concluding that the "breach of fiduciary duty claim fail[ed] under the laws of either New York or the British Virgin Islands" because, among other things, "[g]enerally, under British law, directors owe duties to the company, and not the individual stockholders"Summary of this case from Seagrape Inv'rs LLC v. Tuzman
06 Civ. 308 (RMB) (KNF).
September 27, 2006
DECISION AND ORDER
On or about January 13, 2006, Conrad P. Seghers ("Seghers") and Komodo Holdings, Ltd. ("Komodo") (together, "Plaintiffs") filed a complaint ("Complaint") against David Thompson ("Thompson"), Wael Chehab ("Chehab"), James Alban-Davies ("Alban-Davies"), and Integral Hedging Offshore, Ltd. ("IHO") (together, "Defendants"), alleging that, at a May 28, 2002 shareholders' meeting, the Defendants improperly "removed Seghers as a director and caused the purported appointment of the three Insurgent Directors, the defendants in this action, as directors of IHO." (Complaint ¶ 32.) Subject matter jurisdiction is based on diversity of citizenship of the parties, pursuant to 28 U.S.C. § 1332.
IHO is an "offshore hedge fund" that is "duly organized and existing under the laws of the British Virgin Islands." (Complaint ¶ 9, 13.) Komodo "is a British Virgin Islands international business corporation" which holds 0.814 percent of the shares of stock in IHO. (Complaint ¶¶ 8, 47.)
Plaintiffs' first and second causes of action allege violations of IHO's Articles of Association and Information Memorandum ("Articles of Association") and violations of the International Business Companies Act of the British Virgin Islands ("BVI"), respectively; Plaintiffs' third cause of action alleges violations of several provisions of New York's Business Corporation Law ("N.Y. B.C.L." or "B.C.L."); the fourth cause of action seeks an accounting pursuant to N.Y. B.C.L. § 720; the fifth cause of action alleges fraudulent concealment; and the sixth cause of action alleges breach of fiduciary duty. (See Complaint.)
On or about March 21, 2006, Defendants moved to dismiss the Complaint pursuant to Rules 9(a) and 12(b)(6) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P."), arguing, among other things, that (1) Komodo lacks standing under BVI law to bring derivative claims; (2) the provisions of the N.Y. B.C.L. raised in the third cause of action "simply [have] no applicability to IHO"; (3) Seghers cannot raise a claim under N.Y. B.C.L. § 720; (4) "[t]he complaint contains no allegation that the relationship between Seghers and defendants was such that defendants had disclosure duties to him"; and (5) Plaintiffs' breach of fiduciary duty claim fails because "the complaint does not allege that Seghers is, or ever was, a shareholder of IHO." (Notice of Motion, dated March 21, 2006; Defendants' Memorandum of Law in Support of Motion to Dismiss ("Def. Mem."), at 3, 13-15.) Defendants also argue that, if Komodo is permitted to maintain a derivative action, it should be required to post security pursuant to N.Y. B.C.L. § 627. (Reply Memorandum of Law in Support of Defendants' Motion to Dismiss and For Security Pursuant to N.Y. B.C.L. § 627 ("Reply") at 4.)
The Defendants do not appear to seek dismissal of the first and second causes of action at this time.
On or about April 25, 2006, Plaintiffs filed an opposition, arguing, among other things, that "the Court can and should declare that the unlawful takeover [of IHO] is a legal nullity under New York law"; that Komodo has standing to bring a derivative action and "Plaintiffs' claim under N.Y. B.C.L. § 720 is sufficient." (See Plaintiffs' Memorandum of Law in Opposition to Motion to Dismiss ("Opposition") at 2.) This order will resolve the open issues of (1) Komodo's standing to pursue derivative claims; (2) the applicability of the provisions of the B.C.L. raised in Plaintiffs' third cause of action; (3) the applicability of N.Y. B.C.L. § 720 as raised in the fourth cause of action; (4) Plaintiffs' fifth cause of action for fraudulent concealment; and (5) Plaintiffs' sixth cause of action for breach of fiduciary duty.
Thus, Plaintiffs do not appear to challenge Defendants' arguments for dismissal of the third, fifth or sixth causes of action.
Oral argument was held on September 27, 2006.
The Court is not here ruling upon the merits of Plaintiffs' claims.
