On January 13, 2023, Justice Masley of the New York County Commercial Division issued a decision in MacArthur v. Doeblin, 2023 NY Slip Op. 30182(U), holding that a director can be liable for waste even in the absence of negligence or personal benefit, explaining:
The essence of a waste claim is the diversion of corporate assets for improper or unnecessary purposes. Corporate waste
occurs when assets are used in a manner so far opposed to the true interests of the corporation so as to lead to the clear inference that no one thus acting could have been influenced by any honest desire to secure such interests. It is settled law that waste or a gift of corporate assets are void acts and cannot be ratified by a majority of stakeholders.Here, the court finds that MacArthur has established, prima facie, that Doeblin breached his fiduciary duty based on corporate waste when Doeblin, who admitted to being in charge of the accounting and who is the majority member of the corporation receiving the benefit of the use of BCC’s revenues, returned the incorrect amount back to BCC and then used the funds for BCI purposes. Moreover, MacArthur demonstrates that damages are at least $145,371 because BCC’s tax returns showed an advance to affiliate in that amount and MacArthur argues was never repaid. Doeblin has failed to raise a triable issue of fact that this amount has been fully repaid, and instead, argues in a conclusory manner without any showing of documentary evidence, that BCC was paid back entirely and owes BCI at least $250,000.
Doeblin’s substantive arguments in opposition essentially assert that no waste claim has been pleaded because there has been no diversion of corporate assets constituting affirmative waste, rather an accounting mistake occurred, and BCC suffered no losses despite the accounting mistake. Doeblin urges the court to accept-without citation to supporting law-that an accounting error does not rise to the level of affirmative corporate waste, but the court rejects this invitation as this is controverted by the law. It is and has always been general law that a director may be held accountable for the waste of corporate assets whether intentional or negligent without limitation to transactions from which he benefits. The record amply establishes that Doeblin benefitted from the challenged conduct as he was a majority owner of BCI at the time of the underpayment and that MacArthur had no equity interest in BCI. The record suggests at least negligence on Doeblin’s part as he admitted to being the person overseeing the proper return of revenues to each company.
(Internal quotations and citations omitted).