Singer v Carlisle.pdf

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

receipt of profits allegedly diverted from corporation was subject to six-year statute of limitations and not ten-year statute of limitations, where stockholders were really seeking money damages at law from defendants measured in amount of money which defendants made and corporation did not make. Civil Practice Act, §§ 48, 53.

26 N.Y.S.2d 172 Supreme Court, New York County, New York, Special Term. SINGER et al. v. CARLISLE et al.

Cases that cite this headnote

July 25, 1940. Action by Bernard E. Singer and another, as administrators of the estate of Rose M. Singer, deceased, and others, suing on their own behalf and on behalf of all other stockholders of the United Corporation similarly situated, who may join in the action and contribute to the expenses thereof, against Floyd L. Carlisle and others, for damages for diverting underwriting business from the United Corporation, and for eliminating the United Corporation as a competitor and for recovery of dividends allegedly paid out of the capital of the United Corporation in violation of law. On motion to dismiss.

[3]

Order in accordance with opinion.

[4]

A stockholders' derivative action against directors and others for accounting, the gist of which was improper diversion of business from corporation, was an action for “waste” governed by six-year limitation statute. Civil Practice Act, § 48. 1 Cases that cite this headnote

West Headnotes (15) Corporations and Business Organizations Time to sue; limitations and laches In stockholders' derivative action against directors and others for accounting for profits allegedly diverted from corporation, such of the defendants as were charged only as coconspirators and joint tort-feasors, and were not charged with receipt of profits, could invoke six-year limitation statute and not tenyear limitation statute. Civil Practice Act, §§ 48, 53. Cases that cite this headnote [2]

Corporations and Business Organizations Time to sue; limitations and laches A stockholders' derivative action for accounting against defendants charged with

Pleading Construction in General Where motion to dismiss was addressed to pleadings and their sufficiency in law, plaintiffs were entitled to have the complaint taken at its face value and to the benefit of the most favorable inferences that could be drawn from complaint.

Judgment affirmed, 26 N.Y.S.2d 320.

[1]

Corporations and Business Organizations Time to sue; limitations and laches

Cases that cite this headnote [5]

Corporations and Business Organizations Nature of Relation Corporations and Business Organizations Stock ownership or membership in different corporations Corporations and Business Organizations Fiduciary Duties as to Management of Corporate Affairs in General Corporations and Business Organizations Director, officer, or agent of different corporations Directors, officers, and controlling stockholders of corporation engaged in business of underwriting securities in public

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

1

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

utility holding and operating companies, must make every effort consonant with good, honest judgment to obtain for corporation as much of the underwriting business as possible and to make such field of activity as profitable as it could be made, and must not conduct themselves in a manner detrimental to the interests of corporation, but need not do anything detrimental to affairs of other corporations of which they may be officers and directors.

Even though mere stock ownership without management and control does not prevent stockholder from competing with his corporation, stockholder in position of control cannot so exercise that power as to cause his corporation's inability to purchase that for which both are competing. Cases that cite this headnote [9]

1 Cases that cite this headnote [6]

Corporations and Business Organizations Engaging in Competing Business

Corporations and Business Organizations Controlling or majority shareholders and minority shareholders in general

Corporations and Business Organizations Engaging in competing business

Corporations and Business Organizations Right of shareholder or member to sue; standing Independently of statute, person in control of majority of stock and of board of directors of corporation occupies fiduciary relation towards minority stockholders, and is charged with duty of exercising high degree of good faith, care, and diligence for protection of their interests, and every act in his own interest to detriment of holders of minority stock is a breach of duty and a trust, which entitles minority stockholders to plenary relief in equity.

Directors and dominant factions of corporation cannot by their acts and control fail and refuse to attempt to obtain certain business for corporation, and cannot affirmatively prevent corporation from competing with directors and dominant factions for such business. Cases that cite this headnote [10]

In stockholders' derivative action against directors and others controlling corporation or directors, for damages for failure to attempt to obtain certain business, complaint need not allege that corporation was equipped to handle such business and that corporation would have obtained such business, but such matters should be shown by directors and others in defense.

