Corporation Law – Page 16 – New York Appellate Digest

NOT-FOR-PROFIT CORPORATION LAW PETITION TO DISINTER THE REMAINS OF ARCHBISHOP FULTON SHEEN AND MOVE THEM FROM ST PATRICK’S CATHEDRAL TO PEORIA ILLINOIS SHOULD NOT HAVE BEEN GRANTED WITHOUT A HEARING (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Richter, over a two-justice dissent, determined a hearing must be held to decide whether the remains of Archbishop Fulton Sheen should be removed from St. Patrick’s Cathedral in New York City to Peoria, Illinois, in anticipation of Archbishop Sheen’s Sainthood. The affidavits submitted by Archbishop Sheen’s relatives, stating that the Archbishop would have wanted his remains moved to Illinois, and the Archbishop’s long-time close friend, stating that the Archbishop expressed a wish that his remains be in New York, required a hearing. The petition court had granted the petition for removal of the remains to Illinois:

In June 2016, petitioner brought a proceeding pursuant to Not-For-Profit Corporation Law § 1510(e) seeking to disinter the remains of Archbishop Sheen for removal and transfer to a crypt located in St. Mary’s Cathedral in Peoria. Petitioner submitted the affidavits of her three siblings, all of whom fully support and consent to the transfer … . …

A body may be disinterred upon the consent of the cemetery owner, the owners of the lot, and certain specified relatives of the deceased (Not-For-Profit Corporation Law § 1510[e]). If such consent cannot be obtained, a court may grant permission to disinter … . There must be a showing of “[g]ood and substantial reasons” before disinterment is allowed … . Although “each case is dependent upon its own peculiar facts and circumstances” … , “[t]he paramount factor a court must consider in granting permission to disinter is the known desires of the decedent” … . “Among other factors, a court must also consider the desires of the decedent’s next of kin” … . Where issues of fact have been raised concerning the decedent’s wishes, the court should order a hearing … . Matter of Cunningham v Trustees of St. Patrick’s Cathedral, 2018 NY Slip Op 00815, First Dept 2-6-18

TRUSTS AND ESTATES (NOT-FOR-PROFIT CORPORATION LAW PETITION TO DISINTER THE REMAINS OF ARCHBISHOP FULTON SHEEN AND MOVE THEM FROM ST PATRICK’S CATHEDRAL TO PEORIA ILLINOIS SHOULD NOT HAVE BEEN GRANTED WITHOUT A HEARING (FIRST DEPT))/CORPORATION LAW (DISINTERMENT, NOT-FOR-PROFIT CORPORATION LAW PETITION TO DISINTER THE REMAINS OF ARCHBISHOP FULTON SHEEN AND MOVE THEM FROM ST PATRICK’S CATHEDRAL TO PEORIA ILLINOIS SHOULD NOT HAVE BEEN GRANTED WITHOUT A HEARING (FIRST DEPT))/NOT FOR PROFIT CORPORATION LAW (DISINTERMENT, NOT-FOR-PROFIT CORPORATION LAW PETITION TO DISINTER THE REMAINS OF ARCHBISHOP FULTON SHEEN AND MOVE THEM FROM ST PATRICK’S CATHEDRAL TO PEORIA ILLINOIS SHOULD NOT HAVE BEEN GRANTED WITHOUT A HEARING (FIRST DEPT))/DISINTERMENT (NOT-FOR-PROFIT CORPORATION LAW PETITION TO DISINTER THE REMAINS OF ARCHBISHOP FULTON SHEEN AND MOVE THEM FROM ST PATRICK’S CATHEDRAL TO PEORIA ILLINOIS SHOULD NOT HAVE BEEN GRANTED WITHOUT A HEARING (FIRST DEPT))/CEMETERIES (DISINTERMENT, NOT-FOR-PROFIT CORPORATION LAW PETITION TO DISINTER THE REMAINS OF ARCHBISHOP FULTON SHEEN AND MOVE THEM FROM ST PATRICK’S CATHEDRAL TO PEORIA ILLINOIS SHOULD NOT HAVE BEEN GRANTED WITHOUT A HEARING (FIRST DEPT))

February 6, 2018

Corporation Law, Fiduciary Duty, Limited Liability Company Law

ALTHOUGH PLAINTIFF WAS A MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WHEN HE STARTED THE LAWSUIT ASSERTING DERIVATIVE CAUSES OF ACTION, HE LOST STANDING TO CONTINUE WITH THE SUIT AFTER WITHDRAWING HIS MEMBERSHIP IN THE LLC (SECOND DEPT).

