The following e-filed documents, listed by NYSCEF document number (Motion 001) 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48 were read on this motion to DISMISS.

In this action, plaintiff, Sebastien Morbieu, is suing West End and Riverside Realty Corporation (WERS), a residential cooperative, and co-op board members Robb Keayes, Kristy Barbacane, Marjorie Rutimann, and Constance Broughton.

Plaintiff's first cause of action seeks to invalidate the meeting held by defendants on July 20, 2022, and all actions and decisions made by defendants at that meeting—namely the appointment of Rutimann and Broughton as assistant to the treasurer and assistant to the secretary, respectively. On the second cause of action, plaintiff seeks a declaration invalidating the August 14, 2022, shareholder vote and election of Rutimann and Broughton onto the board. On his third cause of action, plaintiff seeks a declaration that defendants breached their fiduciary duties and an order for specific performance or, alternatively, damages. The fourth cause of action, against Rutimann and Broughton, sounds in aiding and abetting a breach of fiduciary duty, and seeks compensatory and punitive damages.

Defendants now move to dismiss the action in its entirety under CPLR 3211 (a) (7). [*2]Plaintiff cross-moves, in effect, for default judgment, on the ground that defendants' motion is untimely under CPLR 3211 (e). Plaintiff's cross-motion for judgment is denied. Defendants' motion to dismiss is granted with respect to plaintiff's first, second, and fourth causes of action, and denied with respect to the third cause of action.

Plaintiff is a shareholder and board member of WERS. Defendants Keayes and Barbacane are shareholders and board members of WERS. Plaintiff alleges that on July 20, 2022, Keayes and Barbacane met and appointed Rutimann as assistant to the treasurer and Broughton as assistant to the secretary. Plaintiff argues defendants did not notify him about the meeting.

Then, on August 14, 2022, shareholders of WERS held a special meeting. Plaintiff alleges that on July 30, 2022, Rutimann emailed a notice of special meeting of shareholders to the WERS shareholders, but that the notice was not signed. The next day, Rutimann emailed an additional notice that was signed by Keayes and Barbacane.

During the August meeting, shareholder 2R was represented by proxy. Plaintiff alleges, however, that the proxy was not given for a particular specified purpose, and therefore constituted a "blank check" to the holder of the proxy. (NYSCEF No. 14 at ¶ 43.) He further asserts that Keayes misled shareholder 2R to procure that proxy and failed to inform her that her proxy would be used to vote Rutimann and Broughton on the board; and that shareholder 2R would not have voted for Rutimann had she been so informed. (Id. at ¶¶ 44-45.)

Rutimann and Broughton were ultimately voted onto the board by all shareholders and proxies except for plaintiff, who abstained from voting. Plaintiff claimed that the vote was procedurally incorrect because (i) Keayes misled shareholder 2R to procure her proxy, (ii) defendants did not disclose the defect in the proxy, (iii) the co-op improperly handled a series of leaks in Keayes's unit, and (iv) defendants did not disclose their conflicts of interest. (NYSCEF No. 14 at ¶¶ 46-47.)

In terms of the pipe leaks, plaintiff argues that the board erred in handling a series of four leaks in the building. Plaintiff asserts that the co-op was not responsible for paying $4,706 for the pipe repairs in Keayes's unit, and that Keayes failed to reimburse the co-op with the money he received from his insurance claim. (NYSCEF No. 14 at ¶¶ 58-60.) Further, plaintiff claims that Keayes had not reported the leak immediately, and that plaintiff's unit was damaged due to repairs in Keayes's unit. (NYSCEF No. 14 at ¶ 66.) Plaintiff argues the board has not investigated the extent of damages to the building arising from leaks in Keayes's unit. In addition, plaintiff asserts that the board erred when it did not request that Keayes set up an escrow account to reimburse the damages arising from the leaks in his unit. (NYSCEF No. 14 at ¶¶ 68-69.) Moreover, according to plaintiff, Rutimann approved repairs in Broughton's unit without the board's permission, and "unilaterally used Co-op funds for 'within the wall' repairs . . . , which is not the Co-op's responsibility." (NYSCEF No. 14 at ¶ 72.)

Plaintiff alleges that Rutimann attempted to extract an unnecessary tax assessment from the plaintiff while allowing a nonprimary resident not to pay his required tax assessment amounting to $1,000 for the past six years. (NYSCEF No. 14 at ¶¶ 79, 80-82.)

Finally, plaintiff asserts that the board erred when it granted access to their building to the adjoining building located at 314 West 77th St. ("77th St. Building") for façade work. Plaintiff argues that the board had not required the 77th St. Building to seal the chimney and protect the fireplaces in individual WERS co-op units from dust and debris. (NYSCEF No. 14 at ¶ 56.) Keayes allegedly agreed to give the 77th St. Building access for façade work in exchange for it agreeing to test the fireplace in Keayes's unit, even though the New York City Fire Department prohibits front units, including Keayes's unit, from using their fireplaces due to smoke seeping into the 77th St. Building. Plaintiff further claims that Keayes manipulated board minutes to show the potential buyer of his unit that his unit's fireplace may be usable.

