Cantor v. Sachs

• Decision Date: 14 June 1932
• Citation: 162 A. 73,18 Del.Ch. 359
• Parties: EDDIE CANTOR AND BENJAMIN F. HOLZMAN, v. ARTHUR SACHS, WALTER E. SACHS, HOWARD J. SACHS, SAMUEL SACHS, HARRY SACHS, WADDILL CATCHINGS, SIDNEY J. WEINBERG, HENRY S. BOWERS, GRANT KEEHN, ERNEST W. LOVEMAN, SAMUEL W. ANDERSON, individually and as present or past co-partners doing business under the firm name and style of Goldman Sachs & Co., and RALPH JONAS, FRANK L. TAYLOR, HARRY J. BAUER, NION R. TUCKER and HAMILTON v. BAIL, GOLDMAN SACHS TRADING CORPORATION, HARRISON WILLIAMS and CENTRAL STATES ELECTRIC CORPORATION
• Court: Court of Chancery of Delaware

162 A. 73

18 Del.Ch. 359

EDDIE CANTOR AND BENJAMIN F. HOLZMAN, v. ARTHUR SACHS, WALTER E. SACHS, HOWARD J. SACHS, SAMUEL SACHS, HARRY SACHS, WADDILL CATCHINGS, SIDNEY J. WEINBERG, HENRY S. BOWERS, GRANT KEEHN, ERNEST W. LOVEMAN, SAMUEL W. ANDERSON, individually and as present or past co-partners doing business under the firm name and style of Goldman Sachs & Co., and RALPH JONAS, FRANK L. TAYLOR, HARRY J. BAUER, NION R. TUCKER and HAMILTON v. BAIL, GOLDMAN SACHS TRADING CORPORATION, HARRISON WILLIAMS and CENTRAL STATES ELECTRIC CORPORATION

Court of Chancery of Delaware, New Castle

June 14, 1932

BILL FOR AN ACCOUNTING filed by the complainants in their derivative right as stockholders of Goldman Sachs Trading Corporation. The bill charges that the individual defendants as directors of Goldman Sachs Trading Corporation wilfully and recklessly squandered and wasted the assets of the corporation in the sum of many millions of dollars and prays that they be decreed to account to the corporation for the damage done by them to it. It is further charged that the corporation is controlled by the individual defendants and that therefore it is vain to demand or expect the corporation to sue for the redress of the alleged wrongs done to it.

On the filing of the bill an order of seizure of the property of the individual defendants, all non-residents, located in this jurisdiction, was entered as provided by the statute. The sequestrator, in obedience to the order, seized shares of stock of various corporations standing in the names of the individual defendants.

The defendants whose stock was so seized were granted leave to appear specially for the purpose of moving to vacate the order of sequestration. A motion to that effect was duly made. The ensuing opinion was filed by the Chancellor in disposing of the motion.

Clarence A. Southerland, of the firm of Ward & Gray, and David L Podell, of New York City, for complainants.

Caleb S. Layton, of the firm of Richards, Layton & Finger, and Edward H. Green, of the firm of Sullivan & Cromwell, of New York City, for defendants appearing specially.

OPINION

THE CHANCELLOR:

The statute under which the order of seizure was entered is found in its present amended form in 36 Del. Laws, Ch. 268. It is known as paragraph 3850, § 7, of the Revised Code 1915. It is as follows:

"3850 Sec. 7. Orders for Appearance; Upon Failure of Service and Affidavit; Publication of; Upon Default; Decree Pro Confesso; Enforcement by Seizure or Delivery of Property Demanded; Payment Upon Security for Restitution; Proceedings if Security Not Given; Foreign Attachment:--If, after subpoena or other process issued, any defendant therein named shall not appear in obedience to said process and according to the rules of the Court, the Court may, on affidavit that such defendant is out of the State, or cannot be found to be served with process and that there is just ground to believe that he intentionally avoids such service, make an order for his appearance on a certain day and publish such order as the Chancellor shall direct not less than once a week for three consecutive weeks. And if the defendant shall not appear, after such publication, according to such order, the Court may order the plaintiff's bill to be taken pro confesso, and may thereupon issue process to compel the performance either by seizure of the real and personal property of such defendant or part thereof, sufficient to satisfy the plaintiff's demand, or by causing possession of the estate, or effects, demanded by the bill, to be delivered to the plaintiff, or otherwise, as the case requires. And the Court may also order the plaintiff to be paid his demand out of any property so seized, upon his giving approved security, in a sufficient sum, to abide any order of the Court for the restitution thereof upon the defendant's appearing to defend the suit, and paying such costs as the Court shall order. If such security be not given, the property seized, or whereof possession shall be decreed to be delivered, shall remain under the direction of the Court in the hands of a receiver or otherwise, until the defendant's appearance, or until such order shall be made therein as the Court shall think just.

