Dilution; Voting Rights; Fiduciary Duty; Leave to Amend; Petition; Dissolution; Renew; Cross Motion; Leave to Discontinue
By: George Beck | Staff Writer
In a prior matter, Plaintiff shareholder sought dissolution of Defendant’s corporation under BCL 1104(a), alleging breach of contract, breach of fiduciary duty, and unjust enrichment. The Court dismissed some of Plaintiff’s causes of actions and allowed Defendant a late election to buy out Plaintiff’s interest under BCL 1118, which allows a shareholder to buy out another shareholder should that shareholder make a petition for dissolution under BCL 1104(a). The Court considered two questions in the present matter; (1) whether the plaintiff should be allowed under CPLR 2221(e) to renew his cross motion for leave to discontinue his 1104 petition pursuant to BCL 1116, and (2) whether the court should permit Plaintiff’s motion for leave to amend his complaint for breach of fiduciary duty. The court denied both motions. The court only addressed the previous claims as part of the facts it considered for this matter.
Regarding Plaintiff’s first motion, Plaintiff asserted that he satisfied the requirements of CPLR 2221(e) and should be allowed to renew his cross motion for leave to discontinue. He argued that the lack of the requisite voting interest was new information that was only just discovered due to Plaintiff being misled by Defendant as to his actual voting interest. Defendant asserted that at all times the documents of the company and the actions of the parities were in accordance with Plaintiff’s 25% stake. Plaintiff also argued that the requirements of CPLR 2221(e) should be loosened in the interest of justice. Defendant argued that this cross motion had the potential to cause great harm and was unduly prejudicial.
The Court rejected Plaintiff’s above argument and held that there was never a misrepresentation of Plaintiff’s voting interest. Firstly, the parties’ actions throughout the course of business and records of the company showed that the Plaintiff had a 25% voting interest. The Court held that Plaintiff’s interest was not diluted because it is possible to issue stock whose voting rights are subject to the Board of Directors. Additionally, Plaintiff failed to show reasonable justification for not having presented the facts showing the dilution of his interest sooner. The Court therefore held that Defendant did not try to mislead Plaintiff as to what his actual voting share was and consequently denied Plaintiff’s first motion. The Court also rejected Plaintiff’s argument to loosen the requirements of CPLR 2221(e) in the interest of justice. Permitting Plaintiff’s motion to withdraw his claim because he did not have the requisite 20% voting stake would create further litigation and cause great harm to Defendant, as its principle client retained the right to terminate its contract if the distribution of voting rights changed.
Regarding his second motion, Plaintiff asserted that the motion for leave to amend should be granted because it is more particularly plead than previously. Defendant contended that it should be denied as it fails to satisfy CPLR 3205(b). The Court found that Plaintiff failed to show the amendment was supported by an affidavit of merit, and that this was a repleading of a previously dismissed claim. The Court also determined that Plaintiff should not be able to seek this amendment three years after this litigation had begun. Accordingly, Plaintiff’s motion was denied.
In conclusion, the Court refused to grant Plaintiff’s motions, holding that Plaintiff was not permitted under CPLR 2221(e) to renew his cross motion for leave to discontinue, and that Plaintiff additionally could not leave to amend his complaint.
Louis Morizio v. Adirondack Research & Mgmt., Inc., Index No. 3005-12, 2/17/2017 (Platkin, J.).