Defendants move to dismiss the complaint under CPLR 3211 (a) (7), for failing to state any cognizable cause of action. Plaintiff cross-moves for judgment in his favor (effectively, default judgment), on the ground that defendant's motion was filed out of time. The cross-motion is denied because the motion to dismiss was timely filed.

Plaintiff agreed to extend the time to respond to the complaint by 15 days, under the condition that defendants would give him a 15-day extension beyond any court deadline to any filing. (NYSCEF No. 26 [Defendants' Counsel's Emails: Reciprocal 15-Day Extension].) The defendants met the extended deadline and filed a motion to dismiss on December 12, 2022. Plaintiff expected to receive from defendants a stipulation extending the deadline to file an opposition to the motion to dismiss. Instead, defendants agreed to extend the deadline for opposition solely by email. (NYSCEF No. 29 [Emailed Stipulation Attempts].) Plaintiff refused the extension under the impression that this court would accept only an official stipulation as proof of an extension. But this court deems extension by email proper. Thus, defendants met the conditions agreed upon between the parties by offering to extend plaintiff's deadline. The motion to dismiss is timely. The court must assess the grounds for dismissal raised by the defendants.

To plead a cause of action for breach of contract, a plaintiff must allege "(1) a contract exists; (2) plaintiff performed in accordance with the contract; (3) defendant breached its contractual obligations." (34-06 73, LLC v Seneca Ins. Co., 39 NY3d 44, 52 [2022] [internal citation omitted].)

In plaintiff's memorandum of law in opposition, plaintiff identifies his first cause of action as alleging a breach of fiduciary duty. Plaintiff's complaint, however, pleads the following: "Plaintiff and Defendants are all bound by and subject to the Bylaws, as a valid and enforceable contract"; "Plaintiff has complied with his obligations as a board member under the Bylaws"; "Defendants' actions, or lack thereof, constitute a material breach of their obligations under the Bylaws"; and that "Defendants' actions, or lack thereof, has damaged the Co-op and its shareholders." (NYSCEF No. 14 at ¶¶ 92-93, 96-97.) This court thus reads the first cause of action as a breach-of-contract claim. The court accepts the facts alleged in the complaint as true and holds that plaintiff failed to state a claim for breach of contract.

Plaintiff seeks to invalidate defendants' July 20, 2022, meeting, at which the board appointed Rutimann and Broughton as assistant to the treasurer and assistant to the secretary, respectively. According to plaintiff, the appointments are invalid because defendants did not notify plaintiff of the meeting.

Plaintiff argues that notification is mandatory under Business Corporation Law (BCL) § 711, which governs notice of board meetings, and § 4.6 of the bylaws, which governs board meetings. But contrary to plaintiff's claims, § 4.6 of the bylaws and BCL § 711 do not apply to the disputed appointments, because Rutimann and Broughton were appointed as assistants.

Section 5.2 of the bylaws, which permits the board to appoint assistant secretaries and assistant treasurers (see NYSCEF No. 38 at 14), does not require holding a board meeting before assistants can be appointed. In contrast, § 5.1 of the bylaws expressly requires a board meeting to elect the corporation's officers. (See id.) Similarly, § 4.11 of the bylaws provides that "[v]acancies in the membership of any committee shall be filled by the Board of Directors at a regular or special meeting." (NYSCEF No. 38 at 13.) These requirements did not apply here.^[FN1] [*3]The July 2022 meeting therefore did not violate § 4.6 of the bylaws or BCL § 711. This court grants the branch of defendants' motion to dismiss plaintiff's first cause of action.

In plaintiff's memorandum of law in opposition, plaintiff again identifies his second course of action as alleging a breach of fiduciary duty. But in plaintiff's complaint, he alleges the essential elements of a breach-of-contract claim in his second cause of action. Thus, this court reads the second cause of action as also alleging a breach-of-contract claim. The court accepts the facts alleged in the complaint as true and concludes that plaintiff failed to state a claim for breach of contract.

Plaintiff asserts that the August 14, 2022, vote at the special shareholder meeting violated § 4.1 of the bylaws and BCL § 705. According to plaintiff, the vote was impaired by defective notice, improper proxies, and defendants' failure to disclose conflicts of interest. Plaintiff, thus, seeks invalidation of the shareholder vote.

The provisions of the bylaws prevail over BCL § 705. According to § 4.1 of the bylaws, the number of directors is fixed at three. And "[t]he number of directors may be changed only upon the affirmative vote of a majority of the total number of directors who are then members of the Board of Directors." (NYSCEF No. 38 at 10.)

