102 N.Y.S. 279 | N.Y. App. Div. | 1907
Lead Opinion
This is a representative action for an accounting'by the appellant and others, as members of axreorganization committee under a reorganization agreement involving the American Cotton Company and ten subsidiary companies. The ground of the demurrer relied upon and argued in behalf of the appellant at Special Term and ■ here, is that the complaint fails to state facts sufficient to constitute a cause of action. The reorganization agreement is-annexed to and made part of the complaint, as is also a plan of reorganization prepared by the reorganization committee and a statement of pro-" posed changes, modifications or departures from such plan of reorganization, likewise prepared by said committee. The reorganization agreement was made on the 16th day of-June, 1904. The jplan of reorganization . prepared by the committee bears date .the 19tli day of August, 1904, and the-statement of proposed changes, modifications or departures therefrom bears date the 25th day of July, 1905. The action was commenced on the 13th day of. December, 1905. There were three parties'to the reorganization agreement. The parties of the first part consisted of the appellant and the other members - of the reorganization committee and were therein designated the “ Committee.” . The ¡Bankers’" Trust Company was the party of the second part and was designated the Depositary.” - The parties of the third part consisted of such holders and owners of debenture bonds, notes and other obligations, and of - preferred and common stock of the American Cotton Company and of certificates of deposits therefor issued under a stockholders’ agreement" made on the 2d day of December, 1901, and such holders and owners of notes and other obligations and of the capital stock of ten specified companies as should become parties thereto by depositing their bonds, notes and other obligations,, stock and' certificates of deposit thereunder with said depositary, where it was provided that
The plaintiff alleges that he owned sixty-five shares of the capital stock of the American Cotton Company, and that on or about the 15th day of August, 1904, pursuant to an invitation from the reorganization committee, he executed the reorganization agreement and deposited his stock with the depositary thereunder, and that a great number of others, falling within the class of those intended to be parties of the third part, did likewise and deposited their respective shares of stock, notes, bonds and other obligations and certificates of deposit with the depositary. The plaintiff further alleges that the reorganization committee enlarged their number and substituted the Metropolitan Trust Company as the depositary. Authority to do this, however, appears to have been conferred by the reorganization agreement. The plaintiff further alleges that the members of the reorganization committee thereafter took pos^ session of all of the property of the American Cotton Company and of the other ten corporations which, consisted, among other things, “of a large number of Letters Patent of the United Stafes and a large number of bales of cotton.” The plaintiff then charges -that by the use of the securities so deposited with the depositary the members of the reorganization committee “ in their individual capacity have received and realized large sums of money and property of large value besides that of the American Cotton Company which should have been held and administered by them for this plaintiff and other depositors under said reorganization agreement; but sai.d individual defendants have wasted and squandered a large amount of the said property and money, and have used for unauthorized and unlawful purposes a large portion of the balance of the same,” and have pledged some of said certificates of stock and other» corporate securities with banks, trust companies and other persons, natural and corporate, and “ have thus obtained loans of large sums of money, by the use of which, in speculation in stocks, bonds, cotton and otherwise, the said borrowers have realized large profits which in equity belong to this plaintiff and to other depositors under said agreement; ” that under- color of the reorganization agreement they have unnecessarily and without authority expended large sums
It is unnecessary to state in detail the provisions of the reorganization agreement. The purpose of the agreement was to vest the ownership and control of the corporations in the reorganization committee as the agents, attorneys in fact and trustees of the stockholders, bondholders and creditors, with a view to formulating a plan for reorganization, by forming a new-corporation to which the property would be transferred and in return for which the depositors would receive a proportionate share of the stock and securities of the new corporation. It was expressly provided in the reorganization agreement that the members of the reorganization committee should not be responsible for defects or errors and thal ■“ Neither the Committee nor the Depositary assume any personal responsibility for the execution of such Plan and .this Agreement, or any part thereof; the Committee, however, undertake in good faith to endeavor to prepare, adopt and execute the same.- No member of the Committee, nor the Depositary,'shall be personally liable for any act or omission of any agent or employee selected in good faith, nor for any error of judgment or mistake of law,'nor in any case except for his, its or their own individual willful malfeasance or neglect; and no member of the Committee shall in any case be personally liable for the act or omission of any other member of the Depositary, nor shall the Depositary be liable for the acts or defaults of the Committee.” The reorganization agreement expressly recognizes that the members of the reorganization committee were to receive, hold and sell or otherwise dispose of the property as trustees for the depositors, and that their obligation to the depositors to whom certificates of deposit were to be and were issued, was á trust
The learned counsel for the appellant concedes that his- client may presently be required to account for fraud or bad faith if any existed; but he contends that in view of,the purpose of the reorganization agreement, and the discretion ..vested in the- committee, no accounting should be ordered until the work of the reorganization committee has been completed, or a reasonable time therefor, has elapsed, unless fraud or bad faith is shown; and- lie claims that
The plaintiff relies upon decisions in this’jurisdiction, where the 1 rule is. uniformly held to be that an action for an accounting against a trustee may be liad at any time regardless of imputed fraud- or -bad faith. (Slayback v. Raymond, 93 App. Div. 326, and cases cited-; Hancox v. Wall, 28 Hun, 214; Frethey v. Durant, 24. App. Div. 58 ; Jordan v. Underhill, 91 id. 124; Spier v. Hyde, 92 id. 467.) It is quite clear that a fiduciary relation existed between the depositors and the members of’the reorganization committee. The confidéncé .of the depositors in the members of the committee, shown by vesting in them broad powers and great discretion, .rendered it the duty . of the members of the committee to act in the utjnost good faith. (Industrial & General Trust, Ltd., v. Tod, 180 N. Y. 215.)