The Second Department determined the causes of action brought by a minority shareholder in a limited liability company (LLC) were derivative in nature. The complaint was filed in 2012 and plaintiff withdrew from the LLC in 2015. Therefore plaintiff lacked standing to sue:

[Plaintiff] first cause of action sought an accounting, his second cause of action sought damages for breach of fiduciary duty, his third cause of action sought the appointment of a receiver … , his fourth cause of action sought the imposition of a constructive trust, and his fifth cause of action was to recover damages for waste. …

“[M]embers of a limited liability company (LLC) may bring derivative suits on the LLC’s behalf” … . In a derivative suit, “[t]he remedy sought is for wrong done to the corporation; the primary cause of action belongs to the corporation; [and] recovery must enure to the benefit of the corporation”… . In the context of a corporation, “the standing of the shareholder is based on the fact that . . . he [or she] is defending his [or her] own interests as well as those of the corporation” … . “Where the plaintiff voluntarily disposes of the stock, his [or her] rights as a shareholder cease, and his [or her] interest in the litigation is terminated. Being a stranger to the corporation, the former stockowner lacks standing to institute or continue the suit” … . The same is true in the context of an LLC. In order to maintain a derivative cause of action, a plaintiff must be a member of the LLC … . Thus, the Supreme Court properly held that, once the plaintiff withdrew from WIC, he lost standing to maintain any derivative causes of action on behalf of the company, notwithstanding his possible right to a future payment for the value of his membership interest upon his withdrawal … . Jacobs v Cartalemi, 2017 NY Slip Op 08506, Second Dept 12-6-17

CORPORATION LAW (LIMITED LIABILITY COMPANY, DERIVATIVE LAWSUITS, ALTHOUGH PLAINTIFF WAS A MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WHEN HE STARTED THE LAWSUIT ASSERTING DERIVATIVE CAUSES OF ACTION, HE LOST STANDING TO CONTINUE WITH THE SUIT AFTER WITHDRAWING HIS MEMBERSHIP IN THE LLC (SECOND DEPT))/LIMITED LIABILITY COMPANY LAW (DERIVATIVE LAWSUITS, ALTHOUGH PLAINTIFF WAS A MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WHEN HE STARTED THE LAWSUIT ASSERTING DERIVATIVE CAUSES OF ACTION, HE LOST STANDING TO CONTINUE WITH THE SUIT AFTER WITHDRAWING HIS MEMBERSHIP IN THE LLC (SECOND DEPT))/DERIVATIVE LAWSUITS (LIMITED LIABILITY COMPANY LAW, ALTHOUGH PLAINTIFF WAS A MEMBER OF THE LIMITED LIABILITY COMPANY (LLC) WHEN HE STARTED THE LAWSUIT ASSERTING DERIVATIVE CAUSES OF ACTION, HE LOST STANDING TO CONTINUE WITH THE SUIT AFTER WITHDRAWING HIS MEMBERSHIP IN THE LLC (SECOND DEPT))

December 6, 2017

Civil Procedure, Corporation Law

CAYMAN ISLANDS RULE GOVERNING SHAREHOLDER DERIVATIVE ACTIONS IS PROCEDURAL, NOT SUBSTANTIVE, FAILURE TO COMPLY WITH RULE DOES NOT BAR SUIT IN NEW YORK (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Feinman, reversing the appellate division, determined that a Cayman Islands rule (Rule 12A) governing prerequisites for bringing a shareholder derivative action was procedural, not substantive. Therefore the New York suit, which must apply Cayman Islands substantive law, should not have been dismissed for failure to comply with the rule. Whether plaintiff had standing to sue under substantive Cayman Islands law was not determined by the Court of Appeals:

In Tanges [93 NY2d 48] we … described general policy considerations that ought to be weighed when determining whether a rule is substantive or procedural. Specifically, we consider whether our determination would impose a burden on the foreign court (Connecticut in that instance) or federal courts operating under diversity rules and whether it would threaten to cause delay in the “conduct of judicial business and impair judicial efficiency” … . Here, these factors further weigh in favor of our conclusion that Rule 12A is procedural.

