Sternberg v. Wolff

• Decision Date: 28 November 1898
• Citation: 42 A. 1078,56 N.J.E. 555
• Parties: STERNBERG et ux. v. WOLFF et al.
• Court: New Jersey Court of Chancery

42 A. 1078

56 N.J.E. 555

STERNBERG et ux.

v. WOLFF et al.

Court of Chancery of New Jersey.

Nov. 28, 1898.

Bill by Lazar Sternberg and wife against David Wolff and others to enjoin the latter from exercising corporate functions, and for the appointment of a receiver pendente lite. Dismissed.

For opinion on appeal, see 39 Atl. 397.

Charles D. Thompson and Chandler W. Riker, for the motion.

Robert H. McCarter and Louis Hood, opposed.

PITNEY, V. C. This is a contest between two sets of stockholders of a corporation for the control of the same. It was organized originally in 1892, and reorganized, with amended by-laws, August 26, 1897. The complainant holds in his own name one-half of the capital stock, less one share, and that is held by his wife. The defendant Rosa Wolff owns the other one-half of the stock, less one share, and that is owned by her husband, David Wolff. It thus appears that the stock is equally divided between them. The four persons just named constitute the board of directors, and, by the amended by-laws, it requires the whole to make a quorum. By the same by-laws, the complainant Lazar Sternberg is the president, with a fixed salary, and the defendant David Wolff is the secretary and treasurer, with a fixed salary, and neither can be removed nor his salary changed without the consent of all the directors, and both are authorized to draw and indorse checks, drafts, notes, and other negotiable instruments. These and other provisions in the by-laws create at once a deadlock in the affairs of the corporation, so far as taking any corporate action is concerned, unless by the consent of all persons interested. The original bill was filed by Sternberg and wife against the defendant David Wolff alone, and the corporation, on the 15th of October, 1897, and after alleging certain irregular and improper conduct on the part of David Wolff, prayed that he might be restrained from exercising the functions of treasurer, and from doing other acts of the character complained of; and further prayed "that, if necessary, a receiver may be appointed to take charge of said company and manage the same pending the decision of this suit," and for other relief. Upon the filing of the bill, with a mass of affidavits, interim restraint was granted against David Wolff, and an order was made upon Wolff returnable on Monday, the 25th of October, to show cause why an injunction should not issue. On that day the parties appeared, and the defendant David Wolff presented numerous affidavits, the reading of which and those of the complainants occupied all the remaining business hours of the court. Counsel for Wolff asked for a receiver, which elicited from the court the remark that no bill or petition on Wolff's part praying such relief was before the court, and hence that none such could be granted on his application. The further hearing of the motion was adjourned until Wednesday, the 27th, on which day the parties appeared before me, and the defendant Rosa Wolff then asked to be made a party defendant because she was a large stockholder in the concern, which motion was not opposed by the complainants, and she was duly made a party, and filed an answer and cross bill accordingly, in which she charged improper conduct on the part of the complainant Lazar Sternberg, and prayed an Injunction against him in that respect; and further prayed that Sternberg and wife may specifically perform the terms of a certain written agreement entered into between the four parties, dated the 26th of August, 1897, "and, failing therein, that a receiver may be appointed to take charge of and wind up the affairs of said corporation, and to divide the proceeds of the sale of the assets of said corporation among the stockholders thereafter, of the payment of all its liabilities." The contract referred to, made on the 26th of August, was one for the reorganization of the corporation on certain terms therein specified, and which were intended to be embodied in the by-laws just referred to, but there appears a slight difference between the by-laws and the agreement.

The argument proceeded before me for two days, the complainants protesting against any interim relief being granted on the defendants' cross bill until they bad an opportunity to answer the same. Late in the afternoon of the 28th of October, at the close of the argument, I decided that the defendant David Wolff was in fault and in the wrong, and that an injunction should issue against him according to the prayer of the bill, but that no receiver should be appointed on the prayer of the defendants' cross bill without the consent of the complainants, and the complainants not asking for the appointment of a receiver under the prayer of their bill, and not consenting to the appointment of a receiver on the application of the defendants under their cross bill, none was appointed. The injunction in favor of the complainants against the defendants was made upon terms that the complainant Sternberg should be under like restraint, and an order accordingly was advised on the 6th of November.

