At first glance, you might think the plaintiff minority shareholder in Sardis v Sardis, 2017 NY Slip Op 27163 [Sup Ct Suffolk County May 11, 2017], achieved her derivative lawsuit’s goal when the defendant controlling shareholder, about a month after suit was filed, suddenly reversed course by revoking the corporation’s allegedly wrongful voluntary dissolution that seemingly was the lawsuit’s raison d’être.
You might also think, having apparently forced defendant’s capitulation, the minority shareholder would be entitled to recover her legal fees in the action as authorized by Section 626 (e) of the Business Corporation Law whenever a shareholder derivative action “was successful, in whole or in part, or if anything was received by the plaintiff . . . as a result of the judgment, compromise, or settlement of an action or claim.”
But, as often is the case in shareholder lawsuits, first impressions can be deceptive.
The Sardis case, in which Suffolk County Commercial Division Justice Elizabeth H. Emerson denied the plaintiff’s fee application seeking $650,000, is noteworthy for a couple of reasons. First, the facts and circumstances leading up to the decision — starting with the settlement of a complex matrimonial divorce in which the ex-spouses continued to co-own interests in a valuable operating company, followed by legal proceedings in Delaware, followed by legal proceedings in New York — tell a fascinating story of a high-stakes, three-dimensional legal chess game.
Second, and more importantly for practitioners, Justice Emerson’s opinion is one of the very few New York state court decisions that takes a probing look at the prevailing “substantial benefit” standard for an award of legal fees under Section 626 (e). Continue Reading Finding No “Therapeutic” Benefit to Corporation, Court Denies Fee Award in Discontinued Shareholder Derivative Action