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Plaintiffs Not Entitled to Attorneys Fees in Shareholder Derivative Action Because They Did Not Go to the Board Before Going to Court

In a full-fledged opinion by Justice Friedman, the First Department determined the plaintiffs in a (putative) shareholder derivative action were not entitled to an award of legal fees pursuant to Business Corporation Law 626 because the plaintiffs went straight to court without first making a pre-suit demand upon the board for the desired action.  The plaintiffs sued the Goldman Sachs Group (GPS) to demand a reduction in employee compensation based on the prediction GPS would announce excessive employee compensation. When GPS announced a lower level of compensation, plaintiffs, claiming that the action had attained its objective, moved for a voluntary dismissal and for an award of legal fees.  In affirming Supreme Court’s denial of legal fees, the court wrote:

Plaintiffs argue that Business Corporation Law § 626(e) (quoted in pertinent part at footnote 5, supra) does not expressly require a showing that the demand requirement was complied with or excused as a prerequisite to an award of attorneys’ fees for bringing an action that brought a substantial benefit to the corporation (as plaintiffs claim—and defendants deny—that this action did). Plaintiffs further argue that there is no reason to construe the statute to imply such a requirement. We disagree. * * *

The demand requirement, far from being a meaningless formality, “rests on basic principles of corporate control–that the management of the corporation is entrusted to its board of directors, who have primary responsibility for acting in the name of the corporation and who are often in a position to correct alleged abuses without resort to the courts. The demand requirement thus relieves the courts of unduly intruding into matters of corporate governance by first allowing the directors themselves to address the alleged abuses. The requirement also provides boards with reasonable protection from harassment on matters clearly within their discretion, and it discourages strike suits commenced by shareholders for personal rather than corporate benefit” … . Central Laborers’ Pension Fund v Blankfein, 2013 NY Slip Op 05857, 1st Dept 9-17-13

 

 

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Disposition of Juvenile Delinquency Proceeding Reversed; Purpose Is Not to Punish

Over a dissent, the First Department reversed Family Court’s juvenile delinquency disposition which was based on the findings that, had the juvenile been an adult, he would have been guilty of two counts of sexual abuse 2nd and two counts of forcible touching 3rd.  The First Department eliminated the 12-month period of probation and granted an adjournment in contemplation of dismissal.  The juvenile was 13 years old at the time of the incident.  It was alleged the juvenile grabbed the 12-year-old complainant from behind by pulling on her backpack and, as she tried to get away, touched and squeezed her breasts and the right side of her buttocks.  He then tried to kiss her, ignored her when she said she needed to go to class, and demanded a hug in order to let her go.  The First Department noted that this was the juvenile’s first contact with the justice system, that he and his mother had been cooperative throughout, and that he was a good student (among other factors).  The court wrote:

…[T]the totality of appellant’s course of conduct, and his statements to the complaining witness, support the inference that he acted for the purpose of sexual gratification … . The court’s findings that appellant committed an act, that, if committed by an adult, would constitute a crime, was, therefore, based on legally sufficient evidence and not against the weight of the evidence … .

A juvenile delinquency adjudication, however, requires both a determination that the juvenile committed an act, that, if committed by an adult, would constitute a crime and a showing, by the preponderance of the evidence, that the juvenile needs supervision, treatment or confinement (Family Ct Act §§ 345.1, 350.3, 352.1). Although the seriousness of the juvenile’s acts is an extremely important factor in determining an appropriate disposition …, it is not the only factor. The disposition is not supposed to punish a child as an adult, but provide effective intervention to “positively impact the lives of troubled young people while protecting the public” .. .

While the trial court properly found that appellant committed a delinquent act, there was insufficient support for its decision that appellant needed supervision, treatment or confinement (Family Ct Act §§ 352.1, 350.3). In addition, 12 months probation was not the least restrictive available alternative that would have adequately served the needs of appellant and society (Family Ct Act § 352.2…). Matter of Narvanda S, 2013 NY Slip Op 05855, 1st Dept 9-17-13

 

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Action By Israeli Citizens Against Bank Which Allegedly Funded Groups that Committed Bombings and Rocket Attacks Allowed to Go Forward in New York Applying Israeli Negligence Law

In a full-fledged opinion by Justice Feinman, the First Department determined that Israeli law should be applied in a civil action by 50 Israeli citizens who were injured or who represent persons killed in bombings and rocket attacks carried out in Israel by Palestine Islamic Jihad and Hamas.  The opinion includes very detailed explanations of American and Israeli tort law (including the different roles of foreseeability in each), the factors that determine choice of law, and forum non conveniens. The action is against the Bank of China (BOC) and alleges the bank was negligent in supplying funds to the groups which carried out the bombings and attacks.  BOC argued that no duty ran from the bank directly to those injured by the intentional torts of others.  But, under Israeli law, a duty arises when an act is foreseeable and when an act violates a statute.  The court explained:

…[T]he Israeli law of negligence “differs slightly” from New York law in that duty is divided into fact and notional duty and depends on foreseeability …. …[T]he analysis of whether a duty is owed involves an inquiry into whether a reasonable person could have foreseen the occurrence of the damage under the particular circumstances alleged; whether as a matter of policy, a reasonable person ought to have foreseen the occurrence of the particular damage; and whether the occurrence causing the damage was foreseeable … . This differs from New York law, where the foreseeability of harm does not define duty and, absent a duty running directly to the injured person, there is no liability in damages, however careless the conduct or foreseeable the harm … .

