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O'Brien v. Fitzgerald

6 A.D. 509 Court N.Y. App. Div. English

Decision Majority — Ingraham, J.: · Dissent — Williams, J. (dissenting):

Contents

Majority

p. 509
Miles M. O’Brien and James G. Cannon, as Receivers of The Madison Square Bank, Appellants, v. Lawrence J. Fitzgerald, Respondent, Impleaded with Joseph F. Blaut and Others.

Headnote

Corporations — action by receivers against delinquent directors— when the complaint does not call for equitable relief—accounting—discovery•—multiplicity of suits— negligence of a director in the performance of his duty, not the basis of an accounting.
In an action brought by the receivers of a corporation against delinquent directors, the amended complaint, among other things, alleged that each of the defendants was liable to the plaintiffs for personal misconduct as described in the complaint, each in a different amount, for injuries inflicted upon the funds in their care, and that it would be necessary for the court to determine how far each was thus chargeable; that as to some of the matters involved all the defendants were liable, while as to other matters only a portion of the defend-, ants were liable, and that it was necessary for the adequate relief of the plaintiffs that an accounting be had to determine the proportionate liability of the several defendants, and that unless relief were granted against all the defendants in this action a multiplicity of suits would be made necessary ; that it was
p. 510
also requisite that the several defendants should make discovery as to then-conduct and management of the affairs of the corporation, and that the plain- ■ tiffs had no adequate remedy at law. The plaintiffs demanded as relief that the defendants, and each of them, account that their liability might be apportioned, and that each of them be required to make discovery as to their participation in the alleged breaches of trust.
It appeared that when this action was before the Court of Appeals upon a former appeal that court held that the complaint alleged a good cause of action at law, and that while the court was not concluded by the demand for relief, and might look into the facts to see whether equitable relief might not be necessary, yet, upon the facts pleaded, it was doubtful what relief was required, and the court said that if there were further allegations showing the need of equitable relief the difficulty would be removed.
The plaintiffs claimed that subsequently, by amendment made in the complaint so as to make it as above set forth, they had complied with the suggestions of the Court of Appeals.
Meld, that a demurrer interposed to the complaint was properly sustained, as none of the allegations added by the amended complaint were allegations of ■ fact, but were merely conclusions as to the liability of the various defendants, coupled with the opinion, of the pleader as to the necessity for equitable intervention;
That this court had no right to turn into an action in equity a cause of action ' which had. been declared by the Court of Appeals to be one at law, unless the facts alleged showed a necessity for equitable relief;
That such a change from an action at law to one in equity affected a substantial right in that it deprived the defendants of the right to a trial by jury;
That the pleader had not alleged any facts which showed that an accounting was necessary to ascertain the damages, nor any showing that a discovery was requisite to the completion of the remedy;
That the allegation that a multiplicity of suits should be avoided was not in point, as the multiplicity of actions, in the case at bar, was directed, not . against an individual, but against a large number of people;
That the basis of an action for an accounting rests in the fact that the relation of the trustee to the property is such that a court of equity will charge him with the amount which he has received, and will compel him to account for it; but . that where, as here, there is no specific property with which the director can be charged upon proof of his relation to the property, but only a liability for damages for misconduct, he cannot be called to account.
Williams and Patterson, JJ., dissented.
Appeal by the plaintiffs, Miles M. O’Brien and another, as receivers of The Madison Square- Bank, from an interlocutory judgment of the Supreme Court in favor of the defendant, Lawrence J.' Fitzgerald, entered in the office of the clerk of the county of Hew York on the 6th day of March, 1896, upon the decision of the court
p. 511
rendered' after a trial at the New York Special Term, sustaining said defendant’s demurrer to the plaintiffs’ amended complaint.
The action was brought by the plaintiffs as receivers of the Madison Square Bank, an insolvent corporation, to recover against the defendants, the directors of said corporation, for alleged misconduct and breaches of trust in the performance of their duties.
The SYt-h paragraph of the complaint and the prayer for relief, which are referred to in the opinion, were in the words and figures following:
“Fifty-seventh. That each of the above-named defendants is liable to the plaintiffs for his personal misconduct and breach of trust herein set forth; that the said several defendants are accountable to the plaintiffs in separate and different amounts for the injury inflicted by them upon the funds intrusted to their care, and that it will be necessary for the court to determine the extent to which each of said defendants is chargeable for the said wrongful and negligent acts and breaches of trust hereinbefore alleged; that as to some of the matters concerning which relief is herein sought all of the defendants are accountable to the plaintiffs; that as to some other of said matters a portion of said defendants alone are liable; that full and adequate relief cannot be granted to the plaintiffs unless all of the defendants shall be required to account in this action-for their respective acts and breaches of trust herein set forth, so that the proportionate liability of the several defendants for the matters herein set forth may be ascertained; that, unless relief is ‘ granted to the plaintiffs against all of the defendants in this action, it will be necessary for the plaintiffs to bring and maintain a multiplicity of suits which would involve the estate represented by them in great expense and unreasonably delay them" in the administration of then* trust; that', in order that the plaintiffs’ remedy may be complete, it is further necessary that the several defendants make discovery as to their conduct and management of the affairs of the said bank, and as to the manner in which they had performed their duties with respect to the matters hereinbefore alleged, and their participation in the several transactions so described; that the plaintiffs have no adequate remedy at law.
“ Wherefore, They pray for judgment that the defendants, and each of them, be required to account with respect to their adininis
p. 512
tration of the trusts reposed in them ; that the liability incurred by the said defendants to the plaintiffs with respect to the matters herein set forth may be apportioned among them, and the amount of the liability of each of the said several defendants with respect to said matters be fixed and determined, and that a decree be rendered against each of the defendants for an amount equal to the injury occasioned to the trust fund administered by them by reason of the wrongful acts and breaches of trust herein alleged, and that they and each of them make full discovery as to their participation in the breaches of trust in this complaint set forth, and that the said plaintiffs may have such other and further relief in the premises as to the court may seem just and equitable, together with the costs of this action.”
Samuel TJntermyer and Louis Marshall, for the appellants.
FranTclin Pierce-, for the respondent.

