174 Misc. 122 | N.Y. Sup. Ct. | 1939
This is a stockholder’s derivative action brought by Joseph Block, the record owner of 100 shares of Noma Electric Corporation, against several former directors of that corporation and the corporation itself. By an order of the court one Sam Schwartz was permitted to intervene and became a coplaintiff. The complaint alleged four causes of action, but in the course of the trial the second and fourth causes of action were withdrawn and the first cause of action was dismissed as against the defendants Mortimer J. Propp, Jacob Lunitz and Henry Hyman and the third cause of action was dismissed as against the defendant Bankers Trust Company, as surviving executor of the last will and testament of Morris Propp, deceased, all the dismissals being had on consent. Early in the trial the defendant Noma Electric Corporation, which had been requested and had refused to bring the action, and which had later come under the control of one Henri Sadacca, announced that it was aligning itself with and supporting the plaintiffs in the action, and thereafter it gave the plaintiffs its active assistance and co-operation throughout the trial.
At several stages of the trial both the original plaintiff and the intervening plaintiff applied for leave to discontinue the action, the latter’s counsel stating at one point: “ At this time, after having made an examination of all the facts contained in the — or rather an examination of the cause of action contained in the complaint, I
The corporation is engaged in the business of selling electrical products and appliances. It was organized in 1925 and there are presently outstanding approximately 221,000 shares of stock without par value amongst over 1,000 stockholders. The stock is listed and traded in on the New York Curb Exchange. The plaintiff Block had formerly been president of the corporation, but had been displaced by Morris Propp, and, upon the latter’s death, by the defendant Henry Hyman. Later on he became the central figure in an unsuccessful stockholders’ fight for control. As finally submitted, the plaintiffs’ claims briefly were these:
(1) In 1932 Morris Propp, now deceased and represented here by Bankers Trust Company, as sole surviving executor of his estate, was the president and principal stockholder of 524 Broadway Corporation, which owned a loft building known as 524 Broadway. He was at that time also the president and a director of the defendant Noma Electric Corporation. His fellow directors were then the defendants Samuel Cohen, Joseph H. Tuttle and Henry Hyman, the plaintiff Joseph Block, and one Cornelius D. Wood, who is not being sued in the action. At that time the defendant corporation was occupying space in a building at 340 Hudson street and its lease
(2) In 1936 the defendant Henry Hyman was the president, a director and general manager of the defendant corporation. He was also then the president and principal stockholder of United States Electric Corporation, which was engaged in the manufacture of electrical novelties. In the fall of that year, it is charged, said defendant, acting in concert with the other individual defendants, and with the intent only of benefiting his own company, caused the corporate defendant to buy from that company some Christmas tree electrical decorations, described as “ Cheero-lites,” which proved defective and unsalable and which resulted in a loss to the defendant corporation. His fellow directors at that time were Cohen, Tuttle, Lunitz and Mortimer J. Propp, who are joined here as defendants, and Joseph Pulvermacher, president of the Sterling National Bank and Trust Company, and George Adrian, president of the Bank of Yorktown, who are not being sued.
The proof tendered on the trial fell far short of establishing either one of those two claims. What it established as to the first claim was that the removal to the demised premises was of substantial advantage to the defendant corporation, which had a subsidiary company housed there; that the rents charged for the new premises were fair and reasonable under the rates then prevailing; that the removal resulted in a saving to the defendant corporation and its subsidiary of many thousands of dollars per year, and, finally, that the resolution to enter into such lease, adopted by the directors at a meeting on February 9, 1932, was supported by every director, except the defendant Hyman. This included not only Cornelius D. Wood, who has not been made a defendant, but the plaintiff Block himself.
The facts proven on the trial also conclusively negative the charge that the defendant Hyman, either alone or in concert with his individual codefendants, caused the purchase of Cheero-lites to be made for the benefit of the United States Electric Corporation. They show that the goods were not in existence at the time that the idea of manufacturing and marketing them was developed; that the defendant corporation was then seeking a Christmas electric light novelty which it could sell in competition with a similar novelty
All the charges involved here were fully aired in the course of the fight for control of the company and were fully answered at the annual meeting of stockholders in June, 1938, by the re-election of the defendants as officers and directors. It was only after Sadacca had acquired stock control of the corporation early this year and assumed the management that the litigation was pressed. While the motive of a plaintiff and those acting with him will not bar a right to relief where an absolute legal right to such relief exists, it assumes importance on a disputed claim of legal right where it appears that the action was instituted and prosecuted as a result of a stockholders’ feud and for the purpose of harassment. (Jenkins v. Auburn City R. Co., 27 App. Div. 553; Belmont v. Erie R. Co., 52 Barb. 637.) In this case it goes far toward disproving the plaintiffs’ charges of malfeasance.