In addition, the claim of breach of statutory duty …has no equivalent in New York law. … Israel’s tort of breach of a statutory duty “acts as a civil private right of action for the violation of any enactment” issued by the Knesset, the Israeli parliament. The plaintiff must be able to show that the defendant was under a duty imposed by an enactment, the enactment was created for the benefit of the plaintiff, the defendant breached that duty, and the breach caused an injury to the plaintiff of the type that the enactment was intended to prevent …. …[T]he enactments at issue are section 4 of the Prevention of Terrorism Ordinance, sections 145 and 148 of the Penal Law, and section 85 of the Defense Regulations (Emergency Period), all of which prohibit aiding and abetting terrorism, specifically by the giving of money to any terrorist organization, the payment of any contribution to any unlawful association including terrorist groups, and the performance of any service for or holding of funds of any unlawful organization … . Elmaliach v Bank of China Ltd, 2013 NY Slip Op 05858, 1st Dept 9-17-13.

 

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Reinstatement of Charge Against Teacher After Dismissal of Charge in Arbitration Proper; Interlocutory Ruling by Arbitrator was “Final” in Effect/Courts Can Impose Higher Level of Scrutiny when Arbitration Mandated by Statute

The Second Department affirmed Supreme Court’s reinstatement of a charge against a teacher (Hogan) which had been dismissed by the arbitrator. The Second Department explained the criteria for court review of an interlocutory ruling of an arbitrator, noting that more scrutiny is appropriate in an arbitration mandated by statute:

Initially, we reject Hogan’s contention that the petition should have been dismissed because courts do not have the authority to review an interlocutory award dismissing one of the charges in an arbitration proceeding brought pursuant to Education Law 3020-a. As a general rule, a court lacks authority to entertain a petition to review an interlocutory ruling of an arbitrator on a procedural matter … . Here, however, the award sought to be reviewed is not one which involves “only a very limited procedural question” … . Rather, the award dismissed the most serious disciplinary charge preferred against Hogan, and the only one of the three charges which alleged that he was guilty of misconduct. The award is final as to that charge, and, if allowed to stand, would prevent the District from adducing evidence in support of the alleged misconduct at the hearing. Under these circumstances, the award dismissing Charge No. 1 can be viewed as a final determination subject to review under CPLR 7511 … .

Furthermore, the Supreme Court properly granted the District’s petition and reinstated Charge No. 1 against Hogan. Where, as here, the obligation to arbitrate arises through statutory mandate (see Education Law § 3020-a), the arbitrator’s determination is subject to closer judicial scrutiny than it would receive had the arbitration been conducted voluntarily … . The award in a compulsory arbitration proceeding must have evidentiary support and cannot be arbitrary and capricious … . Matter of Board of Educ of Hauppauge Union Free Sch Dist v Hogan, 2013 NY Slip Op 05816, 2nd Dept 9-11-13

 

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Child Should Not Have Been Removed from Foster Parents in Favor of Maternal Uncle

In reversing Family Court’s determination the child should move to the home of her maternal uncle rather than remain with her foster parents for adoption, the Second Department wrote:

Once parental rights have been terminated, there is no presumption favoring the child’s biological family … . Moreover, while the law expresses a preference for keeping siblings together, the rule is not absolute and may be overcome where the best interests of each child lie in residing apart … . Here, as the children never shared a household, the Family Court erred in concluding that this consideration outweighed the benefit to Orianne of remaining in her foster home, where she has resided since infancy … . The record clearly reflects that Orianne has bonded with her foster family, and is healthy, happy, and well provided for … . Accordingly, the Family Court erred in determining that it was in Oriane’s best interests to move to the home of her maternal uncle rather than remain with her foster parents for the purpose of adoption, which, the record indicates, is the foster parents’ intent… . Matter of Ender MZ-P…, 2013 NY Slip Op 05829, 2nd Dept 9-11-13

 

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Grant of Custody to Maternal Grandparents Rather than Parent Reversed

In reversing Family Court’s grant of custody to maternal grandparents, the Second Department wrote:

“In a custody proceeding between a parent and a nonparent, the parent has the superior right to custody that cannot be denied unless the nonparent establishes that the parent has relinquished that right due to surrender, abandonment, persisting neglect, unfitness, or other like extraordinary circumstances” … . “For a third-party nonparent to gain custody of a child, he or she must first prove that extraordinary circumstances exist such that a parent has relinquished his or her superior right to custody” … . “Where extraordinary circumstances are present, the court must then consider the best interests of the child in awarding custody” … .  * * *

