Barr v. Wackman

demand would be futile and is therefore unnecessary.” In a similar conclusory fashion the complaint alleges that the five directors, who are charged with affirmative wrongdoing, dominated and controlled the corporation and its board and caused the majority to participate in, authorize and approve the allegedly wrongful conduct now attributed to the board. In Continental Securties Co. V. Belmont ( 206 N. Y. 7 , 19), in speaking of the functions and powers of a board of directors of a corporation, the court said: “It is the governing body or bodies of a corporation with power to enforce a remedy to whom complaining stockholders must go with their demand for relief. ,The governing body of corporations in this state, as we have seen, is the board of directors. A complaining stockholder must go to such board for relief before he can bring an action, unless it clearly appears by the complaint that such application is useless.” In Marco v. Sachs ( 269 App. Div. 845 , affd. 295 N. Y. 642 ), also a stockholders’ derivative action, the plaintiff, in an attempt to comply with the requirement of subdivision (c) of section 626 of the ‘Business Corporation Law alleged in her complaint as follows: “ Twenty-second : No demand has been made upon the Board of Directors of the defendant company to bring an action for relief appropriate to the facts herein alleged, inasmuch as the entire Board is constituted of appointees or designees of the defendant Harrison Williams, all of whom are wholly subservient to said individual defendant. That a demand upon the Board of Directors would therefore be a vain and futile act, since the defendant Harrison Williams or his interests control a majority of the common stock of the defendant corporation, designate its directors and dictate its policies.” The defendants, in the last-cited case, moved to dismiss the complaint on the ground, amongst others, that it alleged no demand by the plaintiff on the defendant corporation or any of its directors to bring suit against the other defendants named in the action and, further, that it alleged no sufficient excuse for failure to ■make such demand.- These are the same grounds urged by the defendants in the case at bar in support of their motion to dismiss the complaint. In the Marco case (supra), Special Term denied the motion to dismiss. On appeal to the Appellate Division, Special Term was reversed by divided vote and the complaint was dismissed for insufficiency. The Court of Appeals unanimously affirmed. At page 845 of the Appellate Division opinion, the court said: “The excuse alleged in the complaint for the admitted failure of the plaintiff to demand of the Board of Directors of defendant corporation that it commence an appropriate action is insufficient. Alleged subservience of the directors to a wrongdoer does not show the uselessness of a demand on the ground that such directors would forego their duty. (O’Connor, v. Virginia Passenger & Power Co., 184 N. Y. ,46, 53.) The pertinent allegations contained in this complaint do not set forth facts showing or fairly creating the inference that the directors are such only in form, and that the wrongdoer or wrongdoers against whom relief is sought actually perform such directorate duties.” An examination of O’Connor v. Virginia Passenger and Power Co. ( 184 N. Y. 46 ), cited in the Marco case, shows the following at page 52 of the opinion: “In a derivative action of the character of the present one ‘the complaint should allege that the corporation, on being applied to, refused to prosecute, and that this averment constitutes an essential element of the cause of action.’ [citing cases] The complaint alleges no such demand or refusal. The general rule is subject to this exception, that where facts are alleged showing that the demand would be unavailing, a demand is unnecessary.” A very recent case, which I consider to be directly in point, Matter of Kauffman Mut. Fund Actions ( 479 F. 2d 257 , cert. den. 414

U. S. 857 ), considered the very question presented to us by the case at bar. The court held that that complaint should be dismissed because of the failure of the plaintiff to allege with particularity the reasons for not making demand on the directors, as required by the Federal Rules of Practice. At page 263 of the court’s opinion there is found: “ Socially desirable as minority stockholders’ actions may be thought to be * *• * it is normally the directors, not the stockholders, who conduct the affairs of the company. Hence, to be allowed, sua sponte, to place himself in charge without first affording the directors the opportunity to occupy their normal status, a stockholder must show that his case is exceptional. * * * the ‘ cause of failure [to induce corporate action] . . . should be stated with particularity ’.” In our case the plaintiff has not factually demonstrated, with particularity, that a demand on the diretcors would have been futile. For the reasons given I dissent from the majority's conclusion, vote to reverse the order appealed from and to dismiss the complaint.