Corporations and Business Organizations Engaging in competing business Where fiduciary is engaged in business in competition with his corporation, fiduciary cannot actively use his position and power over his corporation so as to prevent corporation from seeking certain business in competition with fiduciary.

Cases that cite this headnote

Cases that cite this headnote [8]

Corporations and Business Organizations Engaging in Competing Business

Corporations and Business Organizations Allegations as to corporate right of action Corporations and Business Organizations Plea, answer, or demurrer

Cases that cite this headnote [7]

Corporations and Business Organizations Majority and minority shareholders; controlling interest

[11]

Corporations and Business Organizations Allegations as to corporate right of action

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

2

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

In stockholders' derivative action against directors and others controlling corporation or directors, for damages for failure to attempt to obtain certain business, complaint should state the specific transactions in respect of which the directors and the others failed and refused to obtain for corporation such business. Cases that cite this headnote [12]

Corporations and Business Organizations Conflicts of Interest and Self-Dealing in General Corporations and Business Organizations Director, officer, or agent of different corporations Directorship in two competing corporations does not in and of itself constitute a wrong, and it is only when business opportunity arises which places director in position of serving two masters and when, dominated by one, he neglects his duty to the other, that a wrong has been done.

that dividends were paid while capital of corporation was impaired, and that value of assets of corporation remaining after payment of dividends was less than aggregate amount of debts and liabilities including capital, was sufficient. Cases that cite this headnote [15]

Corporations and Business Organizations Allegations as to corporate right of action Pleading Actions ex delicto in general In stockholders' derivative action against directors and others to recover dividends allegedly paid out of capital of corporation in violation of law, complaint need not set forth figures of corporate assets, liabilities, capital, and surplus, but such matters could be obtained through bill of particulars. Cases that cite this headnote

1 Cases that cite this headnote Attorneys and Law Firms [13]

Pleading Particular causes of action In stockholders' derivative action against directors and others controlling corporation or directors, for damages for failure to attempt to obtain certain business, complaint should separately state and number the alleged wrongful acts complained of, where some of such acts might be barred by six-year statute of limitations. Civil Practice Act, § 48. Cases that cite this headnote

[14]

Corporations and Business Organizations Sufficiency of bill, petition, or complaint In stockholders' derivative action against directors and others to recover dividends allegedly paid out of capital of corporation in violation of law, complaint alleging that corporation had no surplus in excess of capital when dividends were declared and

*174 Weinstein & Levinson, of New York City, for Fannie Rickles, a stockholder of United Corporation. Abraham L. Pomerantz, of New York City, for plaintiffs in consolidated action. Davis, Polk, Wardwell, Gardiner & Reed, of New York City, for defendants J. P. Morgan et al. Simpson, Thacher & Bartlett, of New York City, for defendant George H. Howard. Beardsley & Taylor, of New York City, for defendants Floyd L. Carlisle and Roy K. Ferguson. Bigham, Englar, Jones & Houston, of New York City, for defendant Hendon Chubb. Cravath, de Gersdorff, Swaine & Wood, of New York City, for defendant Philip G. Gossler.

