On July 12, 2023, Justice Masley of the New York County Commercial Division issued a decision in Nusimow v. Pinchevsky, 2023 NY Slip Op. 32345(U), holding that when an entity has no board, pre-suit demand before bringing a derivative action is futile, explaining:
Under BCL § 626(c), a shareholder bringing a derivative action seeking to vindicate the rights of the corporation must make a demand first upon the board of directors to initiate an action or show that such an effort would be futile. As outlined above, plaintiff commenced this shareholder derivative action against ARC without first demanding that the board initiate the lawsuit. Pinchevsky argues that plaintiff fails to plead with particularity the requirements for demand futility.
Demand on the board of directors is excused if making such a demand would be futile and when the complaint alleges with particularity that: (1) a majority of the board of directors is interested in the challenged transaction, or (2) the directors did not fully inform themselves about the challenged transactions to the extent reasonably appropriate under the circumstances, or (3) the challenged transaction was so egregious on its face that it could not have been the product of sound business judgment of the directors.
Here, there is no dispute by either party that ARC has no board of directors on which to serve a demand. Thus, the requirement to serve a demand on the board of directors, which does not exist, is futile and is excused.
(Internal quotations and citations omitted).