Busher v. Barry, Jr. et al

Filing 61

OPINION & ORDER re: 39 MOTION for Summary Judgment . filed by Winged Foot Golf Club, Inc., Thomas T. Egan, William M. Kelly, Francis P. Barron, Desmond T. Barry, Jr., John P. Heanue. For the foregoing reasons, Defendants' motion for summary judgment is DENIED in its entirety. The Clerk of Court is respectfully requested to terminate the motion at ECF No. 39. SO ORDERED. (Signed by Judge Nelson Stephen Roman on 3/28/2016) (mml)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

---------------------------------------------------------------)(
EUGENE L. BUSHER,
14-cv-4322 (NSR)

Plaintiff,
-against-

OPINION & ORDER
DESMOND T. BARRY, JR.,
THOMAS F. EGAN, JOHN P. HEANUE,
WILLIAM M. KELLY, FRANCIS P. BARRON,
and WINGED FOOT GOLF CLUB, INC.,
Defendants,
WINGED FOOT HOLDING CORPORATION,
Nominal Defendant.

---------------------------------------------------------------)(
NELSONS. ROMAN, United States District Judge:
Eugene Busher ("Plaintiff') brings this shareholder derivative action, alleging breach of
fiduciary duty, unjust enrichment, and violation of New York Business Corporation Law § 720
against defendants Desmond T. Barry, Jr., Thomas F. Egan, John P. I-Ieanue, William M. Kelly,
Francis P. Barron, Winged Foot Golf Club, Inc. (the "Club"), and, nominally, Winged Foot
Holding Corporation ("WFI-IC") (collectively, "Defendants"). Before the Court is Defendants'
motion for summary judgment. Discovery has not yet been completed. For the following reasons,
Defendants' motion is DENIED.

FACTUAL BACKGROUND
The following facts are not in dispute, unless so noted, and are derived from the parties'
summary judgment submissions.

