Case ID: misc_96/html/0501-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Giegerich, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Robert S. Dillon and Wilson Post, Plaintiffs, v. Pan-American Theatrical Company and Others, Defendants.
    (Supreme Court, New York Special Term,
    August, 1916.)
    Actions — who may maintain — stockholders — contracts — corporations — when demand essential.
    Where after a theatrical company had agreed with the Argentine Republic to produce in the United States certain moving picture films the officers of the company conspired to use them for their own benefit, the right of action against them, if any, belongs to the company, and in order to enable the stockholders to maintain a suit in their own name it is essential to show that they made demand on the board of directors that suit be brought" by the company and that the board refused so to do, or unreasonably neglected to proceed, unless it is shown that the directors were hostile to the stockholders or were in some way concerned in the transaction complained of so as to render a demand useless.
    Where an action brought by stockholders owning more than a majority of the capital stock of the company against its officers for an accounting, etc., was tried upon the theory that there were five directors, and the testimony shows that plaintiff was a director and treasurer of the company, it may not be assumed, from the fact that no demand was made upon one of the defendants, who testified that he never was a director, that an action be brought by the company, that the board of directors consisted of four members, especially as it appears that there were stockholders other than plaintiff, and the other two defendants.
    Where the complaint did not allege that the other two defendánts dominated and controlled a majority of the board of directors in their alleged scheme to appropriate the films, it could not be presumed, in the absence of proof, that the fifth director was hostile to the contention of plaintiff.
    The fifth director not having been charged with having participated in the scheme of the other defendants it could not be fairly assumed that he didparticipate, so that plaintiff’s demand on the board of directors that the corporation bring suit would have been useless."
    Action by two stockholders of the Pan-American Theatrical Company against that company and certain of its officers, and other defendants, for an accounting, for the appointment of a receiver of the company and for an injunction. •
    Henry M. V. Connelly, for the plaintiffs.
    Steele & Otis (William H. Ford, of counsel), for the defendants."
   Giegerich, J.

The action is brought by two stockholders of the Pan-American Theatrical Company against that company and certain of its officers and other defendants for an accounting, for the appointment of a receiver of the company and for an injunction. The complaint, among other things, alleges that the defendant Chandler, on behalf of the said company, entered into an agreement with the Argentine Republic whereby that government agreed to pay to the company $3,000, and the company agreed to produce in the United States certain moving picture films, showing various views of the Argentine country; that .six certain reels of moving picture films were delivered to the defendant Chandler on behalf of the company pursuant to the agreement; that the defendants Chandler, Mason and Sanders conspired to use the films for their own benefit in fraud of the company’s rights, and have entered into a contract with the defendant All Americas Theatrical Company to produce said pictures; that prior to the commencement of the action the plaintiffs demanded of the defendants Pan-American Theátrical Company, Carlisle Mason, as president, and Ray Chandler, as vice-president thereof, that action be brought on behalf of said company to protect its rights and interests and-title to the said six reels of moving picture films, and that the said demand has been refused. The answer of the defendants denies the allegations of the complaint, except the formal allegations of the incorporation of the Pan-American Theatrical Company and the All Americas Theatrical Company. When the proofs were all in the defendants renewed their motion to dismiss the complaint upon the ground, among others, that there was no evidence that a demand was made upon the Pan-American Theatrical Company to bring the action itself and that it refused or neglected to do so. Decision was reserved and such point is now urged with great earnestness by the defendants. In this case the right of action, if any, belongs to the Pan-American Theatrical Company, and, in order to enable the plaintiff stockholders to sue in their own names, it is essential for them to show that they demanded of its board of directors that suit be brought by that company to obtain the relief they deem themselves entitled to and that such board refused to bring such suit or unreasonably neglected to proceed with it, unless it is shown that the directors were hostile to plaintiffs’ contention or were in some way concerned in the transaction complained of so as to render a demand useless. Dudley v. Armenia Ins. Co., 115 App. Div. 380; Continental Securities Co. v. Belmont, 206 N. Y. 7. The plaintiffs, as I gather from the brief of their counsel, claim that their case comes within the exception to the rule above stated. The evidence, however, fails to sustain such contention. The record is barren of any proof as to the number of persons who constituted the board of directors of the said defendant Pan-American Theatrical Company during the period in suit. The case, however, was tried upon the theory that there were five directors, and according to the defendants’ main brief such was the fact. The testimony shows that the plaintiff Dillon was a director and the treasurer of the company, that the plaintiff Post was its secretary and a director, the defendant Mason was the president and a director, the defendant Chandler the vice-president and a director and the defendant Sanders the general manager. The evidence further shows that the plaintiffs own or control in the aggregate more than a majority of the capital stock of the corporation. Although it was assumed by the plaintiffs’ counsel in framing questions put to certain witnesses that the defendant Sanders was a director of the company, he testified that he never was a director. This was not contradicted, and the fact that no demand upon Sanders that an action he brought by the company is alleged in the complaint indicates that he was not a director. But it cannot fairly be assumed from this that the board consisted of the unusual number of four members, especially as it appears from the evidence that there were other stockholders than the plaintiffs and the defendants Mason and Chandler. It is claimed in the defendants’ reply brief that one of such other stockholders was the fifth director. As Sanders was riot a director and the number of directors must be taken to be five, it is plain that the action cannot be sustained upon the theory that a demand upon the board of directors to bring suit would have been an idle ceremony, because, with Sanders eliminated as a director, only two of the five directors remain charged with the alleged scheme of the defendants Mason and Chandler to appropriate to their own use property claimed to belong to the company. It is not alleged in the complaint nor was any evidence offered which in any way tended to show that the defendants Mason and Chandler dominated and controlled a majority of the board of directors in their alleged scheme to appropriate the films in question; and in the absence of such proof it cannot be presumed that the fifth director was hostile to the plaintiff’s contention. Since neither hostility nor participation in the alleged unlawful scheme of the defendants Mason and Chandler by the fifth director has been shown, the plaintiffs’ case does not come within that class of cases where it has been held that a demand upon the corporation to bring suit was unnecessary, because under the circumstances it would be useless. As to a demand upon the corporation to bring suit, even if it were held that it could be made upon two of the directors charged with wrongdoing, the evidence is insufficient to warrant a finding that such a demand was made. Moreover, the defendants Mason and Chandler, as well as the defendant Sanders, deny that such a demand was made. It must be borne in mind that the governing body of corporations in this state is the board of directors. Continental Securities Co. v. Belmont, supra, 19. For aught that appears, the fifth director might have voted in favor of a proposition that the corporation itself bring the action to enforce the plaintiffs’ alleged right had he been requested to do so. The record, as already shown, does not disclose that he was controlled by the defendants Mason and Chandler, or either of them. It cannot be fairly assumed that he was, in view of the fact that the said defendants’ combined holdings of stock did not equal that owned or controlled by the plaintiffs, and hence those directors were minority stockholders, and the further fact that such fifth director is not charged with having participated in the scheme of the defendants above mentioned. In either aspect, whether for the purpose of a demand of the company to bring suit or an excuse for not making it, there is then a complete failure of proof of essential prerequisites to the plaintiffs’ right to maintain this action. The complaint should therefore be dismissed, with costs, but without prejudice to the plaintiffs ’ right to bring a new action based upon sufficient facts appropriately alleged.

Ordered accordingly.