Nainan v. 715-723 Sixth Ave. Owners Corp.

• Decision Date: 19 November 2019
• Docket Number: Index 160751/15,10290
• Citation: Nainan v. 715-723 Sixth Ave. Owners Corp., 177 A.D.3d 489, 113 N.Y.S.3d 50 (N.Y. App. Div. 2019)
• Parties: Dan NAINAN, et al., Plaintiffs–Respondents, v. 715–723 SIXTH AVENUE OWNERS CORP., et al., Defendants–Appellants, 101 West 23 Owners I, LLC, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

177 A.D.3d 489

113 N.Y.S.3d 50

Dan NAINAN, et al., Plaintiffs–Respondents,

v.715–723 SIXTH AVENUE OWNERS CORP., et al., Defendants–Appellants,101 West 23 Owners I, LLC, et al., Defendants.

10290

Index 160751/15

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

ENTERED: NOVEMBER 19, 2019

Robert I. Cantor, PLLC, New York (Robert I. Cantor of counsel), for appellants.

Law Office of Andrew M. Wong, New York (Andrew M. Wong of counsel), for respondents.

Gische, J.P., Tom, Kapnick, Kern, Moulton, JJ.

Order, Supreme Court, New York County (Alan C. Marin, J.), entered on or about May 6, 2019, which denied defendants-appellants' (defendants)motion for summary judgment dismissing the causes of action for breach of fiduciary duty, intentional misrepresentation, and negligent infliction of emotional distress as against them, unanimously modified, on the law, to grant the motion as to the cause of action for negligent infliction of emotional distress, and otherwise affirmed, without costs.

This is a shareholder derivative action in which plaintiffs contend that defendants, who are the coop, five former coop board members, and the former managing agent, failed to act in the shareholders' best interest when they negotiated the coop's apartment building for sale because the board was controlled by an interested director and an individual member of the board received a direct financial benefit from the transaction (seeBarbour v. Knecht , 296 A.D.2d 218, 224–225, 743 N.Y.S.2d 483[1st Dept.2002] ).

Defendants rely on the business judgment rule to support summary judgment in their favor.A board's decision is not entitled to protection under the business judgment rule, however, when the action taken "has no legitimate relationship to the welfare of the cooperative, deliberately singles out individuals for harmful treatment, is taken without notice or consideration of the relevant facts, or is beyond the scope of the board's authority"(seeMatter of Levandusky v. One Fifth Ave. Apt. Corp. , 75 N.Y.2d 530, 540, 554 N.Y.S.2d 807, 553 N.E.2d 1317[1990] ).Although defendants contend that they did not breach their fiduciary duties, that they did not engage in any wrongdoing, and that their actions are protected by the business judgment rule, there are issues of fact that preclude summary dismissal of the breach of fiduciary duty claim on that basis ( Levandusky at 538, 554 N.Y.S.2d 807, 553 N.E.2d 1317 ).

Plaintiffs argue that the board ignored the coop's bylaws by deciding to enter into a contract for the sale of the coop without obtaining shareholder approval and that the board members used scare tactics to force the shareholders into agreeing to sell the coop.Plaintiffs contend shareholders were prohibited from selling their apartments while two of the board members were permitted and proceeded to sell theirs.Plaintiffs claim that the board failed to negotiate the best possible price for the sale.Moreover, plaintiffs allege that one director acted as the broker for the transaction, thereby obtaining an independent financial benefit from the transaction, a fact that was not disclosed to the shareholders....