Klages v. Cohen, 68.
| Decision Date | 09 January 1945 |
| Docket Number | No. 68.,68. |
| Parties | KLAGES v. COHEN et al. |
| Court | U.S. Court of Appeals — Second Circuit |
Charles H. Ellner, of Jamaica, N. Y., for plaintiff-appellant.
Lewis, Marks & Kanter, of Brooklyn, N. Y. (Lloyd B. Kanter, of Brooklyn, N. Y., and Maurice Rubinger, of New York City, of counsel), for defendants-appellees Jacob H. Cohen, Samuel Rottenberg, Bernard Semel, Ignatz Rottenberg, Max Schwartz, and Maurice Rubinger.
Before L. HAND, CHASE, and FRANK, Circuit Judges.
This case presents questions relating to the right of a receiver in supplementary proceedings to recover from officers and directors of a corporation the value of property wrongfully conveyed and dividends improperly declared and paid. It was brought in the District Court for the Eastern District of New York in proceedings supplementary to a judgment for $45,822.30 obtained by the United States against Fairbank Realty Corporation for income taxes due for the years 1926 to 1930. The action, which is for an accounting, is against the corporation's officers and directors and against its attorney and accountant.
The first cause of action stated in the complaint alleges that the defendants illegally depleted the corporation's assets by a detailed series of unauthorized loans, transfers of real estate without consideration, payment of excessive salaries to themselves, withdrawals of large sums to which they were not entitled, and the appropriation of office furniture and equipment to their own use, and by various other unlawful devices. It is alleged that by reason of these misapplications of property, committed with the intent to delay and defraud creditors, the corporation was rendered unable to pay its taxes and other obligations and indeed became hopelessly insolvent; and the defendants' acts are stated to have been in violation of §§ 59 and 15 of the New York Stock Corporation Law, Consol.Laws c. 59, and § 60 of the General Corporation Law, Consol.Laws, c. 23.
The second cause of action recites that with the intent to defraud the corporation's creditors, including the United States, certain of the defendants declared a 30 per cent dividend upon the corporation's capital stock of $500,000, which dividend was paid out of capital and not out of surplus or profits, in violation of § 58 of the Stock Corporation Law. The third cause of action alleges the collaboration of defendant Rubinger, who was the corporation's vice president and attorney and a voting trustee of a majority of its common stock, who without fraudulent intent abetted the conspiracy by advising the other defendants as to their acts, by preparing the necessary legal documents to enable them to carry out their plans, and by using his voting control to keep in office the directors and officers though he knew of their fraudulent intent. This cause of action likewise alleged wrongful conduct by defendant Fusfeld, the corporation's accountant and office manager, who mismanaged the books of account in various ways and thereby furthered the conspiracy.
The complaint closed with a prayer for an accounting of the defendants' actions in the disposition of the corporation's assets and for payment to the plaintiff of the value of the assets wasted and wrongfully diverted, for further equitable relief and for costs.
Without filing an answer to this complaint the defendants moved to dismiss, alleging lack of jurisdiction in the court, failure of the complaint to set forth the basis of the asserted jurisdiction, as required by Rule 8(a) of the Rules of Civil Procedure, 28 U.S.C.A. following section 723c, and failure of the complaint to state a claim upon which relief can be granted. In an opinion dated September 8, 1943, the district court held that it had jurisdiction, on the ground that the suit was ancillary to the action in the same court in which the United States recovered the judgment against the corporation for income taxes. In a second opinion, dated November 17, 1943, the court held that under the sections of the New York statutes relied upon a receiver in supplementary proceedings cannot maintain the actions there authorized. He therefore dismissed the bill, with leave to the plaintiff to file an amended complaint within twenty days. The plaintiff elected not to amend and has appealed from the order.
The first issue for our consideration is the question of jurisdiction, raised once again by the defendants. They contend initially that this action is not ancillary to the proceeding in which the plaintiff was appointed, because whether there is ancillary jurisdiction depends upon whether the proceeding is "for the collection of assets of the corporation, and, therefore, one in which the receiver may be a proper party plaintiff." Rockwood v. Foshay, 8 Cir., 66 F.2d 625, 627. The answer to this question depends upon what disposition is to be made of the principal issue in the case, and since as will later appear we are of the opinion that the New York statutes authorize the present action it follows that this case is "one in which the receiver may be a proper plaintiff" and consequently there exists ancillary jurisdiction.
The requirement of Rule 8(a) that the basis of jurisdiction be plainly shown in the complaint, is satisfied by the allegation that this suit is brought by a receiver in supplementary proceedings to enforce the judgment previously obtained in the same court. That is sufficient to show that the court already has jurisdiction, and in this situation the rule creates no need to state any other basis of jurisdiction.
We proceed, then, to the principal question raised by the motion to dismiss and pass without comment the appellant's contention that regardless of the New York statute the suit may be maintained as an action in equity for an accounting for the spoliation of corporate assets; as the statute gives an adequate basis for the suit. Section 15 of the Stock Corporation Law provides in part that when a corporation has refused to pay any of its obligations when due, neither the corporation ...
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