) requiring Drucker to restore the preexisting password permitting access to the computer and database of KWI; 3) restraining and enjoining Drucker from posting any self-serving entres in his favor to the ledger of KWI without consent of the Board of Directors; and 4) directing Drucker to retur the corporate checkbook and prohibiting the issuance of checks uness signed by both Drucker and Kliger jointly. Drucker moves for an Order , pursuant to CPLR 3211(a)(I) and/or (a)(7), dismissing the First , Second, Third , Fifth and Sixth Causes of Action in the Amended Complaint. Drucker moves for an Order , pursuant to BCL 722 , 723 and 724 , compellng KWI to reimburse Drucker for his attorney s fees and expenses paid in defending ths action to date , to make monthly advances to Drucker for his fees and expenses in defending ths and action going forward. B. The Paries ' The paries ' History history is set forth in detal in a prior decision of the Cour dated March 29, 2011 (" Prior Decision ) in which the Cour denied Plaintiff s application for injunctive relief. The Cour incorporates the Prior Decision herein by reference. As outlined in the Prior Decision , the Original Complait alleged as follows: Kliger and Drucker are the sole offcers, directors and shareholders ofKWI. KWI is a domestic corporation and Capital is a limited liabilty company ("LLC" KWI was incorporated in 2007 , with Kliger serving as Secreta and Treasurer and Drucker serving as President and Chief Executive Officer. Kliger and Drucker executed a ). [* 4] Shareholders Agreement (" Agreement") dated Februar Agreement dated Februar serve as a ful- time 1 1 2007. Pursuant to a Consulting 2007 , KWI engaged e- Financial Services Corp. , by Drucker , to consultant to KWI. This engagement , and the performance of Drucker duties , were subject to the direction, approval and control of KWl's Board of Directors. In or about October of2010 , Drucker, without the knowledge or consent of Kliger, began discussions with Capita to sell either Drucker s ownership in KWI , or all or substatially all of KWI' s assets , including but not limited to certain contracts for services (" Sale ), with an anticipated closing date of Februar 1 2011. In fuerance of the Sale , without Kliger knowledge or consent , Drucker , in his personal capacity, executed a Confidentiality and Trade Secret Agreement (" Confidentiality Agreement") with Capita dated October 11 2010. Pursuant to the Confdentiality Agreement , Drucker agreed to provide to Capital certain confdential KWI trade secrets or proprietar business information , requirements (" Confdential Information including, but not limited to , customer lists and Drucker did provide the Confidential Inormation to Capita in violation of the Agreement. Capital has refused to retu that Information to KWI despite its written demand. By letter to Drucker dated Januar 2011 Capital outlined the terms of the proposed Sale (" Proposal" ), and Drucker countersigned the Proposal on Januar 12 2011. By letter dated Januar 13 2011 , Drucker provided Kliger with a "Notice of Right of First Refusal " along with the Proposal , and advised Kliger that if he did not elect to purchase Drucker s shares withn a specified time frame , Drucker would sell his shares to Capital. By letter dated Januar 18 , 2011 , Kliger advised Drucker that 1) the Proposal violated the Agreement because it constituted a sale of all or substatially all of KWI' s assets that required approval of the Board and shareholders; 2) the disclosure of Confdential Information was inappropriate; and 3) the Proposal violated the Agreement. Kliger fuer demanded that Drucker secure the retu of the Confidential Information and reject the Proposal. Counsel for Kliger sent a letter dated Febru 2 2011 to Capital advising it of Drucker breaches of the Agreement and demanding the retu of the Confdential Information to KWI. Counsel for Capital responded by letter dated Februar 15, 2011 in which it acknowledged the receipt of the Confidential Information from Drucker. Upon information and belief, Drucker is continuing to negotiate the Sale. [* 5] Kliger has not made demand on KWI to commence the instant action on the grounds that such a demand would be futile given that Drucker is the only other shareholder, offcer and director of KWI , and in