Court Opinion

ID: 3579209
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:30:39.887651+00
Date Added: 2024-06-11T13:52:09.885750
License: Public Domain

I might, if we were dealing with a corporation organized and operating in this State, agree that the contract here involved was violative of section 27 of the General Corporation Law. In my view, however, that question is not before us. In a case such as this — where the corporation, the Trenton-New Brunswick Theatres Company, is one organized in the State of New Jersey, and, indeed, doing no business in New York, and where the agreement is one dealing with matters intimately affecting that foreign corporation's internal affairs — the courts of this State should not entertain jurisdiction.
Pursuant to a plan evolved by the parties to this litigation, or their predecessors in interest, for the pooling of their respective holdings in moving picture theatres, defendant Trenton-New Brunswick Theatres Company — referred to as "Trenton" — was organized in New Jersey in 1922. Its sole business then was, and now is, the operation and management of theatres located in New Jersey. The agreement before us was entered into in 1942 by Trenton and its three stockholders; it followed an earlier one, substantially to the same end, which *Page 180 
had been in force continuously for twenty years. The agreement created four classes of stock; in addition to other matters, some relating to the election of officers and directors, it provided that during its term the holders of the class A-1 and A-2 stocks — at the time and at present, the B.F. Keith Corporation, referred to as "Keith" — were to have "full authority and power to supervise and direct the operation and management" of all Trenton's theatres. Several years after execution of the agreement, in 1945, plaintiff apparently became dissatisfied with the arrangement and, through its representative on Trenton's board of directors, asked that the management contract with Keith be terminated. Since two of the four members of the board were representatives of Keith, plaintiff's motion failed. This action followed.
In its complaint plaintiff prayed for judgment (1) enjoining Keith from managing or interfering with the management of the business of Trenton, and (2) directing defendants to account for the results of past management. What induced plaintiff, itself a New Jersey corporation, to bring suit in this State, what induced defendant Trenton — not doing business here and not subject to process — to appear voluntarily, is nowhere accounted for. At the trial, the action was treated as one for a declaratory judgment. The courts below have held the 1942 agreement valid, and the majority of this court propose to declare it illegal as being violative of section 27 of the General Corporation Law of this State.
In my opinion, no declaration on the merits should issue — and for several reasons.
In the first place, I question whether the courts of this State have jurisdiction, in the strict sense of the term, to entertain this suit in view of section 225 of the General Corporation Law, which allows suits in this State between foreign corporations only in carefully specified cases — the present not being one of them. Defendant Keith, it is true, is a New York corporation, but basically the complaint is concerned with the conduct of the affairs of Trenton, and the effect of the agreement upon that corporation and its board of directors. For instance, it appears from the complaint that Trenton was a party to the agreement; that Trenton's stock has been reclassified pursuant *Page 181 
to the agreement; that Trenton's board of directors has been elected as provided in the agreement; and that Trenton has declined to disavow the agreement. In truth, according to the complaint, the sole challenge to the agreement is that Trenton may not function under it because it is contrary to the requirements of law prescribing how a corporation — Trenton — must be managed. If Trenton is privileged to continue the agreement, it would follow, of course, that Keith is bound to do so. The action is thus at least within the spirit of section 225.
In the second place — quite apart from section 225 — it is a general rule that the courts of one State will not accept jurisdiction of controversies affecting the internal affairs of a corporation organized under the laws of another State. We have held steadfastly to this view, at least in the absence of need for emergency action or of other extraordinary circumstances. (See Langfelder v. Universal Laboratories, 293 N.Y. 200, 204;Nothiger v. Corroon  Reynolds Corp., 293 N.Y. 682, affg.266 App. Div. 299; Sternfeld v. Toxaway Tanning Co., 290 N.Y. 294,297; Cohn v. Mishkoff Costello Co., 256 N.Y. 102, 105;Powell v. United Assn. of Plumbers, 240 N.Y. 616;Sauerbrunn v. Hartford Life Ins. Co., 220 N.Y. 363, 371-372; see, also, Kimball v. St. Louis  San Francisco Railway,157 Mass. 7; 17 Fletcher's Cyclopedia Corporations [Perm. ed.], §§ 8425-8429; Note, 46 Col. L. Rev. 414 et seq.) The rule has been applied even where the foreign corporation was doing business in this State and plaintiff was a resident. (See, e.g., Langfelder
v. Universal Laboratories, supra; Sternfeld v. ToxawayTanning Co., supra.)
No ground has been suggested for departing from that established and salutary principle. This is not a case in which the inquiry into foreign corporate concerns "is merely preliminary or incidental to the inquiry whether a contract has been broken, a tort committed, a right of ownership infringed." (Travis v. Knox Terpezone Co., 215 N.Y. 259, 265.) The declaration granted goes to the very heart of the corporation's affairs. Therefore, decisions such as McQuade v. Stoneham
(263 N.Y. 323) have no application.
