Summer v Ruckus 85 Corp.

This was a derivative action in Supreme Court, New York County where Rosenberg & Estis represented the plaintiffs, the minority shareholders of defendant Ruckus 85 Corp., in a derivative action to declare the governance scheme of Ruckus 85 Corp. to be invalid. The Corporation owned a small cooperative building with only four units and six shareholders. Plaintiffs were the minority shareholders with units on the second and third floor. The majority shareholders were the defendants in the action, with larger units and consequently more shares than the plaintiffs. The Corporation changed its manner of operations in 1998 to require 75% of the outstanding shareholders’ votes for the Corporation to take any action. Given the 75% requirement, each majority shareholder had effectively a veto power over any corporate action simply by refusing to approve it. When the action began, the Corporation was deadlocked as a result of the 75% shareholder vote requirement and unable to move ahead with work that was necessary to cure imminently hazardous violations.

Through investigation, Rosenberg & Estis discovered that the corporate change had been accomplished ineffectively because the stockholder certificates did not have a notice provision on the back that was required under the Business Corporation Law. The effect of that omission was to invalidate the entire 75% governance scheme and the Court (Freed, J.) issued a declaratory judgment to that effect in August 2015. The Corporation thereafter proceeded in accordance with the majority rule provisions of the Business Corporation Law to operate efficiently. In July 2019, the plaintiffs obtained an award of attorneys’ fees under Section 626(e) of the Business Corporations Law. An award of attorneys’ fees under this statute is discretionary with the Court and dependent on the Court finding that the Corporation had substantially benefited from the derivative action. Here, the Court (Freed, J.) held that the Corporation had indeed been benefited substantially and granted the motion for attorneys’ fees in an amount to be determined by a Special Referee. The case is awaiting the Special Referee’s hearing at this point.