DONOVAN v. Stephen Scharf, Defendant. (1998)

Order, Supreme Court, New York County (Beatrice Shainswit, J.), entered June 19, 1998, which, to the extent appealed from, denied plaintiffs' motion for summary judgment on their first and third causes of action in this shareholder derivative action, unanimously modified, on the law, to the extent that plaintiff is granted partial summary judgment only as to the issue of liability for legal fees on the third cause of action, and otherwise affirmed, without costs.

Although the record in this matter, including defendant Rothman's admissions and the previous findings in this case as stated by the Court of Appeals (Matter of Estate of Purnell v. LH Radiologists, P.C., 90 N.Y.2d 524, 664 N.Y.S.2d 238, 686 N.E.2d 1332), demonstrates beyond question that defendant Rothman engaged in self-dealing without obtaining the consent of the other shareholders, only the issue of his liability to LH Radiologists, P.C. (“LH”) for reimbursement of legal fees can be decided as a matter of law.   In that regard, the record demonstrates his bad faith in contesting the plaintiffs/shareholders' entitlement to inspect the corporate books of LH, since he admittedly knew that they were bona fide shareholders.   His contention that he was justified in incurring legal fees to oppose plaintiffs' inspection of LH's books because they were shareholders of alleged competitor Lenox Hill Radiology and Medical Imaging Associates and would take advantage of the fruits of such inspection, is improperly raised for the first time on appeal (440 East 62nd St. Owners Corp. v. 440 East 62nd Street Assocs., L.P., 217 A.D.2d 426, 427, 629 N.Y.S.2d 44;  City of New York v. Stack, 178 A.D.2d 355, 577 N.Y.S.2d 406, lv. denied 80 N.Y.2d 753, 587 N.Y.S.2d 905, 600 N.E.2d 632), and ignores the fact that there were more preferable alternatives to prevent the improper use of such information.   Also, we note that when this matter was previously before us, we enjoined the expenditure of corporate funds in Rothman's defense, noting that he “may have pursued his position in bad faith” (Matter of Estate of Purnell v. LH Radiologist, P.C., 228 A.D.2d 360, 361, 644 N.Y.S.2d 274 affd. 90 N.Y.2d 524, 664 N.Y.S.2d 238, 686 N.E.2d 1332).

MEMORANDUM DECISION.