Appellate Division of the Supreme Court of New York, First DepartmentNov 26, 1991
177 A.D.2d 452 (N.Y. App. Div. 1991)
177 A.D.2d 452576 N.Y.S.2d 549

November 26, 1991

Appeal from the Supreme Court, New York County (Edward H. Lehner, J.).

In this action, the plaintiffs, a life tenant in certain shares of a closely held subchapter "S" corporation, and the trustee of another life tenant, allege mismanagement of the corporation's affairs.

The first cause of action alleges that excessive salaries have been paid to corporate officers. However, in view of the fact that plaintiff Sheflan was a board member from 1981 to 1989, and never challenged these salaries, and that all shareholders received copies of minutes of the meeting at which the salaries were approved, without voicing any objection, there was a complete ratification and acquiescence. That the salaries consisted of a fixed monetary amount plus a percentage of profits does not undermine the efficacy of the ratification, as the formula applied was simple, and the computations readily accomplished.

The second cause of action, alleges conversion by defendants as a result of the alleged excessive salaries was improperly brought as an individual cause of action (Abrams v. Donati, 66 N.Y.2d 951, 953). Also, since plaintiffs cannot demonstrate that they have superior possessory rights to specifically identifiable property, no cause of action will lie (Aetna Cas. Sur. Co. v. Glass, 75 A.D.2d 786). Accordingly, the second cause of action is dismissed without leave to replead.

Plaintiffs maintain that it was error for the board not to declare all the earnings of the corporation as dividends. As with the compensation issue, ratification and acquiescence bars plaintiffs' claims up until 1989. (See, Diamond v. Diamond, 307 N.Y. 263, 266.) Accordingly, the third cause of action was properly dismissed with leave to replead derivatively (see, Abrams v Donati, supra) as a cause of action for failure to declare proper dividends as of 1989.

We have considered all other claims and find them to be meritless.

Concur — Carro, J.P., Rosenberger, Kupferman, Ross and Rubin, JJ.