Appellate Division, First Department reversed a lower court ruling and dismissed a breach of fiduciary duty claim against the New York Stock Exchange and its Chief Executive Officer John Thain – Hyman v New York Stock Exch., Inc., 2007 NY Slip Op 09909.
The case arose when certain plaintiffs sold their Exchange memberships before an announced merger with Archipelago Holdings, Inc. – an all electronic stock exchange. After the announced merger, the value of Exchange memberships dramatically increased. The plaintiffs alleged that the Exchange and Thain breached their respective duties to disclose, prior to the sales of their Exchange memberships, the existence of merger negotiations between the Exchange and Archipelago, and that had there been full disclosure of the possibility of the merger, they would not have sold their seats prior to the announced merger.
The First Department held that the claim against the Exchange should have been dismissed because a corporation does not owe a fiduciary duty to its members or shareholders. With respect to the claim against Thain, the Court found that the plaintiffs failed to satisfy the pleading requirements of CPLR 3016(b) which requires that in cases alleging misrepresentation, fraud, and breach of trust the circumstances constituting the wrong must be stated in detail. The Court fond that the plaintiffs should have been able to recite with more specificity Thain’s actual words or actions that were alleged to have been misleading.