#### Charles D. Haines, Suing on his Own Behalf, etc., Plaintiff, *v.*The Kinderhook *&*Hudson Railway Co., et al., Defendants.

(Supreme Court, New York Special Term,

June, 1898.)

Corporations — Permanent reorganization committee — Powers of members after a sale of their interests — Distribution of stock held by a committee in trust.

In an action by a bondholder designed to compel the present distribution of 60 per cent, of the stock of a reorganized railway company, • it appeared that thé stock was held and was to be held, under a bondholders’ agreement and plan of reorganization, by a committee until such time, not exceeding five years from the date of the sale of the property, “ as the condition of the road shall, in them judgment, warrant the distribution thereof among the bondholders.” The plan further provided that the nine members of the committee should constitute the first board of directors and that, after the reorganization of the board, the directors should *ex officio*form the committee. Two of the committee died and five disposed of all their *606stock and bonds in the reorganized company. Up,on a motion for an injunction, pending the action, to restrain the five members from acting and also from voting on the stock for a new board of directors, Held, that the seven living members possessed' conjointly the powers given to the committee by the plan, although five of them might, have disqualified themselves from becoming directors'; that, as trustees, all the seven members should vote upon the stock, that the two members who had not sold their interests, should be restrained from exercising the power of voting, to the exclusion of the others; and that the board thus elected would, as the reorganized board, become, by force of the agreement, *ex officio*the reorganization committee, with power, of self perpetuation, *Semble,*that the present prosperity of the road afforded no valid reason for taking the road out of the hands of the committee amj immediately distributing the stock.

Ap'plxgation for injunction.-

John Delahunty, for motion.

Countryman, Du Bois *&*Bevans, opposed.

Daly, J.

Plaintiff asks for an injunction restraining the individual defendants, during the pendency of the action, from acting any longer as a “Reorganization Committee” and voting .as such upon 60 per cent, of the stock of the Kinderhook .& Hudson Railway Co., under a certain bondholders’ agreement and plan of reorganization, to which plaintiff and other bondholders of the former Kinder-hook & Hudson Railway Company were parties. Under the plan of " reoi'ganization and distribution of stock and bonds of the new corporation, the reorganization committee and their successors were to hold 60 per cent, of the stock, with power to vote thereon “ until such time, not to exceed five years from the date of the sale - of the > ' property, as the condition of the road shall, in their judgment, warrant the distribution thereof among the' bondholders; ” and'the plan further provided that “ the nine members of the reorganization committee shall constitute the first board of directors of the company, 'and after the reorganization of the said board.the directors shall' *ex officio*form the said committee.” Two of the said nine members have died and five of those remaining have disposed of all " their stock and bonds 'of the new company. It is the contention of " the plaintiff that those five parties are disqualified to act as directors *607and consequently as committeemen, ;and have therefore no right to vote upon the said stock for a new hoard of directors. The question turns upon the construction to he placed upon the clause of the plan of reorganization last quoted, which provides that the members of the reorganization committee shall constitute the first board of directors of the company, and after the reorganization of the said board the directors shall *ex officio*form the said committee. Until the. board is reorganized the original members of the committee continue to get as such and (to exercise the power of voting upon the 60 per cent, of stock. What is the reorganization of the board contemplated by the agreement? The “said board” refers to the board of the new corporation constituted of the nine members of the committee. So far that original board has not been changed or reorganized in any way,, nor is it easy to see how it can be, except by the election of a new board. It may be that such of the original committee as have parted with their stock have no right to act as directors, but that does not affect their right to act as committeemen, so long as they remain comndtteemen, and this, it would seem, they continue to do until the board of directors is reorganized by an election of a new hoard. There may be vacancies in the board, therefore, but not in the committee. The committee was the original trustee of the power of control, and is still in existence save as to the two members who have died, but as it is empowered to fill vacancies in its own body and to act by a vote of the majority, it is still competent to fulfill its duties. Under this view it would seem to be the duty of all the individual defendants, to vote npon the trust stock, and the claim made by two of them in their separate answer, that Hosford and Stott alone now constitute the reorganization committee, because they retain their stock in the company, is not 'well founded; and an injunction should issue restraining them, as a minority of the committee, from exercising the exclusive right of voting the 60 per cent, of stock held in trust by said committee. It follows that in the seven individual defendants resides the sole power to elect the new board of directors. Their choice is confined, of course, to persons duly qualified. The latter will become, as the reorganized board under the agreement, *ex officio*the reorganizátion committee with power of self-perpetuation, subject to the limitations imposed in the agreement. That is precisely what was contemplated by the agreement,'and the majority stockholders cannot now complain as long as the defendants act in good faith'. The object of the agreement was to take the control of the new corpora*608tion out of the hands of the majority, and to place it in the hands of a designated committee with virtual power of self-perpetuation until the expiration of the limit 'of five years. In short, the purpose of the agreement to which the plaintiff originally assented was to prevent the very thing which he now seeks to accomplish. The discretion .vested in the committee by the agreement cannot be interfered with upon an allegation that they contemplate acting in the interest of the minority stockholders, without clear proof. that such interests are plainly inimical to the interest of the corporation.' The ultimate object of this action is to compel the immediate distribution of the 60 per cent, of trust stock. That is to be done when, in the judgment of the committee, the condition, of the road shall warrant it. The present prosperity of the 'road is no valid reason for taking that discretion out of the control of the,-committee, but rather the contrary. The members 'of the committee seem to have been originally trusted as individuals, .irrespective of their' financial interest in the old or new company, for the bondholders’ agreement, which was the foundation of the reorganization, aufhor- ■ izes their -adquiriñg >an interest in the property or in any syndicate formed for effecting a reorganization. This implies that they were not stockholders or bondholders when originally selected as trustees, and is adverse to the contention that they become disqualified to act when they cease to be stockholders. The injunction as against the defendants, other than Hosford and Stott, is dissolved. The two defendants named are enjoined from voting otherwise than with all the other individual defendants as a committee upon the 60 per cent, of stock in question. The motion to continue the 'injunction is otherwise denied. Ten dollars costs of motion to plaintiff against the defendants’ answering.

Ordered accordingly.