It is unnecessary to decide whether the depositors, might at any time without showing a breach of trust obtain an accounting. It • .may well be that until a. reasonable time had elapsed to enable the reorganization committee to perform the duties which they assumed, the court would not, in the absence of some allegation showing a breach of the trust or gross negligence or bad faith on the.part of the committee, call them to account. In the.case at ■bar, however, it appears that the committee had possession of this property in trust for the purposes of the agreement, for considerably more than a year, and there are allegations of fact which, if true, tend to show that there have been breaches of the. trust. The-allegations of fraud, waste and mismangement on the part of the committee are not unsupported by other facts, It is unnecessary, however, to decide whether these allegations, with the other facts averred in connection with them, remove the case from the application of those authorities (See Wood v. Amory, 105 N. Y. 278; Everett v. Everett, 180 id. 452; Meyers v. City of New York, 58 App. Div. 534; Kittinger v. Buffalo Traction Co., 160 N. Y. 377; Gernsheim v. Olcott, 10 N. Y. Supp. 438) which hold that bare allegations of fraud, waste or mismanagement áre me're conclusions . of law, but it may be observed that the decision, of the. court
It follows that the interlocutory judgment should be affirmed, with costs.
Patterson, P. J., and Claree, J., concurred; Ingraham, J., dissented.
Dissenting Opinion
It seems to me that the allegations of this complaint are too indefinite and general to justify a court of. equity tó require an accounting by the defendants at this time. . After alleging the appointment of the individual defendants as the reorganization committee under an agreement which is annexed to the complaint and by which this committee is made the attorneys, agents and trustees for each of the depositors of the securities of the company which was to be reorganized and which expressly provided that
The complaint alleges on information and -belief that by the use. of the said certificates and corporate securities the said individual defendants in their individual capacity have received and. -realized large sums of money and property' of large value besides that of the American Cotton Company which should have been held and administered by them'for this plaintiff and other depositors under said reorganization agreement; but said individual defendants have wasted and squandered a large amount of the said property and money and have , used for unauthorized and unlawful purposes a large-portion of the balance of the same. Coupled with this allegar tion the plaintiff alleges that he is wholly ignorant of the amount of. money and other property so received and realized by said defendants and of . the amount of money and of the other property so received and realized by said defendants and of that which they so wasted and squandered and of that so used by them for - unauthorized and unlawful- purposes and is ignorant of the purposes-for which said defendants have used said moneys and other -property and of the manner in-which' the same was wasted an,d squandered.
-Thus, we have a contract signed by the plaintiff under which he appoints the committee his agents and trustees, but expressly agrees 'that neither member of the committee shall be responsible for any act Or omission in any case except for his own individual willful malfeasance or neglect, and that no member of the committee shall in any case be personally liable for the act or omission of any -other member of the depositary. ■'
He alleges that the reorganization committee as a whole have. Wasted and squandered a large amount of property and money, and used for unauthorized and unlawful purposes a large portion of the
The next allegation is also upon information and belief and is that the individual defendants and some and each of them have also pledged certain of the said certificates of the shares of stock and other corporate securities deposited with them with certain banks, trust companies and other persons, natural and corporate, to the plaintiff unknown, and have thus obtained loans of large sums of money by the use of which, in speculation in stocks, bonds, cotton and otherwise, the said borrowers have realized large profits which, in equity, belong to this plaintiff and to other depositors under said agreement, coupled with the further allegation that further particulars of the matter are to the plaintiff unknown.
It is hot alleged here that these defendants have not applied any profits realized from these transactions to the benefit of the depositors or parties to the agreement; or that they claim to have any per
, There'is then the allegation that the defendants claim to-have spent large sums of money for counsel fees and otherwise under color of said, reorganization agreement, which are alleged to have been unnecessary. But the particular defendants who have made such expenditures are not stated and no facts are alleged to show that such expenditures were unnecessary, being a mere general allegation of a conclusion of. the plaintiff’s, although he expressly disclaims knowledge of the particulars in relation to the'expenditures.
There is. also an allegation that the defendants have in' a manner to the plaintiff' unknown, by negligence and misfeasance, wasted and misapplied the.assets of the property which they have thus acquired and have depreciated the value of the certificates of stock and other securities deposited with them to the great.loss of the.plaintiff and-others. This allegation certainly can sustain ho cause of action against anybody. ,
The allegation that the American Cotton Company became insolvent and a receiver wa$ appointed by a vice-chancellor of the State of Mow Jersey gives no cause of action.
It is then alleged that the defendants have issued their plan of reorganization provided for by the agreement but that the plaintiff has not accepted that plan.
It thus .appears, that the object for which this committee was appointed has not yet been accomplished but is at present in process of accomplishment. Assuming that after the completion of the plan any party to the agreement would have the right to call the trustees to account, it was clearly contemplated that the committee should proceed with their work and pending the final completion of the work to entitle a party to the agreement to call on the trustees or agents to account there must be some specific allegation of wrongdoing as against some specific member of the committee, for which, under the. agreement, he is liable. Such general allegations on information "and belief as are here contained, coupled with an express
I am, therefore, of the opinion that this complaint fails to state a cause of action, and that the judgment should be reversed and the demurrer sustained.
Judgment affirmed, with costs. „