Gerdes v. Reynolds
| Decision Date | 11 July 1939 |
| Citation | 22 N.E.2d 331,281 N.Y. 180 |
| Parties | GERDES et al. v. REYNOLDS et al. |
| Court | New York Court of Appeals Court of Appeals |
OPINION TEXT STARTS HERE
Appeal from Supreme Court, Appellate Division, First Department.
Action by John Gerdes and James D. Carpenter, Jr., trustees of the Reynolds Investing Company, Inc., debtor, against Clarence K. Reynolds and another to recover moneys allegedly wasted or diverted from corporate purposes by the negligence or other wrongs of its directors. From an order of the Appellate Division, 256 App.Div. 912, 10 N.Y.S.2d 415, which affirmed an order of the Special Term, defendants appeal, and the following questions were certified:
‘1. Does the fourth cause of action in the complaint herein state facts sufficient to constitute a cause of action as against the defendant-appellant Clarence K. Reynolds?
‘2. Does the fourth cause of action in the complaint herein state facts sufficient to constitute a cause of action as against the defendant-appellant William F. Woodward?
Order modified and as modified affirmed and questions answered. Walbridge S. Taft, Edward Abbe Niles, and G. William Shea, all of New York City, for appellants.
Ethelbert Warfield, Lawrence S. Greenbaum, Theodore S. Jaffin, and Harold Kronig, all of New York City, for respondents.
Alleging in the complaint that its moneys had been wasted or diverted from corporate purposes by the negligence or other wrongs of its directors, Reynolds Investing Company brought this action against its directors and other persons who, it is said, profited by or participated in the alleged wrongful acts. Eight causes of action are joined in the complaint. Clarence K. Reynolds and William F. Woodward challenge the fourth cause of action on the ground that it fails to allege facts sufficient to constitute a cause of action against them. On the same ground the defendant-appellant Woodward challenges also the seventh cause of action.
The fourth cause of action charges that the defendants named therein constituted a majority of the board of directors of the corporation from its incorporation until December 31, 1937, and that during that time the property and effects of the corporationwere wasted and squandered because the defendants as directors utterly failed or neglected to perform their official duties. There are general allegations that the defendants ‘caused plaintiff to purchase large blocks of securities in other corporations in which said defendants, or some of them, were financially interested, or were interested as directors or officers, and permitted the money, property and effects of plaintiff to be wasted, and they negligently suffered and permitted the money of plaintiff to be loaned without adequate security by means whereof said moneys were lost to plaintiff.’ Otherwise there is no attempt to set forth any specific wrongful act or default which may have caused damage to the corporation.
A complaint must state facts. General allegations of wrongdoing based upon undisclosed facts do not state a cause of action. Knowles v. City of New York, 176 N.Y. 430, 68 N.E. 860;Meisel v. Central Trust Co., of New York, 223 N.Y. 289, 119 N.E. 1059, affirming 179 App.Div. 795, 167 N.Y.S. 143. The same general rules of pleading and proof which are applied in other actions must be applied in actions brought by a corporation against its directors for official misconduct. Kavanaugh v. Commonwealth Trust Co., 181 N.Y. 121, 73 N.E. 562. A complaint may state facts sufficient to constitute a cause of action though the statement may lack definiteness and precision. An aggrieved party may, in such case, move for a bill of particulars or for an order to serve an amended pleading which will remove indefiniteness, uncertainty or obscurity (Rules of Civil Practice, rule 102), but a pleading which, fairly construed, fails to allege any facts which constitute a wrong but only general conclusions, is entirely insufficient and may be dismissed on that ground.
The business for which the Reynolds Investing Company was formed ‘involves,’ it is alleged, ‘the purchase and sale from time to time of securities of other corporations.’ A director of such a corporation who causes it to buy stock in a corporation in which he or other directors are financially interested, or interested as director or officer, does not act wrongfully if the purchase is made solely for the benefit of the corporation, and the director has not dealt ‘with himself, as an individual, or in the character of trustee, director, or officer of another...
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Schmidt v. Magnetic Head Corp.
...set forth sufficient evidentiary allegations to support the cause of action as against a summary judgment motion (cf. Gerdes v. Reynolds, 281 N.Y. 180, 184, 22 N.E.2d 331). We note that plaintiff's failure to make a demand upon the defendant directors to commence an action against Gleason i......
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Schuster v. City of New York
...state facts. General allegations of wrongdoing based upon undisclosed facts do not state a cause of action' (Gerdes v. Reynolds, 281 N.Y. 180, 183-184, 22 N.E.2d 331, 332-333; see, also, Kalmanash v. Smith, 291 N.Y. 142, 153-154, 51 N.E.2d 681, Assuming arguendo that defendant owed Schuster......
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Williams & Co. v. Collins, Tuttle & Co.
...more carefully and exact factual allegations rather than conclusory statements of wrongdoing and conspiracy. See Gerdes v. Reynolds, 281 N.Y. 180, 22 N.E.2d 331; Lifshutz v. Adams, 285 N.Y. 180, 33 N.E.2d 83; Weinberger v. Quinn, 264 App.Div. 405, 35 N.Y.S.2d 567, affirmed 290 N.Y. 635, 49 ......
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Rettinger v. Pierpont
...in other actions must be applied in actions brought by a corporation against its directors for official misconduct.’ Gerdes v. Reynolds, 281 N.Y. 180, 22 N.E.2d 331, 333. ‘In an action brought by a corporation against its directors or officers for misconduct, the necessary proof is exactly ......