The Court treats the following allegations in the Amended Complaint as true for the purposes of this motion. See, e.g.,Eastchester Rehab. Health Care Ctr., L.L.C. v. Eastchester Health Care Ctr. L.L.C., No. 03 Civ. 7786, 2005 WL 887154, at *2 (S.D.N.Y. Apr. 15, 2005) (citing Harris v. City of New York, 186 F.3d 243, 247 (2d Cir. 1999)):
Seghers founded IHO "as an offshore hedge fund and incorporated it on May 19, 2000." (Complaint ¶ 13.) Plaintiffs allege that "IHO's business operations were conducted principally in New York," and that "most of IHO's activities, including marketing, documentation, valuations, [and the creation of] shareholder letters, notifications and statements" occurred in New York. (Complaint ¶ 9.) "Between June 2000 and September 2001, IHO raised a total of approximately $17 million in investments from at least 11 investors and at least 25 separate investments." (Complaint ¶ 14.) On September 1, 2001, the value of the assets in IHO was approximately $17,259,000. (Complaint ¶ 15.) "As of December 31, 2001, the value of the assets in IHO was approximately $4,169,000" and "[a]s of the date of this action, the value of the assets in IHO is approximately $50,000." (Complaint ¶¶ 15, 16.)
"In early 2002, several domestic hedge funds founded by Seghers . . . were placed under a Dallas, Texas, court-appointed administrator, Daniel Jackson [("Jackson")], in an action styledThe Art Institute of Chicago v. Integral Hedging, L.P., et al., No. 01-10623 (Tex. Dist. Ct., Dallas)." (Complaint ¶ 18.) "Jackson was never appointed receiver of the offshore fund, IHO, which had no affiliation with . . . the plaintiff in the Dallas, Texas case." (Complaint ¶ 19.)
On May 28, 2002, Defendants, along with several others, "illicitly held an IHO shareholders meeting" (the "May 28 Meeting") at the New York law firm of Bragar, Wexler, Eagel and Morgenstern, P.C., "who, upon information and belief, were retained by or on behalf of the Insurgent Directors." (Complaint ¶ 20.) "The only persons at the meeting who were actually shareholders were [Arnoud de Villegas and Paul Wrench], who upon information and belief controlled only a few percent of the shares of IHO." (Complaint ¶ 22.) At the time of the meeting, Seghers [was] the sole officer and director of IHO." (Complaint ¶ 17.)
Plaintiffs allege that the May 28 Meeting "could only have taken place legally if IHO's sole director in May 2002, Seghers, convened a meeting of shareholders." (Complaint ¶ 25.) Seghers did not convene the May 28 Meeting, "and he never received a written request to convene a meeting by the members holding 25 percent or more of the outstanding voting shares in IHO," as required by the Articles of Association. (Complaint ¶ 23, 26.) "Indeed, Seghers was not even informed or given notice of the shareholders meeting, and only later did he learn that the illicit meeting had taken place." (Complaint ¶ 27.) The May 28 Meeting did not have a quorum, "and proxy forms were not presented." (Complaint ¶ 28, 29.)
At the May 28 Meeting, "the Insurgent Directors, with the participation and consent of Wexler and Morgenstern, removed Seghers as a director and caused the purported appointment of the three Insurgent Directors, the defendants in this action, as directors of IHO." (Complaint ¶ 32.) After Seghers was removed, between late 2002 and early 2003, the Defendants retained the Dallas, Texas law firm of Winstead, Sechrest and Minick, P.C. ("Winstead") as the attorneys for IHO. (Compaint ¶ 36.) Winstead also represented Jackson, the court-appointed receiver of the domestic hedge funds. (Complaint ¶ 36.) "Winstead, acting upon the instructions of the Insurgent Directors but over the objections of plaintiff Seghers, gave full, de facto control of IHO and its assets to receiver Jackson" in the The Art Institute of Chicago ("Art Institute") action. (Complaint ¶ 36.) "However, The Art Institute of Chicago, which had brought its action for losses incurred in other hedge funds, never invested any money into IHO . . . [and] the court order defining the scope of and the entities under the receivership [in the Art Institute action] never included IHO." (Complaint ¶ 38.)
"Upon information and belief, the IHO Insurgent Directors, in violation of law and breach of their fiduciary duties, have purportedly acquiesced in the receiver's allocation and distribution plan, which will result in enormous losses to the IHO shareholders, including plaintiffs, of nearly all of their investments . . ." (Complaint ¶ 42.)
