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Marco v. Sachs

10 N.Y.2d 542 Court N.Y. Decision date 1962-01-25 English

Decision Majority — Foster, J. · Dissent — Chief Judge Desmond (dissenting).

Contents

Majority

p. 542
Ida Marco, as Ancillary Administratrix of the Estate of Harry Marco, Deceased, a Stockholder in the Blue Ridge Corporation, on Behalf of Himself and All Other Stockholders Similarly Situated, and on Behalf of Said Blue Ridge Corporation, Appellant [William Marco, as Administrator, Substituted Appellant], v. Walter E. Sachs et al., Defendants-Respondents, and Blue Ridge Corporation et al., Appellants, et al., Defendants.
Argued November 30, 1961;
decided January 25, 1962.
p. 543
David M. Palley and Morris Gottlieb for Ida Marco, appellant.
I. Defendants-respondents ’ motion in the Federal court action to dismiss the complaint on the ground that the action had already been dismissed on January 4, 1956 under rule 302, and the adjudication thereon, is res judicata in this case. (Babylon Milk & Cream Co. v. Horvitz, 4 A D 2d 777 ; Wheelock v. Wheelock, 3 A D 2d 25 , 4 N Y 2d 706 ; Hinchey v. Sellers, 7 N Y 2d 287 ; Weidlich v. Weidlich, 279 App. Div. 1066 ; Hope v. Seaman, 137 App. Div. 86 , 204 N. Y. 563 ; Glotzer v. Glotzer, 286 App. Div. 1014 .) II. Defendants are estopped from impeaching the judgment of January 7, 1958 in their favor, and which they themselves sought and obtained. They cannot now question the jurisdiction of the court to grant that
p. 544
judgment. (Krause v. Krause, 282 N. Y. 355 ; Starbuck v. Starbuck, 173 N. Y. 503 ; Brown v. Brown, 242 App. Div. 33 , 266 N. Y. 532 .) III. As a matter of law, there was no dismissal under rule 302 and there was no default. The undated entry of alleged abandonment and dismissal of the action under rule 302 of the Rules of Civil Practice is wholly unreliable and should be disregarded. (Clark v. Kirby, 243 N. Y. 295 ; Hodgkins v. Mead, 119 N. Y. 166 ; Broome County Farmers’ Fire Relief Assn. v. New York State Elec. & Gas Corp., 239 App. Div. 304 , 264 N. Y. 614 .) IV. Rule 302 of the Rules of Civil Practice does not apply to this case. Any construction which would apply rule 302 to this active and live action is unconstitutional and a denial of due process of law. (Marco v. Sachs, 269 App. Div. 845 ; 270 App. Div. 948 ; 283 App. Div. 1096 , 284 App. Div. 851 ; 269 App. Div. 845 , 269 App. Div. 901 , 295 N. Y. 642 ; 201 Misc. 928 ; 201 Misc. 934 , 279 App. Div. 1085 , 280 App. Div. 806 , 304 N. Y. 912 ; 1 A D 2d 849 ; 4 A D 2d 785 ; 12 Misc 2d 518 ; Welsh v. Taylor, 134 N. Y. 450 .) V. Under the Constitutions of the State of New York and of the United States, an active case cannot be deemed dismissed under rule 302 when there are pending in the Appellate Division appeals from orders which had been argued and are awaiting decision by that court. Rule 302 of the Rules of Civil Practice cannot deprive the Appellate Division of its jurisdiction. (Waldo v. Schmidt, 200 N. Y. 199 ; Stevens v. Central Nat. Bank of Boston, 162 N. Y. 253 ; Matter of Automatic Chain Co., 64 Misc. 280 , 134 App. Div. 863 , 198 N. Y. 618 ; Weston v. Citizens’ Nat. Bank, 88 App. Div. 330 .)
Leo C. Fennelly for Blue Ridge Corporation and another, appellants.
I. Special Term may not review the decision of the United States District Court. Respondents are bound by its decision. (Marco v. Dulles, 177 F. Supp. 533 ; United States v. President & Directors of Manhattan Co., 276 N. Y. 396 ; Ben Ali v. Moore-McCormack Lines, 286 App. Div. 462 ; Mount Sinai Hosp. v. Davis, 8 A D 2d 361 ; Borden v. Adams, 7 A D 2d 715 ; Matter of Wilkins, 169 N. Y. 494 .) II. The holding that a rule 302 dismissal deprived the Supreme Court of jurisdiction is contrary to the Constitution of the State. (Matter of Malloy, 278 N. Y. 429 ; People ex rel. Mayor of City of N. Y. v. Nichols, 79 N. Y. 582 ; People ex rel. Swift v. Luce, 204 N. Y. 478 ; Chase Watch Corp. v. Heins, 284 N. Y. 129 ; Matter of Powley v.
p. 545