When this action was before the Court of Appeals on the former appeal ( 143 N. Y. 377 ) it was held by the court that, within the principle established in Hun v. Cary ( 82 N. Y. 65 ) the complaint stated a perfect cause of action to recover damages at law, with a proper and consistent demand for a money judgment awarding such damages, and that the action was of a legal character. The case of Brinckerhoff v. Bostwick ( 105 N. Y. 567 ) was distinguished as being an action by a stockholder who could not sue at law, but was compelled to go into equity to obtain his relief, and whose right of action was wholly and purely of an equitable character, while this action is, in substance, an action by a corporation against its delinquent directors. Upon the question as to whether or not a corporation could sue its directors in equity to recover losses sustained, no opinión was expressed, the court saying: “ Granting that, and granting also what I am not now ready to admit as the law of this State, that the facts pleaded in the present case are sufficient to support the action as an equitable one, we are left by the pleader in- a doubt which can only be solved by recurring to the demand for relief.”- And the court ended its opinion by saying: “ Where the action is for the recovery of money only, it is classed as legal and is triable by a jury; and

p. 513
while we have held that we are not concluded by the formal demand of relief, but may look into the facts to see,, nevertheless, if it be not equitable relief which they imperatively require, yet where the facts do not aid us, where they are just as appropriate to a legal as an equitable cause of action, where they are ambiguous as to the subject of inquiry, we must be guided by the relief asked in reaching a conclusion. That, I think, is the situation here upon the assumption most favorable to the plaintiffs, that upon the facts, pleaded, without further allegations, an equitable action could be supported. My doubt about that is very grave, although I leave the question open. If there were further allegations showing, somewhere or in some way, the need of equitable intervention, the difficulty would be removed.”

The plaintiffs claim that they have complied with this provision in the opinion of the Court of Appeals by the 57th paragraph of their complaint and the prayer for relief which, as I understand it, are the only material amendments that have been made. Rone of the allegations in this paragraph of the complaint appear to be allegations of fact, but are conclusions as to the liability of the various defendants and the opinion of the pleader as to the necessity of equitable intervention.

