Opinion
October 29, 1992
Appeal from the Supreme Court, New York County (Carmen Beauchamp Ciparick, J.).
Defendants are a residential co-operative corporation and its president. The individual defendant is also a director. Plaintiffs are joint tenants, shareholders and former directors.
The IAS Court properly dismissed the third cause of action, a shareholder's derivative claim, for failure to comply with Business Corporation Law § 626 (c). Plaintiffs cannot plead a demand on the corporation or the futility of such a demand based on facts which occurred after the commencement of the action. The right to bring a shareholder's derivative action is "secondary and contingent", and arises only in the event that the directors do not comply with a demand that the claims be brought directly (Myer v Myer, 271 App. Div. 465, 473, affd 296 N.Y. 979).
Without the improper pleading of post-commencement facts, plaintiffs do not satisfy the requirement of alleging that a demand would be futile because the individual defendant has "exclusive control" of the corporation (see, Curreri v Verni, 156 A.D.2d 420, 421), creating a conflict of interest that can be discerned from the pleadings (see, SNR Holdings v Ataka Am., 54 A.D.2d 406, 409), which must be pleaded in sufficient detail that it does not merely "beg the question of actual futility and ignore the particularity requirement of the statute" (Barr v Wackman, 36 N.Y.2d 371, 379).
Defendants cannot seek dismissal of the pleadings at this stage merely by invoking the "business judgment rule" as set forth in Matter of Levandusky v One Fifth Ave. Apt. Corp. ( 75 N.Y.2d 530). The directors of the co-op owe a fiduciary duty to plaintiffs-shareholders, requiring the directors to act solely in the best interests of the shareholders (Bernheim v 136 E. 64th St. Corp., 128 A.D.2d 434). It is not necessary to plead that the directors acted in self-interest; pleading unequal treatment of shareholders will suffice (Aronson v Crane, 145 A.D.2d 455). Whether or not the business judgment rule applies at bar is a question of fact (see, Van Camp v Sherman, 132 A.D.2d 453), involving the condition or state of the defendants' minds, which "'can be proved or judged only through evidence'" (Schwartz v Marien, 37 N.Y.2d 487, 493, quoting Kavanaugh v Kavanaugh Knitting Co., 226 N.Y. 185, 198).
We have considered the parties' remaining arguments, and find them to be without merit.
Concur — Carro, J.P., Milonas, Ellerin and Asch, JJ.