Auerbach v. Shafstor, Inc.

• Decision Date: 22 May 1962
• Citation: 34 Misc.2d 658,229 N.Y.S.2d 927
• Parties: Elias AUERBACH, Plaintiff, v. SHAFSTOR, INC., Shaffer Stores Company and R. C. Williams & Company, Inc., Defendants.
• Court: New York Supreme Court

Page 927

229 N.Y.S.2d 927

34 Misc.2d 658

Elias AUERBACH, Plaintiff, v. SHAFSTOR, INC., Shaffer Stores Company and R. C. Williams &amp Company, Inc., Defendants.

Supreme Court, Westchester County.

May 22, 1962.

Israel Beckhardt, New York City, for plaintiff.

Breed, Abbott & Morgan, New York City, for defendant R. C. Williams & Co., Inc.

HUGH S. COYLE, Justice.

This is an application for an order requiring the plaintiff to furnish to the defendant, R. C. Williams & Company, Inc., security in the amount of $75,000 for the reasonable expenses, including attorneys' fees, which have been and may be incurred by said defendant in connection with the above entitled action, pursuant to the provisions of § 61-b of the General Corporation Law of the State of New York; and further providing that, pending the filing of such security, all further proceedings in this action on the part of the plaintiff be stayed; and also providing that, in the event the plaintiff shall fail within 15 days after the service upon his attorney of a copy of an order granting the relief requested above, with notice of entry thereof to file security in accordance with the provisions of such order, a further order may be entered, upon affidavit showing such failure and 2 days' notice to plaintiff, dismissing the above entitled action with costs.

This is an action instituted by one stockholder of defendant, R. C. Williams & Company, Inc., allegedly on behalf of Williams seeking to recover in excess of $1,600,000.00 from defendants Shafstor, Inc. and Shaffer Stores Company on the grounds that since 1957 the common officers and directors of defendants, Williams, Shafstor, Inc., and Shaffer Stores Company, have conspired to act and have acted in the best interests of Shafstor, Inc. and Shaffer Stores Company in disregard of the interests of defendant, R. C. Williams & Company, Inc., and its stockholders.

Plaintiff has moved this court by cross-motion for an order permitting plaintiff to inspect and copy the stockholder list of R. C. Williams & Company, Inc. for the express purpose of soliciting sufficient fellow stockholders to intervene in the action so that the combined holdings of all plaintiffs has a market value of $50,000.00 or represents 5% of any class of stock, thus eliminating the necessity for posting security pursuant to § 61-b of the General Corporation Law, which section reads as follows:

§ 61-b Security for expenses

'In any action instituted or maintained in the right of any foreign or domestic corporation by the holder or holders of less than five per centum of the outstanding shares of any class of such corporation's stock or voting trust certificates, unless the shares or voting trust certificates held by such holder or holders have a market value in excess of fifty thousand dollars, the corporation in whose right such action is brought shall be entitled at any stage of the proceedings before final judgment to require the plaintiff or plaintiffs to give security for the reasonable expenses, including attorney's fees, which may be incurred by it in connection with such action and by the other parties defendant in connection therewith for which it may become subject pursuant to section sixty-four of this chapter, to which the corporation shall have recourse in such amount as the court having jurisdiction shall determine upon the termination of such action. The amount of such security may thereafter from time to time be increased or decreased in the discretion of the court having jurisdiction of such action upon showing that the security provided has or may become inadequate or is excessive'.

It is undisputed that the holdings of plaintiff in the defendant Williams corporation are 1/20,000 of 1% of the outstanding common stock and less than 1/2,500 of 1% of the outstanding preferred stock . The value of plaintiff's 13 shares of common stock as of March 19, 1962 was approximately $365.00, and his 22 shares of preferred stock on the same date was approximately $465, making a combined total value of preferred and common stock held by plaintiff on March 19, 1962, the time the action was instituted of approximately $840.00. At the time the action was commenced there were issued and outstanding, 305,157 shares of common stock of R. C. Williams & Company and 55,423 shares of preferred stock.

Plaintiff has vigorously opposed defendant's application pursuant to § 61-b on the ground that Williams is a nominal defendant on whose behalf this action is brought; that no relief is sought against Williams and that Williams will only benefit in the event of any recovery, therefore Williams' role is passive or neutral. Its proper duty is simply to submit the Corporation's rights to the Court's protection and then step aside and allow the active parties--plaintiff on behalf of the public stockholders and the real defendants as the controlling insiders--to litigate this lawsuit. In other words the burden of defendants' litigative activities will rest on the real defendants and...