Brooks v. Cohen & Steers, Inc.

30 A.D.3d 202, 817 N.Y.S.2d 235

• Court: Appellate Division of the Supreme Court of the State of New York
• Decided: June 13, 2006
• Status: Published

Opinions

Order, Supreme Court, New York County (Helen E. Freedman, J.), entered April 1, 2005, which, in an action for breach of contract, granted defendants’ motion to dismiss the complaint for failure to state a cause of action, affirmed, without costs.

Plaintiff is a former employee of defendants. Under defendants’ governing stock incentive plan and the parties’ related restricted stock unit agreement, the determination of defendants’ compensation committee that plaintiffs present employment is competitive with defendants’ business, and that plaintiff therefore forfeited the restricted stock units he had acquired during his employment with defendants, is final, conclusive and binding, absent a showing defendants acted in bad faith or arbitrarily (see Gitelson v Du Pont, 17 NY2d 46, 49 [1966]), i.e., that the decision lacks any rational factual basis or was made without reference to relevant facts and contractual provisions (see Gehrhardt v General Motors Corp., 581 F2d 7, 12 [2d Cir 1978]). No such showing can be made here, as the committee’s minutes show that it reviewed the parties’ correspondence including plaintiffs reply, defendants’ report to the committee, and the relevant provisions of the plan and agreement.

* On the basis of these materials, the committee could rationally conclude that plaintiff violated the noncompete provisions of the agreement, since his old job with defendants was as a portfolio manager for real estate securities investment, and his new job, by his own description, is to assemble and manage a portfolio of long and short positions in publicly traded real estate securities. Plaintiffs conclusory allegation that the committee was a “rubber stamp” for defendants’ two eponymous controlling shareholders does not warrant a different result. Under Delaware law, the committee is presumed independent. The fact that individual committee members were selected and can be removed by these two shareholders by reason of their controlling interest is insufficient to rebut that presumption (see Weinstein Enters., Inc. v Orloff, 870 A2d 499, 512 [Del 2005]). The committee’s minutes, and defendants’ report to the committee, were properly considered on this pre-answer motion to dismiss, as they conclusively demonstrate that the committee examined all of the relevant evidence, considered the relevant contractual provisions and made a rational determination (see Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). Concur—Mazzarelli, J.E, Marlow, Williams and Sweeny, JJ.

Our dissenting colleague misreads Gitelson (supra), wherein a bad-faith issue involved the fiduciary obligation of pension trustees. Ours is a breach of contract action where the obligations are strictly defined by the terms of the agreement and the rational basis for defendants’ actions are clear.