Summary Judgment Denied In Another Business Judgment Rule Case
In another case in which board members asserted the protection of the Business Judgment Rule, an appellate court has held that a trial will be required to resolve disputed issues. Irene David Realty v. Moyal, 2015 N.Y. App. Div. LEXIS 420, 2016 N.Y. Slip Op. 430 (1st Dep’t Jan. 21, 2016).
In this case, minority shareholders of a commercial cooperative building sued the Board President for self-dealing and breach of fiduciary duty. The shareholders alleged that the Board President obtained majority control of the Cooperative, pressured the Board of Directors into approving unnecessary loans, and “entered into subleases providing him and the entities he controlled with a substantial profit.”
In an earlier decision, the appellate court had denied a motion by the plaintiffs for summary judgment on their claims. Plaintiffs established that the Board President participated in a vote by the Board to approve subleases of space that he controlled. However, the sublease was later ratified by a disinterested director. The appellate court held that issues of fact existed as to “whether the sublease was properly ratified and whether the alleged self-dealing resulted in any unfairness to” the Cooperative.
Two years later, the case returned to the appellate court but this time, it was defendants who moved for summary judgment. Their motion also was denied. The court adhered to its prior determination “that issues of fact exist concerning whether [the Board as a whole], and [the Board President] in particular, ‘exceeded the protections of the business judgment rule.’” Accordingly, a trial of this issue is required.