265 A.D. 643 | N.Y. App. Div. | 1943
The question presented upon this appeal is whether the present action has been barred by the Statute of Limitations. The action is brought by plaintiff, as special trustee, under the following circumstances:
A petition for the reorganization of Standard Gas and Electric Company (hereinafter referred to as “ Standard ”), under former section 77B (48 U. S. Stat. 912) of the Bankruptcy Act, was filed in the United States District Court for the District of Delaware on September 27, 1935. The debtor was temporarily continued in possession of its property and affairs. On October 25, 1935, an order was entered making this possession permanent, and granting to said debtor ‘ ‘ all the powers of a Trustee appointed pursuant to said Section 77B.” On November 26, 1937, an order was entered in the bankruptcy proceedings appointing plaintiff special trustee for the purpose of bringing specific suits referred to in the order, on causes of action alleged to exist in favor of the debtor. In 1938 a suit similar to the present action was brought by this plaintiff in the Federal courts, but was dismissed for lack of jurisdiction. (Matter of Standard Gas & Electric Co. [Hastings v. Byllesby & Co.] 119 F. 2d 658.) On December 8, 1939, the present action was commenced by the service of process issued out of the Supreme Court of this State.
The capacity of plaintiff to bring this suit as a special trustee was litigated by certain defendants through the courts of this State, it being eventually held by our Court of Appeals (286 N. Y. 468) that plaintiff as such trustee has capacity to sue.
Plaintiff contends that he is seeking relief under section 60 of the General Corporation Law. The complaint states nineteen causes of action.
The defendants herein are the former officers and directors of Standard, and other persons and corporations sued for having conspired with them to injure Standard. The present appellant, Haystone Securities Corporation (hereinafter •referred to as “ Haystone ”), is named as defendant in only the sixteenth cause of action.
As the complaint is framed, Haystone is joined with others acting in the Ladenburg Syndicate under the general designation of “ Ladenburg.” The transactions alleged as to Laden-burg must, therefore, be deemed charged as to Haystone. As gleaned from the complaint and affidavit of plaintiff, the transactions involved may be summarized as follows:
In 1924 Ladenburg controlled a corporation known as the Philadelphia Company through the intermediate companies, Pittsburgh and United. This control is alleged to have been threatened by a second syndicate which is referred to in the complaint as Byllesby. Ladenburg caused additional shares of the two controlling companies above named to be issued, which it acquired. Haystone’s participation in this acquisition is alleged.
In 1925 agreements were made by Ladenburg and Byllesby terminating in the sale of certain shares of stock in Pittsburgh and United to Standard Power. As noted, Standard Power later became a subsidiary of Standard. The capital stock of Standard Power was divided so that there were large amounts of preferred and of a class of common stock known as “A” stock. This was non-voting stock. A small issue of common stock having voting power was known as “ B ” stock. Ladenburg and Standard divided this “ B ” stock. Eventually, and after complicated intercorporate transactions, Byllesby had 120,000 shares of “A” stock, and Standard had 180,000 shares of the same. Byllesby transferred 20,000 of this “A” stock, and Standard 130,000 shares thereof to Ladenburg without consideration. Thus Ladenburg obtained one-half of the “ A ” stock as well as one-half of the “ B ” stock of Standard
In June, 1925, two transactions took place which, however, need not be referred to in detail because they had to do merely with securing control, and with a profit made by Byllesby.
All of the foregoing acts occurred more than ten years before the filing of the petition in bankruptcy.
We now come to the transactions of 1926. In March of that year there was a redistribution of the stock possessed by Ladenburg, Standard and Byllesby under a contract entered into between them. Under this contract Ladenburg exchanged with Standard 15,000 shares of the B stock of Standard Power for 15,000 additional shares of A stock of said company.
Ladenburg also is alleged to have sold to Standard its stock in a corporation known as United Railways Investment Holding Corporation which controlled United. Ladenburg received an additional $11,000,000 in cash from Standard out of these two transactions. It increased its total holdings in the A stock of Standard Power to 165,000 shares. *
Voting control of Pittsburgh and Standard Power were thus surrendered to Standard Gas as part of the 1926 transactions.