Holding that Rule 12A is procedural does not impose a burden on our courts, or the courts of the Cayman Islands (see Tanges, 93 NY2d at 58). However, were Rule 12A held to be substantive, it is unclear what procedural path a party seeking to bring a derivative action in New York on behalf of a Cayman company would follow to comply with Rule 12A. …

Therefore, a Tanges analysis also leads to the conclusion that Rule 12A is procedural in nature. Because the procedural law of the forum typically applies under our conflict of law rules … , plaintiff’s failure to first comply with Rule 12A’s leave application procedure does not bar his derivative claims … . Davis v Scottish Re Group Ltd., 2017 NY Slip Op 08157, CtApp 11-20-17

CIVIL PROCEDURE (SHAREHOLDER DERIVATIVE ACTION, CAYMAN ISLANDS LAW, CAYMAN ISLANDS RULE GOVERNING SHAREHOLDER DERIVATIVE ACTIONS IS PROCEDURAL, NOT SUBSTANTIVE, FAILURE TO COMPLY WITH RULE DOES NOT BAR SUIT IN NEW YORK (CT APP))/CORPORATION LAW (SHAREHOLDER DERIVATIVE ACTION, CAYMAN ISLANDS LAW, CAYMAN ISLANDS RULE GOVERNING SHAREHOLDER DERIVATIVE ACTIONS IS PROCEDURAL, NOT SUBSTANTIVE, FAILURE TO COMPLY WITH RULE DOES NOT BAR SUIT IN NEW YORK (CT APP))/SHAREHOLDER DERIVATIVE ACTION (CORPORATION LAW, CAYMAN ISLANDS RULE GOVERNING SHAREHOLDER DERIVATIVE ACTIONS IS PROCEDURAL, NOT SUBSTANTIVE, FAILURE TO COMPLY WITH RULE DOES NOT BAR SUIT IN NEW YORK (CT APP))/DERIVATIVE ACTION (SHAREHOLDER DERIVATIVE ACTION, CAYMAN ISLANDS LAW, CAYMAN ISLANDS RULE GOVERNING SHAREHOLDER DERIVATIVE ACTIONS IS PROCEDURAL, NOT SUBSTANTIVE, FAILURE TO COMPLY WITH RULE DOES NOT BAR SUIT IN NEW YORK (CT APP))/CAYMAN ISLANDS LAW SHAREHOLDER DERIVATIVE ACTION, CAYMAN ISLANDS LAW, CAYMAN ISLANDS RULE GOVERNING SHAREHOLDER DERIVATIVE ACTIONS IS PROCEDURAL, NOT SUBSTANTIVE, FAILURE TO COMPLY WITH RULE DOES NOT BAR SUIT IN NEW YORK (CT APP))

November 20, 2017

Civil Procedure, Contract Law, Corporation Law

EVEN THOUGH THE WRONG CORPORATION WAS NAMED IN THE CONTRACT DEFENDANT SIGNED AS PRESIDENT, DEFENDANT COULD NOT BE HELD PERSONALLY LIABLE, MOTION TO SET ASIDE THE VERDICT SHOULD HAVE BEEN GRANTED (FOURTH DEPT).

The Fourth Department determined defendant’s motion to set aside the verdict in this contract dispute should have been granted. Defendant signed the contract as president of a corporation which existed but was misnamed. Defendant could not be held personally liable:

“According to the well settled general rule, individual officers or directors are not personally liable on contracts entered into on behalf of a corporation if they do not purport to bind themselves individually’ . . . However, it is also well established that an agent who acts on behalf of a nonexistent principal may be held personally liable on the contract”… . “The rule [was] designed to protect a party who enters into a contract where the other signatory represents that he is signing on behalf of a business entity that in fact does not exist, under any name . . . [Thus,] as long as the identity of the corporation can be reasonably established from the evidence[,] . . . [an e]rror in the use of the corporate name will not be permitted to frustrate the intent which the name was meant to convey’ . . . In such a situation, . . . there is no need or basis to impose personal liability on the person who signed the contract as agent for the entity”… . “Accordingly, absent an allegation that, at the time of the contract, a plaintiff was under an actual misapprehension that there was some other, unincorporated group with virtually the same name as that of the actual business entity, the [c]ourt will not permit the [plaintiff] to capitalize on [a] technical naming error in contravention of the parties’ evident intentions’ ” … .

Thus, courts have determined that the individual who signed the contract may be liable where there was no existing corporation under any name because, under those circumstances, the plaintiff has “no remedy except against the individuals who acted as agents of those purported corporations”… . Where, as here, there was an existing corporation and merely a misnomer in the name of the corporation, courts have declined to impose liability on the individual who signed the contract because the plaintiff has a remedy against the existing, albeit misnamed, corporation… .

