Marco v. Sachs

• Decision Date: 26 October 1951
• Citation: 201 Misc. 934
• Court: New York Supreme Court
• Parties: Ida Marco, as Ancillary Administratrix of The Estate of Harry Marco, Deceased, a Stockholder in Blue Ridge Corporation, on Behalf of Himself and All Other Stockholders Similarly Situated, and on Behalf of Said Corporation, Plaintiff,<BR>v.<BR>Arthur Sachs et al., Defendants.

201 Misc. 934

Ida Marco, as Ancillary Administratrix of The Estate of Harry Marco, Deceased, a Stockholder in Blue Ridge Corporation, on Behalf of Himself and All Other Stockholders Similarly Situated, and on Behalf of Said Corporation, Plaintiff,

v.Arthur Sachs et al., Defendants.

October 26, 1951.

Sullivan & Cromwell for defendants.

David M. Palley for plaintiff.

DI GIOVANNA, J.

This is a motion by the individual defendants, save one (Louis E. Kilmarx), to grant them leave to serve a supplemental answer and, on the basis of such pleading as submitted, and documentary evidence in support thereof, to further grant the moving defendants summary judgment in the action.

A brief review of the history of the litigation is necessary to an understanding of the legal issues presented.

This is a stockholder's derivative action. It was commenced in 1936 and involves a claim for $3,000,000, based on asserted wrongful acts of former officers and directors of Blue Ridge Corporation and others to the detriment of such corporation and its stockholders. Blue Ridge is a Delaware corporation. Two thirds of its stock was held by the trustees of Central States Electric Corporation, a Virginia entity, and such stockholding comprised a principal asset of the latter. Under a plan of reorganization submitted to and approved by the United States District Court for the Eastern District of Virginia, affirmed by the higher Federal courts and subsequently carried into effect, Blue Ridge was merged in another Delaware corporation, Blue Ridge Mutual Fund, Inc. (hereinafter called Mutual) on June 28, 1951. The plan of reorganization provided, however, that prior to this merger Blue Ridge was to divest itself of certain contingent assets including the claim in this suit. Pursuant thereto Blue Ridge assigned its rights and interest therein to still another Delaware corporation, known as Ridge Realization Corporation (hereinafter called Realization), receiving therefor all of the stock of Realization, of which stock Blue Ridge then divested itself by a dividend to its stockholders (of record as of June 25, 1951) payable in the Realization stock on a share for share basis. Thereby the stockholders of Blue Ridge became the owners of all of the stock of Realization, the latter corporation retaining Blue Ridge's right and interest in the assigned claim asserted in the instant suit. (This assignment, by express provisions thereof, is to be construed by New York law.)

As a result of the terms of the merger Blue Ridge passed out of existence and Mutual became its legal successor except that the latter acquired no interest in the claims herein which right passed to Realization, as aforesaid.

These are the facts which the moving defendants wish to set up by their supplemental answer. The argument is made that inasmuch as this action is a derivative one for the benefit of Blue Ridge, the circumstance that plaintiff no longer has any status as a stockholder of Blue Ridge and that the corporation itself has ceased to exist has caused the action to abate, and requires its dismissal since plaintiff has lost her derivative status to sue and since, in any event, a derivative suit may not be prosecuted on behalf of a no longer extant corporation. It is argued, further, that such interest as plaintiff (acting for her intestate) had in Blue Ridge was...