With respect to the indemnification claim, the court held that "[a] claim for implied indemnity presupposes that the defendant owed a duty to the third party who has made a claim upon the plaintiff." As the New York Court of Appeals explained in McDermott v. City of New York, 50 N.Y.2d 211, 216-17, 428 N.Y.S.2d 643, 646 (1980) (citations omitted):
Conceptually, implied indemnification finds its roots in the principles of equity. It is nothing short of simple fairness to recognize that "[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other, is entitled to indemnity." To prevent unjust enrichment, courts have assumed the duty of placing the obligation where in equity it belongs. As was true with many unjust enrichment cases, the vehicle through which the law operated was the quasi contract. Thus the rule developed that "[w]here payment by one person is compelled, which another should have made *** a contract to reimburse or indemnify is implied by law."
As summarized by the court in City of New York v. Lead Indus. Ass'n, Inc., 222 A.D.2d 119, 126-27, 644 N.Y.S.2d 919, 923-24 (1st Dep't 1996):
The gravamen of an indemnity claim is not that the defendant has breached some duty of care which it owes directly to the plaintiff, but rather that they both owe a duty to some third party and that because of defendant's negligence or wrongful conduct the plaintiff has been held legally liable and cast in damages to the third party.
Here, the court concluded, GE's directors "owed no duty directly to the utility companies." The court stated that "[t]here is no actual privity of contract between the parties nor is there a relationship so close as to approach that of privity." To the contrary, GE's directors owed duties solely to GE and its shareholders, and not to the corporation's customers or other third parties with whom the corporation enters into contracts. The court accordingly dismissed plaintiffs' implied indemnification claim.
With respect to the breach of fiduciary duty claim, the court dismissed the claim because the claim was barred by the six year statute of limitations that governs shareholder derivative actions. The court explained that "[a]lthough the harm for which plaintiffs seek indemnification consists of the payments made by GE to the utility companies (at least some of which occurred after 1985), the harm for which plaintiffs seek damages for breach of fiduciary duty consists of the malfeasance and non-feasance of GE, which gave rise to the utility companies' lawsuits," and "[t]he utility companies' complaints allege that the malfeasance and non-feasance all occurred prior to 1985." Accordingly, the court held, plaintiffs' breach of fiduciary duty claims, which were asserted in 1991, were barred by the six year statute of limitations.
The court rejected a contention that defendants engaged in the following continuing wrongs that extended beyond 1985: "the continuing failure on the part of defendants to seek compensation for GE from those responsible for the defect in the equipment and for the concealment of their knowledge of the defect; the continued concealment of a 1975 internal GE report that sharply criticized practices at GE's nuclear power division; and the release of the report to the public in 1987, as part of an allegedly misleading 'update.'" The court stated that "[d]efendants' failure to sue those who might have been responsible for the malfeasance that led to the utility companies' lawsuits, if actionable at all, does not constitute a continuing wrong." The court explained that "[w]hatever right of action defendants or GE had 'arose when the original wrongs were committed.'" The court rejected plaintiffs' reliance upon the directors' alleged concealment of the 1975 GE internal report until 1987 because no misrepresentations by GE after 1981 were alleged in the utility litigation and "plaintiffs do not allege that GE suffered any damage as a result of its release of the allegedly misleading update in 1987." As a result, the court concluded, "none of the wrongdoing that plaintiffs allege to have occurred after 1985 caused any of the damages to GE for which plaintiffs seek compensation."
The court also rejected a contention that defendants should be equitably estopped from relying upon the statute of limitations because, plaintiffs contended, "they were prevented from bringing suit within the limitations period by defendants' concealment of the acts about which plaintiffs complain." The court stated that "silence will give rise to an estoppel only where there is a duty to speak" and there is "no affirmative duty on the part of a corporation, or its directors" to disclose corporate records such as the 1975 internal report. Consequently, the court concluded, "defendants are not estopped from raising the statute of limitations as a defense."
The court also rejected a contention that defendants should be equitably estopped from relying upon the statute of limitations because plaintiffs made a pre-litigation demand pursuant to Section 626 of the New York Business Corporation Law on March 6, 1990, and GE's board formed a special committee to respond to the demand. The special committee, however, did not respond until June 7, 1991, after the six year statute of limitations had expired. As a result, plaintiffs contended, they were "prejudiced by the length of time that the Special Committee took to arrive at its decision." The court responded that "the filing of a demand does not toll the statute of limitations" and "plaintiffs were free to commence a lawsuit once they had filed the demand."