Corporate – Derivative claims – Standing

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Where a defendant has moved to dismiss derivative claims asserted by a plaintiff, the motion should be allowed in part, as the plaintiff lacks standing to bring some of his claims, while some others are time-barred.

“The claims by Paul DiMare in this action and by Charles Dolan in a companion case (civil action no. 1984CV03526-BLS2) concern the business affairs of several closely-held, family-run corporations. In this more recent case, DiMare asserts various derivative claims on behalf of the parent corporation and several direct or indirect subsidiaries, plus one direct claim on his own behalf. Dolan has moved to dismiss DiMare’s claims against him.

“The Court will allow part of Dolan’s motion to dismiss. It will dismiss a portion of counts 1, 2, 4, and 6, to the extent that they assert claims regarding Boston Market Terminal Corporation, because those claims must be brought derivatively on behalf of BMTC and DiMare lacks standing to do. It will dismiss part of counts 1, 2, 3, 4, and 6 to the extent they are based on allegations that Dolan sold certain warehouse bays for one of the companies without getting an appraisal, because those claims are time-barred. And it will dismiss DiMare’s direct claim in count 7, because the assertion that Dolan committed a breach of fiduciary duty by failing to make the California subsidiaries repay loans to the Florida subsidiaries may only be brought as a derivative action. To the extent that counts 1, 3, 4, 5, or 6 assert derivative claims regarding the alleged failure to repay these loans, the Court will require DiMare to file an amended complaint that specifies which of the Florida business entities made these loans and that joins those subsidiaries as nominal defendants. The Court will otherwise deny the motion to dismiss. …

“Dolan seeks to dismiss part of counts 1, 2, 4, and 6, to the extent they claim that Dolan squandered BMTC income by causing it to charge below-market rents. Dolan argues that such a claim may only be brought derivatively on behalf of BMTC, and that DiMare’s ownership interest in DiMare Parent does not give him standing to assert this claim because DiMare Parent does not have a controlling interest in BMTC. DiMare contends that DiMare Parent suffered unique harm and therefore has a direct, non-derivative claim against Dolan, and that DiMare has standing a shareholder in DiMare Parent to bring this claim derivatively on its behalf.

“The Court agrees with Dolan. It will allow this part of Dolan’s motion because the claims about rents charged by BMTC may only be brought derivatively on behalf of BMTC, and DiMare Parent (and thus DiMare) lacks standing to do so. …

“Since DiMare Parent does not have 100 percent or some other majority control over BMTC, Paul DiMare (as shareholder of DiMare Parent) has no standing under Sagarra [Inversiones, S.L. v. Cementos Portland Valderrivas, S.A., 34 A.3d 1074 (Del. 2011)] and Lambrecht [v. O’Neal, 3 A.3d 277 (Del. 2010)] to assert a derivative claim on BMTC’s behalf. The Court will therefore dismiss these parts of DiMare’s claims. …

“Dolan also seeks to dismiss part of counts 1, 2, 3, 4, and 6 to the extent they are based on allegations that Dolan sold warehouse bays at the New England Produce Center in Chelsea, Massachusetts, to a company owned by his wife and brother-in-law. The Court will allow this aspect of the motion to dismiss because any claims regarding the sale of the warehouse bays is time-barred. …

“Count 7, which is a direct claim by DiMare on his own behalf for breach of fiduciary duty, is based on the alleged failure to repay the same intercompany loans by the Florida Business to the California Business. In this count DiMare alleges that the failure to repay these loans made the Florida Business less profitable, and as a result DiMare’s compensation was reduced because his performance bonuses were calculated based on profits of the Florida Business.

“The Court will dismiss count 7 because it may only be brought as a derivative claim for breach of fiduciary duty, which DiMare asserts in count 1. …

“Charles Dolan’s motion to dismiss the claims against him is allowed in part and denied in part. It is allowed with respect to any portion of counts 1, 2, 3, 4, and 6 that asserts claims regarding the Boston Market Terminal Company or the sale in 2006 of warehouse bays at the New England Produce Center in Chelsea, Massachusetts. It is also allowed with respect to count 7, which is dismissed entirely. With respect to Paul DiMare’s claims in part of counts 1, 3, 4, 5, and 6, regarding certain intercompany loans, he shall file an amended complaint that specifies which of the Florida business entities loaned money to New England Farms Packing, Inc., or its subsidiaries, and joins as nominal defendants AD Share Capital, Inc., as well as any of its wholly-owned subsidiaries that allegedly are owed loan repayments. Mr. Dolan’s motion to dismiss is otherwise denied.”

DiMare v. DiMare, et al. (Lawyers Weekly No. 09-046-21) (9 pages) (Salinger, J.) (Suffolk Superior Court) (Docket No. 2084CV01439-BLS2) (April 28, 2021).

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