III. Legal Standard
"Any Rule 12(b)(6) movant for dismissal faces a difficult (though not insurmountable) hurdle." Harris v. City of New York, 186 F.3d at 247 (internal citation omitted). "Dismissal of a complaint for failure to state a claim pursuant to Rule 12(b)(6) is proper only where `it appears beyond doubt that the plaintiff can prove no set of facts in support of [his] claim that would entitle [him] to relief.'"Polar Int'l Brokerage Corp. v. Reeve, 108 F. Supp. 2d 225, 229 (S.D.N.Y. 2000) (quoting Harris, 186 F.3d at 247). "The court must accept as true all material facts alleged in the complaint and draw all reasonable inferences in the nonmovant's favor." Id.
Fed.R.Civ.P. Rule 9(a) "requires not only that the pleader make a specific negative averment of the plaintiff's capacity to sue, but also that the averment include `such supporting particulars as are peculiarly within the pleader's knowledge.'"Pressman v. Estate of Steinvorth, 860 F. Supp. 171, 176 (S.D.N.Y. 1994) (quoting Marston v. American Employers Ins. Co., 439 F.2d 1035, 1041 (1st Cir. 1971)).
(1) Komodo's Standing to Pursue Derivative Claims
Defendants argue that the Court should apply BVI law and that "under BVI law, minority shareholders [such as Komodo] have no standing to bring derivative claims." (Def. Mem. at 2.) Plaintiffs counter (unpersuasively) that for Defendants "to claim their illicit actions are essentially immune from redress because of British case law governing derivative actions, would be like watching the son of a foreign diplomat strip and sell parts of 40 New Yorkers' cars at the Ninth Avenue street fair and thumb his nose at our citizens under the laws of diplomatic immunity." (Opposition at 4-5.)
Where, as here, a derivative suit is based upon diversity jurisdiction, the Court must apply a New York conflict of law analysis. See Locals 302 612 of the Int'l. Union of Operating Eng'rs v. Blanchard, No. 04 Civ. 5954, 2005 WL 2063852, at *3 (S.D.N.Y. Aug. 25, 2005). Specifically, courts apply the "internal affairs" doctrine which states that "[t]he right of a shareholder to object to conduct occurring in the operation of the corporate enterprise is determined by the law of the state of incorporation," which here is the British Virgin Islands. Hausman v. Buckley, 299 F.2d 696, 702 (2d Cir. 1962) (internal citation omitted); see also Hbouss v. Coca-Cola Enterprises, No. 05 Civ. 7965, 2006 WL 2285598, at *4 (S.D.N.Y. Aug. 9, 2006) (internal citation omitted).
Plaintiffs' reliance on Norlin Corporation v. Rooney, Pace, Inc., 744 F.2d 255 (2d Cir. 1984) is misplaced. The court in that case held that New York law applied because "the purported conflict is purely illusory"; that Panamanian law did not apply and that, "[i]n essence, Panama has made a determination that its interest in [Plaintiff's] affairs is insufficient to warrant the application of Panamanian law to this dispute." Norlin, 744 F.2d at 264. In contrast here, it appears undisputed that the British Virgin Islands has "explicit laws on derivative standing and thus cannot be said to have no interest in seeing its law applied." (Def. Mem. at 9.); see also Hbouss, 2006 WL 2285598, at *4 n. 2.
The parties agree that, under BVI law, derivative actions are governed by the rule in Foss v. Harbottle, 2 Hare 461 (Eng. 1843), i.e. that "a shareholder may ordinarily bring a derivative claim on behalf of a corporation only if a simple majority of the shareholders could not ratify the conduct on which the suit is based." In re Tyco Int'l., Ltd., 340 F. Supp. 2d 94, 102 (D.N.H. 2004); (See Def. Mem. at 6; First Kite Aff. ¶ 13; Webster Aff. ¶ 19.) Plaintiffs argue that "the British Virgin Islands would allow a derivative action to be brought by Komodo because the wrongful acts complained of fit into the exceptions to the rule in Foss v. Harbottle." (Opposition at 8.) Defendants counter that "plaintiffs' reliance on the BVI `fraud by the [minority]' exception, and the non-existent `interests of justice' exception, is utterly misplaced." (Reply at 2.)