There were provisions in the 1926 agreement that Laden-burg and Byllesby were to divide the banking business of Standard Power, United, and their subsidiaries, and likewise to divide all commissions and profits on such banking business. There is no allegation in the complaint or affidavit, however, that Haystone received any banker’s commissions, or other profits pursuant to this last-mentioned agreement.
It will thus be seen that, as a net result of the 1926 transactions, Ladenburg obtained $11,000,000 cash profit, and 15,000 shares of a different class of stock.
As to the $11,000,000 in cash, assuming that it was obtained wholly without consideration, the profit made by Ladenburg did not exceed the correlated losses suffered by Standard. Accordingly, an action at law to recover this sum would afford Standard an adequate remedy. No accounting would be necessary. The six-year Statute of Limitations would control. (Dunlop’s Sons, Inc., v. Spurr, 285 N. Y. 333; Frank v. Carlisle, 261 App. Div. 13, affd. 286 N. Y. 586.)
Despite the fact that all of the claims set forth in the complaint against Haystone appear to have been barred by the Statutes of Limitation applicable under the law of this State when the petition for reorganization of Standard was filed on September 27,1935, Special Term held that the plaintiff’s cause of action against the moving defendant was not barred.
The reasoning upon which Special Term based this conclusion was that the present action was not merely a derivative one in which plaintiff was asserting a claim of Standard for injury to its property rights, but was one in the nature of a judgment creditor’s suit. Special Term reasoned that as subdivision c of section 70 of the Bankruptcy Act (U. S. Code, tit. 11, § 110, subd. [c]) provides that a trustee in bankruptcy is vested with “ all the rights, remedies, and powers of a judgment creditor then holding an execution duly returned unsatis
Section 61 of the General Corporation Law provides that an action for the relief prescribed in section 60 may be brought by the injured corporation, or by a creditor, or a trustee in bankruptcy thereof, among others. Section 60 provides, in the main, for actions against directors or officers of a corporation. It enumerates the relief which may be afforded against such directors or officers. It includes in subdivision 5 thereof a right of action “ to set aside a transfer of property, made by one or more directors or officers of a corporation, contrary to a provision of law, where the transferee knew the purpose of the transfer.”
It would appear that Haystone was joined as a party defendant herein either as such a transferee, or as one conspiring with an officer or director to commit a breach of a fiduciary duty. It was not an officer and director of Standard and could not be liable as such.
Special Term based its decision denying the motion to dismiss the complaint by applying to this action the rule laid down in Buttles v. Smith (281 N. Y. 226). In the case cited it was held that a suit brought under section 60 of the General Corporation Law by a receiver appointed in behalf of a judgment creditor to set aside transfers of corporate property as in fraud of creditors did not accrue until the return of execution on the creditor’s primary judgment. We think that it was improper to extend the rule laid down in Buttles v. Smith (supra) to a case of the present nature. Insofar as the present suit was one under section 60 of the General Corporation Law, it was for the wrongs committed by the directors and officers of
To reason that outlawed claims owned by a corporation would be revived by the appointment of a trustee in bankruptcy because such trustee obtained the rights of a creditor armed with process, would destroy the Statute of Limitations as a statute of repose. Every reorganization or bankruptcy proceeding would revive all claims that might come within the scope of section 60 of the General Corporation Law based on mismanagement, waste, or neglect, no matter how stale they were. We think that the holding in Buttles v. Smith (supra) was inapplicable to transactions of the present nature, and was only intended to apply when the plaintiff in a suit under that section was asserting the rights of a creditor, as distinguished from the derivative rights of a corporation.
The opinion of the Court of Appeals in Buttles v. Smith (supra) indicates the difference between an action for damages in consequence of wilfull and negligent acts of those entrusted with corporate funds, and cases brought to impound property which transferees had obtained from the corporation in fraud of its creditors.
