Hanson Trust PLC v. ML SCM Acquisition Inc., 781 F.2d 264, 273 (2d Cir. Upvote (1) Downvote (0) Want to see this answer? As to the other component of the committee's activities, however, the situation is different, and here we agree with the Appellate Division. Thus, absent evidence of bad faith or fraud (of which there is none here) the courts must and properly should respect their determinations. James R. Barker, chairman of the board and chief executive officer of Moore McCormack Resources, Inc., was added as the third member of the committee when he was elected to the board on July 19, 1976. 106 Misc.2d 720 - STEINBERG v. STEINBERG, … Synopsis of Rule of Law. Derivative claims against corporate directors belong to the corporation itself. No substitution is involved in the present case; Wallenstein's application was one for intervention as a coplaintiff with Auerbach, not as a successor replacement for him. This Paper posits that Nigeria should expressly adopt the BJR principle. determined by the Board. On July 11, 1977 defendants moved in the Appellate Division to dismiss the purported Wallenstein appeal on the ground that he was not an aggrieved party. In this instance, however, no basis is shown to warrant either inquiry by the court. We proceed on the same analysis, concluding, however, on the record before us, at variance with the Appellate Division, that the determination of the special litigation committee forecloses further judicial inquiry in this case. Nothing suggests that any of the other directors participated in any of the challenged first-tier transactions. Life Ins. Why wasn't demand discussed in this case? At the conclusion of its investigation the special litigation committee sought and obtained [*636] pertinent legal advice from its special counsel. This is the essence of the responsibility and role of the board of directors, and courts may not intrude to interfere. Comments. Wallenstein predicated his right to intervene and to appeal on the grounds that Ida S. Wallenstein had been a stockholder of the corporation continuously from 1959 until her death in 1976 and that her estate, of which Stanley Wallenstein is sole executor, had continuously owned the corporate shares since her death, that in January, 1977 Wallenstein had commenced a shareholders' derivative action against the corporation, and that on May 24, 1977 the defendants in the Wallenstein action had moved for dismissal of that action on the ground that the order and judgment of Special Term in the present action was res judicata and resulted in collateral estoppel. The latter may be expected to show that the areas and subjects to be examined are reasonably complete and that there has been a good-faith pursuit of inquiry into such areas and subjects. Other directors had, however, been members of the board in the period during which the transactions occurred. On the basis of the report of this survey, received in October, 1975, management brought the issue to the attention of the corporation's board of directors. Nor is there anything in this record to raise a triable issue of fact as to the good-faith pursuit of its examination by that committee. Finally, there should be a word as to the contention advanced by the intervenor that summary judgment should at least be withheld until there has been opportunity for disclosure. Original Brief submitted to the Utah Supreme Court; funding for digitization provided by the Institute of Museum and Library Services through the Library Services and Technology Act, administered by the Utah State Library, and sponsored by the S.J. A stockholder's derivative action is a class action, at least for the purposes under review (Dresdner v Goldman Sachs Trading Corp., 240 App Div 242, 244; cf. The disposition at Special Term was predicated on this analysis; its decision focused on the actions of the special litigation committee, and the motions for summary judgment were granted on the ground that the business judgment doctrine precluded the courts from going back of the decision of the special litigation committee on behalf of the corporation not to pursue the claims alleged in the complaint. Corp. [Rayex], 7 NY2d 747.). Since the business [*638] judgment rule is only conditionally applicable here, and since certain defendants as well as the members of the special litigation committee have the sole knowledge of the facts upon which its applicability turns, summary judgment should be withheld pending disclosure proceedings. In the present case we confront a special instance of the application of the business judgment rule and inquire whether it applies in its full vigor to shield from judicial scrutiny the decision of a three-person minority committee of the board acting on behalf of the full board not to prosecute a shareholder's derivative action. Shop for nhl art from