Hack v. United Capital Corp.

• Decision Date: 24 February 1998
• Citation: Hack v. United Capital Corp., 669 N.Y.S.2d 280, 247 A.D.2d 300 (N.Y. App. Div. 1998)
• Parties: , 1998 N.Y. Slip Op. 1479 William S. HACK, et al., Plaintiffs-Appellants, v. UNITED CAPITAL CORP., Defendant-Respondent.
• Court: New York Supreme Court — Appellate Division

Page 280

669 N.Y.S.2d 280

247 A.D.2d 300, 1998 N.Y. Slip Op. 1479

William S. HACK, et al., Plaintiffs-Appellants, v.UNITED CAPITAL CORP., Defendant-Respondent.

Supreme Court, Appellate Division First Department.

Feb. 24, 1998.

Brian J. Gallagher, for Plaintiffs-Appellants.

David Spears, Susan J. Steinthal, for Defendant-Respondent.

Before SULLIVAN, J.P., and ELLERIN, NARDELLI, RUBIN and TOM, JJ.

MEMORANDUM DECISION.

Order, Supreme Court, New York County (Charles Ramos, J.), entered on or about February 4, 1997, which, in an action to recover the costs incurred to defend and settle a Federal securities action brought against plaintiffs as control persons of defendant corporation, granted defendant's motion to dismiss the action on the ground of release, unanimously affirmed, without costs.

On June 28, 1991, plaintiffWilliam S. Hack, plaintiffPearl Hack, his wife, and defendantUnited Capital Corp., a Delaware corporation, executed mutual general releases in connection with the resolution of litigation concerning control of the company.Prior to December 1987, when Mr. Hack resigned as chairman of the corporation and transferred his ownership interest to his wife, each plaintiff owned 25% of the stock and served as a corporate officer.Together with the release, plaintiffs signed an agreement pursuant to which Mrs. Hack received $12 million from the corporation in exchange for her stock to facilitate the merger of the company with its publicly held subsidiary.In the broadest language, the parties released each other from any and all claims that each might have against the other "by reason of any matter, cause or thing whatsoever from the beginning of the world to the date hereof."

At issue in this case is the right of plaintiffs to reimbursement for expenses incurred in the course of defending and settling an action alleging securities law violations in connection with the merger of two companies in which United Capital Corp. held a controlling interest.In that action, commenced in 1989, it was charged that a prospectus issued in connection with the merger, consummated that same year, contained various misstatements and omissions.The Hacks were named as defendants by virtue of their alleged control of United Capital and, indirectly, of the companies involved in the merger (see, 15 U.S.C. §§ 77o,78t[a] ).Mr. Hack was represented by the same counsel as all the other defendants in the case except Mrs. Hack, who chose to employ independent counsel.

The complaint herein seeks recovery of the amount paid to settle the matter ($550,000) and the cost incurred by the Hacks in connection with their defense of the action ($191,739.08).Recovery is predicated on section 145(a) of the Delaware General Corporation Law(Del Code Annot. tit. 8) which permits indemnification of any person sued "by reason of the fact" that he or she held corporate office or employment, and on the corporate charter, which requires indemnification to the full extent permitted by the statute.Defendant United Capital moved to dismiss the complaint based on the release.Supreme Court granted the motion, holding that the pendency of the securities litigation at the time the release was signed brings the claims asserted in the complaint within its operation.

Plaintiffs contend that the release does not encompass their claim for reimbursement of their settlement costs.Despite its sweeping language, they assert that the scope to be accorded the release presents a question of fact.In the alternative, they argue that their claim for reimbursement did not accrue until 1993, when they entered into the settlement agreement and the extent of the cost of defending and settling the securities litigation was established.

As this Court stated in Mergler v. Crystal Props. Assocs., 179 A.D.2d 177, 178, 583 N.Y.S.2d 229[Sullivan, J.], "In the absence of fraud, duress, illegality or mistake, a general release bars an action on any cause of action arising prior to its execution."The Court went on to observe that "it is not a prerequisite to the enforceability of a release that the releasor be subjectively aware or the precise claim he or she is releasing"(supra, at 180, 583 N.Y.S.2d 229).In this regard, plaintiffs' contention that the corporate defendant"had...