The parties have each submitted affidavits of attorneys practicing in the British Virgin Islands. Plaintiffs have provided the Court with the affidavit of Phillip Kite ("Kite"), the partner in charge of the litigation department of the BVI law firm of Harney Westwood and Riegels. Affidavit of Philip Kite in Support of Motion to Dismiss, dated March 20, 2006 ("First Kite Aff.") ¶ 1, 3.) Defendants have submitted the affidavit of Paul Webster ("Webster"), who "ha[s] practiced as a barrister in the Virgin Islands" since 1980, and is "the Senior Partner of the BVI law firm of O'Neal Webster." (Affidavit of Paul Webster in Support of Opposition to Motion to Dismiss ("Webster Aff."), dated April 26, 2006 ¶¶ 2, 3.)
Applying the rule in Foss v. Harbottle, the Court finds that Komodo's derivative claims are precluded because "the proper plaintiff for a wrong done to [a] company is the company itself." (First Kite Aff. ¶ 15.); see also Messinger v. United Canso Oil and Gas Ltd., 486 F. Supp. 788, 792 (D. Conn. 1980) (noting that the court in Foss v. Harbottle "did not reject entirely the concept that an individual shareholder could sue for injury to the corporation, but [it] imposed a heavy burden of justification on the complaining party. . . .")
Because Komodo's derivative claims are dismissed, the Court need not consider the posting of security pursuant to N.Y. B.C.L. § 627 or the materials submitted under cover of Plaintiffs' letter dated September 27, 2006.
And, the "fraud on the minority" exception to the Foss v. Harbottle rule does not apply because two preconditions have not been met. Tyco, 340 F. Supp. 2d at 98. First, Plaintiffs have not shown that "the alleged wrongdoers have `control' over a majority of the stock with voting rights" of IHO. Tyco, 340 F. Supp. 2d at 98. The Complaint here does not allege that the Defendants directors are shareholders of IHO — let alone that they hold a controlling number of the company's shares. See Pavlides v. Jensen,  Ch. 565 (Chancery Division).
Second, Plaintiffs are unable to show that the Defendants have committed "fraud" as that term is applied under the fraud on the minority exception. "Fraud" in this context differs from the American definition of the term, and "English courts speak of fraud in this context in a broader equitable sense in which control is misused to benefit the wrongdoers at the company's expense." Tyco, 340 F. Supp. 2d at 99; see also Konamaneni v. Rolls Royce (India),  1 WLR 1269, 1278 (Chancery Division) ("Fraud includes all cases where the wrongdoers are endeavouring, directly or indirectly to appropriate themselves money, property or advantages which belong to the company or in which the other shareholders are entitled to participate."). "Thus, English law, unlike its American counterpart, does not permit a derivative action to be maintained to remedy a breach of fiduciary duty that does not involve self-dealing by those in control." Tyco, 340 F. Supp. 2d at 99. Nowhere in the Complaint is it alleged that the individual Defendants acted with the intention of "appropriat[ing] themselves money, property or advantages" which belong to IHO.Konamaneni,  1 WLR at 1278.
The "interests of justice" exception to the rule in Foss v. Harbottle is also inapplicable, in part at least, because the exception has been called into serious doubt. The United Kingdom's Court of Appeal has "stated it was `not convinced' that an exception to the rule in Foss v. Harbottle `whenever the justice of the case so requires' was a practical test." Tyco, 340 F. Supp. at 102 (quoting Prudential Assurance Co. v. Newman Indus. (No. 2),  Ch. 204 at 221); see also Konamaneni,  1 WLR at 1278 (stating that any previous assumption "that there was a general exception to the rule in Foss v. Harbottle . . . where the interests of justice so require" is "no longer justified since the Prudential Assurance case.").
(2) Applicability of the Provisions of the B.C.L. Raised in Plaintiffs' Third Cause of Action
Defendants argue — unopposed and persuasively — that "the procedural requirements for IHO shareholder meetings and voting are found in IHO's Articles of Association and in BVI statutory laws" and that "the New York BCL simply has no applicability to IHO." (Def. Mem. at 13.)
"It is well established that as a matter of law, corporate governance issues are normally controlled by the law of the state of incorporation." Lagner v. Brown, 913 F. Supp. 260, 270 (S.D.N.Y. 1996); see also Abu-Nassar v. Elders Future Inc., No. 88 Civ. 7906, 1991 WL 45062, at *12 n. 17 (S.D.N.Y. March 28, 1991) ("When determining whether a foreign corporation has observed the proper corporate formalities, courts apply the law of the country of incorporation."); Kikis v. McRoberts Corp., 225 A.D.2d 455 (1st Dept. 1996) ("[I]ssues of corporate governance are determined by the State in which the corporation is chartered.").
