296 N.Y. 146 | NY | 1947
The challenge to the within complaint, for failure to state a cause of action, raises the question of whether a plaintiff in a stockholder's derivative action may be required to account to the corporation for moneys received in private settlement for discontinuance of the action.
The complaint alleges that the defendants commenced a stockholder's derivative action in behalf of the Associated Gas Electric Company (called AGECO) entitled "Greenberg v. Mange,et al." in which it was alleged that the defendants, as officers and directors, had so mismanaged its affairs that the company and its stockholders were damaged and prayed that an accounting be had, and that the court "impress a trust in favor of the Company (AGECO) upon all secret profits and gains obtained by any of the defendant directors", etc. No individual relief was asked except reimbursement for expenses. *149 Later and before trial, a stipulation was made settling and discontinuing the action without notice to other stockholders and without approval of the court, by the terms of which Greenberg executed releases in his individual and representative capacity and transferred and delivered his stock, having a market value of $51.88, to the defendant directors, and defendants herein received from them the sum of $9,000.
The complaint in this action alleges that the defendants received the money "to the use of, and in trust for AGECO"; that they had failed to account to it or its trustee, the plaintiff herein, and had accordingly unjustly enriched themselves in the sum of $8,948.12 which, in equity, should be paid over to the plaintiff, and prayed judgment accordingly.
The Appellate Division unanimously affirmed the dismissal of the complaint by the Special Term which relied uponManufacturers Mutual Fire Ins. Co. v. Hopson (
The very nature of the derivative suit by a stockholder-plaintiff suing in the corporation's behalf suggests the application of the fiduciary principle to the proceeds realized from such litigation whether received by way of judgment, by settlement with approval of the court, which presupposes stockholders' approval, or by private settlement and discontinuance of the action at any stage of the proceeding. Such action, we have held, belongs primarily to the corporation, the real party in interest (Teich v. Lawrence,
The complaint, we believe, states a cause of action.
The judgments should be reversed and the motion to dismiss the complaint denied, with costs in all courts.
LOUGHRAN, Ch. J., LEWIS, CONWAY, DESMOND, THACHER and FULD, JJ., concur.
Judgments reversed, etc. [See