USDCSDNY
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A. WFHC and the Club
The Club and WFHC were formed in 1921. (Plaintiff’s Responses to Defendants’ Rule
56.1 Statement of Material Facts, and Plaintiff’s Counter-Statement of Additional Material Facts
(“Pl.’s 56.1”), ECF No. 51, ¶¶ 1, 43.) WFHC was structured as a New York stock corporation
and holds title to the land on which the Club was established. (Id. ¶ 2.) The Club was structured
as a non-profit membership corporation and leased the land from WFHC. (Id.) The original lease
for the land was signed in 1924 and covered a term of 21 years. (Id. ¶ 4.) The Club was entitled
under the terms of the original 21-year lease to invest all available funds to keep the golf course
and clubhouse furnishings “in a first class condition” and was required to pass to WFHC any
funds not invested into the Club. (Id. ¶ 15.) The lease additionally required consent of WFHC if
the Club wanted to make substantial changes to the premises and provided that all improvements
to the property belonged to WFHC at lease expiration. (Id.) Since then, six long-term lease
renewals have been granted to the Club. (Id. ¶ 4.) In 1947, the lease was amended to cap the
lease payment at a flat annual fee of $30,000. (Id. ¶ 17.) The written terms of the lease have not
changed since 1924, but it is unclear whether WFHC ever received consideration in exchange for
the lease renewal. (Id. ¶ 5.) The parties dispute the reasons for this corporate structure and
WFHC’s purpose. (Id. ¶ 3.)
B. Policies Regarding Stock Ownership
At the time of the Club’s foundation, purchase of a WFHC share was a condition of Club
membership. (Id. ¶¶ 6, 52.) It appears that new members were able to acquire stock of WFHC in
manners other than by purchase from the club, such as by private sale. (Id. ¶ 6; Declaration of
Adam C. Mayes in Opposition to Defendants’ Motion for Summary Judgment (“Mayes
Declaration”), ECF No. 46, Ex. 11, at 7042.) Upon death or resignation of a shareholder, the
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stock had to be surrendered to the Club for resale to a new member. (Mayes Declaration, Ex. 3,
at 5.)
The stock of WFHC was often discussed as if it was an investment for shareholders. (Id.
¶ 47.) For example, during the 1930s and 1940s, WFHC and Club annual meetings discussed
incentivizing new members and yearly members to purchase stock by pitching the rising value of
a share and the low price of equity relative to the assets and liabilities it represents. (Id. ¶ 47;
Mayes Declaration, Ex. 7 at 6195, Ex. 8 at 6393, Ex. 9 at 5670 (Stockholders “have a financial
interest in the Club to protect [their] equity and have its value rise by doing all in [their] power to
help the Club operate successfully.”)
During and after the Great Depression, Club membership fell sharply several times,
creating financial pressure on the Club. (Pl.’s 56.1, ¶ 53.) To increase income, as an alternative to
full stockholding membership, the Club began authorizing “yearly” membership without any
purchase of stock sometime in the 1930s. (Id. ¶¶ 7, 54.) Throughout the 1940s, the Club
attempted to convert all yearly members to stockholding members and sought to dispose of all
stock owned by the Club by selling shares to new members and existing yearly members. (Id. ¶¶
7, 54; Mayes Declaration, Ex. 3, at 17, Ex 11.)
However, the Club’s strategy appears to have changed in the late 1940s. In 1949, the
Club eliminated individual stockholding as a requirement for any category of membership. (Pl.’s
56.1, ¶¶ 7, 57.) In 1950, at the annual meeting, a resolution was adopted authorizing the Club to
“buy in shares” of WFHC, “as opportunity offers.” (Id. ¶ 56; Mayes Declaration, Ex. 12, at
5925.) The President of the Club acknowledged that the Club had been offering $50 per share
over the previous two years, without representing what value, if any, the shares had in the market
and without campaigning to “get the shares in.” (Pl.’s 56.1, ¶ 56; Mayes Declaration, Ex. 12, at
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5925.) The 1950 resolution formalized this practice. (Pl.’s 56.1, ¶ 56; Mayes Declaration, Ex. 12,
at 5925.) In 1967, the Club strengthened this policy by resolving to enforce its option (stated in
Club bylaws) to purchase shares that became available. (Pl.’s 56.1, ¶ 58.) Over the next several
years, the Club and WFHC periodically discussed their policies regarding stock at annual
meetings and reaffirmed their strategy of purchasing stock to gain control of WFHC in the Club.
(Id. ¶ 59; Mayes Declaration, Ex. 14 at 5391 (1968), Ex. 15 at 5370 (1968); Ex. 16 at 4473
(1973).) At least one senior stockholder, George Schaefer, protested the stock-purchasing policy
and acknowledged the financial inequity of the Club purchasing shares for significantly less than
the investment value (i.e., assets less liabilities) that such shares represent. (Mayes Declaration,
Ex. 18.)
C. Policies Regarding Stock Transfers
In 1967, in connection with the Club’s resolution to purchase shares for itself, the Club
additionally determined that it would disallow any transfers of shares between individuals.
(Mayes Declaration, Ex. 18, at 218 (“[The Club] will not permit transfer of shares between
individuals whether they be members or non-members.”) In 1975, the Club President
acknowledged that these transfer restrictions were unauthorized by the charter and By-laws and
therefore illegal. (Mayes Declaration, Ex. 17, at 1863.) The President additionally recommended
a more flexible transfer policy on the grounds that a family member or estate whose transfer
request was rejected would become less likely to sell to the Club later. (Id. at 1865-66.) The
transfer restrictions were relaxed from around the date of the President’s recommendation until
2009, when the Club again prohibited all transfers to non-members. (Mayes Declaration, Ex. 30.)
When members inquired about the value of their shares and occasionally when WFHC and the
Club organized solicitations for sales of stock to the Club, WFHC advised that “no market for
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shares of [WFHC] exists,” and that only transfers to family members of stockholders or to the
Club will be approved. (Mayes Declaration, Exs. 22-26.)
D. Outside Opinions
Sometime around 1960, WFHC obtained a lengthy legal opinion about the structure of
WFHC and the Club from an outside law firm, Kelley Drye Newhall & Maginnes. (See Mayes
Declaration, Ex. 19.) The opinion expressed concerns that many of WFHC’s actions may not be
legal or valid, including the original lease and amendments thereto. (Id. at 3-5.) The opinion did
not conclude whether WFHC would be considered a for-profit, normal business corporation or a
nonprofit, but it did suggest that, in the event of a shareholder suit, WFHC “would have an
excellent chance of sustaining a defense based upon the fact that the Corporation was never
intended to be operated for profit as a normal business corporation, but was formed simply as an
adjunct of the Club, for the purpose of acquiring, developing and making available to the Club its
properties.” (Id. at 5.) Kelley Drye advised the Club that, in order to rectify the risky structure in
which it currently operates, the Club should acquire all WFHC shares, seek shareholder
ratification of past acts, and ultimately merge WFHC into the Club. (Id. at 7-8.) With regards to
the buyback program, Kelley Drye suggested that the Club seek an appraisal of the value of the
stock in order to set a prevailing and reasonable price. (Id. at 8.)
In 1975, WFHC and the Club obtained another opinion regarding their business structure,
this time from Arthur Anderson & Co., an accounting firm. (See Mayes Declaration, Ex. 20.)
The opinion suggested strategies for the Club to obtain complete control and ownership of
WFHC property. (Id. at 1.) Arthur Anderson advised WFHC to renegotiate the lease, obtain tax
exempt treatment for itself, or merge into the Club. (Id. at 1-3.) The WFHC President responded

