De Neufville v. New York & N. Ry. Co.

• Decision Date: 26 May 1897
• Citation: 81 F. 10
• Parties: DE NEUFVILLE v. NEW YORK & N. RY. CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

81 F. 10

DE NEUFVILLE v. NEW YORK & N. RY. CO. et al.

United States Court of Appeals, Second Circuit.

May 26, 1897

Simon Stern, for appellant.

Charles F. Brown and Thos. Thacher, for appellees.

PER CURIAM.

The action was brought by the appellant as the holder of 275 shares of the preferred stock of the New York & Northern Railway Company, in behalf of himself and all other stockholders similarly situated; and the alleged cause of action arises out of the purchase by the New York Central &amp Hudson River Railroad Company of a majority of the second mortgage bonds and stock of the said Northern Railway Company, and the subsequent foreclosure of the mortgage securing such bonds. It is averred, with great detail, that the purchase was made and foreclosure effected in pursuance of a conspiracy between the defendants whereby the said New York & Northern Railway Company was to be forced into insolvency, and its property sold out, ostensibly in satisfaction of its bonded indebtedness, but really in the interest of the New York Central & Hudson road, which acquired title to the property upon foreclosure through a new corporation created by it solely for the purpose of taking such property and leasing it to the Central & Hudson. The same issues were raised in the state court upon the intervention of stockholders of the New York & Northern Railway Company other than complainant. It will be unnecessary to set forth in detail the facts averred in the complaint. A sufficient statement of them will be found in the decision of the new York court of appeals in the state court case. Farmers' Loan & Trust Co. v. New York &amp N. Ry. Co., 150 N.Y. 410, 44 N.E. 1043.

The judge who heard this demurrer in the circuit court followed the decisions which had been then rendered by the supreme court at special and general term, and held that there was no equity in the bill. Upon appeal to the court of appeals in the state court case, it was held that the supreme court erred 'in rejecting, as immaterial, evidence offered by the appellants to show that after the New York Central &amp Hudson River Railroad Company became the owner of a majority of the stock and bonds of the New York & Northern Railway Company, and while its officers were in control of the latter corporation and its affairs, it declined to accept traffic from other roads which would have produced a fund with which to pay the interest that was due; that the income of the road which should have been employed to pay such interest was used for other and improper purposes; and that such action upon the part of the majority stockholder occasioned the inability of the company to pay the interest and cure the default ' The bill in this case contains these specific averments, and for the purposes of this appeal they must be taken as true. We concur with the New York court of appeals that such conduct on the part of the majority stockholder is improper, and that, when it is proved, equity will afford relief. The bill, therefore, is not obnoxious to the objection that it does not set forth facts entitling the complainant to relief in equity.

It is next objected that the bill is multifarious. The facts pleaded make out a case where the New York & Northern Railway Company, through alleged improper and fraudulent conduct on the part of defendants, has been stripped of its property. The bill sets forth a cause of action in favor of the New York & Northern Railway Company, which might be prosecuted either by it, or, if its directors failed to do their duty in that regard, then by one or more of its...