Loewenstein v. Diamond Soda Water Manufacturing Co.

Laughlin, J.: The plaintiffs bring this action in behalf of themselves arid all .other stockholders of the Diamond Soda Water Manufacturing Company, similarly situated, for substantially the same relief as is demanded in Jacobus v. Diamond Soda Water Mfg. Co. (94 App. Div. 366). By stipulation the two actions were tried together, and the testimony in each is the same. The decision and interlocutory ' judgment in this action decrees the same relief as is awarded in the other action with the exception that, on account of the appointment of the receiver in the director’s action, none has been appointed here; and the defendants are not required to. account in this action for the things concerning which they are required to account in the other; but all of the. individual defendants are herein required to account to the respective plaintiffs. individually for all damages .sustained by depreciation in value or injury to the capital stock held by them respectively in the Diamond Company, caused by the unlawful and fraudulent management of its affairs by the defendants or either of them. This accounting is directed to be had before the referee appointed in the other action, and costs, are awarded against all defendants except the Diamond Company and the City Trust Company, but not an extra allowance. [385] It is, therefore, unnecessary to discuss in this opinion the questions that have been considered and decided in the other action, for in so far as the questions are the same the other opinion will be followed and applied. The appellants moved to dismiss the complaint at the close of the plaintiffs’ case and at the close of the evidence upon the ground that the director’s action, commenced simultaneously herewith, is a bar or that it rendered this action unnecessary, and they excepted to the denial of their motion. Of course the other action is not a bar, for it is not brought by the same parties nor in the same right. It is a statutory action under sections 1781 and 1782 of the Code of Civil Procedure by a director, while this' action is founded upon a rule of equity which authorizes a stockholder to maintain an action in the right of the corporation where the directors or trustees refuse upon demaiid to bring the action, or where the circumstances excuse a demand upon the ground that it would be futile. It is true the attorneys for the plaintiffs are the same in both actions, the parties plaintiff are closely related by blood or marriage, and their private interests in the subject-matter of the litigation are similar. The stockholders, however, were not obliged to await the determination of the director’s action, for by so doing the Statute of Limitations might have barred an action by them. Nor is the question affected by the fact that the director who brought the other action joined with these plaintiffs as a stockholder. His right to maintain the other action depended upon his being a director and upon proof of waste or mismanagement. The other plaintiffs in this action were not joined in the director’s action nor was it essential that they should be. They had no voice in the conduct of that action and it might have been discontinued in disregard of their protests. If conducted to a successful determination their claims, so far as they are based on the rights of the corporation, would have been protected as well there as here; and it is for that reason that the court, upon the decision of the issues, very properly decreed all the relief to which the corporation was entitled in the director’s action, without requiring any accounting in its behalf in this. It would seem, however, that it was unnecessary to put the defendants to the trouble and expense or to impose upon the [386] court the burden of trying both actions. We think the trial of the issues in this action should have been deferred by stipulation or order of the court until the determination of the other. The plaintiffs as stockholders have a standing to maintain this action; but their conduct does not commend itself to the court. They do not appear to have had any objection to turning over the management of the Diamond Company to other hands or even to putting it under the control 'of a rival Corporation, if their terms of sale of their stock had been acceded to. The plaintiff Jacobus remained a director of the Diamond Company. He does not appear to have objected to the resolution of the board of directors authorizing the president to lease part of the offices and factory to the. American Company or to have protested against the relations subsequently established between the two companies. Nor does it appear that the other plaintiffs made any objection thereto prior to the commencement of this action, For these reasons we think the plaintiffs should not have been awarded costs after issue joined nor should they be awarded costs of the appeal. The appellants also duly moved for a dismissal of the complaint at the opening, at the close of the plaintiffs’ case and at the close of all the evidence, upon the ground that no demand upon the board of directors of the Diamond Company to bring this action or facts or circumstances excusing demand and showing that it would have been futile were -alleged or shown, and they excepted to the denial of the motions. The facts stated in -our other opinion show that the Diamond Company is dominated and controlled by the American Company, a rival corporation engaged in the same line of business. The contracts made and relations established between the Diamond Company and the American Company were made and established by the directors who were such at the time of the commencement of this action-. The relief demanded and awarded is the cancellation of the contracts between the companies, the severance of their relations and an accounting to the Diamond Company for the damages sustained by those contracts and relations which the directors made, established or ratified, and the execution and continuance of which they permitted. It is not likely that directors would, in these circumstances, have voluntarily canceled the contracts and severed such relations, and it is not probable that they [387] would have authorized the company to institute an action against themselves to account for mismanagement of its affairs. We are of opinion, therefore, that the facts alleged and shown excuse the demand. (Craig v. James, 71 App. Div. 238; Flynn v. Brooklyn City R. R. Co., 158 N. Y. 493; Greaves v. Gouge, 69 id. 154; Boaz v. Sterlingworth Railway Supply Co., 68 App. Div. 1; Sage v. Culver, 147 N. Y. 241.) In so far as the interlocutory judgment decrees that the plaintiffs in their individual capacities are entitled to recover for damages to their stock, we think it is unauthorized. There are cases in which an individual stockholder may maintain an action in his own right to recover damages to his stock, and some of them are pointed out in the case of Niles v. N. Y. C. & H. R. R. R. Co. (69 App. Div. 144; affd., 176 N. Y. 119) ; but this case falls within the rule declared in the Niles case, that where there has been no damage to the stock as contradistinguished from the damage to the property of the corporation itself, the cause of action belongs to the corporation, and redress may only be had through it or in its right. The depreciation in the value of the stock owned by the plaintiffs, if any, was caused by the injury to the corporation for which it alone, or a stockholder or director suing in its right, may recover. Moreover the plaintiffs own stock in severalty; and, therefore, could not join in an action to recover any damages they may have sustained individually, and this should not be considered such an action. It follows, therefore, that the interlocutory judgment should be modified by striking out subdivision 4 thereof, which directs an accounting to the plaintiffs in their individual right and by excluding from the award of costs all costs after issue joined, and as thus modified, the interlocutory judgment should be affirmed, without costs. Van Brunt, P. J., O’Brien and Hatch, JJ., concurred; Ingraham, J., concurred in result. Judgment modified as directed in opinion, and'as modified affirmed, without costs.