Dorland Bldg. Co., 281 N. Y. 426 ; Sentenis v. Ladew, 140 N. Y. 463 .) III. The court erred in holding that the Supreme Court had no jurisdiction to enter the judgment of January 7, 1958. (Matter of Benedict, 239 N. Y. 440 ; Matter of Argus Co. v. Manning, 138 N. Y. 557 ; Matter of Clark, 168 N. Y. 427 ; Matter of Smith, 244 App. Div. 733 ; Matter of Haglund v. Morse Dry Dock & Repair Co., 255 App. Div. 895 ; Wheelock v. Wheelock, 3 A D 2d 25 , 4 N Y 2d 706 ; Johnson v. Johnson, 206 N. Y. 561 ; Mittman v. Mittman, 263 App. Div. 384 ; Pacek v. Ferrar, 258 App. Div. 772 ; Kamp v. Kamp, 59 N. Y. 212 ; Davidson v. Ream, 178 App. Div. 362 ; Matter of Automatic Chain Co., 64 Misc. 280 , 134 App. Div. 863 , 198 N. Y. 618 ; Weston v. Citizens’ Nat. Bank, 88 App. Div. 330 .) IV. The decision of the United States District Court is res judicata as to the validity of the January 7, 1958 judgment. (Dane v. Macfadden Pubs., 226 App. Div. 815 ; Chaffee v. Lawrence, 282 App. Div. 875 .) V. The court erred in holding that respondents were not estopped from contesting the validity of the January 7, 1958 judgment. (Starbuck v. Starbuck, 173 N. Y. 503 ; Hinchey v. Sellers, 7 N Y 2d 287 ; Alsens American Portland Cement Works v. Degnon Contr. Co., 222 N. Y. 34 ; S. & E. Motor Hire Corp. v. New York Ind. Co., 255 N. Y. 69 ; Matter of Whitney v. Chesbro, 244 App. Div. 594 .) VI. There was no valid rule 302 dismissal. If there was, it was in fact vacated. (Eagle-Picher Lead Co. v. Mansfield Paint Co., 203 App. Div. 9 ; Clark v. Kirby, 243 N. Y. 295 ; Hodgkins v. Mead, 119 N. Y. 166 ; Broome County Farmers’ Fire Relief Assn. v. New York State Elec. & Gas Corp., 239 App. Div. 304 , 264 N. Y. 614 ; Diemer v. Diemer, 8 N Y 2d 206 ; Adriance v. Clifford, 278 App. Div. 735 .)
Milton Pollack, Henry N. Ess, III, Francis E. Koch and Barry H. Singer for respondents.
I. The questions of fact were settled by the courts below. II. Res judicata is inapplicable and did not bar the Supreme Court from correcting its records. (Marco v. Dulles, 177 F. Supp. 533 ; Tenney v. Rosenthal, 6 A D 2d 510 , 6 N Y 2d 204 ; Good Health Dairy Prods. Corp. v. Emery, 275 N. Y. 14 ; Bannon v. Bannon, 270 N. Y. 484 ; Snelwar v. Snelwar, 27 Misc 2d 933 ; Railroad Co. v. Soutter, 2 Wall. [69 U. S.] 510.) III. There is no constitutional objection' to the Supreme Court’s dismissal under rule 302. (Wavrovics v. City of New York, 13 A D 2d 738 ; Colombik v.
p. 546
Heinrich, 11 A D 2d 1026 ; Malekian v. McLean Trucking Co., 10 A D 2d 825 ; Barnett Co. v. St. Paul Fire & Mar. Ins. Co., 7 A D 2d 897 ; Pomerantz v. Pomerantz, 10 A D 2d 569 ; Plachte v. Bancroft, Inc., 3 A D 2d 437 ; Cohen v. A. F. A. Realty Corp., 250 N. Y. 262 ; Balaka v. Stork Restaurant, 3 A D 2d 857 ; Delavan v. New York, N. H. & H. R. R. Co., 216 N. Y. 359 .) IV. This action was properly dismissed pursuant to rule 302 and all proceedings thereafter were void. (O’Donoghue v. Boies, 159 N. Y. 87 ; Ferguson v. Crawford, 70 N. Y. 253 ; Parthey v. Beyer, 228 App. Div. 308 ; Wheelock v. Wheelock, 3 A D 2d 25 , 4 N Y 2d 706 ; Public Operating Corp. v. Weingart, 255 App. Div. 443 ; Williamsburgh Sav. Bank v. Bernstein, 277 N. Y. 11 ; Herpe v. Herpe, 225 N. Y. 323 ; Matter of Ungrich, 201 N. Y. 415 ; Stannard v. Hubbell, 123 N. Y. 520 .) V. Defendants neither waived nor were estopped from asserting the nullity of the proceedings subsequent to the rule 302 dismissal. (Davidson v. Ream, 178 App. Div. 362 ; O’Donoghue v. Boies, 159 N. Y. 87 ; Matter of Walker, 136 N. Y. 20 ; Johnson v. Johnson, 198 Misc. 691 , 277 App. Div. 1143 ; Matter of Automatic Chain Co., 64 Misc. 280 , 134 App. Div. 863 , 198 N. Y. 618 ; Cooper Lbr. Co. v. Masone, 286 App. Div. 879 ; Langer v. Wiehl, 207 Misc. 826 ; Kamp v. Kamp, 59 N. Y. 212 ; Krause v. Krause, 282 N. Y. 355 ; Brown v. Brown, 266 N. Y. 532 ; Vose v. Vose, 280 N. Y. 779 .) VI. The lack of equity in plaintiff’s case also mandates an affirmance. (People v. Continental Cas. Co., 301 N. Y. 79 ; Kane v. Walsh, 295 N. Y. 198 ; Matter of Ordway, 196 N. Y. 95 ; Marco v. Dulles, 169 F. Supp. 622 , 268 F. 2d 192 ; Hanna v. Lyon, 179 N. Y. 107 .) VII. Defendants have been prejudiced by plaintiff’s unconscionable delay. (United. States v. Chase, 135 F. Supp. 230 .) VIII. Appellants are not aggrieved parties. (Hayward v. Manhattan Ry. Co., 52 Hun 383 ; Gross v. Clark, 87 N. Y. 272 ; Morange v. Meigs, 54 N. Y. 207 .) IX. The order on appeal did not materially alter the judgment herein or appellants’ rights thereunder. (Brizse v. Lisman, 231 N. Y. 205 .)

