Commercial Division Blog

Posted: February 3, 2016 / Categories Commercial, Derivative Actions, Corporations

Arbitrary Decisions Not Covered by the Business Judgment Rule

On January 21, 2016, the First Department issued a decision in Tsui v. Chou, 2016 NY Slip Op. 00428, holding that the trial court "incorrectly determined that plaintiffs' breach of fiduciary duty and breach of contract claims [we]re barred by the business judgment rule," explaining:

Plaintiffs, suing derivatively on behalf of all unit owners of a condominium, allege in the amended complaint that the Chou defendants breached their fiduciary duties by, among other things, failing to disclose various lawsuits and defendant Robert Chou's criminal record, failing to account for missing monies and receipts, commingling funds, denying access to information and documentation, and improperly renewing defendant Chou Management's management agreement. Plaintiffs also allege that defendant board members improperly extended their terms on the board beyond the allowable period under the bylaws. There is nothing in the record to indicate that the board discussed or informed themselves as to these allegations. The board's determination not to pursue these claims was arbitrary and therefore not protected under the business judgment rule.

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