Cohen v. Dana

• Decision Date: 05 March 1942
• Citation: 287 N.Y. 405,40 N.E.2d 227
• Parties: COHEN v. DANA et al.
• Court: New York Court of Appeals Court of Appeals

287 N.Y. 405

40 N.E.2d 227

COHEN

v.DANA et al.

Court of Appeals of New York.

March 5, 1942.

Appeal from Supreme Court, Appellate Division, Second Department.

Action by Benjamin W. Cohen, suing on his own behalf and on behalf of all other common stockholders of the Fisk Rubber Corporation, similarly situated, who may come in and contribute to the expense of the action, against Charles A. Dana and others, some of whom are directors of the Fisk Rubber Corporation, for alleged misconduct to the detriment of the corporation. From a judgment entered upon an order of the Appellate Division, Second Department, 262 App.Div. 42, 27 N.Y.S.2d 809, which reversed an order of Special Term entered in the office of the clerk on March 5, 1941, which had denied a motion to dismiss the complaint on the ground that the court had not obtained and could not obtain jurisdiction of an indispensable party, the plaintiff appeals.

Judgment of Appellate Division reversed and order of Special Term affirmed. Jacob Lippman, Martin Lippman, and William M. Smith, all of New York City, for appellant.

Paul H. Arthur, Paul W. Williams, and Horace G. Hitchcock all of New York City, for respondent.

FINCH, Judge.

Appeal is taken to this court by plaintiff from a judgment dismissing the complaint entered upon the order of the Appellate Division.

As the complaint has been dismissed before answer, we are compelled to take the allegations as if proven true. The complaint alleges that the action is brought ‘for the benefit and in the right of said The Fisk Rubber Corporation and for the benefit and in the right of all stockholders of the common stock of the Fisk Rubber Corporation’ (hereinafter called Fisk) against the directors of that corporation and certain other third parties, all of whom it is alleged entered into an illegal scheme and conspiracy among themselves to transfer by means of misrepresentation and concealment the assets of Fisk to the defendant United States Rubber Company at a price grossly below the true value of said assets, to the great damage of the corporation and its stockholders. Thereafter the defendants caused Fisk to be dissolved and all of its assets distributed. The complaint further alleges that Fisk was a foreign corporation organized in Delaware and engaged in business in Massachusetts until its dissolution in March, 1940. The individual defendants, except defendant Georgeson, were the directors of Fisk. Defendant United States Rubber Company is a foreign corporation of New Jersey and has a principal place of business in the city of New York. Defendant Dillon, Read & Company is a domestic corporation and defendant Behr its vice-president. Among the chief assets of Fisk were letters patent covering inventions establishing the cord tire fabric. These inventions were and are of great value, and of ever increasing value. Through successful prosecution of patent litigation conducted by Fisk, it became entitled to receive from all infringers, including the rubber company, large sums of money by way of damages, profits and royalties, with the continuing right to receive such royalties from users of the patents. Fisk brought an action against the General Tire Corporation for infringement, which finally established the validity of the patents in the courts of the United States. The illegal scheme and conspiracy was conceived and carried through by these defendants for the purpose of acquiring the advantage and gain of these patents for the rubber company and to the damage of Fisk. To carry out this illegal conspiracy the directors approved and recommended to the stockholders the sale of all the assets of Fisk to the rubber company at a price based upon the book value of the assets of Fisk allowing one dollar for the value of these inventions and on this basis the defendants caused an agreement to be made between Fisk and the rubber company in December, 1939, whereby Fisk agreed to sell and the rubber company agreed to buy all the assets of Fisk including the patents. The agreement provided that the contract would be closed following the approval of the sale by a majority of the stockholders. The rubber company agreed to pay approximately $6,000,000 plus 109,000 shares of the common stock of the rubber company, making the total price paid for the property of Fisk approximately $11,000,000. According to the consolidated balance sheet prepared by the accountants of Fisk, the net worth of Fisk and its subsidiary companies was approximately $13,000,000 without any value for the good will or patents except the sum of one dollar. The patents were worth upwards of $5,000,000, making the total value of the assets of Fisk upwards of $18,000,000 for which the rubber company paid approximately $11,000,000. In order to carry out the conspiracy, the defendants engaged the defendant Georgeson to hire assistants and solicit proxies, it being agreed among the defendants that they would misrepresent and conceal from the stockholders of Fisk the true value of the assets of...