Rosenfeld v. Hotel Corp. of America

• Decision Date: 25 May 1967
• Court: New York Court of Appeals Court of Appeals
• Parties: , 228 N.E.2d 374 Helen ROSENFELD et al., Respondents, v. HOTEL CORPORATION OF AMERICA et al., Defendants, and Gertrude V. Burg et al., as Executors of A. S. Burg, Deceased, Appellants.

Page 308

281 N.Y.S.2d 308

20 N.Y.2d 25, 228 N.E.2d 374

Helen ROSENFELD et al., Respondents, v. HOTEL CORPORATION OF AMERICA et al., Defendants, and Gertrude V. Burg et al., as Executors of A. S.

Burg, Deceased, Appellants.

Court of Appeals of New York.

May 25, 1967.

Thomas R. Newman and Richard Goldman, New York City, for Gertrude V. Burg and others, appellants.

Seymour H. Bucholz and Herman Odell, New York City, for respondents.

BURKE, Judge.

The principal issue in this stockholders' derivative action involves the substitution as defendants of the deceased nonresident defendant's executors pursuant to CPLR 1015 (subd. (a)), and the constitutionality of our courts' obtaining in personam jurisdiction over the substituted nonresident executors. The facts insofar as they are relevant are brief. The suit is brought by more than 90 stockholders of the defendant Hotel Corporation of America (not involved on this appeal) against 19 individual defendants, their families and the corporation for personal profits realized through certain real estate transactions between the corporation and the individual defendants (directors and officers thereof) in violation of their fiduciary duties. One of the defendants, A. S. Burg, a director and member of the corporation's executive committee, was personally served with a summons and complaint under CPLR 302 (subd (a), par. 1) in Massachusetts on October 17, 1963 based upon his transaction of business in New York and he voluntarily appeared in the action by filing an answer to said complaint. (The defendant appellant executors concede that jurisdiction had been properly obtained over the decedent.) Burg's executors were appointed in Massachusetts on February 17, 1964, and on September 17 of that year, the other defendants moved for a stay of all proceedings under section 627 of the Business Corporation Law until the plaintiffs posted the required security in this derivative suit. Such stay was granted on June 16, 1965 and remained in effect until January, 1966. During this period of September, 1964 through January, 1966 plaintiffs did not move for substitution of Burg's executors. After the stay was vacated and on April 22, 1966 plaintiffs moved for an order to show cause why the nonresident executors should not be substituted for the deceased nonresident defendant pursuant to CPLR 1015 (subd. (a)), and substitution was ordered.

The defendant-appellant executors contend on this appeal that the New York courts cannot constitutionally obtain in personam jurisdiction over nonresident executors who have committed no acts or transacted no business in this State, and that the plaintiffs' application for substitution was not made within a reasonable time after the decedent's death and consequently should not have been granted under CPLR 1015 (subd. (a)) and 1021.

As to appellants' second contention, an order of substitution pursuant to CPLR 1015 (subd. (a)) and 1021 is effected within the Discretion of the court, Mr. Justice Dudley exercised his discretion in the plaintiffs' favor, and this disposition was unanimously affirmed by the Appellate Division. Under these circumstances, the appellants are seeking review of a nonfinal exercise of discretion, and this court is powerless to review such a determination on an appeal based on a certified question. (Cohen and Karger Powers of the New York Court of Appeals (1952), p. 369; 7 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 5602.12; Platt v. Tenenbaum, 16 N.Y.2d 614, 261 N.Y.S.2d 66, 209 N.E.2d 110 (1965); Matter of Palmer, 115 N.Y. 493, 22 N.E. 221 (1889).) In any event, there would be no sufficient reason to find that Special Term abused its discretion as a matter of law. The total period of delay was a little over two years (February, 1964 to April, 1966), and during the interim a motion for a stay of all proceedings had been made by the other defendants in September, 1964, granted in June, 1965 and ultimately vacated in January, 1966. But for placing the executors on notice as to the pendency of the action, there was nothing to gain by plaintiffs' moving for substitution during this period involving the stay. Under this view of the circumstances, the total period of delay amounted to but approximately ten months, certainly not an unreasonable length of time as a matter of law. Moreover, even if the entire two-year period is considered, we would be hesitant to describe the substitution as an abuse of discretion. (See Ruderman v. Feffer, 10 A.D.2d 704, 198 N.Y.S.2d 130 (1st Dept., 1960) (six-year delay: substitution granted); Armstrong v. Rickard, 226 App.Div. 371, 235 N.Y.S. 521 (1st Dept., 1929) (eight-year delay: substitution denied): Mazzacano v. Jordan, 40 Misc.2d 901, 244 N.Y.S.2d 176 (Sup.Ct., Queens County, 1963) (five-year delay; no explanation; substitution denied).)