light of Drucker s failure to respond to Kliger s demands for the retur of the Confidential Inormation. On March 3 2011 , the Cour (DeStefano , l) issued a temporar restraining order TRO") which directed that, pending the hearing and determination of this Order to Show Cause , Drucker was temporarly restrained from 1) sellng all or substatially all of the assets of KWI; 2) sellng his shares in KWI; and 3) transmitting, disclosing or disseminating KWI's confdential and proprieta business information to any thrd par. Ths Cour later modified the TRO on March 14 , 2011 to direct Capital to provide to Plaintiffs counsel any documents or information received from KWI or Drucker on or before March 18 2011. Following the issuance of the Prior Decision, Plaintiff fied the Amended Complaint. The Amended Complaint (Ex. F to Gionis Aff. in Supp. ), dated April 22 , 2011 , repeats the allegations in the Original Complaint, and fuher alleges as follows: This Cour ordered Capital to retu the Confdential Information and Capita has alleged (that) it has deleted the Confdential Inormation from its computers , although Capital has failed to offer any evidence that all of the Confdential Information has been deleted from its computers. Amended Complaint at 1 22 The Original Complaint contained five (5) causes of action: 1) against Drucker for breach of his fiduciar duty to KWI , 2) against Drucker for preliminar and permanent injunctive relief restraining him from disseminating or disclosing the Confdential Information to any thrd par, 3) against Drucker for unauthorized disclosure of the Confidential Inormation to Capita and possibly others , 4) agaist Capital for preliminar and permanent injunctive relief restraining Capital from disseminating, disclosing or using the Confdential Information and directing Capital to retu the Confidential Inormation to Plaintiff, and 5) against Capital and Drucker for breach of the Confidentiality Agreement , of which Plaintiff was a third-par beneficiar. The Amended Complaint contains seven (7) causes of action: First Cause of Action - against Second Cause of Action - Drucker for breach of his fiduciary duty to KWI against Drucker for preliminar and permanent injunctive [* 6] relief restraining him from disseminating or disclosing the Confidential Inormation to any third par, Third Cause of Action - against Drucker for unauthorized disclosure of the Confidential Information t6 Capital and possibly others Four Cause of Action - against Capital for preliminar and permanent injunctive relief restraining Capital from disseminating, disclosing or transmitting the Confdential Information to any third par or reviewing or using the Confidential Inormation , and directing Capital to delete all evidence of the Confdential Inormation from its computer Fifth Cause of Action - against Capital and Drucker for breach of the Confidentiality Agreement, of which Plaintiff was a third-par beneficiar, for which Plaintiff seeks to recover its costs , expenses and attorney s fees Sixth Cause of Action - against Drucker, for an Order, pursuant to BCL 706 and 716 removing Drucker as an officer and director of KWI , in light of his having allegedly provided confidential business information and trade secrets to a purorted prospective purchaser of his shares in KWI and/or all or substantially all ofKWI' s assets , and Seventh Cause of Action - against Capital , for a mandatory injunction requiring Capital to provide access to an independent information technology (" IT" ) firm to be used by KWI in reviewing Capita' s database to determine whether KWI' s Confidential Information is stil contained therein , and to determine whether copies of the KWI information were duplicated or downloaded prior to the retu of the Confdential Inormation delivered by Capita' s counsel to Plaintiffs counsel on March 15 2011. Section 3(b) of the Shareholder s Agreement (Ex. A to Drucker Memo. of Law in Supp. provides , in pertinent par, that "no Shareholder shall , without the prior written consent of the Corporation, for any reason , either directly indirectly (underlining in original), divulge to any third par or , use for its own benefit or to the Corporation s detriment in any way, any confidential or proprietar information or trade secrets of the Corporation... Paragraphs 4 and 5 of the