Dudley v. Platt

the same relief was denied ( 118 N. Y. Supp. 1058 , Guy, J.), and, while the facts presented) upon that motion are again asserted by the plaintiff, the determination announced by the court should control upon the present application. Certain new grounds are alleged, however, and the question presented is whether the suggested danger of loss to the stockholders is sufficiently apparent to justify a receivership, in view of the obvious injury to the credit and to the business of this company which must follow the appointment of a receiver.

So far as the plaintiff seeks by amendment of the complaint to obtain a judgment declaring that the association came to an end by limitation in the year 1864, the facts alleged cannot be considered as a ground for the motion for a receivership. The action is framed to preserve the assets of an existing association, but by the amendment of the complaint the proceedings are to continue as an attack upon the association’s right to existence. That is, the purpose is to destroy what the action, as framed, was to preserve, and this provisional remedy is not to be granted upon a ground wholly inconsistent with the situation upon which the complaint in the action proceeds.

The facts before me appear to be against the claim that the existence of the association has come to an end, and if the complaint had been amended, as now sought, prior to the motion for the appointment of a receiver, I should certainly be inclined to hold that the merits were with the defendants. As the case is presented, however, the subject itself is not within the purview of the motion papers and is not a ground available to the plaintiff.

The claim that these directors have concealed from the stockholders the fact of business losses, aggregating over $1,000,000, appears, upon examination, to be without foundation. A change in the system of bookkeeping, adopted pursuant to an order of the Interstate Commerce Commission, directed to all express companies, resulted in the statement of the accounts whereby an excess of outstanding disbursements over outstanding receipts became presently chargeable instead of being carried over to the period of actual payment, as under the old system. This change took place in June, 1908; but the report of the condition of the company prior to the change, as of June 30, 1907, clearly indicated that the charge for outstanding disbursements at that time was present and should be taken into account as matter in diminution of the assets. The proof before me discloses that there was no attempt to conceal any losses from the stockholders, and that the matter was one which had to do with a system of accounts adopted in good faith as an incident to the carrying on of a large business.

Improper action of the directorate in authorizing loans to the directors is broadly asserted by the plaintiff; but the actual facts certainly fail to justify the charges made. When examined, the claim of fraud seems to be based upon the fact that one loan of $3,000, long since repaid with interest, was made to Mr. Platt, the president, without collateral security; but this would hardly suffice as indicating a corrupt design in the handling of the assets.

As against the plaintiff’s general assertion that the business of the

company is being or is about to be partitioned among its rivals, the fact is shown to be that the company is now operating over the greatest mileage in its history, and that its gross earnings from its business have greatly increased during the whole period of the management which is now assailed. At isolated times when the business of the country has been affected by a financial crisis, or where a change in the territory of operation of this company was taking place, a comparison of business with other years would show a loss; but the arbitrary selection of these dates, for the purpose of unfavorable comparison, does not alter the facts as to the business done, nor does it support the plaintiff’s contention of waste or of a probable abandonment of'the company’s business. The instance of the loss of the Chicago, Milwaukee & St. Paul contract by this company and the acceptance of that contract by a rival in business is explained! by the opposing papers as proceeding upon sound business reasons. The company took another contract in the West involving greater mileage, and the facts fairly suggest that there was simply a change in the territory of operation depending upon the exercise of business judgment as to the better prospect of profit, not an abandonment of profitable business to a rival, in bad faith to the stockholders, as the plaintiff desires the court to infer.

At best, the plaintiff’s case proceeds upon dissatisfaction with the net earnings, and upon fears and suspicion that the management may not have his interests at heart; but, upon an examination of the voluminous papers submitted upon this motion,'the facts to support his apprehension are not reasonably to be taken as established, nor indicated to be provable upon the trial, in better probability, as against the evidence presented upon the part of the defendants.

Whether the plaintiff can actually establish at the trial grounds for the relief, or for some of the relief which he seeks, the facts to support his case are by no means sufficiently clear to call for the granting of a receivership pendente lite. His allegations of fact are very general, and, so far as material, these allegations are met by the defendants with an explanation consistent with the good faith which they assert.

My conclusion is that the application for the appointment of a receiver should be denied.

Upon the plaintiff’s application to amend the complaint, the pend-ency of a similar action brought in this court in Montgomery county by one Spraker, a stockholder, in behalf of himself and others, is asserted as ground for denying an amendment which would change the character of this action. If the court should grant judgment giving some relief to the plaintiff in the Spraker Case, this action as now framed would be stayed (Brinckerhoff v. Bostwick, 99 N. Y. 185 , 194, 1 N. E. 663 ). To interject into this suit a new cause of action depending upon the termination of this company by legal limitation would destroy the similarity of these stockholders’ actions, and the defendants would be compelled to litigate all the issues in the present action, notwithstanding the result of the Spraker Case which has been submitted to the trial justice for decision.

Under these circumstances, and in view of the apparent lack of merit in the plaintiff’s claim, upon the facts underlying the legal proposition that this association had no existence after the year 1864, I am of the opinion that the amendment should not be allowed, and that the ground of action now asserted should be the subject of an independent suit. A supplemental complaint to set up matters necessary to the continuance of this action against the successors in interest of the defendant Thomas C. Platt, deceased, and as against the association, may be served. In other respects the motion for an amendment is denied.