Coane v. American Distilling Co.

• Decision Date: 16 July 1948
• Citation: 298 N.Y. 197,81 N.E.2d 87
• Parties: COANE et al. v. AMERICAN DISTILLING Co. et al. (two cases).
• Court: New York Court of Appeals Court of Appeals

298 N.Y. 197

81 N.E.2d 87

COANE et al.

v.AMERICAN DISTILLING Co. et al. (two cases).

Court of Appeals of New York.

July 16, 1948.

Appeal from Supreme Court, Appellate Division, First Department.

Derivative actions by Irwin M. Coane and others, individually and as stockholders of the American Distilling Company, a corporation, on behalf of themselves, other stockholders similarly situated and such corporation, against the corporation, Russell R. Brown and others, and against the corporation, Peter E. Siskind and others, for misuse, diversion and misappropriation of corporate assets and opportunities. From a resettled judgment of the Appellate Division, 272 App.Div. 1053, 75 N.Y.S.2d 291, modifying and affirming as modified, by a divided court, a judgment of the Supreme Court for individual defendants on an order at Special Term, Collins, J., granting such defendants' motion for summary judgment dismissing the complaint as against them, and from a judgment of the Appellate Division, 270 App.Div. 1011, 64 N.Y.S.2d 170, affirming by a divided court an order of the Supreme Court at Special Term, Eder, J., 182 Misc, 926,49 N.Y.S.2d 838, granting individual defendants' motion to dismiss plaintiffs' second amended complaint as against such defendants, plaintiffs appeal.

Judgment and order in the first case reversed and motion for judgment on the pleadings denied, and judgment in the second case reversed and motion for summary judgment denied. Aaron Schwartz and Joseph Nemerov, both of New York City, for appellants Coane and others.

Edwin M. Slate, Max E. Lynne and Benjamin Liebov, all of New York City, for respondent Peter E. Siskind.

Leonard P. Moore and Edward R. Neaher, both of New York City, for respondent American Spirits, Inc.

William G. Mulligan and Lewis B. Greenbaum, both of New York City, for other respondents.

FULD, Judge.

Plaintiffs in 1942, brought two separate derivative stockholders' suits on behalf of American Distilling Company, charging defendants with numerous acts of misuse, diversion and misappropriation of corporate assets and opportunities. For convenience, we differentiate the two suits by using the name of an individual defendant in each, and referring to one as the ‘Brown’ action and to the other as the ‘Siskind’ suit. In each action, defendants, by appropriate motion, sought dismissal of the complaint: in the Brown litigation, upon the ground that, since the transactions complained of occurred before plaintiffs became stockholders in the subject corporation, section 61 of the General Corporation Law, Consol.Laws, c. 23, as amended in 1944, deprived plaintiffs of standing to continue the suit; in the Siskind action, upon that ground and for the further reason that the three and six-year Statutes of Limitations, applicable to actions at law, constituted a bar.

At Special Term, the moving defendants prevailed on each score, and the resulting order of dismissal entered in each case was affirmed by the Appellate Division, two Justices dissenting. Since the appeals pose a question common to both the construction of section 61 we treat them together and in one opinion.

More than a year after plaintiffs began suit, section 61 of the General Corporation Law was amended to add the requirement that ‘In any action brought by a shareholder in the right of a * * * corporation it must be made to appear that the plaintiff was a stockholder at the time of the transaction of which he complains or that his stock thereafter developed upon him by operation of law’ (L.1944, ch. 667). We recently sustained the constitutionality of that amendment and, in so doing, held that the statute prevented a shareholder, who did not own his stock at the time the wrongs against the corporation were committed, from commencing a derivative action after the effective date of the statute. See Myer v. Myer, 296 N.Y. 979, 73 N.E.2d 562, affirming 271 App.Div. 465, 66 N.Y.S.2d 83. We did not then decide whether or no the requirement imposed by the 1944 amendment had a similar effect on actions already instituted. Defendants would have us now declare that since the statute is ‘procedural’, it requires dismissal of an action pending at the time of its enactment that, in other words, it applies not only to suits begun after the law became effective, but also to those in litigation and awaiting trial at the time of its enactment.

That we are not prepared to do, even assuming that section 61 regulates only matters of procedure. Although such a statute is ‘applicable to proceedings thereafter instituted for the redress of wrongs already done’, there are ‘different considerations' involved and a ‘different problem arises when proceedings are already pending.’ See Matter of Berkovitz v, Arbib & Houlberg, Inc., 230 N.Y. 261, 270, 272, 130 N.E. 288, 290. Refusing to indulge in mechanical presumptions as to legislative intent, this court declared in the Berkovitz case (at page 273 of 230 N.Y., at page 291 of 130 N.E.) that ‘We are not to presume a willingness that rights already accrued through actions lawfully initiated are to be divested or impaired’ by such enactments. Applying these principles, we noted not long ago, in considering a companion statute section 61-b of the General Corporation Law that “It takes a clear expression * * * of legislative purpose to justify” giving a law retrospective effect and holding it applicable to suits previously begun. See Shielcrawt v. Moffett, 294 N.Y. 180, 188, 189, 61 N.E.2d 435, 438, 439, 159 A.L.R. 971. We explicitly ruled and declared that, in the absence of ‘unequivocal expression’ by the Legislature, the provision there involved was not to be accorded retrospective effect, lest it prevent plaintiffs ‘from trying the action after they had spent time and money in preparing it for trial’. 294 N.Y. at page 190, 61 N.E.2d at page 440.

In our judgment, decision here is dictated by our determination in the Shielcrawt case, supra. No more in section 61 than in section 61-b is there ‘unequivocal expression’ of a design by the Legislature to burden suits in progress with requirements or conditions thereby imposed. On the contrary, the command of section 61, that it is to ‘take effect immediately’ and apply in ‘any action brought’, is prospective rather than retrospective in tone. Significantly omitted is a declaration found in a related provision (Laws 1941, ch. 350, adding s 61-a to General Corporation Law) that said section ‘shall apply to all such actions, suits or proceedings as may be pending.’ L.1941, ch. 350, s 2. Here, just as in the Shielcrawt case, we find no legislative command that we must harshly burden indeed, sweep away long and costly litigation that was permissible and proper when begun.

Dismissal of the complaints may not, then be predicated on section 61, and, accordingly, we turn to the second question posed that relating to the Statute of Limitations affecting only the appeal in which defendant Siskind and defendant American Spirits, Inc., are respondents.

In the Siskind suit we are concerned with the second and third causes of action. The second charges that in 1936 certain individual defendants, directors and officers of American Distilling, misappropriated business opportunities of that company. Alleging that the misappropriation was accomplished by defendants through the formation of another corporation known as Pekin Warehouse Company, the stock of which was issued to those defendants on their dummies, plaintiffs seek to impress a trust upon that stock in favor of American Distilling and to obtain an accounting for all profits realized by Pekin as well as by the defendants named. The third cause of action is also founded upon diversion of the corporation's business opportunity, and the relief sought by plaintiffs is likewise to have a trust impressed upon the stock of another...