While certain portions of the B.C.L. are applicable to foreign corporations doing business in New York by virtue of B.C.L. § 1319, Plaintiffs' third cause of action does not allege violations of those sections enumerated in section 1319 (including B.C.L. §§ 623, 626, 627, 721 808, and 907), but, rather, Plaintiff alleges that the May 28 Meeting violated B.C.L. § 602 (Meetings of shareholders), B.C.L. § 605 (Notice of meetings of shareholders), B.C.L. § 608 (Quorum of shareholders); B.C.L. § 609 (Proxies), B.C.L. § 703 (Election and term of directors), B.C.L. § 706 (Removal of directors), B.C.L. § 707 (Quorum of directors), B.C.L. § 710 (Place and time of meetings of the board), B.C.L. § 716 (Removal of officers), and B.C.L. § 717 (Duty of directors). (See Complaint ¶¶ 67-75.); See Potter v. Arrington, 11 Misc. 3d 962, 965 (N.Y.Sup.Ct. 2006); N.Y. B.C.L. § 1319(a)(1)-(6). The provisions of the B.C.L. raised by the Plaintiffs in the Complaint have no applicability to IHO. Rather, as Plaintiffs acknowledge in the Complaint, IHO is guided by "the Articles of Association and Information Memorandum which govern the directors and shareholders of IHO" and "provisions of The International Business Companies Act . . . of the British Virgin Islands." (Complaint ¶ 43.)
The Articles of Association provide, among other things, that "the directors of the Company may convene meetings of the members of the Company . . . as the directors consider necessary or desireable," and the "directors shall in the normal course of events give not less than 10 days notice of the meetings of members to those persons whose names on the date the notice is given appear as members in the share register of the Company and are entitled to vote at the meeting." (Complaint ¶ 23.)
(3) The Applicability of B.C.L. § 720 as Raised in the Fourth Cause of Action
Defendants argue that B.C.L. § 720 is inapplicable because "the complaint fails to contain allegations demonstrating that IHO was doing business in New York at the time this action was commenced in January 2006." (Def. Mem. at 11.) Plaintiffs counter that "the factors pertinent to the "doing business" determination are not exhaustive, and . . . the dispositive factor in any given case can vary, depending on the issues presented." (Opposition at 10.)
N.Y. B.C.L. § 720 provides, in pertinent part:
(a) An action may be brought against one or more directors or officers of a corporation to procure a judgment for the following relief:
(1) Subject to any provision of the certificate of incorporation authorized pursuant to paragraph (b) of section 402, to compel the defendant to account for his official conduct in the following cases:
(A) The neglect of, or failure to perform, or other violation of his duties in the management and disposition of corporate assets committed to his charge.
(B) The acquisition by himself, transfer to others, loss or waste of corporate assets due to any neglect of, or failure to perform, or other violation of his duties.
(2) To set aside an unlawful conveyance, assignment or transfer of corporate assets, where the transferee knew of its unlawfulness.
N.Y. B.C.L. § 720.
Section 1317 of the B.C.L. permits a cause of action against officers or directors "of a foreign corporation doing business in [New York]." N.Y. B.C.L. § 1317. Plaintiffs, therefore, may proceed with a cause of action under section 720 if it established that IHO was doing business in New York. See Air India v. Pa. Woven Carpet Mills, Inc., 978 F. Supp. 500, 503 (S.D.N.Y. 1997). The Complaint alleges that "IHO's business operations were conducted principally in New York," and that "most of IHO's activities, including marketing, documentation, valuations, [and the creation of] shareholder letters, notifications and statements" occurred in New York. (Complaint ¶ 9.) This is sufficient. While Defendants contend that the relevant "inquiry is whether the corporation is doing business in New York at the time the action is brought," there does not appear to the Court to be a section 720 requirement that the corporation be doing business at the time the action was commenced. (Def. Mem. at 10.); see Air India, 978 F. Supp. at 503 (holding in the context of B.C.L. § 720 that "[t]here is no evidence sufficient to warrant an inference that [Plaintiff] is or was doing business in New York."). Plaintiffs' allegations regarding IHO's business contacts with New York, therefore, are sufficient to defeat Defendants' motion to dismiss. See CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 366 (2d Cir. 1986); Chaldon Assoc., LLC v. Daedalus Capital, LLC, No. 01 Civ. 2015, 2001 WL 1160580, at *1 (S.D.N.Y. Oct. 1, 2001).