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

3

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

LeBoeuf, Machold & Lamb, of New York City, for defendants United Corporation and New York United Corporation. Opinion SHIENTAG, Justice. This is a motion by defendants to dismiss the second amended consolidated complaint in a stockholders' derivative action. Plaintiffs are stockholders of the United Corporation which owns all the stock of its subsidiary, New York United Corporation. Both companies were organized with authority to engage in the business of underwriting securities in public utility holding and operating companies, and the United Corporation, in addition, was authorized to engage in the business of owning and holding such securities. *175 The defendants are the directors of these two corporations certain of the officers of the United Corporation, the partners of J. P. Morgan & Co., the partners of Drexel & Co., Morgan, Stanley, Inc., Bonbright & Co., Inc., and two officers and stockholders of the latter. All of the defendants other than the individuals, as such, are engaged in the same underwriting business in competition both with the United and New York United Corporations. The first cause of action alleges that the United Corporation and New York United Corporation were actually engaged in the underwriting business and were fully equipped financially and otherwise to conduct such business successfully on a large scale, and did actually conduct various large scale underwritings successfully and profitably; that in May, 1929, the defendant bankers together with others caused to be organized a public utility holding company known as Commonwealth and Southern Corporation and underwrote 2,250,000 shares of its common stock and 2,250,000 option warrants by subscribing therefor at the price of $45,000,000; that the defendant bankers and the then directors and officers of the United Corporation caused it to buy and pay for 22.2% of the securities and caused the United Gas Improvement Company, of which the United Corporation had working control, to buy and pay for an additional 11.1% thereof. The complaint then alleges that the bankers, by virtue of their control, fraudulently prevented the United Corporation and New York United Corporation from

making any effort or attempt to obtain this underwriting business; that the defendant officers and directors of these companies fraudulently neglected and refused to exercise independent judgment to that end, all with the purpose and effect of diverting the available underwriting business and profits to the defendants' benefit; and accordingly an accounting is demanded from the alleged wrongdoers. In the second cause of action it is alleged that the defendants Morgan & Co., Drexel & Co. and Bonbright & Co., Inc., organized Niagara Hudson Corporation, in June, 1929, and earned underwriting fees in which the United Corporation and its subsidiary were fraudulently prevented from participating. In the third cause of action it is alleged that during the year 1929, the United Corporation acquired substantial blocks of the voting stock of various utility holding and operating companies, to-wit, the United Gas Improvement Co., Commonwealth & Southern Corp., Public Service Corporation of New Jersey, Niagara Hudson Power Corp., Columbia Gas & Electric Corporation, Consolidated Gas Co., Electric Light & Power Co. of Baltimore, American Water Works and Electric Co., Consolidated Edison Co. of New York, Lehigh Co. and Navigation Co., and Columbia Oil & Gasoline Co.; that from 1929 to the present time these corporations have obtained funds by the public issuance of securities; that all of the aforesaid underwriting business and large ensuing profits were obtained by J. P. Morgan & Co., Drexel & Co., Bonbright & Co., Inc., and Morgan, Stanley & Co., Inc., as underwriters, and the United *176 Corporation and New York United Corporation were not permitted to participate therein. Then follow the allegations as set forth in the first and second causes of action with respect to the legal duty of the directors and officers, the conflict of interest and the fraudulent exercise of control by the bankers, and the resulting inactivity of the directors to obtain the business for United. As a fourth cause of action the complaint alleges that the defendants caused to be paid out of the assets of the United Corporation as dividends on its preferred and common capital stock during the years 1934–38 a total of $19,704,553 when at the specific times mentioned it is alleged the United Corporation had no surplus in excess of capital and when its capital was impaired.

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

4

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

As a fifth cause of action the complaint alleges that the defendants caused dividends to be paid out of the assets of the United Corporation on its preferred and common stock during 1934–35 in the aggregate of $7,466,062, in violation of the law of Delaware. The defendants urge that the entire complaint fails to state a cause of action because no facts are alleged giving rise to any legal inference of a violation of duty on the part of the defendants and of injury to the United Corporation. In addition, the defendants urge that the first two causes of action are barred by the six year statute of limitations, and that the third cause of action should be made more definite and certain and be separately stated and numbered so as to permit the interposition of the defense of the statute of limitations in so far as it may be applicable. As to the first and second causes of action, it is unnecessary to consider the defendants' motion in so far as it seeks to dismiss such causes of action on the ground of legal insufficiency. Both of those actions relate to profits which, it is claimed by plaintiffs, the defendant bankers made to the exclusion of the United Corporation, in 1929. The question to be determined is whether the ten-year or the six-year statute of limitations applies. Civil Practice Act, §§ 53, 48. [1] Plaintiffs argue that since profits, in effect, are involved and an accounting declared to be necessary, the ten-year statute automatically applies. Whatever may be the proper period of limitation as to the banking defendants, those defendants who are not charged with receipt of profits but charged only as co-conspirators and joint tort-feasors are obviously entitled to invoke the sixyear statute. [2] With respect to the defendants charged with the receipt of profits, so called, it will be observed that what plaintiffs are really seeking are money damages from the defendant directors for their alleged negligence and nonfeasance and money damages from the defendant bankers measured in the amount of money which they made and the United Corporation and New York United Corporation thereby did not make. The claim, therefore, is one for money damages limited by the six-year statute. Cwerdinski v. Bent, 256 App.Div. 612, 11 N.Y.S.2d 208, affirmed 281 N.Y. 782, 24 N.E.2d 475.

