Ruskay v. Bennett

Order, Supreme Court, New York County, entered July 17, 1979, which denied plaintiff’s motion to add a party defendant and granted the defendants’ cross motion to stay all proceedings in the action, modified, on the law, to the extent of vacating the outstanding stay and otherwise affirmed, without costs or disbursements. Joseph A. Ruskay, a shareholder of Commonwealth Oil Refining Company, Inc. (CORCO), brought this stockholder’s derivative suit on behalf of the corporation, claiming that the corporate defendants entered into an agreement to deprive CORCO of a corporate opportunity involving investment in a new oil refinery in the Bahamas. It is further claimed that the assets of CORCO were improperly used to insure the success of the new refinery by causing CORCO to purchase the products of the new refinery at prices unfavorable to CORCO. The contract was dated August 21, 1968. The new refinery was operated through a corporation known as Grand Bahama Petroleum Co., Ltd. (Grant Bahama). Plaintiff moved at Special Term for leave to file a supplemental complaint against Grand Bahama for breach of the 1968 contract. The prior complaint does not name Grand Bahama as a defendant. The defendants made a cross motion to stay this action in view of an outstanding order of the United States District Court for the Western District of Texas, which stayed all proceedings against CORCO until further order of that court. Special Term granted a stay of this action and denied 520 plaintiffs motion to amend the complaint to add Grand Bahama as a party defendant. We would modify only to the extent of vacating the stay in this action. We agree with Special Term that the amended complaint states a new cause of action against a defendant who was not a party to the original action, and there was no showing of compliance with subdivision (c) of section 626 of the Business Corporation Law, requiring written demand upon CORCO’s directors to start suit against Grand Bahama. However, a stay of this action would be inappropriate, since the Bankruptcy Court stay would not affect a derivative suit which is brought on behalf of stockholders, even though the corporation is a nominal defendant in the action (Meyer v Fleming, 327 US 161). The individual defendants, who are directors of CORCO, cannot justify our continuing the stay on the possibility that a finding of liability against them may result in indemnification claims by them against CORCO. The Bankruptcy Court stay is intended to run only to the named corporation and no further (see, e.g., Matter of Unishops, Inc., 494 F2d 689; Teledyne Inds. v Eon Corp., 373 F Supp 191). Concur— Sandler, J. P., Sullivan, Lane and Silverman, JJ.