Deblinger v. Sani-Pine Prods. Co.

• Decision Date: 05 June 2013
• Citation: Deblinger v. Sani-Pine Prods. Co., 107 A.D.3d 659, 967 N.Y.S.2d 394, 2013 N.Y. Slip Op. 3963 (N.Y. App. Div. 2013)
• Court: New York Supreme Court — Appellate Division
• Parties: Jay L. DEBLINGER, etc., appellant-respondent, v. SANI–PINE PRODUCTS CO., INC., et al., defendants, H. Cecile Deblinger, also known as Helen Cecile Deblinger, respondent-appellant.

107 A.D.3d 659

967 N.Y.S.2d 394

2013 N.Y. Slip Op. 03963

Jay L. DEBLINGER, etc., appellant-respondent,

v.SANI–PINE PRODUCTS CO., INC., et al., defendants,H. Cecile Deblinger, also known as Helen Cecile Deblinger, respondent-appellant.

Supreme Court, Appellate Division, Second Department, New York.

June 5, 2013.

Sahn Ward Coschignano & Baker, PLLC, Uniondale, N.Y. (Andrew M. Roth of counsel), for appellant-respondent.

Forchelli, Curto, Deegan, Schwartz, Mineo & Terrana, LLP, Uniondale, N.Y. (Danielle B. Gatto of counsel), for respondent-appellant.

MARK C. DILLON, J.P., PLUMMER E. LOTT, LEONARD B. AUSTIN, and SYLVIA HINDS–RADIX, JJ.

In a shareholders' derivative action, inter alia, to recover damages for breach of fiduciary duty, the plaintiff appeals from so much of an order of the Supreme Court, Nassau County(Bucaria, J.), entered April 13, 2012, as granted those branches of the motion of the defendantH. Cecile Deblinger,also known as Helen Cecile Deblinger, which were pursuant to CPLR 3211(a) to dismiss so much of the complaint as sought to recover damages for breach of fiduciary duty based on allegations that she delayed distribution of corporate assets, commenced unnecessary legal proceedings, and delayed the sale of stock owned by the defendantSani–Pine Products Co., Inc., and the defendantH. Cecile Deblinger, also known as Helen Cecile Deblinger, cross-appeals from so much of the same order as denied that branch of her motion which was pursuant to CPLR 3211(a) to dismiss so much of the complaint as sought to recover damages for breach of fiduciary duty based on allegations that she paid herself excessive compensation.

ORDERED that the order is affirmed, without costs or disbursements.

The plaintiff, Jay L. Deblinger, is one of three shareholders in the corporations Sani–Pine Products Co., Inc.(hereinafter Sani–Pine), and Leemar Leasing Corp.(hereinafter together the corporations).The three shareholders were also the sole officers and directors of the corporations.The plaintiff commenced the instant shareholders' derivative action against the corporations and one of the shareholder-directors, the defendantH. Cecile Deblinger, also known as Helen Cecile Deblinger(hereinafter Cecile Deblinger), alleging, inter alia, that Cecile Deblinger breached her fiduciary duty to the plaintiff and the other shareholders similarly situated by delaying distribution of corporate assets, commencing unnecessary legal proceedings to dissolve the corporations, delaying the sale of stock owned by Sani–Pine, and paying herself excessive compensation from the corporations during a two-year period in which they had “no active on-going business to conduct.”

Cecile Deblinger moved pursuant to 3211(a) to dismiss the complaint.The Supreme Court determined that the plaintiff failed to sufficiently state causes of action alleging breach of fiduciary duty based on allegations that Cecile Deblinger delayed distribution of corporate assets, commenced unnecessary legal proceedings, and delayed the sale of stock owned by Sani–Pine.The Supreme Court held, however, that the complaint sufficiently stated causes of action alleging breach of fiduciary duty based on allegations that Cecile Deblinger paid herself excessive compensation.The plaintiff appeals and Cecile Deblinger cross-appeals.

“A cause of action sounding in breach of fiduciary duty must be pleaded with the particularity required by CPLR 3016(b)”( Palmetto Partners, L.P. v. AJW Qualified Partners, LLC,83 A.D.3d 804, 808, 921 N.Y.S.2d 260;seeArmentano v. Paraco Gas Corp.,90 A.D.3d 683, 684–685, 935 N.Y.S.2d 304;Chiu v. Man Choi Chiu,71 A.D.3d 621, 623, 896 N.Y.S.2d 132).“The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant's misconduct”( Rut v. Young Adult Inst., Inc.,74 A.D.3d 776, 777, 901 N.Y.S.2d 715;seeRobert I. Gluck, M.D., LLC v. Kenneth M. Kamler, M.D., LLC,74 A.D.3d 1167, 904 N.Y.S.2d 151;Kurtzman v. Bergstol,40 A.D.3d 588, 590, 835 N.Y.S.2d 644).Members of a board of directors of a corporation “owe a fiduciary responsibility to the shareholders in general and to individual shareholders in particular to treat all shareholders fairly and evenly”( Schwartz v. Marien,37 N.Y.2d 487, 491, 373 N.Y.S.2d 122, 335 N.E.2d 334;seeArmentano v. Paraco Gas Corp.,90 A.D.3d at 684–685, 935 N.Y.S.2d 304).

The business judgment rule “bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes”( Auerbach v. Bennett,47 N.Y.2d 619, 629, 419 N.Y.S.2d 920, 393 N.E.2d 994;seeConsumers Union of U.S., Inc. v. State of New York,5 N.Y.3d 327, 327 n. 20, 806 N.Y.S.2d 99, 840 N.E.2d 68;Matter of Levandusky v. One Fifth Ave. Apt. Corp.,75 N.Y.2d 530, 538, 554 N.Y.S.2d 807, 553 N.E.2d 1317;North Fork Preserve, Inc. v. Kaplan,68 A.D.3d 732, 733, 890 N.Y.S.2d 93;see alsoQuinones v. Board of Mgrs. of Regalwalk Condominium I,242 A.D.2d 52, 54, 673 N.Y.S.2d 450).

Here, the Supreme Court properly dismissed, pursuant to CPLR 3211(a)(7), the causes of action...