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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 11, 2019

Breach of Fiduciary Duty Claim Dismissed Under Business Judgment Rule

On December 26, 2018, Justice Bransten of the New York County Commercial Division issued a decision in IsZo Capital LLP. v. Bianco, 2018 NY Slip Op. 33384(U), dismissing a breach of fiduciary claim under the business judgment rule, explaining:

Plaintiffs allege Defendant Bianco failed to consent to refinancing the 111 W. 57th Street project, resulting in substantial litigation and loss to the company. Specifically, the Complaint alleges that there was no legitimate justification for Bianco’s linking acquiescence to the refinancing with obtaining documents which would settle litigation concerning the equity put right provision of the agreement between Ambase and the Sponsor. There is no underlying allegation of bad faith or self-dealing insofar as the failure to consent to refinancing is concerned, and the Plaintiff’s conclusory assertion that the failure to consent was a breach of fiduciary duty. In fact, there is nothing in the Complaint to indicate – and indeed the Plaintiff seems to concede – that this was nothing more than a business decision made by the board.

Because allegations consisting of bare legal conclusions, and factual claims which are inherently incredible, are not presumed to be true and are not accorded every favorable inference the Court disregards the allegation that the business decision was made in bad faith. Given that the court must conclude the allegations relate to a good faith business decision of the board, the Court applies the business judgment rule. Under the business judgment rule, the Court will not substitute its judgement for that of the board if the latter’s decision can be attributed to any rational business purpose.

(Internal quotations and citations omitted).

Fiduciaries have special duties. But as this decision shows, in normal circumstances, a court will show deference to a fiduciary’s business decisions. We both bring and defend breach of fiduciary duty and professional malpractice claims and other claims relating to the duties of trustees and professionals such as lawyers, accountants and architects to their clients. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding such claims or appeals of such claims.

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