"If it shall appear in the bill of complaint that the defendant or any one or more of the defendants is a non-resident of the State of Delaware, it shall be lawful for the Chancellor to make an order directing such non-resident defendant or defendants to appear by a day certain to be designated. Such order shall be served on such non-resident defendant or defendants by mail or otherwise, if practicable, and shall be published in such manner as the Chancellor may direct, not less than once a week for three consecutive weeks. The Chancellor shall have power to compel the appearance of the defendant by the seizure of all or any part of his property, which property may be sold under the order of the Chancellor to pay the demand of the complainant, if the defendant shall not appear, or shall otherwise default. Such property shall remain subject to said seizure and may be sold to satisfy any decree made in the cause, unless security sufficient to the Chancellor shall be given to secure the release thereof. The Chancellor shall have power to make all necessary rules respecting the form of process, the manner of issuance and return thereof, the release of such property from seizure and for the sale of the property so seized, and may require the plaintiff to give approved security to abide any order of the Chancellor respecting the said property. Any transfer or assignment of the property so seized as aforesaid after the seizure thereof shall be void and after the sale of said property is made and confirmed, the purchaser shall be entitled to and have all the right, title and interest of the defendant in and to the property so seized and sold and such sale and confirmation shall transfer to the said purchaser all the right, title and interest of the defendant in and to said property as fully as if the defendant had transferred the same to the purchaser in accordance with Law."

The second paragraph of the Section is the one upon which the complainants rely as justifying the order in question.

The order is attacked on several grounds. One of these is that the paragraph of the statute which is relied upon in support of the order is unconstitutional in that it is violative of the due process clause of the Fourteenth Amendment to the Constitution of the United States and of the Bill of Rights of the Constitution of the State of Delaware (Article 1, § 9).

While the power of courts is undoubted and their duty imperative in a clear case to declare an act of the Legislature void for its infringement of constitutional provisions, yet the rule is well nigh universal that courts will refuse to exercise the power or even to consider whether the case is one that invokes the performance of the duty, unless a decision can be reached on no other ground than the constitutional one. This proposition is so well settled I deem it unnecessary to cite the authorities establishing it. They may be found collected in the notes to 12 C. J. 780, § 212, and 6 R. C. L. 77, § 75. There is no occasion at this late day to elaborate upon the reasons which underlie the rule.

In the instant case, therefore, if there be any ground of decision other than the constitutional one upon which a determination of the issue may be rested, the court should decline to enter upon a consideration of the constitutional question. This course was pursued in Wightman v. San Francisco Bay Toll-Bridge Co., 16 Del.Ch. 200, 142 A. 783.

The paragraph of the statute in question undertakes to provide for equity a procedure analogous to that of foreign attachment at law. The law courts in construing the foreign attachment statute have adopted the rule of strict construction. Vogle v. New Granada, etc., Co., 6 Del. 294, 1 Houst. 294; Smith v. Armour, 17 Del. 361, 1 Penne. 361, 40 A. 720; Fowler v. Dickson, 24 Del. 113, 1 Boyce 113, 74 A. 601. Aside from the statute, equity as administered in this State knows of no procedure such as foreign attachment. Cities Service Co. v. McDowell, et al., 13 Del.Ch. 109, 116 A. 4; Skinner v. Educational Pictures, etc., Co., 14 Del.Ch. 417, 129 A. 857. If a complainant seeks to avail himself of the benefits of the statute providing in substance for attachment in limine of the defendant's property to be held to abide and satisfy the final decree, he must bring his case within the plain purview of its terms. The case of Wightman v. San Francisco Bay Toll-Bridge Co., supra, was decided in harmony with this view.

If then the case of the complainants does not fall clearly within the scope of the statute the seizure which has been made must be vacated. It is now in order to examine the question raised, among others, by the defendants of whether the sort of case which the bill presents is one to which the provisions of the statute are applicable.

The complainants' case, being asserted by them in their derivative right as stockholders, has a double aspect. Its nature is dual. Hawes v. Oakland, 104 U.S. 450, 26 L.Ed. 827; Fletcher, Cyclopedia of Corporations § 4061. It asserts as the principal cause of action a claim belonging to the corporation to have an accounting from the defendants and a decree against them for payment to the corporation of the sum found due on such accounting. In this aspect, the cause of action is the corporation's. It does not belong to the complainants. Inasmuch however as the corporation will not sue because of the domination over it by the alleged wrongdoers who are its directors, the complainants as stockholders have a right in equity to compel the assertion of...