Confdentiality Agreement (Ex. D to Drucker Aff. in Supp. provide as follows: Paragraph 4 Receiving Par shall at all times and forever safeguard and protect all of the [* 7] Confidential Information of Disclosing Par to prevent its being exposed to or taen by, unauthorized persons, and when entrsted to Receiving Par will exercise its commercially reasonable efforts to assure its safekeeping (which efforts shall be no less than the Receiving Par employs in the protection of its own Confidential Inormation). Notwithstading any provision of ths Agreement to the contrar, in the event that Receiving Par is requested or required in a judicial , administrative or governental proceeding or is otherwse required by law to disclose any Confidential Information , Receiving Par may disclose any such requested Confidential Information provided that Receiving Par will immediately provide Disclosing Par with wrtten notice of same and all related proceedings so that Disclosing Par may seek an appropriate protective order. Paragraph 5 Upon request of a Disclosing Par, Receiving Par will deliver to Disclosing Par, within thee (3) days of receiving such request, all Confidential Information which is in the possession or control of the Receiving Par. Notwithstanding the retur of the Confdential Information, a Receiving Par shall continue to be bound by its obligations hereunder for a period of thee (3) years afer the date of ths Agreement. Aricle 6 of the Certificate of Incorporation ofKWI (Ex. B to Drucker Aff. in Supp. provides , in pertinent par, as follows: The corporation shall indemnfy to the ful extent permitted by the laws of the State of New York as from time to time in effect , each person who is or was a director or officers of the corporation in the event that he is or was a par or is threatened to be made a par to , or otherwise requires representation by counsel in connection with any pending, theatened or completed civil , criminal , administrative or arbitrative action , suit or proceeding, and any appeal therein and any inquiry or investigation which could lead to such action , suit or proceeding, by reason of the fact that he is or was a director, offcer , employee or agent of the corporation, or is or was serving at the request ofthe corporation as a director, officer, employee or agent of another corporation , parership, joint ventue , trust, employee benefit plan, or other enterprise or by reason of any action alleged to have been taken or omitted in such capacity. The right to indemnfication conferred by ths Aricle shall also include the right of such persons to be paid in advance by the corporation for their expenses to the fullest extent permitted by laws of the State of New York as from time to time in effect. The right to indemnification conferred on the directors and offcers of the corporation by this Aricle shall be a contract right in favor of such directors and officers , and shall extend to all actions and omissions taen by the directors and officers of the corporation after the effective date of this Aricle. , ", " [* 8] C. The Paries ' Positions Capital incorporates its arguments in connection with the motion leading to the Prior Decision , which the Cour outlined in the Prior Decision , and fuer argues inter alia that 1) the Seventh Cause of Action is not viable , both because it " revisits " the question of injunctive relief which the Cour has already denied (Gionis Aff. in Supp. at 7) and because the Confidentiality Agreement does not provide Plaintiffs with the remedy they seek , specifically damages alleging resulting from the fact that they haven t been provided with the opportty inspect Capita' s computer databases " to determine whether the information which they admit has been retued to them (under this Cour' s direction) has been permanently deleted" 2) Capital , which received the Confidential Information lawflly directives regarding the retu (id at of the Confdential Information (id); and and complied with the Cour' as no business in ths lawsuit" 13). Plaintiff submits inter alia that 1) the Cour should upon renewal" (Lyn Aff. in Supp. at 15) grant the preliminar injunction previously requested in light of statements made by opposing counsel at a conference before the Cour that suggest that Drucker believes he is free to disclose