Court Opinion

ID: 9822834
Source: CourtListenerOpinion
Date Created: 2023-09-01 09:28:18.286078+00
Date Added: 2024-06-11T07:39:10.975445
License: Public Domain

Manzanet-Daniels, J.,
dissents in part in a memorandum as follows: This is an appeal from the dismissal of a shareholder derivative action brought by plaintiff shareholder on behalf of Acropolis Gardens Realty Corp., a residential cooperative corporation. In or about 1995, the sponsor of the conversion defaulted and the co-op became the owner, of more than 300 units (the co-op is comprised of 617 units altogether). Plaintiff alleges that in approving the sales of units at prices far below market rate — i.e., ranging from $25,000 to $50,000 per unit— defendant board members, managing agent, accountant, and purchasers, committed fraud and corporate waste, and breached their fiduciary duties or aided and abetted such breaches.
*558The motion court granted defendants’ motions to dismiss the complaint upon a finding that plaintiff failed to plead demand futility (see Business Corporation Law § 626 [c]). The court did not reach the additional grounds raised by defendants that the claims failed to state a cause of action or should be dismissed based on documentary evidence.
Plaintiff argues for the first time on appeal that his various communications with the board in the year or so preceding this action constituted sufficient demand for action to satisfy Business Corporation Law § 626 (c). Plaintiff’s argument contradicts the complaint, which states that plaintiff never made any such demand, and I agree with the majority that we should decline to consider it on appeal.
Plaintiff, however, has adequately alleged that any such demand on the board would have been futile (see Marx v Akers, 88 NY2d 189, 200-201 [1996]). A shareholder claiming demand would be futile is required to allege “with particularity that (1) a majority of the directors are interested in the transaction, or (2) the directors failed to inform themselves to a degree reasonably necessary about the transaction, or (3) the directors failed to exercise their business judgment in approving the transaction” (id. at 198).
Plaintiff has adequately alleged that the directors “rubber stamped” decisions and that certain of the challenged transactions were “so egregious on [their] face that [they] could not have been the product of sound business judgment of the directors” (id. at 201). Plaintiff alleges, inter alia, that the board approved below-market sales of 43 units to the Leifer defendants, 27 units to Monarch (an entity owned by Steven Osman, a principal of the managing agent, Metropolitan), as well as the sale of a unit for $25,000 to defendant board member Marzouka. Plaintiff also alleges that the board approved a 10-year noncancellable contract with the managing agent at an above-market rate of $288,000 per year.
Under these circumstances, it would be reasonable to conclude that making a demand on the board would have been futile. The determination of whether the apartment sales were at a grossly inadequate price and contrary to the best interests of the corporations should await a later date (see Greenbaum v American Metal Climax, 27 AD2d 225 [1st Dept 1967] [defendant entitled to summary judgment where there was no evidentiary support for the contention that a sale occurred at a grossly inadequate price or that the directors failed to act in the best interests of the corporation]).
Although demand was excused, I agree that the third cause *559of action (for aiding and abetting breach of fiduciary duty) and the seventh cause of action (for unjust enrichment) were properly dismissed as against defendants Leifer, Astoria-Atlas and Calix Realty Holdings. A claim for aiding and abetting a breach of fiduciary duty requires “(1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach” (Kaufman v Cohen, 307 AD2d 113, 125 [1st Dept 2003]). Plaintiff fails to adequately allege that the Leifer defendants had actual, i.e., not constructive, knowledge of alleged breaches of fiduciary duty or furnished substantial assistance to the primary violators (see id.) Similarly, the complaint fails to adequately allege that the Leifer defendants were unjustly enriched (cf. Merrill Lynch, Pierce, Fenner & Smith v Chipetine, 221 AD2d 284 [1st Dept 1995]).