Diamond v. DiamondDiamond v. Diamond
Wе agree for affirmance of so much of the judgment appealed from as dismisses the complaint. We strike out, however, so much of that judgment as, on the supposed authority of section 64 of the General Corporation Law, awards to defendant as against Jar old Shops, Inc., $30,000 for her attorneys’ fees and expenses. The effect of that award is this: although plaintiff аnd defendant, sole stockholders of Jar old Shops, l'nc., were equally guilty of flagrant and continued wrongdoing, as between themsеlves and as between each of them and their corporation, defendant’s legal expenses will be paid by the corporation, while plaintiff must pay her own. So unconscionable a result, so unfortunate a preference of onе wrongdoer over another, should not be countenanced if there be any escape therefrom.
The trial court fоund that these two people had participated in and carried out a conspiracy to mulct the corpоration of money and property, that each was a guilty participant, and that each enjoyed the ill-gotten gains оf the enterprise. Therefore, held the court, the suit, brought on behalf of the wronged corporation, had to be dismissed under the theory of Capitol Wine & Spirit Corp. v. Pokrass (
All this should, it seems, be ample warrant for denying tо both, or either of these stockholders, payment, out of the corporate till, of their court expenses. But Special Term found in section 64 of the General Corporation Law a mandatory requirement that, since defendant was sued as a director and officer, and since no judgment was entered against her, the corporation must reimburse her for her attornеys’ fees and other litigation expenses. We find no such command in that statute. Its direction for payment of such expenses, by а corporation, to a person made a party ‘ ‘ by reason of the fact ” that he is an officer, director or еmployee thereof, is subject to an exception which here applies. Assessment against the corporation of that person’s expenses is not to be ordered “ in relation to matters as to which it shall be adjudged in such action, suit or рroceeding that such officer, director or employee is liable for negligence or misconduct in the performance of his duties.” Of course, if that word “ adjudged ” must be limited in its application to the actual entry of a money judgment against the оfficer, director or employee, the exception is inapplicable. But “ adjudged” is not so completely a wоrd of art or of such technical meaning (see 2 Words and Phrases, p. 411 et seq.) that we cannot seek out the obvious legislative intent. Sеction 64, changing the common-law rule that each party pays his own lawyer, is to be construed strictly (see Matter of Schwarz v. General Aniline & Film Corp.,
Quite appropriate to the construction of section 64 is the language of Briggs v. Easterly (
Thе judgment should be modified by striking out the award to defendant for attorneys ’ fees and other expenses.
The judgment of the Appellate Division should be modified in accordance with this opinion and, as so modified, affirmed, with costs.
Lewis, Ch. J., Conway and Van Voobhis, JJ., vote to affirm the judgment, in the following- memorandum: We agree with Special Term and with the Appellate Division that defendant is entitled tо an allowance for expenses in this derivative action, which section 64 of the General Corporation Law requires to be paid “ except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such оfficer, director or employee is liable for negligence or misconduct in the performance of his duties. ’ ’ In order to determine whether such an allowance shall be paid, it is necessary to look to the judgment, which, in this action, contains nо determination that the defendant has been guilty of negligence or misconduct. There is no adjudication of tax evasion in this аction. If found guilty of such charges, the parties have been or will be required to meet the consequences as an indeрendent wrong not adjudicated herein. Neither does this judgment determine that defendant has wronged plaintiff or the corporation, to whatever extent these two women, who are the sole stockholders, may each have tried to best the other. What the judgment decides is simply that the withdrawals which they made from the corporation were accomplished by mutual cоnsent or ratification by themselves or their husbands, now deceased, who comprised the holders of all outstanding shares. A determination that there has been unanimous stockholder consent or ratification, under Kent v. Quicksilver Min. Co. (
Dye, Fttld and Froessel, JJ., concur with Desmond, J. ; Lewis, Ch. J., Conway and Van Voobhis, JJ., dissent in a memorandum.
Judgment accordingly.