information that is clearly confidential; and 2) in light of information regarding Drucker s misfeasance , including Kliger s discovery that the password to the computer data system contaning the KWI ledgers had been changed and he was bared from access to the company ledgers , the Amended Complaint properly pleads a cause of action for removal of Drucker as an officer and director pursuant to the BCL. Drucker submits inter alia that 1) while conceding that he owed a fiduciar duty to KWI and to shareholders not to improperly disclose proprieta confidential information Plaintiffs allegations of Drucker s breach of fiduciar duty are not viable , given that Kliger has failed to plead that Drucker engaged in wrongful conduct or acted in bad faith, or that Plaintiff suffered daages; 2) the cause of action for a permanent injunction must be dismissed on the grounds that a) given that Drucker has already provided KWI' s Confidential Information to Capital , injunctive relief would be "moot and fritless " (Drucker Supp. Memo. of Law at p. 13); b) the Shareholders Agreement implicitly permitted Drucker , in the context of exercising his explicit right to sell his shares , to disclose proprieta information to prospective purchasers to assist them in determining an appropriate offer; and c) Kliger has an adequate remedy at law in [* 9] the form of money damages; and 3) there is no legal basis for the Fift Cause of Action for legal fees in light of the fact that Plaintiff has not established that Defendants breached the Confdentiality Agreement, and in light of the retu of the confdential documents pursuant to the Cour' s directive. Drucker also submits that , pursuant to BCL 722 and 723 , he is entitled to an Order directing KWI to reimburse him for attorney s fees and expenses , given Drucker s compliance with the undertaking obligation by his promise to repay to KWI all advances on such fees and expenses in the event it is determined that he is not entitled to indemnfication pursuant to BCL g 722. Alternatively, the Cour should grant such relief pursuant to BCL 724. RULING OF THE COURT Standards of Dismissal A complaint may be dismissed based upon documenta evidence pursuant to 3211(a)(I) only if the factual allegations contained therein are definitively contradicted CPLR Yew Prospect, by the evidence submitted or a defense is conclusively established thereby. v. Szulman 305 AD. 2d 588 (2d Dept. 2003); Sta-Bright Services, Inc. LLC Sutton 17 AD. 3d 570 (2d Dept. 2005). 3211 (a)(7), which seeks to dismiss a complaint A motion interposed pursuant to CPLR for failure to state a cause of action, must be denied if the factual allegations contaned in the complaint constitute a cause of action cognizable at law. 268 (1977); 511 Guggenheimer W 23200 Owners Corp. v. Jennifr Realty Co. v. Ginzburg, 43 N. Y.2d 98 N. Y.2d 144 (2002). When entertaining such an application , the Cour must liberally constre the pleading. In so doing, the Cour must accept the facts alleged as tre which may be drawn therefrom. Leon v. and accord to the plaintiff every favorable inference Martinez 84 N. 2d 83 (1994). On such a motion however, the Cour wil not presume as true bare legal conclusions and factual claims which are flatly contradicted by the evidence. Palazzolo v. Herrick, Feinstein 298 A.D. 2d 372 (2d Dept. 2002). B. Injunctive Relief A preliminar injunction is a drastic remedy and will only be granted if the movant establishes a clear right to it under the law and upon the relevant facts set fort papers. Willam M Blake Agency, Inc. v. Leon 283 AD.2d 423 424 (2d Dept. 2001); in the moving Peterson [* 10] v. Corbin 275 A.D. 2d 36 (2d Dept. 2000). Injunctive relief will lie where a movant 35 demonstrates a likelihood of success on the merits , a danger of irreparable har injunction is granted and a balance of the equities in his or her favor. 