DECISION & ORDER The defendant, Brian Glick, (hereinafter referred to as “Defendant Glick”) moves this court seeking an order pursuant to CPLR 3211 (a)(7) to dismiss the within action with prejudice; for the imposition of sanctions under 22 NYCRR 130-1.1; or in the alternative to transfer this action Supreme Court, Kings County pursuant to CPLR 510 and 511. The plaintiff, Gene Dunn, (hereinafter referred to as “Plaintiff Dunn,”) and Defendant Glick, are either shareholders or members in three business entities. The three operating business entities are martial arts studios known as (1) Brooklyn Brazilian Jiu-Jitsu II, LLC, (hereinafter “BBJJ II”); (2) Brooklyn Brazilian Jiu-Jitsu III, Inc., (hereinafter “BBJJ III”); and (3) Brooklyn Brazilian Jiu-Jitsu IV, Inc., (hereinafter “BBJJ IV”); and the martial arts studios collectively shown hereinafter as the “BBJJ Schools.” The plaintiff, Doug Pelinkovic, (hereinafter referred to as “Plaintiff Pelinkovic”) is an investor in BBJJ III and BBJJ IV together with Plaintiff Dunn and Defendant Glick. It appears there is another shareholder with regards to BBJJ IV who is not a party to this action. In addition, throughout the twenty years the parties have been in business, they have operated various business ventures together aside from the BBJJ Schools and each party independently has operated separate businesses and generated separate incomes from their own business ventures. Plaintiff Dunn alleges that in 2009, plaintiff and Defendant Glick began to create and produce martial arts instructional videos and online content as an extension of their three martial arts schools. This matter involves an alleged dispute between the parties because of an online content platform consisting of martial arts videos. The BBJJ School videos were available through another business entity known as “World JJ United,” a now defunct entity and the revenues generated were split by the Plaintiff Dunn and Defendant Glick. Defendant Dunn contributed to a Boston, Massachusetts based company known as BJJ Fanatics. Plaintiff Dunn claims Defendant Glick either individually or through one or more entities, surreptitiously created and produced martial arts instructional online videos, on YouTube, for his own benefit while “freezing out his partner Plaintiff Dunn and his co-shareholder.” As a result of the videos made by Defendant Glick, inquiries were made at the BBJJ Schools by potential students interested in enrolling in defendant’s in-person classes. It is alleged defendant usurped “corporate opportunities” to create and produce the martial arts instructional online videos against the interest of the other shareholders. Defendant Glick continued his engagements in teaching martial arts, giving seminars on martial arts, and giving private lessons however he did not share the proceeds of those engagements with the Plaintiff Dunn. Defendant Glick claims the videos provided free marketing for the BBJJ Schools. Plaintiffs commenced the instant action alleging four causes of action. The first cause of action is for breach of fiduciary duty; the second cause of action seeks an equitable accounting; the third cause of action is for misappropriation of proceeds, and the fourth cause of action is for unjust enrichment. The underlying facts of these four causes of action are all anchored on the creation and production of the martial arts instructional online videos. On a motion to dismiss pursuant to CPLR 3211(a)(7), the court should “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Leon v. Martinez, 84 N.Y.2d [1994]). Such a motion should be granted where, even viewing the allegations as true, the plaintiff cannot establish a cause of action (see Morales v. Copy Right, Inc., 28 A.D.3d 440, 441 [2nd Dept. 2006]; Hartman v. Morganstern, 28 A.D.3d 423, 424 [2nd Dept. 2006]). However, the complaint must contain allegations concerning each of the material elements necessary to sustain recovery under a viable legal theory. Matlin Patterson ATA Holdings LLC v. Federal Express Corp., 87 A.D.3d 836 [1st Dept. 2011]. It is well established that plaintiffs’ first cause of action sounding in breach of fiduciary duty must be pleaded with particularity under CPLR 3106(b). (Litvinoff v. Wright, 150 A.D.3d [2nd Dept. 2017]) for breach of fiduciary duty. The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly cause by the defendant’s misconduct. Here, even accepting the alleged factual details and circumstances as stated by the plaintiffs against the defendant, the defendant claims that the plaintiffs nonetheless lack standing. “It is black letter law that a stockholder has no individual cause of action against a person or entity that has injured the corporation. This is true notwithstanding that the wrongful acts may have diminished the value of the share of the corporation, or that the shareholder incurs personal liability in an effort to maintain the solvency of the corporation.” (Serino v. Lipper, 123 A.D.3d 34 [1st Dept. 2014]). The Appellate Division, First Department in Yudell v. Gilbert, 99 A.D.3d 108 [1st Dept. 2012] adopted the test the Supreme Court of Delaware developed in Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) to determine whether a claim is direct or derivative. “A plaintiff asserting a derivative claim seeks to recover for injury to the business entity. A plaintiff asserting a direct claim seeks redress for injury to him or herself individually.” (Yudell v. Gilbert, id.). The court quoted Delaware law as providing a framework to determine whether a claim is direct or derivative: “[a] court should look to the nature of the wrong and to whom the relief should go. The stockholder’s claimed direct injury must be independent of any alleged injury to the corporation. The stockholder must demonstrate that the duty breached was owed to the stockholder and that he or she can prevail without showing an injury to the corporation.” (Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1039 [Del. 2004]). Recognizing the difficulty in determining whether a claim is direct or derivative the court adopted the test