Brodsky v. Perth Amboy National Bank

• Decision Date: 08 November 1957
• Docket Number: Civ. A. No. 391-56.
• Citation: 156 F. Supp. 316
• Parties: Irving BRODSKY, Plaintiff, v. The PERTH AMBOY NATIONAL BANK, Defendant.
• Court: U.S. District Court — District of New Jersey

156 F. Supp. 316

Irving BRODSKY, Plaintiff, v. The PERTH AMBOY NATIONAL BANK, Defendant.

Civ. A. No. 391-56.

United States District Court D. New Jersey.

November 8, 1957.

Gross, Blumberg, Goldberger & Stavis, Newark, N. J., by Morton Stavis, Newark, N. J., for plaintiff.

Wilentz, Goldman, Spitzer & Sills, Perth Amboy, N. J., by Arthur J. Sills, Perth Amboy, N. J., for defendant.

WORTENDYKE, District Judge.

In his complaint, filed in this action on May 14, 1956, plaintiff, a New York resident, and owner of certain shares of the capital stock of the defendant national bank, having its principal office in New Jersey, prayed that this Court adjudicate the invalidity of proceedings of the annual meeting of defendant's stockholders, held on January 10, 1956, and the election of directors thereat, and that this Court order a new election of directors and direct that the plaintiff be permitted to vote his shares of stock at such new election. The defendant duly answered the complaint and incorporated in its answer a counterclaim against plaintiff and others not parties to the suit.

It was thereafter reported to the Court by counsel for the parties that the cause or causes of action, if any, alleged in the complaint had been relinquished and withdrawn. The case, therefore, proceeded to trial upon the counterclaim and plaintiff's answer thereto.

For convenience in reference, the defendant-counterclaimant will be hereinafter referred to as the Bank and the plaintiff as Brodsky. Brodsky is one of four tenants-in-common of the fee of the real estate¹ who acquired title thereto by mesne conveyances from the Bank's lessor, for value, and in reliance upon the representation, by their immediate predecessor in title, as well as by the Bank itself, that the lease here in question was a valid and subsisting estate in the premises. The Bank has been paying rent regularly in accordance with the terms of the lease, but now seeks to be relieved of its obligations thereunder from the date upon which its counterclaim was filed.

The counterclaim with which we are here concerned embodied five counts, the first three of which have been dismissed upon Brodsky's motion. This opinion embodies the Court's decision upon Brodsky's motion to dismiss the fourth and fifth counts of the counterclaim, which was made and argued at the close of the evidence for the Bank, and decision thereon then reserved to permit the parties to file briefs.

The critical question presented for determination is whether the Bank may disaffirm, as of June 18, 1956 (the date upon which its answer and counterclaim were filed), the lease made by the Bank on July 15, 1954, of a certain office building in which the Bank maintains its business office.

The evidence before the Court when the Bank rested its case may be generally summarized as follows:

In the year 1938 the Bank acquired title to the building and its curtilage for the sum of $500,000 by deed of conveyance from Frank Van Syckle and wife, dated February 16, 1938.

The Bank had theretofore, and has continuously ever since, occupied the ground floor and its mezzanine for its banking offices, together with the basement for vault space, and rented the remaining floors of the ten story building to various corporate tenants. The reasonable rental value of the portion of the building occupied by the Bank for its banking business was estimated at $18,000 per annum, as of July 2, 1954.

As of December 31, 1953, the entire building and land was carried on the books of the Bank at $429,349.58. As of the same date, the Bank's financial statement to the Comptroller of the Currency showed a capital surplus of $500,000 and undivided profits of $838,103.84.