75 N. 2d 860 (1990); v. WT. Grant Co. Romaine 295 A. Neos v. Aetna Ins. Co. Srogi 52 N. Y.2d 496 2d 431 (2d Dept. 2002); unless the v. 517 (1981); Capasso Merscorp, Inc. 291 A. D.2d 434 (2d Dept. 2002). Lacey, The decision whether to grant a preliminar injunction rests in the sound discretion of the Doe Supreme Cour. v. Axelrod 73 N. Y.2d Mid-Hudson Waste, Inc. 748 , 750 (1988); Automated Waste Disposal, Inc. 50 A.D.3d 1073 (2d Dept. 2008); v. City of Long Beach American Capital, LLC 40 A. D.3d 902 , 903 (2d Dept. 2007); Ruiz v. Sterling 26 A.D.3d 485 Meloney, (2d Dept. 2006). A plaintiff has not suffered irreparable har waranting injunctive relief where its alleged injures are compensable by money damages. v. See White Bay Enterprises Newsday, 258 A.D.2d 520 (2d Dept. 1999). Mandatory injunctive relief should not be granted extraordinar circumstaces where the pendente lite without a showing of status quo would be disturbed and the plaintiff would be Vilage ofWesthampton Beach granted the ultimate relief in the action. v. Cayea 38 A. 760 , 762 (2d Dept. 2007). A permanent injunction is a drastic remedy which may be granted only where the plaintiff demonstrates that it wil suffer irreparable har absent the injunction. It is to be invoked only to give protection for the futue , and prevent repeated violations of the plaintiffs propert rights. C. Merkos L' Inyonei v. Sharj, 59 A.D.3d 403 (2d Dept. 2009). Fiduciar Obligations The elements of a claim for breach of fiduciar duty are: 1) existence of a fiduciar relationship, 2) misconduct, and 3) damages directly caused by the wrongdoer s misconduct. Fitzpatrick House III, LLC 2008); Kurtzman v. v. Neighborhood Youth Bergstol 40 A. D.3d Family Services 55 A.D.3d 664 (2d Dept. 588 , 590 (2d Dept. 2007). Directors and officers of a corporation, in the performance of their duties , stad in a fiduciar relationship to their corporation. As such , they owe the corporation their undivided loyalty and may not , without consent , divert and exploit for their own benefit any opportity that should be deemed an asset of the corporation. Morales Galeazzi 72 A. D.3d 765 , 766 (2d [* 11] Dept. 2010), quoting Yu Han Young Chiu 49 A. D.3d 535 (2d Dept. 2008) (citations and v. internal quotation marks omitted). A fiduciar owes a duty of undivided loyalty to those whose interests he is to protect. He must avoid not only blatat self- dealing but also situations in which his personal self- interest may conflct Birnbaum 73 N. Birnbaum with the 2d 461 , interest of those to whom the duty is owed. reconsid den. 466 (1989), 74 N. 2d 843 (1989). The relationship between shareholders in a close corporation is akn to that between parers and imposes a high degree of fidelity and good faith. Dept. 2004), quoting Fender v. Musallam 11 A.D.3d 280 , Brunetti Prescott 101 A. 2d 418 aff' 422 (Ist Dept. 1984), 281 (151 74 N. Y.2d 1077 , 1079 (1985). D. Contract Constrction The Cour must constre a contract in accordance with the pares ' intent , which is generally discerned from the four corners of the document itself. Presstek 12 N. MHR Capital Partners 3d 640 , 645 (2009). A written agreement that is complete , clear and unambiguous on its face must be enforced according to the plain meanng of its tenns. E. . Id. Corporate Indemnification of Offcers and Directors The BCL establishes a statutory framework for a corporation s indemnification of officers and directors, both voluntaily and by cour order. 2010 U. S. BCL Dist. LEXIS 37802 , * 6 (S. v. Pali Holdings, Inc. Y. 2010). With respect to volunta indemnification 722 pennits but does not require a corporation s bylaws to provide for director and officer indemnification. (S. Wasitows/d Y. 1993). BCL Id at * 6- , quoting Gelmin 828 F. Supp. 203 , 205 723 establishes the procedures by which shareholders or boards of directors may elect to provide indemnification. text ofBCL v. Sequa Corp. Id at * 7 , 723 (a) provides that a person who has 722(a) is phrased pennissively, BCL been successful in the defense of an action of the tye to indemnification as authorized in that section. 723(b). Although the citing BCL Id. described in BCL 722 shall be entitled Thus , if a corporation provides for indemnification to its directors and officers consistent with BCL 722 , BCL 723 binds the corporation to its promise to indemnify. BCL 2010 U. S. 724 establishes the procedures for cour-ordered indemnification. Wasitowski Dist. LEXIS 37802 at * 7- 8. When a corporation declines to afford indemnfication [* 12] pursuant to BCL 722 , the officer may apply to the cour , which may direct that such payments be made if the Cour finds that the Defendant has by his pleadings or during the course of the litigation raised genuine issues of fact or law. 251 A.D.2d 49 (1st Dept. 