Here, we conclude that no one was under an actual misapprehension that there was an entity with the name. TBW, INC. J.N.K. Mach. Corp. v TBW, Ltd., 2017 NY Slip Op 08106, Fourth Dept 11-17-17

CORPORATION LAW (CONTRACT LAW, EVEN THOUGH THE WRONG CORPORATION WAS NAMED IN THE CONTRACT DEFENDANT SIGNED AS PRESIDENT, DEFENDANT COULD NOT BE HELD PERSONALLY LIABLE (FOURTH DEPT))/CONTRACT LAW (CORPORATION LAW, EVEN THOUGH THE WRONG CORPORATION WAS NAMED IN THE CONTRACT DEFENDANT SIGNED AS PRESIDENT, DEFENDANT COULD NOT BE HELD PERSONALLY LIABLE (FOURTH DEPT))/CIVIL PROCEDURE (MOTION TO SET ASIDE THE VERDICT, EVEN THOUGH THE WRONG CORPORATION WAS NAMED IN THE CONTRACT DEFENDANT SIGNED AS PRESIDENT, DEFENDANT COULD NOT BE HELD PERSONALLY LIABLE, MOTION TO SET ASIDE THE VERDICT SHOULD HAVE BEEN GRANTED (FOURTH DEPT))/VERDICT, MOTION TO SET ASIDE, EVEN THOUGH THE WRONG CORPORATION WAS NAMED IN THE CONTRACT DEFENDANT SIGNED AS PRESIDENT, DEFENDANT COULD NOT BE HELD PERSONALLY LIABLE, MOTION TO SET ASIDE THE VERDICT SHOULD HAVE BEEN GRANTED (FOURTH DEPT))

November 17, 2017

Corporation Law, Unemployment Insurance

CLAIMANT WAS NOT TOTALLY UNEMPLOYED WHEN WINDING UP HIS CORPORATION’S BUSINESS, ACTUAL FINANCIAL GAIN IS NOT A PREREQUISITE TO FINDING A CLAIMANT IS NOT TOTALLY UNEMPLOYED (THIRD DEPT).

The Third Department determined claimant was not totally unemployed and was therefore not entitled to unemployment insurance benefits. Claimant was winding up his corporation’s business during the relevant period of time:

“[A] corporate officer who performs activities in connection with the winding up of a corporation will not be considered totally unemployed, even if his or her activities in this regard are minimal” … . Following the sale of the business, claimant took measures in winding up the business during the time period in question, including changing the company name with the Department of State as required by the purchase agreement, distributing the monthly installment payments received from the purchaser of the business, and writing checks from the company account for accountant and counsel fees, taxes, insurance costs, a charitable contribution, office supplies and other business expenses. Under these circumstances, the Board’s determination that claimant was not totally unemployed is supported by substantial evidence and will not be disturbed … . “Contrary to claimant’s assertion, actual financial gain is not a prerequisite to a finding that a claimant is not totally unemployed” … . Matter of Lasker (Commissioner of Labor), 2017 NY Slip Op 07924, Third Dept 11-9-17

UNEMPLOYMENT INSURANCE (CLAIMANT WAS NOT TOTALLY UNEMPLOYED WHEN WINDING UP HIS CORPORATION’S BUSINESS, ACTUAL FINANCIAL GAIN IS NOT A PREREQUISITE TO FINDING A CLAIMANT IS NOT TOTALLY UNEMPLOYED (THIRD DEPT))/CORPORATION LAW (UNEMPLOYMENT INSURANCE, CLAIMANT WAS NOT TOTALLY UNEMPLOYED WHEN WINDING UP HIS CORPORATION’S BUSINESS, ACTUAL FINANCIAL GAIN IS NOT A PREREQUISITE TO FINDING A CLAIMANT IS NOT TOTALLY UNEMPLOYED (THIRD DEPT))

November 9, 2017

Corporation Law, Fraud

CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that defendant (Cina), an officer of defendant corporation (Artisan), could be held personally liable for his tortious acts. Supreme Court had held the corporate structure insulated Cina from personal liability. It was alleged Cina misrepresented that limestone had been stolen, inducing plaintiff to purchase replacement limestone:

“A director or officer of a corporation does not incur personal liability for its torts merely by reason of his [or her] official character” … , and thus, cannot be liable for torts “attributable to the corporation if he [or she] did not participate in and was not connected with the acts in any manner” … . However, ” [a] corporate officer who participates in the commission of a tort may be held individually liable, regardless of whether the officer acted on behalf of the corporation in the course of official duties and regardless of whether the corporate veil is pierced'” … .

