Jacobsen v 474 3rd Owners Corp.

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Jacobsen v 474 3rd Owners Corp. 2021 NY Slip Op 32729(U) December 20, 2021 Supreme Court, Kings County Docket Number: Index No. 522484/21 Judge: Leon Ruchelsman Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication. [*FILED: 1] KINGS COUNTY CLERK 12/20/2021 02:14 PM INDEX NO. 522484/2021 NYSCEF DOC. NO. 63 RECEIVED NYSCEF: 12/20/2021 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS : CIVIL TERM: COMMERCIAL PART 8 - -------- --- ------------------- --~--- X WALTER JACOBSEN and ROBERT JACOBSEN, indivi dually and deriv ativel y in their capac ity as shareh olders of 474 3RD OWNERS CORP. and 4 7 4 3 RD OWNERS CORP. , Plain tiff; - again st - Decis ion and order Index No. 52248 4/21 47 4 3RD OWNERS CORP. , KENNETH HAINES, MARTIN COX and JULIETTE MOIR, Defen dants; Decem ber 20, ~021 -- -- ---------- ---------------- --- --- X PRESENT: HON. LEON RUCHELSMAN The defend ants have moved pursu ant to CPLR §3211 seekin g to dismis s the plain tiff's compl aint on the ground s it fails to state any cause of action . reque sting attorn ey's fees. respe ctivel y. The plain tiff has cros.::; moved The motio ns have beeri oppose d Papers were submi tted by the partie s and after review ing all the argum ents this court how makes the follow ing determ inatio n. Accor ding to: the compl aint; the plain tiffs own twenty five percen t of the outsta nding shares of 474 3rd Owner s Corp. ,. which is a resid entia l coope rative corpo ration at 474 ).id Avenu e in Kings County . The plain tiff, Walte r Jacobs en is a membe r of the five me~be r board of direc tors. This deriV ativ~ actior t was comme nced allegi ng the board has engage d in impro per a:cts includ ing reduci ng the board to a three membe r comm ittee, failin g to provid e finan cial statem ents and failin g to condu ct regula r meetin gs. The compl aint allege s deriva tive causes of action for 1 of 6 [*FILED: 2] KINGS COUNTY CLERK 12/20/2021 02:14 PM NYSCEF DOC. NO. 63 INDEX NO. 522484/2021 RECEIVED NYSCEF: 12/20/2021 breac h of fiduc iary duty, inspe ction of corpo rate books and recor ds; and a cause of actio n for injun ctive relie f. The defen dants have now moved seeki ng to dismi ss the comp laint argui ng no breac hes occur red and the board of direc tors acted pursu ant to the busin ess judge ment rule c1nd that in any event the plain tiff does not alleg e any deriv ative claim s. Conc lusion s of Law "[A] motio n to dismi ss made pursu ant to CPLR §321 l[a] [7J will fail if, takin g all facts alleg ed as true and accor ding them every possi ble infer ence favor able to the plain tiff, the comp laint state s in some recog nizab le form any cause of actio n known to our law" (AG Capi tal Fundi ng Partn ers, LP v. State St. Barik and Trust Co., 5 NY3d 582, 808 NYS2d 573 [2005 ])., Wheth er the comp laint will later survi ve a motio n for summ ary judgm ent, or wheth er the plain tiff will ultim ately be able to prove its claim s, of cours e, plays no part ih the deter mina tion of a predisco very CPLR 3.211 motio n to dismi ss (see, EBC L Inc. v. Goldm an Sachs & Co., 5 NY3d 11, 799 NYS2d 17 0 [2005 ] ) . The busin ess judge ment rule "bars judic ial inqvi ry into actio ns of corpo rate direc tors taken in good faith and in the e!<er cise of hones t judge ment in the lawfu l ar:id legit imate furth eranc e of corpo rate purpo ses'' (see, Debli hger v. Sanipine Produ cts Co., Ihc., 107 AD3d ~59, 967 NYS2d 394 [2d Tiept .i 2 2 of 6 [*FILED: 3] KINGS COUNTY CLERK 12/20/2021 02:14 PM INDEX NO. 522484/2021 NYSCEF DOC. NO. 63 2013] ). RECEIVED NYSCEF: 12/20/2021 The plc1in tiff count ers that the defend ants failed to engage in five prima ry activ ities on behal f of the corpo ration . Namely , the defen dants failed to "(i) cc1.ll an annua l $hareh older meetin g for the electi on of Direc tors; (ii) hold regula r month ly Board of Direc tors meetin gs inc;lud ing all membe rs of the Board of Direc tors of the Corpo ration , (iii) provid e all Hoard membe rs,. . includ ing W. Jacobs en, with all corpo rate finp.n cia1 and opera tional record s of the Corpo ration ..• (iv) requi re the Execu tive Comm ittee, if any, to repor t to the Board 0£ Direc tors month ly and obtain appro val of the Board for all action s taken by the Execu tive Comm ittee; (v) obtain and distri bute annua l financ ial statem ents to the shareh olders for the years 2019, 2020 and annu 9 lly there after" (see, Affirm ation in Oppos ition, 'J I 3). Indeed , these compl aints were first raised in a: demand letter sent by Walte r Jacobs en dated July 30, 2021. In that letter , Mr. Jacobs en complc tined about the above noteci issues . Howev er, there is no allega tion presen ted why the busine ss judgem ent rule should not shield the board 0£ direct ors in the exerc ise of their duties . Thusi gener ally, action s of a board of direc tors is insula ted by the busin ess judgem ent rule (Busin ess Corpo ration Law §715 (h) (2)) •• rt is true that the busine ss juclgem ent rule does not apply where the direct ors involv ed have a person al stake s-a in a transa ction (Marx v. Akers , [ 1996]) . NY2d 189, 644 NYS2d 121 Thu,:;, the busin ess judgem ent rule does not create a 3 3 of 6 [*FILED: 4] KINGS COUNTY CLERK 12/20/2021 02:14 PM NYSCEF DOC. NO. 63 INDEX NO. 522484/2021 RECEIVED NYSCEF: 12/20/2021 pres~uinp.tio:h of lega lity , :i:ath er., as an inte reste .d dire ctor the dire ctor .bea rs the bu.rd en of good fait h arid fairn ess 28:. Will iams Stre et Co.