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PLAINTIFFS DEMONSTRATED A DEMAND ON THE BOARD OF DIRECTORS TO PURSUE A DERIVATIVE ACTION WAS FUTILE; THE COMPLAINT ADEQUATELY ALLEGED BREACH OF FIDUCIARY DUTY, A CLAIM FOR WHICH NO DAMAGES NEED BE ALLEGED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the requirement that a demand on the board of directors to pursue a derivative action was futile and therefore is excused. In addition, the complaint adequately alleged a breach of fiduciary duty:

Plaintiffs properly alleged demand futility as required under Business Corporation Law § 626 (c) by asserting that at least four out of seven of the members of derivative plaintiff/nominal defendant Xerox Holdings Corporation’s board of directors were controlled by Icahn, Xerox’s largest single shareholder, and thus lacked the independence to make an impartial decision on bringing suit … . * * *

… [T]he claim for breach of fiduciary duty was pleaded with the particularity required by CPLR 3016(b), as the complaint states that the Icahn defendants used confidential information about Xerox’s planned acquisition of HP Inc. to buy HP common shares before news of the acquisition became public and before HP’s stock price increased … . …

… [P]laintiffs’ claims do not fail for lack of damages, as damages “have never been considered to be an essential requirement for a cause of action founded on a breach of fiduciary duty” … . The function of an action for breach of fiduciary duty “is not merely to compensate the plaintiff for wrongs committed by the defendant but . . . to prevent them, by removing from . . . trustees all inducement to attempt dealing for their own benefit in matters . . . to which their . . . trust relates” … . Miami Firefighters’ Relief & Pension Fund v Icahn, 2021 NY Slip Op 06446, First Dept 11-18-21

 

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