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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: October 25, 2019

Corporate Waste Claim Defeated by Business Judgment Rule

On October 9, 2019, the Second Department issued a decision in Witty v. Wallace, 2019 NY Slip Op. 07316, holding that a corporate waste claim was defeated by the business judgment rule, explaining:

The plaintiff and the defendant Judith Wallace are each 50% owners of 1650 Fifth Avenue Corp., Inc (hereinafter the corporation), which owns a commercial building that it leases to JPMorgan Chase Bank (hereinafter the tenant) pursuant to a triple-net lease. In 2010, the tenant was granted a lease extension, which included a rent reduction. The plaintiff thereafter commenced this action, individually and on behalf of all shareholders of the corporation, alleging, inter alia, that the lease extension constituted corporate waste. The defendants moved for summary judgment dismissing the complaint. By order dated May 2, 2018, the motion was granted. The plaintiff appeals.

Pursuant to the business judgment rule, absent evidence of bad faith, fraud, self-dealing, or other misconduct, the courts must respect business judgments. A business decision is not subject to review under the business judgment rule if it is authorized, made in good faith, and in furtherance of the business’s legitimate interests.

Here, contrary to the plaintiff’s contentions, the defendants demonstrated, prima facie, that the decision to enter into the lease extension with the tenant was made in good faith, and in furtherance of the corporation’s legitimate interests. The plaintiff’s speculative assertions in opposition were insufficient to raise a triable issue of fact. Accordingly, we agree with the Supreme Court’s determination to grant the defendants’ motion for summary judgment dismissing the complaint.

(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. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding claims of impropriety in managing a business.

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