173 Misc. 754 | N.Y. Sup. Ct. | 1939
The defendant Atterbury moves for judgment dismissing the third, fourth and sixth causes of action pleaded herein on the ground that they are barred by the six-year Statute of Limitations (Civ. Prac. Act, § 48, subd. 3, prior to its amendment by chap. 558 of the Laws of 1936). This is a stockholder’s derivative action, the plaintiffs suing in the right of R. Hoe & Co., Inc., hereinafter referred to as the Hoe Company, as distinguished from its predecessor, hereinafter referred to as the old Hoe Company.
Under the third cause of action the following, in substance, is alleged: A bankers’ group, dominated by the defendant Guaranty Company, caused the organization of the Hoe Company in October, 1924, by purchasing eighty-seven per cent of the stock of the old Hoe Company. The remaining thirteen per cent of such stock was held by a Mrs. Sterling, who, refusing to consent to the sale of the business and assets of the old Hoe Company on the terms offered, demanded payment in cash of the fair value of her stock, to be determined by an appraisal had pursuant to statute. Upon refusal of the old Hoe Company to comply with her demand, she instituted an appraisal proceeding. During its pendency and in or about June, 1925, a settlement was effected. By the terms thereof she was paid by the Hoe Company the sum of $250,000, over and above her pro rata share of the purchase price, which had been deposited in the treasury of the old Hoe Company. In addition thereto the old Hoe Company paid out $60,000 by way of appraisers’ and counsel fees. These payments, totaling $310,000, are alleged to have “ constituted an unlawful diversion and misuse of its [Hoe Company’s] funds to pay the obligations of Guaranty Company and others, acting in association with it, and in any event constituted a grossly improvident settlement whereby Hoe’s funds were wasted solely to further the interests of Guaranty Company and such associates.” Liability is sought to be cast on the defendant Atterbury by reason of the fact that as an active director of the corpora
Under the fourth cause of action it is alleged, in substance, that “ between June and October, 1928, the board of directors of the Hoe Company, then controlled by the Guaranty Company, authorized the purchase by Hoe Company of certain lands and a factory building at a purchase price of $850,000, although the value thereof did not exceed $600,000; that the property was purchased pursuant to such authorization; that the foregoing purchase was made through the influence and control which Guaranty Company and others in the bankers’ group exercised over the board of directors of the Hoe Company; and that by reason thereof the funds of the Hoe were wasted to the extent of at least $250,000 * * Liability is .sought to be cast on the defendant Atterbury by reason of the fact that he, as a director of the Hoe Company, “ voted in favor of the resolution authorizing such purchase ” and was “ generally aware of, or could with reasonable diligence have readily ascertained the facts and circumstances set forth in this cause of action; but, in voting in favor of such resolution, * * * ” he “ was guilty either of gross neglect or acted in bad faith, as such ” director, “in authorizing such purchase.”
Under the sixth cause of action it is alleged, in substance, that Guaranty Trust Company caused Hoe Company to retain a certain law firm as its general counsel; that during the years 1928 and 1929 the said law firm performed certain legal services for which the Hoe Company was billed $48,000; that the said bills were paid by the Hoe Company pursuant to the authorization of its board of directors, although the fair and reasonable value of all such legal services should not have exceeded $13,000; and that “ approval of payment to said firm of these grossly excessive bills for legal services constituted a reckless waste of Hoe’s funds, and was not, as plaintiffs believe, the result of the exercise of honest judgment or good faith on the part of such defendants, but was primarily the result of gross favoritism * * Liability is sought to be cast on the defendant Atterbury as a director on the ground that he approved payment of such bills well knowing “ that the amounts of these bills then being approved for payment were grossly excessive and equal to at least several times the fair and reasonable value of such services.”