*177 In that case plaintiff brought an action against directors to recover alleged excessive bonus payments, plaintiff setting up the usual averments of abuse of trust, individual profit by fiduciaries, etc., and demanding that the court determine the amounts paid under the bonus plan in excess of eight per cent. of net earnings of the corporation, after proper allowance for all expenses including obsolescence and depletion but not depreciation. The claim was made that an accounting would be needed to ascertain this figure, and the court at Special Term so ruled. The Appellate Division and the Court of Appeals, however, held that, regardless of the machinery that might be required, the essence of the claim was for money damages to the extent of the excessive compensation paid, and that the six-year statute governed. To the same effect, see Dunlop's Sons v. Dunlop, 259 App.Div. 233, 18 N.Y.S.2d 818, 819. That action was against directors for an accounting for profits alleged to have been made by them. It appeared that the directors individually contracted with a trustee in bankruptcy to purchase for $80,000 a plant to be used by the corporation for processing silk, and in June, 1931, sold this plant to the plaintiff corporation at a price exceeding the price paid by more than $15,000, which excess was alleged to constitute ‘secret profits derived by the defendants in violation of their positions of confidence and trust’. The Special Term refused to apply the six-year statute on the ground that unlawful profits may be unearthed more effectively in equity; that it was the nature of the wrong rather than the adequacy of the legal remedy which determined whether the six or the ten year statute of limitations applied; that where there was waste or negligence with no personal profit to wrongdoing directors, the six-year statute governed, but where the wrongful conduct of the directors resulted in personal profit to themselves, the longer period of limitations applied. The Appellate Division, in reversing, said: ‘What we have in this case is a claim for the return to the corporation of a loss suffered by the corporation. The amount of the loss is the same as the amount of the so-called ‘profit’ received by the defaulting officers and directors. The wrong done to the company is no different from the wrong done to a corporation when an excess salary is paid to an officer or when gifts are made to strangers or when bonuses are wrongfully paid. The exact amount of the loss is known. Though the pleader may call this loss to the corporation a ‘profit’ to the unfaithful fiduciary which ought to

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

5

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

be ‘accounted for’, the pleader's characterization of the resulting legal situation with the intention of producing the application of a particular statute of limitations is not binding in any way on the court. The wrong pleaded is not a claim for profits in the sense in which that term is properly used in stockholders' actions.' See also Davis v. Cohn, 256 App.Div. 905, 9 N.Y.S.2d 881. In the same way, any monetary benefits which the defendants obtained to the exclusion of the United Corporation represent merely the losses occasioned to the corporation and the moneys which the corporation would have received but for the defendants' improper neglect of their duty to obtain the underwriting business. Despite the fact that the defendants *178 would be entitled to credit for their expenses in connection with the business which the United Corporation subsidiary should have had, the amount of the corporation's loss in respect to each transaction is definite and ascertainable in an action at law. In its nature and effect the claim is one for money damages at law. [3] There is no allegation that the subsidiary corporations whose securities were underwritten were overcharged, nor is there any allegation that the commissions were not fair or that any directors as such improperly profited therefrom. The gist of the alleged wrongdoing was an improper diversion of business from the United Corporation and New York United Corporation. This amounts to waste and as such is barred by the six-year statute of limitations.

