Taylor v. Wynkoop

• Decision Date: 21 October 2015
• Docket Number: 2014-00108, 2014-02344, Index No. 6548/12.
• Citation: 2015 N.Y. Slip Op. 07643,132 A.D.3d 843,18 N.Y.S.3d 419
• Parties: Kyle TAYLOR, etc., et al., respondents-appellants, v. Brett E. WYNKOOP, et al., appellants-respondents, 622A President Street Owners Corp., respondent.
• Court: New York Supreme Court — Appellate Division

132 A.D.3d 843

18 N.Y.S.3d 419

2015 N.Y. Slip Op. 07643

Kyle TAYLOR, etc., et al., respondents-appellants

v. Brett E. WYNKOOP, et al., appellants-respondents622A President Street Owners Corp., respondent.

2014-00108, 2014-02344, Index No. 6548/12.

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

Oct. 21, 2015.

Antony Hilton, New York, N.Y., for appellants-respondents.

Mandel Bhandari LLP, New York, N.Y. (Rishi Bhandari, Evan Mandel, Benjamin Rudolph Delson, and Robert Glunt of counsel), for respondents-appellants.

REINALDO E. RIVERA, J.P., RUTH C. BALKIN, JOHN M. LEVENTHAL, and THOMAS A. DICKERSON, JJ.

Opinion

In a shareholders' derivative action, inter alia, to recover damages for breach of fiduciary duty, the defendants Brett E. Wynkoop, Kathleen Keske, and James Borland appeal, as limited by their brief, from (1) so much of an order of the Supreme Court, Kings County (F.Rivera, J.), dated November 7, 2013, as, in effect, denied that branch of their cross motion, made jointly with the defendant 622A President Street Owners Corp., which was for summary judgment dismissing the complaint, and (2) so much of an order of the same court dated January 17, 2014, as denied those branches of their cross motion which were for leave to reargue and renew that branch of their prior cross motion, made jointly with the defendant 622A President Street Owners Corp., which was for summary judgment dismissing the complaint, and for an attorney's fee pursuant to CPLR 8303–a, and the plaintiffs cross-appeal, as limited by their brief, from so much of the order dated November 7, 2013, as granted that branch of the defendants' motion which was to dismiss the complaint pursuant to CPLR 3211(a)(7).

ORDERED that the order dated November 7, 2013, is affirmed insofar as appealed and cross-appealed from; and it is further,

ORDERED that the appeal from so much of the order dated January 17, 2014, as denied that branch of the cross motion of the defendants Brett E. Wynkoop, Kathleen Keske, and James Borland which was for leave to reargue is dismissed, as no appeal lies from an order denying reargument; and it is further,

ORDERED that the order dated January 17, 2014, is affirmed insofar as reviewed; and it is further,

ORDERED that one bill of costs is awarded to the plaintiffs, payable by the defendants Brett E. Wynkoop, Kathleen Keske, and James Borland.

The plaintiffs commenced this shareholders' derivative action, inter alia, to recover damages for breach of contract and fiduciary duty. Contrary to the plaintiffs' contentions, the Supreme Court properly granted that branch of the defendants' cross motion which was pursuant to CPLR 3211(a)(7) to dismiss the complaint. In order to adequately plead a shareholders' derivative cause of action, in the complaint shareholders must “set forth with particularity [their] efforts ... to secure the initiation of such action by the board or the reasons for not making such effort” (Business Corporation Law § 626[c] ; see Walsh v. Wwebnet, Inc., 116 A.D.3d 845, 846, 984 N.Y.S.2d 100 ; Malkinzon v. Kordonsky, 56 A.D.3d 734, 735, 868 N.Y.S.2d 123 ; Lewis v. Akers, 227 A.D.2d 595, 596, 644 N.Y.S.2d 279 ). Such “[d]emand is futile, and excused, when the directors are incapable of making an impartial decision as to whether to bring suit” (Bansbach v. Zinn, 1 N.Y.3d 1, 9, 769 N.Y.S.2d 175, 801 N.E.2d 395 ; see Malkinzon v. Kordonsky, 56 A.D.3d at 735, 868 N.Y.S.2d 123 ; Danzy v. NIA Abstract Corp., 40 A.D.3d 804, 805, 835 N.Y.S.2d 738 ). Demand is excused because of futility when a complaint alleges with particularity (1) “that a majority of the board of directors is interested in the challenged transaction,” which may be based on self-interest in the transaction or a loss of independence because a director with no direct interest in the transaction is “controlled” by a self-interested director, (2) “that the board of directors did not fully inform themselves about the challenged transaction to the extent reasonably appropriate under the circumstances,” or (3) “that the challenged transaction was so egregious on its face that it could not have been the product of sound business judgment of the directors” (Marx v. Akers, 88 N.Y.2d 189, 200–201, 644 N.Y.S.2d 121, 666 N.E.2d 1034 [internal quotation marks omitted] ). However, “[t]o justify failure to make a demand, it is not sufficient to name a majority of the directors as defendants with conclusory allegations of wrongdoing or control by wrongdoers” (Glatzer v. Grossman, 47 A.D.3d 676, 677, 849 N.Y.S.2d 300 ; see Bansbach v. Zinn, 1 N.Y.3d at 11, 769 N.Y.S.2d 175, 801 N.E.2d 395; Marx v. Akers, 88 N.Y.2d at 199–200, 644 N.Y.S.2d 121, 666 N.E.2d 1034 ; Lewis v. Akers, 227 A.D.2d at 596, 644 N.Y.S.2d 279 ).

Here, the plaintiffs failed to adequately plead that they made a sufficient demand, or that any demand would have been futile (see Walsh v. Wwebnet, Inc., 116 A.D.3d at 846, 984 N.Y.S.2d 100 ; JAS Family Trust v. Oceana Holding Corp., 109 A.D.3d 639, 642, 970 N.Y.S.2d 813 ; Ocelot Capital Mgt., LLC v. Hershkovitz, 90 A.D.3d 464, 465, 934 N.Y.S.2d 146 ; Glatzer v. Grossman, 47 A.D.3d at 677, 849 N.Y.S.2d 300 ; Lewis v. Akers, 227 A.D.2d at 596, 644 N.Y.S.2d 279 ).

Contrary to the contention of the defendants Brett E. Wynkoop, Kathleen Keske, and James Borland (hereinafter collectively the individual defendants), the Supreme Court properly denied that branch of their cross motion, made...