Amabile v. Lerner

• Decision Date: 23 November 1960
• Docket Number: No. C--121,C--121
• Citation: 166 A.2d 603,64 N.J.Super. 507
• Parties: Anthony AMABILE, Individually, etc., Plaintiff, v. Harry LERNER, David Oxfeld, et al., etc., Defendants.
• Court: New Jersey Superior Court

Page 507

64 N.J.Super. 507

166 A.2d 603

Anthony AMABILE, Individually, etc., Plaintiff, v. Harry LERNER, David Oxfeld, et al., etc., Defendants.

No. C--121.

Superior Court of New Jersey Chancery Division.

Nov. 23, 1960.

Joseph Maran, Jr., Jersey City, for plaintiff.

O'Mara, Schumann, Davis & Lynch, Jersey City, for defendant Lincoln Mut. Cas. Ins. Co. (Edward J. O'Mara, Jersey City, appearing).

Riker, Danzig, Marsh & Scherer, Newark for all other defendants (Everett M. Scherer, Newark, appearing).

COLLESTER, J.S.C. (orally).

This matter comes before the court on a motion for summary judgment on behalf of the defendants to dismiss the complaint and the amendments thereto, pursuant to R.R. 4:58, on the ground that the allegations set forth therein do not constitute causes of action under R.R. 4:36--2 and the law of this State, that there is no genuine issue as to any material fact challenged, and that the defendants are entitled to a judgment of dismissal as a matter of law. Defendants in support of the motion have submitted affidavits and the deposition of the plaintiff. Plaintiff relies upon his verified complaint as amended.

Briefly, the facts are that the plaintiff is a policyholder of the defendant Lincoln Mutual Casualty Company, a company organized in this State under Title 17 of the Revised Statutes. The complaint alleges that this company, the Lincoln Mutual Casualty Insurance Company (which I will refer to hereafter as the Casualty Company), was organized on August 27, 1947; that the individual defendants, Harry Lerner, David Oxfeld, Arthur Lerner, Joseph Dunsky and Herman Feldman are directors thereof, and that Harry Lerner, David Oxfeld, Arthur Lerner, and Joseph Dunsky are officers thereof.

The complaint also alleges that in May 1957 the individual defendants organized the defendant Lincoln Company, Inc., a brokerage corporation, and that Harry Lerner, David Oxfeld and Arthur Lerner are directors, officers, and the sole stockholders thereof.

It also alleges that in April 1958 the five individual defendants organized a corporation known as the Broad Finance Corp., the name of which was later changed to Lenox Finance Co., Inc., and that the five individual defendants are the directors, officers and sole stockholders thereof.

The complaint further alleges that the individual defendants also former a corporation known as Safe Drivers Club, Inc., and are the directors, principal officers and sole stockholders thereof.

It is alleged in the complaint that Lenox is engaged solely in financing insurance policies issued by the Casualty Company; that Lincoln Co. is an insurance brokerage corporation engaged solely for the brokerage of policies of the Casualty Company; that Safe Drivers, Inc. is engaged in the business of selling some type of service policy to provide various services for automobile drivers exclusively to the Casualty Company's policyholders, and that all three of these corporations derive their entire income from the Casualty Company.

The complaint, in brief, charges that the defendants as directors of the Casualty Company breached their fiduciary obligations as directors by reason of dealings with the other defendant corporations and that they diverted assets of the Casualty Company for their personal benefit.

This suit is a derivative action against the Casualty Company, its directors, and the other defendant corporations for an accounting of moneys allegedly wrongfully diverted, a judgment in money damages against the individual and corporate defendants for moneys allegedly due to the Casualty Company, seeking the removal of the individual defendants as directors of the Casualty Company, and seeking the appointment of a receiver for the Casualty Company.

The undisputed evidence shows the plaintiff purchased his insurance policy from the Casualty Company on September 15, 1960, and the amended complaint which was filed on October 4, 1960 charged that the individual defendants wrongfully used funds of the Casualty Company to incorporate, establish, and promote the three other corporate defendants--the Lincoln Co., Lenox, and Safe Drivers Club. It is apparent from the complaint, as amended, and the deposition of the plaintiff, that these acts took place before he became a policyholder.

The complaint, as amended, likewise charged that the Casualty Company wrongfully paid commissions to the Lincoln Co. during the years 1957 through 1959--a period prior to the date the plaintiff became a policyholder. In his deposition made on October 19, 1960, the plaintiff admits that the alleged wrongful acts of the individual defendants took place before he became a policyholder. The original complaint and the amended complaint do not contain an allegation that the plaintiff was a shareholder in the Casualty Company at the time of the transaction of which he complains. R.R. 4:36--2 provides, among other things, that:

'* * * In an action brought to enforce a secondary right on the part of one or more shareholders in an association, incorporated or unincorporated, because the association refused to enforce rights which may properly be asserted by it, the complaint shall be verified by oath and shall aver that the plaintiff was a shareholder at the time of the transaction of which he complains.'

N.J.S.A. 14:3--16 of the general corporation act provides that in any action brought in the right of a corporation by a shareholder it must be made to appear that the complainant was a shareholder at the time of the transaction of which he complains.

Plaintiff, in his brief, does not refer to the violation of R.R. 4:36--2. He contends that the requirements of the statute, N.J.S.A. 14:3--16, do not apply to a mutual insurance company, since it is not a corporation. However, he cites no legal authority for his position.

The Casualty Company, a mutual casualty insurance company, was organized pursuant to the provisions of R.S. 17:17--1 et seq., N.J.S.A.

R.S. 17:18--1, N.J.S.A., provides that any company organized under that statute, and its stockholders, members and directors shall have all the powers granted and be subject to all the duties and obligations imposed by Title 14, the general corporation act. A policyholder of a mutual casualty insurance company, such as the plaintiff here, is certainly a member of that company.

In Duffy v. Mutual Benefit Life Insurance Co., 272 U.S. 613, at p. 619, 47 S.Ct. 205, at p. 206, 71 L.Ed. 439, at p. 442 (1945), it was stated:

'(Every) member bears a relation to the mutual company analogous to that which a stockholder bears to the joint-stock company in which he holds stock.'

In Schwarzwalder v. Tegen, 58 N.J.Eq. 319, at p. 326, 43 A. 587, at p. 589 (Ch.1899) and in the opinion of the Court of Errors and Appeals affirming the court below Schwarzwaelder v. German Mut. Fire Ins. Co., 59 N.J.Eq. 589, at p. 590, 44 A. 769, our courts clearly indicated that they considered that a policyholder of a mutual insurance company (in that case a mutual fire insurance company) as a member of the company occupied the status of a stockholder in a stock company. See also the decisions of Koster v. (American) Lumbermen's Mutual Casualty Co., 330 U.S. 518, 67 S.Ct. 828, 91 L.Ed. 1067 (1947); and Garfield v. Equitable Life Assurance Society, 7 Misc.2d 283, 164 N.Y.S.2d 819 (Sup.Ct.1956).

In my opinion, the Casualty Company and specifically the plaintiff, as a policyholder and a member thereof, under R.S. 17:18--1, N.J.S.A., are subject to the duties and obligations imposed by N.J.S.A. 14:3--16 of the corporation act. As such a member it must be made to appear in a proceeding brought by him on behalf of the company that he was a member...