Katz v. BeilKatz v. Beil
In an action, inter alia, to recover damages for breach of fiduciary duty, the plaintiffs appeal, as limited by their brief, from so much of a judgment of the Supreme Court, Nassau County (Driscoll, J.), entered June 19, 2014, as, upon so much of an order of the same court entered January 11, 2013, as granted that branch of the motion of the defendants Finkle Ross & Rost, LLP, and Finkle & Ross, LLP, which was pursuant to
Ordered that the
The defendants Barry J. Beil and Stanley Pine (hereinafter
The plaintiffs commenced this action against the individual defendants and the Finkle defendants. The amended complaint asserted causes of action against the individual defendants for an accounting of the partnership's books and records, and to recover damages for breach of fiduciary duty, self-dealing, usurpation of corporate opportunity, waste, and unjust enrichment. The amended complaint asserted causes of action against the Finkle defendants to recover damages for accounting malpractice and aiding and abetting breach of fiduciary duty.
Thereafter, the Finkle defendants moved pursuant to
The plaintiffs subsequently moved, inter alia, pursuant to
The individual defendants thereafter moved, inter alia, for summary judgment dismissing the amended complaint insofar as asserted against them, and the Finkle defendants separately moved for summary judgment dismissing the remaining cause of action asserted against them, which alleged aiding and abetting breach of fiduciary duty. In an order entered April 17, 2014, the Supreme Court awarded the individual defendants summary judgment dismissing the amended complaint insofar as asserted against them and awarded the Finkle defendants summary judgment dismissing the cause of action alleging aiding and abetting breach of fiduciary duty. The court subse-quently
Contrary to the plaintiffs' contention, the Supreme Court, in the order entered January 11, 2013, properly directed the dismissal of the cause of action to recover damages for accounting malpractice asserted against the Finkle defendants. In considering a motion pursuant to
The plaintiffs also contend that the Supreme Court, in the order entered November 4, 2013, should have granted those branches of their motion which were pursuant to
Here, the plaintiffs sought leave to amend the amended complaint to add shareholders' derivative causes of action on behalf of the operating corp., and derivative causes of action on behalf of the partnership. The proposed second amended complaint alleged that the plaintiffs were shareholders of the operating corp., and were general partners of the partnership, and that the operating corp. and the partnership had suffered damages as a result of the allegedly wrongful conduct of the individual defendants and the Finkle defendants. The Supreme Court properly concluded that the second cause of action contained in the proposed second amended complaint, to the extent that it sought to assert derivative claims on behalf of the operating corp. and the partnership against the Finkle defendants for aiding and abetting breach of fiduciary duty, was palpably insufficient and patently devoid of merit (cf. Roni LLC v Arfa, 15 NY3d 826, 827 [2010]). Accordingly, the court properly denied leave to amend the amended complaint to assert derivative causes of action against the Finkle defendants for aiding and abetting breach of fiduciary duty.
However, the Supreme Court erred in concluding that the eighth cause of action contained in the proposed second amended complaint, to the extent that it sought to assert derivative claims on behalf of the operating corp. and the partnership against the Finkle defendants for accounting malpractice, was palpably insufficient and patently devoid of merit (cf. Delollis v Margolin, Winer & Evens, LLP, 121 AD3d 830, 830 [2014]; Hecht v Andover Assoc. Mgt. Corp., 114 AD3d 638, 641 [2014]). Accordingly, in light of the Finkle defendants' failure to establish that they were prejudiced or surprised by the plaintiffs' delay in seeking these amendments, the court should have granted leave to amend the amended complaint to assert derivative causes of action against the Finkle defendants for accounting malpractice.
Contrary to the Supreme Court's conclusion, the remaining proposed derivative causes of action, which were directed against the individual defendants, were not palpably insufficient nor patently devoid of merit (see
The plaintiffs also maintain that the Supreme Court should have granted leave to amend the amended complaint to assert a cause of action to recover damages for breach of a partnership agreement against the individual defendants. Contrary to the court's conclusion, it cannot be said at this juncture that this proposed cause of action is wholly time-barred since, among other things, allegations in the proposed second amended complaint relate to breaches of the partnership agreement that were alleged to have occurred within the applicable statute of limitations period (see
The Supreme Court also should have granted leave to amend the amended complaint to assert a cause of action for declaratory and injunctive relief against the individual defendants, as set forth in the proposed tenth cause of action in the proposed second amended complaint. The individual defendants failed to demonstrate that the proposed amendment resulted in prejudice or surprise, and the proposed cause of action was neither palpably insufficient nor patently devoid of merit (see generally id.).
