309 F. Supp. 332 | S.D.N.Y. | 1969
Defendants
Unless the stock owned by plaintiffs either constitutes more than 5% of any class of the outstanding stock of TSS or has a fair value of more than $50,000, TSS is entitled to the posting of security for its expenses in the action.
While plaintiffs held more than 5% of the outstanding preferred stock of TSS at the inception of this action, all of their preferred shares were redeemed by the corporation prior to the return date of the instant motion.
The holding in Roach v. Franchises International, Inc., 32 A.D.2d 247, 300 N.Y.S.2d 630 (1969), does not support plaintiffs’ position. Unlike Roach, here plaintiffs took affirmative action to have their stock redeemed. Having met the percentage requirement at the time of institution of suit, plaintiffs did not seek to “conserve their stockholdings thereafter.” Id. at 635.
Regardless of the date on which we value plaintiffs’ holdings of TSS common stock,
In determining the amount of security to be posted by plaintiffs, we have taken into consideration: (1) TSS would appear to be a nominal party defendant since there is no basis in the record before v. for a definitive conclusion that its interests are threatened by the relief sought in the first cause of action of the complaint.
Based upon the above considerations, plaintiffs shall furnish security in the sum of $30,000. Pending the posting of such security, all proceedings by plaintiffs shall be stayed. This decision is without prejudice to the right of a proper party to move for a modification of the amount of such security “upon showing that the security provided has or may become inadequate or excessive.” N.Y. Business Corporation Law § 627.
Settle order on notice within five (5) days from the date hereof.
. While the instant motion is brought by all defendants, we note that only the corporation in whose right the stockholder's derivative action is brought (here Times Square Stores Corporation) can require plaintiffs to give security. The other corporate and individual defendants have no standing to invoke § 627 of the New York Business Corporation Law. See Sorin v. Shahmoon Industries, Inc., 30 Misc.2d 408, 429, 220 N.Y.S.2d 760, 786 (Sup.Ct.1961).
. While plaintiffs have not as yet surrendered their preferred stock to the redemption agent, TSS's Certificate of Incorporation provides that after the redemption date (February 15, 1969) the holder of preferred shares "shall cease to have any rights as a stockholder." (Affidavit of I. Russell Stein, verified March 19, 1969, Schedule A — page 2.)
. The second cause of action was dismissed as a class action on defendants' motion for summary judgment. See Memorandum of Bryan, J., dated October 7, 1968.
. Contrast Sorin v. Shahmoon Industries, Inc., 30 Misc.2d 408, 429, 220 N.Y.S.2d 760 (Sup.Ct.1961), with Roach v. Franchises International, Inc., 32 A.D.2d 247, 300 N.Y.S.2d 630 (1969).
. With many reservations, we have assumed for the sake of argument that Spartan Industries is a sufficiently similar publicly held company to warrant using its price-earnings ratio.
. See Goldstein v. Weisman, 185 F.Supp. 242 (S.D.N.Y.1960); Fuller v. American Machine & Foundry Co., 91 F.Supp. 710 (S.D.N.Y.1950).