Furthermore, at this stage of the proceedings, it is no valid objection to declare that any judgment rendered in this action would be of no force or effect against the decedent's estate in Massachusetts under the laws of that State. Such a conjecture is indeed speculative and prematurely made. (See Leighton v. Roper, 300 N.Y. 434, 443, 91 N.E.2d 876, 881 (1950), referred to again infra.)

As to the substantive issue presented on this appeal, viz., the constitutionality of the out-of-State service upon the nonresident executors, in light of the clear legislative intent embodied in CPLR 302 and 313, the many cases upholding similar if not identical laws in other jurisdictions, and the philosophical trend of the decisions in both the United States Supreme Court and our own Court of Appeals, we are convinced that to declare such out-of- State service invalid and unconstitutional would be unwarranted and not in conformity with the mainstream of current American jurisprudence.

Prior to the enactment of the Civil Practice Law and Rules in 1962 and apart from the limited applicability of section 253 of the Vehicle and Traffic Law, Consol.Laws, c. 71, there was no statutory authorization for out-of-State service on a nonresident executor or administrator in either a plenary action or a substitution proceeding such as the one being reviewed on this appeal. And CPLR 1015 (subd. (a)), which authorizes substitution of an executor or administrator in an action which has not been terminated by reason of the defendant's death, was not intended to change any former practice available under the Civil Practice Act. (See Kochery, 1963 Practice Commentary to CPLR 1015 (McKinney's Consol.Laws of N.Y., Book 7B, p. 429); see generally 2 Weinstein-Korn-Miller, N.Y.Civ.Prac., par. 1021.04 (1966); 3 Carmody-Wait 2d, N.Y. Practice, § 19:160 (1965).) Accordingly, it is to CPLR 302, which expressly authorizes a court to 'exercise personal jurisdiction' over a nondomiciliary's executor or administrator, and CPLR 313, which authorizes out-of-State service thereon, that we must direct our attention in order to ascertain whether the Legislature has authorized the courts to obtain in personam jurisdiction over a substituted nonresident executor or administrator, and, if so, whether such exercise of personal jurisdiction complies with the current and viable constitutional safeguards imposed in this area.

CPLR 302 recites that our courts may exercise personal jurisdiction over 'any nondomiciliary, Or his executor or administrator, as to a cause of action arising from any of the acts enumerated in this section, in the same manner as if he were a domiciliary of the state'. (Emphasis added.) And CPLR 313 provides that one 'subject to the jurisdiction of the courts of the state under section 301 or 302, Or his executor or administrator, may be served with the summons (in this case, notice of motion) without the state, in the same manner as service is made within the state'. (Emphasis added.) As noted at the outset, it is conceded that service in Massachusetts was properly effected on, and the court validly obtained in personam jurisdiction over, the decedent both because of his transaction of business here and because of his voluntary appearance in the action. Similarly, it is conceded that, if the statutory authorization for out-of-State personal service is constitutional, the appellants were validly served in Massachusetts.

There is no doubt but that, in the past, statutory authorization for out-of-State service in cases such as this has been declared invalid as to the obtaining of in personam jurisdiction over nonresident executors or administrators who neither had any contacts with this State in their capacity as representatives of the decedents nor had control over any estate assets within this jurisdiction. And the constitutionality of such enactments was seriously questioned, if not denied. (See e.g., Hopper v. Hopper, 125 N.Y. 400, 26 N.E. 457, 12 L.R.A. 237 (1891); Helme v. Buckelew, 229 N.Y. 363, 369, 128 N.E. 216, 218 (1920): 'We are not referred to any precedent in any court of final review which upholds our right to say that the foreign executor as executor is present in New York when neither domicile nor possession gives to the Res to be administered a situs in New York'; McMaster v. Gould, 240 N.Y. 379, 385, 148 N.E. 556, 558, 40 A.L.R. 792 (1925): 'Following the leading case (Helme v. Buckelew, supra), consistency requires us to say that the statute registers a futile effort to bind foreign administrators by a judgment In personam, and as to them is unconstitutional in its inception.' See, also, Matter of Gantt, 286 App.Div. 212, 141 N.Y.S.2d 738 (1st Dept., 1955); Matter of Rogers' Will, 225 App.Div. 286, 232 N.Y.S. 609 (1st Dept., 1929), affd. 254 N.Y. 592, 173 N.E. 880 (1930); Matter of Riggle's Estate, 11 N.Y.2d 73, 226 N.Y.S.2d 416, 181 N.E.2d 436 (1962) (dictum).)

In 1945 the Supreme Court decided the case of International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, heralding a new era in the concepts of jurisdiction and due...