Platt Corp. v. Platt

• Court: New York Supreme Court — Appellate Division
• Writing for the Court: EAGER
• Citation: Platt Corp. v. Platt, 21 A.D.2d 116, 249 N.Y.S.2d 75 (N.Y. App. Div. 1964)
• Decision Date: 21 April 1964
• Parties: The PLATT CORPORATION, Plaintiff-Appellant, v. Ronald L. PLATT, Harvey M. Ross, Jerome Adler, Defendants-Respondents, Don W. Hawley, David Blumberg, Robert D. Brodley, Theodore Ellenoff, and Robert E. Schulman and Herman J. Larris d/b/a Schulman & Larris, Defendants.

Page 75

249 N.Y.S.2d 75

21 A.D.2d 116

The PLATT CORPORATION, Plaintiff-Appellant, v. Ronald L. PLATT, Harvey M. Ross, Jerome Adler Defendants-Respondents, Don W. Hawley, David Blumberg Robert D. Brodley, Theodore Ellenoff, and Robert E. Schulman and Herman J. Larris d/b/a Schulman & Larris, Defendants.

Supreme Court, Appellate Division, First Department.

April 21, 1964.

Charles R. Bergoffen, New York City, of counsel (Robert S. Warshaw and Stephen Mann, New York City, with him on the brief, Javits, Trubin, Sillcocks, Edelman & Purcell, New York City, attys.), for plaintiff-appellant.

Bernard Buchwald, New York City (Paul Lewin, New York City, with him on the brief), for defendants-respondents Ronald L. Platt and Harvey M. Ross.

Wilfred R. Caron, New York City, of counsel (Milton D. Goldman, New York City, with him on the brief, Goldman & Drazen, New York City, attys.), for defendant-respondent Jerome Adler.

Before BOTEIN, P. J., and BREITEL, VALENTE, EAGER and WITMER, JJ.

EAGER, Justice.

The plaintiff appeals from an order granting defendants' motion to dismiss the complaint upon the ground that the plaintiff did not have legal capacity to sue (CPLR Rule 3211(a)(3) and upon the further ground that the complaint fails to state a cause of action (CPLR Rule 3211(a)(7)).

The plaintiff (The Platt Corporation) was organized in 1961 in Delaware to engage in the real estate business. It was authorized to and did issue two classes of stock, viz., Class A common which was generally sold to and held by the public and Class B common, which was principally held by the individual defendant Platt and which had the right to elect two-thirds of the directors.

This action was commenced on May 8, 1963 against the defendant Platt (former president of the corporation), certain other directors and officers of the corporation, an attorney who had represented the corporation and a firm of accountants who had been retained and who had acted in the capacity of independent public accountants for and auditors of the corporation. The complaint contains various and divers allegations of wrongful acts of and derelictions in the duties owing by the defendants, and prays for an accounting and a recovery by the corporation of the damages sustained by it on account of the alleged wrongdoing. The moving defendants do not challenge the sufficiency of these allegations to show prima facie the existence of sustainable causes of action in favor of the plaintiff but contend here in effect that the efficacy of the causes has been destroyed by the disposition of the stock of plaintiff's stockholders in connection with its merger into another corporation.

At the time of the commencement of the action, there were pending plans for the merger of the plaintiff corporation into Adson Industries, Inc., a publicly held New York Corporation. The circumstances with respect to the negotiations for and the consummation of such merger do not appear in the complaint but are presented by the affidavits submitted on the motion and by reference therein to the allegations of a complaint in a companion action brought by The Platt Corporation against the defendant Platt.

It appears that in March, 1963, the plaintiff was faced with grave financial difficulties and that a group of plaintiff's Class A shareholders retained an attorney to investigate reports of serious charges of mismanagement and waste in the affairs of the corporation. During the investigation, it was learned that the individual defendant Platt, who controlled the corporation, had tentatively agreed to a merger with Adson on the basis of the sale of his Class B stock to Adson for a very substantial price. The sale was consummated, and, thereby, Adson obtained control of plaintiff's board of directors; thereupon, on April 25, 1963, an agreement of merger was approved by the respective boards of directors of the companies on the basis that plaintiff would merge into Adson and that the plaintiff's outstanding stock, Classes A and B, would be converted into Adson stock at a ratio of 8 1/3 to 1. The protective committee, which had been formed to represent stockholders of the plaintiff, thereafter entered into further discussions and negotiations with Adson and with the new officers of plaintiff elected by Adson. The committee demanded that action be taken against the defendant Platt and others responsible for the alleged mismanagement and waste in plaintiff's affairs. Finally, at the instance of the committee, the merger agreement was amended on May 7, 1963, to provide for an exchange ratio which was more favorable to the Class A stockholders of plaintiff, to wit, it was agreed that they should receive 1 share of stock of Adson for each 6 2/3 shares of their Class A stock; and it was further agreed as follows:

'(4) The proceeds of any actions at law or equity brought by or on behalf of the corporation now known as The Platt Corporation shall be distributed among the Class A Common stockholders of record as of April 23, 1963. The surviving corporation shall bear the expense of said actions against former officers, directors and legal and accounting experts but all attorneys fees shall be paid out of the proceeds.'

