Sheehan v. Municipal Light & Power Co.

• Decision Date: 21 April 1943
• Citation: 54 F. Supp. 169
• Parties: SHEEHAN et al. v. MUNICIPAL LIGHT & POWER CO. et al.
• Court: U.S. District Court — Southern District of New York

54 F. Supp. 169

SHEEHAN et al. v. MUNICIPAL LIGHT & POWER CO. et al.

District Court, S. D. New York.

April 21, 1943.

William J. Rapp, Satterlee & Warfield, R. Randolph Hicks, and James F. Dwyer, all of New York City, for plaintiffs.

Willkie, Owen, Otis, Farr & Gallagher, Harold H. Corbin and H. Bartow Farr, all of New York City, for defendants.

BONDY, District Judge.

This action was brought in October, 1939, by Minnie Sheehan, the holder of preferred and common stock of the Inter-City Power Company on behalf of herself and other stockholders of the Inter-City Power Company (hereinafter referred to as Inter-City), against the defendants, to set aside a judgment filed December 20, 1922, by the Municipal Light & Power Company (hereinafter referred to as Municipal), against the Long Acre Electric Light & Power Company (hereinafter referred to as Long Acre), a decree directing the sequestration and sale of its property including its franchise, the sale made pursuant thereto and the ultimate transfer of its property to New York Edison Company, now Consolidated Edison Company of New York, Inc. (hereinafter referred to as Edison Company), and for a decree for the return thereof by Edison Company to Long Acre.

The charters of Municipal, Inter-City and Long Acre were forfeited for non-payment of taxes before the bringing of this action. Many of the persons who were parties to the transactions involved herein died before the trial of this action and Minnie Sheehan, the plaintiff, died after the trial thereof.

On December 20, 1922 judgment for $328,860.76 was rendered by default in favor of Municipal against Long Acre on eighty-two notes drawn between April 8, 1917 and October 21, 1922 by Long Acre Electric Light & Power Company, F. B. Lasher, Treasurer, to the order of Municipal Light & Power Company, and endorsed without recourse by the Municipal Light & Power Company, Paul W. Fisher, as Assistant Treasurer, or as Treasurer. Most of these notes so endorsed before the beginning of the action thereon had been loaned to A. B. Leach & Company, Inc. with the previous consent of all the stockholders of Municipal and had been hypothecated by A. B. Leach & Company, Inc. as collateral for a loan made by H. L. Doherty & Company to A. B. Leach & Company, Inc.

The summons and complaint in the action on the notes and the subpoena and complaint in the sequestration suit were served on F. B. Lasher. At the time, he was vice-president and a director of Municipal, owning one share of its stock, and also secretary and treasurer and a director of Long Acre.

Minnie Sheehan contended that the judgment and decree were fraudulently obtained and that service of the summons and subpoena on F. B. Lasher did not give the court jurisdiction to entertain the actions against Long Acre. She urged that the advances were made by A. B. Leach & Company, a New York corporation, but that the notes were made by Long Acre, a New York corporation, payable to the order of Municipal, a New Jersey corporation, for the collusive purpose of enabling the action on the notes to be brought in a federal court.

Municipal was organized in 1902. It carried on its business separate and distinct from that of any other person or corporation. It had assets amounting to millions of dollars and income amounting to hundred thousands of dollars. It was not a paper company without assets, as is alleged in the complaint. It was not incorporated nor used for the collusive purpose of conferring jurisdiction upon the federal courts.

Before April, 1917, money was advanced by Harvey Fisk & Sons, as well as A. B. Leach & Co., to Long Acre to keep in existence its franchise for the generation and distribution of electric light and power in the City of New York.

Since April, 1917 advances for that purpose were made by Municipal to Long Acre and the notes were given by Long Acre to Municipal when the advances were made and not all at one time just before the action was begun, for the purpose of conferring jurisdiction upon a federal court, as Minnie Sheehan contended. That the advances for which the notes were given were actually received by Long Acre has been clearly established and that Long Acre became obligated to repay the same can not be questioned successfully.

