Summary
permitting dissenting shareholders to bring claims against directors because their complaint sought equitable relief as its primary form of relief
Summary of this case from Szaloczi v. John R. Behrmann Revocable TrustOpinion
Filed June 18, 1999
Appeal from the Order of Supreme Court, Erie County, Notaro, J. — Dismiss Pleading.
PRESENT: PINE, J. P., LAWTON, PIGOTT, JR., AND CALLAHAN, JJ.
Order unanimously affirmed with costs. Memorandum: Supreme Court properly denied the motion of defendants to dismiss the complaint as barred by the exclusivity provision in Business Corporation Law § 623 Bus. Corp. (k). Business Corporation Law §§ 623 and 910 authorize shareholders who dissent from the merger of two domestic corporations to commence an appraisal proceeding wherein the court determines the fair value of their stock. A dissenting shareholder who commences an appraisal proceeding generally is excluded from enforcing "any other right to which he might otherwise be entitled by virtue of share ownership" (Business Corporation Law § 623 Bus. Corp. [k]). A narrow exception to the exclusivity rule is provided in Business Corporation Law § 623 Bus. Corp. (k), which authorizes "a dissenting stockholder to bring an 'appropriate action' in his individual capacity to remedy unlawful or fraudulent corporate conduct" ( Breed v. Barton, 54 N.Y.2d 82, 86; see also, Schloss Assocs. v. Arkwin Indus., 61 N.Y.2d 700, revg on dissenting opinion of Mangano, J., 90 A.D.2d 149, 158). An appropriate action is one in which there is a "primary request" for equitable relief ( Breed v. Barton, supra, at 87).
Here, petitioners/plaintiffs (hereinafter plaintiffs) commenced an appraisal proceeding and thereafter commenced the present action alleging fraud, overreaching and breach of fiduciary duties by the individual defendants, who were directors of defendant corporation, in their adoption of and participation in a 1990 stock option plan. The complaint seeks as one of its primary requests equitable relief, i.e., rescission of the stock option plan, the imposition of a constructive trust upon the stock issued under the stock option plan and an accounting. Moreover, if plaintiffs establish that a breach of fiduciary duty occurred, then the actions of defendants are unlawful and plaintiffs may be entitled to equitable relief ( see, Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 569, rearg denied 64 N.Y.2d 1041). Because plaintiffs allege that the actions of defendants were unlawful or fraudulent and seek equitable relief, the action is not barred by the exclusivity provision in Business Corporation Law § 623 Bus. Corp. (k) ( see generally, Breed v. Barton, supra, at 87; Matter of Willcox v. Stern, 18 N.Y.2d 195, 204; Matter of Direct Media/DMI v. Rubin, 171 Misc.2d 505).
Likewise, we reject defendants' contention that the present action is derivative and therefore should have been dismissed. The complaint alleges that plaintiffs' ownership interest in defendant corporation was diminished because of the breach by defendants of their fiduciary duties in issuing the stock option plan. Because plaintiffs allege that defendants breached a duty owed to them individually, this is not a derivative action brought on behalf of defendant corporation ( see, Matter of Schulman, 165 A.D.2d 499, 503-504, lv denied 79 N.Y.2d 751; Hammer v. Werner, 239 App. Div. 38, 44; see generally, Abrams v. Donati, 66 N.Y.2d 951, 953, rearg denied 67 N.Y.2d 758).
We have reviewed defendants' remaining contentions and conclude that they are without merit.