As of May 5, 2022, the board had three undisputed members—plaintiff, Keayes, and Barbacane. (NYSCEF No. 14 at ¶ 25.) In his complaint, plaintiff argues that § 4.1 is implicated because the shareholder votes at the August meeting expanded the number of board members to include Rutimann and Broughton. This pleading is insufficient on its face. Plaintiff does not dispute that the board voted to increase the number of board members. And the complaint provides no allegations why the votes of Keayes and Barbacane would not have constituted a valid majority vote under § 4.1 of the bylaws.

Plaintiff also claims that notice of the special shareholders meeting was defective because the notice distributed on July 30, 2022, needed to be signed and to specify the location of the meeting. Plaintiff points out that on July 31, 3022, Rutimann emailed a new notice signed by Keayes and Barbacane and specified apartment G as the meeting location. (NYSCEF No. 14 at ¶ 42.)

The court concludes that the special meeting of shareholders on August 14, 2022, was convened in compliance with § 3.2 of the bylaws. The majority of the board's members signed the notice distributed on July 31, 2022, which stated the date, place, and purpose of the meeting. This notice was distributed by email to all shareholders 14 days in advance. Section 3.2 requires delivery not less than ten days and not more than forty days before such a meeting. This notice satisfied these requirements.

In addition, § 3.5 of the bylaws specifies that "[t]he attendance of any stockholder at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by him." (NYSCEF No. 38 at 7.) Plaintiff claims that he abstained from voting because the meeting was procedurally defective. But he does not allege any facts that would take his notice claim outside the scope of the § 3.5 waiver.

Plaintiff claims the August 14, 2022, vote is defective because Keayes purportedly misled shareholder 2R to procure a proxy. (NYSCEF No. 14 at ¶ 47.) Plaintiff attended the meeting and abstained from voting. All remaining shareholders and proxies voted Rutimann and Broughton to the board. (NYSCEF No.1 at ¶ 18.) Plaintiff does not plead any facts that show that the quorum necessary for the valid vote was affected by the defective proxies. Even if the proxy from shareholder 2R were defective, one affected vote could not change the results.

Plaintiff expresses reservations about the proxies being self-serving and written to cover broad, unspecified purposes, alleging that previous proxies issued by the co-op were much narrower and more specific. (NYSCEF No. 14 at ¶ 47.) Plaintiff does not specify which bylaws [*4]or statute provision prevents a shareholder from granting this type of proxy. The bylaws do not require limiting the proxy.

In contrast, plaintiff also alleges that proxies presented at the shareholder meeting "stated that the undersigned shareholder designates and appoints Rob and Kristy as the undersigned's proxy 'for the purposes set forth in that certain notice of special meeting dated July 29th, 2022.'" (NYSCEF No. 14 at ¶ 43.) This allegation directly contradicts plaintiff's characterization of the proxy as improperly vague and general. (Id.) Although notice of the meeting was distributed twice, plaintiff admitted that the board included in the notice that the purpose of the meeting was "to add to the number of Board directors." (NYSCEF No. 14 at ¶ 42.) Plaintiff does not claim that the purpose of the meeting would have been amended. Thus, the reservations against the proxies are inconsistent and insufficient to prove a breach of contract.

Plaintiff was present at the meeting and had an opportunity to communicate his reservation about proxies, conflicts of interest, and all the above-mentioned purported defects. But plaintiff claims only that he stated during the meeting that the vote was procedurally incorrect and abstained from voting. (NYSCEF No. 14 at ¶ 47.) Afterwards, plaintiff addressed all his reservations to defendants by email. Plaintiff provides this court with no explanation why he did not communicate his reservations to other shareholders at the meeting when he believed the defendants marred the vote.

Section 4.1 of the bylaws and BCL § 705 do not constitute a basis for a breach-of-contract claim. Plaintiff does not plead facts rising to the level of invalidating the vote held on August 14, 2022. This court grants the branch of defendants' motion to dismiss plaintiff's second cause of action.

The court reads plaintiff's third cause of action as alleging a breach of fiduciary duty. To establish a breach of fiduciary duty, the movant must prove the existence of a fiduciary relationship, misconduct by the other party, and damages directly caused by that party's misconduct." (Pokoik v Pokoik, 115 AD3d 428, 429 [1st Dept 2014].)

Plaintiff pleads a breach-of-fiduciary-duty cause of action. Defendants' CPLR 3211 (a) (7) motion fails.