Harry Marco (now deceased and represented by his administrator) commenced this stockholder’s derivative action in 1936 against former directors of the nominal defendant Blue Bidge Corporation. Blue Bidge and its successor, Bidge Bealization Corporation, though nominally defendants, appear to be real parties in interest in favor of plaintiff’s cause.

p. 547
The individual defendants were directors of Blue Ridge from 1929 to 1932 when the wrongs allegedly were committed. Blue Ridge then was an investment company with millions of shares outstanding with the public. The Federal Bankruptcy Court, supervising a reorganization of the parent corporation of the nominal defendants, ordered a special attorney for the trustees in bankruptcy to appear on behalf of Blue Ridge to protect its interests, apparently believing the cause had merit, and indeed it appears that the estate of one of the original defendants has settled a claim for $800,000.

This litigation is 25 years old, and there has been an astonishing amount of pretrial maneuvering on both sides. The case has been to this court twice ( 295 N. Y. 642 , 304 N. Y. 912 ) and to the Appellate Division several times. The present appeal is from an order of the Appellate Division, Second Department, affirming an order of the Supreme Court, Kings County, which (1) vacated a judgment entered January, 1958 dismissing the complaint pursuant to section 299 of the Civil Practice Act (willful failure to appear for examination before trial); (2) reinstated an earlier dismissal of the action pursuant to rule 302 of the Rules of Civil Practice, which occurred on January 4, 1956, and (3) nullified all proceedings in the action subsequent to January 4, 1956 for want of jurisdiction.

It is not necessary to rehearse all of the pretrial motions and appeals to decide the issues involved herein, but some of them are pertinent.

On January 4, 1956 the case allegedly was dismissed automatically pursuant to rule 302 of the Rules of Civil Practice. On that date there were three appeals pending in the Appellate Division which included: (1) an appeal by plaintiff and the nominal corporate defendants from an order of the Supreme Court, entered January 19, 1955, staying the action pending submission by plaintiff to examination before trial; (2) an appeal by plaintiff and the nominal corporate defendants from another order of the Supreme Court, entered December 27,1954, granting plaintiff’s motion for the deposition of one Finney, a former executive vice-president of Blue Ridge, to be taken, however, only after plaintiff submitted to pretrial examination, and (3) an appeal by the nominal defendant, Ridge Realization (which actually is interested in the success of plaintiff in this

p. 548
derivative suit), from an order, entered July 26, 1955, denying a motion to disqualify Sullivan ■& Cromwell as attorneys for the defendants, on the ground that they represented Blue Ridge as general counsel during the period 1929 to 1932. These three appeals were argued on November 28, 1955, and the parties were awaiting decision thereupon on January 4, 1956, when the automatic dismissal is said to have occurred. The rule 302 dismissal, it is argued, resulted from the ‘1 mark-off ’ ’ from the Trial Calendar of the case on January 4, 1955, and the absence of its restoration for one year thereafter.

