Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: October 19, 2017

Plaintiff Lacked Standing to Assert Claims for Damage to Affiliate

On October 2, 2017, Justice Ramos of the New York County Commercial Division issued a decision in Marco Polo Network Inc. v. 75 Broad, LLC, 2017 NY Slip Op. 32088(U), holding that the plaintiff tenant did not have standing to assert claims against its landlord for damages suffered by the plaintiff’s affiliate, explaining:

[Plaintiff] argues that its claims are not derivative in nature because they are based upon 75 Broad’s breach of the Lease, which was between MPNI and 75 Broad. Moreover, MPNI maintains that the collapse of MPCM caused direct injury to MPNI because of the reduction of its 80% equity interest in MPCM, which was allegedly reduced to zero as a result of 75 Broad’s conduct.

This Court finds that MPNI lacks standing to maintain this action, as MPNI’s claims relate to the diminution in value of its equity interest in MPCM, and are therefore derivative in nature. The fact that MPNI was a party to the Lease has no bearing on whether MPNI is the proper party with standing to sue, as the sole damages alleged involve a diminution in value of MPNI’s equity stake in MPCM.

An individual shareholder has no right to bring an action in his own name and on his own behalf for a wrong against a corporation. However, there is an exception when the wrongdoer has breached a duty owed to the shareholder independent of any duty owing to the corporation wronged. Here, the duty owed by Defendants to MPNI was not independent of any duty owed to MPCM. The Lease was between MPNI and 75 Broad, but MPCM was a permitee of the Lease and suffered damages as a corporation. Any alleged wrong by Defendants was thus committed against MPCM as a corporation, ultimately resulting in a, loss in value to MPNI ‘s equity interest in MPCM. If an individual harm is embedded in the harm to the corporation, it cannot separately stand. Moreover, the lost value of an investment in a corporation is quintessentially a derivative claim by a shareholder. Thus, because MPCM is the corporation that suffered the harm, and because MPNI is seeking to recover damages for the diminution in value of its 80% equity interest embedded in MPCM’s loss, the asserted claims are improper. Defendants have established that MPCM, and not MPNI, would benefit from any recovery awarded here. The Court cannot permit MPNI to obtain a recovery that belongs to MPCM.

(Internal quotations and citations omitted) (emphasis added).

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