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IN THIS COMMON LAW DISSOLUTION ACTION, PLAINTIFF WAS ENTITLED TO PAYMENT BY THE CORPORATION OF HIS EXPENSES FOR DEFENDING AGAINST THE CORPORATION’S COUNTERCLAIMS, AND PLAINTIFF’S MOTION TO PROHIBIT THE DEFENDANTS FROM USING CORPORATE FUNDS TO DEFEND AGAINST THE COMMON LAW DISSOLUTION ACTION SHOULD HAVE BEEN GRANTED (FOURTH DEPT).

The Fourth Department, modifying Supreme Court, over a dissent, determined plaintiff, who owns shares in a closely held corporation and sued the corporation seeking common law dissolution, was entitled payment by the corporation of expenses associated with plaintiff's defense of counterclaims made by the corporation. In addition plaintiff's cross motion to restrain the defendants from using the corporation's funds for defense of the common law dissolution action should have been granted:

The counterclaims are asserted against plaintiff “by reason of the fact that he . . . was a director or officer of the [C]orporation,” and Business Corporation Law § 722 (a) provides that he may be indemnified by the Corporation for his “reasonable expenses, including attorneys' fees actually and necessarily incurred as a result of such action or proceeding . . . if [he] acted, in good faith, for a purpose which he reasonably believed to be in . . . the best interests of the [C]orporation.” That is so even though the counterclaims are brought, in part, by the Corporation itself … . Pursuant to section 724 (c), where, as here, “indemnification is sought by judicial action, the court may allow a person such reasonable expenses, including attorneys' fees, during the pendency of the litigation as are necessary in connection with his [or her] defense therein, if the court shall find that the [person seeking indemnification] has by his [or her] pleadings or during the course of the litigation raised genuine issues of fact or law.” “With respect to the advancement of fees, courts have consistently observed that the governing standard is not a stringent one' “… . All plaintiff was required to do was raise a genuine issue of fact or law …, and we conclude that he has done so. We thus modify the order accordingly, and we remit the matter to Supreme Court for a determination of reasonable attorneys ' fees and litigation expenses that should be reimbursed to plaintiff, subject to repayment in the event defendants are successful on their counterclaims … . …

Here, as in judicial dissolution proceedings, “the corporation appears as a nominal party and the proceeding amounts to a dispute between the shareholders”… . We thus conclude that “corporate funds may not be used in payment of counsel fees for the individual shareholders” regardless of the fact that this is a common-law dissolution proceeding … . Feldmeier v Feldmeier Equip., Inc., 2018 NY Slip Op 05893, Fourth Dept 8-22-18

CORPORATION LAW (IN THIS COMMON LAW DISSOLUTION ACTION, PLAINTIFF WAS ENTITLED TO PAYMENT BY THE CORPORATION OF HIS EXPENSES FOR DEFENDING AGAINST THE CORPORATION'S COUNTERCLAIMS, AND PLAINTIFF'S MOTION TO PROHIBIT THE DEFENDANTS FROM USING CORPORATE FUNDS TO DEFEND AGAINST THE COMMON LAW DISSOLUTION ACTION SHOULD HAVE BEEN GRANTED (FOURTH DEPT))/DISSOLUTION, COMMON LAW (CORPORATION LAW, IN THIS COMMON LAW DISSOLUTION ACTION, PLAINTIFF WAS ENTITLED TO PAYMENT BY THE CORPORATION OF HIS EXPENSES FOR DEFENDING AGAINST THE CORPORATION'S COUNTERCLAIMS, AND PLAINTIFF'S MOTION TO PROHIBIT THE DEFENDANTS FROM USING CORPORATE FUNDS TO DEFEND AGAINST THE COMMON LAW DISSOLUTION ACTION SHOULD HAVE BEEN GRANTED (FOURTH DEPT))

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