the Getty Images collection of creative and editorial photos. When it appeared that plaintiff Auerbach had no intention of appealing from the determination of Special Term, on June 13, 1977 Stanley Wallenstein, as executor of the estate of Ida S. Wallenstein, a stockholder of the corporation, filed and served a "Notice of Appeal" from the order and judgment of Special Term. A party may challenge the independence of a special committee, but once a committee is deemed to be independent then their decisions are protected under the business judgment rule. this question. Court of Appeals of New York Argued June 5, 1979 Decided July 9, 1979 47 NY2d 619 CITE TITLE AS: Auerbach v Bennet [*623] OPINION OF THE COURT. Thus, the courts will not second-guess the decisions made by fiduciaries and will not hold them personally liable even if … (Auerbach) Motion to Strike Reply Brief of a/c Stephen Bennett, CPA: May 12 2006 Auerbach v. Bennett; Why wasn't demand discussed in this case? Brief Fact Summary. Business Associations Lecture 31 Auerbach v. Bennett Burden of proof is on the plaintiff to show either It is [*632] not disputed that the members of the special litigation committee were not members of the corporation's board of directors at the time of the first-tier transactions in question. In view of the established rule that a dismissal on the merits of one derivative action is generally a bar to suits by other stockholders of the same corporation on the same cause of [*628] action (Grant v Greene Cons. Corp., 75 N.Y.2d 530, 538 (1990); Auerbach v. Bennett, 47 N.Y.2d 619 (1979). Country Club, 2 Misc 3d 1002[A], citing Auerbach v Bennett, supra). Plaintiffs, Elias Auerbach and Stanley Wallenstein, brought a shareholder’s derivative suit against Defendants, William Bennett et al., on behalf of General Telephone & Electronics Corporation (GTEC) after a corporate audit found that current and former members of the Board of Directors were involved in the payment of bribes and kickbacks to foreign officials. The board in this instance, with slight adaptation, followed prudent practice in observing the general policy that when individual members of a board of directors prove to have personal interests which may conflict with the interests of the corporation, such interested directors must be excluded while the remaining members of the board proceed to consideration and action. However, under the circumstances of this case when it was not until plaintiff Auerbach's decision not to appeal from the dismissal by Special Term that the inadequacy of Auerbach's representation of Wallenstein became apparent, Wallenstein cannot be faulted for not theretofore having sought intervention and for serving a notice of appeal to the Appellate Division—time for which was limited and if not complied with would have precluded any procurement of appellate review of Special Term's dismissal—then moving in the Appellate Division for permission to intervene to secure to himself the full panoply of rights which attach to a named party in an action. The disclosure proposed and described by Wallenstein on oral argument would go only to particulars as to the results of the committee's investigation and work, the factors bearing on its substantive decision not to prosecute the derivative actions and the factual aspects of the underlying first-tier activities of defendants—all matters falling within the ambit of the business judgment doctrine and thus excluded from judicial scrutiny. UCLA Law School Professor Stephen Bainbridge recently critiqued the Nevada Supreme Court's decision to follow Auerbach v. Bennett , 419 N.Y.S.2d 920 (1979) rather than Delaware's Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. Issue. On the submissions made by defendants in support of their motions, we do not find either insufficiency or infirmity as to the procedures and methodologies chosen and pursued by the special litigation committee. 623 OPINION OF THE COURT JONES, Judge. The committee also concluded that none of the individual defendants had violated the New York State statutory standard of care, that none had profited personally or gained in any way, that the claims asserted in the present action are without merit, that if the [*626] action were allowed to proceed the time and talents of the corporation's senior management would be wasted on lengthy pretrial and trial proceedings, that litigation costs would be inordinately high in view of the unlikelihood of success, and that the continuing publicity could be damaging to the corporation's business. That committee promptly engaged eminent special counsel to guide its deliberations and to advise it. Hence, the lawsuit should be terminated only if a sufficient number of disinterested directors (cf. Original Brief submitted to the Utah Supreme Court; funding for digitization provided