| Mobarak v Mowad |
| 2014 NY Slip Op 03805 [117 AD3d 998] |
| May 28, 2014 |
| Appellate Division, Second Department |
[*1]
| Mamdouh R. Mobarak, Individually and on Behalf ofHimself and All Other Shareholders of XYZ Two Way Radio Service, Inc. SimilarlySituated, Appellant, v Mohamed Mowad et al., Respondents, et al.,Defendants. |
Davis Shapiro & Lewit LLP, New York, N.Y. (Gary Adelman of counsel), forappellant.
Arkin Solbakken, LLP, New York, N.Y. (Lisa C. Solbakken of counsel),for respondents.
In an action, inter alia, to recover damages for breach of fiduciary duty and breach ofcontract, the plaintiff appeals from so much of an order of the Supreme Court, KingsCounty (Partnow, J.), dated September 20, 2012, as granted the motion of the defendantsMohamed Mowad, Sandy Check, Michael Hatzidakis, Joseph Rozen, Arnon Sadok,Ahmed Moharrem, Chi Yuen Lo, and Khaled Maher for summary judgment dismissingthe complaint insofar as asserted against them.
Ordered that the order is modified, on the law, by deleting the provisions thereofgranting those branches of the motion which were for summary judgment dismissing thethird and seventh causes of action insofar as asserted against the defendants MohamedMowad, Sandy Check, Michael Hatzidakis, Joseph Rozen, Arnon Sadok, AhmedMoharrem, Chi Yuen Lo, and Khaled Maher, and substituting therefor a provisiondenying those branches of the motion; as so modified, the order is affirmed insofar asappealed from, without costs or disbursements.
In this action, the plaintiff seeks, among other things, to recover damages fromseveral members of the board of directors (hereinafter the board) of XYZ Two WayRadio Service, Inc. (hereinafter XYZ), a corporation in which the plaintiff had been ashareholder. The plaintiff seeks damages in his personal capacity. He also asserts severalshareholders' derivative causes of action in his capacity as a shareholders'representative.
The plaintiff alleged that, in 2005, the defendants improperly prevented him fromcontinuing to service the account of a certain customer of XYZ. Based on that conduct,the plaintiff, in his personal capacity, asserted causes of action against XYZ boardmembers Mohamed Mowad, Sandy Check, Michael Hatzidakis, Joseph Rozen, ArnonSadok, Ahmed Moharrem, Chi Yuen Lo, and Khaled Maher (hereinafter collectively therespondents), sounding in breach of contract and fraudulent inducement. Therespondents demonstrated, prima facie, that there was no employment contract betweenthe plaintiff and XYZ, and that, further, the conduct of the respondents in removing theplaintiff from servicing the subject account were expressly permitted by XYZ's rules andregulations. The plaintiff presented no proof refuting those showings (seeMcGimpsey v J. Robert Folchetti & Assoc., LLC, 19 AD3d 658, 659[2005]). In addition, the business judgment rule bars "judicial [*2]inquiry into actions of corporate directors taken in goodfaith and in the exercise of honest judgment in the lawful and legitimate furtherance ofcorporate purposes" (Auerbach v Bennett, 47 NY2d 619, 629 [1979]). Here, theplaintiff failed to produce any evidence to substantiate his allegations of fraud, bad faith,or breach of fiduciary duty in connection with his removal from the subject customeraccount (see North ForkPreserve, Inc. v Kaplan, 68 AD3d 732, 733 [2009]). The Supreme Courtproperly concluded that the respondents established their entitlement to judgment as amatter of law dismissing the fifth, sixth, eighth, twelfth, seventeenth, twenty-second,twenty-seventh, thirty-second, thirty-seventh, and forty-second causes of action, whichwere premised on the removal of the plaintiff from servicing the subject account (seeMcGimpsey v J. Robert Folchetti & Assoc., LLC, 19 AD3d at 659; see alsoNorth Fork Preserve, Inc. v Kaplan, 68 AD3d at 733). In opposition, the plaintifffailed to raise a triable issue of fact. Accordingly, the Supreme Court properly grantedthose branches of the respondents' motion which were for summary judgment dismissingthose causes of action.
The plaintiff also asserted causes of action, in his individual capacity, based on therespondents' purported failure to provide him with an original XYZ stock certificate.However, the respondents submitted proof showing that they indeed provided theplaintiff with an original stock certificate. In opposition, the plaintiff failed to rebut thatshowing, and also submitted no evidence of any damages caused by the respondents'alleged conduct and, thus, failed to raise a triable issue of fact in opposition.Accordingly, the Supreme Court properly granted those branches of the respondents'motion which were for summary judgment dismissing the ninth, thirteenth, eighteenth,twenty-third, twenty-eighth, thirty-third, thirty-eighth, and forty-third causes of action(see Alvarez v Prospect Hosp., 68 NY2d 320 [1986]).