In Lyon v. Holton, 172 Misc. 31, 14 N.Y.S.2d 436, affirmed 259 App.Div. 877, 20 N.Y.S.2d 1015, the defendant directors were charged with having committed fraud by the initiation of a stock selling scheme and by the purchase of the stock by the corporation in order to permit the adoption of the plan to sell stock. While it was held that the stock acquisition and selling were not fraudulent, this court declared (172 Misc. page 35, 14 N.Y.S.2d page 440): ‘In any event, the most that can be said is that it constituted waste, mismanagement or negligence on the part of the directors. That being so, any cause of action based upon the alleged unlawfulness in the acquisition of this stock in 1929 and 1930 is barred by the Statute of Limitations. In such cases the six-year statute applies. * * * Potter v. Walker, 276 N.Y. 15, 26, 27, 11 N.E.2d 335. There is nothing to show that the directors derived any profits from the acquisition of the stock. Even if it

be inferred that the directors received some benefit from the stock acquisition, the character of the cause of action would still remain one of waste or negligence and the sixyear period of limitation would apply. Cwerdinski v. Bent, 256 App.Div. 612, 11 N.Y.S.2d 208, 1st Dept.; see also Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259, 11 N.E.2d 902, 114 A.L.R. 521; Carr v. Thompson, 87 N.Y. 160.’ So, here, even if the banking defendants received some benefit as a result of their interest in their banking concerns, the action would still be one for waste or negligence. The authorities relied on by the plaintiffs do not conflict with the rule here announced. In Goldstein v. TriContinental Corp., 282 N.Y. 21, 24 N.E.2d 728, and Potter v. Walker, 276 N.Y. 15, 11 N.E.2d 335 the tenyear statute was held applicable where there were claims of profits which were obtained by the directors in addition to losses occasioned thereby to the corporation. In the Goldstein case a differentiation was made between the amount of recovery representing the loss to the corporation and the amount of recovery representing profits to the defendants over and above that loss, and it was held that the ten-year statute governs only the latter portion of the recovery. The court said (282 N.Y. page 30, 24 N.E.2d page 732): ‘The defendants contend that the allegations just quoted state two distinct causes of action—one of tort for the alleged losses and the other *179 to establish a constructive trust of the alleged profits. All the securities in question were purchased more than six years before the commencement of this action. Hence the defendants say that the six-year Statute of Limitations is a bar to what they assert is the separate cause of action in tort for the alleged losses. ‘The courts below have read this division of the complaint as not stating any distinct right of recovery for injury to the property of New Tri-Continental. They ruled, on the contrary, that what is stated is a single cause of action for an accounting to recover profits received by the defendant directors of New Tri-Continental through Seligman & Co., exceeding the losses to New Tri-Continental resulting from the same transactions. The conclusion below was that the ten-year Statute of Limitations is applicable. Civil Practice Act § 53. We agree that this was the right interpretation of the face of the complaint. Potter v. Walker, 276 N.Y. 15, 11 N.E.2d 335.’

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

6

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

In the instant case, as in the Cwerdinski and Dunlop cases, the profit claimed to be due from the banking defendants is not an amount exceeding any losses occasioned to the corporation. The two items are identical. What plaintiffs seek are the underwriting fees derived by defendants from the issuance of the stock and option warrants of certain corporations. What the corporations lost, the defendant underwriters gained. The six-year statute of limitations applies to the first and second causes of action and each of them is accordingly barred. [4] The legal sufficiency of the third cause of action is challenged by the defendants. It should be emphasized that this opinion does not purport to deal with the merits of the plaintiffs' various claims. The motion is addressed to the pleadings and their sufficiency in law. Plaintiffs are therefore entitled to have the complaint taken at its face value; in fact, they are entitled to the benefit of the most favorable inferences that may be drawn from the complaint.

