This case is not published in a printed volume and its disposition appears in a table in the reporter.
Frederick D.R. Sampson, J.
Plaintiffs Sohail Yusufzai, Maqsood Jilani, Kuldip Singh, Basharat Khan and Munir Hussain Shami are each shareholders of defendant Owners Transport Communication, Inc. (OTC). Defendant Fleet Radio Dispatch Corporation (Fleet), is a "black car" company which provides luxury transportation services to corporate clients on a credit voucher system. Fleet asserts that it, rather than OTC, does business as "Minutemen," and although organized under the laws of New York is a wholly-owned subsidiary of OTC, a Delaware corporation. Plaintiffs, upon the purchase of shares of stock in OTC, received a proprietary license with Fleet, commonly known as "radio rights" which, enables them to earn income by providing transportation services to Fleet's customers. Fleet provides dispatching services, and OTC provides all other services to the drivers-shareholders and the corporate customers. At present, OTC has issued 84,040 shares of stock, and there are approximately 382 shareholders. Shares of stock in OTC are old in units of 220 shares, and each unit is associated with one Fleet "radio." Plaintiffs do not own any shares of stock in Fleet. Defendants Thomas Cappiello, Jairo Navas, Papken Bayizian, Mikhail Khanchik, Shafiqul I. Mollah, Harcharan Singh, M.D., Shahidullah Khan, Raja Kiani, and Sheikh Shakoor are alleged to be the present office holders or directors of OTC.
Plaintiffs' first cause of action alleges that defendants have misused the system of proxy voting in order to exercise control over the corporation and have mismanaged corporate funds; the second cause of action alleges that in violation of OTC's bylaws and Fleet's franchise agreement, the officers and directors of OTC and Fleet have failed to collect weekly radio dues of $50.00 per radio and that the collection of said dues is not being enforced due to the proxy vote system, causing damage to all of the shareholders; the third cause of action alleges that there are unaccounted for payroll expenses and mismanagement of OTC's funds by the Board of Directors and seeks compensation for these alleged losses; the fourth cause of action alleges corporate waste as regards payments to the Board of Directors, and the creation of "no show" jobs; and the fifth cause of action alleges breach of fiduciary duty by the individual defendants.
Plaintiffs in the within motion seek an order enjoining the election of the Board of Directors of OTC and Fleet, which was scheduled for September 7, 2007, and further seek the appointment of an independent inspector to conduct the election of the Board of Directors of said corporations; directing that said corporations make their books available to shareholders for inspection; and appointing an independent auditor to review the corporations' accounts. This court, in the September 6, 2007 order to show cause, granted a temporary stay of the election.
The court may grant a preliminary injunction only where a plaintiff shows: (1) probability of success on the merits; (2) danger of irreparable injury in the absence of an injunction; and (3) balance of the equities in its favor (Nobu Next Door v Fine Arts Hous., 4 N.Y.3d 839, 840 ; Aetna Ins. Co. v Capasso, 75 N.Y.2d 860, 862 ). Here, regardless of whether plaintiffs can succeed on the merits, they are not unable to establish irreparable injury and a balancing of the equities in their favor. The fact that they are opposed to the current members of OTC's Board of Directors and are unhappy with the system which permits voting by proxy does not establish irreparable injury. The court notes that OTC's bylaws and Delaware law permits the use of proxy votes for the election of the Board of Directors. Accordingly, plaintiffs' motion for a preliminary injunction and for the appointment of an inspector to conduct the election of OTC's Board of Directors is denied. The court further finds that as plaintiffs do not allege that they are shareholders of Fleet, and do not seek any relief as regards Fleet's Board of Directors, the request for injunctive relief as regards this corporation must also be denied.
Turning now to the remainder of the plaintiffs' motion and the defendants' cross motion, the court has examined the affidavits of service and finds that there is no evidence that defendant Fleet was served with process in this action. Therefore, the court lacks personal jurisdiction over this defendant and the complaint is dismissed as to Fleet. As regards the individual defendants, the affidavits of service establish that each defendant was served with process on August 8, 2007, and the individual defendants do not contest the court's jurisdiction over them.
As regards defendant OTC, an examination of the affidavit of service and the affidavit submitted by Farida Ali, an employee of OTC, raises an issue as to whether Ms. Ali was a person capable of accepting service of process, pursuant to CPLR 311. While ordinarily jurisdiction is a threshold issue, a traverse hearing is not necessary here, as the complaint fails to state a cause of action, and, thus, must be dismissed as to OTC and the individual defendants.
It is settled that on a motion to dismiss pursuant to CPLR 3211(a)(7), the court must accept as true, the facts "alleged in the complaint and submissions in opposition to the motion, and accord plaintiffs the benefit of every possible favorable inference, determining only whether the facts as alleged fit within any cognizable legal theory" (Sokoloff v Harriman Estates Development Corp., 96 N.Y.2d 409, 414 
see Leon v Martinez, 84 N.Y.2d 83, 87-88 ). Of course allegations "consisting of bare legal conclusions, as well as factual claims inherently incredible or flatly contradicted by documentary evidence are not entitled" to favorable consideration (Morris v Morris, 306 A.D.2d 449, 451 ; see Maas v Cornell University, 94 N.Y.2d 87, 91 ).
