82 N.J. Eq. 140 | New York Court of Chancery | 1913
This suit is brought by stockholders of the Fisheries Company, a New Jersey corporation, against Ordener J. Delaney, to compel the restitution by him to the treasury of the company of the value of certain property alleged to have been abstracted from the company by him in the process of reorganizing it after its failure, and for the further purpose of compelling him to account for certain profits made by him in the years 1908 and 1909 by the use of the property of the Fisheries Company under leases made to himself or to a corporation of which he was the principal stockholder. In other words, he is sought to be made liable personally for the diversion of funds of the company of which he was a director, the general manager and one of its receivers when insolvency finally supervened.
The Fisheries Company was incorporated on May 25th, 1900, for the purpose of engaging in the catching of fish in the ocean and the conversion thereof into commercial products, such as oil, fertilizers, &c. Its history from the date of its incorporation down to October 19th, 1907, when it was declared insolvent, is not before the court. On the last-named day the United States Circuit Court for the District of New Jersey, on complaint made for that purpose, appointed two receivers for it, of whom the defendant Delaney was one. Steps were taken almost immediately looking toward a reorganization of the company, the satisfaction in some way of its debts and the restoration of its property to it. In order to force Heller, Hirsch & Company, a
There are three matters connected with that agreement which deserve mention at this point: one is that Gilpin and Tuska in their trust capacity were self-constituted, self-appointed, except in so far as Heller, Hirsch & Company may have requested them
On January 29th, 1908, Tuska and Gilpin, “as trustees,” wrote a letter to the reorganization committee of the Fisheries Company, in which they described themselves as trustees for certain bondholders of the Fisheries Company, and submitted a proposition which contemplated the delivery to the reorganization committee of two hundred and sixty-seven bonds of that company and about two thousand eight hundred and ninety-four shares of its preferred stock, provided the committee would cause to be conveyed and assigned to said trustees certain property which is described in the letter. There are two things concerning this letter which deserve mention at this point: one is that the letter was addressed to the reorganization committee of the Fisheries Company. As a matter of fact, there was at that time no reorganization committee of the Fisheries Company, and it may be doubtful whether any such committee was ever authorized to act. It does, however, appear that later on, and on February loth, 1908, such a committee was “self-constituted,” consisting of J. B. MacAllister, an officer of the Franklin Bank of Philadelphia, E. H. Ferry, an officer of the Hanover Bank of New York, and Thomas B. Harned, a lawyer practicing in Philadelphia. The document in which this appears is Schedule No. 3 to the bill (page 64); it described the committee as a self-
Mr. Delaney in his evidence attempts to justify the transaction concerning the Schedule B property by saying that it was necessary to provide for compensation to Mr. Wharton for the delivery of his stock and bonds to the reorganization committee; but it does not appear that Mr. Delaney ever accounted to Mr. Wharton, or since his death, which occurred in November, 1908, to his personal representatives, but instead thereof he alleges that he retained control of the Schedule B property for the reason that Mr. Wharton owed him '-$150,000 on another “deal,” which he had never paid or satisfied This statement seems to me to be disingenuous, and I think the mere reading of his deposition will convince an unprejudiced mind that the statement is untrue. But there are other reasons for such conviction. It does not appear that he ever settled with the Whartons in any way, and to show that it was a mere afterthought, it is necessary only to read his answer to the bill, which omits all reference to any such agreement between him. and Mr. Wharton. In paragraph 22 of his answer he denies that he falsely or in any way represented to Gilpin that the provision in the agreement between the trastees and Heller, Hirseh & Company in regard to
The other cause of complaint consists in the allegation that Delaney obtained leases of the property remaining to the Fisheries Company for the years 1908 and 1909 to his company, the Menhaden Fishing Company, without disclosing to the directors that the leases were for the benefit of himself, or of a company of which he was the principal stockholder, or, in other words, that by concealment of his interest in the lease he obtained from the Fisheries Company a right out of which he made large profits. ’ I find, as a matter of fact, that the allegation is true, and that Mr. Delaney has thus made himself liable to pay into the company whatever profits were made by him during the terms of the two leases.
The defendant Delaney is held liable upon the charges contained in the bill upon the ground that he occupied a fiduciary position with relation to the Fisheries Company and its stockholders, and that he either concealed or did not disclose the extent to which he was making a profit out of the transactions. This question of disclosure was considered by me in the ease of Arnold v. Searing, 78 N. J. Eq. (8 Buch.) 146. That was a case involving the question of promoter’s profits. In this case I place Mr. Delaney in the position of a promoter. The case discloses the fact that the negotiations for the reorganization were begun long before anything was put in writing, and that they were begun by Mr. Delane}q who had long conferences with the parties in interest, and it is quite apparent that the whole thing was prearranged with great cunning, so that all the important transactions which led to the disposition of so much property and the rearrangement of so many securities and the transactions with so many men could be completed between January 15th, 1908, and the month of March of the same year. It is quite apparent
The defendant by way of defence objects to the inference to be drawn from the facts alleged in the bill and proved. But, in my opinion, the conclusion is irresistible, and unless it is borne down by the questions of law raised by the defendant, the complainant must prevail at all points. The legal defences are two —first, that the company is estopped from any proceeding to collect from Mr. Delaney, because at a meeting of an independent board of directors it was voted that it was not expedient for the company to bring suit against Mr. Delaney on account of the allegations against him. It will be observed that there was no release executed by the company to Delaney, and I fail to see how the company by the mere vote of its directors could estop itself from rescinding their resolution and bringing suit the next day. The estoppel cannot lie in the resolution. If there is an estoppel, it can only lie in facts which go to show that all parties acted upon the vote and that it would be inequitable to allow it afterwards to be rescinded or disregarded. I think the true rule governing this case is found in Groel v. United Electric Co., 70 N. J. Eq. (4 Robb.) 616, and in Corbus v. Alaska Gold Mining Co., 187 U. S. 455, and Siegman v. Kissel, 71 N. J. Eq. (1 Buch.) 123; affirmed, 72 N. J. Eq. (2 Buch.) 403. If, therefore, an estoppel is claimed by reason of any act of the company, the court will look into the bill in its entirety and determine whether under all the circumstances the complainant has made such a showing of wrong on the part of the corporation or its officers, and injury to himself, as will, justify the suit. If it is true, as alleged, that Mr. Delaney, trustee as he was, diverted several hundred thousand dollars’ worth of property from the company to himself by means of a manipulation of the reorganization scheme, and without notice to the stockholders of the company, in my opinion a ease has been made which gives the complainants an equity and negatives any claim of estoppel which it might otherwise lie in the mouth of Mr. Delaney to assert.
My conclusion, therefore, is that the defendant Delaney must account for the property and the profits so abstracted from the Fisheries Company before a master, to be appointed by the decree. On confirmation of the master’s report provision will be made by appropriate decree for the disposition of the fund, counsel fees, costs, &c.