The theory of the third cause of action is the elimination by the fiduciaries of their cestui as a competitor. In other words, plaintiffs charge that the defendant bankers and directors of the United Corporation and New York United Corporation, acting in concert with the defendant bankers, made no effort to obtain the underwriting business in connection with the issue of securities and, further, that the defendant bankers, by virtue of their domination and control over the United Corporation and New York United Corporation, fraudulently caused the latter corporations to use their influence and control over their subsidiaries in order to induce such corporations to award the underwriting business to the defendant bankers. Having thus eliminated the United Corporation and the New York United as their competitors for the underwriting business of the subsidiaries, the defendants, it is alleged, proceeded to utilize their domination, control and influence in order to obtain this business for themselves. This conduct on the part of the fiduciaries if established on a trial would amount to a violation of their legal obligation to the corporations they were elected to serve and for such violation they would have *180 to respond in damages to the cestuis, namely, the United Corporation and New York United Corporation. [5] It must be borne in mind that the United Corporation and New York United Corporation were also engaged

in the business of underwriting securities of public utility corporations. It was the duty of their directors and officers to make every effort consonant with good, honest judgment to obtain for those corporations as much of the underwriting business as possible, and to make this field of activity as profitable as it could be made. This does not mean, however, that the directors and controlling stockholders of plaintiffs were required to do anything detrimental to the affairs of the other corporations of which they were officers and directors. By the same token they could not lawfully conduct themselves in a manner detrimental to the interests of the United Corporation and New York United Corporation. [6] As pointed out by the court in Hyams v. Calumet & Hecla Mining Co., 6 Cir., 221 F. 529, 537: ‘* * * the rule, independently of the state or national anti-trust statutes, is fundamental that one in control of a majority of the stock and of the directors of a corporation occupies a fiduciary relation towards the minority stockholders, and is charged with the duty of exercising a high degree of good faith, care, and diligence for the protection of such minority interests. Every act in its own interest to the detriment of the holders of minority stock becomes a breach of duty and of trust, and entitles [them] to plenary relief from a court of equity.’

To the same effect is the language of the Court of Appeals in Kavanaugh v. Kavanaugh Knitting Co., 226 N.Y. 185, 123 N.E. 148, 151: ‘When a number of stockholders constitute themselves * * * the managers of corporate affairs or interests, they stand in much the same attitude towards the other or minority stockholders that the directors sustain generally towards all the stockholders, and the law requires of them the utmost good faith.’ The court in Hazzard v. Chase Nat. Bank of City of New York, 159 Misc. 57, 287 N.Y.S. 541, 570, affirmed 257 App.Div. 950, 14 N.Y.S.2d 147, 282 N.Y. 652, 26 N.E.2d 801, further stated: ‘So strict is the rule of undivided loyalty to the beneficiary that the mere fact that a trustee has an interest inconsistent with the interest of his cestui, casts upon him the burdens of explanation and justification.’ In language peculiarly applicable here, Mr. Justice Rosenman, in a learned and exhaustive opinion in Blaustein v. Pan American Petroleum & Transport Co., 174 Misc. 601, 21 N.Y.S.2d 651, 715, says: ‘Where this

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

7

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

fiduciary relationship exists, the duty of the trustee is to manage the property and affairs of the corporation with an eye single to the advantage of the corporation itself. * * * In line with general principles of equity it was not proper for the fiduciary to take these opportunities unto itself, while at the same time it stayed the processes of its subsidiary directed toward the same business ends. It is not only a case of a fiduciary seizing business opportunities of the cestui. There is the additional factor here that the trustee at the same time kept its *181 dominant hand upon the cestui, suppressing any attempt by the cestui to go out and compete with the trustee.’ This language almost paraphrases the situation claimed to be present in the instant case. The gravamen of the third cause of action, as already observed, is that the controlling interests of the United Corporation and New York United Corporation suppressed any attempt by the cestuis to go out and compete with the fiduciaries. This is all the more so in the instant case, where the companies, as here, were engaged in precisely the same type of business and where the opportunities were open to both. See Guth v. Loft, Del. Sup., 5 A.2d 503; Irving Trust Co. v. Deutsch, 2 Cir., 73 F.2d 121, reversing D.C., 2 F.Supp. 971, certiorari denied 294 U.S. 708, 55 S.Ct. 405, 79 L.Ed. 1243. [7] [8] Where a fiduciary is engaged in a business in competition with his corporation, he cannot actively use his position and power over his corporation so as to prevent the corporation from seeking certain business in competition with himself. Even though mere stock ownership without management and control does not prevent a stockholder from competing with his corporation, a stockholder in a position of control may not so exercise that power as to cause his corporation's inability to purchase that for which both are competing. In re New York Rys, Corp., 2 Cir., 82 F.2d 739. [9] It is charged that the directors here and the dominant factions by their acts and control not only failed and refused to attempt to obtain certain business for their own corporations, in other words were guilty of inactivity when they should have been active, but that they affirmatively prevented the corporations from competing with them for that business. This they may not do. [10] It is argued by the defendants that no good cause of action is pleaded in the absence of allegations that United was as well equipped to handle the underwritings as the defendants, and that the particular business obtained from the named subsidiaries of the United by the defendant

