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Derivative Claim Dismissed Where Board Members Did Not Commit Any Independently Tortious Acts

In Avramidies v. Moussa, 2018 N.Y. App. Div. LEXIS 1016, 2018 N.Y. Slip Op. 1035 (1st Dep’t Feb. 13, 2018), a tenant-shareholder in a Cooperative sought to sue the members of the Board of Directors.  Some of the plaintiff’s claims were derivative in nature, meaning that the plaintiff sought to assert claims belonging to the Cooperative as a whole, rather than to the plaintiff individually.  The appellate court affirmed the dismissal of the derivative claims because the plaintiff had not made a pre-suit demand for action on the Board of Directors before commencing the action, as required by the Business Corporation Law.  While the plaintiff contended that such a demand should be excused because it would have been futile, the court held that plaintiff had failed to provide details to support such an argument.

The court also affirmed the dismissal of all claims against the directors because “there [were] no allegations that the directors committed any independent tortious acts” as opposed to actions by the Board as a whole.  Plaintiff sought to rely on a Court of Appeals decision holding that there is “no safe harbor from judicial inquiry for directors who are alleged to have engaged in conduct not protected by the business judgment rule.”  In that case, however, the directors “were alleged to have engaged in racially discriminatory conduct which is not protected by the business judgment rule.”  Here, the directors’ actions, relating to the building’s storm drainage system, “fall squarely within the protections of the business judgment rule.”