Case Name: Saul Geltman et al., Individually and as Administrators C. T. A. of the Estate of Joseph Geltman, Deceased, Respondents-Appellants, v. Travis S. Levy et al., Appellants-Respondents
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1960-11-17
Citations: 11 A.D.2d 411
Docket Number: 
Parties: Saul Geltman et al., Individually and as Administrators C. T. A. of the Estate of Joseph Geltman, Deceased, Respondents-Appellants, v. Travis S. Levy et al., Appellants-Respondents.
Judges: 
Reporter: Appellate Division Reports
Volume: 11
Pages: 411–419

Head Matter:
Saul Geltman et al., Individually and as Administrators C. T. A. of the Estate of Joseph Geltman, Deceased, Respondents-Appellants, v. Travis S. Levy et al., Appellants-Respondents.
First Department,
November 17, 1960.
Henry B. Lamm for Travis S. Levy, appellant-respondent.
Simon Rosenzweig for Joan C. Levy, appellant-respondent.
Marvin S. Robinson of counsel (Abraham Tannenbaum and James Dubin with him on the brief; Jonick & Tannenbaum, attorneys), for respondents-appellants.

Opinion:
Per Curiam.
The plaintiff estate owned 100% of the stock of a corporation (subsequently liquidated) whose principal asset was an apartment building. One of the defendants is an attorney who represented the estate. In this action it is charged that the attorney defendant, in breach of his fiduciary obligations and through wrongful conduct, caused 25% of the stock of the corporation to be transferred to his wife and another 25% of such stock to his aunt. His wife is joined as a defendant but his aunt has not been made a party to the action. The attorney is also charged with the improper use of assets of the estate for his own benefit and with negligently handling one phase of the estate's affairs.
The complaint contains five causes of action. On a motion testing the sufficiency of such causes of action, Special Term sustained all but the second, holding that cause of action to be insufficient. This appeal reviews the disposition of Special Term.
The plaintiffs, in the first cause of action, charge that through '1 various manipulations" the defendant attorney caused the transfer to his wife, the other defendant, of a 25% interest in the estate-owned corporation at a grossly inadequate price. The corporation was subsequently liquidated and its assets distributed so that the defendant wife now holds a 25% interest in the real estate as a tenant in common. The plaintiffs seek to have the transaction declared fraudulent and void and ask for the retransfer to them of the 25% interest now held by the defend ants and also demand an accounting. This cause as pleaded is sufficient. The plaintiffs adequately allege improper conduct on the part of their attorney in a transaction which resulted in his gain to their detriment (Matter of People [Bond & Mtge. Guar. Co.], 303 N. Y. 423).
The first cause of action as pleaded is not of a derivative nature requiring the plaintiffs to sue in a representative capacity on behalf of the corporation. The plaintiffs plead that before the improper transfer of the stock they owned " 100% of the issued and outstanding shares of stock of the corporation ' '. That is to say, they had 100% control and were the sole owners of the corporation. As the result of the defendants' conduct, instead of owning 100% of the corporation, their holdings were reduced to a 75% interest with the ultimate result that their interest in the fee of the real property was reduced accordingly. Therefore, the damage was to them as individuals rather than to the corporation. It diluted their percentage of holdings and weakened their control. Through this first cause of action they seek to be restored to their original position. For that purpose they need not sue in the name of the corporation.
Even if this should properly have been a derivative suit the circumstances of this case would " warrant " the court in the " exercise of its- equitable powers" to "dispense with the presence of [the] defunct corporation " (Weinert v. Kinkel, 296 N. Y. 151, 152, 153). Here the corporation has been liquidated and the parties are tenants in common of the real estate in the same proportions as they held the stock. To relegate the plaintiffs to a stockholders' suit would, as said in the Weinert case (supra), be disregarding " the realities ". Just prior to the time of the transfer the plaintiffs owned 100% of the stock. They merely seek, in this first cause of action, to be put back in the same position that they would have been were it not for the alleged self-dealing of their attorney. Moreover, " [w]hile judgments in stockholders ' actions must ordinarily run in favor of the corporation, this rule is not inflexible " and " [w]here a stockholder is in reality the only one injured, he is entitled to a personal recovery of his proportion of the damages based on the percentage of his stockholdings. DiTomasso v. Loverro, 250 App. Div. 206 affd. 276 N. Y. 551 " (1 White, New York Corporations [12th ed.], pp. 921-922).
It is also said in White on New York Corporations (Vol. 1, ¶ 513.4) that " [a]lthough ordinarily the recovery in a stockholder's derivative action would be that of the corporation for whose benefit the suit was brought, the court in a proper case where special circumstances exist should adjust the decree to the realities of the situation and "prevent unnecessary circuity and hardship " (emphasis supplied). It would seem that to insist that these plaintiffs, who were the only ones injured by the wrongdoing of the defendants, obtain relief only by instituting a derivative suit in behalf of a now defunct corporation is to encourage circuity and to compel them to follow a meaningless legal procedure in complete disregard of the realities of the situation.
The first cause of action is sufficient and that portion of the order so holding should be affirmed.
We agree with Special Term that the second cause of action is insufficient. It is alleged that the attorney defendant, through fraudulent representations made to the plaintiffs, his clients, caused the transfer of an additional 25% of the corporate stock to his aunt. From the facts alleged, it is conceivable that a cause in equity could lie but the plaintiffs do not ask for such relief. As distinguished from the first cause of action, the relief here sought is money damages. The fault in this cause of action is that there is no showing how any of the plaintiffs were damaged. In this type of action for money damages there must be a clear allegation that by reason of the fraud the plaintiffs parted with something of greater value than that which they received. No such showing has been made. We deem it proper to grant leave to replead, even though the complaint under consideration is the second amended complaint. We do so because we hold this cause of action to be insufficient on a different ground than was heretofore relied on by the Special Term which passed on the first amended complaint and which the Special Term, whose order is here appealed from, felt constrained to follow.
The third cause of action in effect alleges that the defendant attorney, through his wife, taking advantage of the fiduciary relationship existing between him and the plaintiffs borrowed money from the estate for his personal use without the payment of interest. It is clearly sufficient.
The fourth cause of action charges the defendant attorney with using the offices and facilities of the estate for his law practice without paying for such use. While the plaintiffs allege that the use of the premises and facilities was ' ' with the consent and permission of the plaintiffs", they plead that such use, -without payment therefor, was at their expense. In view of the fact that one of the plaintiffs is an estate, it would seem that sufficient has been pleaded to require an answer.
The fifth cause of action seeks to recover for the negligence of the defendant attorney in failing to cause an application to be made in the Surrogate's Court to reduce the bond required of the administrators. It is alleged that the bond was in too large an amount and the estate suffered a loss resulting from the payment of premiums larger than would have been required had proper steps been taken to reduce the amount of the required bond. While it is true the administrators are primarily responsible for the administration of the estate, they had a right to look to the estate's attorney for advice and guidance. If it can be established that the failure to make application for reduction of the bond with the resultant damage was due to the negligence of the lawyer he might be held answerable. As pleaded, a good cause of action is made out.
Accordingly, the order appealed from should be modified, in the exercise of discretion, to the extent of granting leave to the plaintiffs to replead their second cause of action and, as so modified, affirmed, without costs.