Here, the Supreme Court incorrectly directed the dismissal of the causes of action alleging conversion and fraud insofar as asserted against Cina on the ground that there was “no basis on which to pierce the corporate veil.” The complaint adequately alleged that Cina participated in the act allegedly constituting conversion by asserting that Cina arranged to have the replacement limestone delivered to [another party] instead of the plaintiff, and that he participated in the alleged fraud by knowingly misrepresenting the facts regarding the delivery of the original limestone, with the intent of inducing the plaintiff’s detrimental reliance. That Cina’s alleged conduct may have been committed “on behalf of the corporation in the course of official duties” does not prevent liability from being imposed upon him … . North Shore Architectural Stone, Inc. v American Artisan Constr., Inc., 2017 NY Slip Op 06655, Second Dept 9-27-17

CORPORATION LAW (CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/INTENTIONAL TORTS (CORPORATE OFFICERS, PERSONAL LIABILITY, CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/FRAUD (CORPORATE OFFICERS, PERSONAL LIABILITY, CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/CONVERSION (CORPORATE OFFICERS, PERSONAL LIABILITY, CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/OFFICERS (CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))

September 27, 2017

Corporation Law, Labor Law-Construction Law, Negligence

MULTI-MILLION DOLLAR VERDICTS AGAINST THE OWNER PERSONALLY AND HIS COMPANIES WARRANTED, WORKER SAFETY DISREGARDED WHEN REPAIR TO CONSTRUCTION CRANE UNDERTAKEN, CRANE OPERATOR AND CO-WORKER ON THE GROUND KILLED WHEN CRANE FELL (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Webber, determined the corporate veil was properly pierced, a defense expert’s testimony was properly excluded, and millions in damages for pre-impact terror, conscious pain and suffering, as well as punitive damages, were warranted. However, the court deemed the damages awarded by the jury excessive. The defendants were responsible for ordering a new part for a construction crane defendants provided at a construction site. There was evidence the manufacturer of the part was known to be incompetent but was chosen by the defendants anyway to cut costs. The defendants were aware of serious flaws in a similar part made by the same manufacturer. There was evidence the required testing procedures for the new part were deliberately circumvented by the defendants. The evidence supported the jury’s conclusion that the new part failed causing the crane to fall 200 feet, fatally injuring the plaintiffs, the crane operator (Leo) and a co-worker (Kurtaj) on the ground:

… [O]ne individual (Lomma) exercised domination and control over three separate corporations which he treated as one entity.

There was … sufficient evidence to permit the jury to assess personal liability against Lomma. Contrary to Lomma’s arguments, plaintiffs presented substantial evidence of Lomma’s personal participation in the corporate defendants’ affirmatively tortious acts launching the dangerous instrumentality that caused the deaths of plaintiffs’ decedents … . …

The trial court properly precluded the proposed testimony of defense expert James Wiethorn, which not only was not based on facts in the record, but also contradicted facts in the record … . * * *

Preimpact terror is a sub-category of conscious pain and suffering … . * * *

While Lomma and his companies, which dominated the crane rental market in New York, may not have intended to cause plaintiffs’ deaths, these deaths nevertheless arose from a series of calculated decisions made by Lomma over a period of months, during which time Lomma placed profit over the safety of construction workers and the public, despite having multiple opportunities to change course. * * *

“[I]t is the duty of the court to keep a verdict for punitive damages within reasonable bounds considering the purpose to be achieved as well as the mala fides of the defendant in the particular case”… . Moreover, “[a]lthough states possess considerable discretion over the imposition of punitive damages, the United States Supreme Court has emphasized that there are constitutional limitations on such awards, and that the Due Process Clause of the Fourteenth Amendment prohibits the imposition of grossly excessive or arbitrary punishments upon a tortfeasor” … . Matter of 91st St. Crane Collapse Litig., 2017 NY Slip Op 06419, First Dept 9-12-17

NEGLIGENCE (MULTI-MILLION DOLLAR VERDICTS AGAINST THE OWNER PERSONALLY AND HIS COMPANIES WARRANTED, WORKER SAFETY DISREGARDED WHEN REPAIR TO CONSTRUCTION CRANE UNDERTAKEN, CRANE OPERATOR AND CO-WORKER ON THE GROUND KILLED WHEN CRANE FELL (FIRST DEPT))/CORPORATION LAW (PIERCE CORPORATE VEIL, MULTI-MILLION DOLLAR VERDICTS AGAINST THE OWNER PERSONALLY AND HIS COMPANIES WARRANTED, WORKER SAFETY DISREGARDED WHEN REPAIR TO CONSTRUCTION CRANE UNDERTAKEN, CRANE OPERATOR AND CO-WORKER ON THE GROUND KILLED WHEN CRANE FELL (FIRST DEPT))/PIERCE CORPORATE VEIL (MULTI-MILLION DOLLAR VERDICTS AGAINST THE OWNER PERSONALLY AND HIS COMPANIES WARRANTED, WORKER SAFETY DISREGARDED WHEN REPAIR TO CONSTRUCTION CRANE UNDERTAKEN, CRANE OPERATOR AND CO-WORKER ON THE GROUND KILLED WHEN CRANE FELL (FIRST DEPT))CRANES (MULTI-MILLION DOLLAR VERDICTS AGAINST THE OWNER PERSONALLY AND HIS COMPANIES WARRANTED, WORKER SAFETY DISREGARDED WHEN REPAIR TO CONSTRUCTION CRANE UNDERTAKEN, CRANE OPERATOR AND CO-WORKER ON THE GROUND KILLED WHEN CRANE FELL (FIRST DEPT))/LABOR LAW-CONSTRUCTION LAW (MULTI-MILLION DOLLAR VERDICTS AGAINST THE OWNER PERSONALLY AND HIS COMPANIES WARRANTED, WORKER SAFETY DISREGARDED WHEN REPAIR TO CONSTRUCTION CRANE UNDERTAKEN, CRANE OPERATOR AND CO-WORKER ON THE GROUND KILLED WHEN CRANE FELL (FIRST DEPT))

