Opinion
November 1, 1946.
Appeal from Supreme Court, New York County, WALTER, J.
Isidor Wasservogel of counsel ( Barron, Rice Rockmore, attorneys for Mountbreak Corp. et al.; Edwin B. Wolchok, attorney for Rubinstein et al.; Frank L. Miller, attorney for Sztykgold et al., and appearing specially for Chosen Corporation, Ltd.), for appellants.
Samuel Gottlieb of counsel ( I. Gainsburg with him on the brief; Hollander Bernheimer, attorneys), for respondents.
We think that the agreement between the official receiver of Chosen Corporation, Ltd., and Mountbreak Corporation and Rubinstein, providing that Mountbreak should pay such fees and expenses "of the American proceedings" reasonably payable to the attorneys for the plaintiffs in this action, as may be assessed by "the American Court," and specifying that this action in the Supreme Court of New York is "the American proceedings" and the said court "the American Court," and providing that the American proceedings are to be deemed settled, discontinued or stayed save for the assessment of the fees and expenses of said attorneys, clearly meant that those fees and expenses should be determined by the court in this action. While apart from such stipulation the court would not have such jurisdiction in an action neither prosecuted nor settled before it, there is no reason why such jurisdiction may not be conferred by stipulation. It is not like a stipulation attempting to confer a jurisdiction beyond the cognizance of the court. Admittedly the Supreme Court would have jurisdiction to determine defendants' liability for fees under the agreement in a plenary action, and it is permissible, therefore, for the court to exercise its admitted jurisdiction of the subject matter in this action upon stipulation of the parties. The only consequence of the difference, as defendants point it out, is that defendants may not have the jury trial and take the depositions in this proceeding which they would be entitled to in a plenary suit. The defendants could and in our view did waive any right to a jury trial by their stipulation, and we see no reason why the taking of depositions should not be allowed in this proceeding on the usual application and considerations.
The position of defendants that counsel fees of the nature asserted here are to be measured by the benefits conferred by counsels' services is, of course, sound and all contentions of defendants on that point are open before the referee and court. The order is not to be construed as requiring an assessment of counsel fees or expenses in any amount, but only as accepting jurisdiction and establishing the procedure for determining the amount, if any, which should be paid to plaintiffs' attorneys on the basis of the accepted legal standards which apply to such applications.
The order should be affirmed, with $20 costs and disbursements.
The court was without power summarily to assess counsel fees or to direct a reference for that purpose. Nor could summary jurisdiction to assess fees be conferred upon the Special Term by the contract between the foreign receiver and Mountbreak Corporation. While it is the law that where representatives of a class have created or preserved a fund for the benefit of the class, they, and their attorneys, are entitled to have their costs and fees made a charge upon the fund ( Trustees v. Greenough, 105 U.S. 527; Sprague v. Ticonic Bank, 307 U.S. 161; Hornstein on The Counsel Fee in Stockholder's Derivative Suits, 39 Col. L. Rev. 784, 789), there is no authority which would permit allowance of counsel fees in a suit not prosecuted to judgment or in an action settled without approval of the court asked to assess the fees. The rule in this State appears to be well grounded that counsel fees may be recovered in a derivative stockholder's suit only when the action has been successfully prosecuted to judgment or when it has resulted in a settlement judicially approved by the court petitioned to determine the allowances. ( Neuberger v. Barrett, 180 Misc. 222, 223; Bysheim v. Miranda, 45 N.Y.S.2d 473, 475.) Section 61-a of the General Corporation Law pertaining to the assessment of expenses in actions brought on behalf of a corporation provided in part as follows: "* * * if any such party or parties shall be successful in part only, or if such action, suit or proceeding shall be settled with the approval of the court having jurisdiction thereof, the reasonable expenses, including attorneys fees, of any or all such parties shall be assessed upon the corporation in such amount as such court shall determine and find to be reasonable in the circumstances * * *." (Emphasis ours.)
This section was repealed by Laws of 1945, chapter 869, section 2, upon recommendation of the Law Revision Commission. The notes of the commission (N.Y. Legis. Doc., 1945, No. 65 [E]) state: "All of the essential provisions of section 61-a which regulate the granting of allowances in actions brought on behalf of a corporation are incorporated in new sections 64-67, inclusive, except the provisions of section 61-a which relate to allowances to parties plaintiff. Those provisions have been eliminated as unnecessary. To the extent that the present section 61-a applies to parties plaintiff, it has been held to be declaratory of the common law ( Neuberger v. Barrett, 180 Misc. 222; Bysheim v. Miranda, 45 N.Y.S. [2d] 473 [1943]). Section 5 of this bill expressly preserves the power of the court with respect to parties plaintiff."
Where, as here, an action has been settled without the approval of the court, the representative stockholder must obtain compensation, if at all, in an independent suit and not by a summary application. (Hornstein on The Counsel Fee in Stockholder's Derivative Suits, 39 Col. L. Rev., 807, n.; Meighan v. American Grass Twine Co., 154 F. 346.) The provision in the contract of sale between Chosen Corporation and the Mountbreak Corporation executed in England by which Mountbreak undertook to pay any counsel fee which might be awarded in the American court did not confer summary jurisdiction upon the court to proceed by motion. If there be a breach of that contract, respondents' remedy would be by a plenary suit for the payment of the fees of respondents' counsel. In such an action, respondents would be required to establish that they had conferred a benefit upon the corporation; that the corporation was obliged in equity to reimburse them for the expenses incurred in the creation of that benefit and that Mountbreak, having assumed the corporation's obligations, is liable for their fees. There is no authority for the enforcement of a contractual obligation by motion. To require the Supreme Court of this State on motion to make an allowance for counsel fees to plaintiffs in a derivative stockholder's suit on the basis of a settlement made and judicially approved in England, finds no sanction in law or in precedent.
Accordingly, I dissent and vote to reverse the order and to deny the motion to appoint a referee to assess counsel fees and to direct that the foreign receiver be joined as a party upon the ground that in the circumstances of this case respondents' remedy against appellants is by plenary suit.
TOWNLEY, GLENNON and PECK, JJ., concur in Per Curiam opinion; COHN, J., dissents in opinion in which MARTIN, P.J., concurs.
Order affirmed, with $20 costs and disbursements. [See post, p. 916.]