Watts v. Alexander, Morrison & Co.

• Decision Date: 20 July 1929
• Docket Number: No. 4241.,4241.
• Citation: 34 F.2d 66
• Parties: WATTS et al. v. ALEXANDER, MORRISON & CO., Inc., et al.
• Court: U.S. District Court — Eastern District of New York

34 F.2d 66 (1929)

WATTS et al. v. ALEXANDER, MORRISON & CO., Inc., et al.

No. 4241.

District Court, E. D. New York.

July 20, 1929.

Isidor Unger, of New York City, for plaintiffs.

Leo Levy, of New York City (Merritt Lane, of Newark, N. J., and C. Arthur Levy, and Leo Levy, both of New York City, of counsel), for defendant Vanderbilt.

GALSTON, District Judge.

The defendant Arthur T. Vanderbilt moves for a dismissal of the complaint on various grounds which will be hereinafter considered.

The action was begun by the plaintiffs, residents of New York, in the Supreme Court of the state of New York, as stockholders of Alexander, Morrison & Co., Inc., a corporation of the state of New Jersey, to compel the defendants to account to the said Alexander, Morrison & Co., Inc., a defendant in the action. On the application of the defendant Arthur T. Vanderbilt, the action was removed to this court.

It is alleged in the complaint that the defendant Arthur T. Vanderbilt, acting in concert with the other named defendants, and assuming and exercising all of the functions of the board of directors of Alexander, Morrison & Co., Inc., conspired to and did cause the filing of a bill of complaint in the Federal District Court for the District of New Jersey, to procure the appointment of a receiver of Alexander, Morrison & Co., Inc., and did procure the appointment of such a receiver, and a sale of its business and assets, in disregard of the rights and interests of the creditors and stockholders of that company, and to their injury and damage. It alleges further that the bill of complaint thus procured to be filed was false, fraudulent, and untrue in material respects, and was known to be fraudulent and untrue by the defendants Vanderbilt, Dechant, and the Capital Brass Works; that the defendant Vanderbilt thereafter procured an answer to be executed by the treasurer of Alexander, Morrison & Co., Inc., admitting the allegations of the complaint, and joining in the prayer of the bill of complaint for the appointment of a receiver, but was not acknowledged by the treasurer; that the acknowledgment was obtained in the absence of the treasurer and without the latter's knowledge or consent.

Further allegations of the complaint herein set forth that the board of directors of Alexander, Morrison & Co., Inc., had held no meetings with reference to the execution of the said answer and never authorized its execution. The plaintiffs here further allege that on the aforesaid pleadings and on the unauthorized appearance of one George R. Somers, solicitor for Alexander, Morrison & Co., Inc., an order was made and entered by the United States District Court for the District of New Jersey, appointing the defendant James T. MacMurray as equity receiver. It is alleged that the order for the appointment of such equity receiver was procured by fraud and imposition upon the court, without disclosing the falsity of the bill of complaint to the court, and without informing the court that the answer of the defendant Alexander, Morrison & Co., Inc., was not authorized by the corporation. Other items of fraud are alleged in connection with the procurement of the receiver.

The complaint herein then alleges that, to forestall any action on the part of the dissenting stockholders of the said Alexander, Morrison & Co., Inc., the said Vanderbilt procured a petition in involuntary bankruptcy against the said defendant Alexander, Morrison & Co., Inc., to be filed; that the time to answer the petition in bankruptcy was extended from time to time by way of forestalling action of the stockholders and directors of Alexander, Morrison & Co., Inc., to interfere with the receivership proceedings in equity.