1998), quoting BCL Id. at * 8 , citing Brittania 54 Hotel Corp. v. Freid 724(c). F. Removal of Directors Pursuant to BCL Section 706 BCL 706 provides as follows: (a) Any or all of the directors may be removed for cause by vote of the shareholders. The certificate of incorporation or the specific provisions of a by- law adopted by the shareholders may provide for such removal by action of the board , except in the case of any director elected by cumulative voting, or by the holders of the shares of any class or series , or holders of bonds , voting as a class , when so entitled by the provisions of the certificate of incorporation. (b) If the certificate of incorporation or the by- laws so provide , any or all of the directors may be removed without cause by vote of the shareholders. . (c) The removal of directors , with or without cause , as provided in paragraphs (a) and (b) is subject to the following: (1) In the case of a corporation having cumulative voting, no director may be removed when the votes cast against his removal would be suffcient to elect him if voted cumulatively at an election at which the same total number of votes were cast and the entire board , or the entire class of directors of which he is a member , were then being elected; and (2) When by the provisions of the certificate of incorporation the holders of the shares of any class or series , or holders of bonds , voting as a class , are entitled to elect one or more directors , any director so elected may be removed only by the applicable vote of the holders of the shares of that class or series , or the holders of such bonds , voting as a class. (d) An action to procure a judgment removing a director for cause may be brought by the attorney- general or by the holders of ten percent of the outstanding shares , whether or not entitled to vote. The cour may bar from re-election any director so removed for a period fixed by the cour. [* 13] G. Application of these Principles to the Instat Action The documentar evidence , including KWI's Certificate of Incorporation and the Shareholders and Confidentiality Agreements , does not resolve all factual issues raised by the paries as a matter of law or conclusively dispose of all of Plaintiff s claims. The Amended Complaint adequately states causes of action against Defendant Drucker for breach of fiduciar duty (first), breach of the Shareholders Agreement (third) and removal of a corporate officer (sixth). The first and thrd causes of action of the Amended Complaint are based on the allegation that Drucker improperly, without Plaintiffs consent, attempted to sell his interest , or, substatially all of the assets of, KWI to a competitor and , in so doing, disclosed KWI's confdential inormation to the potential purchaser, Defendant Capital. Accepting the trth of the allegations that Drucker , as an officerldirector ofKWI , improperly disclosed confidential/proprieta business information to Capita , without Plaintiff's consent , in an attempt to sell his interest in KWI , the Cour concludes that the first and third causes of action suffciently plead causes of action for breach of fiduciar duty and breach of the Shareholder Agreement. The Cour canot state , as a matter of law, that 1) the sale of all , or substatially all , of the assets ofKWI does not require approval by the corporation s Board of Directors and Shareholders; 2) the disclosure of confidential information by Drucker was appropriate; and/or that 3) the proposed sale was in conformity with the Shareholder s Agreement. The Cour dismisses the causes of action seeking injunctive relief based in par on the determination in the Prior Decision , which the Cour reaffirms here , that Plaintiffs injur, if any, appears to be compensable by money damages. Moreover, as the proprieta business information provided to Capital has been retured to KWI pursuant to the Cour' s directive , the Cour concludes that Plaintiff has not established a basis for an award of permanent injunctive relief. Accordingly, the Cour dismisses the Second and Four causes of action for permanent injunctive relief as to Drucker and Capital. The Cour also dismisses the Fifth Cause of Action against Capital and Drucker, in which Plaintiff seeks to recover the reasonable costs , expenses and attorneys ' fees incured in bringing this