Opinion
17491 Index No. 655339/18 Case No. 2022–02912
03-09-2023
Terry HIBBARD etc., et al., Plaintiffs–Appellants, v. AMERICAN FINANCE TRUST, INC., et al., Defendants–Respondents.
Squitieri & Fearon, LLP, New York (Olimpio Lee Squitieri of counsel), for appellants. Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York (Audra J. Soloway of counsel), for respondents.
Squitieri & Fearon, LLP, New York (Olimpio Lee Squitieri of counsel), for appellants.
Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York (Audra J. Soloway of counsel), for respondents.
Acosta, P.J., Manzanet–Daniels, Kapnick, Shulman, Higgitt, JJ.
Order, Supreme Court, New York County (Andrea Masley, J.), entered December 20, 2021, which denied plaintiffs’ motion for leave to amend the complaint and dismissed the action, unanimously affirmed, with costs.
Supreme Court providently exercised its discretion in denying plaintiffs’ motion for leave to amend the complaint under CPLR 3025 (see 34–06 73, LLC v. Seneca Ins. Co., 39 N.Y.3d 44, 50, 178 N.Y.S.3d 1, 198 N.E.3d 1282 [2022] ), as it properly examined the underlying merits of the proposed causes of action and found that they were not viable in light of Maryland Corporations and Associations Code § 2–419 (see e.g. Lau v. Human Resources Admin., 168 A.D.3d 565, 566, 92 N.Y.S.3d 236 [1st Dept. 2019], appeal dismissed, 33 N.Y.3d 1056, 103 N.Y.S.3d 350, 127 N.E.3d 308 [2019] ; Wietschner v. Dimon, 139 A.D.3d 461, 462, 32 N.Y.S.3d 77 [1st Dept. 2016], lv denied 28 N.Y.3d 901, 2016 WL 4695160 [2016] ; Pier 59 Studios L.P. v. Chelsea Piers L.P., 40 A.D.3d 363, 366, 836 N.Y.S.2d 68 [1st Dept. 2007] ). Section 2–419 provides that a transaction involving an interested director is not void or voidable if approved by a majority of the disinterested directors or shareholders, or if it is fair to the corporation at the time of approval. Maryland has also long recognized that a board of directors is not liable to the stockholders for acts that the stockholders have ratified (see Wittman v. Crooke, 120 Md. App. 369, 707 A.2d 422, 426 [Md. Ct. Spec. Appeals 1998], citing Coffman v. Maryland Publ. Co., 167 Md. 275, 289, 173 A. 248, 254 [1934].)
Accordingly, the Third Advisory Agreement, the document at the heart of plaintiffs’ proposed claims, was adequately disclosed and duly ratified. The Agreement was distributed to shareholders as an exhibit to the proxy materials regarding the merger at issue here, and the proxy materials, in turn, informed the shareholders that the agreement would become effective if and when that merger was approved. In addition, the proxy materials informed shareholders of potential conflicts and further disclosed the "negative factors" of the agreement, including its 20–year renewable term (see St Clair–Hibbard v. American Fin. Trust, Inc., 2019 WL 4601720, at *4, 2019 U.S. Dist LEXIS 162075 [S.D.N.Y., Sept. 23, 2019, 18 Civ. 1148 (LGS/KNF)], affd 812 Fed. Appx. 36 [2d Cir. 2020] ). Plaintiffs thus provide no basis to revisit Supreme Court's conclusion that shareholders were fully informed about, and duly ratified, the Third Advisory Agreement when they voted to approve the merger (see South Miami Pension Plan v. Starwood Waypoint Residential, Trust, 2022 WL 4707247, at *6, 2022 Md. App. LEXIS 719, at 15-17 [Md. Ct. Spec. Appeals, Oct. 3, 2022, No. 599, Sept. Term, 2021] ).
Moreover, although the parties dispute whether the Third Advisory Agreement was properly disclosed and whether the shareholders properly ratified it, no party disputes that the Agreement was an exhibit to the proxy materials, nor do the parties dispute the substance of the proxy materials’ disclosures concerning the Agreement. Thus, we reject plaintiffs’ claims that in arriving at its § 2–419 determination Supreme Court made a premature factual determination. Nor do plaintiffs cite any authority for their claim that a transaction completed within the parameters of § 2–419 can nevertheless support a damages award.
Plaintiffs’ arguments as to each proposed claim are also unavailing. Whether or not the causes of action were well pleaded, plaintiffs do not show how the claims asserted against the director defendants — namely, breach of fiduciary duty and corporate waste — can proceed given the court's determinations based on § 2–419 and the shareholders’ ratification of the matters at issue (see Wittman, 120 Md. App. at 377, 707 A.2d at 426 ). Because the court properly denied the motion as to the cause of action for breach of fiduciary duty, denying the motion as to the cause of action for aiding and abetting a breach of fiduciary duty was likewise proper (see Alleco Inc. v. Harry & Jeanette Weinberg Found., Inc., 340 Md. 176, 240–241, 665 A.2d 1038, 1050 [Md. 1995] ) as was denial of the unjust enrichment claim, which, as pleaded, ties directly into the fiduciary duty claim.
We have considered plaintiff's remaining arguments and find them unavailing.