(4) Fraudulent Concealment
Defendants argue — unopposed and persuasively — that the "Complaint contains no allegation that the relationship between Seghers and defendants was such that defendants had disclosure duties to him." (Def. Mem. at 14.)
"Under New York law, a `court must apply the substantive tort law of the state that has the most significant relationship with the occurrence and with the parties.'" TeeVee Toons, Inc. v. Gerhard Schubert GmbH, No. 00 Civ. 5189, 2006 WL 2463537, at *14 (S.D.N.Y. August 23, 2006) (quoting Machleder v. Diaz, 801 F.2d 46, 51 (2d Cir. 1986)). Because the fraud alleged took place in New York (where the May 28 Meeting was held) and at least two of the individual Defendants appear to be residents of New York, the Court will apply New York law. See TeeVee Toons, 2006 WL 2463537, at *14.
"The elements of fraudulent concealment under New York law are a relationship between contracting parties that creates a duty to disclose, knowledge of material facts by a party bound to make such disclosures, nondisclosure, scienter, reliance, and damage."Congress Fin. Corp. v. John Morrell Co., 790 F. Supp. 459, 472 (S.D.N.Y. 1992). In New York, "a duty to disclose material facts arises (1) where there is a fiduciary relationship between the parties, or (2) where one party possesses superior knowledge, not readily available to the other, and knows that the other party is acting on the basis of the mistaken knowledge." Id.
The Complaint contains no allegations of a relationship between Seghers and the individual Defendants that imposes a duty to disclose. That is, it is not alleged that the individual Defendants held any position with IHO prior to the May 28 Meeting, let alone one which imposed a fiduciary duty. Nor is it alleged that after becoming directors of IHO at the May 28 Meeting, the individual Defendants owed a fiduciary duty to Seghers, who is not alleged to have been a shareholder of IHO. And, there is no allegation of any contractual relationship between Seghers and the individual Defendants creating a duty to disclose. See Fagan v. First Sec. Invs., Inc., No. 04 Civ. 1021, 2006 WL 2671044, at *5 (S.D.N.Y. Sept. 15, 2006) (dismissing cause of action for breach of fiduciary duty where "there is nothing in the Complaint to suggest the existence of a fiduciary relationship . . . except Plaintiffs' conclusory allegation that Defendants were fiduciaries."); Congress Fin., 790 F. Supp. at 472; see also Bavaria Intern. Aircraft Leasing GmbH v. Clayton, Dubilier Rice, Inc., No. 03 Civ. 0377, 2003 WL 21767739, at *6 (S.D.N.Y. July 30, 2003).
(5) Breach of Fiduciary Duty
Defendants argue — unopposed and persuasively — that the sixth cause of action fails because "the complaint does not allege that Seghers is, or ever was, a shareholder of IHO." (Def. Mem. at 15.) The breach of fiduciary duty claim fails under the laws of either New York or the British Virgin Islands. See Pension Comm. of Univ. of Montreal Pension Plan v. Banc of America Sec., LLC, ___ ___ F. Supp. 2d ___, 2006 WL 2053326, at *16 (S.D.N.Y. July 20, 2006) ("The elements of a claim for breach of fiduciary duty under New York law are breach by a fiduciary of a duty owed to plaintiff; defendant's knowing participation in the breach; and damages."); Polar Intern. Brokerage Corp. v. Reeve, 187 F.R.D. 108, 116 (S.D.N.Y. 1999) ("Generally, under British law, directors owe duties to the company, and not the individual stockholders.").
As noted, Seghers does not allege that he was ever a shareholder of IHO, nor does he allege the existence of any other fiduciary relationship between himself and the individual Defendants. See Fagan, 2006 WL 2671044, at *5 (dismissing cause of action for breach of fiduciary duty where "there is nothing in the Complaint to suggest the existence of a fiduciary relationship . . . except Plaintiffs' conclusory allegation that Defendants were fiduciaries.").
V. Decision Order
For the reasons stated, Defendants' motion to dismiss Komodo's derivative claims is granted, as is Defendants' motion to dismiss the third, fifth and sixth causes of action. Defendants' motion is denied as to the fourth cause of action.
The parties are directed to appear at a status/settlement conference with the Court on October 30, 2006 at 10:15 a.m., in Courtroom 14A of the Daniel Patrick Moynihan Courthouse, 500 Pearl Street, New York, New York, 10007. The parties are directed to engage in good faith settlement negotiations prior to the conference with the Court.