Opinion
November 5, 1915.
Burt D. Whedon of counsel [ S. Sidney Smith, attorney], for the appellant.
George S. Mittendorf of counsel [ Frederick Geller with him on the brief], Geller, Rolston Horan, attorneys, for the respondents.
This is a representative action, originally brought by the New York Life Insurance Company as plaintiff, suing in its own behalf as well as in behalf of all other similarly situated holders of income mortgage bonds of the defendant New York Railways Company. By the terms of said bonds the New York Railways Company covenanted to pay interest thereon at the rate of five per cent per annum if and to the extent that the net income of said railways company as defined and provided to be ascertained and determined in the mortgage securing said bonds, should suffice for said payment. Such interest by the terms of said mortgage is not cumulative, so that if the net income when ascertained in accordance with the provisions of the mortgage is less than five per cent in any given year the deficit in interest is lost to the holders of said bonds.
The complaint alleges that the New York Life Insurance Company acquired $1,000,000 of said bonds on January 1, 1912, and that for the year 1912 the New York Railways Company paid only about three per cent interest on said bonds and for the year 1913 said defendant paid only about four per cent interest on said bonds; that said defendant earned in these years sufficient net income to pay interest on said bonds in full at the rate of five per cent per annum, but that said defendant has wrongfully neglected and refused to pay this deficiency in interest and has improperly diverted and retained portions of its net earnings which were applicable to the payment of interest on these bonds in violation of the terms of the mortgage. The complaint demands an accounting by said defendant of its income for the years 1912 and 1913 and that defendant be compelled to pay the amount of its net earnings, which shall be found to be applicable to the payment of interest on said bonds, over and above the amount already paid into the hands of a receiver, to be disposed of under the direction of the court for the benefit of the plaintiff and the other bondholders.
It further alleges that the mortgage securing said bonds provided that until the company pays the full five per cent interest for three successive years there shall be elected by the bondholders one less than a majority of the board of directors of said company, and that an approval by three-fourths of the said, so-called, bondholder directors of the statements of income prepared by said New York Railways Company and filed with the trustee of the mortgage shall be binding and conclusive upon the bondholders. The defendants Hemphill, Marston and Tripp were bondholder directors of the company for the year 1912 and the defendants Hemphill, Marston, Tripp and Bronner were bondholder directors for the year 1913, and as such approved the statements of net income of the railways company for the said years which were filed with the trustee. The complaint alleges that said approvals were carelessly, negligently and improperly given and asks that said approvals be set aside and declared void; that plaintiff and the holders of bonds aggregating upwards of $6,000,000 have requested the defendant Farmers' Loan and Trust Company, trustee under said mortgage, to commence action against the railways company for an accounting of all its net income during the said years, and that said trustee has refused and neglected to comply with said request.
On March 10, 1915, the present plaintiff, George B. Leighton, a holder and owner of said income bonds exceeding in par value the sum of $100,000, having been advised that the New York Life Insurance Company intended to dismiss its action unless some other bondholder intervened and became a party plaintiff, made a motion for leave to come in and be joined as party plaintiff. All parties were served with notice of said motion, and no opposition having been made an order was entered on March 16, 1915, granting the prayer of said petition and directing that George B. Leighton be made a party plaintiff in this action and that his name be inserted in the title as one of the plaintiffs therein in the summons and complaint and that his name so appear in all further proceedings in this action. Subsequently, on March 30, 1915, upon a stipulation signed by the attorneys for all parties, an order was entered directing that this action be discontinued as to the New York Life Insurance Company and that the name of said plaintiff be stricken from the title in all proceedings pending herein. Prior to obtaining said order, on December 3, 1914, the then plaintiff, New York Life Insurance Company, obtained an order for the examination of the defendants before trial, but no examination was held thereunder. Upon an affidavit sworn to by the plaintiff Leighton a new order for the examination of all the defendants, except the Farmers' Loan and Trust Company, before trial was obtained on July 30, 1915. This order was duly served and before the date set for examination defendant Marston moved to vacate said order on the ground that when the order of March 30, 1915, discontinuing this action as to the New York Life Insurance Company was entered, "the complaint of the New York Life Insurance Company ceased to exist and there is, therefore, now no complaint and there can, therefore, be no issues." Upon this ground the Special Term vacated the said order with leave to plaintiff to renew his application for a similar order after he had served his complaint.
Section 448 of the Code of Civil Procedure provides: "* * * And where the question is one of a common or general interest of many persons; or where the persons, who might be made parties, are very numerous, and it may be impracticable to bring them all before the court, one or more may sue or defend for the benefit of all."
Section 452 provides: "The court may determine the controversy, as between the parties before it, where it can do so without prejudice to the rights of others, or by saving their rights; but where a complete determination of the controversy cannot be had without the presence of other parties, the court must direct them to be brought in. And where a person, not a party to the action, has an interest in the subject thereof, * * * and makes application to the court to be made a party, it must direct him to be brought in by the proper amendment."
The complaint alleges that the holders of said bonds are very numerous and the owners of many are to the plaintiff unknown and it is, therefore, impracticable to bring such owners in by name as parties, thus the New York Life Insurance Company acting under section 448 of the Code brought suit in its own name for the benefit of itself and all similarly situated. The action was, therefore, the action of all the bondholders.
In Brinckerhoff v. Bostwick ( 99 N.Y. 194), in speaking of a representative action, the court said: "The action is really the action of all the stockholders, as it was necessarily commenced in their behalf and for their benefit."
In Weed v. First National Bank ( 117 App. Div. 340) the court said: "The status as a coplaintiff of the respondent Steenburgh having been judicially fixed with the practical consent of the original plaintiff, such intervening plaintiff is now entitled to the same rights, privileges and consideration to which she would be entitled had she jointly with the plaintiff Weed originally instituted the action with his consent and co-operation."
In the case at bar the court, under section 452 of the Code of Civil Procedure, authorized the plaintiff Leighton to intervene and directed his name to be entered on the title of the summons and complaint and of all subsequent proceedings. It thereby became his complaint as a party plaintiff to the action. The fact that after this substitution the New York Life Insurance Company, the former plaintiff, dropped out is of no consequence to the legal situation because, being a representative action, it was continued by one representative of all the bondholders instead of that one which instituted the proceedings. Nor is there any possible harm that can come to the defendants. If there be any matter of special defense available against Leighton which was not available as against the New York Life Insurance Company such matter could have been set up by a supplemental answer. The case is at issue and the order for examination before trial was properly granted.
The order appealed from should be reversed, with ten dollars costs and disbursements to the appellant, and the original order for examination reinstated.
INGRAHAM, P.J., McLAUGHLIN, LAUGHLIN and SCOTT, JJ., concurred.
Order reversed, with ten dollars costs and disbursements, and original order for examination reinstated. Order to be settled on notice.