Metcoff v. Lebovics

Jerrold Metcoff and David Wilson (the creditors) (plaintiffs) were the major stockholders of Midcore Software, Inc. (MS). NCT Group, Inc. (NCT) and related entity NCT Midcore, Inc. (Midcore) entered a merger agreement with MS under which Midcore and MS would merge and Midcore would be the surviving entity. As part of the merger, the creditors were to receive royalties and shares of NCT stock. Irene Lebovics and five other individuals were officers or directors of NCT (together, the directors) (defendants). In 2006, the creditors sued the directors, alleging breach of fiduciary duties, which, in turn, allegedly violated the state’s unfair-trade-practices act. According to the 256-paragraph complaint, NCT and Midcore breached the merger agreement, NCT became insolvent, and the creditors did not receive what they were entitled to, such as shares of stock. The creditors essentially sought to recover what they were entitled to under the agreement, but NCT and Midcore were not named defendants in the suit. The complaint also included a myriad of allegations relating to corporate harm without explicitly seeking to rectify the harm. For example, the creditors asserted that the directors engaged in various acts of misconduct, such as receiving excessive compensation and engaging in self-dealing, which, presumably, had harmed the corporation. The creditors did not make a pre-suit demand on the directors to see whether NCT would pursue the action but argued that such a demand would have been futile. The directors filed a motion to strike the complaint.