Summer Day Camp Derivative Headed to Trial
August 14, 2019
“Sibling relationships are complicated. All family relationships are. Look at Hamlet.” Maurice Saatchi.
A recent decision in Greenhaus v. Gersh out of the Commercial Division, Suffolk County, is yet another example. This time, the business is a summer day camp located on the north shore of Long Island in Huntington, New York. Almost a year to the day following the death of dad — Edward Gersh — two siblings brought a derivative suit against their half-brother Kevin, claiming a variety of misdeeds. Plaintiffs’ moving papers, reading like a law school exam, sought a bevy of provisional remedies: receivership, preliminary injunction and pre-judgment attachment and a trial preference under CPLR 3403. Kevin, in turn, moved for summary judgment to dismiss the complaint in its entirety. As a threshold argument, he claimed plaintiffs failed to make the required BCL 626(c) demand on the Board and that futility had not been established. He also challenged each of the claims — unjust enrichment, conversion, constructive trust, fraudulent concealment, “self dealing”, breach of fiduciary duty and an accounting — on the merits and on Statute of Limitations grounds.
Noting preliminarily that “it is a rare case in which a plaintiff will be permitted to employ more than one provisional remedy”, Justice Elizabeth H. Emerson ultimately concluded for each that no grounds existed for the extraordinary relief requested. The complaint seeks essentially money damages, observed the Court, which undermines any claim of “irreparable harm” necessary to support the request for a preliminary injunction. Similarly, the claim that “it is likely that Kevin is using [corporate] funds” to open new schools outside of New York State, is not enough to warrant attachment or the appointment of a receiver. “[V]ague and conclusory assertions, without evidentiary facts indicating a fraudulent concealment of assets” simply “raise a suspicion of an intent to defraud”. They don’t satisfy the burden by “clear and convincing” evidence to justify the provisional relief sought.
Considering the defendant’s motion for summary judgment, the Court granted it in part, paring down the claims remaining for trial by dismissing four of the causes of action—unjust enrichment, conversion, “self dealing” and receivership. The later two, said the Court, are not recognized causes of action under New York law. “The court is not aware that New York recognizes “self dealing” as a separate cause of action” (see also Richard Pu, Breach of Fiduciary Duty [self-dealing is a form of breach of fiduciary duty]) and receivership is a provisional remedy under CPLR 6401, not a “cause of action”.
So what’s left for trial? The threshold issue of whether futility of demand existed, which the court has directed to a “framed-issue hearing” on day one of the trial. If demand is excused, then the remaining fiduciary duty and accounting claims, along with application of the Business Judgment Rule defense are the issues to be tried. Trial is currently set for October 15, 2019.