Culligan Soft Water Co. v. Clayton Dubilier & Rice, LLC

2016 NY Slip Op 8021, 144 A.D.3d 611, 41 N.Y.S.3d 423

Opinion

Order and final judgment (one paper), Supreme Court, New York County (Jeffrey K. Oing, J.), entered June 8, 2015, approving the partial settlement of the derivative action, unanimously reversed, on the law, without costs, and the judgment vacated.

The settlement does not provide for payment to the company (see Glenn v Hoteltron Sys., 74 NY2d 386, 392 [1989]). Plaintiffs are to receive the bulk of the $4 million settlement in reimbursement for their legal fees in this case, and the remainder is to be turned over to their franchisee organization for future legal fees or for distribution, at the organization’s discretion, to plaintiffs. Moreover, because they have not obtained a substantial benefit for the company, but have accomplished only getting their lawyers paid, plaintiffs, who, after four attempts, have yet to plead properly that they have standing to sue derivatively, are not entitled to legal fees (see Seinfeld v Robin son, 246 AD2d 291, 294 [1st Dept 1998]). It was an abuse of discretion to approve the settlement of a derivative action purporting to bind the company and all shareholders that was obtained by plaintiffs who had not established—and may never establish—their standing to bring the action. Contrary to plaintiffs’ argument, defendants, as shareholders in the company who received notice of the settlement and had an opportunity to and did object to the settlement, have standing (see Posen v Cowdin, 267 App Div 158, 160 [1st Dept 1943]).

Concur—Friedman, J.P., Sweeny, Saxe, Kapnick and Gesmer, JJ.