In point of fact, there are weighty considerations why the rule should here be respected. *Page 182 
First, section 27 of the General Corporation Law, under which the agreement is being condemned, has no application to Trenton. It is plain from its context that that section is limited to domestic corporations, and it is difficult to see what interest the Legislature of this State could have in the method by which corporations neither organized nor doing business here are managed. Where the Legislature was concerned with the activities of foreign corporations, it was careful so to specify. (See, e.g., General Corporation Law, §§ 9, 9-a, 9-b, 12, 18, 222; cf.German-American Coffee Co. v. Diehl, 216 N.Y. 57, 61.) The manner in which the internal affairs of a foreign corporation, having no substantial contacts with the forum, are to be administered, is ordinarily a matter to be determined solely by reference to the law of the place of incorporation. (Cf.Vanderpoel v. Gorman, 140 N.Y. 563; German-American CoffeeCo. v. Diehl, supra, pp. 63, 64; Upson v. Otis,155 F.2d 606; Restatement, Conflict of Laws, §§ 197, 183.) Therefore, the mere fact that the agreement was made in New York is of no moment. The stipulation of the parties that the agreement is to be construed according to the law of New York also affords no reason for disregarding the public policy of New Jersey, the State in which Trenton is incorporated. The majority of this court are treating that stipulation as tantamount to an agreement that the New Jersey corporation is to be considered as if it were a New York corporation and subject in its management to New York requirements, in disregard of the applicable laws and policy of New Jersey which, as interpreted by their courts, may be different from ours. The majority thereupon propose to invalidate the 1942 agreement as violative of the public policy of New York, yet paradoxically overlook the fact that the stipulation — on the strength of which they reach that result — itself may contravene the public policy of New Jersey. Under the guise of vindicating the public policy of New York, which is not in the slightest concerned with the conduct of Trenton, the majority are ignoring the public policy of New Jersey which is concerned with it. (Cf. Manhattan Storage  Warehouse Co. v. Movers Assn.,289 N.Y. 82, 89-90.)
Second, statutes of the character of section 27 of the General Corporation Law present difficult problems of interpretation. *Page 183 
(See, e.g., Benintendi v. Kenton Hotel, 294 N.Y. 112.) A New Jersey court, familiar with the legislative history and policy of that State, may construe its own statutory counterpart of section 27 differently — a matter of no concern to us as long as only a New Jersey corporation is involved. Or a New Jersey court, recognizing that the Legislature might itself have relaxed the statute, might conclude to leave the parties as it found them as long as no breach or other violation of private right is shown. In such circumstances, the New Jersey court might well decide that litigation like the present smacks of a suit in the nature of quo warranto and that only the public officials of that State should be heard in vindication of its public policy.
Furthermore, our inability to dispose of the controversy between the parties should militate against our dealing with it to the limited extent here involved. Plaintiff has itself abandoned any thought of injunctive relief, perhaps because that would demonstrate too obviously that the internal affairs of Trenton are involved. However, our declaration — even assuming that a New Jersey court will be bound to honor it — will not facilitate the ultimate disposition of the controversy. The declaration is not self-executing; further judicial action will obviously be required. The New Jersey court will have to determine the scope and the consequences of the declaration: it will have to decide, among other matters, whether the agreement with Keith may continue on a day-to-day basis or in some other modified form and whether the reclassification of Trenton stock — actually provided for by the agreement now declared illegal — is to stand. (See Kimball v. St. Louis  San Francisco Railway,supra, pp. 8-9.)
In Travis v. Knox Terpezone Co., supra, 215 N.Y. 259, 263, it was noted that the refusal to adjudicate controversies such as the one before us might be due either "to the absence of jurisdiction in the strict sense, or to the inability to make a decree effective, or to considerations of policy and discretion". Although we have on occasion indicated that our decision might rest on lack of jurisdiction (see e.g., Langfelder v.Universal Laboratories, supra, p. 206; Cohn v. MishkoffCostello Co., supra, p. 105; Sauerbrunn v. Hartford Life Ins.Co., supra), the better view perhaps is that the courts of this State should refrain from *Page 184 
entertaining the litigation because of vital and all-important policy considerations. (See Sternfeld v. Toxaway Tanning Co.,supra; Cohn v. Mishkoff Costello Co., supra; Kimball v. St.Louis  San Francisco Railway, supra, pp. 8-9; Thompson v.So. Connellsville Coke Co., 269 Pa. 500, 504; cf. Williams v.Green Bay  W.R.R. Co., 326 U.S. 549.) Those considerations are present here in full measure.
Nor are the provisions of the Civil Practice Act authorizing declaratory judgments intended to change the limitations appropriate to controversies of this character. In WestchesterMortgage Co. v. G.R.  I.R.R. Co. (246 N.Y. 194, 199) this court, reading section 473 "in the light of established public policy", condemned such intrusion into the policy of other States in this language (pp. 199-200, 202):
"The courts of this State may command only in matters where this State is sovereign. The powers of our courts do not extend beyond the territorial limits of the State, and our courts proceed with circumspection when they are called upon to give command even to a party whose person is subject to our own jurisdiction, if such command might possibly conflict with the sovereign power of another State. [pp. 199-200.]
"If the courts of one jurisdiction have the power to declare rights which can be made effective only by appeal to the courts of another sovereignty, it is a power which in the interests of comity must be sparingly exercised. [p. 202.]"
The defendants have not raised the point or objected on these grounds. But since the question is one of fundamental policy affecting the exercise of jurisdiction by our courts — even if not jurisdictional in the strict sense — I conceive that it may be raised on the court's own motion. (See Weiss v. Routh,149 F.2d 193, 195; cf. Robinson v. Oceanic Steam Nav. Co.,112 N.Y. 315, 324; Massachusetts Nat. Bank v. Shinn, 163 N.Y. 360,363.)
The judgment should be modified by directing judgment dismissing the complaint on the grounds stated herein.
LOUGHRAN, Ch. J., LEWIS, CONWAY, DESMOND and DYE, JJ., concur with THACHER, J.; FULD, J., dissents in opinion.
Judgments reversed, etc. *Page 185