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that WFHC could not obtain shareholder approval to do any of these things. (See Mayes
Declaration, Ex. 21.)
E. Plaintiff’s Ownership
In 1928, Plaintiff’s father, George Busher, purchased a WFHC share in connection with
joining the Club. (Pl.’s 56.1, ¶ 9; Declaration of Kaitlin T. Farrell in Support of Defendants’
Motion for Summary Judgment (“Farrell Declaration”), ECF No. 49, Exs. 15, 16.) George
Busher remained a WFHC shareholder and member of the Club until his death in 1973. (Pl.’s
56.1, ¶ 10.) From 1953 to 1959, George Busher served simultaneously on the Board of Directors
of WFHC and the Board of Governors of the Club and was Vice President of both Boards in
1955 and 1956. (Id. ¶¶ 11-12.) During George Busher’s tenure on the two Boards, the Boards
approved the transfer of over 100 shares to the Club. (Id. ¶ 13.) In or around 1951, George
Busher mentioned to Plaintiff, in passing, that his share of WFHC was worth $1,000. (Id. ¶ 31.)
Plaintiff’s conclusion from his brief exchange with his father in 1951 was that the share had a set
value of $1,000. (Id. ¶ 32.)
When Plaintiff’s father died in 1973, his WFHC share passed via inheritance to
Plaintiff’s mother, Josephine Busher. (Id. ¶ 21.) The transfer was recorded on the books and
records of WFHC in 1974. (Id. ¶ 22.) When Plaintiff’s mother died in 1985, the WFHC share
passed to Plaintiff by inheritance and by agreement between Plaintiff and his sister. (Id. ¶ 23.)
Plaintiff does not recall attributing any value to the share for estate tax purposes, and there is no
evidence that Plaintiff or his attorneys or accountants attributed any value to the share for estate
tax purposes or otherwise. (Id. ¶ 25.) Plaintiff filed the instant lawsuit 29 years after inheriting a
WFHC share. (Id. ¶ 26.) In those 29 years, Plaintiff’s ownership of the stock was never recorded
on WFHC’s books and records. (Id. ¶ 27.) Plaintiff’s personal attorney, Charles Reed, reached
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out to the Club and WFHC regarding the transfer of the share into Plaintiff’s name in 1989 and
again in 2006. (Id. ¶ 28.) On both occasions, the WFHC President failed to respond for almost
two years, and after the delay, replied with a letter conditionally approving the transfer subject to
the receipt of certain documents evidencing Plaintiff’s inheritance of the share. (Id. ¶ 29.) Such
paperwork was never submitted, and Plaintiff disputes that it was legally necessary. (Id. ¶ 30.)
In the time that Plaintiff has held the WFHC share, he has not attended a board meeting,
requested to review WFHC’s financial statements, or made a request to review the corporate
books and records. (Id. ¶ 33-35.) Plaintiff alleges that he may very well have taken these actions
“but for the fact that the annual meeting notices were materially false and misleading regarding
their contents and the financial events that occurred at the Club, and failed to disclose facts that
would have motivated Plaintiff to seek further information.” (Id.)
STANDARD ON A MOTION FOR SUMMARY JUDGMENT
Rule 56 of the Federal Rules of Civil Procedure provides: “The court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The moving
party bears the initial burden of pointing to evidence in the record, “including depositions,
documents [and] affidavits or declarations,” id. at 56(c)(1)(A), “which it believes demonstrate[s]
the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986). The moving party may also support an assertion that there is no genuine dispute by
“showing . . . that [the] adverse party cannot produce admissible evidence to support the fact.”
Fed. R. Civ. P. 56(c)(1)(B). If the moving party fulfills its preliminary burden, the onus shifts to
the non-moving party to identify “specific facts showing that there is a genuine issue for trial.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) (internal citation and quotation marks
7

