Abrams v. Donati

• Decision Date: 17 December 1985
• Citation: Abrams v. Donati, 66 N.Y.2d 951, 498 N.Y.S.2d 782, 489 N.E.2d 751 (N.Y. 1985)
• Parties: , 489 N.E.2d 751 Harry ABRAMS, Appellant, v. Enrico DONATI, Respondent, et al., Defendants.
• Court: New York Court of Appeals Court of Appeals

Page 782

498 N.Y.S.2d 782

66 N.Y.2d 951, 489 N.E.2d 751

Harry ABRAMS, Appellant, v. Enrico DONATI, Respondent, et al., Defendants.

Court of Appeals of New York.

Dec. 17, 1985.

Emanuel Baetich, New York City, for appellant.

Ronald J. Offenkrantz, New York City, for respondent.

OPINION OF THE COURT MEMORANDUM.

The judgment appealed and the order of the Appellate Division brought up for review, 108 A.D.2d 704, 485 N.Y.S.2d 1012, should be affirmed, with costs.

For a wrong against a corporation a shareholder has no individual cause of action, though he loses the value of his investment or incurs personal liability in an effort to maintain the solvency of the corporation (Citibank v. Plapinger, 66 N.Y.2d 90, 93, n., 495 N.Y.S.2d 309, 485 N.E.2d 974; General Motors Acceptance Corp. v. Kalkstein, 101 A.D.2d 102, 474 N.Y.S.2d 493, appeal dismissed 63 N.Y.2d 676; Fifty States Mgt. Corp. v. Niagara Permanent Sav. & Loan Assn., 58 A.D.2d 177, 396 N.Y.S.2d 925). Exceptions to that rule have been recognized when the wrongdoer has breached a duty owed to the shareholder independent of any duty owing to the corporation wronged ( General Rubber Co. v. Benedict, 215 N.Y. 18, 109 N.E. 96 Hammer v. Werner, 239 App.Div. 38, 265 N.Y.S. 172 ). But allegations of mismanagement or diversion of assets by officers or directors to their own enrichment, without more, plead a wrong to the corporation only, for which a shareholder may sue derivatively but not individually (see, e.g., Niles v. New York Cent. & Hudson Riv. R.R. Co., 176 N.Y. 119, 68 N.E. 142; Carpenter v. Sisti, 45 A.D.2d 529, 531, 360 N.Y.S.2d 13). A complaint the allegations of which confuse a shareholder's derivative and individual rights will, therefore, be dismissed (Greenfield v. Denner, 6 N.Y.2d 867, 188 N.Y.S.2d 986, 160 N.E.2d 118, revg. on dissenting opn. of Breitel, J., 6 A.D.2d 263, 268, 175 N.Y.S.2d 918; Brock v. Poor, 216 N.Y. 387, 111 N.E. 229; see, Witherbee v. Bowles, 201 N.Y. 427, 433, 95 N.E. 27), though leave to replead may be granted in an appropriate case (Greenfield v. Denner, 6 A.D.2d, at p. 271, 175 N.Y.S.2d 918, supra ).

Here plaintiff pleads a conspiracy to terminate his employment as president of Donrico, Inc., and to depress the value of its stock so that the stock could be acquired by the corporation under the shareholders' agreement at a greatly depreciated price, but mixes those allegations with charges of diversion of corporate assets by the padding of expenses and the fraudulent reduction of the price of Donrico's products to a corporate purchaser owned by one of the conspirators. The wrongs thus pleaded are to Donrico, Inc.; there is no claim that plaintiff sustained a loss disproportionate to that sustained by Donrico, or that defendants breached an independent duty owed plaintiff, or that if the corporation is made whole in a derivative action plaintiff will be unable to enforce...