September 12, 2017

Civil Procedure, Contract Law, Corporation Law

FURTHER DISCOVERY NECESSARY TO DETERMINE RELATIONSHIP BETWEEN SIGNATORIES AND NON-SIGNATORIES TO A CONTRACT WITH A FORUM SELECTION CLAUSE, IF THE RELATIONSHIP IS CLOSE ENOUGH, NON-SIGNATORIES WILL BE COVERED BY THE CLAUSE (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Kapnick, determined further jurisdictional discovery was required before certain causes of action could be dismissed on jurisdictional grounds. If the relationship with signatories of a contract with a forum selection clause is close enough, non-signatories will be covered by the clause. Discovery was necessary to determine how close the relationship was. The opinion is too detailed and complex to fully summarize here. The crux of the action is the alleged failure of the corporations to pay interest due on notes held by shareholders:

“Under New York law, a signatory to a contract may invoke a forum selection clause against a non-signatory if the non-signatory is closely related’ to one of the signatories such that enforcement of the forum selection clause is foreseeable by virtue of the relationship between the signatory and the party sought to be bound'” … . If the nonsignatory party has an ownership interest or a direct or indirect controlling interest in the signing party … , or, the entities or individuals consulted with each other regarding decisions and were intimately involved in the decision-making process… , then, a finding of personal jurisdiction based on a forum selection clause may be proper, as it achieves the “rationale behind binding closely related entities to the forum selection clause [which] is to promote stable and dependable trade relations.'” … .

Here, plaintiffs allege that the individual defendants, by virtue of their senior management positions, power and decision-making authority, and B & B, as the parent company of BTEL and as a principal shareholder of 39.6% of BTEL’s stock, had actual knowledge at the time of the offering that BTEL was insolvent and would be incapable of meeting its obligations under the notes; that they authorized, participated in, and promoted the offering; and that they caused the offering memoranda to be distributed into the marketplace. This is enough, at this stage, to permit jurisdictional discovery as to the nature of B & B’s and the individual defendants’ actual knowledge and role in the offering of the notes, and their responsibilities connected thereto, because this information, which may result in a determination that the nonsignatories are indeed “closely related” to the signing parties, is a fact that cannot be presently known to plaintiffs, but rather, is within the exclusive control of defendants …. . Universal Inv. Advisory SA v Bakrie Telecom PTE, Ltd., 2017 NY Slip Op 06344, First Dept 8-29-17

