McAtamney v. Commonwealth Hotel Const. Corporation

• Decision Date: 27 February 1924
• Citation: 296 F. 500
• Parties: McATAMNEY v. COMMONWEALTH HOTEL CONST. CORPORATION et al.
• Court: U.S. District Court — Southern District of New York

296 F. 500

McATAMNEY v. COMMONWEALTH HOTEL CONST. CORPORATION et al.

United States District Court, S.D. New York.

February 27, 1924

Almet F. Jenks, of New York City (Abraham Benedict, of New York City, of counsel), for petitioners.

Wilbur W. Chambers, of Albany, N.Y., for Attorney General of New York.

Thomas J. Sheridan, of San Francisco, Cal., for complainant.

Dittenhoefer & Fishel, of New York City, for defendant corporations.

Robert P. Levis, of New York City, for creditors and stockholders.

Nathaniel F. Schmidt, of New York City (Frederick Durgan, of counsel) for Stanley Bonner.

Charles Keedy, of Wilmington, Del., for Delaware complainant.

WINSLOW District Judge.

There are two motions before the court on the return of two orders to show cause herein, one being an application by one Stanley D. Bonner, and the other on behalf of Gustavus A. Rogers and others; both motions seeking to vacate an order heretofore made by this court on the 12th day of January, 1924 appointing receivers in equity herein, and for a dismissal of the equity bill. The defendant corporations herein are organized under the laws of the state of Delaware. The plaintiff is a resident of New York.

In the Bonner motion, it appears that the moving party is a stockholder owning one share of stock in the Commonwealth Hotel Construction Company, one of the defendants herein. He began suit in the New York state court, on or about December 20, 1923, on behalf of himself as a stockholder and all other stockholders who choose to make themselves parties to the action, against the two defendants herein and other individual officers and directors of the Commonwealth Hotel Construction Corporation. The action, in substance, is for malfeasance or misfeasance in office, and the corporations are joined as defendants apparently because the transfer of certain real estate from one of the defendant corporations to the other is challenged. The action is in the nature of an action for waste and to prevent diversion of corporate assets. No right accrues to creditors by virtue of this suit in the state court. The plaintiff Bonner prays that the New York Supreme Court may appoint a receiver of the assets and property of one of the defendants, to wit, the Commonwealth Hotel Company. No receiver is asked for of the codefendant Broadway, Seventh Avenue & Fifty-Sixth Street Hotel Realty Corporation. The prayer for relief is for an injunction, and that the funds realized and recovered shall be distributed among stockholders. No attempt is sought to protect creditors. The complaint was served on December 26, 1923, and an order to show cause on motion for a receiver in the state court, dated January 12, 1924, was apparently served after the appointment of the receivers herein by the federal court.

In the second motion herein, made by Rogers and others, it appears that another suit in the New York Supreme Court was brought by Rogers and four other stockholders, suing on behalf of themselves and others against the two corporate defendants herein and eight individual defendants, directors of the defendant corporations. It appears that the plaintiffs in that action are the owners of 25 shares of stock. The relief prayed for therein is to have certain agreements and transactions set aside as illegal, and to have certain of the officers reimburse the Commonwealth Company for alleged improper payment of moneys, and to compel an accounting of the official conduct of the officers of the Commonwealth corporation. It is, in substance, a stockholders' action to recover from the directors property alleged to have been diverted, and to restrain the further diversion of property. The prayer for relief in this second state action includes a petition for the appointment of a receiver in the state of New York for the property of the Commonwealth, and that an injunction may be granted restraining the individual defendants from making any of the payments or performing any of the acts complained of, etc.

In the Rogers suit in the state court an order to show cause was issued therein on January 10, 1924, requiring the defendants in that motion to show cause in the state court on January 14, 1924, why an injunction and a receiver pendente lite should not be appointed. This order to show cause was served on the defendant corporations herein, and some of the individual defendants in the state court prior to the appointment of the receivers herein. While these matters were pending in the state court and undetermined, this action in the United States District Court in equity was begun on the 12th day of January, 1924; the plaintiff herein being a creditor (and stockholder) suing for himself and all other creditors similarly situated. The bill is the usual bill in equity, and prays that the assets of the two defendant corporations herein may be conserved, and that the rights, interests, and equities of the various parties, including creditors and stockholders, be determined and adjudicated, and that, pending the final hearing and determination, receivers in equity be appointed to marshal the assets and property and distribute them, and that interference with the property and assets of the defendant corporations be enjoined pending the determination of the various issues.

On January 12th, the date of the appointment of the receivers in equity herein, the defendant corporation appeared by its attorneys, admitted all of the allegations contained in the bill, and consented to the relief prayed for in the bill. On this appearance and answer, the receivers were appointed by this court. This motion now made to vacate and dismiss is based on the contentions-- (a) that the bill is insufficient in law; (b) that the state court had prior jurisdiction, and, under the rule of comity, that this court should refrain from interference with its jurisdiction; and (c) that this court has not jurisdiction on the ground that the sum or value in controversy is less than $3,000.

It is further contended that the answer of the defendants is insufficient to confer upon the court jurisdiction by consent. Prior to the argument on the return of this motion, divers creditors (and stockholders) having claims in excess of $3,000 appeared and prayed for permission to intervene in this suit as party plaintiff, which intervention was allowed by the court, and they joined, on their own behalf and all others similarly situated, with the like effect as if named in the original bill of complaint. These intervening creditors also joined in the general prayer for relief.

It further appears that a third suit was begun in the Chancery Court of Delaware on January 8, 1924, to dissolve the corporations and appoint a receiver. The application for the appointment of a receiver in the Delaware court was adjourned, and no further action was had therein. The attorney for the plaintiff in the Delaware suit, however duly appeared on the return of the motions herein and in open court opposed said motions to dismiss the bill herein, and joined the plaintiff herein in asking that this court retain jurisdiction and continue the equity receivership. It is manifest that, if the bill is insufficient in law,...