24 N.Y.2d 494
PROCEDURAL POSTURE: Defendant corporate officers appealed a judgment from the Appellate Division of the Supreme Court in the First Judicial Department (New York), which modified and affirmed a judgment of the trial court that denied their motion to dismiss a derivative complaint.
OVERVIEW: On appeal from an order denying a motion to dismiss a derivative complaint as insufficient on its face, the question certified was whether defendant corporate officers could be held accountable to their corporation for gains realized by them from transactions in the company's stock as a result of their use of material inside information. On appeal, the court affirmed the denial of defendants' motion to dismiss.
The court held that a person who acquired special knowledge by virtue of a fiduciary relationship with another was not free to exploit that knowledge for his own personal benefit but had to account to his principal for any profits derived therefrom.
-An allegation of corporate damages was not required.
-In view of the practical difficulties inherent in an action under federal law, the desirability of creating an effective common-law remedy through the medium of the derivative action brought in the name of the corporation was manifest.
OUTCOME: The court affirmed the judgment of the lower court.
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