by the Institute of Museum and Library Services through the Library Services and Technology Act, administered by the Utah State Library, and sponsored by the S.J. At the outset we observe that Wallenstein, the intervenor, must accept the record in the state in which he finds it at the time he was granted leave to intervene in the Appellate Division. As to the status of Wallenstein as an appellant and intervenor we agree with the analysis of Mr. Justice Hopkins and particularly his statements that in a stockholder's derivative action, traditionally regarded as in the nature of a class action, the interests of the stockholder and the corporation are united and that "when a stockholder undertakes to sue on behalf of the corporation, his action concerns the other stockholders as well" (64 AD2d 98, 104). Quinney Law Library; machine-generated OCR, may contain errors. The committee determined that it would not be in the best interests of the corporation for the present derivative action to proceed, and, exercising the authority delegated to it, directed the corporation's general counsel to take that position in the present litigation as well as in pending comparable shareholders' derivative actions. ... Columbia University, New York 10032. Held. [*630]. [*639]. (Cf. It appears to us that the business judgment doctrine, at least in part, is grounded in the prudent recognition that courts are ill equipped and infrequently called on to evaluate what are and must be essentially business judgments. Footnote 2: It appears that only 4 of the 13 named individual defendants, all present directors, have been served. Auerbach v. Bennett, 47 N.Y.2d 619 (1979). But this case differs markedly from the typical situation in which that rule would be invoked. Nor do the determinations to be made in the adoption of procedures partake of the nuances or special perceptions or comprehensions of business judgment or corporate activities or interests. On May 13, 1977 Supreme Court, Special Term, granted the motions of all defendants and dismissed the complaint on the merits. It is precisely because certain defendants and the members of the committee are possessed of exclusive knowledge of the facts that the intervenor is now unable to suggest the possible avenues which might successfully be pursued upon pretrial disclosure. Plaintiffs, Elias Auerbach and Stanley Wallenstein, brought a shareholder’s derivative suit against Defendants, William Bennett et al., on behalf of General Telephone & Electronics Corporation (GTEC) after a corporate audit found that current and former members of the Board of Directors were involved in the payment of bribes and kickbacks to foreign officials. "Questions of policy of management, expediency of contracts or action, adequacy of consideration, lawful appropriation of corporate funds to advance corporate interests, are left solely to their honest and unselfish decision, for their powers therein are without limitation and free from restraint, and the exercise of them for the common and general interests of the corporation may not be questioned, although the results show that what they did was unwise or inexpedient." (For a similar grant in the Court of Appeals see Soto v Lenscraft Opt. The board subsequently additionally vested in the committee "all of the authority of the Board of Directors to determine, on behalf of the Board, the position that the Corporation shall take with respect to the derivative claims alleged on its behalf" in the present and similar shareholder derivative actions. [1][*625], Almost immediately Auerbach, a shareholder in the corporation, instituted the present shareholders' derivative action on behalf of the corporation against the corporation's directors, Arthur Andersen & Co. and the corporation. (Friends of Animals v Associated Fur Mfrs., 46 NY2d 1065; CPLR 3212, subd [b].) The result reached by the majority not only effectively dilutes the substantive rule of law at issue, but may also render corporate directors largely unaccountable to the shareholders whose business they are elected to govern. On October 12, 1978 that court granted defendants' motions for leave to appeal to our court. The audit committee reported that it had found evidence that in the period from 1971 to 1975 the corporation or its subsidiaries had made payments abroad and in the United States constituting bribes and kickbacks in amounts perhaps totaling more than 11 million dollars and that some of the individual defendant directors had been personally involved in certain of the transactions. None of the three had had any prior affiliation with the corporation. Get free access to the complete judgment in AUERBACH v. BENNETT on CaseMine. 