Long Park, Inc. v. Trenton-New Brunswick Theatres Co.

Thacher, J. The plaintiff, Long Park, Inc., a corporate stockholder of Trenton-New Brunswick Theatres Company (hereinafter referred to as Trenton), appeals from a judgment dismissing the complaint in an action brought in behalf of itself and of all other stockholders of Trenton for a declaratory judgment determining the validity or invalidity of an agreement to which all of the stockholders of Trenton and Trenton itself were parties. This agreement was held valid at Special Term and in the Appellate Division, and the single question presented here is whether the challenged portions of the agreement are invalid under the provisions of section 27 of the General Corporation Law of the State, which provides: “ The business of a corporation shall be managed by its board of directors ”. The same provision appears in the New Jersey statute (New Jersey Statutes, tit. 14, Corporations, General, § 14:7-1). The principal defendant, B. F. Keith Corporation (hereinafter referred to as Keith), is a corporation organized and existing under the laws of the State of New York and, pursuant to the terms of the agreement in question, has for some time been acting as manager of all theatres leased and operated by Trenton. The plaintiff and all of the other corporate defendants are corporations organized and existing under the laws of the State of New Jersey. The appellant and the respondent have stipulated that for the purposes of this suit the agreement *177 dated September 1, 1942, is in all respects a New York contract made and entered into in the State of New York and that it is to be construed according to the laws of the State of New York. The question presented by counsel both for the appellant and the respondent upon this appeal is whether the agreement of September 1, 1942, is valid and legal under the laws of this State. Under these circumstances we are not impelled to relinquish our discretionary jurisdiction. The authorized capital stock of Trenton consists of 1,000 shares of the par value of $100 each, divided into four classes of 250 shares, designated as Class A-l, Class A-2, Class B and Class C. The Class A-l and Class A-2 shares are owned by defendant-respondent Keith, the Class B shares are owned by plaintiff-appellant, and the Class C stock is owned by Trenton Theatres Building Company. The agreement is for a period of nineteen years from September 1,1942, to August 31,1961, with an option in Trenton to extend the term. With reference to the powers of Keith as the owner of all the Class A-l and Class A-2 stocks and as the manager of the theatres, article XIV of the agreement provides: “ Section 1. Management of Theatres: During the term of this agreement, unless the management of the theatres is changed as hereinafter provided, the holders from time to time of the Class A-l and A-2 stocks of the Tenant, agree to manage, or to cause RKO Service Corporation or any company affiliated with and designated by the holders of such Class A-l and A-2 stocks, to manage the Capitol, Palace, Trent, South Broad, Lincoln. State (during the term of the lease of said State Theatre or any extension or renewal thereof) and Brunswick Theatres, all in the City of Trenton, New Jersey, and the Albany, Rivoli and State Theatres in the City of New Brunswick, New Jersey, and any other theatres which may hereafter be leased or operated by the Tenant or any subsidiary thereof. The person managing such theatres (which shall be the holders of Class A-l and A-2 stocks unless and until the management is changed as hereinafter provided) from time to time during the term of this agreement, is herein sometimes referred to as ‘ the Manager. ’ “ The Manager is hereby given full authority and power to supervise and direct the operation and management of all suck *178 theatres and in furtherance and not in limitation of the foregoing, it shall have power and authority to buy and book all features, short subjects, newsreels and other motion pictures, stage shows, personal appearances, television and other attractions and entertainment to be exhibited, played or performed in the theatres'; to designate and, from time to time, to change the entertainment policy and scale of admission prices; to select, engage, supervise and direct and discharge any and all necessary employees or personnel for each of said theatres; to maintain the theatres in good operating condition; to do any and all other acts and things which are customary in connection with the management of theatres; and to carry out such policies or projects as the Board ,of Directors of the Tenant or its subsidiaries may approve.” These powers continue as stated “ unless and until the management is changed as hereinafter provided ”, and the provision for change is found in section 4 of article XI'V and reads as follows: “ Section 4. Change of Management: Anything in this Article contained to the contrary notwithstanding, the holders of a majority of the B stock and a majority of the 0 stock jointly may, at any time and from time to time during the term of this agreement, submit to the American Arbitration Association the question as to whether or not the management of the Tenant and its subsidiaries should be changed from management by the holders of A-l and A-2 stock of the Tenant to management by the holders of B and C stock jointly.” Under provisions relating to the arbitration neither the holders of the B and G stock jointly nor the holders of the A-l and A-2 stock jointly have any right to submit to arbitration the question of a change of management for a period of one year after the effective date of the last change of management. By virtue' of these provisions the management of all theatres leased or operated by Trenton or any subsidiary is vested in Keith, without approval of the directors, and this management may not be changed by the directors but only as provided in section 4 above quoted. The directors may neither select nor discharge the manager, to whom the supervision and direction of the management and operation of the theatres is delegated with *179 full authority and power. Thus the powers of the directors over the management of its theatres, the principal business of the corporation, were completely sterilized. Such restrictions and limitations upon the powers of the directors are clearly in violation of section 27 of the General Corporation Law of this State and the New Jersey statute (Benintendi v. Kenton Hotel, 294 N. Y. 112; McQuade v. Stoneham, 263 N. Y. 323; Manson v. Curtis, 223 N. Y. 313). We think these restrictions and limitations went far beyond the agreement in Clark v. Dodge (269 N. Y. 410). We are not confronted with a slight impingement or innocuous variance from the statutory norm, but rather with the deprivation of all the powers of the board insofar as the selection and supervision of the management of the corporation’s theatres, including the manner and policy of their operation, are concerned. The judgments should be reversed, with costs in all courts, with directions to enter a judgment in favor of the appellant declaring the agreement of September 1, 1942, to be illegal, void and unenforcible.