·r o., (Alp ert v. 63 ·NY2d 557, 483 NYS2 d 667 [198 4]) .. As. the ·cou rt note d in In ·re Crot on Rive r Club Inc. , 52 P3rd 41 [2d C,ir. 1995 ]) '~it .is blac k~le tter law that wher i a corp orat e dire ctor ,or ofYi cer ha·s an inte rest :in a deci s.ion , the busi ness judg emen t rule does not appl y" (id) However, ther e were no. •. a.eci sion s that were inade by.b oard in this case wher e they ·pers o.na lly bene fitte d.. Furt :her, ther e is no :evid ernce . the boar d enga ged in abus ive or oppr essiv e cond uct. The evid ence pres ente d dem onst rates that the bopr d fait hful ly .fo.ll owed the prov is..to hs of the .by~l aws .. How. ever, the· fact the plai ntif fs rema in urisa ;tisf i~d with so:me bf the deci sion s purs uant to thos e by-l aws dcYes riot mean the boar d corrr rnitte d any wron gdoi ng. Ther efor e, the c::ou rt .mus t defe r to the deoi sioff s of the corp orat e dire ctor s and offi 6ets (se·e , 40 West 67 th .Stre et v. Pullm an, 100 NY2d 147, 760 ~¥S2 d ~45 [200 3]). Furt her, in se•ri no v. Lipp er; 123 ~03d . 34, 994. NYS-2d 64 [Pt Dep t,, 2014:] the cour t expl aine d that to disti rig:. uish a .ci.er ivpti ve: ciaii n from a dire ct clain t the cour t .rn.us t enga g.e in two inq'U :ir:i.e s. Fir$t :., w:he .ther an:y harm was suffe r.~d. by the corp orat ion or an indi vidu al stoc k.ho lder aii:d whe ther the q.or: po.ra tion o:r the ind.1 ,vicl, ual stoc khol der w6ui d rece ive the beri.e :fi t of any .reco ve'ry . As the ·cou rt stat ed '' if there - is any 4 4 of 6 [*FILED: 5] KINGS COUNTY CLERK 12/20/2021 02:14 PM NYSCEF DOC. NO. 63 INDEX NO. 522484/2021 RECEIVED NYSCEF: 12/20/2021 harm caused to the individua l, as opposed to the corporatio n, . . then the indi vidua1 may proceed with a direct action, ..on the other hand, even where an individua l harm is claimed, if it is confused with or embedded in the harm to the corporatio n, it cannot separately standr1 (id). Thus, where the alleged injury affects all sharehold ers not just the plaintiff then the action is derivative and not direct (Vaughan v. Standard General L.P., 154 AD3d 581, 63 NYS3d 44 [ pt Dept., 2017 l) , In this case the alleged injuries committed by the corporatio n only affect Mr. Jaeobsen. First, there is no dispute that all sharehold ers have received all firiani:::ial informatio n and that all necessary rneetings werecondu ctect. This is not merely a question of fact which requires further discovery on a motion to dismiss. Rather, the plaintiff admits to receiving all the informatio n. sought in the complaint . Next, any issues that "Walter Jacobsen has been systemati cally excluded from 9 ny participa tion in managemen t of the affairs of the Corporatio n, which is now run by a three member committee instead of a five member boardft and that "(v) Walter Jacob·sen has not been provided with current documents or informatio n he requests or prompt access to informatio n notwi thstancting his entit:leme nt as a board memb:er and a sharehold er;' (see, Demand Letter, dated July 30, 2021) are clearly individua l claims that are not viable in this derivative action. Indeed, the entirety of the complaint as well 5 5 of 6 [*FILED: 6] KINGS COUNTY CLERK 12/20/2021 02:14 PM INDEX NO. 522484/2021 NYSCEF DOC. NO. 63 RECEIVED NYSCEF: 12/20/2021 as tll.e accom panyin g mater ials demon strates this lawsu it conce rns person al claims Mr. Jacobs en maint ains again st the board o.f direc tors. Those claim s might be teal, howev er, they are surely not deriva tive in nature . There fore, the court need not explor e the nature of these claims since they are only perso nal. It should be noted that pursu ant to Sectio n 9 of the corpo ration 's by-law s "the Board of Direc tors may by resolu tion appoin t an execu tive Comm ittee and such other comm ittees as it . . may deem appro priate , each to consi st of three or more direc tors of the Corpo ration . Such comm ittees shall have and may exerc ise such of the power s of the Board irt the manag ement .of the bµsine ss and affair s of the Corpo ration during the interv als betwee n the meetin gs of the Board as may be determ ined by the autho rizing resolu tion of the Board of Direc tors .•. " {id) . be no real cha.lle rtge to Thus, th.ere can the compo sition of any execu tive comm ittee in any event. There fore, based on the forego ing the motion seekin g to dismis s the compl aint is grante d. The cross- motio n seekin g attorn ey's fees is conse quentl y denied . So ordere d. ENTER: DATED: Decem ber 20, 2021 Brook lyn N. Y. Hon. Leon Ruche lsman JSC 6 6 of 6

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