USHA SOHA Terrace, LLC v Robinson Brog Leinwand Greene Genovese & Gluck, P.C. 2014 NY Slip Op 31813(U), July 9, 2014, Supreme Court, New York County , Judge: Melvin L. Schweitzer is a fairly typical Judiciary Law 487 case. It is a legal malpractice and Judiciary Law 487 case in which plaintiffs assert direct and derivative claims against legal counsel for the owner and developer in a construction project in which plaintiff LLC was a minority investor. On a motion to dismiss, the court dismissed.
“The motion to dismiss is granted. First, plaintiff Minority i\:’fember, as a member of a limited liability corporation, lacks standing to sue in its individual capacity for losses derived solely from injury to the limited liability company. See Yudell v Gilbert, 99 AD3d 108, 113-114 (1st Dept 2012]; Breslin Realty Dev. Corp. v Shaw, 72 AD3d 258, 266 (2d Dept 2010); Baker v Andover Assoc. Mgt. Corp., 30 Misc 3d 1218 [A], 2009 NY Slip Op 52788[U], * 16-17 (Sup Ct Westchester County 2009). To determine if a claim is direct or derivative, the court must look at the source of the claim of right. If the harm is from the defendants to the corporation, the harm to the shareholders or investors flows through the corporation, and is derivative. On the other , ~ hand, if the right flows from a breach of a duty owed directly to the shareholder, then the suit is direct. See Weber v King, 110 F Supp 2d 124, 132 (ED NY 2000); Baker v Andover Assoc. Mgt. Corp., 30 Misc 3d 1218 [A], 2009 NY Slip Op 52788 [U], * 16-17., A claim for diminution in ‘ value of the shares is harm to the corporation, the shareholder’s injury flows through the corporation, and the claim is derivative even if the decrease in value derives from a breach of fiduciary duty. See Yudell v Gilbert, 99 AD3d at 113-144; O’Neill v Warburg Pincus & Co., 39 AD3d 281, 281-282 (1st Dept 2007). Here, in the amended complaint, plaintiff asserts losses as any “monies owed to [2280 FDB] and [Developer], which were in tum paid to [RGS Holdings and Futterman] resulted in actual monetary losses to [plaintiff Minority Member], in that [plaintiff Minority Member] retains a fourteen percent ( 14%) inter~st in assets of Developer” (amended complaint,~ 43). This claim for diminution in the value of plaintiff’s shares involves harm to the corporation, and may only be pursued derivatively. In addition, the only other injury alleged is the failure of 2280 FOB to recover any portion of its aw~d against Racanelli, which is a direct injury only to 2280 FDB. ”
“Finally, the third claim in the amended complaint fails to sufficiently plead a claim under Judiciary Law § 487. Under that statute, the plaintiff needs to allege an extreme and chronic pattern of legal delinquency in order to recover. Solow Mgt. Corp. v Seltzer, 18 AD3d 399, 400 (1st Dept 2005]; Pellegrino v File, 291 AD2d at 63). The amended complaint here fails to allege the requisite pattern of wrongdoing or deceit necessary to sustain that claim, and fails to allege that any loss suffered by 2280 FDB was the proximate result of Legal Counsel’s alleged . collusion or deceit. “