Further allegations are made that, pending the alleged unlawful receivership, negotiations were instituted by the defendants Vanderbilt and Dechant for an alleged reorganization of the defendant company, and various offers were made to the stockholders and creditors of Alexander, Morrison & Co., Inc., but that such negotiations were not in good faith and were solely for the purpose of forestalling action by the stockholders or creditors of Alexander, Morrison & Co., Inc., until the receiver became vested with full ownership and possession of the assets of said defendant company. It is alleged that the sale made of those assets by the receiver realized for the creditors of Alexander, Morrison & Co., Inc., less than 40 per cent. of the face amount of their claims, and left nothing whatever for the stockholders; and that, by reason of the fraud, conspiracy, and misappropriation of assets, participated in by the defendants herein other than Alexander, Morrison & Co., Inc., that corporation was deprived of its assets, property, business, and good will, to its damage in the sum of $500,000.

It is further alleged that the board of directors of Alexander, Morrison & Co., Inc., for over five years last past has not functioned, and there is now no existing board of directors of said corporation; that the defendant Vanderbilt dominated and controlled said corporation since prior to the 1st day of February, 1923; and that demand upon him to institute this action would be useless, and indeed that said Vanderbilt has refused to take any action in the premises and has insisted upon the legality of all his acts.

So the plaintiffs by prayer seek to have the defendants, other than the defendant Alexander, Morrison & Co., Inc., account to the defendant Alexander, Morrison & Co., Inc., for any and all losses sustained by said corporation arising out of the illegal acts complained of.

No answer or appearance has been filed herein by any of the defendants, nor has any defendant appeared, except the defendant Vanderbilt, who makes this motion to dismiss the bill of complaint.

He urges, first, that, since this is a representative suit for the benefit of all stockholders of Alexander, Morrison & Co., Inc., that the said Alexander, Morrison Co., Inc., is an indispensable party to this action, and plaintiffs' failure to serve said corporation and the impossibility of serving said corporation justify a dismissal of this action. The plaintiffs do not contend that Alexander, Morrison & Co., Inc., is not an indispensable party, but they assert that the fact that Alexander, Morrison & Co., Inc., has not been served with process does not appear upon the face of the complaint, and therefore should not be considered on this motion. Such position would be unanswerable were it not for the further contention of the defendant Vanderbilt that from the face of the complaint it does appear that it was, is, and will be impossible in this action for the plaintiffs to serve that corporation.

From the complaint, paragraph "thirty-eighth," it appears that the receiver appointed in 1924 sold the business and assets of Alexander, Morrison & Co., Inc. In paragraph "forty-first" of the complaint, it is alleged that the board of directors of that company has not functioned for over five years last past, and indeed that there is no existing board of directors of that corporation. Thus it is difficult to see how any one could be served with process in any action brought against the corporation.

How then can this defendant Alexander, Morrison & Co., Inc., a foreign corporation, be brought before this court by the service of process?

In Peterson v. Chicago, Rock Island & Pacific R. Co., 205 U. S. 364, 27 S. Ct. 513, 522, 51 L. Ed. 841, it is said: "It is settled by the decisions of this court that foreign corporations can be served with process within the State only when doing business therein, and such service must be upon an agent who represents the corporation in its business. St. Clair v. Cox, 106 U. S. 350, 1 S. Ct. 354, 27 L. Ed. 222; Goldey v. Morning News, 156 U. S. 518, 521, 522, 15 S. Ct. 559, 39 L. Ed. 517, 519; Conley v. Mathieson Alkali Works, 190 U. S. 406, 23 S. Ct. 728, 47 L. Ed. 1113."

Since the business and all of the asests of the corporation were sold and no board of directors has functioned for over five years and there is no existing board of directors, it must follow that the corporation is not doing business in the Eastern district of New York.

If it be urged that the corporation could be served by publication, a sufficient answer to that is found in the provisions and interpretations of the Judicial Code and Judiciary, U. S. Code, tit. 28 (28 USCA) § 118 (Rev. St. §§ 738, 742; March 3, 1875, c. 137, § 8, 18 Stat. 472; March 3, 1911, c. 231, § 57, 36 Stat. 1102). It has been held that service on a nonresident defendant outside of the district of suit is authorized in a federal court only in cases specified in that section; and in no other case can the...