People v. Mercer Hicks Corp.

• Decision Date: 02 October 1956
• Citation: 4 Misc.2d 55,155 N.Y.S.2d 740
• Parties: , Blue Sky L. Rep. P 70,329 The PEOPLE of the State of New York, Plaintiffs, v. MERCER HICKS CORPORATION, Mercer Hicks, Kenneth T. Hoeck, John J. Reilly, Harry P. Bird, Percy K. Leather, Thorvald H. McGregor, William Hanley, Alvin A. Lebowitz and Leopold Silverman, Defendants. George C. KIMBER and John E. Kimber, as Trustees u/w Anne A. Kimber, Dec'd., Cross-Movants-Objectants, v. Daniel J. RIESNER, Receiver-Respondent.
• Court: New York Supreme Court

Page 740

155 N.Y.S.2d 740

4 Misc.2d 55, Blue Sky L. Rep. P 70,329

The PEOPLE of the State of New York, Plaintiffs, v. MERCER HICKS CORPORATION, Mercer Hicks, Kenneth T. Hoeck, John J. Reilly, Harry P. Bird, Percy K. Leather,

Thorvald H. McGregor, William Hanley,

Alvin A. Lebowitz and Leopold

Silverman, Defendants.

George C. KIMBER and John E. Kimber, as Trustees u/w Anne A.

Kimber, Dec'd., Cross-Movants-Objectants, v. Daniel J. RIESNER, Receiver-Respondent.

Supreme Court, Special Term, New York County, Park I.

Oct. 2, 1956.

Menahem Stim, New York City (Menahem Stim, New York City, Joseph D. Stim, Plainview, Robert Ferraro, New York City, of counsel), for receiver.

John J. Meehan, Manhasset (Philip Mandel, New York City, of counsel), for Kimber Trustees, cross-movants-objectants.

HOFSTADTER, Justice.

This action was instituted in 1950 by the Attorney General in behalf of The People against the corporate defendant Mercer Hicks Corporation (Mercer Hicks) and the individual defendants under Article 23A of the General Business Law, § 352 et seq., commonly known as the Martin Act. By order of July 31, 1950, this court appointed a temporary receiver of property of Mercer Hicks derived 'by means of fraudulent practices alleged, including all property with which said property has been commingled, if such property cannot be identified in kind because of such commingling * * *.' By the final judgment later entered in the action the temporary receiver was appointed permanent receiver.

The controversy now presented for determination concerns the proceeds of certain securities delivered to Mercer Hicks for sale by the trustees under the Will of Anne A. Kimber (Kimber Trustees). The securities were sold between June 13 and 15, 1950, and the net proceeds of the sales, amounting to $15,853.49, were deposited in the Mercer Hicks bank account with the Manufacturers Trust Company on June 16, 19 and 20, 1950. The Kimber Trustees, asserting these proceeds still to be their property traceable into the bank account, moved in September, 1950, to direct the receiver to pay over to them the foregoing sum of $15,853.49. Their motion was denied and the denial affirmed on appeal, People v. Mercer Hicks Corp'n, 198 Misc. 628, 100 N.Y.S.2d 485, affirmed 278 App.Div. 566, 102 N.Y.S.2d 444, appeal dismissed 302 N.Y. 843, 100 N.E.2d 41, leave to appeal denied 278 App.Div. 940, 105 N.Y.S.2d 1020; the appeal so dismissed in the Court of Appeals had been taken by the Kimber Trustees as of right on the ground that a constitutional question was presented. Their subsequent application for leave to appeal to the Court of Appeals was denied by the Appellate Division. In denying the initial Kimber application the court at Special Term stated that since the Kimber securities were no longer identifiable in the commingled fund, the court could not direct the return of either the securities or their proceeds. 198 Misc. 628, 630, 100 N.Y.S.2d 485, 487.

After the entry of final judgment the receiver filed his intermediate report, on which a reference was ordered. On motion by the receiver to confirm the referee's report and on cross-motion by the Kimber Trustees to direct the receiver to pay to them the proceeds of the securities, the court at Special Term denied the Kimber cross-motion and allowed the Kimber claim as one on a parity with the claims of persons who had been defrauded by Mercer Hicks. From the order made on this ruling the Kimber Trustees took a direct appeal to the Court of Appeals, claiming that only a constitutional question was involved, but their appeal was again dismissed. 306 N.Y. 560, 115 N.E.2d 205. They also appealed to the Appellate Division from the denial of their cross-motion. The Appellate Division did not definitively dispose of the appeal but remitted the matter to Special Term. In its memorandum the court said:

'Unfortunately, after a hearing in this matter certain facts essential to the determination of appellant's claim have not been ascertained and on the record before us are not ascertainable. The matter must, therefore, be remitted to Special Term to trace the source of deposits made in the bank account at the time of and after the deposit of appellant's funds and to identify the recipient of the subsequent withdrawals. Specific findings are required as to these items and a responsive determination of appellant's claim should then be made by Special Term. Order unanimously modified and the matter remitted to Special Term for further proceedings in accordance with the above memorandum.' 284 App.Div. 957, 135 N.Y.S.2d 119.

On the order of the Appellate Division a referee was appointed to take testimony and report his specific findings and opinion. The report of this referee is now before the court. The referee has made a full and detailed analysis of the Mercer Hicks account with the Manufacturers Trust Company during the critical period between June 16, 1950, when the first deposit of Kimber proceeds was made, and the taking over of the balance of $20,393.80 in the account by the receiver. The referee applied the rule declared in Importers' & Traders' National Bank v. Peters, 123 N.Y. 272, 25 N.E. 319, that when a person holding money in a fiduciary capacity deposits it in his general bank account and thereafter makes withdrawals from the account, he is deemed to have taken out his own rather than the trust money. In such situation, as between the trust funds and the individual funds of the fiduciary, the rule attributing the first withdrawals to the first payments in is inapplicable. Matter of Holmes, 37 App.Div. 15, 55 N.Y.S. 708, affirmed 159 N.Y. 532, 53 N.E. 1126. The referee reports that the Kimber claim of $15,853.49, and those of two other claimants similarly situated, total $19,247.84, but that at no time after the Kimber deposits were made, did the balance in the bank account fall below the final balance of $20,393.80, taken over by the receiver. Accordingly, the referee concluded that the Kimber Trustees 'have traced their funds into the Manufacturers bank account and have established that none of these funds have been dissipated by reason of subsequent withdrawals or charges * * *.'

The receiver argues that the referee erred in treating the decision of the Appellate Division which we have quoted as settling the right of the Kimber Trustees to trace their funds into the bank account. This contention must be rejected. In the Appellate Division the receiver urged that the prior denial of the Kimber claim for the return of the sale proceeds, affirmed on appeal, had already determined the issue adversely to the Kimbers. Had the court...