New York Law Review

Tag: derivative action

  • Millington v. Southeastern Elevator Co., 51 N.Y.2d 303 (1980): No Derivative Action for Loss of Parental Consortium

    Millington v. Southeastern Elevator Co., 51 N.Y.2d 303 (1980)

    Under New York law, a child does not have a cause of action for loss of parental consortium against a tortfeasor who injures the child’s parent, because such a cause of action was not recognized at common law and the court finds no reason to create one now.

    Summary

    This case addresses whether children can sue for loss of parental consortium when a tortfeasor injures their parent. The New York Court of Appeals held that no such cause of action exists. The court reasoned that while they recognized the real loss suffered by children in these situations, creating such a right would extend tort liability too far, a decision best left to the legislature. The court emphasized the policy considerations of balancing remedies for injured parties with the potential for unlimited liability.

    Facts

    In each of the consolidated cases, a child sought to recover damages for loss of parental consortium. The claim stemmed from disabling injuries inflicted upon one of the child’s parents by an alleged tortfeasor. The children argued that they suffered a loss of companionship, guidance, and support due to the parent’s injuries.

    Procedural History

    The lower courts had dismissed the children’s claims for loss of parental consortium. The cases were then consolidated and appealed to the New York Court of Appeals.

    Issue(s)

    Whether a child has a cause of action for loss of parental consortium against a tortfeasor who inflicted disabling injuries on one of the child’s parents.

    Holding

    No, because such actions were not recognized at common law, and the court finds no reason to recognize such a right now, especially in the absence of legislative action.

    Court’s Reasoning

    The court declined to recognize a new cause of action for loss of parental consortium. It acknowledged the children’s loss but emphasized the importance of setting reasonable limits on tort liability. The court noted that “Duty is essentially a legal term by which we express our conclusion that there can be liability…It tells us whether the risk to which one person exposes another is within the protection of the law.” The court emphasized that fixing the bounds of duty involves policy considerations beyond logic and symmetry.

    The court expressed concern about extending tort liability without limit, stating, “A line must be drawn between the competing policy considerations of providing a remedy to everyone who is injured and of extending exposure to tort liability almost without limit.” It recognized the temptation to impose new duties and liabilities but stressed that the courts must ultimately define the “orbit” of duty, referencing Palsgraf v. Long Is. R. R. Co., 248 N.Y. 339 (1928). Absent legislative action, the court believed it was inappropriate to create such a broad new avenue for recovery. The court considered the equal protection arguments raised by the appellants but found them unpersuasive in justifying an extension of the spousal right to recover for loss of consortium to the parent-child relationship.

  • Kaufman v. Mony Mortgage Investors, 392 N.Y.S.2d 475 (1977): Demand Requirement for Derivative Actions Against REIT Trustees

    Kaufman v. Mony Mortgage Investors, 392 N.Y.S.2d 475 (1977)

    Holders of beneficial shares in a real estate investment trust (REIT) must first make a demand on the trustees before commencing a derivative action against them for alleged mismanagement or breach of fiduciary duty.

    Summary

    This case addresses whether shareholders of a Massachusetts-based real estate investment trust (REIT) must demand action from the trustees before bringing a derivative suit alleging mismanagement and excessive fees. The New York Court of Appeals held that Massachusetts law applies, requiring such a demand unless it would be futile. The court found the plaintiff’s allegations of trustee subservience to the management company insufficient to excuse the demand requirement, emphasizing the need for particularized factual allegations of wrongdoing or control. This decision underscores the importance of respecting the internal governance structures of business entities and the need for shareholders to exhaust internal remedies before resorting to litigation.

    Facts

    Mony Mortgage Investors was organized as a business trust under Massachusetts law, operating as a real estate investment trust (REIT). Shares of beneficial interest were sold to the public, resulting in approximately 12,300 shareholders. The declaration of trust stipulated between 3 and 15 trustees, with a majority being unaffiliated with the REIT’s manager. The Mutual Life Insurance Company of New York (MONY) was contracted as the manager. The plaintiff, a shareholder, alleged that the trustees, influenced by MONY, were paying excessive management fees to MONY and making unsuitable investment decisions that benefitted MONY to the detriment of the REIT.

    Procedural History

    The plaintiff brought a derivative action against the trustees, MONY, and the REIT in New York Supreme Court. The defendants moved to dismiss for failure to demand action from the trustees or other shareholders before filing suit. The Supreme Court initially denied the motion, allowing discovery. The Appellate Division reversed, granting the motion to dismiss. The New York Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    1. Whether the law of Massachusetts or New York governs the conditions precedent to a shareholder derivative action against the trustees of a Massachusetts business trust operating as a REIT?

    2. Whether, under Massachusetts law, a shareholder of a business trust must demand action from the trustees before commencing a derivative action alleging breach of fiduciary duty?

    3. Whether the plaintiff’s allegations were sufficient to excuse the demand requirement under Massachusetts law based on futility?

    Holding

    1. Yes, the law of Massachusetts governs, because the REIT was organized under Massachusetts law, the declaration of trust specifies Massachusetts law governs the rights of all parties, and there was insufficient evidence to establish the trust’s presence in New York.

    2. Yes, under Massachusetts law, a shareholder of a business trust must generally demand action from the trustees before commencing a derivative action, because Massachusetts courts would likely apply the same rule to business trusts as they do to business corporations in derivative suits.

    3. No, the plaintiff’s allegations were insufficient to excuse the demand requirement, because the allegations lacked particularized factual support demonstrating that a majority of the trustees were active wrongdoers, under the control of wrongdoers, or knowingly colluded in the alleged wrongful transactions.

    Court’s Reasoning

    The court reasoned that Massachusetts law applied due to the REIT’s organization in Massachusetts and the declaration of trust’s choice-of-law provision. The court emphasized the absence of significant contacts with New York to justify applying New York law, stating, “[T]his record is barren of proof of a significant association or cluster of significant contacts on the part of the investment trust with the State of New York.”

    The court analogized the shareholders of a Massachusetts business trust to the shareholders of a Massachusetts business corporation regarding derivative actions. Citing Datz v. Keller and Bartlett v. New York, New Haven & Hartford R. R. Co., the court noted that Massachusetts requires shareholders of a corporation to make a demand on the directors prior to bringing a derivative action. The court found no reason to differentiate between business trusts and business corporations in this context.

    The court addressed the circumstances under which demand would be excused, stating that excuse in Massachusetts requires “particularized factual allegations that a majority of the directors of the corporation (and correspondingly a majority of the trustees of a business trust) were active wrongdoers or under the control of such wrongdoers…or that the other directors or trustees knowingly, willfully and fraudulently colluded with the faithless directors or shared in personal gain as the result of the alleged wrongful transactions.” The court found the plaintiff’s allegations of trustee subservience to MONY to be conclusory and lacking in specific factual support. The court cited Bartlett v. New York, New Haven & Hartford R. R. Co. in support of the presumption that directors act in good faith.

    The court implicitly rejected the plaintiff’s request for further discovery, finding no sufficient predicate to disturb the Appellate Division’s exercise of discretion.