CIVIL PROCEDURE (JURISDICTION, DISCOVERY, FORUM SELECTION CLAUSE, FURTHER DISCOVERY NECESSARY TO DETERMINE RELATIONSHIP BETWEEN SIGNATORIES AND NON-SIGNATORIES TO A CONTRACT WITH A FORUM SELECTION CLAUSE, IF THE RELATIONSHIP IS CLOSE ENOUGH, NON-SIGNATORIES WILL BE COVERED BY THE CLAUSE (FIRST DEPT))/JURISDICTION (DISCOVERY, FORUM SELECTION CLAUSE, FURTHER DISCOVERY NECESSARY TO DETERMINE RELATIONSHIP BETWEEN SIGNATORIES AND NON-SIGNATORIES TO A CONTRACT WITH A FORUM SELECTION CLAUSE, IF THE RELATIONSHIP IS CLOSE ENOUGH, NON-SIGNATORIES WILL BE COVERED BY THE CLAUSE (FIRST DEPT))/DISCOVERY (CIVIL PROCEDURE, JURISDICTION, FORUM SELECTION CLAUSE, FURTHER DISCOVERY NECESSARY TO DETERMINE RELATIONSHIP BETWEEN SIGNATORIES AND NON-SIGNATORIES TO A CONTRACT WITH A FORUM SELECTION CLAUSE, IF THE RELATIONSHIP IS CLOSE ENOUGH, NON-SIGNATORIES WILL BE COVERED BY THE CLAUSE (FIRST DEPT))/CONTRACT LAW (FORUM SELECTION CLAUSE, FURTHER DISCOVERY NECESSARY TO DETERMINE RELATIONSHIP BETWEEN SIGNATORIES AND NON-SIGNATORIES TO A CONTRACT WITH A FORUM SELECTION CLAUSE, IF THE RELATIONSHIP IS CLOSE ENOUGH, NON-SIGNATORIES WILL BE COVERED BY THE CLAUSE (FIRST DEPT))/FORUM SELECTION CLAUSE (CONTRACT LAW, (JURISDICTION, DISCOVERY, FORUM SELECTION CLAUSE, FURTHER DISCOVERY NECESSARY TO DETERMINE RELATIONSHIP BETWEEN SIGNATORIES AND NON-SIGNATORIES TO A CONTRACT WITH A FORUM SELECTION CLAUSE, IF THE RELATIONSHIP IS CLOSE ENOUGH, NON-SIGNATORIES WILL BE COVERED BY THE CLAUSE (FIRST DEPT))/CORPORATION LAW (FORUM SELECTION CLAUSE, JURISDICTION, DISCOVERY, FORUM SELECTION CLAUSE, FURTHER DISCOVERY NECESSARY TO DETERMINE RELATIONSHIP BETWEEN SIGNATORIES AND NON-SIGNATORIES TO A CONTRACT WITH A FORUM SELECTION CLAUSE, IF THE RELATIONSHIP IS CLOSE ENOUGH, NON-SIGNATORIES WILL BE COVERED BY THE CLAUSE (FIRST DEPT))

August 29, 2017

Corporation Law, Products Liability

COMPANY WHICH PURCHASED MANUFACTURER OF ALLEGEDLY DEFECTIVE LADDER NOT LIABLE, COMPANY DID NOT CONTINUE MANUFACTURER’S BUSINESS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the Bauer defendants’ motion for summary judgment in this products liability action should have granted. The Bauer defendants were successors in interest to the company (Babcock) which manufactured the allegedly defective ladder. However. the Bauer defendants demonstrated they did not continue the manufacturer’s business:

… [A]s a general rule, a corporation which acquires the assets of another corporation is not liable for the predecessor’s tortious conduct, including a defective and dangerous product manufactured by the predecessor … . There are four exceptions to this general rule against successor liability. A corporation may be held liable for the torts of its predecessors if (1) the successor corporation expressly or impliedly assumed the predecessor’s tort liability, (2) there was a consolidation or merger of seller and purchaser, (3) the purchasing corporation was a mere continuation of the selling corporation, or (4) the transaction was entered into fraudulently to escape such obligations … .

Here, the Bauer defendants established their prima facie entitlement to summary judgment with evidence that they did not make or sell the subject ladder, that they were not liable pursuant to the general rule against successor liability, and that none of the exceptions to the general rule applied here. In opposition, the plaintiffs failed to raise a triable issue of fact with respect to any of the exceptions to the general rule, including the two they contested: that Babcock Co., the purchasing corporation, was allegedly a mere continuation of Old Babcock, and that the Bauer defendants impliedly assumed Old Babcock’s tort liability.

With respect to the mere continuation exception, the underlying theory is that, if a corporation goes through “a mere change in form without a significant change in substance, it should not be allowed to escape liability” … . Thus, this exception applies where “it is not simply the business of the original corporation which continues, but the corporate entity itself”… . A continuation envisions something akin to a corporate reorganization, rather than a mere sale, with “a common identity of directors, stockholders and the existence of only one corporation at the completion of the transfer”… .

* * * The mere fact that some … former employees worked for [defendant]. was insufficient to raise a triable issue of fact … . Wass v County of Nassau, 2017 NY Slip Op 06317, Second Dept 8-23-17

PRODUCTS LIABILITY (COMPANY WHICH PURCHASED MANUFACTURER OF ALLEGEDLY DEFECTIVE LADDER NOT LIABLE, COMPANY DID NOT CONTINUE MANUFACTURER’S BUSINESS (SECOND DEPT))/CORPORATION LAW (PRODUCTS LIABILITY, COMPANY WHICH PURCHASED MANUFACTURER OF ALLEGEDLY DEFECTIVE LADDER NOT LIABLE, COMPANY DID NOT CONTINUE MANUFACTURER’S BUSINESS (SECOND DEPT))

August 23, 2017

Civil Procedure, Corporation Law, Fiduciary Duty

ACTION TO DISSOLVE A CLOSELY HELD CORPORATION BASED UPON BREACH OF A FIDUCIARY DUTY WAS TIMELY AND JUDICIAL DISSOLUTION WAS PROPERLY GRANTED (THIRD DEPT).