Following the amendment of the terms of the agreement for merger, this action was commenced on May 8, 1963, and then, on May 16, 1963, the shareholders of the plaintiff and of Adson approved the merger agreement as amended. Certificates of consolidation were duly filed on June 5, 1963 in the office of the Secretary of State of New York pursuant to Section 91 of the former Stock Corporation Law of this State and with the Secretary of State of the State of Delaware, pursuant to Section 252 of the General Corporation Laws, 8 Del.C., of said state.

The defendants urge that the consummation of the merger has disabled plaintiff from continuing with the maintenance of this action 'not because of the effect of the consolidation on the corporation's rights, but because plaintiff's stockholders disposed of their stock in the consolidation.' It is not disputed by the defendants, however, that but for the merger consummated subsequent to the commencement of the action, the plaintiff would have been entitled to maintain this action on the basis of the allegations of the complaint. By statute a corporation is expressly authorized to maintain an action, such as this, against its officers, directors and agents, to recover for misconduct, mismanagement and waste in the affairs of the corporation. (General Corporation Law, §§ 60, 61; Business Corporation Law, § 720; 12 N.Y.Jur., Corporations, § 916.)

More important here, however, is that, primarily and by virtue of the general constitutional authority to sue and be sued (N.Y.Const., art. X, § 4), and independent of General Corporation Law, §§ 60, 61 (Business Corporation Law, § 720), the corporation is the proper party to sue for injury and damages sustained by it by reason of mismanagement or misconduct in its affairs, waste of assets, or derelictions in duty by the directors, officers, agents or employees of the corporation; and the statutory remedies for such wrongs are in extension, and not in exclusion, of existing remedies, statutory, equitable or at common law. Upon a breach of a corporate contract or of fiduciary duties owing to it, or upon a tortious interference with its property rights, there is a wrong and an injury to the corporation as such; and it is vested with a cause of action therefor. So, independent of the statutory provisions, it possesses the general right to sue its own directors, officers or employees for any such wrong, the same as it has the right to sue any other agent or person for redress of a wrong. (See Robinson v. Smith, 3 Paige, ch. 222; Franklin Fire Ins. Co. v. Jenkins, 3 Wend. 130; Brinckerhoff v. Bostwick, 88 N.Y. 52, 58; Whalen v. Strong, 230 App.Div. 617, 246 N.Y.S. 40; Bailey v. Colleen Products Corp., 120 Misc. 297, 198 N.Y.S. 418, affd. 216 App.Div. 774, 214 N.Y.S. 801; 7 Am. & Eng Ann. Cases, p. 1122; 14A C.J., Corporations, § 1922, p. 149 and cases cited; 13 Am.Jur., Corporations, § 1015.)

Furthermore, and still generally speaking, 'nothing is lost by a merger of corporations, and any right which lawfully belonged to any of the corporations merged can be asserted by the possessor corporation.' (12 N.Y.Jur., Corporations, § 1038, p. 477, citing W. H. McElwain Co. v. Primavera, 180 App.Div. 288, 167 N.Y.S. 815.) In accordance with statutory provisions, a cause of action existing in favor of a corporation survives its merger into or consolidation with another corporation and becomes vested in the surviving or new corporation. (See Stock Corporation Law, §§ 85, 88; Business Corporation Law, § 906; Delaware General Corporation Law, § 261; 12 N.Y.Jur., Corporations, § 1038; 15 Fletcher Cyclopedia Corporations [Perm. ed.] § 7180; Bank of Long Island v. Young, 101 App.Div. 88, 91 N.Y.S. 849.) If an action has been brought to recover upon such a cause and is pending at the time of the merger or consolidation, the action does not abate and may be continued by and in the name of the original corporation until there is a substitution as party plaintiff of the surviving or new corporation. (See Stock Corporation Law, § 90; Business Corporation Law, § 906; Civ.Prac.Act. §§ 82, 83; CPLR § 1018; Marco v. Sachs, 201 Misc. 934, 109 N.Y.S.2d 226, affd. 279 App.Div. 1085, 113 N.Y.S.2d 449, 280 App.Div. 806, 113 N.Y.S.2d 925, affd. 304 N.Y. 912, 110 N.E.2d 737, s. c. 25 Misc.2d 763, 202 N.Y.S.2d 681, affd. 12 A.D.2d 774, 209 N.Y.S.2d 403, revd. 10 N.Y.2d 542, 226 N.Y.S.2d 353, 181 N.E.2d 392, mot. den. 11 N.Y.2d 766, 227 N.Y.S.2d 16, 181 N.E.2d 761. See, also, Delaware General Corporation Law, § 261; 15 Fletcher, supra, § 7180.)

By virtue of the foregoing general rules, concerning which there should be no question, this action may be continued by plaintiff unless barred by the contemporaneous ownership...