Lesnik v. Public Industrials Corporation

• Decision Date: 30 April 1943
• Citation: 51 F. Supp. 989
• Parties: LESNIK v. PUBLIC INDUSTRIALS CORPORATION.
• Court: U.S. District Court — Southern District of New York

51 F. Supp. 989

LESNIK v. PUBLIC INDUSTRIALS CORPORATION.

District Court, S. D. New York.

April 30, 1943.

David Haar, of New York City, for plaintiff.

Satterlee & Warfield, of New York City (R. Randolph Hicks and John J. Dunne, both of New York City, of counsel), for defendant.

LEIBELL, District Judge.

The defendant, Public Industrials Corporation, has moved for leave to join C. Herbert Davison, Guy George Gabrielson and Albert L. Wolfe as third-party defendants to the defendant's counterclaim in this action, and for leave to serve them with copies of its answer and counterclaim.

The plaintiff's claim for relief, as stated in his complaint, is based on a $10,000 face value note, originally made by the defendant to the Bank of New York and Trust Company on January 15, 1938, and assigned to Harry Lesnik, plaintiff herein, on February 2, 1942 by the Bank of New York (formerly the Bank of New York and Trust Company). The consideration for the assignment of the note, all the assignor's rights thereunder and a transfer to the assignee of the collateral security for the note was the sum of $11,500. The note's collateral security was a certificate representing 500 shares of the preferred stock of the Hightstown Rug Company. Suffice it to say that although the note had detailed provisions for payment of interest on the face amount from June 1, 1932 at 5% per annum and for extension of the time for payment in accordance with its terms, that the note was not extended beyond January 15, 1942, and that at the due date there was payable the principal sum of $9,749.85, plus interest on $10,000 from May 1, 1933 to June 22, 1933, and on the said $9,749.85 from the latter date. After the aforesaid assignment of the note and security to the plaintiff, demand was made for payment but the note remained unpaid. On February 25, 1942, the defendant's rights in the 500 shares of the preferred stock of the Hightstown Rug Company, which had been deposited as security for the payment of the note, were foreclosed at public sale after notice to the defendant, on February 25, 1942, in this city. The stock brought only $500, the costs and expenses of the sale were $108.50, and the plaintiff was therefore left with a balance of $391.50 to apply to the note obligations. (That the stock was known to be worth more is apparent from the price plaintiff claims he paid for the note.) On March 4, 1942, the balance due and payable, $13,606.81, was demanded of the defendant but payment was refused, and the plaintiff's present action seeks the recovery of that sum with interest from the demand date.

The defendant's answer contains a denial of several of the allegations of the plaintiff's complaint, and, in addition alleges six separate defenses, three of which (the fourth, fifth and sixth) are also denominated as counterclaims. The first defense alleges that the plaintiff bought the collateral from the Bank for $11,500, and that the receipt of that money discharged the note, because the collateral was sold by the Bank to plaintiff in pursuance of the authority contained in the note. The second defense is similar except that it alleges that the agreement of sale was between the Bank and the three persons whom the defendant, by this motion, seeks to join as third-party defendants, and then the defense proceeds to allege that the transfer of the note and collateral was to the plaintiff at the request of the purchasers; that the note was therefore paid and discharged by the sale of the collateral. The third defense is similar to the first two.

The counterclaims are to be found in the fourth, fifth and sixth defenses. In each of the three there appear the common allegations that the defendant is a Delaware corporation; that until 1929 its principal business was financing and reorganizing corporations but that it has not actively engaged in those activities since 1931 and since then has merely held corporate securities which it had previously acquired as a result of its prior activities; that it filed a petition for a Section 77B proceeding, 11 U.S.C.A. § 207, in the United States District Court, Eastern District of New York, on August 28, 1934, and that a plan of reorganization of defendant was confirmed by the court on January 6, 1938; that by the terms of the plan the payment of all secured creditors was deferred for a period of one year from January 15, 1938, and the payment of all unsecured creditors was postponed for one year from January 15, 1940; that the Plan authorized two-thirds in amount of the secured creditors to extend the time of payment of both classes from year to year, and the payment was so extended to January 15, 1942, under that authority; that the plan provided for the deposit in escrow of the defendant's free assets after the reorganization expenses were first paid, and that said deposit was to secure the defendant's creditors ratably; that the only asset of substantial value so deposited was 2,298 shares of the preferred stock of the Hightstown Rug Company out of a total issue of 10,872 shares; that in addition, the secured creditors held 1,782 shares of the same stock, and that the defendant had an equity in them, which equity was the only other substantially valuable asset of the defendant; that the annual cumulative dividend of the aforementioned stock was 7% and that it was upon the defendant's expected receipt of those dividends that the contemplated success of the plan was based.

The fourth and fifth counterclaims, in addition to the common allegations just recited, alleged that the three parties sought to be joined were and are the owners, individually or collectively, of substantially all of the balance of the preferred stock of the Hightstown Rug Company, in addition to substantially all of its common stock, and that they had the sole voting power for the election of its directors; that they caused themselves to be so elected for the years 1939 through 1942; that they, constituting a controlling majority of the Board and acting "together with the plaintiff wickedly * * * conspired to wreck said Plan of Reorganization * * * by withholding and refusing to declare dividends on said Preferred stock"; that they accomplished this by refusing during those years to declare such dividends although there were sufficient net earnings and assets for the purpose; and that the withholding of the dividends wrecked the Plan of Reorganization to the defendant's damage in the amount of $400,000. The fourth defense, the first counterclaim, has the added allegation that the conspiracy not only had the mentioned aim but that it was also intended "to force a sale of defendant's Preferred Stock in the Hightstown Rug Company to themselves at a ruinous price by withholding and refusing to declare dividends on said Preferred Stock", and that the said "withholding of said dividends greatly depressed the value of said Preferred Stock * *...