developed in Tooley, id. as a common sense approach to resolving such issues. The Court in Serino v. Lipper, 123 A.D.3d 23 [1st Dept. 2014] further held: “We held that the Delaware test is consistent with existing New York State Law. In order to distinguish a derivative claim from direct one, the court considers “(1) who suffered the allege harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders individually)” (Yudell, 99 A.D.3d at 114, 949 N.Y.S.2d 380, quoting Tooley, 845 A.2d at 1033). If there is any harm caused to the individual, as opposed to the corporation, the individual may proceed with a direction action (Gjuraj v. Uplift Elev. Corp., 110 A.D.3d 540, 973 N.Y.S.2d 172 [1st Dept. 2013]). On the other hand, even where an individual harm is claim, if it is confused with or embedded in the harm to the corporation, it cannot separately stand.” Generally, corporations have existence separate and distinct from that of their shareholders, and individual shareholders cannot secure personal recovery for alleged wrong done to corporation. This is true regardless of the level of the shareholders’ interest in the corporation. “The fact that an individual closely affiliated with a corporation (for example, a principal shareholder, or even a sole shareholder), is incidentally injured by an injury to the corporation does not confer on the injured individual standing to sue on the basis of either that indirect injury or the direct injury to the corporation” (New Castle Siding Co. v. Wolfson, 97 A.D.2d 501 [2nd Dept.1983]). However, a shareholder can pursue a direct claim against a third party where “it appears that the injury to the shareholder resulted from the violation of a duty owing to the shareholder from the wrongdoer, having its origin in circumstances independent of and extrinsic to the corporate entity” id. at 502. Here, Plaintiff Dunn argues that he has standing independent of the BBJJ Schools because he brings this suit “based upon a twenty-year partnership (“BBJJ Partnership”), not on behalf of any single corporation that we as partners own together in various percentages.” (NYSCEF Doc. No. 13). However, plaintiff’s complaint alleges that Defendant Glick has been a business partner for over 20 years and is a co-shareholder of three closely held entities, with plaintiffs, in various percentages. Furthermore, Defendant Glick has surreptitiously usurped “corporate opportunities” as well as “freezing out his other co-shareholders.” (NYSCEF Doc. No. 2) The complaint refers to Plaintiff Dunn and Plaintiff Pelinkovic collectively as the “Shareholders” and as owners, in various percentages, of three closely held entities, and collectively refer to themselves the “Corporations.” (NYSCEF Doc. No. 2 para. 8). Furthermore, Plaintiff Dunn claims “if any corporation has the right to bring this action, it is World Kiu-Jitsu United, Inc. formed specifically for our online martials arts instructional video business venture.” (NYSCEF Doc. No. 13), which is now a defunct corporation. Nonetheless this Court reviewed the allegations of the pleaded claims to determine whether, based upon the liberal standards applied upon review of a CPLR 3211(a)(7) motion, does the plaintiffs have any recognizable individual cause of actions separate and apart from that of a shareholder. This Court finds that “even where an individual harm is claim, if it is confused with or embedded in the harm to the corporation, it cannot separately stand.” (Gjuraj v. Uplift Elev. Corp., 110 A.D.3d 540, [1st Dept. 2013]) Under New York law, a shareholder lacks standing to pursue a direct caused of action to redress wrongs suffered by the corporation, and such claims must be asserted derivatively, for the benefit of the corporation. (Abrams v. Donati, 66 N.Y.2d 951 [1985] app. denied 67 N.Y.2d 758, (1986]). A significant and logical exception to this rule has been carved out, however, allowing for direct claims to be asserted against a corporation where the shareholder alleges breach of a duty owed independent of any duty owed to the corporation. Abrams, id. at 953 (Bradbury v. Israel 204 A.D.3d 563 [1st Dept. 2022]). It is well settled that a shareholder of a corporation lacks standing to pursue a direct claim to redress wrongs suffered by a corporation. (Sajust, LLC v. Mendelow, 198 A.D.3d 582 (1st Dept. 2021]). Plaintiffs’ allegations that Defendant Dunn surreptitiously usurped “corporate opportunities” as well as “freezing out his other co-shareholders” and retain benefits of the corporate opportunities, is insufficient to establish standing. Even though plaintiff alleges an individual harm, the loss or the harm alleged as claimed cannot separately stand on its own because it is embedded in the BBJJ Schools’ harm (Bradbury v. Israel, id). As such, Defendant’s Dunn’s motion to dismiss pursuant to CPLR 3211(a)(7) is granted. The Court finds that no evidence has been submitted to support a finding that Plaintiffs acted frivolously. Therefore, Defendant Dunn’s application sanctions, costs, and attorney’s fees under 22 N.Y.C.R.R. §130-1.1 is denied. Defendant Dunn motion to transfer this action to Supreme Court, Kings County, is denied as moot. Accordingly, it is ORDERED AND ADJUDGED, that defendant Dunn’s motion seeking an Order dismissing Plaintiffs’ action pursuant to CPLR 3211 due to Plaintiffs’ lack of standing is hereby granted, and this action is hereby dismissed, it is further ORDERED AND ADJUDGED that the within action is hereby dismissed, and it is further ORDERED AND ADJUDGED, that defendant Dunn’s application seeking sanctions, costs, and attorney’s fees on the ground that the complaint filed is frivolous under 22 N.Y.C.R.R. §130-1.1.is hereby denied, and it is further ORDERED AND ADJUDGED, that defendant’s Dunn application seeking to transfer this matter to Supreme Court, Kings County is hereby denied as moot, it is further ORDERED AND ADJUDGED, that the Defendant Dunn shall serve a copy of this Order with Notice of entry upon the Plaintiffs within thirty days from the date of entry. This constitutes the decision and order of this Court. Dated: July 8, 2024
