Court Opinion

ID: 5482574
Source: CourtListenerOpinion
Date Created: 2022-01-10 01:59:22.20333+00
Date Added: 2024-06-11T08:33:38.313404
License: Public Domain

Fuld, J.
(dissenting). I.cannot agree that the lone circumstance that petitioner’s legal expenses were incurred in defending a criminal, rather than a civil, antitrust proceeding removes his claim from the compass of section 64 of the General Corporation Law. Both the language and the design of that statute point the conclusion — apparently adopted by all the judges who passed upon the case below •— that that factor does not, in and of itself, constitute a bar to reimbursement.
Nor do I believe that such recompense is proscribed on the further ground — not considered by the court (opinion of Desmond, J., pp. 403-404) —that the judgment entered upon petitioner’s plea of nolo contendere constitutes, in the language of section 64, an adjudication that he is “ liable for negligence or misconduct in the performance of his duties ” as an official of the corporation. Especially so, where, as here, petitioner was made a party defendant to the antitrust suit in his ‘ ‘ capacity ’ ’ as officer and director of a corporate defendant, with which he had not the slightest connection until some six years after the allegedly illegal agreement was concluded and the unlawful conspiracy begun.
Section 64 of the General Corporation Law, upon which decision depends, reads as follows:
“ Any person made a party to any action, suit or proceeding by reason of the fact that he * * * is or was a director, officer or employee of a corporation shall be entitled to have his reasonable expenses, including attorneys’ fees, actually and necessarily incurred by him in connection with the defense of such action, suit or proceeding ® * * assessed against the corporation * * ° except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such officer, director or employee is liable for negligence or misconduct in the performance of his duties.” (Emphasis supplied.)
That provision is bare of any limitation restricting its scope or application to civil eases. In point of fact, the legislature adopted language as broad and as all-inclusive as was possible. The statute encompasses “ any action, suit or proceeding ”, and, in so many words, entitles any person made a party to reimbursement for attorneys’ fees incurred in connection with *408the defense ‘ ‘ of such action, suit or proceeding. ’ ’ Lacking is any intimation, much less any verbiage, that such reimbursement was to be restricted to a particular kind of an action. And my conclusion that the statute means what it says — that the phrase “ any action, suit or proceeding ” is not limited to civil proceedings — is borne out by its history.
Before 1945, when Article 6-A, with its section 64, was added to the General Corporation Law, section 27-a empowered a corporation to provide in its certificate of incorporation or its by-laws that each director should be indemnified against expenses incurred in connection with the defense of “ any action, suit or proceeding ” in which he was made a party by reason of his having been a director. Section 61-a, though broader in its coverage (applying to officers as well as directors) was expressly limited to “ any action, suit or proceeding ” against such officers or directors “ brought by the corporation, or brought in its behalf ”. Here, then, was language to be used if the legislature desired to provide reimbursement only in a limited type of case. No such verbiage — indeed, no limiting language whatsoever — was employed when the legislature enacted section 64. Instead, as already indicated, it provided that reimbursement could be had by any person made a party ‘ ‘ to any action, suit or proceeding ” by reason of his being a corporate officer or director. In other words, while, before 1945, only expenses in actions “ brought by the corporation, or brought in its behalf ”, were mandatorily reimbursable, new section 64, in sharp contrast, called for reimbursement in 11 any action, suit or proceeding ”. Rejection of the narrow language of former section 61-a, and adoption in its place of the exceedingly broad phrasing of section 64, bespeaks a design completely at odds with the restriction now imposed by the court.
Indeed, the Law Revision Commission, the very body responsible for the enactment of Article 6-A, suggested a special proceeding for collecting fees expended in defending a “ criminal ” antitrust suit (1945 Report of N. Y. Law Revision Commission [N. Y. Legis. Doc., 1945, No. 65], at p. 161, fn. 36). Thus, in the study submitted by the commission to the legislature, there is a discussion of the ‘ ‘ type of action covered ’ ’ by the proposed article. After calling attention to the broad language of old *409section 27-a, to lie imported into new sections 63 and 64, the writer expressly declared that such phrasing
“ might cover certain types of actions [fn. 36, E.g., a criminal proceeding against the corporation and its officers or directors for violation of the anti-trust laws] in which the court, lacking powers of a court of equity, would not he in a position to pass upon the right to indemnity or to make allowances. ’ ’
This contingency, the study continued, “ can he avoided ” by providing for ‘1 the maintenance of a special proceeding against the corporation for the sole purpose of determining these questions ” (1945 Report of N. T. Law Revision Commission, op. cil., p. 161.) Adopting that proposal, the legislature made provision in subdivision (b) of section 65 for the suggested special “separate proceeding.” This, I suggest, was the clearest indication possible that Article 6-A was meant .to entitle officers and directors to reimbursement for expenses incurred in defending a criminal antitrust proceeding.
