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Korsinsky v Winkelreid

Supreme Court of New York, Appellate Division, First Department

 October 4, 2016, Decided ; October 4, 2016, Entered

650157/09, 1813A 1813


 [*427]  [**191]  Judgment, Supreme Court, New York County (Jeffrey K. Oing, J.), entered December 12, 2014, dismissing the second amended complaint, unanimously affirmed, with costs. Appeal from order, same court and Justice, entered January 13, 2014, which granted defendants' motion to dismiss the second amended complaint; and from order, same court and Justice, entered December 2, 2014, which denied plaintiff's motion for leave to file a third amended complaint, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.

In this purported derivative action challenging the valuation of the nominal defendant's compensatory stock options, the motion court properly dismissed the second amended complaint for failure to allege particularized facts evincing the futility of a demand on the nominal defendant's board of directors (see Wood v Baum, 953 A2d 136, 140 [Del 2008]). The demand futility requirement needed to be measured in terms of the 2013 board in existence at the time of the second amended complaint, rather than [***2]  the 2009 board in existence when the original complaint was filed. The second amended pleading does not relate back to 2009 for demand futility purposes, because the original pleading was not "validly in litigation"—that is, it would not have survived a motion to dismiss (Braddock v Zimmerman, 906 A2d 776, 779, 786 [Del 2006]), given the original plaintiff's sale of his shares in the nominal defendant in July 2009 and his resulting inability to satisfy the continuous share ownership requirement governing derivative actions.

Assessing demand futility in terms of the 2013 board, the motion court correctly determined that plaintiff had failed to allege particularized facts demonstrating that the board's directors were interested and/or lacked independence (Wood, 953 A2d at 140). In particular, plaintiff failed to allege in nonconclusory fashion that the amounts of the options received by certain director defendants were material in the context of their [*428]  economic circumstances (see Central Laborers' Pension Fund v Blankfein, 34 Misc 3d 456, 469-470, 931 NYS2d 835 [Sup Ct, NY County 2011], affd 111 AD3d 40, 971 NYS2d 282 [1st  [****2] Dept 2013], citing Orman v Cullman, 794 A2d 5, 23 [Del Ch 2002]).

Nor were the allegations regarding the board's approval of the challenged options sufficient to raise doubts as to whether the approval was a valid exercise of business judgment (see Wood, 953 A2d at 140). In view of the exculpatory clause in the nominal defendant's [***3]  certificate of incorporation, no director faced a substantial likelihood of liability for approving the options (see Wietschner v Dimon, 139 AD3d 461, 462, 32 NYS3d 77 [1st Dept 2016]). Unlike the fraudulent backdating of options at issue in Ryan v Gifford (918 A2d 341, 355-356 [Del Ch 2007]), the awarding of options in amounts based on the board's discretionary valuations was a valid exercise of business judgment untainted by bad faith.

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143 A.D.3d 427 *; 38 N.Y.S.3d 190 **; 2016 N.Y. App. Div. LEXIS 6348 ***; 2016 NY Slip Op 06454 ****

 [****1]  Michael Korsinsky, Appellant, v Jon Winkelreid et al., Respondents, and The Goldman Sachs Group, Inc., Nominal Defendant-Respondent.

Subsequent History: Leave to appeal denied by Korsinsky v Winkelreid, 29 NY3d 907, 2017 N.Y. LEXIS 1323, 57 NYS3d 711, 80 NE3d 404 (N.Y., May 9, 2017)


options, second amended complaint, futility, nominal, third amended complaint, business judgment, derivative action, motion to dismiss, court properly, valid exercise, particularized, allegations, unanimously, valuation, amounts, costs, terms