The complaint asserted several shareholders' derivative causes of action againstMowad, who is the president of XYZ and a member of the board. The plaintiff alleged,inter alia, that Mowad breached his fiduciary duty to the corporation by permittinganother corporation that he owns, the defendant Regal Insurance Brokerage, Inc.(hereinafter Regal), to utilize certain resources of XYZ, without fair compensation. Therespondents failed to establish, prima facie, that Mowad did not breach his fiduciary dutyto XYZ with respect to the dealings between XYZ and Regal, or that his dealings withrespect to Regal were protected by the business judgment rule (see Armentano v Paraco GasCorp., 90 AD3d 683, 686 [2011]; see also Gjuraj v Uplift El. Corp., 110 AD3d 540 [2013]).In addition, although a corporate director may not be held personally liable for damagesabsent proof of commission of independent tortious acts (see Murtha v Yonkers ChildCare Assn., 45 NY2d 913, 915 [1978]; Hill v Murphy, 63 AD3d 680, 681 [2009]), the respondentsfailed to submit any evidence establishing that Mowad's conduct with respect to Regaldid not constitute such acts. Since the respondents failed to establish their prima facieentitlement to judgment as a matter of law dismissing the third cause of action, whichwas asserted against Mowad and based on this alleged breach of fiduciary duty, theSupreme Court should have denied that branch of their motion which was for summaryjudgment dismissing the third cause of action, regardless of the sufficiency of theplaintiff's opposition papers.
The Supreme Court also erred in granting that branch of the respondents' motionwhich was for summary judgment dismissing the seventh cause of action, which allegedthat Mowad was unjustly enriched as a result of benefits granted by XYZ to Regal. "Theessential inquiry in any action for unjust enrichment or restitution is whether it is againstequity and good conscience to permit the defendant to retain what is sought to berecovered" (Paramount Film Distrib. Corp. v State of New York, 30 NY2d 415,421 [1972]; see Sperry vCrompton Corp., 8 NY3d 204, 215 [2007]). A plaintiff must show that (1) thedefendant was enriched, (2) at the plaintiff's expense, and (3) that it is against equity andgood conscience to permit the defendant to retain what is sought to be recovered (see Mandarin Trading Ltd. vWildenstein, 16 NY3d 173, 182 [2011]). Here, the respondents failed toestablish, prima facie, that Mowad did not improperly personally obtain a benefit as aresult of any benefits conferred by XYZ upon Regal (see Newswalk Condominium v Shaya B. Pac., LLC, 102 AD3d932 [2013]; see alsoMoezinia v Ashkenazi, 105 AD3d 920, 921 [2013]).
However, the Supreme Court properly granted those branches of the respondents'motion which were for summary judgment dismissing the remaining derivative causes ofaction, which were asserted against each of the respondents individually.
[*3] The plaintiff alleged, inter alia, that the respondentsbreached their fiduciary duty to XYZ in connection with their handling of misconduct bythe former comptroller of XYZ. However, the subject events occurred subsequent to thefiling of the complaint, and the plaintiff failed to seek leave to amend the complaintpursuant to CPLR 3025 (b). In any event, the respondents established, prima facie, thatthey did not breach their fiduciary duty to XYZ in this regard, and the plaintiff raised notriable issues of fact in opposition to that showing (see Zuckerbrod v 355 Co., LLC, 113 AD3d 675 [2014]; Acevedo v Town 'N CountryCondominium, Section I, Bd. of Mgrs., 51 AD3d 603, 604 [2008]).
The plaintiff further alleged that the respondents breached their fiduciary duty toXYZ in connection with an election held in March 2005. However, the plaintiff failed tocommence a proceeding pursuant to CPLR article 78 to challenge that election, whichwas his sole and exclusive remedy to challenge the election (see BusinessCorporation Law § 619; Esformes v Brinn, 52 AD3d 459, 462 [2008]).
With respect to the remaining shareholders' derivative causes of action, whichalleged breach of fiduciary duty against the respondents, including allegations based on,inter alia, certain disciplinary actions taken against shareholders, the respondentsdemonstrated, prima facie, that no actionable breach of fiduciary duty occurred withrespect to those acts, and the plaintiff failed to raise triable issues of fact in opposition tothat showing (see Zuckerbrod v 355 Co., LLC, 113 AD3d at 676; Acevedo vTown 'N Country Condominium, Section I, Bd. of Mgrs., 51 AD3d at 604). Mastro,J.P., Skelos, Cohen and LaSalle, JJ., concur.