McCoy v. Gas Engine & Power Co.

Miller, J.: This is a stockholder’s action brought by the plaintiff against the defendant corporation and the appellant to set aside as unconscionable a contract by which the corporation retained the appellant as attorney to represent it in certain proceedings, instituted pursuant [772] to chapter 423 of the Laws of 1903, as amended by chapter 634 of the Laws of 1905, to assess the damages caused by a change of grade of a street. The agreement, provided fór compensation on a sliding scale, contingent upon the amount of the award, viz.: Twenty-fivé per cent up. to $50,000, thirty-three and one-third per cent of any amount between $50,000 and $100,000, arid forty per cent of any amount between $100,000 and $150,000, and fifty { per cent of any amount in excess of the latter sum. The award was for $306,000. The defendant corporation served an answer in this suit, alleging that the contract violated section 74 of the Code of Civil Procedure in that it provided that the appellant should pay all expenses. . The trial court found that the contract was void both because it was unconscionable, and because it violated: section 74 of the Code of Civil Procedure, and that the appellant’s services to the corporation were reasonably Worth the sum of only $15,000. The appeal is from a judgment setting aside the contract and fixing the compensation to be. paid by the corporation out of the award to the appellant at $15,000. The complaint does not allege a demand upon the corporation to bring an action, and the undisputed evidence shows-that no demand was made, ánd that the actioti is in fact prosecuted by the corporation in the name of a stockholder. The plaintiff sought to excuse a demand on, and refusal by,. the corporation to bring an action by showing that a majority of the directors who authorized the employment of the appellant were still in office. But the complaint does not allege that they were guilty of wrongdoing. ■ The action being derivative, the plaintiff must show either a demand and refusal or that a demand would be futile, as where those in control are themselves the wrongdoers and there is reason to. believe that, if the. action were brought by the corporation, it would not be prosecuted in good faith. (O’Connor v. Virginia Passenger & Power Co., 184 N. Y. 46.) The theory of the action is, not that the directors have attempted to perpetrate a fraud upon the corporation, but that the appellant has perpetrated a fraud upon them. The law permits agreements between attorney and client respecting the compensation to be paid the attorney and, if no undue advantage is taken of the client, such contracts are valid and enforcible. (Matter of Fitzsimons, 174 N. Y. 15.) The word “■ unconscionable ” has frequently been applied to con [773] tracts made by lawyers for wliat were deemed exorbitant contingent fees. But by that nothing more has been meant than that the amount of the fee, standing alone and unexplained, may be sufficient to show that an unfair advantage was taken of the client or, in other words, that a legal fraud was perpetrated upon him. (Morehouse v. Brooklyn Heights R. R. Co., 185 N. Y. 520.) The theory of the action is that the appellant in some way overreached the directors of the corporation, and the plaintiff relies wholly upon the contract for compensation to prove that. But that furnishes no reason to suppose that the corporation would be unwilling to sue if the matter were called to its attention or that it would not prosecute the suit, in good faith if one were begun. A corporation cannot prosecute a suit in the name of a stockholder for the purpose of gaining a supposed advantage over the defendant, as was attempted to be done in this case according to the plaintiff’s own evidence. Woodward, Burr and Rich, JJ., concurred; Jenks, J., taking no part. Judgment reversed and new trial granted, costs to abide the final award of costs.