DERIVATIVE ACTION SUIT, P2

That was one cause for dismissal of the suit. Another is that, well, Benavides and Ho apparently shouldn't have brought a shareholders' derivative action in the first place. As the court noted, the applicable statute, Business Corporation Law 5 626 (c), requires that a shareholder bringing such an action specify, "with particularity," that an attempt had first been made to get the board to initiate the lawsuit or that trying to get the board to do so would have been futile.

The board, the court said, has "primary responsibility for acting in the name of the corporation and [is] often in a position to correct alleged abuses without resort to the courts." The requirement to seek board action first "is excused only when the complaint's specific allegations support the conclusion that (1) a majority of the directors are interested in the transaction, or (2) the directors failed to inform themselves to a degree reasonably necessary about the transaction, or (3) the directors failed to exercise their business judgment in approving the transaction."

Who's Suing Who?

It gets worse. In this particular case, the court said, "[N]ot only does the complaint fail to meet these predicate standards, but the plaintiffs themselves assert that they are the majority shareholders in the corporation" — so Benavides and Ho were in effect suing themselves.

And wait … it gets even worse. "Moreover, the court can discern no injury or damage to HDFC. The funds in question were transferred from one of HDFC's accounts to another of HDFC's accounts. The corporation was in no way deprived of its assets."

And wait again … it gets even worse again: "[T]he court finds that plaintiffs have engaged in frivolous multiple litigation with no apparent purpose other than to harass Chase" —  and granted Chase legal fees. A related case went against the plaintiffs on August 22, 2011.

Whether they'll continue a case against Hauze for, among other things, allegedly hiring the management company without authorization seems up in the air, given the court's stance that Benavides and Ho went about things in almost entirely the wrong way, had been admonished for filing frivolous litigation and now have to pay Chase's legal fees.

Will there be an appeal? Are there even grounds? At this point, the only positive to have come out of this suite of suits is a cautionary tale about getting your facts straight and understanding the law before you go suing your co-op board. Which you wouldn't think are complicated lessons or hard-to-fathom facts. And yet.

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