Case Name: Anton Schmid, as Trustee in Bankruptcy of the Neuberger-Phillips Silk Company, Bankrupt, Plaintiff, v. Isaac Neuberger and Others, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1916-11-03
Citations: 174 A.D. 670
Docket Number: 
Parties: Anton Schmid, as Trustee in Bankruptcy of the Neuberger-Phillips Silk Company, Bankrupt, Plaintiff, v. Isaac Neuberger and Others, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 174
Pages: 670–674

Head Matter:
Anton Schmid, as Trustee in Bankruptcy of the Neuberger-Phillips Silk Company, Bankrupt, Plaintiff, v. Isaac Neuberger and Others, Defendants.
First Department,
November 3, 1916.
Corporations — suit by trustee in bankruptcy to compel accounting by officers and directors—evidence — when directors not individually liable.
In a suit by the trustee in bankruptcy of a corporation against its officers and directors to compel them to account for them official conduct, including any neglect or failure to perform them duties in the management of the funds and property committed to them care, and to recover from them any money and the value of any property which they had acquired to themselves or transferred to others or lost or wasted by any neglect or failure to perform their duties, or by any violation of their duties, one of the defendants only was sought to be held liable for the losses claimed to have been sustained by the corporation.
Held, on all the evidence, that said defendant was only liable for moneys received by her on a certain note, and that exceptions to other findings charging her with liability for additional losses suffered by the corporation must be sustained.
The mere fact that a corporation has lost money does not subject the directors to individual liability therefor.
Motion by the defendants, Isaac Neuberger and others, for a new trial upon a case containing exceptions, ordered to be heard at the Appellate Division in the first instance upon the rendition of an interlocutory judgment in plaintiff’s favor upon the decision of the court after a trial at the New York Special Term in April, 1914.
Edmonds Putney [Louis H. Hall with him on the brief], for the plaintiff.
Maurice B. Blumenthal and Daniel W. Blumenthal, for the defendants Neuberger.

Opinion:
Dowling, J.:
This action was commenced by plaintiff, as trustee in bankruptcy of the Neuberger-Phillips Silk Company, a corporation, against the defendants, as officers and directors thereof, to compel them to account for their official conduct, including any neglect or failure to perform their duties in the management of the funds and property committed to their care, and to recover from them any money and the value of any property which they had acquired to themselves or transferred to others, or lost or wasted by any neglect or failure to perform their duties, or by other violation of their duties. Defendant Phillips has never been served with the summons or complaint herein; defendant Isaac Neuberger is stated to have died since the trial of the action and as to him the action has abated and has not been revived. Defendant Belle Neuberger alone is sought to be held liable for the losses claimed to have been sustained by the corporation. By the interlocutory judgment Belle Neuberger and her husband, Isaac Neuberger, were ordered to account for their official conduct, including any neglect or failure to perform their duties in the management of the business of the corporation and its- funds and property committed to their care; to account for $5,000 and interest received by Belle Neuberger upon a $17,000 note given by the corporation to her; to account for $6,283.59 obtained by Isaac Neuberger from L. P. Dommerich & Co.; to account for $1,700 paid by the corporation to Leo Neuberger; for $800 paid to Lester Neuberger, and for $2,257.85 paid to Sigmund Lowenstein; to account for salary paid to Isaac Neuberger and for the losses sustained by the corporation during the year from March 31, 1909, to the filing of the petition in bankruptcy, amounting to $227,233.47, and to account for any and all other sums lost, wasted, squandered, diverted or misappropriated by said defendants. It was further adjudged "that the plaintiff recover from the defendants Isaac Neuberger and Belle Neuberger, individually and severally, the amount of the moneys of the Neuberger-Phillips Silk Co. lost, wasted, squandered, misappropriated and diverted." By the interlocutory judgment a referee was appointed " to take and state said account, and to report to this Court the amount for which said defendants and each of them are liable to the plaintiff." Defendant Belle Neuberger has filed exceptions to the decision herein which raise the question of the findings of fact being contrary to and against the weight of evidence, as well as being without evidence to support them. While this record discloses a change in the condition of the corporation in a single year which is entirely unexplained— an apparent surplus of $110,000 having been changed in that time to an apparent deficit of $115,000 — there is not a single fact proven justifying the inference that Belle