The Third Department determined Supreme Court properly dissolved a closely-held corporation, finding that the respondent shareholders had “breached their fiduciary duties owed to petitioners by engaging in oppressive conduct aimed at ‘freez[ing]’ petitioners out of the corporation, as well as looting, wasting and/or diverting corporate assets for noncorporate purposes.” The decision is detailed and fact-specific. The court noted that the shares of two of the petitioners were beneficial shares in that they were held in trust by their father, who was also a petitioner. Although the children did not have standing to bring an action to dissolve the corporation because the holders of beneficial shares cannot vote, their father, as trustee, could vote, which conferred standing. The court further noted that an action to dissolve a corporation based on a breach of a fiduciary duty is equitable in nature and therefore the six-year statute of limitations applies. The action was timely because the first overt repudiation of a fiduciary duty by the respondents occurred within six years of the action:

Here, the gravamen of the petition is that respondents, as the majority shareholders, breached their fiduciary duties owed to petitioners, as the minority shareholders. Although the petition alleges fraudulent acts in the form of looting, the allegation of fraud is not essential to the breach of fiduciary duty claim. In light of this, and the fact that the remedy of a judicial dissolution is equitable in nature, we find that “the six-year limitations period of CPLR 213 (1) applies” … , and it does not commence “until there has been an open repudiation by the fiduciary or the relationship has otherwise been clearly terminated”… . In our view, respondents’ attempt in 2009 to force petitioners to sell their shares is the earliest point at which respondents can be said to have openly repudiated the fiduciary relationship. Given that this proceeding was commenced within six years of the 2009 force-out attempt, we agree with Supreme Court that this proceeding is not time-barred. * * *

Business Corporation Law § 1104-a permits a court to dissolve a closely-held corporation where, as is relevant here, those in control of the corporation have engaged in “oppressive actions toward the complaining shareholders” or have “looted, wasted, or diverted” corporate assets for noncorporate purposes (Business Corporation Law § 1104-a [a] [1], [2] …). “Although the term ‘oppressive actions’ is not statutorily defined, the Court of Appeals has held that ‘oppression should be deemed to arise . . . when the majority conduct substantially defeats expectations that, objectively viewed, were both reasonable under the circumstances and were central to the petitioner[s’] decision to join the venture'”… . Contrary to respondents’ contention, this standard is equally applicable to passive shareholders, such as petitioners, inasmuch as the standard is not focused on the complaining shareholders’ level of involvement with the corporation but, rather, their reasonable expectations and whether those expectations were defeated … . Matter of Twin Bay Vil., Inc. v Kasian, 2017 NY Slip Op 06024, Third Dept 8-3-17

CORPORATION LAW (DISSOLUTION, ACTION TO DISSOLVE A CLOSELY HELD CORPORATION BASED UPON BREACH OF A FIDUCIARY DUTY WAS TIMELY AND JUDICIAL DISSOLUTION WAS PROPERLY GRANTED (THIRD DEPT))/DISSOLUTION (CORPORATION LAW, ACTION TO DISSOLVE A CLOSELY HELD CORPORATION BASED UPON BREACH OF A FIDUCIARY DUTY WAS TIMELY AND JUDICIAL DISSOLUTION WAS PROPERLY GRANTED (THIRD DEPT))/FIDUCIARY DUTY (CORPORATION LAW, ACTION TO DISSOLVE A CLOSELY HELD CORPORATION BASED UPON BREACH OF A FIDUCIARY DUTY WAS TIMELY AND JUDICIAL DISSOLUTION WAS PROPERLY GRANTED (THIRD DEPT))/CLOSELY HELD CORPORATIONS (DISSOLUTION, ACTION TO DISSOLVE A CLOSELY HELD CORPORATION BASED UPON BREACH OF A FIDUCIARY DUTY WAS TIMELY AND JUDICIAL DISSOLUTION WAS PROPERLY GRANTED (THIRD DEPT))/CIVIL PROCEDURE (STATUTE OF LIMITATIONS, ACTION TO DISSOLVE A CLOSELY HELD CORPORATION BASED UPON BREACH OF A FIDUCIARY DUTY WAS TIMELY AND JUDICIAL DISSOLUTION WAS PROPERLY GRANTED (THIRD DEPT))/STATUTE OF LIMITATIONS (DISSOLUTION OF CORPORATIONS, ACTION TO DISSOLVE A CLOSELY HELD CORPORATION BASED UPON BREACH OF A FIDUCIARY DUTY WAS TIMELY AND JUDICIAL DISSOLUTION WAS PROPERLY GRANTED (THIRD DEPT))

August 3, 2017