Case Name: Philipp Ottmann, Respondent, v. Blaugas Company of Cuba and Others, Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1916-02-11
Citations: 171 A.D. 197
Docket Number: 
Parties: Philipp Ottmann, Respondent, v. Blaugas Company of Cuba and Others, Appellants.
Judges: 
Reporter: Appellate Division Reports
Volume: 171
Pages: 197–204

Head Matter:
Philipp Ottmann, Respondent, v. Blaugas Company of Cuba and Others, Appellants.
First Department,
February 11, 1916.
Corporation—fraudulent sale of stock by executive committee appointed by directors —when directors not participating in fraud not liable.
Where directors of a corporation delegated their powers to an executive committee consisting of certain of the directors, and the committee issued a prospectus containing false statements, and the plaintiff purchased stock in reliance thereon, he cannot hold liable the directors who were not members of the committee, if he does not show that they had knowledge of or participated in preparing the false statement.
The bare fact that the defendants were codirectors does not establish an agency between them.
Page and Dowling, JJ., dissented in part, with opinion.
Appeal by the defendants, Blaugas Company of Cuba and others, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 19th day of May, 1915, upon the decision of the court after a trial at the New York Special Term.
Charles E. Travis, for the appellants Blaugas Company and others.
Clarence De Witt Rogers, for the appellants Cushman and • others.
George J. Kilgen, for the appellant Strauss.
L. Barton Case, for the appellants Grimes and Dunn.
H. Schieffelin Bayers, for the respondent.

Opinion:
Scott, J.:
In my opinion the evidence failed to establish liability on the part of these directors who were not members of the executive committee and who are not shown to have had any knowledge of or any hand in preparing the so-called booklet containing the false statements which constitute the basis of this action. They were not members of a syndicate of promoters seeking to sell stock for their individual benefit as were the defendants in Downey v. Finucane (205 N. Y. 251) and Lehman-Charley v. Bartlett (202 id. 524), but simply directors of a corporation which employed an agent to sell stock for the benefit of the corporation. What interest such directors had in the corporation or to what extent they would be benefited by its successful flotation does not appear. As to these directors the rule is applicable which is clearly stated in Arthur v. Griswold (55 N. Y. 400) and Rives v. Bartlett (215 id. 33), and recognized in Downey v. Finucane (supra).
In Rives v. Bartlett this court (156 App. Div. 552) applied the Finucane case to a state of facts which upon the record much resembled the facts shown by the present record. The Court of Appeals said: "The doctrine of the Finucane case has no application to the facts of this case. In that case the defendants were held liable for the acts of Fenn, not on the ground that he was a co-director, but because they had constituted him an agent of a syndicate organized for their personal profit, and because he acted as agent of the syndicate and not as agent of the corporation. In this case there is nothing upon which to base a claim that Bartlett was the agent of the appellants except the bare fact that he was a co-director, and that is not sufficient. "
In my opinion this exactly expresses the position of the defendants who were directors of the company but not members of the executive committee, and, therefore, as to these defendants the judgment should be reversed, with costs, and the complaint dismissed, with costs, and in other respects modified in accordance with the opinion of Mr. Justice Page, and, as so modified, affirmed, with costs against the remaining defendants.
Clarke, P. J., and Smith, J., concurred; Page and Dowling, JJ., dissented.