On Monday, November 8th, upon a short notice to the defendants, the complainants, having appealed from that part of the order restraining Sternberg, applied to me to suspend the operation of the injunction against him until the meeting of the court of errors and appeals, which would take place on Tuesday, the 10th of November. After hearing the parties, I decided to suspend the injunction as against Sternberg, on the ground that I was in doubt as to whether those terms should have been imposed. And upon hearing the matter, on the 16th of November, the court of errors and appeals, as I am informed, sustained my action, and suspended the injunction against the complainants, retaining that against the defendants until the hearing of the appeals which each party had taken from the order of November 6th. This was done upon condition that both appeals should be put on the list at the present term, and be argued if reached. Both the appeals were thereupon put upon the bottom of the list for argument at the present term. On Thursday, the 18th of November, the defendants Wolff and wife presented to me their petition, with further affidavits, and asked for the appointment of a receiver under the prayer of the cross bill, and I advised an order to show cause why such relief should not be granted, returnable on Wednesday, November 24th. On that day the parties appeared, and the complainants, the Steinbergs, filed an answer to the petition of the Wolffs, and the motion was heard on the bill, answer, and cross bill, the petition and answer, and all the affidavits and exhibits.

The petitioners confined their application for a receiver to one simply to supervise and manage the affairs of the corporation pending the suit, and their prayer for an injunction to one restraining Mr. Sternberg from usurping the powers and duties of the treasurer, from drawing or signing any notes, checks, or bills of exchange, and from in any way interfering with the department of the secretary and treasurer of the company, and further enjoining him from interfering with the business so far as relates to the ladies' goods department, and that he be enjoined from hiring any employés whatever except in accordance with the by-laws of the company.

The reorganization agreement between the parties of the 26th of August, 1897, contains two clauses providing for the breaking of the deadlock by amicable proceedings. It provides that after one year from date both Sternberg and wife on the one side, and Wolff and wife on the other, shall have the right, by notice in writing, to require the other side to purchase their capital stock, or, at the option of the party to whom such notice was given, to sell their stock to the person giving the notice. The agreement provides that upon giving such notice the parties shall immediately come to an agreement as to the value of the capital stock; that, in ease of nonagreement, then each shall appoint an appraiser, and the two so appointed shall appoint a third; and that the three shall proceed to make an appraisement of the stock, and report to the parties in writing with convenient speed. Within one month after the receipt of such report, but not in less than two months after the receipt of the original notice, the side receiving the original notice shall elect, in writing, either to buy the stock of the party giving the notice, or to sell to that party the stock at the valuation fixed; and at the end of two months after notice of such election, or earlier, at the option of the purchaser, the sale should be consummated by the transfer of the stock and payment thereof as provided.

In the answer of the Sternbergs to the petition of the Wolffs, now under consideration, the Sternbergs offer to forego that part of the contract just referred to which fixed the time of one year before any such proceedings could be had, and agree that if a notice be now given by the Wolffs, in accordance with the contract, they will consider themselves bound thereby, exactly as if the year provided in the contract had expired, and agree to carry out the provisions of the contract in reference to the purchase of the capital stock of the parties so notifying, in the manner therein provided, and the answer is signed by both Mr. and Mrs. Sternberg in their proper handwriting.

Without going into any extended discussion of the powers of this court to interfere with the management or wind up the affairs of a solvent corporation, and distribute its assets among its stockholders, I content myself with the simple remark that I can find no case— and the industry of counsel has pointed out none, with a single exception presently to be stated—in which it has been held that this court has the power to distribute all the assets and wind up a solvent corporation simply on the ground of dissensions among the stockholders. Mr. High, in his treatise...