Culligan Soft Water Co. v. Clayton Dubilier & Rice, LLC, Index No. 651863/2012, 1/11/2017 (Oing, J.)

CPLR § 3102(c); Derivative Action

By: Madeline Collins | Senior Staff Writer

Plaintiffs, minority shareholders of nominal Defendant, Culligan Ltd. (“Culligan Limited”), bought this derivative action on behalf of that entity, a Bermuda company that does business in New York. Plaintiffs filed four separate complaints in this action, including most recently the third amended derivative complaint (the “Third Amended Complaint”). Plaintiffs entered into a settlement agreement with six other defendants (the “Settling Defendants”), which was subject to court approval. The Court then dismissed the Third Amended Complaint for failure to adequately allege derivative standing as against Culligan Limited and a list of thirteen other defendants (collectively, the “CDR Defendants”).

On May 19, 2015, this Court approved the settlement, and denied as moot the motion to dismiss the Third Amended Complaint filed by the Settling Defendants. The Appellate Division reversed this Court’s approval of the settlement, and vacated the judgment, holding that the settlement should not have been approved because it “does not provide for payment to the company” but only accomplishes “getting [the plaintiffs’] lawyers paid,” when these same lawyers “after four attempts, have yet to plead properly that they have standing to sue derivatively, [and] are not entitled to legal fees.”

Plaintiffs subsequently sought to compel the Settling Defendants and other defendants to comply with their specific discovery obligations as set forth in the settlement agreement, and resorted to CPLR § 3102(c) to compel compliance.

The Court determined that CPLR § 3102(c) was not available for Plaintiffs. The Court further determined that were CPLR § 3102(c) available, Plaintiffs would still not be entitled to the disclosure they seek pursuant to this provision. The Court reasoned that while pre-action disclosure may be appropriate to identify potential defendants, it may not be used to ascertain whether a prospective plaintiff has a cause of action worth pursuing” or “to explore alternative theories of liability.”  The Court held that Plaintiff’s reliance on CPLR § 3102(c) was improper and denied the Plaintiff’s motion in its entirety.

Culligan Soft Water Co. v. Clayton Dubilier & Rice, LLC, Index No. 651863/2012, 1/11/2017 (Oing, J.).

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