German American Coffee Co. v. Diehl

Page, J. The plaintiff is a corporation organized and existing under the laws, of the state of New Jersey, but duly authorized to do business in this state and having its main business office and transacting most of its business in the city of New York. The defendant, Clarence A. Diehl, it is alleged in the complaint has been a duly elected and qualified director of the plaintiff and its treasurer from about July 6, 1903, continuously until January 22, 1913. The action is brought pursuant to section 91-a of the General Corporation Law (Laws of 1913, chap. 633), to compel the defendant to account for various alleged acts of nonfeasance and misfeasance in his office of director, whereby the corporation is said to have sus — 549 — tained injury and loss of property and assets. The defendant has demurred to the complaint upon the grounds: First, that there is a defect of parties defendant in that the alleged unlawful, fraudulent and négligent acts were performed by the board of directors acting in concert and the other directors who participated in the acts are not made parties defendant; and that the promoters of the various companies referred to in the complaint with which the defendant is alleged to have made fraudulent and improvident contracts should be joined as parties defendant and the said companies themselves also should be joined as parties defendant. Second, that causes of action have been improperly united in that an action in equity for an accounting has been joined with actions at law for the recovery of damages due to fraud, waste, negligence, secret profits, etc. Third, that the complaint does not state facts sufficient to constitute a cause of action. The issues of law have been brought on for hearing as a contested motion. As to the first ground alleged, the demurrer must be overruled. Section 91-a of the General Corporation Law, supra, pn> vides that “the supreme court shall also have and exercise jurisdiction in equity at the suit of a corporation, or of a receiver, or trustee in bankruptcy thereof, to compel one or more trustees, directors, managers or other officers of the corporation to account for injury to or losses of the funds, assets or property of the corporation, caused by or through any neglect or failure of the defendants to perform, or for violation of their duties.” The statute under which the suit is brought thus clearly authorizes an action against a single guilty director without joining his codirectors. It has been so held in cases brought under the preceding sections 90 and 91, of which the — 550 — present section is merely an extension. Buckley v. Stansfield, 155 App. Div. 735. And furthermore, on principle there is no ground for holding that the co-directors of the defendant are necessary parties. The rule is correctly stated in People v. Equitable Life Assurance Society, 124 App. Div. 714, relied upon by the demurrant, at page 729, that “ in an action against trustees for an accounting all are necessary parties where a right-of contribution exists.” While a director of a corporation may be said to be a trustee of the property of the corporation for some purposes, the present action is not one to compel the defendant to account for the property and funds which actually or nominally came into his hands as trustee jointly with his codirectors. The complaint rests principally upon various acts of misfeasance and neglect of duty on the part of the defendant which at common law would only give rise to separate actions at law for damages. O’Brien v. Fitzgerald, 143 N. Y. 377. The acts of the defendant relied upon are all acts of* alleged waste, improvidence and fraud whereby the property of the plaintiff was dissipated, such as the purchasing of property at a price grossly in excess of its value, the making of contracts with other persons and corporations which were unfair to the plaintiff and involved a loss of its assets, a sale of the company’s stock for less than its value, the payment of excessive commissions upon the sale of stock, failure to keep proper books of account for the corporation showing the disposition of its funds and assets, a payment of a bonus to officers and directors of the company of five per cent upon the sale of stock of the company to them, and wrongfully making remittances to Mexico in the name of another company in which the defendant was a partner of which no record — 551 — was kept. While some of these alleged acts may have resulted in personal gain to the defendant owing to-his connection with the persons or corporations with which the transactions were had, the causes of action attempted to be set forth are not for an accounting .of the actual moneys received by him, but for Ms wrongful acts resulting in damage to the corporation irrespective of whether the gain went to him or to others. In such an action his codirectors who joined with Mm in voting for and consummating the said acts are merely joint tort-feasors and as such are jointly and severally liable and are not entitled to contribution. As such they may be sued separately or jointly at the election of the injured party. It is then claimed in support of the second ground of demurrer, namely, for misjoinder of causes of action, that if the action be not one against the directors for an accounting in the strict sense, that each separate wrongful act constitutes -a separate tort for which, a separate action must be brought and no relief in any way partaking of the nature of an accounting in equity can be joined with any of the tort actions. This was clearly the law of this state prior to the enactment of the statute under which this action is brought. Gen. Corp. Law, § 91-a; Laws of 1913, chap. 633. An action for damages for the misfeasance or nonfeasance of a director or officer of a corporation was-an action at law subject to the rules and restrictions governing such actions, and could not be joined with an action for equitable relief (Higgins v. Tefft, 4 App. Div. 62; O’Brien v. Fitzgerald, 143 N. Y. 377; Mutual Life Ins. Co. v. Gillette, 119 App. Div. 430; People v. Equitable Life Assur. Soc., 124 id. 714; Moran v. Vreeland, 81 Misc. Rep. 664). But by section 91-a, supra, a jurisdiction to entertain such an action in equity on behalf of the — 552 — corporation or its representatives lias been expressly conferred upon tliis court, with a provision for the separate trial by jury, pursuant to section 970 of the Code of Civil Procedure, of any issue of negligence which may arise in such an action, if either party should apply for it. The effect of this statute is to do away with the distinctions recognized in the cases above cited between strict actions for an accounting of property actually received and for wrongful acts, and to authorize a single comprehensive action in equity in which the directors or officers of a corporation may be called to account for all of their acts while in office, whether the said acts consisted of the actual misappropriation of funds or were negligence or neglect of duty, resulting in damage. The demurrer for misjoinder of causes of action is accordingly overruled. In support of the third ground of demurrer, it is claimed that the statute (Gen. Corp. Law, § 91 a, supra) under which the action is brought does not apply to a foreign corporation. It has been clearly established by the Court of Appeals that sections 90 and 91 of the General Corporation Law, formerly sections 1781 and 1782, Code of Civil Procedure, apply as well to foreign as to domestic corporations, provided jurisdiction of the person of the defendants be duly, acquired. Miller v. Quincy, 179 N. Y. 294. There is no apparent reason why section 91-a, which is merely an amendment of or addition to the said sections, should not come within the same rule and be similarly applied. It is further argued that the officers and directors of the New Jersey corporation are governed in their actions by" the charter of the corporation, the by-laws of the corporation and the common and statutory law of the state of New Jersey, none of which are properly pleaded in the complaint, and that therefore the complaint does — 553 — not- state facts sufficient to constitute a cause of action. The answer to this argument is obvious. The complaint does not attempt to allege a statutory cause of action under a New Jersey statute, nor one for violation of the charter or by-laws of the corporation. The offenses set forth are such at common law, and the common law of New Jersey is presumed, in the absence of proof to the contrary, to be the same as that of this state, and need not be pleaded or proved. The demurrers are overruled, with ten dollars costs, with leave to the defendant to withdraw them and serve an answer within twenty days after service of notice of entry of an order herein upon payment of said costs. Demurrer overruled, with ten dollars costs, with leave to withdraw and serve answer within twenty days. Demurrer overruled.