The Court of Appeals having thus determined that the facts alleged in this complaint allege a cause of action at law, we have no right to turn it into an equitable action unless the facts alleged show the necessity for some equitable relief. To thus change a cause of action at law to one in equity affects a substantial right of the defendants, a right to a trial by jury which is protected by the Constitution and which neither the Legislature nor the court can take away. It is not enough to make this an equitable cause of action for the complaint to state a mere conclusion of the pleader that the interposition of a court of equity is necessary. The facts must be stated which indicate the need of such intervention.

There are no facts alleged that show that a discovery is requisite to the completion of the remedy, or that an accounting is necessary to ascertain the damages. (O’Brien v. Fitzgerald, supra.) Rolare any facts alleged which bring this case within any of the principles which courts of equity administer.

p. 514
The allegation that a multiplicity of suits will be required in case 4he-plaintiffs have to sue each defendant, joining with him only ■ those who aided him in the wrongful acts which would make them liable, hardly brings the case within one of the class where the court will intervene to prevent a multiplicity of actions against one individual. Here the multiplicity of actions is against a multitude ■of people, rather than against one person which equity in some cases will enjoin.

A man having 100 promissory notes made by different individuals might as well ask to sue all of them in one action, because if he had to bring the 100 actions against the 100 individuals he would be ’ ..required to bring and maintain a multiplicity of suits.

In the case of Higgins, as Receiver, v. Tefft ( 4 App. Div. 62 ), we sought to place a distinction between the liability of a trustee to ■account in equity and the liability of a trustee in an action at law upon the allegation , as to the relation that existed between the trustee and the cestui q%t,e trust, or the property of the trust which had becomelost or wasted, holding that an action for an accounting „ would lie where it was alleged that the relation of the trustee to .4he property were such that a court of equity could charge him with the amount that he had received and compel him to account to the .-court for the disposition which had been made of such property. The fact that a trustee bears such a relation to the property that he -is chargeable with it or its proceeds when called upon for it, either ’by his cestui que trust or by the court, is a basis for an action for an •accounting in equity. If there is no sum of money with which the ' .-director can be charged upon the proof of his relation to the property,. Ire cannot be called to account for any particular property, and thus ¡an action for an accounting will not lie. Where, his liability to his ¿cestui que trust, or to the corporation of which he is a director or ¿¡trustee, is not to account for specific property, but for damages because of his negligent act in the performance of his duty, a different principle arises as to his. liability from that of a case where, in consequence of his relation to the property of the trust, he is bound to show what disposition of that property has been made, -being chargeable with the value of the property. Applying the .distinction that we made in the case of Higgins v. Tefft (supra), it seems clear that, from the facts alleged in the complaint, this action

Dissent

p. 515
cannot be maintained as an action for an accounting in equity.. It is clear, however, that it does set forth a complete action at law against each of these directors; but, if it is an action at law, it is conceded that canses of action are improperly united.

The plaintiffs, however, insist that their action is in equity. They ask only for equitable relief, and they ask to stand or fall upon their complaint as a complaint in an action demanding equitable relief. Applying the principle of the cases above cited, it seems to us that the complaint does not allege facts sufficient to constitute an action in equity, and for that reason the judgment below sustaining the demurrer was right and should be affirmed, with costs.

Yan Brunt, P. J., and O’Brien, J., concurred; Williams and Patterson, JIT., dissented.

The case has been to the Court of Appeals upon demurrer to the original complaint, and it was then said that tlie complaint was demurrable because it did not contain allegations and a prayer for relief sufficient to make it an action in equity. ( 143 N. Y. 377 .) By amendment, the plaintiffs have inserted allegations and have amended the prayer for relief, which would seem to cure that defect and to make the action clearly one in equity. It is now claimed that the action cannot be maintained in equity upon" the amended pleading, and against all the parties made defendants therein.