Plaintiff alleges that Keayes and Barbacane owed the co-op and all shareholders a fiduciary duty. Plaintiff also asserts that if the court finds that Rutimann and Broughton were duly appointed to the board, then they also owe plaintiff a fiduciary duty. Further, plaintiff pleads with specificity under CPLR 3016 (b) that defendants acted self-interestedly and in bad faith, and that they treated the shareholders unequally. Specifically, plaintiff alleges that defendants acted without legitimate purpose and in retaliation against plaintiff when they (i) did not require Keayes to reimburse the co-op for paying $4,706 to repair damages caused by the first leak; (ii) did not request insurance documentation from Keayes; (iii) did not examine the extent of damages caused by the third leak; iv) did not require that Keayes establish an escrow account; (v) granted the neighboring 77th St Building access to the WERS building without addressing the WERS' tenants' health concerns and implementing a standard of protection; and (vi) attempted to exact a tax assessment from plaintiff while allowing a non-primary resident not to pay tax assessments.

Defendants argue that this claim duplicates the breach-of-contract claim and must, therefore, be dismissed. But plaintiff's breach-of-contract claims rest on different actions by defendants, on different grounds, from those challenged in his fiduciary-duty claim. The claims are not duplicative.

Defendants raise a business-judgment defense. (NYSCEF No. 13 at 8.) Plaintiff pleads several actions that allegedly constitute unequal treatment. "While unequal treatment of shareholders is sufficient to overcome the directors' insulation from liability under the business judgment rule, individual directors and officers may not be subject to liability absent the [*5]allegation that they committed separate tortious acts." (DeCastro v Bhokari, 201 AD2d 382, 383 [1st Dept 1994] [internal citation omitted].) Here, plaintiff alleges several instances of individually tortious conduct in a non-conclusory way, such as Rutimann's attempt to exact a tax assessment from plaintiff.

Defendants further argue that plaintiff did not have the authority to bring a derivative action on behalf of the co-op and that he only has an individual right to sue for damages to it. (NYSCEF No. 13 at 15.) Plaintiff claims he has standing to bring an action under BCL § 720 (b) and also as shareholder and president of WERS. In addition, plaintiff argues that he is excused from any pre-litigation demand requirement because such a demand would have been futile.

A plaintiff shareholder must "set forth in the complaint—with particularity—an attempt to secure the initiation of [a derivative] action by the board or the reasons for not making such effort." (Bansbach v Zinn, 1 NY3d 1, 8 [2003] [internal quotation marks omitted].) "Demand is futile, and excused, when . . . 'a complaint alleges with particularity that a majority of the board of directors is interested in the challenged transaction. Director interest may either be self-interest in the transaction at issue or a loss of independence because a director with no direct interest in a transaction is "controlled" by a self-interested director.'" (Id., quoting Marx v Akers, 88 NY2d 189, 200-201 [1996].) Here, plaintiff is excused from this pre-litigation demand requirement because he alleged sufficient facts to prove futility. Indeed, defendants themselves confirm that the demand would have been futile. (See NYSCEF No. 13 at 16 [Defendants' Memorandum of Law in Support] ["Plaintiff obviously would not have had the support of the other board members were he to have held a meeting and a vote on the issue of this lawsuit, since no rational person would vote to sue themselves absent extenuating legal circumstances."].)

Defendants also argue that plaintiff's complaint is directed at the individual board members, not the co-op. Thus, defendants understand plaintiff's complaint to be an attempt to pierce the corporate veil. (NYSCEF No. 13 at 16-17.) But, as plaintiff notes, he does not need to pierce the corporate veil to prevail on his claim, because "New York does not recognize a separate cause of action to pierce the corporate veil." (DiMauro v United, LLC, 122 AD3d 568, 569 [2d Dept 2014].) Members of a co-op board owe a fiduciary duty similar to that of directors under BCL § 717. Plaintiff brings the action against defendants in their capacity as board members, not in their individual capacities.

Plaintiff pleads his fourth cause of action for aiding and abetting a breach of fiduciary duty against Rutimann and Broughton, to the extent the court finds for plaintiff on his first and second causes of action. (NYSCEF No. 14 at ¶ 121.)

This court dismisses the first and second causes of action and concludes that Rutimann and Broughton are duly elected board members who owe shareholders and the co-op a fiduciary duty. Given the court's conclusions on these points, plaintiff's fourth cause of action duplicates his third claim. The fourth cause of action is dismissed on that basis.

Accordingly, it is

ORDERED that defendants' motion to dismiss under CPLR 3211 (a) (7) is granted with respect to plaintiff's first and second causes of action for breach of contract and for the fourth cause of action for aiding and abetting the breach of fiduciary duty; and it is further

ORDERED that defendants' motion to dismiss is denied with respect to plaintiff's third cause of action for breach of fiduciary duty; and it is further

ORDERED that plaintiff' s cross-motion for default judgment is denied; and it is further

ORDERED that the parties shall appear before this court for a telephonic preliminary conference on April 7, 2023.