Case ID: ad2d_187/html/0302-02.html
Source: Caselaw Access Project
Author: {"author": "", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Peter F. Bonoff, Individually and as a Shareholder and on Behalf of General Linen Supply & Laundry Co., Inc., and Others, Appellant, v William B. Troy et al., Respondents.
   Order, Supreme Court, New York County (Carmen Beau-champ Ciparick, J.), entered on or about March 12, 1991, which denied plaintiffs motion pursuant to CPLR 3025 (b) for leave to file an amended complaint asserting a cause of action for rescission of shareholder agreements, is unanimously modified, on the law, to grant plaintiff leave to renew upon submission of pleadings that include, as party defendants, all signatories to the subject shareholder agreements, and otherwise affirmed, without costs.

This is a shareholder’s derivative action, which alleges, inter alia, that the defendant directors breached fiduciary duties, diverted corporate opportunities, and violated shareholder agreements. At issue on appeal is whether plaintiffs motion for leave to amend the complaint to assert a ninth cause of action was properly denied. The proposed cause of action seeks rescission of defendant William B. Troy’s contractual right, under the 1975 Shareholder Agreements, to control the management of defendant General Linen Supply & Laundry Co., Inc. and affiliated defendants referred to as "the Peripherals”, Cascade Linen Supply Corp. of N.J., The Household Linen Supply Company, and Suburban Cascade Linen Supply Co., Inc.

We have examined this record, and conclude that the proposed ninth cause of action establishes a prima facie claim for rescission of the 1975 Shareholder Agreements. The IAS Court properly held that, absent an express commitment by the directors, there is no obligation to "enhance” or "maximize” shareholder value (see, In re Union Carbide Corp. Consumer Prods. Bus. Sec. Litig., 666 F Supp 547, 553 [SD NY 1987]). However, plaintiffs inartful drafting should not, on this motion for summary judgment, have been dispositive of the motion to amend (see, Hawkins v Genesee Place Corp., 139 AD2d 433, 434). CPLR 3025 (b) provides that leave to amend a complaint shall be freely given (Edenwald Contr. Co. v City of New York, 60 NY2d 957) and, although the practice of allowing an amended pleading that clearly lacks merit is wasteful of judiciary resources (see, Wieder v Skala, 168 AD2d 355), where the merits are not fully tested, "the better practice is to allow amendment, with leave to a party so desiring to raise the substantive issue at a later date” (Vastola v Maer, 48 AD2d 561, 567-568, affd 39 NY2d 1019).

Here, the proposed amendment is not, in fact, dependent upon an alleged duty to enhance shareholder value but, rather, asserts that the defendants collectively referred to as the "Troy group” repeatedly and materially breached essential and continuing obligations under the 1975 Shareholder Agreements by subordinating the best interests of the corporations to their own. Among the claims stated were that the Troy group diverted a valuable corporate opportunity; refused to permit valuation of the corporations by the minority directors or their experts; and voted down a resolution designed to permit the investigation and reporting to all shareholders of matters concerning the corporations.

We are in agreement with defendants-respondents, however, that plaintiffs failure to join all of the signatories to the 1975 Shareholder Agreements as necessary parties to the action precludes partial rescission (see, Tudor v Riposanu, 93 AD2d 718). While the proposed amendment could properly be denied on that ground, the circumstances presented render it appropriate to permit plaintiff leave to renew upon pleadings that include all necessary parties (Tanjong Shipping v Berke, 115 AD2d 401, 403; CPLR 1003). Concur — Ellerin, J. P., Wallach, Ross, Kassal and Rubin, JJ.