omitted). A genuine dispute of material fact exists when “the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.” Id. at 248; accord Benn v. Kissane, 510 F.
App’x 34, 36 (2d Cir. 2013) (summary order). Courts must “constru[e] the evidence in the light
most favorable to the non-moving party and draw[ ] all reasonable inferences in its favor.”
Fincher v. Depository Trust & Clearing Corp., 604 F.3d 712, 720 (2d Cir. 2010) (internal
quotation marks omitted). In reviewing the record, “the judge’s function is not himself to weigh
the evidence and determine the truth of the matter,” nor is it to determine a witness’s credibility.
Anderson, 477 U.S. at 249. Rather, “[t]he inquiry performed is the threshold inquiry of
determining whether there is the need for a trial.” Id. at 250. The court's role at this stage of the
litigation is not to decide issues of material fact, but to discern whether any exist. See Gallo v.
Prudential Residential Servs., L.P., 22 F.3d 1219, 1224 (2d Cir. 1994).
Summary judgment should be granted when a party “fails to make a showing sufficient to
establish the existence of an element essential to that party’s case, and on which that party will
bear the burden of proof at trial.” Celotex, 477 U.S. at 322. The party asserting that a fact is
genuinely disputed must support their assertion by “citing to particular parts of materials in the
record” or “showing that the materials cited do not establish the absence . . . of a genuine
dispute.” Fed. R. Civ. P. 56(c)(1). “Statements that are devoid of any specifics, but replete with
conclusions, are insufficient to defeat a properly supported motion for summary judgment.”
Bickerstaff v. Vassar Coll., 196 F.3d 435, 452 (2d Cir. 1999). The nonmoving party “may not
rely on conclusory allegations or unsubstantiated speculation.” FDIC v. Great Am. Ins. Co., 607
F.3d 288, 292 (2d Cir. 2010) (internal citation and quotation marks omitted). Moreover, “[a nonmoving party’s] self-serving statement, without direct or circumstantial evidence to support the
charge, is insufficient to defeat a motion for summary judgment.” Fincher v. Depository Trust &
8

