Blum v. Gleitsman

• Decision Date: 09 June 1960
• Citation: 25 Misc.2d 740,203 N.Y.S.2d 38
• Parties: Jeanne K. BLUM, as a Director of Gleitsman's Inc., Plaintiff, v. Harold GLEITSMAN, Darwin Sussberg and Gleitsman's, Inc., Defendants.
• Court: New York Supreme Court

Page 38

203 N.Y.S.2d 38

25 Misc.2d 740

Jeanne K. BLUM, as a Director of Gleitsman's Inc., Plaintiff, v. Harold GLEITSMAN, Darwin Sussberg and Gleitsman's, Inc., Defendants.

Supreme Court, Special Term, New York County, Part I.

June 9, 1960.

Gainsburg, Gottlieb, Levitan & Cole, New York City, for plaintiff.

Shapiro & Schlissel, New York City, for defendants.

CHARLES A. LORETO, Justice.

The defendants move for dismissal of the complaint pursuant to rule 106 subd. 4 for legal insufficiency and pursuant to section 241 of the Civil Practice Act, or for dismissal of specifications of alleged wrong-doing contained in paragraphs 9 through 12, and 14 through 21 for insufficiency, and for further relief pursuant to rule 103 and section 182 of the Civil Practice Act and rule 146.

It is alleged in the first cause of action that the defendant Harold Gleitsman has held, since July 25, 1955, and now holds, 60.49% of the outstanding stock of the defendant corporation and he holds the remaining 39.51% as trustee of a trust for the benefit of the plaintiff and her children. Plaintiff and the two individual defendants are the sole members of the board of directors.

It is further alleged that in each of the years ending June 30, 1956, 1957, 1958 and 1959, the surplus increased and during that time no dividend was distributed. The profit, after federal income tax, in those years increased from $77,000 to $210,000. The surplus as of July 25, 1955 was $357,000 and on June 30, 1959 was $788,000. It is further alleged that the surplus since July 25, 1955 has been far in excess of the corporate needs, current and reasonably anticipatable, and that the retention of the surplus has not been for legitimate and proper corporate purposes. Since July 25, 1955, the corporation has continuously had cash and current assets in excess of its letitimate and proper corporate needs and sufficient to allow the payment of dividends out of surplus.

Finally, it is alleged that the failure, in these circumstances, to exercise power in favor of distribution of dividends, constitutes a breach and abuse of trust and the exercise of discretion in bad faith, particularly since the plaintiff and her children are denied the income and benefits from trusts created especially for that purpose, and that the defendant Harold Gleitsman thereby avoids liability for the payment of federal and state tax upon dividends distributed.

Those allegations of the financial condition and surplus position of the corporation and of its needs, together with the fact that the individual parties are the sole directors, the defendant Gleitsman holding a majority of the stock in his own name and the balance as trustee for the benefit of the plaintiff and her children, properly invoking a claim of bad faith, are sufficient to state a cause of action (see Nauss v. Nauss Brothers Co., 195 App.Div. 318, 324, 325, 187 N.Y.S. 158, 162, 163).

The second cause charges waste. The allegation contained in paragraph 15 of the complaint states that the defendants have authorized payment to themselves and have received large sums of money in the...