Citrin v. Greater New York Industries

• Decision Date: 14 September 1948
• Citation: 79 F. Supp. 692
• Parties: CITRIN v. GREATER NEW YORK INDUSTRIES, Inc., et al.
• Court: U.S. District Court — Southern District of New York

79 F. Supp. 692

CITRIN v. GREATER NEW YORK INDUSTRIES, Inc., et al.

United States District Court, S. D. N. Y.

September 14, 1948.

COPYRIGHT MATERIAL OMITTED

Bernard A. Green, of New York City (Milton Pollack and Philip B. Kurland, both of New York City, of counsel), for plaintiff.

Abraham M. Glickman, Norman Annenberg, and Frederick E. Weinberg, all of New York City, for defendants.

RYAN, District Judge.

This is a stockholder's derivative suit brought by Abraham Citrin, a resident of the state of New Jersey and a stockholder of the Greater New York Industries (hereafter, "GNY"), to recover for alleged wrongs to GNY and to Louisville Fire and Marine Insurance Company (hereafter, Louisville), a wholly-owned subsidiary of GNY.

In substance, the complaint alleges that the defendants, Lowell M. Birrell, Stewart B. Hopps and others, unlawfully caused GNY and its subsidiaries to enter into certain transactions to their personal gain but resulting in loss to GNY and its subsidiaries. The complaint contains ten separate and distinct counts.

There are twenty-two named defendants only a few of whom have been served in this action.

Five of the defendants have made various motions objecting to jurisdiction, venue and the sufficiency and contents of the complaint. These motions were heard and considered together and are determined herewith, as follows —

(1) The defendant Birrell moves to dismiss for lack of jurisdiction over the subject matter.

This motion was withdrawn as was a similar motion made by GNY.

(2) Defendant Birrell moves to dismiss the first, second, fourth and eighth causes of action of the amended complaint for failure to state a claim upon which relief can be granted.

All reasonable inferences from the facts alleged must be made on this motion to determine whether the pleading is legally adequate. Dioguardi v. Durning, 2 Cir., 1943, 151 F.2d 501.

(A) The First Cause of Action.

Plaintiff alleges that defendants caused GNY to give to defendants 360,000 shares of GNY stock worth in excess of $673,000, and $2100 in cash in exchange for 5400 shares of stock of a Cuban corporation, which were worthless; that, although the defendants promised to pay the difference between the value of the GNY stock and that of the Cuban corporation stock, they never did so; that, although GNY was to retain the GNY stock as security for the payment by defendants of their obligation, the defendants caused GNY to release the stock to them.

To this, defendant Birrell says that no damage is alleged and that conclusions only are pleaded.

The claim is pleaded at length. Dates of alleged transactions and agreements are set forth. Details of stock manipulations are alleged, which, if true, would constitute a breach of duty by defendant Birrell. Damages are readily inferable from the allegations. The claim is sufficiently pleaded to survive this motion to dismiss.

(B) The Second Cause of Action.

The plaintiff here alleges that defendants caused GNY to enter into a settlement which cost GNY much more than it received; that GNY surrendered 5,400 shares of stock of a Cuban corporation to the Cuban companies and paid $1,000,000 in cash and securities to the Rhode Island Fire Insurance Co. in return for which GNY received shares of stock of certain American insurance companies and cash of which the total value of both was allegedly $1,411,000. The complaint further alleges that GNY had to bear "the large expense of said settlement," and that GNY's share in the settlement is now being attacked by litigation.

It does not appear just where plaintiff has suffered any damage from these alleged machinations of defendants. The value exchanges as alleged indicate no loss to GNY. (the 5,400 shares of stock in the Cuban corporation are alleged in the first cause of action to have had no value). The possible and contingent loss on the pending litigation does not now constitute a claim. Should such litigation prove injurious to plaintiff it would then be apropos to so allege.

It may be that plaintiff is in possession of additional facts which would permit a re-statement of this claim so that relief might be warranted.

The second cause of action is dismissed with leave to plaintiff to re-state this claim within 20 days if he should so elect.

(C) The Fourth Cause of Action.

