86 Misc. 2d 809
SYNOPSIS: Defendants filed a motion for summary judgment arising from plaintiffs' stockholder derivative action challenging defendants' distribution of a dividend.
-Defendant corporation purchased common stock for $29.9 million, and now the stock has a market value of $4 million.
-The directors decided to declare a special dividend, giving the shares of stock to the shareholders.
-Plaintiff demanded that Defendants sell the stock on the open market and use the $25.9 million capital gains loss to offset other capital gains.
-The offset would save Defendant corporation $8 million in taxes.
-Plaintiffs decided not to pursue their demand, reasoning that the significant loss would adversely affect the value of Defendant’s stock.
-Plaintiff then brought suit, classifying the directors’ decision as negligent decision-making.
-Plaintiffs filed a derivative action against defendants arising from defendants' decision to issue a dividend.
-Defendants filed for summary judgment on the grounds that no viable action had been made. On review, the court held that it would not interfere with decisions of directors of a corporation unless there had been some sort of fraud, dishonest practices, or other grounds that allowed for equitable interference.
The court held that questions of policy and business management were better left to the judgment of corporate management.
Additionally, to maintain an action for neglect against a director pursuant to N.Y. Bus. Corp. Law § 720(a), plaintiffs must establish that the director neglected his duties. Misjudgment by the director did not amount to neglect. In this case, plaintiffs' claim was based on their disagreement with defendants' decision to distribute a dividend. As a result, the court granted summary judgment and dismissed the claim.
OUTCOME: The court awarded summary judgment for defendants because questions of policy and business management were better left to discretion of board of directors unless plaintiffs could show acts, such as fraud, that justified judicial interference, and here, plaintiffs' suit was only based on their disagreement with defendants' business decisions.
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