Neuberger participated in the depletion of the company's treasury, contributed to its bankruptcy, caused any of its loss or shared in any sums diverted from their proper owner. The only money actually received by her from the corporation was the amount of $5,000, with interest, paid on account of the company's note herein in the sum of $17,000. The trial court has found that the corporation never received any consideration from her for the note and never carried it on its books as a liability. There is a conflict of' evidence as to the consideration for the note, but it is fairly established by the preponderance of the evidence that the note was given as part of the scheme by which the Mutch Mill, owned by Belle Neuberger, was turned over to the company at an exaggerated value and with her contribution of cash (which seems to have been $17,000) was used as the basis for the issue of alleged full paid stock to her and her associates, while she was sought to be protected from loss on her cash invested by being given this note representing her actual cash outlay. As this money was paid in by her for her stock, there was no consideration which passed to the company for the note given to her and she could not thus receive back from the company the purchase price of her stock. The exceptions to the eighth finding of fact are, therefore, overruled. In so far as the judgment held Belle Neuberger liable for the $5,000 and interest received by her from the company on account of this note, it is proper. But the other findings of fact which charge Belle Neuberger with liability for the losses sustained by the company are without evidence to support them and the exceptions taken thereto must be sustained. Belle Neuberger was a director in the company and attended the annual meetings of. its board of directors,' which apparently were the only ones held; she held no other office "in the corporation. There is not a single fact proven to show that she was guilty of any misfeasance, malfeasance' or negligence as a director; or that she contributed to the eorpo ration's losses or financial difficulties in any way, either by action or failure to act; or that she took part in any action causing damage to it; or that she shared in any moneys improperly received from it, save the payment on account of her note before referred to. Apart from that $5,000 payment (which she may have honestly believed she was entitled to receive), not a single act or omission of hers is shown which should subject her to liability. It is not proven that the board of directors of the company was responsible for its failure, and certainly there is no proof that Belle Neuberger was in any way responsible therefor. The mere fact that a corporation has lost money does not subject the directors to individual liability therefor, yet the record discloses no further reason for Belle Neuberger being called upon to respond for the corporation's losses. The exceptions to the decision are sustained to the following extent as to the findings of fact: To so much of finding marked X as finds "that the service performed by the said Isaac Neuberger was not commensurate with so large a salary, nor were the earnings of the company sufficient to afford the same; " to so such of the finding marked XI as finds " That no reason or explanation for these payments appears on the book and records of the company or has been given by the defendants, and that there was no consideration received therefor by the corporation; " to so much of the finding marked XII as finds " That the loss of $227,233.47 sustained by the Xeu-Iberger-Phillips Silk Co. during the period from March 31st, 1909, to April 1st, 1910, was due to the reckless, willful and fraudulent mismanagement of the property and business of the said corporation on the part of the defendants; " to so much of the finding marked XIII as finds " and that it was fraudulent on the part of defendants to procure or permit the corporation to procure said amount of new goods on credit during the year from March 31, 1909, to April 1, 1910, whether the defendants knew the company's financial condition or kept themselves in ignorance thereof by refraining from giving any attention whatever to its affairs; " and to the finding marked XV; all on the ground that said findings are without evidence to support them. The exceptions are also sustained to the con elusions of law marked I, III, IV, V and VI, and to all of the conclusion marked II, except so much thereof as holds defendants liable for the payment to Belle Neuberger of the sum of $5,000, with interest, on account of her $17,000 note, beginning with the word "that" at the opening of the sentence and concluding with the words "to her." The exceptions having been sustained to the extent indicated, a new trial will be granted as to the defendant Belle Neuberger, with costs to her against the plaintiff to abide the event.
Olarke, P. J., McLaughlin, Scott and Smith, JJ., concurred.
Exceptions sustained, new trial ordered as to defendant Belle Neuberger, with costs to her against the plaintiff to abide the event. Order to be settled on notice.