The Supreme Court of New York has held that a corporate director does not have a duty of care or duty of loyalty that runs to the corporation’s other directors or officers. In New York v. Grasso, Grasso, an officer of the New York Stock Exchange, Inc., a not for profit corporation, was sued by the Attorney General for receiving improper compensation. Grasso impleaded McCall, a director and the chair of the compensation committee. One of Grasso’s theories was that any improper compensation was caused by McCall’s negligent misrepresentation to Grasso. Grasso alleged that McCall, as director and compensation committee chair, had a special relationship of trust and confidence with him.
Justice Ramos held that predicates for a negligent misrepresentation claim include a duty of care owed by defendant to plaintiff and a special relation of trust and confidence between the two. McCall had an arm’s length relationship with Grasso concerning Grasso’s compensation, not a special relationship of trust and confidence.
This is clearly correct and might best be seen as a reminder to directors and officers that their loyalty and care obligations run to the entity and not to other directors and officers.