The answer of the defendant Atterbury, in addition to denials, pleads the six-year Statute of Limitations as a defense to the foregoing causes of action. In support of his motion, he submits copies of resolutions, voucher entries, contracts, bonds and mort
At the very outset, plaintiffs argue that the court is powerless to entertain this motion for the reason that the documentary proof submitted in its support is not of the character contemplated by the above-quoted provision. They say that the documentary proof contemplated is that which “ prima facie, completely and conclusively establishes the defense, without resort to extrinsic or fragmentary connecting links of proof supplied by affidavit or scattered entries or memoranda.” By way of illustration, they advert to such documentary proof as a prior judgment in support of a defense of res judicata, a general release, a stipulation of settlement or some other document signed by the plaintiff. There is nothing in the quoted language of the rule which imposes any such limitation. The remedy of summary judgment is made available to avoid needless trials. In the absence of any dispute concerning the truth of documentary proof submitted in complete defense of the issues tendered by the plaintiff, the spirit as well as the letter of the rule requires a termination of the law suit in advance of trial. (Levine v. Behn, 169 Misc. 601.) Here the documentary proof was submitted only to fix the dates when the third, fourth and sixth causes of action accrued. With respect to the third cause of action, the facts concerning which are alleged to have occurred in or about June, 1925, the defendant Atterbury has submitted a copy of a resolution of the board of directors of the Hoe Company, dated July 23, 1925, authorizing payment of the $310,000, and copies of voucher entries from the corporate books authorizing such payments in September, October and December, 1925. With respect to the fourth cause of action alleged to have had its inception between June and October, 1928, the defendant Atterbury has submitted 'a copy of the agreement of purchase dated July 31, 1928, copies of voucher entries evidencing payments pursuant thereto on July 31, 1928, and November 1,1928, and copies of two bonds and mortgages, both dated November 1, 1928, given in payment of the remainder of the purchase price. With respect to the sixth cause of action,
The summons and complaint were served on the defendant Atterbury on June 29, 1936. .It is his claim that the third cause of action accrued in 1925 and was barred in 1931, and that the fourth and sixth causes of action accrued in 1928 and were barred in 1934.
The plaintiffs do not question the accuracy of the dates reflected in the documentary proof, nor do they dispute the fact that according to those dates the transactions complained of occurred more than six years prior to the commencement of this action. It is their claim that the causes of action did not accrue on those dates and are not barred by the Statute of Limitations for reasons which will be discussed shortly. The plaintiffs thus admit, albeit tacitly, that the documentary proof conclusively fixes the dates of commission of the acts described in the complaint. Under the circumstances, a denial of jurisdiction to entertain this motion would result in a frustration of the beneficient ends sought to be accomplished by summary judgment.
The plaintiffs contend that the six-year Statute of Limitations is not available to the defendant Atterbury as a plea in bar for the following reasons: First, the defendant Atterbury is bound by decisions of this court denying his previous motions to dismiss the cause of action herein on the ground that they were barred by the six-year Statute of Limitations. Second, there exist triable issues which prevent an award of summary judgment. Third, the ten-year rather than the six-year Statute of Limitations must be applied. Fourth, the causes of action herein did not accrue until the termination in April, 1934, of the tenure in office and control of the directors responsible for the allegedly, wrongful acts. Fifth, the causes of action herein are founded on fraud and breach of fiduciary relationships; in consequence, they did not accrue until discovery by plaintiffs of the facts described in the complaint. Sixth, the Statute of Limitations was tolled from April, 1932, to July, 1935, during which period the plaintiffs were restrained by two orders of the Federal District Court of the Southern District of New York from bringing the within action.
Each of the foregoing contentions will be considered in the order stated. Prior proceedings: Before answering, the defendant Atterbury moved for an order dismissing the third, fourth and sixth causes of action pursuant to subdivision 6 of rule 107 of the Rules
In Potter v. Walker (252 App. Div. 244) the First Department held that in a stockholder’s derivative action, any defense which a defendant would have if the corporation itself were the actual plaintiff may be interposed to bar the stockholder. The court accordingly applied the six-year Statute of Limitations in bar of claims charging defendants, who received no profits and against whom no accounting was sought, with acts of negligence.
While the Potter case was pending in the Court of Appeals, the defendant Atterbury moved before the Appellate Division for reargument or for leave to appeal to the Court of Appeals. The motion was denied without opinion (252 App. Div. 762). Thereafter the Potter case was affirmed by the Court of Appeals (276 N. Y. 15).
Following the said affirmance, the defendant Atterbury applied twice to the Appellate Division for reargument or for leave to appeal to the Court of Appeals. Both motions were denied without opinion (253 App. Div. 812; 255 id. 778).
