ALLANNIC v. LEVIN

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Supreme Court, Appellate Division, First Department, New York.

Cyrille ALLANNIC, et al., Plaintiffs-Appellants, v. Paul LEVIN, et al., Defendants-Respondents.

Decided: December 30, 2008

TOM, J.P., FRIEDMAN, GONZALEZ, McGUIRE, ACOSTA, JJ. McGuireWoods LLP, New York (Marshall Beil of counsel), for appellants. Robinson Brog Leinwand Greene Genovese & Gluck P.C., New York (Nicholas Caputo of counsel), for Paul Levin, John Philip Hesslein, Winifred Viani, Hugh Van Deventer and 682 Sixth Avenue Housing Development Fund Corporation, respondents. Deutsch Tane Waterman & Wurtzel, P.C., New York (Stewart Wurtzel of counsel), for 682 Sixth Avenue, LLC, respondent.

Order and judgment (one paper), Supreme Court, New York County (Leland G. DeGrasse, J.), entered January 25, 2008, which denied plaintiffs' motion for summary judgment, granted defendants' cross motion for summary judgment, declared that the March 13, 2006 vote of the board of directors of defendant 682 Sixth Avenue Housing Development Fund Corporation (the “co-op”) to extend the master lease to defendant 682 Sixth Avenue, LLC is valid, and dismissed the complaint, unanimously modified, on the law, defendants' cross motion denied, the judgment vacated and the complaint reinstated, with costs in favor of plaintiffs.   Appeal from order, same court and Justice, entered April 4, 2008, which, upon granting plaintiffs' motion for renewal and reargument, adhered to the original determination, unanimously dismissed, without costs, as academic.

 The business judgment rule does not foreclose inquiry into the disinterested independence of those members of the board chosen to make the corporate decision on its behalf (Auerbach v. Bennett, 47 N.Y.2d 619, 631, 419 N.Y.S.2d 920, 393 N.E.2d 994 [1979] ).   The rule shields such directors only if they possess a disinterested independence and do not have dual relations that prevent an unprejudicial exercise of judgment (id.;  In re Comverse Technology, Inc., 56 A.D.3d 49, 866 N.Y.S.2d 10, 18 [2008] ).   The defendant housing cooperative board members were not disinterested members when they voted to enter into a lease extension of a master lease pursuant to which all of the shareholders would not be treated fairly and evenly.   As such there are questions of fact regarding whether the board engaged in self-dealing and whether its failure to treat all shareholders fairly and evenly constitutes a breach of its fiduciary duties (see Schwartz v. Marien, 37 N.Y.2d 487, 491-492, 373 N.Y.S.2d 122, 335 N.E.2d 334 [1975];  Aronson v. Crane, 145 A.D.2d 455, 456, 535 N.Y.S.2d 417 [1988];  Demas v. 325 W. End Ave. Corp., 127 A.D.2d 476, 478, 511 N.Y.S.2d 621 [1987] ).