Pennsylvania R. Co. v. Pedrick

• Decision Date: 05 April 1915
• Citation: 222 F. 75
• Parties: PENNSYLVANIA R. CO. v. PEDRICK et al.
• Court: U.S. District Court — Northern District of New York

222 F. 75

PENNSYLVANIA R. CO. v. PEDRICK et al.

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

April 5, 1915

Hun &amp Parker, of Albany, N.Y., for plaintiff.

Randall J. Le Boeuf, of Albany, N.Y., for trustee.

RAY District Judge.

Whether this motion should be granted, and whether or not Schenck, as trustee in bankruptcy of the Security Steel & Iron Company should be a party to this action, depends on the nature and scope of the complaint, and perhaps on the true construction of section 90 of the General Corporation Law of the state of New York, and section 66 of the Stock Corporation Law of said state. These sections read as follows:

'Sec 90. Action against Officers of Corporation for Misconduct.-- An action may be maintained against one or more trustees, directors, managers, or other officers of a corporation, to procure a judgment for the following purposes, or so much thereof as the case requires:

'1. Compelling the defendants to account for their official conduct, including any neglect of or failure to perform their duties, in the management and disposition of the funds and property, committed to their charge.

'2. Compelling them to pay to the corporation, which they represent, or to its creditors, any money, and the value of any property, which they have acquired to themselves, or transferred to others, or lost, or wasted, by or through any neglect of or failure to perform or by other violation of their duties.

'3. Suspending a defendant from exercising his office, where it appears that he has abused his trust.

'4. Removing a defendant from his office, upon proof or conviction of misconduct, and directing a new election, to be held by the body or board duly authorized to hold the same, in order to supply the vacancy created by the removal; or, where there is no such body or board, or where all the members thereof are removed, directing the removal to be reported to the governor, who may, with the advice and consent of the senate, fill the vacancies.

'5. Setting aside an alienation of property, made by one or more trustees, directors, managers or other officers of a corporation, contrary to a provision of law, or for a purpose foreign to the lawful business and objects of the corporation, where the alienee knew the purpose of the alienation.

'6. Restraining and preventing such an alienation, where it is threatened, or where there is good reason to apprehend that it will be made.

'7. The court must, upon the application of either party, make an order directing the trial by a jury of the issue of neglect or failure of defendants to perform their duties; and for that purpose the questions to be tried must be prepared and settled as prescribed in section nine hundred and seventy of the code of civil procedure.

'As to any litigation pending prior to September one, nineteen hundred and seven, the provisions of this section as they existed prior to that date shall apply.'

'Sec. 66. Prohibited Transfers to Officers or Stockholders.-- No corporation which shall have refused to pay any of its notes or other obligations, when due, in lawful money of the United States, nor any of its officers or directors, shall transfer any of its property to any of its officers, directors or stockholders, directly or indirectly, for the payment of any debt, or upon any other consideration than the full value of the property paid in cash. No conveyance, assignment or transfer of any property of any such corporation by it or by any officer, director or stockholder thereof, nor any payment made, judgment suffered, lien created or security given by it or by any officer, director or stockholder when the corporation is insolvent or its insolvency is imminent, with the intent of giving a preference to any particular creditor over other creditors of the corporation, shall be valid, except that laborers' wages for services shall be preferred claims and be entitled to payment before any other creditors out of the corporation assets in excess of valid prior liens or incumbrances. No corporation formed under or subject to the banking, insurance or railroad law shall make assignment in contemplation of insolvency. Every person receiving by means of any such prohibited act or deed any property of the corporation shall be bound to account therefor to its creditors or stockholders or other trustees. No stockholder of any such corporation shall make any transfer or assignment of his stock therein to any person in contemplation of its insolvency. Every transfer or assignment or other act done in violation of the foregoing provisions of this section shall be void. No conveyance, assignment or transfer of any property of a corporation formed under or subject to the banking law, exceeding in value one thousand dollars, shall be made by such corporation, or by any officer or director thereof, unless authorized by previous resolution of its board of directors, except promissory notes or other evidences of debt issued or received by the officers of the corporation in the transaction of its ordinary business, and except payments in specie or other current money or in bank bills made by such officers. No such conveyance, assignment or transfer shall be void in the hands of a purchaser for a valuable consideration without notice. Every director or officer of a corporation who shall violate or be concerned in violating any provisions of this section, shall be personally liable to the creditors and stockholders of the corporation of which he shall be director or an officer to the full extent of any loss they may respectively sustain by such violation.'