In Brinckerhoff v. Bostwick (reported in the Court of Appeals, 88 N. Y. 52 ; 99 id. 185 and 105 id. 567) it was held that an action in equity could be maintained to call the directors of a corporation to account for their negligent wrongful acts, whereby the corporation and its stockholders suffered damage. Rapallo, J. ( 88 N. Y. 58 ) said: “ The liability of the directors of corporations, for violations of their duty or breaches of the trust committed to them, and the jurisdiction of courts of equity to afford redress to the corporation, and in proper cases to its shareholders for such wrongs exist independently of any statute. By the Revised Statutes of New York (2 R. S. 462) it is declared that the chancellor has jurisdiction over directors, managers and other trustees and officers of corporations, to compel them to account for their official conduct in the management and disposition of the funds and property committed

p. 516
to their charge, and to compel payment by them to the corporation whom they represent, of all sums of money, and the value of all property which they may have acquired to themselves or transferred to others, or may have lost or wasted by any violation of their duties as such trustees. These enactments are, however, merely declaratory of a jurisdiction long previously conceded to exist, both in this -State and in England.” Earl, J. (in 99 N. Y. 193 ) said: “The action is against the directors as trustees to call them to account for the manner in which they discharged their trust, and is one of which courts of equity always have jurisdiction.” Peckham, J. (in 105 N. Y. 570 , 571) said: “This action * * * is brought * * * against defendants who were directors of the bank, to call them to account as trustees for the manner in- which they have discharged their trust. Of such actions courts of equity have always had jurisdiction. * * * TJnder the allegations of the complaint, and upon the very numerous bases of liability respecting the several defendants, it is hard to see exactly what kind of a verdict could be directed as to form, in case the action were .to be regarded as a common-law one, and the jury were to give a verdict for the plaintiff which should cover the whole case, and upon which judgment should be entered. The verdict might be for different sums against different defendants,, and founded upon distinct liabilities growing out of different acts as to-each, and yet the foundation of the verdict in regard to the facts found against-each defendant would be problematical in the extreme. The sums for which defendants might be liable may not only be different,, but the total liability of all might exceed the total damage proved, and thus there would be a verdict for different sums against the different defendants, and an excess of total liability over the damage proved, and provision would have to be made for such a state of facts in the judgment to be entered, which ought to be based, upon a special application, on notice to the court, and upon its directions then given. All this shows how entirely impracticable would be a reference to a jury of the whole issue as in a common-law action, with a general verdict arid a judgment to be entered thereon, without any further application to the court.”

"When this action was in the Court of Appeals before, Finch, J. (in 143 N. Y. 382 ) said: “ There is a wide and vital difference, between the two cases (i. e.,. Brinckerhoff v. Bostwick [ 105 N.

p. 517
Y. 567 ] and this case). In. this the action is by the corporation against its delinquent directors; in the other it was by a stockholder who could not sue at law, but was compelled to go into equity to obtain his relief, and whose right of action was wholly and purely of an equitable character. It may be, nevertheless, that a corporation may sue its directors in equity to recover losses sustained, for there seem to be some cases in which the remedy has been allowed. Granting' that, and granting also what I am not now ready to admit as the law of this State that the facts pleaded in the present case are sufficient to support the action as an equitable one, we are left by the pleader in a doubt which can only be solved by recurring to the demand for relief.”

It would seem that the allegations inserted in the amended complaint can leave the court no longer in doubt as to this action being equitable in its nature.

The 57th clause contains the additional allegations, and the prayer for relief is also amended. It is not necessary to refer in detail to these added allegations and prayer for relief. They are such as to make the action clearly one in equity, and one that is maintainable as such, unless the Court of Appeals shall directly overrule and reverse the case of Brinckerhoff v. Bostwick, above quoted from. The case of Higgins v. Tefft ( 4 App. Div. 62 ) was one in which the complaint was entirely like the complaint in this case before it was amended as to its allegations and prayer for relief, and necessarily followed the decision of the Court of Appeals in 143 Hew York, above.

It seems to me that in the present condition of the decisions of our Court of Appeals, as hereinbefore indicated, and without considering other cases or the question as a debatable one, we should hold this complaint to be a good one, and the demurrer thereto as not well taken.

The judgment sustaining the demurrer should be reversed, with costs of appeal to the appellants, and judgment ordered overruling the demurrer, with costs of the trial court.

Patterson, J., concurred.

Judgment affirmed, 'with costs.

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