Opinion ID: 2634628
Heading Depth: 3
Heading Rank: 3

Heading: Action Against Directors and Officers

Text: The Behrmann Trust argues that section 7-113-102(4) does not bar its compensatory damages action because PRC is not a party and this action is against the officers and directors. The officers and directors argue that section 7-113-102(4) is not a defendant-identifying provision that applies only to suits against the corporation itself, but applies when the corporation is the alleged victim. Thus, the officers and directors contend that the statute's exclusivity provision covers actions against the corporation, officers, and directors. We agree. The relevant section of the exclusivity provision states that a shareholder entitled to dissent may not challenge the corporate action creating such entitlement unless the action is unlawful or fraudulent . . . . § 7-113-102(4) (emphasis added). New York has always barred claims against officers and directors under the exclusivity provision if the complaint does not fall within the exception. In the New York Breed and Burke cases, the minority shareholders brought an action against the directors of the corporation. Burke v. Jacoby, 981 F.2d 1372, 1374 (2d Cir.1992)(shareholder brought claims against the corporation's former president and board chairman, Robert Jacoby); Breed v. Barton, 54 N.Y.2d 82, 444 N.Y.S.2d 609, 429 N.E.2d 128, 129 (1981)(shareholders brought an action against individual, George Barton). In both cases, the court held that the exclusivity rule barred their claims. Burke, 981 F.2d at 1380-81; Breed, 444 N.Y.S.2d 609, 429 N.E.2d at 131. Similarly, in more recent New York cases where shareholders brought actions against individuals, New York courts have not distinguished between those claims and claims brought against the corporation. Theodore Trust, 717 N.Y.S.2d at 7-8 (dismissing complaint against individuals because a dissenting shareholder brought only an action seeking money damages and the court held that the exclusivity rule prohibited this); In re Lazar, 262 A.D.2d 968, 692 N.Y.S.2d 539, 540-41 (N.Y.App.Div.1999) (permitting dissenting shareholders to bring claims against directors because their complaint sought equitable relief as its primary form of relief). The drafters of the MBCA adopted the New York formula, and New York law is clear that the Act applies to actions brought against officers and directors. Thus, the statute's exclusivity provision prohibits the Behrmann Trust from bringing this action.