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Petition of Holmes

Supreme Court of New York, Appellate Division

October 25, 1955

Petition of Holmes

Page 501

[145 N.Y.S.2d 27] Francis R. Stoddard, New York City (Jawn A. Sandifer, New York City, on the brief), for respondent-appellant.

Joseph C. Morris, New York City (Egbert A. Craig, Jr., on the brief), for petitioner-respondent.

Before PECK, P. J., and BREITEL, BOTEIN, RABIN and COX. JJ.

BOTEIN, Justice.

Petitioner, who was the secretary and a director of appellant life insurance company, was removed from both those posts by action of the [145 N.Y.S.2d 28] board of directors. He brought a proceeding pursuant to Article 78, C.P.A., to review and annul these determinations, claiming that they were animated solely by his activities on behalf of an independent slate of candidates filed in opposition to the administration directors and officers. It is contended that the removals were illegal, since Section 198, subd. 33 of the Insurance Law prohibits any officer of a life insurance company from compelling or coercing any officer, agent or employee to support any candidate or list of candidates. Special Term sustained the contentions of petitioner and, finding without a hearing that the acts complained of were in violation of the statute, vacated and annulled them and directed petitioner's reinstatement as secretary and director.

Page 502

The by-laws of the company (approved by the Superintendent of Insurance) provide that the secretary, among other officers, shall be elected by the board of directors and 'shall continue to hold his office at the discretion of the Board of Directors'. Separate and apart from his support of an opposition ticket, petitioner's conduct was such as would amply justify his removal as secretary pursuant to this by-law.

Admittedly, while serving as secretary, petitioner issued statements to newspapers in which he spoke disparagingly of his fellow officers. In one he called the president of the company a puppet. Petitioner's handwriting appeared on a number of policyholders' requests to the Insurance Department that the company be required to file the names of policyholders. These requests evidently conveyed implications of dissatisfaction with the management of the company. Petitioner at first denied any connection with the requests, denied the handwriting was his and later, after a noted handwriting expert was engaged, withdrew these denials. He was openly defiant of the board and of his fellow officers when questioned on matters relating to the conduct of his office of secretary. Appellant also asserts that petitioner's work habits were bad and that his abilities were of an inferior order. Certainly the board had good reason to believe that the other officers could not function efficiently with a secretary who had traduced and flouted them and in whose reliability they had lost confidence.

Upon these undisputed facts it would appear that petitioner's removal as secretary was not an abuse of the discretion lodged with the board of directors under the by-laws. 'The directors convened as a board are the primary possessors of all the powers which the charter confers'. Hoyt v. Thompson's Ex'r, 19 N.Y. 207, 216. The power to elect and remove petitioner, so explicitly granted to the board of directors, gains fuller dimensions when viewed in the frame of the abundant, almost plenary powers possessed by directors in the management and regulation of corporate affairs. Beveridge v. New York El. R. Co., 112 N.Y. 1, 22, 19 N.E. 489, 494, 2 L.R.A. 648; Leslie v. Lorillard, 110 N.Y. 519, 536, 18 N.E. 363, 367, 1 L.R.A. 456. 'Directors are the exclusive, executive [145 N.Y.S.2d 29] representatives of the corporation, and are charged with the administration of its internal affairs and the management and use of its assets'. Manson v. Curtis, 223 N.Y. 313, 323, 119 N.E. 559, 562. See also Pollitz v. Wabash R. Co., 207 N.Y. 113, 100 N.E. 721; Clark v. Dodge, 269 N.Y. 410, 414, 415, 199 N.E. 641, 642; 2 Thompson on Corporations (3rd ed.), § 1276; 2 Fletcher's Cyclopedia Corporations (Perm. ed.), § 513; General Corporation Law, § 27.

Page 503

Petitioner as secretary was a member of a team of officers designated by the board and charged with intimate control of the day-by-day functioning of the company. His conduct evidently reached a point at which the board had reason to believe that his continuance in office would impair the efficient administration of the company's business; and in removing him the board acted well within the grant of authority given it under the by-laws.

It is not so clear from a reading of the papers that the board had the right to remove petitioner from his position as a director. The by-laws provide that a director may be removed by the board of directors for, among other reasons--and the reason assigned for petitioner's removal--'Conduct which in the opinion of the Board is prejudicial to the interest of the Company'. Directors of the company are elected by the policyholders. The power of directors to remove another director elected by the same constituents should be granted in definite terms and should be exercised for grave derelictions; and it should be circumscribed and guarded jealously against abuse. Auer v. Dressel, 306 N.Y. 427, 433, 118 N.E.2d 590, 593; Cuppy v. Stollwerck Bros., 216 N.Y. 591, 596, 111 N.E. 249, 251; Raub v. Gerken, 127 A.D. 42, 44, 111 N.Y.S. 319, 320; People ex rel. Manice v. Powell, 201 N.Y. 194, 94 N.E. 634; Abberger v. Kulp, 156 Misc. 210, 281 N.Y.S. 373; General Corporation Law, § 14, subd. 5; 7 White on New York Corporations (12th ed.), § 8.16; 2 Fletcher's Cyclopedia Corporations (Perm. ed.), § 357.

However, appellant is an insurance corporation with 60,000 widely dispersed policyholders who cannot be summoned to act with dispatch in the event of misfeasance by a director requiring quick action; and perhaps this circumstance would justify their reposing general and comparatively unspecific power in the board of directors to remove a delinquent fellow director. In any event, a court reviewing petitioner's removal judicially will inquire primarily into the gravity of the actual grounds assigned for removal.

There is good reason for the difference in the standards to be applied in the removal of a secretary and in the removal of a director. As secretary petitioner was an appointee of the board, accountable to it for the role assigned to him in the efficient implementation of its policies. But as director he was a member of the policy-making, governing group, exercising [145 N.Y.S.2d 30] on behalf of the policyholders the original delegation of powers conferred on the corporation by the State. An ...


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