1986). The business judgment rule does not foreclose inquiry by the courts into the disinterested independence of those members of the board chosen by it to make the corporate decision on its behalf—here the members of the special litigation committee. CO., Appellate Division of the Supreme Court of the State of New York, Third Department. Order modified, with costs to defendants, in accordance with the opinion herein and, as so modified, affirmed. Courts have consistently held that the business judgment rule applies where some directors are charged with wrongdoing, so long as the remaining directors making the decision are disinterested and independent. To speculate that something might be caught on a fishing expedition provides no basis to postpone decision on the summary judgment motions under the authority of CPLR 3212 (subd [f]). Dr. John T. Dunlop, Lamont University professor at the Graduate School of Business Administration of Harvard University had been elected to the board on April 21, 1976. (Auerbach v Bennett, 47 NY2d, supra, at 630-631.) The case of Matter of Benson Realty Corp. v Walsh (40 AD2d 592, mot for lv to app den 31 NY2d 645), relied on by appellant Andersen, is distinguishable; there no notice of appeal had been filed within the period mandated by statute. Citation: 47 N.Y.2d 619, 419 N.Y.S.2d 920: Party Name: Auerbach v. Bennett: Case Date: July 09, 1979: Court: New York Court of Appeals By Utah Supreme Court, Published on 11/18/59. To this extent the conclusion reached by the special litigation committee is outside the scope of our review. Levandusky v. One Fifth Avenue, Apt. (Pollitz v Wabash R. R. Co., 207 NY 113, 124.) We examine then the proof submitted by defendants. Thus, absent evidence of bad faith or fraud (of which there is none here) the courts must and properly should respect their determinations. On January 7, 1977 Arthur Andersen & Co. made a similar motion. With the assistance of such special counsel and Arthur Andersen & Co., the corporation's outside auditors, the audit committee engaged in an investigation into the corporation's worldwide operations, focusing on whether, in the period January 1, 1971 to December 31, 1975, corporate funds had been (1) paid directly or indirectly to any political party or person or to any officer, employee, shareholder or director of any governmental or private customer, or (2) used to reimburse any officer of the corporation or other person for such payments. As all parties and both courts below recognize, the disposition of this case on the merits turns on the proper application of the business judgment doctrine, in particular to the decision of a specially appointed committee of disinterested directors acting on behalf of the board to terminate a shareholders' derivative action. Apts., 263 AD2d 33, 36). A special committee of disinterested members appointed by the Board refused to support the action. 47 N.Y.2d 619 - AUERBACH v. BENNETT, Court of Appeals of the State of New York. The special committee comprised three disinterested directors who had joined the board after the challenged transactions had occurred. On August 3, 1977 defendants' motion to dismiss the appeal and Wallenstein's [*627] cross motion for intervention were denied with leave to renew on argument of the appeal. The complaint alleged that in connection with the transactions reported by the audit committee defendants, present and former members of the corporation's board of directors and Arthur Andersen & Co., are liable to the corporation for breach of their duties to the corporation and should be made to account for payments made in those transactions. Auerbach v. Bennett 393 N.E.2d 994 (1979) Facts:General Telephone & Electronics (GTE) performed an internal investigation to determine whether bribes had been paid to foreign public officials or political parties. 600630/95, 405457/96, 2005 Howard Blauvelt, chairman of the board of Continental Oil Company, had been elected to the corporation's board of directors on October 9, 1975. The two dissenting Justices would have required the cooperative to prove defendant's … Koral v Savory, Inc., 276 NY 215.). The question is solely how appropriately to set about to gather the pertinent data. Because Wallenstein came within the ambit of a "party aggrieved" as that term is employed in CPLR 5511, no jurisdictional defect existed. There should be an affirmance for the reasons set forth in the excellent analysis of Mr. Justice James D. Hopkins who wrote for a unanimous Appellate Division. Auerbach v. Bennett 47 N.Y.2d 619, 419 N.Y.S.2d 920 N.Y., 1979. Indeed the report of the audit committee on which the complaint is based specifically found that no other directors had any prior knowledge of or were in any way involved in any of these transactions. To permit judicial probing of such issues would be to emasculate the business judgment doctrine as applied to the actions and determinations of the special litigation committee. The possible risk of hesitancy on the part of the members of any committee, even if composed of outside, independent, disinterested directors, to investigate the activities of fellow members of the board where personal liability is at stake is an inherent, inescapable, given aspect of the corporation's predicament. Proof, however, that the investigation has been so restricted in scope, so shallow in execution, or otherwise so pro forma or halfhearted as to constitute a pretext or sham, consistent with the principles underlying the application of the business judgment doctrine, would raise [*635] questions of good faith or conceivably fraud which would never be shielded by that doctrine. 