underwriters would have gone to United. Such allegations are not required of the plaintiffs. The evil complained of is that business was available but no opportunity was offered to United and New York United to compete for such business. That the defendants may show that in any event regardless of competition they would have obtained such business themselves is a matter of defense; it is not a matter of affirmative allegation for the plaintiffs. That the door was closed to them by wrongful domination and control sufficiently spells out the cause of action. [11] While the third cause of action generally is sound in law, and the theory upon which it is based sufficiently charges legal liability against the defendants, it fails to incorporate certain essential allegations which may be corrected upon amendment. There is no allegation, for example, when the securities and what securities were issued and that the same might have been underwritten by United. The general allegations of conspiracy do not supply this deficiency. The complaint should state the *182 specific transactions in respect of which the directors and officers under the defendants' domination failed and refused to obtain for United the business obtained for the defendants, and which was diverted by defendants to themselves. [12] Directorship in two competing corporations does not in and of itself constitute a wrong. It is only when a business opportunity arises which places the director in a position of serving two masters, and when, dominated by one, he neglects his duty to the other, that a wrong has been done. [13] The third cause of action alleges the commission of certain acts beginning with the year 1929 to date. Some of these acts may be barred by the six-year statute of limitations. It is therefore necessary for the plaintiffs separately to state and number the alleged wrongful acts complained of in this cause of action so that the defendants may be in a position to plead the statute as they may be advised. [14] [15] The fourth and fifth causes of action are sufficient as matter of law. These actions seek to recover from the defendants certain dividends paid out of the capital of the United Delaware Corporation in violation of the laws of New York and Delaware. See GermanAmerican v. Diehl, 216 N.Y. 57, 109 N.E. 875, and Quintal v. Greenstein, 142 Misc. 854, 256 N.Y.S. 462,

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

8

Singer v. Carlisle, 26 N.Y.S.2d 172 (1940)

affirmed 236 App.Div. 719, 257 N.Y.S. 1034. It is not necessary for the plaintiffs to set forth the figures of the corporate assets, liabilities, capital and surplus. These are matters which may be obtained through a bill of particulars. The complaint alleges that at the times the dividends were declared and paid the corporation had no surplus in excess of its capital and the dividends were paid while the capital of the United Corporation was impaired and the payment of said dividends further impaired the capital by the amount thereof; that the value of the assets of the United Corporation remaining after the payment of each of said dividends was less than the aggregate amount of its debts and liabilities, including capital. Such allegations are sufficient in law.

Accordingly, the motion to dismiss is disposed of as follows: End of Document

(1) The first and second causes of action are dismissed on the ground that they are barred by the six-year statute of limitations; (2) The third cause of action is dismissed with leave to plaintiff to plead over in conformity with this opinion, and in so pleading separately to state and number the causes of action as indicated herein. (3) The motion to dismiss the fourth and fifth causes of action is denied. Settle order on notice. All Citations 26 N.Y.S.2d 172

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

© 2017 Thomson Reuters. No claim to original U.S. Government Works.

9