To the point, made in Judge Desmond’s opinion (p. 402), that it would be a “ strange public policy ” to set up legal machinery by which a person, charged with a crime, “ could require the corporation by whom he was employed to pay his legal expenses ”, several answers are at hand. There is nothing either “ strange ” or against “ public policy ” in reimbursing a corporate official for the expenses of defending an action brought against him solely because of his acts on behalf of the corporation which he, in good faith, believed would further its best interests. The legislature, having in mind the realities of business life, may well have concluded that the risk of an official’s indictment under the antitrust laws is no more than a normal hazard of corporate operation, a risk of doing business to be borne by the company which, in all probability, profited from his activities. In point of fact, as Justice Carswell himself notes in his concurring opinion (p. 405), a corporation would be “ free ”, under the procedure embodied in section 63, to indemnify an officer or director against reasonable expenses incurred by him in defending “not only civil but criminal actions.” And, even apart from section 63, it has been held that a corporation is empowered to pay attorneys’ fees and other legal expenses incurred by a director in defending a criminal *410antitrust suit, even though he was actually convicted. (See Simon v. Socony-Vacuum Oil Co., 267 App. Div. 890, affg. 179 Misc. 202, 203-206.) Since, then, there is court sanction for reimbursing a corporate official for expenses incurred in defending a criminal antitrust proceeding, it is difficult to perceive any basis for declaring that section 64, if construed to effect that very same result by a somewhat different procedure, would offend against public policy.
And what of the official or director who, following indictment and trial, is actually acquitted? Certainly, no reason of policy may be advanced for denying him reimbursement for attorneys’ fees in defending the suit. His only fault was that he was an official of a corporation whom the government chose to indict for a violation of the antitrust laws. Nevertheless, according to the court, even such an official — his complete innocence established and the indictment against him dismissed — would be barred from obtaining reimbursement under section 64. Mere statement of such a consequence compels rejection of the underlying rationale.
The basic flaw in the majority’s reasoning, it seems to me, stems from a faulty assumption of an essential difference between the criminal and the civil in the area of antitrust regulation. As a general rule, it is of course true, a criminal proceeding is aimed at redressing a wrong to the public, while a civil suit brought by a private citizen seeks to vindicate only a personal right. Moreover, the difference between the two usually reflects a corresponding difference in the degree of dereliction charged or the importance of the duty violated. In the area of antitrust or, for that matter, of most economic regulation, however, both civil and criminal proceedings involve assertion of a public right and protection of a social interest. As a result, there appears little justification for sanctioning reimbursement of expenses in a civil antitrust case and refusing like recovery following a criminal antitrust proceeding — particularly since the choice of procedure under the statute is left completely with the Attorney General (see U. S. Code, tit. 15, §§ 1,4, 24) and there is no suggestion that exercise of his discretion is to be governed by the enormity of the violation charged. Under those circumstances, the right to recovery of expenses should *411not, I venture, depend on the happenstance of whether the asserted antitrust violation is attacked by criminal indictment or civil complaint.
In either case, it appears clear that the legislature intended that an officer or director should recover his reasonable defense expenses under section 64. The fact undoubtedly is, as Judge Desmond states (opinion, pp. 402-403), that abuses attending the prosecution of stockholders’ derivative suits prompted enactment of Article 6-A. However, a statute’s reach is not to be measured solely by the evil that occasioned its birth. (See, e.g., Fasulo v. United States, 272 U. S. 620, 627; see, also, Crawford, Statutory Construction [1940], pp. 247-248.) And, as I have tried to show, both the language chosen and the procedures adopted in Article 6-A manifest the design that reasonable expenses incurred in defending an antitrust suit are recoverable — provided, of course, that the petitioning officer or director has not been “ adjudged * liable for negligence or misconduct in the performance of his duties.”
The judgment entered upon petitioner’s plea of nolo contendere does not, in my view, adjudge him so liable. Far from being an acknowledgment of guilt or an admission of misconduct, that plea “ is in the nature of a compromise between the Government and the defendants ’ ’, a device, so to speak, by which the proceeding may be settled with the approval of the court. (Twin Ports Oil Co. v. Pure Oil Co., 26 F. Supp. 366, 372; see, also, State v. La Rose, 71 N. H. 435.) And the New Hampshire Supreme Court has written, “ Under the plea of nolo, the defendant does not confess or acknowledge the charge against him as upon a plea of guilty * * ®. The plea is in the nature of a compromise between the state and the defendant — a matter not of right, but of favor. Various reasons may exist Avhy a defendant conscious of innocence may be willing to forego his right to make defence if he can be permitted to do so Avithout acknowledging his guilt.” (State v. La Rose, supra, 71 N. H. 435, 438-439.) Indeed, in People v. Daiboch, 265 N. Y. 125, we actually recognized that a plea of nola contendere or, more precisely, its equivalent, a plea of non vult, does not constitute a concession of any fact set out in the indictment. Although the court there held that it *412is a conviction of a crime, under section 1941 of the Penal Law, for purposes of second offender treatment, the opinion explicitly and carefully pointed out that that plea “ cannot be used or taken as an admission of the facts alleged in the indictment ” (265 N. Y., at p. 129); While the judgment entered upon nolo contendere may, therefore, be regarded as a conviction under certain statutes applying to multiple offenses, such a judgment has never been considered an adjudication of guilt or even an admission of any fact contained in the indictment. (See, also, Twin Ports Oil Co. v. Pure Oil Co., supra, 26 F. Supp: 366, 376.)
