Thatcher v. Jerry O'Mahony, Inc.

• Citation: 121 A.2d 50,39 N.J.Super. 330
• Decision Date: 29 February 1956
• Docket Number: No. A--145,A--145
• Parties: Charles B. THATCHER, Jr., Plaintiff-Appellant, v. JERRY O'MAHONY, Incorporated, a New Jersey corporation, Defendant-Respondent. . Appellate Division
• Court: New Jersey Superior Court – Appellate Division

Page 330

39 N.J.Super. 330

121 A.2d 50

Charles B. THATCHER, Jr., Plaintiff-Appellant, v. JERRY O'MAHONY, Incorporated, a New Jersey corporation,

Defendant-Respondent.

No. A--145.

Superior Court of New Jersey.

Appellate Division.

Argued Feb. 20, 1956.

Decided Feb. 29, 1956.

Charles B. Thatcher, Jr., Scotch Plains, pro se.

John B. O'Neill, Jersey City, for respondent (Milton, McNulty & Augelli, Jersey City, attorneys; Charles J. Milton, Jersey City, of counsel).

Before Judges GOLDMANN, FREUND and CONFORD.

The opinion of the court was delivered by

GOLDMANN, S.J.A.D.

As observed in our former opinion, Thatcher v. Jerry O'Mahony, Inc., 37 N.J.Super. 139, 117 A.2d 131 (App.Div.1955), where the background facts are set out, plaintiff, owner of 100 shares (or .000058) of defendant's common stock, initially filed his complaint in the Chancery Division seeking access to defendant's corporate books and records and a judgment invalidating the action of a special meeting of stockholders ratifying a certain amended loan and stock option agreement under which new interests came into control of the corporation. The court dismissed the latter part of the complaint because of failure to join the beneficiaries under the agreement as necessary parties defendant, and transferred the remainder of the case to the Law Division. Plaintiff appealed from the dismissal of part of his complaint, and we dismissed the appeal as premature.

Defendant subsequently moved in the Law Division for an order striking the balance of plaintiff's complaint--that seeking access to the corporate books and records. It was defendant's contention, and plaintiff did not disagree, that plaintiff's right to inspection of defendant's records, if afforded by the court, would be a meaningless and wholly ineffectual relief when considered in the light of his primary demand, dismissed in the Chancery Division, to have the ratification by the stockholders' meeting set aside. The Law Division accordingly dismissed what was left of the complaint. The order of dismissal recites that defendant agreed that plaintiff had the statutory right of inspecting the stock book and transfer record, and denied that permission to inspect them had ever been refused; further, that plaintiff conceded that the only purpose of his application to inspect the corporate books and records was in connection with his demand for a judgment setting aside the stockholders' ratification of the amended loan agreement, and that such inspection was no longer germane to the protection of any right which he might have the power to enforce.

Plaintiff now appeals from the Chancery Division order dismissing the complaint insofar as it sought to void the stockholder approval of the amended loan and stock option agreement, and also from the Law Division order dismissing the remainder of the complaint demanding inspection of the corporate books and records. Counsel are in agreement that if the Chancery Division order is affirmed, then the Law Division order was proper, should be given full force and effect, and the matter terminated.

The question for determination is whether, in the circumstances here present, the three beneficiaries of the agreement are necessary parties defendant to this action. Plaintiff has consistently refused to add them, and this despite the fact that he charges these beneficiaries, who were in control of defendant's loard of directors at the time the agreement as amended was approved, and who remained in control thereafter, with fraud, concealment, dishonesty and breach of their fiduciary obligations, thereby causing a loss to the corporate defendant and securing a personal profit for themselves, impliedly in an amount between $125,000 and $140,000. Although the beneficiaries are all non-residents, defendant's counsel represented in the trial court as well as on the oral argument before us that if the complaint were amended to name these directors as parties defendant, an appearance would be entered on their behalf, but at the same time he would demand that security be posted under N.J.S.A. 14:3--15. Plaintiff concedes--in fact he has devoted several pages of his brief to listing authorities and arguments supporting the proposition--that persons who are to be affected by the judgment of a court must be made parties to the suit if the judgment is to be binding against them. The rule may more accurately be stated: all persons 'interested in the object of the suit must be made parties--that is, persons who are parties to the interest involved in the issue, and who must necessarily be affected by the decree.' Fletcher v. Newark Telephone Co., 55 N.J.Eq. 47, 52, 35 A. 903 (Ch.1896), citing Michigan State Bank v. Gardner, 69 Mass. 305, 308, 3 Gray 305, 308 (Sup.Jud.Ct.1855). However, plaintiff argues that the judgment he seeks would not in any way affect the rights or liabilities of the beneficiaries of the stock option contained in the amended loan agreement. He claims he merely wants to void the ratification of the amended loan agreement given by the stockholders at their special meeting of March 1, 1954. It may here be noted that the stock option was taken up prior to the filing of the complaint.

The matter is not as simple as plaintiff would have us believe. Despite his insistence that all he seeks is to void the stockholders' ratification, what was implicit throughout the action is finally made crystal clear in the reply brief, where plaintiff states that the decision to set aside the ratification by the stockholders 'would have an important effect on the adjudication of the...