Diamond v. Oreamuno N.Y. Ct. Of App.,

248 N.E.2d 910 (1969)

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Nature of the Case

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Facts

Management Assistance Inc. (MAI) hired IBM to maintain computers it leased. IBM sharply increased its prices, causing a dramatic decline in MAI earnings. After notification of the price increase by IBM to the board of MAI, but prior to any public announcement, 2 MAI directors sold off their MAI stock at $28 per share. The market price fell to $11 per share after MAI's earnings were released. The complaint was filed by Diamond (P) a shareholder of Management Assistance, Inc. (MAI) asserting a derivative action against a number of its officers and directors to compel an accounting for profits allegedly acquired as a result of a breach of fiduciary duty. P claimed that Oreamuno (D), chairman of the board of directors, and Gonzalez, its president -- had used inside information, acquired by them solely by virtue of their positions, in order to reap large personal profits from the sale of MAI shares and that these profits rightfully belong to the corporation. Other officers and directors were joined as defendants on the ground that they acquiesced in or ratified the assertedly wrongful transactions. The trial court granted a motion to dismiss for failure to state a cause of action. On appeal by P, the Appellate Division reinstated the complaint against D and Gonzalez. They then appealed to the New York Court of Appeals.