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Rosenfeld v. Fairchild Engine & Airplane Corp.

Supreme Court of New York, Appellate Division

May 24, 1954

WILLIAM ROSENFELD, on Behalf of Himself and All Other Stockholders of FAIRCHILD ENGINE AND AIRPLANE CORPORATION, Similarly Situated, Appellant,
v.
FAIRCHILD ENGINE AND AIRPLANE CORPORATION et al., Respondents, et al., Defendants.

Page 202

APPEAL from a judgment of the Supreme Court in favor of respondents, entered December 3, 1952, in Nassau County upon a decision of an Official Referee (MEIER STEINBRINK, Off. Ref.), dismissing the complaint upon the merits.

COUNSEL

Abraham Marcus, Alan J. Stein and William Rosenfeld, in person, for William Rosenfeld, appellant.

Jacquelin A. Swords and William K. Zinke for Sherman M. Fairchild, respondent.

Harold R. Medina, Jr., for Webb Wilson and another, respondents.

Samuel J. Silverman and Jay H. Topkis for James A. Allis, respondent.

MURPHY, J.

This is a stockholders' derivative action to recover from past and present directors of the Fairchild Engine and Airplane Corporation moneys paid by the corporation to defray expenses of rival slates of candidates for election as its directors. The plaintiff is a lawyer, who, with his attorney in this action, has collaborated in many suits of this character. The plaintiff

Page 203

owns 25 shares of the 2,308,817 shares of the corporation. The total number of shareholders is 10,245, of whom 750 have joined the plaintiff in this action.

On July 13, 1949, at the annual meeting of stockholders of the corporation, a slate of directors sponsored by the defendant Sherman M. Fairchild was elected, defeating a slate of directors sponsored by the then management headed by the chairman of the board J. Carlton Ward, Jr., also a named defendant herein. This election climaxed a protracted, vigorous, and expensive campaign on the part of both the management and the Fairchild groups. The stockholders were surfeited with a barrage of letters and literature soliciting their support for the rival slates and expounding the virtues and deficiencies of the respective candidates for directors. Proxy solicitors and legal counsel were engaged by both sides at considerable cost. The management group's expenses totaled $133,966. The Fairchild group's expenses amounted to $127,556. The corporation paid both of these sums, or a total of $261,522. Of the $133,966 expended by the management group, $106,131 was paid by the corporation while the incumbent directors remained in office and the remainder, $27,835.52, was paid by the corporation after the new board came into control.

The $127,556 expended by the Fairchild group, which won the election, was paid at the direction of the new board, subject to approval by the stockholders who, on April 26, 1950, by a vote of 1,451,842 to 90,927 shares, approved such reimbursement out of corporate funds.

The plaintiff seeks, on behalf of the corporation, to recover from the defendant directors, past and present, the entire sum of $261,522, less what is called the ordinary and usual cost of calling the stockholders' meeting and holding the election. The plaintiff appeals from a judgment dismissing his complaint on the merits after trial.

Only four of the twenty individual defendants were served. These were O. Parker McComas, Webb Wilson, Sherman M. Fairchild and James A. Allis. The action was severed as to the other defendants. McComas and Wilson were two of the old directors who were defeated. Plaintiff seeks recovery from them of the $133,966 expenses paid by the corporation, less usual expenses incident to the stockholders' meeting, on the ground that the expenditure was not for a corporate purpose, but rather was incurred on behalf of the individuals to elect them to office. These two defendants, on the other hand, maintained

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that the entire $133,966 was a legitimate corporate obligation, spent to enlighten the stockholders regarding the accomplishments of the management and the advantages of its policies and in an appeal to re-elect directors supporting these policies. They contend that their campaign was a benefit to the stockholders. These two former directors, McComas and Wilson, also rely on a general release given by the corporation to the defendant Ward following the defeat of the old board. McComas and Wilson ...


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