From 1930 to January 1954, the President of the Bank owned or controlled 90% of its issued and outstanding stock, which he sold, in that month, to Post Publishing Company. He continued in his capacity as President, and as a member of the Board of Directors until July of that year. His resignation, together with those of certain other members of the Board of Directors of the Bank, followed his disapproval of a proposal submitted by the new controlling stockholder, that the Bank sell its land and building for a price of $800,000 and take back a lease of the entire premises at an annual net rental of $80,000, the lessee paying all maintenance and operating charges against the demised premises. The transaction was accordingly duly authorized by vote of the new Board of Directors. The former President's disapproval of the transaction was based upon his belief that the rent obligation, as well as the purchase price, was excessive because of the large proportion of vacancies in the building, and also because the limited portion of the building occupied by the Bank for its banking purposes did not, in his opinion, justify its assumption of maintenance and operating charges for the entire building in addition to the amount of net rent which it became obligated to pay under the lease.

After the transaction had been consummated and the parties thereto had performed under the terms of the lease for several months, Brodsky entered into a contract, dated December 29, 1954, to purchase the real estate, subject to the lease, and that contract was consummated in a conveyance to Brodsky and his three associates as tenants-in-common.

There is no evidence tending to show (a) that the Comptroller of the Currency was advised of the criticized transaction or (b) that he either approved or disapproved thereof. The evidence is also barren of any basis for finding that Brodsky, or any of his co-tenants, had anything to do with the suggestion or consummation of the sale and lease-back transaction. I am unable to find any ground or theory upon or under which invalidity of the leasehold can properly be asserted against Brodsky or his co-tenants by the Bank in this action. Indeed, plaintiff's co-tenants, as well as the holder of the mortgage which was placed upon the real estate after the lease was executed, would be indispensable parties respondent to the relief sought by the Bank in this case. Federal Rules of Civil Procedure, Rule 19(a), 28 U.S. C.; Niles-Bement-Pond Co. v. Iron Moulders' Union, Local No. 68, 1920, 254 U.S. 77, 41 S.Ct. 39, 65 L.Ed. 145; Metropolis Theater Co. v. Barkhausen, 7 Cir., 1948, 170 F.2d 481; Calcote v. Texas Pac. Coal & Oil Co., 5 Cir., 1946, 157 F.2d 216. The absence of such indispensable parties compels dismissal of the entire counterclaim. Martucci v. Mayer, 3 Cir., 1954, 210 F.2d 259.

The motion addressed to the fourth and fifth counts of the counterclaim, however, should also prevail upon the merits.

The fourth count of the counterclaim, after alleging the "sale and lease-back" transaction, and tracing the title to the real estate into Brodsky and his tenants-in-common, charges that the fair market value of the Bank's leasehold interest would not exceed $50,000 per annum, and that the fair market value of the portion of the building occupied and used by the Bank for its banking business does not exceed $24,000 per annum. It alleges that the net rental which has been paid by the Bank to the landlord is $55,000 per annum after deducting from the $80,000 per annum amount of rent reserved the receipts from other tenants in the building, less the cost of maintenance and operation assumed by the Bank under the lease. Upon these figures the Bank contends that it has suffered annual damage in the approximate amount of $35,000. Charging that the lease agreement was illegal, the Bank prays that this Court declare the agreement null, void and of no effect and that the Bank be awarded damages in the amount of $35,000 against Brodsky and his co-tenants.

The fifth count charges that the Bank's entry into the lease was ultra vires, and seeks similar adjudicative relief and damages.

In contending for the invalidity of the lease and as a basis for its assertion that the Bank's entry into the lease was ultra vires, reliance is placed upon the construction of 12 U.S.C.A. § 29² by the Ninth Circuit Court of Appeals in Houston v. Drake, 1938, 97 F.2d 863.

Brodsky argues, however, that if the Bank's entry into the lease exceeded the authority delegated by Section 29, only the Comptroller of the Currency may question the propriety of the transaction and relies upon the construction accorded to the statutory section in Brown v. Schleier, 9 Cir., 1902, 118 F. 981, affirmed, 1904, 194 U.S. 18, 24 S.Ct. 558, 48 L.Ed. 857, and subsequent interpretive decisions.

The Bank may not here question the validity...