Lincoln First Bank, N.A. v. Sanford, 1

• Decision Date: 26 December 1991
• Docket Number: No. 1,1
• Parties: LINCOLN FIRST BANK, N.A., as Executor and Testamentary Trustee of the Estate of Alexander B. Ireland, Respondent, v. Delos N. SANFORD, et al., Defendants, James Leiffer, Buf-Air Freight Corporation, Buf-Air Express, Inc. and Can Am Traffic Services Limited, Appellants. Appeal
• Court: New York Supreme Court — Appellate Division

Page 781

579 N.Y.S.2d 781

173 A.D.2d 65

LINCOLN FIRST BANK, N.A., as Executor and Testamentary Trustee of the Estate of Alexander B. Ireland, Respondent, v. Delos N. SANFORD, et al., Defendants, James Leiffer, Buf-Air Freight Corporation, Buf-Air Express,

Inc. and Can Am Traffic Services Limited,

Appellants. Appeal No. 1.

Supreme Court, Appellate Division,

Fourth Department.

Dec. 26, 1991.

Offermann, Mahoney, Cassano, Pigott, Greco & Whalen by Eugene Pigott, Buffalo, for appellants, Leiffer, Buf-Air Freight Corp., Buf-Air Express and Can.

Damon & Morey, Buffalo, for appellant, Peter R. Travers, CPA d/b/a Travers and Co.

Solin, Polito & Anderson by Richard Anderson, Rochester, for respondent, Lincoln First Bank, N.A.

Before DENMAN, P.J., and CALLAHAN, BALIO, LAWTON and DAVIS, JJ.

BALIO, Justice

The principal issue raised on appeal is whether Surrogate's Court has subject matter jurisdiction over a stockholder derivative action instituted by an executor and testamentary trustee on behalf of the estate of a deceased stockholder. We conclude that, under the circumstances of this case, Surrogate's Court does not have jurisdiction.

Prior to his death on March 3, 1981, Alexander B. Ireland was the owner of 50% of the stock of Rochester Air Freight Service Corporation, Buf-Air Freight Corporation and Buf-Air Express, Inc. Buy-sell agreements executed by Ireland and respondent Delos N. Sanford, the owner of the remaining 50% interest, required the surviving owner to pay the decedent's estate an agreed-upon sum for the decedent's interest in Rochester Air Freight Service and Buf-Air Freight Corp. Respondent Sanford purchased Ireland's interest in those corporations as required by the agreements.

No buy-sell agreement exists, however, with respect to the stock of Buf-Air Express, Inc., a corporation formed to transport cargo from Buffalo to Canada and whose main asset was a license to do business in Canada. On March 17, 1981, Ireland's will was admitted to probate. Petitioner Bank, as executor and testamentary trustee, became the holder of Ireland's 50% stock interest in Buf-Air Express. It appears that respondent Leiffer is the current owner of the remaining 50% interest in Buf-Air Express. ¹

The instant petition was filed in Surrogate's Court in 1984. The petition alleges that improper allocation of income and expenses between Buf-Air Freight and Buf-Air Express between 1980 and 1982 has resulted in conversion and waste of corporate assets of Buf-Air Express. Petitioner seeks an accounting for the years 1980 through 1983, the restitution of cash reserve assets to Buf-Air Express and an award of damages against the various respondents for the conversion and waste of corporate assets. This appeal is from an amended order which denied cross motions of respondents (except respondent May) for summary judgment dismissing the petition. The Surrogate found that, under the circumstances of this case, the traditional stockholder derivative action would be "unavailing" and that only the estate could act on behalf of decedent's interest. The court described the dispute as involving "a substantial interest and right of a decedent's estate and accordingly to be accorded subject matter jurisdiction in Surrogate's Court." We disagree.

The instant proceeding clearly constitutes a shareholder derivative action. An action commenced by a shareholder alleging the misappropriation or waste of corporate assets is a shareholder derivative action provided for by section 626 of the Business Corporation Law (see, Abrams v. Donati, 66 N.Y.2d 951, 498 N.Y.S.2d 782, 489 N.E.2d 751, rearg. denied 67 N.Y.2d 758, 500 N.Y.S.2d 1028, 490 N.E.2d 1234; Southeast Chrysler-Plymouth v. Pieroni, 96 A.D.2d 745, 746, 465 N.Y.S.2d 626; Carpenter v. Sisti, 45 A.D.2d 529, 360 N.Y.S.2d 13; Lait v. Leon, 19 A.D.2d 540, 240 N.Y.S.2d 509; see also, Lewis v. S.L. & E., Inc., 2nd Cir., 629 F.2d 764, 768, n. 10 [interpreting N.Y. law].

The subject matter jurisdiction of Surrogate's Court includes "all actions and proceedings relating to the affairs of decedents" and all proceedings pertaining to the administration of estates (N.Y. Const., art. VI, § 12[d] ²; see also, SCPA 201[1]. The history and trend "is one of steadily expanding jurisdiction" (Matter of Piccione, 57 N.Y.2d 278, 287, 456 N.Y.S.2d 669, 442 N.E.2d 1180, rearg. denied 58 N.Y.2d 824, 459 N.Y.S.2d 1030, 445 N.E.2d 657). "[F]or the Surrogate's Court to decline jurisdiction, it should be abundantly clear that the matter in controversy in no way affects the affairs of a decedent or the administration of his estate" (Matter of Piccione, supra, at 288, 456 N.Y.S.2d 669, 442 N.E.2d 1180,quoting from Matter of Young, 80 Misc.2d 937, 939, 365 N.Y.S.2d 695). In Piccione, for example, the court held that Surrogate's Court had subject matter jurisdiction over an eviction proceeding. The estate sought to evict the tenants in order to sell the property and wind up the administration of the estate. Because the proceeds of the sale were to go to the estate and Surrogate's Court would ultimately decide how the proceeds would be distributed, the court observed that "it can hardly be said that this controversy 'in no way affects the affairs of the decedent or the administration of the estate' " (Matter of Piccione, supra, 57 N.Y.2d at 290, 456 N.Y.S.2d 669, 442 N.E.2d 1180).

In the instant proceeding, petitioner does not seek any relief which would directly benefit the estate. Petitioner seeks a return of cash reserves to Buf-Air Express and an award of damages for the conversion and waste of corporate assets. It is the corporation, not the estate, which is entitled to the award of damages, notwithstanding the fact that Buf-Air Express is a close corporation owned by two shareholders (see, Glenn v. Hoteltron Sys., 74 N.Y.2d 386, 392-393, 547 N.Y.S.2d 816, 547 N.E.2d 71; see also, Matter of Maki v. Estate of Ziehm, 55 A.D.2d 454, 391 N.Y.S.2d 705). There is no demonstration that decedent's stock is to be sold and the proceeds distributed as part of the administration of the estate or the testamentary trust (see, Dunham v. Dunham, 40 A.D.2d 912, 337 N.Y.S.2d 728; Matter of Sirotta, 117 Misc.2d 1088, 460 N.Y.S.2d 242, mod. 106 A.D.2d 507, 483 N.Y.S.2d 40 [where the valuation or sale of stock was involved]. In sum, the relief sought in this...