9, Inc. v. Camcraft, Inc, In re Silicone Gel Breast Implants Products Liability Litigation, Frigidaire Sales Corp. v. Union Properties, Inc, Auerbach v. Bennett, 47 N.Y.2d 619, 393 N.E.2d 994, 419 N.Y.S.2d 920, 1979 N.Y. LEXIS 2202 (N.Y. 1979). JONES, J. Thus, because plaintiff Auerbach had submitted none, the record in this case is devoid of any affidavits or documentary evidence in opposition to the motions for summary judgment. Auerbach v. Bennett, 47 N.Y.2d 619, 629 (1979). 75 A.D.2d 678 - GRAZIANE v. CONT'L CAS. See, e.g., Auerbach v. Bennett, 393 N.E.2d 994, 1000 (N.Y. 1979). Similarly the reversal at the Appellate Division was based on that court's perception of the proper application of the business judgment rule to the actions and determination of the special litigation committee. For the reasons stated the order of the Appellate Division should be modified, with costs to defendants, by reversing so much thereof as reversed the order of Supreme Court, and, as so modified, affirmed. View Homework Help - BA Lecture 31 2018.pptx from LAWS 261 at Case Western Reserve University. A. Auerbach From the Department of Anatomy, Albert Einstein College of Medicine, Bronx, New York 10461, and the Laboratory of Neurophysiology, Department of Neurology, College of Physicians and Surgeons, Columbia University, New York 10032. Appellant Andersen argues that, under the principles quoted, Wallenstein's failure to have sought intervention earlier at Special Term is fatal to his appeal and to his application to intervene made to the Appellate Division. What has been uncovered and the relative weight accorded in evaluating and balancing the several factors and considerations are beyond the scope of judicial concern. ;; Terranova v Emil, supra, at p 497; 4 Weinstein-Korn-Miller, NY Civ Prac, par 3212.18). Appellant Arthur Andersen & Co. poses the threshold question whether an error of law was committed by the Appellate Division in permitting intervention by Wallenstein and entertaining the appeal taken by him from Special Term's dismissal of the complaint. The record in this case reveals that the board is a 15-member board, and that the derivative suit was brought against four of the directors. It cannot be disputed that, absent Wallenstein, his interests would not have been adequately represented in the Appellate Division; Auerbach's decision not to appeal would have meant that such interests would not have been represented at all! On August 7, 1978 the Appellate Division denied defendants' motion to dismiss the appeal, granted Wallenstein's cross motion for leave to intervene, and reversed the May 13, 1977 order of Special Term and denied defendants' motions for summary judgment. Id. On March 4, 1976 the audit committee released its report which was filed with the Securities and Exchange Commission and disclosed to the corporation's shareholders in a proxy statement prior to the annual meeting of shareholders held in April, 1976. Choose your favorite nhl designs and purchase them as wall art, home decor, phone cases, tote bags, and more! Every Bundle includes the complete text from each of the titles below: PLUS: Hundreds of law school topic-related videos from The Understanding Law Video Lecture Series™: Monthly Subscription ($19 / Month) Annual Subscription ($175 / Year). Business Corporation Law, § 713, which contemplates such situations and provides that the interested directors may nonetheless be included in the quorum count.) Business Corporation Law, § 713; Rapoport v Schneider, 29 NY2d 396, 402), in this case the special litigation committee, rendered a good faith, " 'unprejudiced exercise of judgment' ", determining that maintenance of the action would not be in the best interests of the corporation (see Koral v Savory, Inc., supra, at p 217). The motions for summary judgment were predicated principally on the report and determination of the special litigation committee and on the contention that this second-tier corporate action insulated the first-tier transactions from judicial inquiry and was itself subject to the shelter of the business judgment doctrine.
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