Although most of the notes had been loaned to A. B. Leach & Co., Inc. and hypothecated by it to H. L. Doherty & Co. before the action was begun, it does not follow as plaintiff contends that the action thereon could be brought only by A. B. Leach & Co., Inc. or H. L. Doherty & Co. and not by Municipal, the payee of the notes. It does not appear that at the time the action was begun A. B. Leach & Co., Inc. or H. L. Doherty & Co. still held or owned the notes endorsed in blank. Some of the notes on which the action was brought were never transferred by Municipal and Municipal had an interest in all the notes. The complaint alleges that the Municipal Light & Power Company was the owner and the holder of the notes. The attorney, who brought the action for Municipal, had possession of the notes and presented them to the clerk when he entered judgment. The possession of the notes created a presumption that the person in possession was the owner thereof. See Corporation Holding Co., Inc. v. Wieber, 230 App.Div. 636, 246 N.Y.S. 109; National Bank of Bay Ridge v. Albers, 244 App. Div. 127, 278 N.Y.S. 381.

The holder of a negotiable instrument may sue thereon in his own name and payment to him discharges the instrument. Negotiable Instruments Law, Section 90, Consol.Laws c. 38. This applies even when the holder is acting only as an agent to collect the same for the beneficial owner. Pusey & Jones Co. v. Hanssen, 3 Cir., 279 F. 488, 493, 494, reversed on other grounds 261 U.S. 491, 43 S.Ct. 454, 67 L.Ed. 763; Hays v. Hathorn, 74 N.Y. 486, 490.

That A. B. Leach & Co., Inc., to whom the notes had been loaned, and H. L. Doherty & Co., to whom they had been hypothecated, and Long Acre, the maker of the notes, were residents of the State of New York, did not prohibit the bringing of the action in a federal court by Municipal, a New Jersey corporation and the holder of the notes, against Long Acre.

The provision, 28 U.S.C.A. § 41(1), that no District Court shall have cognizance of a suit to recover upon any promissory note in favor of any assignee or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation unless such suit might have been prosecuted in such court to recover upon said note or other choses in action if no assignment had been made, clearly is not applicable to an action on a note made payable to order by a corporation on which the payee could have sued in the District Court. See Emsheimer v. New Orleans, 186 U.S. 33, 22 S.Ct. 770, 46 L.Ed. 1042; Lipschitz v. Napa Fruit Co., 2 Cir., 223 F. 698; Moore Bros. Glass Co. v. Drevet Mfg. Co., C.C., 154 F. 737.

The summons and complaint were served upon F. B. Lasher, secretary and treasurer of Long Acre in compliance with the New York Civil Practice Act, Sec. 228 and gave the court jurisdiction over the defendant. The fact that F. B. Lasher was secretary and treasurer of Long Acre and vice-president, director and the owner of one share of stock of Municipal did not render the service upon him void in the absence of concealment or other fraud on the part of Municipal or Lasher. Even if A. B. Leach or A. B. Leach & Co., Inc. owned the controlling stock interest and actually dominated the corporations at the time the action on the notes was brought that would not establish that the service was collusive or void. Compare City of Toledo v. Toledo Rys. & Light Co., 6 Cir., 259 F. 450, 455, 456.

The possibility of fraud or concealment which might have been suspected by reason of Lasher being an officer of both the plaintiff and defendant corporations is excluded by the fact that on November 4, 1922 and before the action was brought Lasher, as secretary of Long Acre, wrote to Inter-City Power Company, which Minnie Sheehan claimed to be the beneficial owner of all the stock of Long Acre, in care of Durning its president, who was not under the control of but entirely independent of A. B. Leach, A. B. Leach & Co., Inc. and Municipal, advising the company that he has been requested by A. B. Leach & Co., Inc. to inform it about the affairs of Long Acre in order that those who are interested may take such steps as they deem advisable for their protection; that for several years expenses of the company had been advanced by A. B. Leach & Co., Inc. and the Municipal Light & Power Company and that these companies are unwilling to advance any further sums and have demanded payment of the amount due them; that the interest on the outstanding bonds is past due and unpaid, which will mean ultimate foreclosure unless some step is taken to prevent it and that if those interested in the company desire to take any action to protect its assets and avoid the litigation which appears imminent, it is imperative that steps to this end be taken promptly and that if requested, he will unthose in interest to hold a meeting or to dertake to learn if it is the desire of any of propose any plan.

On November 21, 1922, Lasher again wrote to Inter-City Power Company in care of Durning, that he had been served with a summons and complaint in an action in the United States District Court in which Municipal Light & Power Company is the plaintiff and the Long Acre is defendant; that for several years he remained an officer of Long Acre at the request of several of those in interest, including A. B. Leach & Co., Inc. and that the former president of the company resigned September, 1922; that as the Long Acre has practically no business, its operations for the purpose of meeting the requirements of its franchise have been possible only through loans made to it which are now the subject of the action and are stated to amount to $277,175.75 and interest, and that...