Neuwirth v. Namm-Loeser's, Inc., Civ. No. 18457.
| Decision Date | 16 May 1958 |
| Docket Number | Civ. No. 18457. |
| Citation | 161 F. Supp. 828 |
| Parties | Adelaide NEUWIRTH, Plaintiff, v. NAMM-LOESER'S, Inc., and Arebec Corporation, Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Louis H. O. Fischman, New York City, for plaintiff.
Kramer, Marx, Greenlee & Backus, New York City, for defendant Namm-Loeser's Inc. John J. Hayes, New York City, of counsel.
This is a stockholders' derivative action brought by a stockholder owning 50 shares (out of a total of 342,000 outstanding) of the defendant Namm-Loeser's Inc., having a market value of less than $50,000. The plaintiff, a citizen of New Jersey, brings this action against the two New York corporations alleging that the defendant Namm-Loeser's Inc. is a subsidiary of and subject to the domination and control of the defendant Arebec Corporation; that the two defendants conspired to effect a cancellation of a lease of real property owned by the defendant Arebec and occupied by the defendant Namm-Loeser's; that they did effect said cancellation; that the defendant Namm-Loeser's surrendered the same to defendant Arebec for no consideration, although the said lease was of a value in excess of $250,000; that defendant Namm-Loeser's was damaged to the extent of $250,000 by the acts of defendant Arebec. Affirmative relief is sought only against defendant Arebec, i. e., an accounting, damages, costs and expenses of the action.
Defendant Namm-Loeser's has moved, by order to show cause, for an order directing plaintiff to give security pursuant to § 61-b of the New York General Corporation Law for the reasonable expenses which may be incurred by defendant Namm-Loeser's in connection with this action and asks the Court to fix the amount of such security at $10,000. Defendant Namm-Loeser's has moved also for an order staying all further proceedings on the part of the plaintiff in this action until another stockholders' derivative suit (instituted prior to this action by stockholders of defendant Namm-Loeser's other than the plaintiff in this action) pending in the Supreme Court of the State of New York, New York County, against the same defendants and their officers and directors, based upon the same facts, is disposed of, or until a similar action (instituted subsequent to this action by these same other stockholders against the same defendants) pending in this court is disposed of. The order to show cause contains a stay of all proceedings on the part of the plaintiff pending the determination of these motions and service of notice of the entry of an order thereon.
Dana C. Backus, a member of the firm of attorneys representing the defendant Namm-Loeser's in this action, in his moving affidavit concedes that the defendant Namm-Loeser's "occupies the position of `beneficial defendant' in this case, but nevertheless, it will be necessary to represent and protect the interests of the Corporation" and he estimates the reasonable expenses, including counsel fees, of representing and protecting the interests of his client at "not less than $10,000.00". The attorney for the plaintiff, in his answering affidavit, cites no authority for his contention that § 61-b of the New York General Corporation Law is inapplicable because no directors or officers of Namm-Loeser's have been joined as defendants.
The security requirements of § 61-b of the New York General Corporation Law are applicable to non-federally based causes of action in this court, Fielding v. Allen, 2 Cir., 1950, 181 F.2d 163, 165, certiorari denied Ogden Corp. v. Fielding, 340 U.S. 817, 71 S.Ct. 46, 95 L.Ed. 600; Cohen v. Beneficial Industrial Loan Corporation, 337 U.S. 541, 69 S.Ct. 1221, 93 L.Ed. 1528; Leven v. Birrell, D.C.S.D.N.Y.1949, 92 F.Supp. 436, even though individual directors and officers are not joined as parties defendant, Levenson v. Little, D.C.S.D.N.Y. 1950, 90 F.Supp. 1022; Leven v. Birrell, D.C., 92 F.Supp. 436, 444. This action is brought for the benefit of the defendant Namm-Loeser's. It is a nominal defendant. A bond of $1,000 should be ample and that is the amount fixed. Leven v. Birrell, supra. If, as and when defendant Namm-Loeser's can demonstrate to the Court why its position in this action should not be neutral and that the amount of security so fixed has become inadequate it may apply to have the same increased pursuant to § 61-b of the New York General Corporation Law. The stay of all further...
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