Any doubt that a judgment entered upon a nolo contendere plea is in the nature of a compromise, a settlement of the controversy, rather than an adjudication of any fact asserted or a determination of any charge alleged, is laid to rest by a Clayton Act provision (38 U. S. Stat. 731, U. S. Code, tit. 15, § 16), distinguishing between a judgment of conviction following a trial and one entered after a plea of nolo. “ A final judgment or decree rendered in.any criminal prosecution ” brought by the United States under the antitrust laws, the statute recites, “ shall be prima facie evidence against such defendant in any suit or proceeding brought by any party against such defendant ’ ’. However, the statute goes on expressly to exclude from its application “ consent judgments or decrees entered before any testimony has been taken ”, and the term, “ consent judgments or decrees ”, has been held to include a decree entered after a plea of nolo contendere. (See, e.g., Twin Ports Oil Co. v. Pure Oil Co., supra, 26 F. Supp. 366, 371-372; Barnsdall Refining Corp. v. Birnamwood Oil Co., 32 F. Supp. 308, 311-312.)
Beyond that, however — and I go further than is necessary for decision in this case — even if I were to assume that a plea of nolo contendere is an acknowledgment of guilt, it still would not follow that the judgment entered upon such a plea amounts to an adjudication that petitioner was “ liable for negligence or misconduct in the performance of his duties.” That exception obviously exempts a corporation from the duty to reimburse its officials only when they have been disloyal, or breached some obligation, to the corporation itself. It has no application when, in the faithful discharge of corporate duties and in the furtherance of what are regarded as the company’s best interests, ah officer or director may incidentally have committed acts involv*413ing him in a criminal antitrust proceeding. In short, if an official has exercised “ the same degree of care and prudence that men prompted by self-interest generally exercise in their own affairs ” (Kavanaugh v. Commonwealth Trust Co., 223 N. Y. 103, 105; see, also, General Rubber Co. v. Benedict, 215 N. Y. 18), he should not be deemed guilty of “ negligence or misconduct in the performance of his duties ’ ’, within the sense of section 64, even though his actions on behalf of the corporation result in his being adjudged guilty under the antitrust laws. (See Simon v. Socony-Vacuum Oil Co., supra, 179 Misc. 202, 203-205, affd. 267 App. Div. 890; 3 Fletcher’s Cyclopedia Corporations [Perm, ed.], § 1039; cf. Cass v. Realty Securities Co., 206 N. Y. 649, affg. 148 App. Div. 96, 99; Seymour v. Spring Forest Cemetery Assn., 157 N. Y. 697, affg. 4 App. Div. 359, 376-377.)
The circumstance of such an adjudication does not suggest any disloyalty to corporate interests or even imprudence in the conduct of business affairs. “ In view of the extreme uncertainty which prevails as a result of * * * vague and conflicting adjudications ”, two authorities on the subject have written, “ it is impossible for a lawyer to determine what business conduct will be pronounced lawful or unlawful by the courts. * * Legitimate business enterprise, desirous of knowing and obeying the law, has no safe standards by which to be guided.” (Jackson and Dumbauld, Monopolies and the Courts, 86 U. of Pa. L. Rev. 231, 232, 236; see, also, Cahill, Must We Brand American Business as Criminal?, Amer. Bar Assn., Proceeding of Section of Antitrust Law [1952], 26, 29-31.) And in the Socony-Vacuum Oil Co. case (supra, 267 App. Div. 890, affg. 179 Misc. 202), the court ruled that directors may not be held personally liable to stockholders for expending corporate funds on behalf of themselves in connection with their defense of a criminal antitrust suit, even though they were convicted after trial. While observing that those officials had participated in the unlawful acts leading to their prosecution and conviction, the court declared (179 Misc., at p. 203) that the evidence indicated that they “ did not violate any duty which they owed the corporation; that they acted honestly and reasonably and for what they believed to be the best interests of the company.”
*414The order of the Appellate Division should be reversed.
Dye and Fboessel, JJ., concur with Desmond, J.; Cars-well, J.,* concurs in separate opinion; Fuld, J., dissents in opinion in which Lewis, Ch. J., and Conway, J., concur.
. Order affirmed.

 Designated pursuant to section 5 of article VI of the State Constitution in place of Van Voorhis, J., disqualified.