The opinion of the court was delivered by: LEVET
This is a motion by defendant Pantepec Oil Company, C.A., hereinafter called Pantepec, directing the plaintiffs to give security pursuant to Section 61-b of the New York General Corporation Law, McKinney's Consol.Laws, c. 23 by reason of expenses, including attorneys' fees, which may be incurred by Pantepec in connection with this suit. Plaintiffs own 11,000 shares of Pantepec stock, which is less than 4/100ths of 1% of the outstanding stock, having a market value of less than $ 4,000.
The complaint consists of three causes of action, which in substance are as follows:
1. The first cause of action is to set aside a certain agreement between the defendants Pantepec and Phillips Petroleum Company, hereinafter called Phillips, dated November 2, 1956, and to restore so far as possible the status quo ante between the parties.
In this cause of action, Paragraph 2 states:
'Plaintiffs bring this cause of action derivatively on behalf of and in the right of Pantepec.'
Paragraph 11 reads:
'Upon information and belief, on November 2, 1956 Pantepec was caused by its directors and officers to enter into an agreement with Phillips dated that day, whereby Pantepec sold to Phillips all Pantepec's property mentioned in paragraph 8 hereof for $ 4,900,000, reserving to Pantepec only (a) an oil payment out of 10% of production, which is required to be applied against approximately $ 5,610,517 in production tax owing by Pantepec to the Government of Venezuela, and (b) royalties on part of the production from new wells which may be drilled by Phillips. Said cash consideration of $ 4,900,000 was made payable as follows:
"January 2, 1957 $1,400,000
"July 1, 1957 500,000
"January 2, 1958 2,000,000
"July 1, 1958 500,000
"July 1, 1959 500,000"
'Upon information and belief, the aforementioned transaction between Pantepec and Phillips was and is manifestly unfair and improvident as regards Pantepec for the following reasons:
'1. The consideration to Pantepec is grossly inadequate.
'2. The conveyance of its interest in the El Roble and Mulata Fields, the wells thereon and the related plant and equipment rendered Pantepec hopelessly insolvent in that (a) Pantepec's liabilities now greatly exceed its assets, and (b) Pantepec is unable to meet its matured and maturing debts.'
After alleging that the transaction between Pantepec and Phillips was manifestly unfair and improvident as regards Pantepec, the complaint asserts that Article 280 of the Venezuelan Commercial Code, which is said to be applicable to the aforementioned agreement, required the attendance of stockholders constituting 3/4 of the outstanding stock and a favorable vote of at least 1/2 of those in attendance and that Pantepec's by-laws did not dispense with these requirements. Other legal reasons for the alleged invalidity of the sale are also set forth. The plaintiffs assert that they have made no effort to secure action from the other stockholders of Pantepec for the reason that such efforts would be useless and futile. They further allege that they have not requested Pantepec or its directors to bring an action for the relief sought herein because the board consisted of the same persons who knew all the facts set forth in the complaint and that a request that Pantepec bring this suit to cancel and set aside the transaction would be obviously futile.
2. The second cause of action realleges all the paragraphs of the first cause of action and then lists the names of the individual defendants who were members of the board of directors of Pantepec and charges them in effect with malfeasance. The prayer for relief seeks an accounting by these individual defendants and the restoration of the losses and damage suffered by Pantepec by reason of their alleged misconduct in office and other alleged breaches of fiduciary duty. The plaintiffs concede that this cause of action is also derivative.
3. The third cause of action realleges Paragraphs 1 and 3 to 20 inclusive, and 24 to 28 inclusive, and asks as an alternative to the relief sought in the first cause of action that a receiver be appointed to have custody of the monies due and to become due to Pantepec. The prayer for relief with respect to this cause of action is worded as follows:
'* * * appointing a receiver to take custody of the entire interest of defendant Pantepec Oil ...