Privity is an essential element of standing to bring a legal or other professional malpractice claim. Lack of privity reduces the ability to sue (some other person’s attorney) to fraud, malice or collusion. So privity is ultra-important. What happens when a stockholder wishes to sue the corporations attorney? In that case the claim is either direct or derivative.
Judge Kornreich, in 1993 Trust of Joan Cohen v Baum 2017 NY Slip Op 30894(U)
May 2, 2017 Supreme Court, New York County Docket Number: 150058/2015 discusses how to determine whether the claim is direct or derivative.
“The First Department has adopted Delaware’s Tooley test for determining whether a claim is direct or derivative, which requires the court to examine “the nature of the wrong and to whom the relief should go.” Yudell v Gilbert, 99 AD3d I 08, 114 (I st Dept 2012), quoting TooleyvDonaldwn, Lufkin &.Jenrette, Inc., 845 A2d 1031, 1033 (Del 2004). For a claim to be direct, “[t]he 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.” Id. (emphasis added). “Thus, under Tooley, a court should consider ‘(I) who suffered the alleged harm (the corporation or the stockholders); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders individually).”‘ Id.; see NAF Holdings, LLC i: Li & Fung (Trading) Ltd., 118 A3d 175, 180 (Del 2015) (an “important initial question has to be answered: does the plaintiff seek to bring a claim belonging to her personally or one belonging to the corporation itself?”). “[E]ven where an individual harm is claimed, if it is confused with or embedded in the harm to the corporation, it cannot separately stand.” Serino v Lipper, 123 AD3d 34, 40 (1st Dept 2014). The Baum Parties’ claims against Manocherian are derivative. They are all based on Manocherian’s duties to Langham as its “Tax Matters Partner”. While the precise meaning of “Tax Matters Partner” is somewhat unclear, there is no dispute (and the court assumes for the purpose of this motion) that Manocherian had contractual and fiduciary duties to Langham and the Trusts with respect to the tax matters he handled on their behalf. A successful claim for breach of such duties would result in recovery going to Langham or the Trusts. Baum, to be clear, was not a beneficiary, and thus a loss suffered by the Trusts is not a loss that affects Baum. Baum, personally, could not recover from Manocherian . ”