Rule 302 of the Rules of Civil Practice provides: “ In the supreme court and county courts a cause hereafter marked ‘ off ’ or struck from the trial term or special term calendar or unanswered on a clerk’s calendar call, and not restored within one year thereafter, shall be deemed abandoned, and the complaint and counterclaim, if any, shall be dismissed without costs for failure to prosecute, and the clerk shall make appropriate entry to that effect pursuant to this rule without necessity of further order.” (Subd. 2; emphasis supplied.)

Subsequent to the dismissal under rule 302, the Appellate Division, on February 27, 1956, decided the appeals ( 1 A D 2d 849 , 851). The stay and the denial of the motion to disqualify were affirmed and the deposition order was modified, and counsel for Blue Ridge served notice to restore the case to the calendar.

On May 14, 1956 defendants moved to strike plaintiff’s complaint pursuant to section 299 of the Civil Practice Act for willful failure of plaintiff to appear for examination before trial or, in the alternative, to dismiss the complaint pursuant to section 181 of the Civil Practice Act, for failure to prosecute. On June 11, Schwabtzwald, J., denied the section 299 motion provided that plaintiff appeared for examination by July 26 and denied the section 181 motion. In his opinion, he noted that the “ action is presently on the General Calendar ”. On July 23 and 25, 1956, plaintiff and the nominal corporate defendants appealed from Justice Schwartzwald’s order concerning the examination. On August 28, upon failure of plaintiff to submit to examination (she claimed she was ill), judgment was entered dismissing the complaint. Plaintiff and nominal defendants appealed. On July 15, 1957 the Appellate Division reversed and ordered a hearing on the question of willfulness of plain

p. 549
tiff’s failure to appear. On September 24, 1957 defendants again moved for dismissals under sections 299 and 181 of the Civil Practice Act and, after a hearing on plaintiff’s physical condition, Justice Schwartzwald granted the section 299 motion. In 1958, on January 3 and 7, the order and judgment striking the complaint were entered. The section 181 motion for failure to prosecute was denied.

On March 8, 1958, two months after the section 299 dismissal for failure of plaintiff to submit to examination, plaintiff commenced a new action in the United States District Court for the Southern District of New York, pursuant to section 23 of the Civil Practice Act. That section permits a new action for the same cause within one year after termination of a prior action, when the termination is not “ upon the merits ”.

Defendants moved for summary judgment in the Federal court, and one of their grounds was that the prior action had been dismissed on January 4,1956, for lack of prosecution under rule 302, and that such dismissal occurred more than a year prior to institution of action in Federal court. Defendants claimed all proceedings in the cause subsequent to January 4, 1956 were jurisdictional nullities (Marco v. Dulles, 177 F. Supp. 533 , 546).

Judge Herlands, in the Federal court, denied the motion with an exhaustive opinion ( 177 F. Supp. 533 ) and found that the Clerk’s records were not entirely clear as to the rule 302 dismissal or the restoration of the case to the calendar within a year after it was “marked off” (on January 4, 1955). However, he pointed out that on September 23, 1957 (subsequent to alleged dismissal on January 4, 1956) defendants, in an affidavit, had acknowledged ‘1 annual token restoration to frustrate the rule of automatic dismissal ” ( 177 F. Supp. 544 ). At any rate, he held that defendants were estopped from attacking the 1958 judgment dismissing the complaint for willful nonappearance of plaintiff at the examination before trial (for which judgment defendants had moved); that defendants were estopped and waived the right to assert that the prior action had been finally terminated and dismissed on January 4, 1956, under rule 302; and that the final dismissal occurred in January, 1958, under section 299 of the Civil Practice Act, and hence the Federal court action was permissible under section 23 of the Civil Practice Act.

p. 550
Thereafter, on August 4, 1959 defendants moved in the Supreme Court, Kings County, for an order “vacating” the January, 1958 judgment and “ setting aside all proceedings in this Court herein after January 4, 1956, on the ground * * * the Court lacked jurisdiction to proceed * * * following the termination of this action under and pursuant to Rule 302 * * * on or about January 4, 1956 ”. Upon obtaining such relief, of course, defendants could obtain a dismissal of the Federal District Court action for noncompliance with section 23 of the Civil Practice Act. The motion in the Supreme Court, Kings County, to vacate was granted, and the findings of the State court were contrary to those of the Federal court on the same issues.