We agree with the Family Court that the petitioners, the maternal grandparents of the subject children, satisfied their burden of demonstrating the existence of “extraordinary circumstances,” necessitating a determination as to the best interests of the children … . However, considering the totality of the circumstances in this case .., we find that the Family Court’s determination awarding … custody … to the maternal grandparents is not supported by a sound and substantial basis in the record. The mother’s testimony indicated that, at the time of the hearing, she had abstained from drug use for more than 2½ years. The mother’s testimony also indicated that there were no recent incidents of domestic violence between her and Tardo [the father of one of the children]. Indeed, the Family Court noted in its order that the mother and Tardo are now “clean and sober,” three years having passed between their last instances of drug use and the date of the order, and that “there have been no reports of aggression.” The Family Court placed undue emphasis on the forensic evaluation, which was completed almost two years prior to the court’s determination. Additionally, while the Family Court did acknowledge the nature of James’s wishes, we conclude that the court failed to adequately consider those preferences … . We further note that the attorney for the children supports the mother’s position on appeal, at least insofar as advocating for the mother to have joint custody of both children. Matter of Noonan v Noonan, 2013 NY Slip Op 05824, 2nd Dept 9-11-13

 

 

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Maintenance Should Not Have Been Granted in Absence of Proof of Standard of Living and Need for Maintenance

The Second Department determined Supreme Court abused its discretion by awarding maintenance in the absence of evidence of the parties’ standard of living and the plaintiff’s need for maintenance:

…[T]he Supreme Court’s award of maintenance to the plaintiff was an improvident exercise of its discretion since the award was made in the absence of any evidence of the parties’ standard of living during the marriage, and in the absence of evidence that the plaintiff, who is otherwise self-supporting, needs maintenance to sustain his pre-divorce standard of living. Additionally, the defendant’s reasonable needs preclude an award of maintenance to the plaintiff. Under these circumstances, the plaintiff should not have been awarded maintenance… .  Lucere v Lucere, 2013 NY Slip Op 05801, 2nd Dept 9-11-13

 

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In Personal Injury Case, Court Should Not Have Granted Mistrial When Objection Sustained, Lawyer Admonished and Curative Instruction Given

The Second Department reversed Supreme Court’s grant of a mistrial in a slip and fall case.  Plaintiff was injured playing basketball. Plaintiff objected to remarks made by defense counsel in summation which erroneously implied that the doctrine of primary assumption of risk applied.  The trial judge sustained the objection, admonished the lawyer, and gave a curative instruction. After the verdict for the defendant, Supreme Court granted plaintiff’s motion for a mistrial:

The Supreme Court erred in, in effect, granting the plaintiffs’ application for a mistrial since the court had previously properly sustained objections to the subject summation comments, openly admonished counsel, and provided curative instructions, thereby correcting any possible prejudice resulting from the subject summation comments … . Richardson v City of New York, 2013 NY slip Op 05810, 2nd Dept 9-11-13

 

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Refusal to Comply with Discovery Demand Supported Sanction of Dismissal of the Complaint

The Second Department determined Supreme Court had properly dismissed the complaint in a medical malpractice action because the plaintiffs refused to identify the mohel who had performed the circumcision of infant plaintiff.  In finding dismissal of the entire complaint an appropriate sanction, the court wrote:

“The Supreme Court has broad discretion in making determinations concerning matters of disclosure including the nature and degree of the penalty to be imposed under CPLR 3126” … . “The striking of a pleading may be appropriate where there is a clear showing that the failure to comply with discovery demands is willful or contumacious”… . Further, the court can infer that a party is acting willfully and contumaciously through his or her repeated failure to respond to demands or to comply with discovery orders … .  Silberstein v Maimonides Med Ctr, 2013 NY Slip Op 05813, 2nd Dept 9-11-13

 

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Obstructing Governmental Administration Conviction Reversed—Police Not Engaged in “Authorized Conduct”

The Second Department reversed defendant’s conviction for obstructing governmental administration as against the weight of the evidence. The court determined there was not sufficient proof the police were engaged in authorized conduct at the time of the contact with the defendant:

“A person is guilty of obstructing governmental administration when he [or she] intentionally . . . prevents or attempts to prevent a public servant from performing an official function, by means of intimidation, physical force or interference” (Penal Law § 195.05). Thus, a defendant may not be convicted of obstructing governmental administration unless it is established that the police were engaged in authorized conduct … . As determined by the Supreme Court, the initial chase of the defendant by the police was not supported by reasonable suspicion … . Further, in light of the defendant’s acquittal by the jury on the charges of criminal possession of a weapon in the second degree and criminal possession of a weapon in the fourth degree, which we may consider in conducting a weight of the evidence review … , the evidence, when properly weighed, did not prove, beyond a reasonable doubt, that the officer was performing an official function authorized by law when he tried to disarm the defendant following the chase … . Thus, the record reflects that, when considering whether the People satisfied the “performing an official function” element of the crime of obstructing governmental administration in the second degree, the jury failed to give the weight properly due to its credibility finding that the defendant was not in possession of a weapon … .  People v Small, 2013 NY slip Op 05842, 2nd Dept 9-11-13

 

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