A comparison of the facts alleged in Buttles v. Smith (supra) and those alleged here might be helpful. In that case, one Anness, in 1933, recovered a judgment against Seaboard Trading Company on an obligation of the latter which had matured in 1926. Thereafter a temporary receiver of Seaboard was appointed, and it was discovered that there had been unlawful transfers of assets of Seaboard occurring in the years between 1927 and 1929. The defendants in Buttles v. Smith (supra) were stockbrokers to whom the officers and directors of Seaboard had conveyed the assets of the corporation in connection with personal speculations of said officers and directors. After Anness had obtained his judgment, he brought an action in sequestration, and secured the appointment of a receiver, who, in 1938, brought suit in aid of execution to impound the corporate assets of Seaboard which had been so fraudulently transferred. Three causes of action were asserted as to each of the brokerage firms sued. First, a cause of action under section 15 of the Stock Corporation Law; second, a cause of action under section 274 of the Debtor and Creditor Law, and
The Court of Appeals in its opinion pointed out that as no right of action in equity to impound corporate assets under section 15 of the Stock Corporation Law, or under section 60 of the General Corporation Law would exist until the legal remedy of the creditor had been exhausted by the return of execution on his judgment, the rights of action asserted under these statutes had not accrued until such return of execution on Anness’ judgment. Accordingly, the court held that the action brought in 1938 was timely insofar as the relief sought under the Stock Corporation Law and the General Corporation Law was concerned. At the same time it held that the causes of action under the Debtor and Creditor Law were barred by the Statute of Limitations because Anness had the right to sue to set aside the fraudulent transfers under the Debtor and Creditor Law before he had obtained a judgment on his primary claim.
Comparing the foregoing with the allegations in the present complaint, we find that the present action is not one in sequestration to set aside a transfer of corporate funds as fraudulent, or a suit in aid of a creditor who has litigated his primary claim. Here the action is upon the primary claim of wrongdoing by fiduciaries and others conspiring with them to injure Standard. The complaint charges breach of trust, negligence and waste of corporate funds. There was no allegation that Standard had any creditors at the time of this alleged misconduct, nor any claim that there were transfers of property in fraud of creditors. There is no claim that any of the acts complained of affected the solvency of Standard, or impeded or impaired the rights of creditors. Insolvency is not a prerequisite to a proceeding in reorganization under former section 77B of the Bankruptcy Act. Inability to meet the debts of the corporation to be reorganized as such debts matured would be sufficient. It is clear, therefore, that the present plaintiff is not asserting the rights of creditors, but is attempting to enforce a cause of action existing in favor of Standard in bringing the present action.
Aside from the variance in the factual situation involved, the decision in Buttles v. Smith (supra) did not present any consideration of the effect of bankruptcy statutes with respect to the Statute of Limitations applicable to a suit based on a claim owned by the bankrupt, or asserted by a trustee.
We do not pass on the question as to when a cause of action brought by a trustee in bankruptcy to set aside a fraudulent transfer would accrue, or whether the rule indicated in Buttles v. Smith (supra) would apply to such a situation, so as to create any new cause of action for such relief available to the trustee as of the date of his appointment.
Before closing, it might be appropriate to point out that the order appointing plaintiff as special trustee herein limited his right to sue to ‘ ‘ all causes of action alleged to exist in favor of the debtor.” Therefore, by the terms of the order of his appointment, it would seem that plaintiff was given no power with respect to any claims other than those which existed in favor of Standard immediately prior to the filing of the petition for reorganization. We think, however, that it is unnecessary to determine this appeal on any such narrow ground as the form of the order of appointment. We will assume that it was the intention of the court appointing plaintiff to give bim all the powers that a general trustee in bankruptcy would have with respect to the cause of action set forth in the complaint. Despite this assumption, we must hold that the complaint should have been dismissed for the reason that any cause of action alleged against Haystone Securities Corporation was barred by the Statute of Limitations prior to the filing of the petition for reorganization.
The order appealed from should be reversed, with twenty dollars costs and disbursements, and the motion granted.
Townley, Unteemyeb, Does and Cohn, JJ., concur.
Order unanimously reversed, with twenty dollars costs and disbursements, and the motion granted.