Clearing Corp., No. 06 Cv. 9959 (WHP), 2008 WL 4308126, at *3 (S.D.N.Y. Sept. 17, 2008)
aff’d, 604 F.3d 712 (2d Cir. 2010) (citing Gonzales v. Beth Israel Med. Ctr., 262 F. Supp. 2d
342, 353 (S.D.N.Y. 2003)).
DISCUSSION
Defendants move for summary judgment on three grounds: laches, acquiescence, and
estoppel. Plaintiff additionally submits an affidavit seeking relief under Federal Rule of Civil
Procedure 56(d).
A. Federal Rule of Procedure 56(d)
As an initial matter, Plaintiff argues that “Defendants’ motion should not even be
considered at this time because pursuant to the accompanying Fed R. Civ. P. 56(d) declaration,
Plaintiff cannot present facts essential to justify its opposition.” (Plaintiff’s Memorandum of Law
in Opposition to Defendants’ Motion for Summary Judgment, ECF No. 43, at 1.) Plaintiff has
not had an opportunity to conduct deposition discovery, but document discovery has been
completed. Federal Rule of Procedure 56, which governs motions for summary judgment,
provides in relevant part that:
(d) [] If a nonmovant shows by affidavit or declaration that, for
specified reasons, it cannot present facts essential to justify its
opposition, the court may:
(1) defer considering the motion or deny it;
(2) allow time to obtain affidavits or declarations or to take
discovery; or
(3) issue any other appropriate order.
Fed. R. Civ. P. 56. The Second Circuit, however, clearly requires that the Rule 56(d) affidavit or
declaration “include the nature of the uncompleted discovery; how the facts sought are
reasonably expected to create a genuine issue of material fact; what efforts the affiant has made
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to obtain those facts; and why those efforts were unsuccessful.” Paddington Partners v.
Bouchard, 34 F.3d 1132, 1138 (2d Cir. 1994) (discussing prior version of the rule) (citing
Hudson River Sloop Clearwater, Inc. v. Department of Navy, 891 F.2d 414, 422 (2d Cir.1989);
Burlington Coat Factory Warehouse Corp. v. Esprit De Corp., 769 F.2d 919, 926 (2d Cir.
1985).) Plaintiff’s declaration in opposition to summary judgment did not meet the requirements
of Rule 56(d) because it contains only conclusory allegations of incomplete discovery. (See
Declaration of John Halebian Pursuant to Rule 56(d) in Opposition to Defendants’ Motion for
Summary Judgment, ECF No. 45.) The declaration states the Plaintiff seeks deposition
testimony, or other discovery as appropriate, on a number of issues, which the declaration then
lists. (Id.) The declaration does not, however, explain who would be deposed, how the facts
sought would create an issue of material fact, or what efforts have been made thus far to obtain
information on the listed issues. (Id.) In light of the fact that Plaintiff’s declaration lacks the
specificity required by the Second Circuit, the Court will consider the motion as currently
submitted. See Lunts v. Rochester City Sch. Dist., 515 F. App’x 11, 14 (2d Cir. 2013).
B. Laches
Laches is an equitable defense that “bars a plaintiff’s equitable claim where he is guilty
of unreasonable and inexcusable delay that has resulted in prejudice to the defendant.” Ivani
Contracting Corp. v. City of New York, 103 F.3d 257, 259 (2d Cir. 1997) (reviewing de novo
grant of summary judgment based on laches), cert. denied, 520 U.S. 1211, 117 S.Ct. 1695, 137
L.Ed.2d 821 (1997). A party asserting the defense of laches must establish that: (1) the plaintiff
knew of the defendant’s misconduct; (2) the plaintiff inexcusably delayed in taking action; and
(3) the defendant was prejudiced by the delay. See, e.g., Tri–Star Pictures, Inc. v. Leisure Time
Prod., B.V., 17 F.3d 38, 44 (2d Cir. 1994). With regards to the second requirement—
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knowledge—“[t]he opposing party need not have had actual knowledge of the claim; rather, it is
sufficient that the opposing party should have known.” Bakalar v. Vavra, 819 F. Supp. 2d 293,
303 (S.D.N.Y. 2011) aff’d, 500 F. App’x 6 (2d Cir. 2012) (citing Philippine Am. Lace Corp. v.
236 W. 40th St. Corp., 32 A.D.3d 782, 822 N.Y.S.2d 25, 27 (2006); Kraker v. Roll, 100 A.D.2d
424, 474 N.Y.S.2d 527, 533 (1984)).
Because Plaintiff’s claims were brought within the applicable statute of limitations
period, “the burden is on the defendant[s] to show ... circumstances exist which require the
application of the doctrine of laches.” Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 191 (2d
Cir. 1996). Moreover, the Second Circuit has cautioned that “[w]hen a limitation on the period
for bringing suit has been set by statute, laches will generally not be invoked to shorten the
statutory period.” Ikelionwu v. U.S., 150 F. 3d 233, 238 (2d Cir. 1998). “[I]f the applicable legal
statute of limitations has not expired, there is rarely an occasion to invoke the doctrine of laches
and the burden remains on the defendant to prove all the elements of the defense.” Id. Plaintiff’s
claims are subject to a prescribed limitations period of six years. See BCL 720; CPLR 213(7); 8