The plaintiffs next contend that the Supreme Court erred in granting the Finkle defendants' motion for summary judgment dismissing the cause of action alleging aiding and abetting breach of fiduciary duty, which was asserted against the Finkle defendants by the plaintiffs in their individual capacities. "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 [2003]; see Ginsburg Dev. Cos., LLC v Carbone, 134 AD3d 890, 893-894 [2015]; AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 23 [2008]). Here, the Finkle defendants established, prima facie, their entitlement to judgment as a matter of law by submitting evidence which demonstrated that they did not knowingly induce or participate in the alleged breaches of fiduciary duty (see IDX Capital, LLC v Phoenix Partners Group LLC, 19 NY3d 850, 851-852 [2012]; Parklex Assoc. v Royal Capital Mkts. Corp., 118 AD3d 972 [2014]). In opposition, the plaintiffs failed to raise a triable issue of fact (see generally Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). Accordingly, the court properly granted the Finkle defendants' motion for summary judgment dismissing the cause of action alleging aiding and abetting breach of fiduciary duty. In light of our determination on this point, we need not reach the Finkle defendants' contention that the court erred, in the order entered January 11, 2013, in declining to dismiss that cause of action pursuant to
In determining the individual defendants' motion for summary judgment, the Supreme Court concluded that judgment as a matter of law was appropriate since "there [was] no evidence that the [i]ndividual [d]efendants breached their fiduciary duty to [the] [p]laintiffs." As an alternative ground for its determination, the court concluded that there was no evidence that the individual defendants had engaged in "self-dealing or other misconduct" and that all of the conduct alleged in the amended complaint was therefore protected by the business judgment rule. As an additional alternative ground for granting summary judgment, the court determined that "the [p]laintiffs [could] not prove that they were damaged" by the challenged conduct of the individual defendants.
The Supreme Court's application of the summary judgment standard constituted legal error. In the context of this pretrial motion for summary judgment, the individual defendants, as the moving parties, had the initial burden of proof (see
Furthermore, the submissions of the individual defendants were insufficient to establish, prima facie, that the application of the business judgment rule protected all of the transactions or occurrences described in the amended complaint from judicial scrutiny. "Pursuant to the business judgment rule, absent evidence of bad faith, fraud, self-dealing, or other misconduct, the courts must respect business judgments" (Pugliese v Mondello, 57 AD3d 637, 639 [2008]; see Auerbach v Bennett, 47 NY2d 619, 630-631 [1979]). "A business decision is not subject to review under the business judgment rule if it is authorized, made in good faith, and in furtherance of the business's legitimate interests" (Pugliese v Mondello, 57 AD3d at 639). Here, the individual defendants failed to establish, prima facie, that all of the transactions or occurrences described in the amended complaint were authorized, made in good faith, and in furtherance of the partnership's legitimate interests (see Taylor v Wynkoop, 132 AD3d at 845; Mobarak v Mowad, 117 AD3d at 1000; cf. Zuckerbrod v 355 Co., LLC, 113 AD3d 675, 676 [2014]). The individual defendants' representations that all of the challenged conduct outlined in the amended complaint was performed in furtherance of the partnership's legitimate interests were conclusory, unsubstantiated, and, without more, amounted to bare legal conclusions that were insufficient to establish that the business judgment rule barred judicial inquiry into these matters (see HSBC Bank USA N.A. v Nuteh 72 Realty Corp., 70 AD3d 998, 999 [2010]; Diamond
In sum, contrary to the Supreme Court's conclusion, the individual defendants failed to establish, prima facie, their entitlement to judgment as a matter of law dismissing the amended complaint insofar as asserted against them (see Alvarez v Prospect Hosp., 68 NY2d 320 [1986]). Since the individual defendants failed to sustain their prima facie burden, we need not consider the adequacy of the plaintiffs' submissions in opposition to that motion (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 [1985]). Accordingly, the court should have denied that branch of the individual defendants' motion which was for summary judgment dismissing the amended complaint insofar as asserted against them.
In determining the defendants' motions for summary judgment, the Supreme Court searched the record and awarded the plaintiffs summary judgment dismissing the individual defendants' counterclaims, which included a counterclaim alleging defamation, and the judgment dismissed the individual defendants' counterclaims. The individual defendants filed a notice of cross appeal from the judgment, but this Court subsequently granted leave to withdraw that cross appeal. In light of the dismissal of the individual defendants' counterclaims in the judgment and the withdrawal of their cross appeal, the issues brought up for review from so much of an order entered February 28, 2013, raised on the plaintiffs' appeal from the judgment, as denied that branch of the plaintiffs' motion which was pursuant to
Dillon, J.P., Roman, Miller and LaSalle, JJ., concur.