Goldboss v. Reimann

• Decision Date: 05 March 1942
• Citation: 44 F. Supp. 756
• Parties: GOLDBOSS v. REIMANN et al.
• Court: U.S. District Court — Southern District of New York

44 F. Supp. 756

GOLDBOSS v. REIMANN et al.

District Court, S. D. New York.

March 5, 1942.

Sabath, Perlman, Goodman & Rein, of Chicago, Ill., and Samuel L. Chess, of New York City (Samuel L. Chess, and Robert Ratner both of New York City, of counsel), for plaintiff.

Root, Clark, Buckner & Ballantine, of New York City (Arthur A. Ballantine, of New York City, of counsel), for defendants.

BRIGHT, District Judge.

The defendants Lawrence W. Schmidt, Ross Beason, Bernard E. Lawson, Maryland Sponsors, Inc., Administrative and Research Corporation (New York), American Depositor Corporation and Quarterly Income Shares, Inc., the only defendants who have been served and appear herein, move (1) under Rule 12(f) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, for an order striking out certain portions of the amended complaint, and (2) for summary judgment pursuant to Rule 56(b) upon the ground that there is no genuine issue as to any material fact, that the amended complaint fails to state a claim upon which relief can be granted, that the stockholders, including plaintiff, have authorized, ratified and acquiesced in the execution and performance of the contracts challenged, and that the six year statute of limitations is a complete defense to the plaintiff's claim.

The plaintiff counters that the court refuse the application for summary judgment or direct a continuance of the application in order to permit her, pursuant to Rule 56(f), to take the testimony of the defendants or others in order to present facts essential to justify her position.

The action is brought by the plaintiff, a shareholder of the defendant Quarterly Income Shares, Inc., in her own behalf and in behalf of the corporation and all other shareholders, to require the defendants to account with reference to their acts and doings as officers, directors and otherwise, in the receipt of moneys paid by the corporation as fees, salaries, commissions or other compensation, that the defendants be decreed to pay whatever shall be found due from them or any of them by reason of such matters, and for other relief.

The affidavit of the plaintiff's attorney, as well as a reading of the complaint, show that the cause of action, insofar as it is derivative, revolves around (1) an underwriting agreement dated December 12, 1932, between Administrative and Research Corporation (Maryland), now the defendant Maryland Sponsors, Inc., hereinafter called the Maryland Corporation, and the defendant Quarterly Income Shares, Inc., under which the Maryland Corporation was appointed exclusive sales agent of Quarterly's shares, and (2) an advisory or supervisory service agreement or management contract dated August 23, 1934, between the defendant Quarterly and Administrative and Research Corporation (New York), under both of which contracts plaintiff claims exorbitant fees, compensation and commissions were paid for the personal benefit and profit of the defendants other than the defendant Quarterly.

It is clear that a derivative action such as this can be brought only for the benefit of the corporation of which the plaintiff is the shareholder, that any recovery is the property of such corporation, and that the plaintiff is not interested therein other than that as a shareholder she may be benefited thereby. Such an action can only be maintained where the rights of the corporation are invaded resulting in damage to it.

The amended complaint obviously contains many allegations which have no bearing upon and are not in anyway material or pertinent to such a derivative action. Therefore, there should be striken from said amended complaint the following allegations for the following reasons: paragraphs 30, 31, 32, 33 and 34, upon the ground that the allegations therein contained relate to matters and things not involving in any way the defendant Quarterly but allege actions and proceedings by some of the defendants prior to its incorporation; paragraphs 35(b), (e), (f), (k), so much of (l) as alleges, "that it would be further represented to prospective investors that a provision for the redemption or repurchase of said shares would be inserted in the certificate of incorporation of said Quarterly to said effect and that such provision or provisions and any amendment thereof of said certificate of incorporation would be inscribed on the back of the certificates of stock deliverable to shareholders in letters so small as to be, to all intents and purposes, undecipherable;" the third sentence of paragraph 37, and so much of the fourth sentence as reads, "The actual intent and purpose of the said Ross Beason and his associates and their actual accomplishment as the organizers of said Quarterly was to effectuate their said scheme and conspiracy to acquire, by the sale of shares and by the exchange thereof for shares in fixed trusts which had previously been sponsored, promoted and controlled by them, large sums of money running into many millions of dollars obtained from the investing public throughout the United States, and * * * so manipulated the funds and securities and"; 38, 47; so much of paragraph 50 as reads, "made misleading and false representations to the plaintiff and to the purchasers of stock of said Quarterly and"; 51, 55, 56, 57, 58 and 59, upon the ground that they contain allegations of representations made to purchasers of stock of Quarterly, or with reference to individual rights of investors, which might (I do not so decide) give rise to individual actions on each of their behalf. Hackner v. Guaranty Trust Co., 2 Cir., 117 F.2d 95; Price v. Union Land Co., 8 Cir., 187 F. 886-889; Monte Rico Min. & Mill. Co. v. Fleming, 8 Cir., 258 F. 106; Willcox v. Harriman Securities Corporation, D.C., 10 F.Supp. 532-534.

It may be, in order to preserve the continuity and sense of the allegations of the amended complaint after these deletions, that plaintiff will desire to serve a reamended complaint in compliance with this decision. If she does, she may have ten days after the entry of the order hereon in which to do so.

The amended complaint after such excision in substance alleges: That the defendant Quarterly was incorporated in Maryland on December 9, 1932. Ross Beason & Co., Inc. (it is called a defendant but is not named as a party), was incorporated in New York on October 10, 1929, by the defendant Beason to deal in securities, was at all times dominated and controlled by him, and was dissolved on May 22, 1927. Ross Beason & Co. of California, Ltd. (also called a defendant but not named as a party), was organized in California in about 1929 to sell securities by the defendant Beason, who was...