Commercial Division Blog

Posted: July 2, 2017 / Categories Commercial, Derivative Actions

Complaint Dismissed for Impermissibly Mixing Direct and Derivative Claims

On June 15, 2017, Justice Knipel of the Kings County Commercial Division issued a decision in Guindi v. Safrin, 2017 NY Slip Op. 31291(U), dismissing a complaint for mixing direct and derivative claims, explaining:

Allegations of mismanagement or diversion of assets by officers or directors to their own enrichment, without more, plead a wrong to the corporation only, for which a shareholder may sue derivatively but not individually. A complaint the allegations of which confuse a shareholder's derivative and individual rights will, therefore, be dismissed.

Here, Guindi asserts claims for alleged wrongs to him individually and to the corporation, thus impermissibly mixing personal and derivative claims. In addition, the protestations of the plaintiffs notwithstanding, the causes of action asserted all arise out of, or are based on, alleged breaches of an Operating Agreement that is not annexed, and are thus redundant of one another. Accordingly, the motion to dismiss is granted, and the complaint is dismissed.

(Internal quotations and citations omitted).