Holmes v. Camp

• Decision Date: 05 December 1916
• Citation: 219 N.Y. 359,114 N.E. 841
• Parties: HOLMES et al. v. CAMP et al.
• Court: New York Court of Appeals Court of Appeals

219 N.Y. 359

114 N.E. 841

HOLMES et al.

v.CAMP et al.

Court of Appeals of New York.

Dec. 5, 1916.

Appeal from Supreme Court, Appellate Division, First Department.

Action by Robert Holmes, individually and as trustee, and others, against Hugh N. Camp. Jr., individually, and others. From an order of the Appellate Division (159 N. Y. Supp. 1119) affirming an order granting a motion to vacate an order directing service of summons on defendant Gerard S. Parsons, without the state, by publication, the plaintiffs appeal by permission on certified questions. Orders reversed.

Samuel F. Moran, of New York City, for appellants.

David T. Davis, of New York City, for respondent.

HISCOCK, J.

The appellants seek to sustain under the provisions of subdivision 5, § 438, of the Code of Civil Procedure an order permitting service of the summons without the state upon respondent, a foreign executor, and which order has been set aside by the order appealed from. Such section and subdivision provide that:

‘An order directing the service of a summons upon a defendant, by publication, may be made in either of the following cases: * * *

‘5. Where the complaint demands judgment, that the defendant be excluded from a vested or contingent interest in or lien upon, specific real or personal property within the state; or that such an interest or lien in favor of either party be enforced, regulated, defined, or limited; or otherwise affecting the title to such property.’

If the appellants and right in their contention that this action was one in which service of the summons could be made by publication under said subdivision, said service might have been made without the order which has been vacated. Code, § 443, subd. 3. Nevertheless, an order of publication having been obtained and vacated, I shall assume that the various questions argued on this appeal are presented by the order appealed from vacating the order of publication.

While other questions are involved and will be considered, the most important inquiry is the one whether this action does so relate to and affect property within this state that our courts have jurisdiction thereof, and for the purpose of reaching an adjudication may authorize process to be served upon a necessary party, although a nonresident and without the state. Both parties turn to the complaint as furnishing the test by which to determine this question, and I shall do the same. That pleading contains many allegations and some prayers for relief which are so irrelevant to or inconsistent with the appellants' present theory as to suggest either that it was prepared on a different theory than is now adopted, or else without a very accurate conception of what could be accomplished in this action against nonresident and absent defendants. On the motion to set aside the order of publication, however, the complaint was not to be judged with the same measure of severity which would be applied on a demurrer or motion directly attacking its form and sufficiency. If from all of its allegations there can be gathered those which set forth the substance of a cause of action sufficient to sustain in that respect the order of publication which was made, that will be enough. Sifting, then, from the entire complaint those allegations which most tend to set forth a cause of action entitling appellants to an order of publication on their present theory, we find it to be charged in substance against the respondent as follows:

At all the times mentioned in the complaint there were two corporations known, respectively, as the Doe Run Lead Company and the Saint Joseph Lead Company, the former a foreign corporation, and the latter a corporation organized under the laws of this state and legally located therein. Several years prior to the commencement of this action the first corporation was the owner and holder of a large amount of the capital stock of the latter corporation and the respondent's testator, Charles B. Parsons, and various other defendants not present upon this appeal, were directors and in control of the affairs of the first or holding corporation, and under circumstances which made their action fraudulent and unlawful they procured in form a sale by and in behalf of such holding company to themselves of the capital stock of said domestic corporation, the Saint Joseph Lead Company; the amount of stock thus fraudulently procured by various defendants respectively, including respondent's testator, being specifically set forth. While said defendants have disposed of more or less of said capital stock so obtained by them, ‘some of the certificates representing * * * shares of stock delivered and transferred to the individuals named (including respondent's testator) * * * and some of the certificates representing the accretions thereto in stock dividends, are still held by said individuals or by their executors, legal representatives, and trustees of those of them who are dead.’ The appellants at and before the commencement of the action were the owners and holders of a large amount of the capital stock of the domestic corporation and one of them the owner and holder of capital stock in the foreign corporation. The domestic corporation was also the owner and holder of nearly all of the capital stock of the foreign corporation. Prior to the commencement of the action a demand was made upon each of said corporations that proper proceedings be instituted to compel the restitution upon proper terms by respondent and the other defendants to the foreign corporation of the capital stock of the domestic corporation originally owned by the former, and, as alleged fraudulently secured from it by said defendants or the various testators represented by them respectively, but no action was taken by either corporation in response to said demand, and for that reason the foreign corporation was joined as a defendant. Amongst the other prayers for relief is one for a decree ‘directing the restitution to Doe Run Lead Company of all of said stock found to be in the possession or under the control of any of the defendants,’ and for ‘such other and further relief by way of interlocutory decree or final judgment as may be equitable and just.’

[2] More briefly summarized, these allegations are to the effect that various individuals, including respondent's testator, took advantage of their position as directors of the foreign corporation to procure a fraudulent transfer to themselves of capital stock held and owned by it in the domestic corporation, thereby inflicting injury on stockholders, and that these appellants, being the owners and holders of stock in both corporations, and having vainly attempted to procure action by said corporations to enforce a restitution of said property, now bring an action in behalf of said injured corporation to effect restitution of such stock as may still be in the possession of the parties who fraudulently procured it or their respective representatives through relieving it from the effect of the fraudulent transfer. Those facts constitute the substance of a well-recognized cause of action which falls within the equitable jurisdiction of our courts.

[3] But for the purposes of this appeal the particular inquiry also presents itself whether an interest in the capital stock of a domestic corporation is property having its location or situs in the state wherein the corporation is organized or located; for, of course, it must be conceded that the allegations of the complaint which have not been summarized and which would lead, if anywhere, to a personal judgment against the respondent, cannot sustain an order for service of the summons by publication. Such order in this case must rest upon a cause of action affecting property located within the state and within the jurisdiction of our court.

[4] The essential characteristics of an interest in the capital stock of a corporation have been so well and often defined that it is unnecessary to spend any considerable time in traveling over the ground now. Outside of his interest in current profits, the stockholder has an undivided interest in the surplus of assets over liabilities which is ordinarily represented by certificates. His property, however, consists of his interest in such surplus, and these certificates for ordinary purposes represent, but do not constitute, his interest. The general principles covering such subject were last defined by this court in U. S. Radiator Co. v. State of N. Y., 208 N. Y. 144, 101 N. E. 783,46 L. R. A. (N. S.) 585. Recognizing these general principles, it has been established by many decisions that, in the absence of some statutory provision, the interest of a stockholder in the capital of a corporation may be regarded as property located where the corporation is organized and exists, and in that jurisdiction may be reached by appropriate proceedings.

Our statutes pertaining to attachments provide that:

‘The rights or shares which the defendant has in the stock of an association or corporation * * * may be levied upon; and the sheriff's certificate of the sale thereof entitles the purchaser to the same rights and privileges, with respect thereto, which the defendant had when they were so attached.’ Code of Civil Procedure, § 647.

‘A levy under a warrant of attachment must be made as follows: * * * Upon other personal property, by leaving a certified copy of the warrant, and a notice showing the property attached * * * if it consists of a right or share in the stock of an association or corporation, * * * with the president or other head or the association or corporation.’ Code Civ. Proc. § 649.

In Plimpton v. Bigelow, 93 N. Y. 592-600, it was said:

‘The right of a shareholder is derived from the corporation under its charter, or the laws of the state which created it. * * * It seems impossible to regard the stock of a corporation as being present for the purpose of judicial proceedings, except at one of two...