Plaintiffs' claim that this action is governed by New York's Cooperative Corporation Law, is rejected. OTC, is a Delaware corporation, formed pursuant to Delaware's General Corporation Law, and as plaintiffs' complaint is addressed to the actions of OTC's Board of Directors, "[f]or choice of law purposes, Delaware, the State of incorporation, determines the applicable law" ( O'Donnell v Ferro, 303 A.D.2d 567, 568 ; Katz v Emmett, 226 A.D.2d 588, 589 ; Wilson v Tully, 243 A.D.2d 229 ; Hart v General Motors Corp., 129 A.D.2d 179, 182-183 ). New York law provides that the law of the state of incorporation governs not only the substantive elements of the claims for corporate waste and mismanagement, but also whether such claims may be bought directly or derivatively, and whether the plaintiff has standing to assert a claim (see Nemazee v Premier Purchasing Partners, LP, 24 A.D.3d 196, 197 ). Delaware Chancery Court Rule 23.1 provides that every shareholder derivative complaint shall "allege with particularity the efforts, if any, made by the plaintiff to obtain the action the plaintiff desires from the directors or comparable authority and the reasons for the plaintiff's failure to obtain the action or for not making the effort." Under Delaware law, a demand on the directors of a corporation will be excused only when the plaintiff alleges with particularity facts which create a reasonable doubt that the directors' action was " protected by the business judgment rule"' (Brehm v Eisner, 746 A.2d 244, 255 [Del 2000], quoting Grimes v Donald, 673 A.2d 1207, 1217 [Del Ch 1996];
see Ryan v Aetna Life Ins. Co., 765 F.Supp. 133, 137 ). In determining the futility of such a demand, the court must decide whether " a reasonable doubt is created that...the directors are disinterested and independent' or that the challenged transaction was otherwise the product of a valid exercise of business judgment"' (Brehm v Eisner, supra at 256, quoting Aronson v Lewis, 473 A.2d 805, 814 [Del 1984]; see Ryan v Aetna Life Ins. Co., supra at 137;
see also O'Donnell v Ferro, supra; Katz v Emmett, supra). Here, plaintiffs claim to represent not only themselves but also other shareholders, making this a derivative action. The court need not determine whether plaintiffs are proper representatives of the shareholders, as plaintiffs do not allege, nor is there any evidence, that they made any demand on the members of OTC's Board of Directors (the individual defendants). Contrary to plaintiffs' claim, the December 2, 2002 memorandum addressed to the "President" from the "Stockholders of Fleet Radio Dispatch Corporation, DBA Minutemen Corporation" does not constitute notice of the present claims against OTC. Furthermore, plaintiffs have not set forth any allegations which can serve to establish an excuse for the lack of such a demand, as required under Delaware law. Therefore, plaintiffs' complaint must be dismissed.
The court further finds that as none of the plaintiffs' causes of action were brought pursuant to the laws of Delaware, these claims fail to state a cause of action. To the extent that plaintiffs assert that they seek to challenge the election of the Board of Managers, the court notes that the complaint does not set forth such a claim. Moreover, as the last election was held in 2005, and as the individual defendants' terms of office have now expired, any such challenge is time barred (see CPLR 217, BCL 619).
To the extent that the fifth cause of action purports to state a claim for breach of fiduciary duty, under New York law, a claim for breach of fiduciary duty owed to a corporation is governed by the law of the state of incorporation (Medical Self Care, Inc. ex rel. Dev. Specialists, Inc. v National Broadcasting Co., 2003 WL 1622181, 2003 U.S. Dist LEXIS 4666 [SD NY, Mar. 28, 2003]; BBS Norwalk One, Inc. v Raccolta, Inc., 60 F.Supp.2d at 129). Therefore, this claim is governed by Delaware law. The Delaware Supreme Court has held that whether a claim is direct or derivative turns solely on the following questions: who suffered the alleged harm, the corporation or the plaintiff stockholders individually; and who would receive the benefit of any recovery, the corporation or the stockholders individually (Tooley v Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 [Del 2004]). Further, in order to establish that the injury was a direct injury rather than a derivative one, a stockholder must demonstrate that the duty breached was owed to him or her and that he or she can prevail without showing an injury to the corporation (Tooley v Donaldson, Lufkin & Jenrette, Inc., 845 A.2d at 1039; In re J.P. Morgan Chase & Co., 906 A.2d 808, 2005 WL 1076069, 2005 Del Ch LEXIS 51 ). Here, as there is no individual injury to each plaintiff and the alleged injury was solely to the corporation, to the extent this claim was brought by the individual shareholders, it is dismissed. To the extent that plaintiffs claim that this is a derivative action, as stated above, the failure to make a proper demand upon the Board of Directors requires the dismissal of this cause of action.
Plaintiffs' request for an order permitting them to inspect the corporations' books and records, and to appoint an independent auditor to inspect said books and records is denied. Under Delaware law, a demand to produce for inspection the corporate and financial books and records must be, inter alia, made in writing, under oath and the purpose of such a demand must be stated (Del Code Ann, tit 8, 220; Deephaven Risk Arb Trading Ltd. v United Global Com, Inc., 2004 WL1945546, 2004 Del Ch LEXIS 130 ; Weisman v Western P. Indus., Inc., 344 A.2d 267 [Del Ch 1975]). Moreover, such a demand must be made upon the corporation, an agent of the corporation, or a director or officer of the corporation (Arnold v Society for Sav. Bancorp., Inc.,678 A.2d 533 [Del 1996]). Additionally, the scope of the examination is limited to what is essential and sufficient to accomplish a specific stated purpose; it is not for the desire to satisfy curiosity or engage in a fishing expedition (Mattes v Checkers Drive-In Rests., Inc., 2001 WL 337865, 2001 Del Ch LEXIS 47 ). Lastly, a party's subjective belief that waste and mismanagement had occurred, absent specific and credible facts, is insufficient to warrant an inspection of books and records (Thomas & Betts Corp. v Leviton Mfg. Co., Inc.,681 A.2d 1026 [Del 1996]). It is noted that BCL 624 contains ...