Howe v. New York, New Haven & Hartford Railroad

Majority

p. 451

Elizabeth F. Howe, on Behalf of Herself and All Other Stock holders of the Boston and New York Air Line Railroad Company Similarly Situated, Respondent, v. The New York, New Haven and Hartford Railroad Company, Appellant.

First Department,

January 20, 1911.

Headnote

Corporation — suit by stockholder of defunct foreign corporation — representative action —jurisdiction — demurrer.

A stockholder of a corporation which had become merged with another corporation cannot, in his individual name, maintain a suit in equity to compel the latter corporation to account to him and other stockholders similarly situated on the ground that the defendant wrecked the plaintiffs corporation and bought it in at an inadequate price.

It seems, however, that where the court has jurisdiction of the necessary parties a representative action may be brought by a stockholder to compel the restoration of the property and franchises.

But such representative action does not lie in the courts of this State on behalf of a resident stockholder where the plaintiffs corporation has ceased to exist

p. 452

and it and the defendant corporation were both organized under and governed by the laws of another State. This, because the courts of this State will not undertake to administer foreign assets of a defunct foreign corporation any more than it would do the like in the case of a natural person.

It seems, that the plaintiff should seek redress in the! courts of the other State.

It seems, however, that the courts of this State may in a proper case take jurisdiction of a representative action brought by a resident stockholder on behalf of a foreign corporation.

As the courts of this State can render no decree reviving a defunct foreign corporation, nor administer its assets in the foreign State as prayed for in the complaint, the question of jurisdiction may be raised by demurrer..

Appeal by the defendant, The New York, New Haven and Hartford Railroad Company, from an interlocutory judgment of the Supreme Court in favor of the'plaintiff, entered in the office of the clérk of the county of New York .on the 8th day of March, 1910, upon the decision of the court, rendered after a trial at the New York Special Term, overruling the defendant’s demurrer to the amended complaint.

Charles M. Sheafe, Jr., for the appellant.

Ernest G. Budington, for the respondent.

. The grounds of the demurrer are that the court has not jurisdiction of the subject of the action ; that there is a defect of parties defendant, and that the complaint does not state facts sufficient to constitute a cause of action. But these grounds are limited by specifications among which it is difficult to find a valid criticism of the complaint. However, in our view, there is an insuperable obstacle to the maintenance of the action, and it may be possible to construe one of the specifications so as to present the point.

The plaintiff alleges that the defendant, a Connecticut, corporation, leased of the Boston and New York Air Line Railroad Company, a Connecticut corporation, its railroad and equipment located in Connecticut, and agreed to keep the demised property in good order; that for the purpose of depreciating the value of the said lessor’s securities, the defendant allowed the leased-property to fall into a state of disrepair, rendered the train service inefficient, caused rumors to be circulated that the roadbed, bridges and structures were unsafe and dangerous, and, having thus depreciated the value

p. 453

of its stock, acquired a majority thereof, elected its entire board of directors and caused a sale of all its property to be made to itself at an inadequate price in fraud of the rights of stockholders. It is also alleged that the defendant- “ caused said company pursuant to the statutes of the State of Connecticut to be merged into defendant, and from said date caused said Boston & New York Air Line Bailroad Company to cease to exist or to exercise its franchises as an independent corporation, or to elect directors and officers.” The plaintiff was a stockholder of said Boston and New York Air Line Bailroad Company, and the prayer for relief is that the defendant be required to account to. her and such other stockholders similarly situated as should come in and contribute to the expense of the action for the property thus ¿cquired.

We may assume that a cause of action on behalf of the Boston and Hew York Air Line Bailroad Company is alleged. But it is settled in this State that, in such a case, the direct injury is to the corporation, and that a stockholder may not maintain an action in his individual right. (Niles v. N. Y. C & H. R. R. R. Co., 176 N. Y. 119 .) To be sure, that was an action at law, while this is an action in equity for an accounting; but there is -no such relation existing between the plaintiff and the defendant as entitles the former in her individual right to maintain an action for an accounting.

The learned justice at Special Term treated the action as a representative action on behalf-of the corporation to have the sale and merger set aside and the corporation revived. Ho doubt, in a proper case, the courts, of this State will entertain jurisdiction of a representative action by resident stockholders on behalf of a foreign corporation. (Ernst v. Rutherford & B. S. Gas Co., 38 App. Div. 388 ; Jacobs v. Mexican Sugar Refining Co., Ltd., 104 id. 242; Miller v. Quincy, 179 N. Y. 294 .) But for the fact that the Boston and New York Air Line Railroad Company has ceased to exist, the plaintiff might possibly maintain an action in this State to compel a restoration of its property and franchises, if the court could get jurisdiction of the necessary parties. But the corporation has ceased to exist. The devolution of its property rights upon the death of a corporation must be governed by the laws of the State of its creation. The courts of this State should not undertake to administer foreign assets of a dead foreign corporation any more than it would

p. 454

do the like in the case of a natural person. If the defunct corpora tion had a right of action, it devolved according to the laws of Connecticut, and the plaintiff should, therefore, seek redress in the courts of that State. ( Vanderpoel v. Gorman, 140 N. Y. 563 , 572.)

Davis v. Cornue ( 151 N. Y. 172 ). is cited for the proposition that the.' question of jurisdiction cannot be raised by demurrer. The Court of Appeals in that case decided that it was within the discretion of the Supreme Court to entertain jurisdiction. In that case it was possible, by a judgment in personam,, to effect the purpose of the suit. But it is difficult to perceive how a decree could be rendered in this State which would revive a corporation ■ of the State of Connecticut, or how the courts of this- State can administer the assets in Connecticut of a Connecticut corporation which has ceased to exist. Such matters are purely of' local administration, with which the courts of this State should not attempt to interfere. It does not appear from the complaint upon whom the cause of action devolved upon the death of the Connecticut corporation, and the seventh specification of the demurrer may, therefore, be deemed sufficient to present the point. ■

The interlocutory judgment should be reversed, with costs, and the demurrer sustainéd, with costs.

Ingraham, P.. J., Laughlin, Clarke and Soorr, JJ., concurred;

Judgment reversed, with costs, and demurrer sustained, with costs.

Cases cited

Niles v. New York Central & Hudson River Railroad 176 N. Y. 119 N.Y. 1903-10-06 p. 453
Miller v. Quincy 179 N. Y. 294 N.Y. 1904-10-28 p. 453
Vanderpoel v. Gorman 140 N. Y. 563 N.Y. 1894-01-16 at 572 p. 454
Davis v. Cornue 151 N. Y. 172 N.Y. 1896-12-15 p. 454