The plaintiff alleges that defendants caused GNY to buy a large block of Reeves-Ely stock from Bonner and Bonner at $4 per share, and that in order to purchase this stock GNY was caused to sell 25,000 shares of Rhode Island Fire Insurance Co. stock to Bonner and Bonner. It is further here alleged that the same Reeves-Ely stock purchased by GNY was re-purchased by Bonner and Bonner at the same price at which it had been sold, but that Bonner and Bonner retained the Rhode Island stock which GNY had sold to them, in order to raise funds with which to buy the Reeves-Ely stock. It is also alleged that "this transaction jeopardized the assets of Louisville without business reason therefor except to provide the excuse of the sale of valuable Rhode Island stock to Bonner and Bonner."

No monetary harm is alleged. In fact, it is clearly alleged that the stock bought and sold was transferred at the same price. While it is alleged that the sale of the Rhode Island stock was the result of bad business judgment, nowhere is there alleged a duty breached with consequent damage.

This cause of action is dismissed, again with leave to plaintiff to re-state it within 20 days, if he is in possession of additional facts and elects to amend.

(D) The Eighth Cause of Action.

It is herein alleged that defendants caused GNY to purchase stock of the American Druggists' Syndicate (hereafter, "A.D.S."), from the Universal Laboratories, a corporation in which defendants had a large interest. It is also alleged that the price paid was $450,000 in excess of the true value; that GNY transferred to A.D.S. stock to Louisville, a wholly-owned subsidiary, at cost, and that Louisville sold the stock at a considerable loss. As a result of representations made on the purchase, it is alleged, GNY had a claim against Universal Laboratories for $200,000; and, finally, it is alleged that defendants for their personal profit and gain and to the damage of GNY caused GNY to give a release to Universal Laboratories, destroying that claim.

Sufficient allegations are here set forth to constitute a claim for relief; the damages are also alleged with sufficient detail. The motion to strike this cause of action is denied.

(3) Defendant Birrell moves to dismiss for improper venue.

Birrell argues that the venue of this action in the Southern District of New York is improper as to him because he is a resident of Pennsylvania, and that suit cannot be brought against him here by either plaintiff or defendant GNY and its subsidiary, within the provisions of section 51 of the Judicial Code of 1911, as amended. 28 U.S.C.A. §§ 1391, 1401.

Plaintiff alleges that he is a resident of the State of New Jersey. Plaintiff is a stockholder of GNY and not of any of its subsidiaries; hence the action is a double derivative one as to Louisville. Being a diversity suit, venue must be determined by Section 51 of the Judicial Code of 1911.

The interpretation of this section by Judge Rifkind in Saltzman v. Birrell et al., D.C., 78 F.Supp. 778, is accepted and followed in toto.

Paragraph "3" of the complaint alleges that "the individual defendants are citizens of the State of New York." Birrell by affidavit states that he is a citizen and resident of Pennsylvania.

Claims 1, 2, 6, 7, 8, 9 and 10 are alleged on behalf of GNY, a New York corporation; claims 3, 4 and 5 are alleged on behalf of Louisville, a Kentucky corporation.

Although claims 2 and 4 have been determined to be legally insufficient and have been dismissed, for the purposes of this consideration they are deemed still as in the complaint.

Whether Birrell is a resident of Pennsylvania or of New York is immaterial on the question of venue insofar as concerns the claims asserted on behalf of GNY. Venue would, however, be improper as to the claims alleged on behalf of Louisville, unless Birrell is a resident of New York.

Paintiff's request that the issue as to the residence of Birrell be referred to a Special Master is granted. The motion to dismiss for improper venue is denied as to claims 1, 2, 6, 7, 8, 9 and 10, and decision is held in abeyance as to claims 3, 4, and 5 pending report of the master to be appointed.

(4) Defendant Birrell moves that the complaint be made more definite and certain.

Birrell prays that plaintiff under Rule 12(e), Federal Rules of Civil Procedure, 28 U.S.C.A., be required to set forth with more definitiveness the 32 separate and distinct allegations contained in the complaint.

The definitiveness required of allegations is only such as will be sufficient to enable defendant to prepare his answer. Birrell seeks, in fact, a bill of particulars largely of evidentiary matters, and in no way necessary for him to make a responsive pleading. Relief under Rule 12(e) is not intended as an aid to counsel in preparing for trial; this may be accomplished by examination and discovery.

A reading of the allegations enumerated...