Court Dismissed Claim to Inspect Books and Records Under BCL § 624 But Not Under Common Law

In a Decision and Opinion on Motion, dated April 12, 2023, in Hafeez v. American Express Co., Index No. 656656/2022, Justice Margaret A. Chan granted defendant’s motion to dismiss plaintiff’s claim for inspection of records that was brought pursuant to BCL § 624 but denied the same motion brought pursuant to common law. Plaintiff, a shareholder of American Express, sought to inspect defendant’s books and records following reports by the Wall Street Journal that American Express was using aggressive and misleading card tactics. The Court explained that, as to the statutory claim:

Plaintiff does not dispute that his statutory claim is brought in an improper form, thereby waiving his opposition and abandoning this claim for inspection under BCL § 624 (Saidin v Negron, 136 AD3d 458, 459, 24 N.Y.S.3d 504 [1st Dept 2016] [finding that plaintiff abandoned his claim for failing to oppose that part of the motion to dismiss against him]).

The Common Law Claim

Under New York law, shareholders have both statutory and common-law rights to inspect a corporation's books and records so long as the shareholders seek the inspection in good faith and for a valid purpose (Retirement Plan for Gen. Empls. of City of N Miami Beach v McGraw-Hill Co., Inc., 120 AD3d 1052, 1055, 992 N.Y.S.2d 220 [1st Dept 2014]). Since "the common-law right of inspection is broader than the statutory right," plaintiff is entitled to inspect records "beyond the specific materials delineated in Business Corporation Law § 624(b) and (e)" (id. at 1056). Accordingly, dismissing the BCL § 624 claim does not automatically lead to a dismissal of plaintiffs common law claim.

To the extent defendant argues that the common law claim is not styled in the proper form, it does not warrant dismissal. Under CPLR 103, "a civil proceeding shall not be dismissed solely because it was not brought in proper form, but the court shall make whatever order is required for its proper prosecution" (CPLR 103[c]; see also Nationwide Mut. Ins. Co. v Hausen, 143 AD2d 577, 580, 533 N.Y.S.2d 63 [1st Dept 1988] ["the clear and stated intent of the CPLR is to bar dismissals of actions where the court has jurisdiction and only an error in form is present"]). In this connection, defendant's argument that the court does not have, or should not exercise, jurisdiction over this matter is also unavailing. Despite relying on CPLR 401-411 in the complaint, plaintiff also raises in his opposition that the court has jurisdiction under CPLR 301 to independently determine the common law claim. Notably, jurisdiction is an affirmative defense for the defendant to raise by motion or answer, and plaintiff is allowed—when the defense is raised—to establish the court's jurisdiction (see e.g. Fishman v Pocono Ski Rental, 82 AD2d 906, 907, 440 N.Y.S.2d 700 [2d Dept 1981]).

Defendant additionally argues that the court should not exercise jurisdiction because defendant has provided all the responsive documents and any further litigation would be unnecessary and waste judicial resources. Yet, the issue of whether there exist additional responsive, non-privileged documents not produced by defendant was not briefed by the parties on the instant motion and will not be determined by the court at this junction. Accordingly, the part of the motion to dismiss plaintiffs common law claim for inspection of records is denied. As this motion does not reach the merits of plaintiffs claim, this decision and order does not amount to a judgment compelling defendant to produce the requested documents under common law.

The attorneys at Schlam Stone & Dolan frequently litigate claims that can be brought pursuant to statute or common law including claims to inspect a corporation’s books and records. Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding such issues.