action to enforce the Confidentiality Agreement. Plaintiff has failed to allege how Capita or [* 14] Drucker breached the tenns of the Confidentiality Agreement, or that defendant Capital disclosed any confdential information pertainiJ,g to KWI's business in breach of the Confidentiality Agreement. In addition, Capita has retured the documents disclosed under the Confdentiality Agreement. Thus , there is no basis to sustan a claim for recovery of reasonable costs , expenses and attorneys ' fees allegedly arising from a breach of the Confidentiality Agreement and the Cour dismisses the Fift Cause of Action. Viewed in the light most favorable to Plaintiff, the allegations against Drucker suffciently plead a cause of action for removal for cause under the statute. Accordingly, the Cour denies Drucker s motion to dismiss the Sixth Cause of Action. The Cour dismisses the Seventh Cause of Action which seeks a mandatory injunction as to Capital. No breach of the Confidentiality Agreement is alleged , nor is any anticipatory breach alleged. Moreover , the Confidentiality Agreement does not provide for KWI's inspection of Capita' s database. In light of the foregoing, there is no basis to sustain the Seventh Cause of Action and the Cour dismisses the Seventh Cause of Action. The Cour denies those branches of Plaintiff s motion requesting an immediate hearng on the issue of the removal of Drucker as an offcer/director of KWI , and other ancilar injunctive relief including 1) requiring Drucker to restore a pre-existing password pennitting access to KWI' s computer/database; and 2) directing Drucker to retur The record is devoid of extraordinar circumstances , the corporate checkbook. and Plaintiff has not provided authority, waranting tte issuance of a directive that would effectively provide Plaintiff now with the relief to which it may ultimately be entitled. The Cour also denies Plaintiff s request, infonnally set forth in the affinnation of Plaintiff s counsel , to renew the prior motion for injunctive relief. With respect to Drucker s motion (motion sequence no. 7) to compel KWI to reimburseladvance him for attorneys ' fees paid in defending this action to date , the Cour does not concur with Plaintiff s assertion that the Cour held in the Prior Decision that Drucker acted in his personal capacity in disseminating KWI' s confidential/proprieta business infonnation to a competitor as a means to solicit an offer for his shares in KWI. Rather , the Cour wrote in the Prior Decision that the Original Complaint alleged that Drucker executed a Confidentiality [* 15] Agreement with Capital " in his personal capacity" (Prior Dec. at p. 2). There is no question that the conduct of which Plaintiff complains occured in the context of Drucker s position as an offcer/director ofKWI. In light of the legal principles and relevant provision of the KWI Certificate of supra and the Cour' s determination that this litigation comes within the Incorporation outlined puriew of the applicable provision in the Certificate of Incorporation , the Cour concludes that Drucker is entitled to advancement of attorneys ' fees, costs and expenses that he has incured or wil incur in the defense of this action. Accordingly, the Cour grants Drucker s motion for reimbursement/advancement of attorneys ' fees and the costs and expenses of litigation , and the cour directs that KWI advance Drucker his reasonable expenses and attorneys ' fees incured in defense of this action. The Cour wil schedule a hearng to determine the amount already expended by Drucker in the defense of this action , and the amount to be advanced to him in the futue , subject to repayment should Plaintiff ultimately prevail on his claims against Drucker as set fort in the Amended complaint. All matters not decided herein are hereby denied. This constitutes the decision and order of the Cour. The Cour reminds counsel for the paries of their required appearance before the Cour for a Preliminar Conference on November 16 2011 at 9:30 a. , at which time the Cour will also schedule the hearng on the advancement of Defendant Drucker s counsel fees and related expenses , as directed herein. ENTER DATED: Mineola, NY October 5 , 2011 lS. ENTERED OCT 1 3 2011 NAHAU COUNTY COUNTY CLI." OfFICE

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