Plaintiffs assert that the law of this case with respect to the applicability of the ten-year Statute of Limitations has been established and that it remains conclusive as between the parties regardless of the subsequent decision of the Court of Appeals in the Potter case, declaring the law so established to be erroneous. The Appellate Division has reached a contrary conclusion. On the appeal from the order denying defendant’s motion for judgment on the pleadings, the plaintiffs argued that the law of the case had been established on the previous motion. Nevertheless the Appellate Division, in affirming the order appealed from, did so not because the law of the case had been established, but on the ground that the applicability of the Statute of Limitations as a bar “ is dependent upon a determination of the facts, and the question cannot be decided on the face of the complaint.” From the complaint alone the court could not determine whether the statute had been tolled, nor could it determine when the defendant as director had voted for
Were the question to be considered de novo, the same result must be reached in view of the Potter decision. The rule there laid down is that, although a stockholder’s derivative action is cognizable only in equity, the suit being in the right of the corporation, must be governed by the same Statute of Limitations that could have been interposed against the corporation had it sued on the same claim. In the fourth cause of action pleaded in that case, two of the directors were charged with negligence in approving and acquiescing in the unlawful diversion of corporate funds. They were not alleged to have participated in the receipt of any wrongful profits at the expense of the corporation. The court found that the claim was “ essentially and exclusively to recover for an injury to the property of the corporation within the meaning of subdivision 3 of section 48 of the Civil Practice Act as it read prior to its amendment by chapter 558 of the Laws of 1936.” (Potter v. Walker, supra, at p. 26.)
The causes of action under consideration relate to the unlawful diversion of corporate funds. They do not charge the defendant Atterbury with the receipt of any wrongful profits at the expense of the corporation. They simply charge him, as director, with approval and acquiescence in such wrongful diversions. The real charge against him is neglect in failing to properly discharge the duties of his office. As against him, the corporation had an adequate remedy at law. It follows, therefore, that the plaintiffs, suing in the right of the corporation, must be governed by the same Statute of
The plaintiffs’ final contention that the Statute of Limitations was tolled from April, 1932, to July, 1935, is predicated upon two orders entered in the Federal court, one appointing temporary receivers of the Hoe Company, and the other appointing temporary trustees in its reorganization proceedings. In the order appointing the temporary receivers, dated April 21, 1932, clauses 5 and 6 read as follows: “ 5. Further ordered, adjudged and decreed that all persons, firms and corporations, including sheriffs and marshals, and their officers, agents, attorneys, proctors, representatives, servants and employees, whether creditors or stockholders or claiming to be creditors or stockholders or having or claiming to have any right, title or interest of, in or to any property or properties
The restraint in the foregoing orders affects the maintenance of actions against the corporation. While the maintenance of a stockholder’s derivative action is not specifically restrained, a conditional restraint may be implied from the provision vesting in the receivers “ exclusive control, possession and custody of all of the assets and properties of said defendant of every name, nature and description * * Stockholders complaining of wrongs committed against the corporation are thus restrained from resorting to the courts for redress unless it be shown that the receivers or trustees were requested to institute proceedings on behalf of the corporation and had refused. (Planten v. National Nassau Bank, 174 App. Div. 254; affd., sub nom. Planten v. Earl, 220 N. Y. 667.) During the pendency of the receivership and reorganization proceedings the plaintiffs could have demanded action from the receivers and trustees, and upon their refusal to act could themselves have begun the present action. Nowhere, either in the complaint or in the opposing affidavits, does it appear that the plaintiffs availed themselves of this right. Their allegation that “ Irving Trust Company, the receiver and trustee was procured by those responsible for the fraudulent receivership * * * and was disqualified to act disinterestedly in bringing such a suit against those then in control,” merely serves to indicate that the plaintiffs might have been justified in bringing suit without first making demand on the receivers and trustees, and this on the theory that a demand upon them would be futile or that they would not be likely to prosecute the action in good faith. (Brinckerhoff v. Bostwick, 88 N. Y. 52.) Regardless, therefore, of the attitude of the receivers and trustees, the plaintiffs were not incapacitated from bringing action by reason of the existence of the above-mentioned orders. Accordingly, their contention that the Statute of Limitations was tolled, pursuant to section 24 of the Civil Practice Act, must be overruled.
There is presented no triable issue in dispute of the fact that the third, fourth and sixth causes of action accrued more than six years prior to the commencement of this action, and, since the Statute of Limitations has not been tolled, the defendant Atterbury’s motion for summary judgment is granted.