Case ID: ad_154/html/0437-01.html
Source: Caselaw Access Project
Author: {"author": "Laughlin, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Occidental Construction Company, Respondent, v. Charles Miller, Appellant, Impleaded with Leonor F. Loree, Defendant.
    First Department,
    January 3, 1913.
    Corporation — action against directors for conspiracy—complaint not stating cause of action — acts of directors preventing corporation from obtaining concession from foreign government.
    Action by a foreign corporation against its directors and officers to recover damages caused by their alleged negligent and fraudulent acts. The complaint in substance alleged that the plaintiff was organized to build a railroad in Mexico, for doing which it would have obtained a large subsidy from the Mexican government; that under the Mexican law on the granting of such concession the plaintiff would have been required to deposit a certain sum with said government, but that the defendants, although the concession had been granted and knowing that another corporation desired to obtain a similar concession, through a conspiracy passed resolutions to advise the Mexican government that the plaintiff deemed it inadvisable to construct the railroad; that the Mexican government when so advised gave the concession to the plaintiff’s competitor, although it had or could have obtained the money necessary to make the deposit and .would have been able to comply with the terms of the concession.
    
      Held, that the complaint failed to state a cause of action in that there was no allegation showing the financial status of the plaintiff at the time, or whether it was able to accept the concession and construct the railroad, or whether the enterprise would have been profitable or otherwise advantageous to it.
    Appeal by the defendant, Charles Miller, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 15th day of July, 1912, denying the said defendant’s motion for judgment on the pleadings.
    
      Walter B. Raymond [Samuel S. Watson and Ernest G. Metcalfe with him on the brief], for the appellant.
    
      Lewis H. Freedman [Leland B. Garretson with him on the brief], for the respondent.
   Laughlin, J.:

The plaintiff is a corporation organized under the laws of New Jersey and it brings this action to recover damages alleged to have been sustained by it through the negligent and fraudulent acts of the defendants as directors and officers of the corporation by which plaintiff was deprived of obtaining from the government of Mexico a concession for building a railroad along the west coast of Mexico for which it would have obtained a subsidy of $12,000,000 in Mexican money, equivalent to $6,000,000 in American money and in consequence thereof it lost all disbursements in connection therewith, aggregating $100,000. Judgment is demapded for these two items, amounting to $6,100,000, together with interest.