CPLR 213(2) (unjust enrichment). Though Plaintiff’s claims are based on a series of breaches
beginning over 70 years ago, Plaintiff submits evidence sufficient to create a question of material
fact as to whether Defendants breached their fiduciary duties and were unjustly enriched by
actions in 2009/10 and 2013 when the Defendants renewed the allegedly wasteful lease,
tightened WFHC’s share transfer restrictions, rejected lawful demands to transfer shares, and
provided allegedly misleading information to shareholders to fraudulently induce the sale of their
stock to the Club. (See Pl.’s 56.1, ¶¶ 4, 77; Farrell Declaration, Ex. 10; Mayes Declaration, Ex.
26.) Defendants argue that the 2009/10 and 2013 events do not constitute breaches and proof of
this “rests on their ability to rebut Plaintiff’s theory of WFHC’s corporate purpose.” (Reply
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Memorandum of Law in Further Support of Defendants’ Motion for Summary Judgment, ECF
No. 47, at 6.) Fundamentally, the legitimacy of all of Plaintiff’s allegations turns on whether or
not WFHC is a for-profit or a not-for-profit entity. If WFHC is a nonprofit entity, the actions
Plaintiff describes—namely the lease extension and share transfer restrictions—would not
constitute wrongful activity. Resolution of the issue of WFHC’s purpose is therefore required in
order for the Court to determine whether the 2009/10 and 2013 actions are breaches and,
accordingly, whether the instant action is within the applicable statute of limitations.
The corporate purpose issue, however, is not one that the Court can resolve on summary
judgment at this juncture. As Defendants concede, in determining a corporate purpose, the Court
must look to the “substance rather than form” of the corporation. See Quinn v. Stuart Lakes Club,
Inc., 64 A.D.2d 556, 406 N.Y.S.2d 835 (1978). Though Defendants argue that “ample
circumstantial evidence demonstrates the purpose for which it was formed,” the Court finds that
the Plaintiff has submitted evidence to demonstrate a genuine dispute as to the corporation’s
original purpose. Specifically, Plaintiff provides circumstantial evidence that the shares were
discussed as an investment and the annual meetings and boards of directors often discussed the
value of the shares relative to assets and liabilities of WFHC. (Pl.’s 56.1 ¶ 47; Mayes
Declaration, Ex. 7 at 6195, Ex. 8 at 6393, Ex. 9 at 5670.) Such actions are inconsistent with a
nonprofit, and therefore an issue of material fact as to the corporate purpose of WFHC exists. If
the Court were to decide that WFHC is a for-profit entity, the action would be within the
applicable statute of limitations period. As noted above, where the action is within the statute of
limitations period, only on a rare occasion will a defense of laches succeed. See Ikelionwu, 150
F. 3d at 238. Without knowledge of WFHC’s corporate purpose, the Court cannot evaluate the
laches defense. See Calabro v. Fleishell, 48 A.D.3d 206, 207, 851 N.Y.S.2d 155, 156 (2008)
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(holding that an attempt to assert a laches defense could not “be evaluated until factual issues are
resolved”). Thus, Defendants’ motion on the defense of laches is denied without prejudice.
C. Acquiescence and Estoppel
Next, Defendants argue that Plaintiff’s claims are “barred for the independent reason that
Plaintiff’s father, the purchaser of the share and the source of Plaintiff’s rights in the share,
acquiesced in, participated in, and benefited from the challenged conduct for decades.”
(Memorandum of Law in Support of Defendants’ Motion for Summary Judgment, ECF No. 40,
at 14.) Defendants rest this argument on the Supreme Court’s decision in Bangor Punta
Operations, Inc. v. Bangor & Aroostook Railroad Company, 417 U.S. 703 (1974). In Bangor
Punta, the Supreme Court held a corporation could not maintain a cause of action against the
former controlling shareholders of the company based on various alleged acts of corporate
mismanagement that occurred during the former shareholders’ period of control of the
corporation. Id. at 711–12. The Supreme Court observed:
[It is a] settled principle of equity that a shareholder may not
complain of acts of corporate mismanagement if he acquired his
shares from those who participated or acquiesced in the allegedly
wrongful transaction. This principle has been invoked with special
force where a shareholder purchases all or substantially all the
shares of a corporation from a vendor at a fair price, and then seeks
to have the corporation recover against that vendor for prior
mismanagement.
Id. at 710 (citations omitted). See also Klum v. Clinton Trust Co., 183 Misc. 340, 342, 48
N.Y.S.2d 267, 269 (Sup. Ct. 1944) (holding that “a transferee of shares is in the same position as
his transferor with respect to suing on account of transactions prior to the transfer,” and
therefore, “[c]onsent, participation or acquiescence of a holder of stock, sufficient to prevent him

