Commercial Division Blog

Posted: April 15, 2016 / Categories Commercial, Fiduciary Duties

Business Judgment Does Not Protect Decision Where Some Partners Benefited Differently Than Others

On April 12, 2016, the First Department issued a decision in Pokoik v. Norsel Realties, 2016 NY Slip Op. 02740, reversing dismissal of claims against managing members based on the business judgment rule, explaining:

Plaintiffs sufficiently alleged that Steinberg and Lieberman were conflicted and stood to benefit personally, in a manner other than as shareholders of Norsel, so as to rebut the business judgment rule. In particular, in addition to alleging that the devalued rent paid by 575 Realties advanced the individual defendants' personal estate planning, plaintiffs also alleged that the devalued rent allowed 575 Realties, and its affiliated entity SPMC, to retain more money to pay higher salaries to the individual defendants.

(Internal citations omitted) (emphasis added).