It conclusively appears that on January 4, 1956, the date of the alleged automatic dismissal, no less than three appeals were pending; and that neither the plaintiff nor the defendants evidenced any intent to abandon the litigation, but to the contrary were actively engaged therein. We think that rule 302 was adopted for the purpose of getting rid of cases that are actually dead by striking them from the calendars (Eighth Annual Report of N. Y. Judicial Council, 1942, p. 383), but we do not think it was the intention of the framers to have the rule rigidly applied irrespective of any and all circumstances, particularly such as those pointed out here. The phrase ‘ ‘ deemed abandoned ’7 as contained in the rule suggests a presumption rather than a fixed and immutable policy of dismissal, and it would seem that the rule was never intended to apply to a case where litigation in a cause was actually in progress.

In any event, the defendants, who participated in appeals and instituted additional proceedings after January 4, 1956, waived whatever benefit they might otherwise claim from the application of the rule. The plea that they had no knowledge of the application of the rule is of no avail since the rule itself furnishes notice (Wheelock v. Wheelock, 4 N Y 2d 706 ). Thus, the basis of knowledge for the purposes of waiver is clearly present.

Defendants argue that jurisdiction was terminated by application of rule 302 (Wheelock v. Wheelock, supra). However, in that- case, there was complete inaction by both parties for a period of four years. Moreover, in this case, plaintiff could

Dissent

p. 551
have moved to open the default for justifiable circumstances (e.g., People ex rel. Weiss v. Boyland, 3 A D 2d 738 ) particularly where defendants were at least in part responsible for the over-all delay (Jacoby, Inc., v. Kushner, 3 A D 2d 905 ). By voluntarily instituting new applications in the cause, defendants made it unnecessary for plaintiff to pursue that course and, at least, these defendants, who invoked that jurisdiction and actively sought the judgment they now seek to vacate, are precluded from attacking it (Krause v. Krause, 282 N. Y. 355 , 357-358; Brown v. Brown, 242 App. Div. 33 , affd. 266 N. Y. 532 ; Starbuck v. Starbuck, 173 N. Y. 503 , 506).

The order should be reversed, with costs in all courts.

If there ever could have been any doubt as to the meaning and effect of the mandatory language of paragraph 2 of rule 302 of the Buies of Civil Practice, that doubt was removed by Wheelock v. Wheelock, ( 3 A D 2d 25 , affd. 4 N Y 2d 706 ). Our affirmance in Wheelock confirmed that rule 302 is ‘ ‘ automatic and self-executing ’ that a dismissal thereunder deprives the court of any “ jurisdictional foundation ” for further proceedings in the case, that the court has thereafter ‘ ‘ no power to proceed ’ ’, and that a judgment thereafter mistakenly entered must be vacated when collaterally attacked ( 3 A D 2d 25 , 26, 27, supra). In the light of the history and obvious need and purpose for the rule, any other construction is impossible. Dismissal under paragraph 2 of rule 302 is by the court on the court’s own motion and for the court’s purposes. The court could vacate it on a proper showing but no party could do so. No party could waive its effects or be estopped by subsequent activity in the cause, mistaken or otherwise, or restore the jurisdiction and power which, as Wheelock held, had come to an end (Matter of Walker, 136 N. Y. 20 , 29). Surely it was not an untimely end in this instance, since the case had been pending since 1936!

If everything previously said in this opinion should be rejected, the Court of Appeals would still be without power to nullify the earlier or rule 302 dismissal. When the court which had by inadvertence dismissed the action for the second time, then vacated the second dismissal order, it did so by construing its earlier dismissal order as a final and complete termination of the action. There is no doubt that rule 302 authorized the

p. 552
court to dismiss an action finally and forever and when the court has so construed its own 1956 order no other court can put a different label on it or give it any lesser effect or significance.

The order appealed from should be affirmed, with costs in all courts.

Judges Dye, Froessel and Van Voorhis concur with Judge Foster; Chief Judge Desmond dissents in an opinion in which Judges Fuld and Burke concur.

Order reversed, with costs in all courts, and the order of the Supreme Court, Kings County, of January 3, 1958, and the judgment entered thereon on January 7, 1958, reinstated.

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