It is alleged that the defendants were incorporators of the plaintiff and were elected directors, and that thereupon the appellant was elected president of the company and became ex officio a member of the executive committee, consisting of five, of which the defendant Loree was chairman; that the executive committee was authorized to exercise the powers of the board of directors when the board was not in session; that the company whs organized to build a railroad between certain designated points in Mexico of an aggregate length of about 1,100 miles and to acquire mining claims, lumber lands and water power in the vicinity of its line of railroad and to exploit the same by subsidiary companies to be formed for that purpose; that the company duly authorized one Warfield, who was the vice-president, to apply to the Mexican government for concessions for these purposes; that Warfield went to Mexico and obtained a concession from the Mexican government for the construction of a railroad by the plaintiff: for which the Mexican government agreed to grant a subsidy of $12,000,000, Mexican currency; that about two and one-half years thereafter at a meeting of the board of the executive committee of the plaintiff a resolution was adopted approving the action of the vice-president in reopening negotiations with the Mexican G-overnment for the concession to build the proposed railroad to extend from G-uadalajara to G-uaymas;” and he was directed “ to conclude the negotiations if possible, upon the basis that the amount of the subsidy for the road shall be sufficient to pay the interest on the bonds necessary to construct it for a period of ten years after sections are completed,” and at the same meeting a resolution was adopted abandoning the plaintiff’s proposed railroad in part; that pursuant to this last resolution Warfield concluded negotiations with the Mexican government for a change in the railroad proposed to be built by the plaintiff and for the payment by the Mexican government of a subsidy of $12,000,000, which at that time was equivalent to $6,000,000, American money, for the building of the railroad as changed and reported this to the defendants; that the law of Mexico required that the applicant for a concession to construct a railroad should, after the concession was granted and accepted, make a deposit in. the general treasury, and that the amount so required to be deposited by the plaintiff on account of said concession was $100,000, and that this was known to the plaintiff and to the defendants; that the plaintiff and the defendants knew that the Southern Pacific Railroad Company was desirous of obtaining a similar, concession from the Mexican government and that one hi angle was representing it and, in effect, that it was necessary for the plaintiff to make said deposit of $100,000, in order to prevent the granting of the concession or of a similar concession to the Southern Pacific Company; that at a meeting of the board of directors of the plaintiff on the 21st day of June, 1905, the defendant Loree introduced a resolution to advise the Mexican government that the plaintiff' deemed it inadvisable to engage in the construction of the railroad unless, as originally proposed by the plaintiff, a concession be granted by the Mexican government giving the plaintiff two years within which to make surveys and investigations over the entire route before accepting the same, on condition that the data thus acquired become the property of the Mexican government, and that Warfield moved as an amendment that .the company put up and risk the deposit on the concession- if the government of Mexico required it, and that the amendment was rejected and the original resolution was adopted; that the plaintiff then had “or could have obtained the money required to make the' deposit required by the laws of Mexico and the terms of the concession, and was able to perform and comply with all the terms and conditions of said concession.” It is further alleged on information and belief that the defendants “controlled the directors,” other than Warfield, who Were present at said meeting of the board of directors, and induced the directors to vote in favor of the resolution offered by the defendant Loi’ee; that the defendants and each of them knew that the adoption of said resolution would prevent the plaintiff from obtaining the concession and deprive it of said subsidy, and that thereafter the Mexican government was advised of the action thus taken and that thereupon it entered into negotiations with the representative of the Southern Pacific Company and granted a similar concession to that road, except that the amount of the subsidy was $15,000,000, Mexican money. It is then further alleged upon information and belief “ that the defendants and each of them negligently and fraudulently and in violation of their duties and the duty of each of them as a director and officer of the plaintiff, and in furtherance of a conspiracy to defraud the plaintiff and to deprive it of valuable property and valuable property rights did and committed each and every of the acts ” set forth in the complaint as resulting in the damages for which a recovery is sought, and that said negligent and fraudulent acts on the part of the defendants were done and committed for the purpose and with the intention of depriving the plaintiff of valuable property and of valuable property rights,” and that by reason thereof the plaintiff was prevented from obtaining the concession and the subsidy, and the expenses incurred by it in the premises were wholly lost.

It is quite plain that no cause of action against appellant is alleged in the complaint. It contains no allegation tending to show the' financial status of the plaintiff at the time, whether it was able to accept the concession and construct the railroad, or whether the enterprise would have been profitable or otherwise advantageous to the plaintiff. The only allegations upon which it can even be claimed that the abandonment of the enterprise was unwise are those with respect to the subsidy to be obtained from the Mexican government. It is not to be inferred, however, that the plaintiff was to obtain a subsidy of $6,000,000 on depositing $100,000 without further responsibility. It is manifest that' by accepting the concession it would be required to construct and operate the railroad as a condition of obtaining the subsidy. The allegations that the action of the appellant in voting for the resolution to abandon the enterprise was negligent and fraudulent and in furtherance of a conspiracy to deprive the plaintiff of the subsidy, are not allegations of facts tending to show a violation by the appellant of his duty to the plaintiff as a director and member of the executive committee, and are wholly inadequate upon which to predicate a liability on the part of the appellant to account to the corporation for a breach of his duty as a director. (People v. Equitable Life Assurance Society, 124 App. Div. 714, 732; Wood v. Amory, 105 N. Y. 278; Pagnillo v. Mack Paving & Construction Co., 142 App. Div. 491; Knowles v. City of New York, 176 N. Y. 430.)

It follows that the order should he reversed, with ten dollars costs and disbursements, and the motion granted, with ten dollars costs:

Ingraham, P. J., Clarke, Scott and Miller, JJ., concurred.

Order reversed, with ten dollars costs and disbursements, and motion granted, with ten dollars costs.