Kavanaugh v. Commonwealth Trust Co.

This action is brought by the plaintiff as a stockholder, in behalf of the defendant corporation, to recover losses sustained by it because of the negligence of the individual defendants while acting as its directors: The defendants Wetmore and Brooker demur to the complaint on the ground that it does not state facts sufficient to constitute a cause of action. The demurrer goes to the entire complaint, but the only question discussed by defendants in their brief, and argued at the bar of this court, was whether the allegation of refusal on the part of the corporation to bring the action is sufficient, and I shall limit my decision to that particular.

The complaint, after setting forth a demand upon the corporation to bring the action, alleges: “But said trust company has wholly omitted and failed to bring said action, and the plaintiff therefore

“The right of action, however, belongs to the corporation, and should be brought by it as plaintiff; but, when it will not bring the suit itself, an aggrieved stockholder, after due demand and a refusal, or unreasonable neglect to proceed, may bring it in his own name upon making the corporation a party defendant.” »

But I am of the opinion that it was never intended, by the use of this language, that a plaintiff may allege and prove less than a refusal. He must allege and prove that the corporation, after demand, has refused to bring the action. Such refusal may be express or implied. Express refusal may be established by statements or declarations of the company’s officers, or by resolutions adopted by its board of directors; and implied refusal by the course and conduct of the corporation, omitting or neglecting to do what it ought to have done. Tested hy this rule, the complaint, herein is deficient. It alleges omission and neglect, but not refusal. The essential difference is one of intention. A refusal involves an intentional denial of the stockholder’s request; an omission or neglect does not necessarily contain any such element, but may be of such a character that an intention may be inferred therefrom. To plead neglect is not equivalent to pleading refusal.

I should regard the point raised by this demurrer as hypercritical, were it not for the serious consideration given to it in the case of Leslie v. Lorillard, 31 Hun, 305 , where the question was quite similar to the one now under consideration. The allegation in that case was, I think, even stronger than the one here. The complaint there alleged: "That said defendant has neglected to bring such action, and threatens to continue to make the monthly payments provided for in such contract.” This involved a neglect as to the past, with a threat of continued negligence in the future, and might reasonably be construed as involving an intentional refusal on the part of the corporation to bring the action; nevertheless, the General Term of the First Department unanimously reversed the judgment, on the ground that the complaint did not allege a refusal on the part of the corporation to bring the action, the court quoting with approval the words of Mr. Justice Nelson in Memphis City v. Dean, 8 Wall. 73 , 19 L. Ed. 326 , as follows: “There must be a clear default, therefore, on their part, involving a breach of duty.” I think the demurrer must be sustained, the plaintiff to plead over upon the usual terms, if he so elects.

Demurrer sustained, plaintiff to plead over upon usual terms, if he so elects.