Commercial Division Blog
Leave To Amend Claims Against Directors Not Barred By Corporate Bankruptcy Filing
Posted: May 7, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Fiduciary Duties, Leave to Amend
Leave To Amend Claims Against Directors Not Barred By Corporate Bankruptcy Filing
On March 31, 2025, Justice Margaret A. Chan granted leave for plaintiff Hassan Ragab to file an amended complaint in an action alleging that the management of defendant SHR Capital Partners LLC had taken actions in bad faith that undervalued Ragab’s equity after he was removed as SHR’s Chief Executive Officer. The case is Ragab v. SHR Capital Partners LLC, Index No. 653527/2022.
Justice Chan rejected SHR’s argument that its bankruptcy filing rendered amendment improper:
[T]he bankruptcy stay applies only to SHR and does not extend to the individual defendants, who are not debtors in the bankruptcy proceeding. Because plaintiffs' claims against the individual defendants do not involve SHR's property or seek to impose liability on the debtor, the stay does not bar the proposed amendments.
Slip op., p. 4.
Nor were the new claims sought to be asserted palpably insufficient:
The focus of the proposed claims emphasizes the individual board members' bad faith conduct - including their alleged manipulation of the valuation process and wrongful withholding of substantial payments - which may support viable fiduciary duty claims . . .. Given this extracontractual conduct, plaintiffs' claims for breach of fiduciary duty are properly asserted as standalone claims . . .”
Slip op., p. 5.
Finally, amendment would not cause undue prejudice because the proposed complaint “does not introduce entirely new theories or alter the scope of the
case in a way that would burden the individual defendants with extensive new
discovery obligations.” Id., pp. 6-7.
Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning agreements amendment of pleadings or claims of fiduciary breach.