Opinion
May, 1901.
Simon Sterne, and Guggenheimer, Untermyer Marshall (Louis Marshall, of counsel), for plaintiff.
Ira A. Place (Thomas Thacher, of counsel), for defendants.
I am constrained to sustain this demurrer. The pleading is certainly not deficient in equity, but, on authority, the action at law adopted by the plaintiff cannot be maintained. It is unnecessary to rehearse the facts; they have been sufficiently spread on the court records in the various proceedings heretofore instituted arising out of the same transactions for which this plaintiff seeks relief. Farmers' Loan Trust Co. v. New York Northern R. Co., 150 N.Y. 410; De Neufville v. N.Y. N.R. Co., 81 Fed. Repr. 10; Oelbermann v. New York N.R. Co., 7 Misc. 352. This is not a representative action brought by the plaintiff on behalf of himself and others similarly situated, but is purely an action at law to recover damages sustained by the plaintiff and his assignors by reason of the tortious acts of the defendants, resulting, it is claimed, in the destruction of the market value of the stock of the plaintiff and of his assignors in the New York Northern Railway Company. The injury complained of was not done directly to the plaintiff's property; it was not an injury done peculiarly to him; he has not sustained damage, individual and separable from other minority shareholders. The body corporate to which they jointly confided the protection of their interests has suffered substantial injury by the alleged improper foreclosure of the mortgage and the resultant deprivation of its property under the decree and sale. Consequent upon this abstraction of the corporate property, there has been depreciation, if not annihilation, of share-value. Restoration to the corporation of the property, or its money equivalent, will reinfuse vitality into the stock. The primal injury has been to the corporation, the consequent injury to the body of shareholders composing it. Merely because the body injured is in this instance the minority shareholders, inasmuch as the majority, acting through the instrumentality of another corporation, is charged with the commission of the very acts against which relief is sought, does not make the injury a direct one to the minority. The majority, whether acting alone or, as in this case, through the defendant corporation, has acted in opposition to the true interests of the injured corporation. Its acts, on the allegations of the pleading, have dissipated the corporate assets. And the right of action for the wrong inheres in the corporation itself for the benefit of the shareholders which it represents, and, on the grounds stated, in the corporation alone. If it refuses to seek redress for any of the many reasons often met with, the shareholder may sue in a representative capacity, making it a defendant, but, so suing, the shareholder seeks a recovery, in the first instance, not directly for himself and others similarly situated, but for the corporation whose property and business condition give his shares value. Viewed in any aspect, under any form of pleading or action, the acts and omissions from which the cause of action is sought to be deduced show that it is dependent on a general injury to the corporation, from which has flowed a general, uniform injury to a body of the shareholders. The authorities are quite uniform that, on the state of facts here disclosed, the wrong was done to the Northern Company alone; that it is the only party to bring this action, or, failing to do so after request, becomes a necessary party in a representative action duly instituted to obtain the relief it refuses to seek. Gardiner v. Pollard, 10 Bosw. 674; Greaves v. Gouge, 49 How. Pr. 79; 52 id. 58; 69 N.Y. 154; Alexander v. Donohoe, 143 id. 203; Flynn v. Brooklyn City R.R. Co., 158 id. 493; De Neufville v. N.Y. N.R. Co., 81 Fed. Repr. 10.
That the distinction here invoked is not merely formal, but substantial, was pointed out in Gardiner v. Pollard, supra, where it was said: "If the plaintiff can maintain this suit, and recover on it his aliquot part of the whole damages, he may obtain a double compensation, by means of the recovery in his suit and in one by the corporation for the same cause." In approving this distinction, the General Term of the Supreme Court in Greaves v. Gouge, supra, declared it "to be an indispensable prerequisite that the circumstances disclosed should show injuries, individual and personal, to the claimant, as contradistinguished from injuries to the corporation. * * * When the plaintiff is able, by the peculiar and special circumstances of his case, to disconnect himself from the general injury to the company, he then presents an independent demand for which he can recover but one redress, and for which the defendant can pay but one penalty." The plaintiff seeks to distinguish the line of cases cited on the ground that in those there was no direct injury to the stockholders. But it is difficult to see how it is more direct here. Merely changing the form of action does not make it so. In a sense, every injury which impairs the value of property is a direct injury to that property and to the person owning it. But that is not the sense in which direct is here used. The injury is not direct because it affects the share values, whether of the whole issue or of a majority or minority only, through the body corporate. Whatever may be the effect of the alleged unlawful acts, they were not directed against the individual shareholders as shareholders. If they purposed an acquisition of the Northern Railway's property through the instrumentality of a forced foreclosure, the injury was first to the corporation, and, through it, by the loss of assets, to the stock.
The cases of Ritchie v. McMullen, 79 Fed. Repr. 522, and Walsham v. Stainton, 1 De G., J. S. 678, do not bear out the construction placed upon them. In each case there was an individual wrong, a breach of duty cast upon the managers under a specific relation of legal privity. In the former the directors were the pledgees of the plaintiff's stock, and it was held that, as to their pledgor, they could not so use their positions as directors as to depreciate the value of his stock, and that doing so they would become personally responsible to him for the individual wrong so inflicted. So, too, in Walsham v. Stainton, there was the relation of vendor and vendee. In both cases the directors used their positions to injure particular stock.
Taking the allegations of the complaint as true, there is no doubt, under the decision of the Court of Appeals (Farmers' Loan Trust Co. v. N.Y. N.R. Co., supra), that there has been a grievous breach of trust. But the remedy does not lie in the individual stockholder, in his individual capacity, in the form of action here sought to be asserted.
The demurrer must be sustained.
Demurrer sustained.