13

from attacking a corporate act, precludes an attack by a transferee of the stock to the same extent
as if he himself was the consenting stockholder.”).
Importantly, the Bangor court held that where the purchaser acquired the shares after the
commission of wrongful acts and received full value for its purchase price (i.e., the price paid
reflected the wrongful acts), no injury was incurred and any further recovery would result in a
windfall to the plaintiff. Id. at 711 (“Moreover, it would in effect allow the shareholders to
recoup a large part of the price they agreed to pay for their shares, notwithstanding the fact that
they received all they had bargained for.”) On this basis, Plaintiff argues that the Bangor
principle is inapplicable, because Plaintiff does not own a controlling share and “this is not a
‘windfall’ case providing Plaintiff with ‘unjust enrichment.’” (Plaintiff’s Memorandum of Law
in Opposition to Defendants’ Motion for Summary Judgment, ECF No. 43, at 27.) The Supreme
Court, however, did not limit the principle’s applicability to these circumstances and only held
that it applies “with special force” where the plaintiff is a controlling shareholder and recovery
would result in a windfall. Id. at 710 (emphasis added). Nevertheless, the Second Circuit in
Siegel v. Converters Transportation, Inc. suggested that such a limitation may be proper. 714
F.2d 213 (2d Cir. 1983). Specifically, in Siegel, the plaintiff argued that Bangor “recognize[s]
the principle that a stockholder may not maintain an action to recover for wrongful conduct if
that stockholder acquiesced in, participated in, or ratified the wrongdoing complained of.” Id. at
215. The Second Circuit rejected plaintiff’s broad interpretation of Bangor, noting that the
Supreme Court’s “decision ultimately turned on its view that the plaintiff in Bangor Punta,
having paid a fair price for its shares, suffered no injury as a result of any earlier mismanagement
of the acquired corporation.” Id. (emphasis added). In the instant case, Plaintiff submits enough
evidence to create a question of material fact as to whether Plaintiff and similarly situated
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shareholders have suffered an injury as a result of the allegedly wrongful conduct – the
devaluation of their shares not reflected in any purchase price paid. (See, e.g., Mayes
Declaration, Ex. 18.) Thus, where an injury exists, 1 it is not immediately apparent that the
“tainted shares” principle would apply.
In any event, the Court cannot conclude on the basis of evidence currently submitted that
the “tainted shares” principle prevents the instant action. It is unclear based on the record if the
Plaintiff’s father, George Busher, participated or acquiesced in the alleged scheme. Busher
served on Board of Directors of WFHC and the Board of Governors of the Club from 1953 to
1959. Though the Boards approved over 100 share transfers to the Club during that time, it may
well be that the scheme to acquire control of WFHC was not devised until after Busher’s tenure.
Specifically, the buybacks occurring during the 1950s were done “as opportunity offers” and
without campaigning to “get the shares in.” Only in 1967 did the Club resolve to enforce its
option to purchase all shares that became available and disallow all share transfers between
individuals. Therefore, an issue of material fact may exist upon further discovery as to whether
Busher approved or participated in the scheme, even if he participated in similar, but not
wrongful, conduct, and the Court cannot dismiss the claims on the grounds of acquiescence or
estoppel.

1

The Court is not holding that an injury does in fact exist. Rather, Plaintiff has presented the Court with evidence to
create an issue of material fact with regards to the alleged injury.

15

CONCLUSION

For the foregoing reasons, Defendants' motion for summary judgment is DENIED in its
entirety. The Clerk of Court is respectfully requested to terminate the motion at ECF No. 39.
JN--

Dated: March 2-~ 2016
White Plains, New York

SO ORDERED:

~N

United States District Judge

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