| Peacock v Herald Sq. Loft Corp. |
| 2009 NY Slip Op 07960 [67 AD3d 442] |
| November 5, 2009 |
| Appellate Division, First Department |
| Russell Peacock et al., Respondents, v Herald Square LoftCorp. et al., Appellants. |
—[*1] Charles E. Boulbol, New York, for respondents.
Order, Supreme Court, New York County (Louis B. York, J.), entered August 22, 2008,which, to the extent appealed from, denied defendants' motion to dismiss the second and thirdcauses of action, and so much of the fourth cause of action as sought specific performance on aMarch 8, 1994 agreement, unanimously modified, on the law, the second and third causes ofaction dismissed, and otherwise affirmed, without costs.
Co-op penthouse owners sued the co-op and certain directors for refusing permission todemolish their one-story rooftop structure and replace it with a two-story unit. As pertinent here,plaintiffs alleged breach of fiduciary duty against the co-op corporation and the directordefendants, as well as breaches of their proprietary lease and the 1994 agreement.
As amplified in an affidavit in opposition to defendants' motion, plaintiffs asserteddiscrimination against them by refusal to approve their proposed project, in light of a past historyof permitting extensive work on many of the building's other units. Although an allegation ofunequal treatment of shareholders may be sufficient to overcome the protections of the businessjudgment rule, plaintiffs are still subject to the requirement of pleading independent tortious acts(see DeCastro v Bhokari, 201 AD2d 382, 383 [1994]). Since plaintiffs made no assertionthat in discriminating against them, the directors were acting outside their official capacity, theunspecified allegation of unequal treatment failed to state a claim (see Pelton v 77 Park Ave.Condominium, 38 AD3d 1, 9-10 [2006]). The allegation that the director defendantsrejected plaintiffs' proposal due to the self-interest of one or more of the directors also lacked thespecificity required to adequately state a claim for breach of fiduciary duty (see CPLR3016 [b]; Pelton, 38 AD3d at 11). As to the co-op corporation, defendants correctly pointout that "a corporation does not owe fiduciary duties to its members or shareholders" (Hyman v New York Stock Exch., Inc.,46 AD3d 335, 337 [2007]). Accordingly, the second and third causes of action, sounding inbreach of fiduciary duty, must be dismissed.
As to the fourth cause of action, the 1994 agreement provided for review only "after theBoard approves plaintiffs' scope of work." Since the Board of Directors never approvedplaintiffs' scope of work, defendants argue they cannot be in breach of the 1994 agreement. Thisargument is undercut by defendants' apparent concession in their brief that the proprietary lease[*2]would proscribe the board from unreasonably withholding itsapproval of the scope of work under the 1994 agreement. Even if the 1994 agreement does not,on its face, set limits on the board's ability to refuse to approve the scope of work, the contract'simplied covenant of good faith and fair dealing would prevent defendants from exercising thatpower arbitrarily (see Dalton v Educational Testing Serv., 87 NY2d 384, 389 [1995]).Whether defendants acted arbitrarily or unreasonably in refusing to approve the scope of workpresents questions of fact that cannot be resolved on this motion to dismiss (see 511 W.232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 151-152 [2002]).Concur—Sweeny, J.P., Buckley, Catterson, Acosta and Freedman, JJ. [See 2008NY Slip Op 32325(U).]