You are here: / / Derivative-Shareholder-Claim Versus Direct-Individual-Claim Explained/Out-of-Pocket...
,

Derivative-Shareholder-Claim Versus Direct-Individual-Claim Explained/Out-of-Pocket Damages Rule for Fraud and Negligent Misrepresentation Claims Briefly Discussed

The First Department, in a full-fledged opinion by Justice Gische, with one exception, affirmed Supreme Court’s dismissal of defendant’s (Lipper’s) cross-claims because the cross-claims were deemed derivative claims by a shareholder, not direct, individual claims.  Lipper alleged damages stemming from the overvaluation of Lipper’s hedge fund assets by defendant Pricewaterhouse Coopers. In addition to the “derivative versus direct claim” issue, the court briefly discussed the “out of pocket” damages rule re: the fraud and negligent misrepresentation claims stemming from Lipper’s payment of gift taxes based upon the overvalued assets given to his daughters:

It is black letter law that a stockholder has no individual cause of action against a person or entity that has injured the corporation. This is true notwithstanding that the wrongful acts may have diminished the value of the shares of the corporation, or that the shareholder incurs personal liability in an effort to maintain the solvency of the corporation …, or that the wrongdoer may ultimately share in the recovery in a derivative action if the wrongdoer owns shares in the corporation … . An exception exists, however, where the wrongdoer has breached a duty owed directly to the shareholder which is independent of any duty owing to the corporation … . This is a narrow exception, and Lipper’s cross claim must be factually supportable by more than complaints that conflate his derivative and individual rights … . In addition, Lipper may not obtain a recovery that otherwise duplicates or belongs to the corporation … .

Recognizing the difficulty in determining whether a claim is direct or derivative in the recent case of Yudell v Gilbert (99 AD3d 108 1st Dept [2012]), this court adopted the test developed by the Supreme Court of Delaware in Tooley v Donaldson, Lufkin & Jenrette, Inc. (845 A2d 1031, 1039 [Del 2004]) as a common sense approach to resolving such issues. We held that the Delaware test is consistent with existing New York State law. In order to distinguish a derivative claim from a direct one, the court considers “(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders individually)” … . If there is any harm caused to the individual, as opposed to the corporation, then the individual may proceed with a direct action … . On the other hand, even where an individual harm is claimed, if it is confused with or embedded in the harm to the corporation, it cannot separately stand… . * * *

…[W]e find that recoupment of [gift] taxes paid violates New York’s out-of-pocket damages rule applicable to both the fraud and negligent misrepresentation cross claims Lipper has asserted … . Pursuant to the New York rule, recovery is denied where it leaves the claimant in a better position than the claimant would have been in the absence of wrongdoing … . Lipper contends that he would not have made the gifts to his daughters if he had known the true value of his holdings. The payment of taxes was a consequence of making that gift. The relief he seeks would put him in a better financial position than had the claimed wrongdoing not occurred … . Serino v Lipper,2014 NY Slip Op 06551, 1st Dept 9-30-14

 

You might also like
THE COMPLAINT ALLEGED THE ICY CONDITION EXISTED BEFORE 10 INCHES OF SNOW FELL, DEFENDANTS DID NOT DEMONSTRATE THEY DID NOT HAVE NOTICE OF THE ICE, DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT IN THIS SLIP AND FALL CASE SHOULD NOT HAVE BEEN GRANTED (FIRST DEPT).
IN THIS SIDEWALK SLIP AND FALL CASE, THE SUPPORT POLE FOR THE SIDEWALK TENT FURNISHED THE OCCASION FOR THE SLIP AND FALL BY REQUIRING PLAINTIFF TO CHOOSE WHICH SIDE OF THE POLE TO WALK ON BUT WAS NOT THE PROXIMATE CAUSE OF THE SLIP AND FALL (FIRST DEPT).
MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM IN THIS BREACH OF CONTRACT ACTION, BASED UPON DOCUMENTARY EVIDENCE, SHOULD NOT HAVE BEEN GRANTED (FIRST DEPT).
THE INDUSTRIAL CODE PROVISIONS RELIED UPON BY PLAINTIFF DO NOT APPLY TO A SLIPPERY SUBSTANCE ON A LADDER, REQUIRING THE DISMISSAL OF A LABOR LAW 241(6) CAUSE OF ACTION (FIRST DEPT).
INSURANCE REGULATION WHICH PROHIBITS TITLE INSURERS FROM PROVIDING VALUABLE INDUCEMENTS TO ATTRACT TITLE INSURANCE BUSINESS IS NOT UNCONSTITUTIONALLY VAGUE, SUPREME COURT REVERSED (FIRST DEPT).
ARCHITECT MAY BE LIABLE FOR BOTH BREACH OF CONTRACT AND NEGLIGENCE.
PLAINTIFF’S DECEDENT COMMITTED SUICIDE BY JUMPING FROM THE GEORGE WASHINGTON BRIDGE; THE COMPLAINT ALLEGING PORT AUTHORITY FAILED TO MAINTAIN THE BRIDGE IN A SAFE CONDITION SHOULD NOT HAVE BEEN DISMSSED (FIRST DEPT).
LADDER MOVED FOR NO APPARENT REASON, PLAINTIFF ENTITLED TO SUMMARY JUDGMENT ON HIS LABOR LAW 240 (1) ACTION (FIRST DEPT).

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy

Continuing Representation Doctrine (Tolling the Statute of Limitations) Exp... In a Hybrid Action, the Causes of Action Seeking Money Damages Were Distinct...