Two years in the past, Peter Mahler wrote a few dissolution lawsuit by a feminine minority shareholder alleging that her male co-shareholders condoned a sample of sexually offensive and demeaning conduct by a senior co-worker, which in the end pressured her to go away the enterprise.
In Matter of Straka v Arcara Zucarelli Lenda & Assoc. CPAs P.C., 62 Misc 3d 1064 [Sup Ct, Erie County 2019], the court docket dominated that “disrespectful and unfairly disproportionate remedy of a feminine shareholder by the male majority in a carefully held company constitutes oppression” and grounds to dissolve a company underneath Part 1104-a of the Enterprise Company Legislation.
In a weird plot worthy of a Hollywood scriptwriter’s creativeness, a court docket final month issued a call in a case with a reverse truth sample: a declare by an aged male shareholder, Felix Glaubach (“Glaubach”), alleging that he was victimized by false allegations of sexual harassment concocted in an extortionate scheme by the corporate’s chief govt officer and the officer’s spouse. Totally different branches of the identical sprawling litigation have been featured on this weblog twice.
Prior Chapters within the Glaubach Litigation
In our first article, Matthew Donovan wrote about an motion filed in Delaware Chancery Courtroom by Private Contact Holdings Corp. (“Private Contact”), a Delaware-incorporated supplier of residence healthcare companies, in opposition to Glaubach alleging that he misappropriated a company alternative to amass a constructing he then sought to lease to the enterprise for private revenue, engaged in a sample of sexual misconduct with workers, and capped issues off with an odd letter-writing marketing campaign harassing his co-board members and their spouses. In a prolonged post-trial choice, Chancellor Bouchard dominated that Glaubach breached his fiduciary duties to the enterprise and acted in dangerous religion, awarding Private Contact cash damages in opposition to Glaubach for near $3 million.
Within the second article, Peter Mahler wrote a few shareholder by-product motion Glaubach commenced in Queens County Supreme Courtroom in opposition to varied board members and officers that they took “unauthorized compensation hidden as reimbursement of instructional bills” that they didn’t truly incur. In Glaubach v Slifkin, 171 AD3d 1019 [2d Dept 2019], the Courtroom dominated that Glaubach didn’t sufficiently plead pre-suit demand or demand futility, affirming dismissal of 4 of Glaubach’s claims underneath Delaware legislation.
The Allegedly False Sexual Harassment Fees
After his by-product claims had been dismissed, Glaubach continued to litigate his remaining claims, alleging in his amended grievance a “drama worthy of a Shakespearean tragedy.” By way of “treachery, deceit, backstabbing and self-dealing,” Glaubach alleged, Private Contact’s board members and officers sought to “destroy Glaubach’s position in Private Contact, to embarrass him, to denigrate him, to make him irrelevant and in the end to steal” his curiosity within the enterprise.
Glaubach’s tenth reason behind motion, specifically, alleged a battle with the corporate’s CEO, Defendant David Slifkin (“Slifkin”), and Slifkin’s spouse, Defendant Trudy Balk (“Balk”). In 2013, Glaubach allegedly presupposed to unilaterally fireplace Balk from her position because the Vice President of Operations. When Glaubach objected to a severance bundle the board provided Balk, Slifkin and Balk allegedly retaliated and “solicited workers to make sexual harassment complaints in opposition to Glaubach.”
Glaubach alleged that the sexual harassment complaints in opposition to him wouldn’t have been made “however for the escalating points between Glaubach and Balk.” Glaubach alleged that “the actual motive behind the sexual harassment allegations was to extort Glaubach,” which was “revealed when Slifkin made it recognized that if Glaubach would cease objecting to the severance bundle proposed for Balk, the sexual harassment allegations would go away.” Based mostly upon these allegations, Glaubach alleged breach of fiduciary responsibility and waste in opposition to Slifkin and Balk.
The Abstract Judgment Choice
Slifkin and Balk moved for abstract judgment. Within the ensuing order, Queens County Business Division Justice Marguerite A. Grays held, in impact, that Balk’s severance bundle was permitted by an impartial committee created by a unanimous choice of the whole board, together with Glaubach, and due to this fact, protected by the enterprise judgment rule.
As well as, the Courtroom held that there was no causal connection as a matter of legislation between the alleged sexual harassment claims in opposition to Glaubach and the severance bundle as a result of the impartial committee permitted the severance bundle earlier than the harassment allegations had been made, and in any occasion, “the corporate’s belongings weren’t wasted by the investigation” as a result of the investigation was required underneath federal legislation.
The Appellate Choice
On enchantment, in Glaubach in Slifkin, 198 AD3d 618 [2d Dept 2021], the Courtroom affirmed, ruling that “Supreme Courtroom correctly granted that department of the movement of Slifkin and Balk which was for abstract judgment dismissing the tenth reason behind motion within the amended grievance.” The Courtroom held:
With a view to set up a breach of fiduciary responsibility, a plaintiff should show the existence of a fiduciary relationship, misconduct by the defendant, and damages that had been instantly brought on by the defendant’s misconduct. . . . Slifkin and Balk met their prima facie burden of demonstrating that there was no breach of fiduciary responsibility by them [because] the severance bundle was agreed to by a particular committee of the company’s board of administrators. Whereas workers of the company made allegations of sexual harassment in opposition to the plaintiff following the bundle’s approval, Slifkin and Balk demonstrated that none of these people made allegations of sexual harassment with a view to cease the plaintiff from objecting to the severance bundle provided to Balk. In opposition, the plaintiff failed to boost a triable situation of truth.
It seems the top could also be approaching for the Glaubach litigation. The identical day the appeals court docket affirmed dismissal of Glaubach’s remaining declare in opposition to Slifkin and Balk, it issued two companion choices.
Within the first, the Courtroom affirmed Justice Grays’ denial of Glaubach’s movement for permission to allege two new causes of motion for tortious interference with contract and defamation.
Within the second, the Courtroom issued a uncommon choice reversing the denial of a sanctions movement in opposition to Glaubach for sending “roughly 75 letters to varied defendants, in addition to these defendants’ relations, clergy, and attorneys” making “disturbing references” to “plagues, repentance, imprisonment, and punishment by the Inside Income Service for tax fraud.” The Courtroom discovered that Glaubach’s conduct was “calculated to harass the defendants,” and due to this fact, frivolous.
After the Courtroom issued its trio of orders, a handful of events introduced they settled with Glaubach.
Though Glaubach was unable to efficiently allege a declare for breach of fiduciary responsibility in opposition to the alleged protagonist of a purported scheme to falsely #MeToo him, the Glaubach Courtroom didn’t shut the door to the potential of such a declare on the proper set of details.
And it appears probably one might efficiently allege the inverse of such a declare: a breach of fiduciary responsibility / faithless servant declare introduced instantly or derivatively by or on behalf of a closely-held enterprise in opposition to a shareholder, officer, or director for participating in truth in office sexual harassment or misconduct. With the latest newfound public consciousness of those essential points, it appears virtually inevitable that we’ll be running a blog earlier than later about simply such a declare.