Opinion
March 21, 1947.
Appeal from Supreme Court, New York County, VALENTE, J.
Samuel Maness for appellant.
Leonard M. Lake of counsel ( Dannenberg, Hazen Lake, attorneys), for respondents.
Section 106 of the General Corporation Law provides that if Special Term entertains a petition for dissolution of a corporation in case of deadlock under section 103 "the court must make an order, requiring all persons interested in the corporation to show cause before it, or before a referee designated in the order, at a time and place therein specified, not less than six weeks after the granting of the order, why the corporation should not be dissolved."
Appellant contends that the petition for dissolution was insufficient and, failing in this, that a referee should not have been appointed ex parte to hear the dissolution proceeding. The petition is sufficient in law. On the other hand, although the appointment of a referee ex parte was not void in view of the language of the statute, it is held to have been an abuse of discretion. The authorization in the statute to direct the hearing and determination of such a proceeding by a referee was doubtless provided mainly to enable the Special Term to grant a compulsory reference without the consents of all parties in interest. But referring the proceeding over objections is different from doing so without affording opportunity to express objections. This was illustrated in Matter of Baumann ( 201 App. Div. 136, affd. 234 N.Y. 555), where the referee named ex parte turned out to be an attorney representing interests adverse to that of some of the stockholders in the corporation to be dissolved. The court added ( 201 App. Div., p. 138): "The substituted referee has been named upon notice with the opportunity to the non-consenting stockholders and directors to make such objection to the referee as they might choose to make."
The order to show cause herein published and served pursuant to sections 107 and 108 of the General Corporation Law should, as a matter of discretion, have been made returnable at Special Term which could have disposed of the proceeding or referred it after first noting the appearances, receiving opposing affidavits and hearing such objections as might have been urged against any reference proposed. After this has been done, if a referee is to be appointed, it is not necessary to publish and serve notice again under sections 107 and 108 of the General Corporation Law in order to bring on the hearing before the referee which can be accomplished by the referee's giving notice in like manner as in bringing other litigated matters to trial before a referee to those whose appearances were recorded at the Special Term on return of the order to show cause.
The order appealed from should be modified by striking from the order to show cause dated October 18, 1946, signed by Honorable LOUIS A. VALENTE, the provision for the appointment of a referee and by making said order to show cause returnable at Special Term, and as so modified affirmed, except as to the dates, with $20 costs and disbursements to the appellant.
The appointment of a referee in the order to show cause made upon a petition initiating the proceeding is directly authorized by section 106 of the General Corporation Law.
Where, as is impliedly conceded here, the petition sets forth that the corporation "has an even number of directors who are equally divided respecting the management of its affairs," (General Corporation Law, § 103, as amd. by L. 1944, ch. 176), the court may entertain an application for the dissolution of a corporation. In such case, "the court must make an order, requiring all persons interested in the corporation to show cause before it, or before a referee designated in the order" why the corporation should not be dissolved (General Corporation Law, § 106; emphasis mine). The order to show cause was in strict accord with the provisions of the statute and the Special Term was right in refusing to set it aside or to modify it. ( Matter of Gotham Tissue Corporation, 269 App. Div. 922; Petition of Lynch, 54 N.Y.S.2d 111; Matter of Kaufman Circle Express Co., Inc., 177 Misc. 106.)
Since 1889 the statute has provided for the ex parte designation of a referee in a proceeding of this kind (L. 1889, ch. 314). So far as I have been able to discover, the practice of appointing a referee in the order to show cause upon a petition alleging the necessary jurisdictional facts has been followed consistently over the years without any criticism (1 White on New York Corporations, art. 9, § 106; 7 White on New York Corporations, p. 450, Form No. 1124; 6 Wait on New York Practice, p. 863).
How then can it be said that the making of the order to show cause which is clearly sanctioned by the statute and is in conformity with the well-established practice, is an abuse of discretion?
In Matter of Baumann ( 201 App. Div. 136) referred to in the Per Curiam opinion, it is true that the referee named ex parte turned out to be an attorney representing interests adverse to that of some of the stockholders in the corporation to be dissolved. Even if the order to show cause in that case had been made returnable before the court and a referee then appointed, the same kind of difficulty could have arisen since the name of the referee seldom becomes known until after the designation is made by an order. It is to be noted that in Matter of Bauman ( supra) this court stated that the ex parte order appointing the referee "was strictly in accord with the provisions of the statute" (p. 137).
Moreover, the order of modification to be entered upon the majority opinion here must require a new publication of the notice to all interested parties, involving additional expense and delay, while the corporation is paralyzed by the deadlock (General Corporation Law, § 107).
I, accordingly dissent and vote for affirmance of the order.
MARTIN, P.J., DORE and VAN VOORHIS, JJ., concur in Per Curiam opinion; COHN, J., dissents in opinion in which GLENNON, J., concurs.
Order modified by striking from the order to show cause dated October 18, 1946, signed by Honorable LOUIS A. VALENTE, the provision for the appointment of a referee and by making said order to show cause returnable at Special Term, and as so modified affirmed, except as to the dates, with $20 costs and disbursements to the appellant. Settle order on notice.