In condensed form, the allegations of the complaint are:

(1) The plaintiff is a corporation of the state of Pennsylvania, and the Security Steel & Iron Company is a New York corporation (now in bankruptcy). From January 13, 1914, to August 12, 1914, each and every of the defendants were directors in said last named corporation. Defendant Charles H. Pedrick, Jr., was president thereof, defendant Burns was its vice president, defendant Cornelius F. Burns was its treasurer, and defendant Cunningham was its secretary.

(2) Between September 23, 1913, and November 26, 1913, the plaintiff corporation sold and delivered to said now bankrupt corporation certain cast iron pipe, for which it agreed to pay plaintiff $18,615.78. Payment was demanded and refused after such sum became due, and thereupon in an action in the Supreme Court of the state of New York, on the 11th day of June, 1914, the plaintiff here recovered judgment against said now bankrupt company on such indebtedness for the sum of $19,503.82. A transcript was filed in Albany county, N.Y., and execution issued and returned wholly unsatisfied. No part of such judgment has been paid.

(3) Prior to April 23, 1914, and continuously thereafter, said now bankrupt corporation was either insolvent or its insolvency was imminent, and this fact was known to each and every of the defendants.

(4) The complaint here sets out certain facts showing such insolvency, the existence of certain notes of said now bankrupt corporation, some held by certain of the defendants, and others by other parties, and also the fact that certain of such notes, in large amounts, were indorsed by certain of the defendants here.

(5) Subdivision 9 of the complaint reads as follows:

'(9) That at some time prior to said April 23, 1914, the defendants, knowing that said Security Steel & Iron Company was insolvent or that its insolvency was imminent, and with the intent of rendering valueless any judgment that the plaintiff herein might obtain in said action against said Security Steel & Iron Company, for eighteen thousand six hundred fifteen dollars and seventy-eight cents ($18,615.78) begun as aforesaid on April 2, 1914, and with the further intent of giving a preference to certain of the creditors of said Security Steel & Iron Company, to wit, to said defendants, Cornelius F. Burns James H. Burns, Charles H. Pedrick, Jr., and Richard D. Cunningham, said Security Trust Company, said Manufacturers' National Bank, said Adirondack Trust Company, said Warrensburgh National Bank, said Joseph J. Murphy, said Edgar T. Brackett, and said John F. Cahill, and certain other creditors of said Security Steel & Iron Company, for the most part resident in or near said city of Troy, over all the other creditors of said Security Steel & Iron Company, including the plaintiff herein, and with the further intent of paying the debts of said Security Steel & Iron Company to said defendants Cornelius F. Burns, Charles H. Pedrick, Jr., and Richard D. Cunningham, and of releasing them and the other indorsers on said notes from liability thereon, did conspire and confederate to cause, and did cause, said Security Steel & Iron Company to transfer and divert all of its real property to one John A. Manning, of said city of Troy, and to transfer and divert substantially all of its unincumbered personal property to the defendant James H. Burns, to said John A. Manning, to R. D. Cunningham Company, a New York corporation having its principal business office upon the property of said Security Steel & Iron Company in said village of Green Island, and to the Union National Bank of said city of Troy, by a series of divers instruments, transfers, conveyances, and incumbrances, and did conspire and confederate to cause, and did cause, said Security Steel & Iron Company, to utilize the moneys received from the said transfers and diversions of said real and personal property in making preferential payments to the aforementioned creditors of said Security Steel & Iron Company. That each of the defendants herein was concerned, as hereinafter specifically set forth, as a director or officer of said Security Steel & Iron...