The opinion of the court was delivered by: HERLANDS
Is plaintiff's claim in this Federal action the 'same cause' as that which plaintiff formerly asserted in a prior dismissed state court action against the same defendants?
This is the principal, though not the only, question raised by defendants' motions for summary judgment (F.R.Civ.P. rule 56, 28 U.S.C.A.) and judgment dismissing the complaint (F.R.Civ.P. rule 12) in this action, jurisdictionally based on diversity of citizenship. The words 'same cause' are quoted from New York Civil Practice Act section 23;
and the answer to the principal and related questions posed by the motions requires an interpretation of the phrase 'as new action for the same cause' in that section, which relevantly provides:
'If an action is commenced within the time limited therefor, and * * * is terminated in any other manner than by a voluntary discontinuance, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff * * * may commence a new action for the same cause after the expiration of the time so limited and within one year after such a * * * termination.'
General Statement of Conclusions
The court has concluded that (a) plaintiff has standing to maintain this action; (b) plaintiff is not barred by former adjudication from maintaining this action; (c) this court has jurisdiction over the subject-matter of this action; (d) the complaint alleges a claim on which relief may be granted; (e) the New York statutes of limitation do not bar the grant of relief herein; (f) there are genuine issues of material fact to be adjudicated herein; (g) the defendants' motions are denied in all respects, except that the time of the defendants to answer or to move for an order with respect to the complaint under Rules 12(e) and 12(f) is enlarged until ten days after the date of the filing of this decision.
In amplification of the foregoing, the court has specifically concluded that this Federal action was effectively commenced under New York Civil Practice Act section 23, and that the complaint herein satisfies F.R.Civ.P. rule 23(b); that the former state court action had been dismissed for Ida Marco's failure to appear for an examination before trial; that the former state court action had not been abandoned nor had it been terminated by a voluntary discontinuance or a dismissal of the complaint for neglect to prosecute or a final judgment upon the merits; that neither the 1951 assignment of this cause of action (more fully discussed below) nor the 1951 corporate merger (likewise more fully discussed below) has the effect of precluding this action or incapacitating the plaintiff from bringing it.
Commencement of State Court Litigation in 1936
In September 1936, Harry Marco (now deceased) commenced a stockholder's derivative action in the Supreme Court of the State of New York, Kings County. That state court action was dismissed on January 7, 1958 for failure of the plaintiff therein (Ida Marco, as ancillary administratrix, etc., of Harry Marco, deceased) to appear for examination before trial.
On March 5, 1958 (within one year after the state court dismissal), the present stockholder's derivative action was brought by William Marco, as administrator, etc. of Harry Marco, deceased, against the same defendants on the basis of the same business transactions as had been alleged in the dismissed state court action.
The defendants include persons who were, in the years complained of, directors of Blue Ridge Corporation (hereinafter 'Blue Ridge'). Blue Ridge, a Delaware corporation organized in 1929, was in the investment business. Marco's claim was based on certain stock and loan transactions allegedly made by the said directors on behalf of Blue Ridge in collaboration with other defendants.
The multitudinous events between 1936 and March 5, 1958 are the historical and legal matrix of defendants' present motions. In a tug-of-words, each side blames the other for stalemating the state court litigation. It is not necessary, were it possible on the paper record before this court, to resolve the question of comparative dilatoriness.
Various aspects of the facts of this case have already been reported by the courts. E.g., Marco v. Dulles, D.C.S.D.N.Y.1959, 169 F.Supp. 622; Marco v. Sachs, Sup.Ct.Kings Co.1951, 201 Misc. 928, 106 N.Y.S.2d 522, also 201 Misc. 934, 109 N.Y.S.2d 226. But it is inescapably necessary to detail the course and chronology of the prior litigation and to describe closely the post-1936 corporate history of Blue Ridge because the defendants' present contentions are premised upon their version and interpretation of what happened in and outside the courts prior to March 5, 1958, when this Federal action was started.
Harry Marco's Stock Ownership
Blue Ridge was incorporation in Delaware in 1929. In about August or September 1929, Harry Marco acquired 35 shares of the common stock of Blue Ridge at the time of the original offering. His stock certificate is dated April 21, 1930. Harry was a stockholder at the time of the transactions complained about. He was a stockholder at the time he commenced the state court action in September 1936. The latter fact is shown by the corporate records of Blue Ridge, which also establish that there has never been a transfer of the stock out of his name.
On or about July 8, 1942, Harry died intestate. At the time of his death he was a citizen and resident of the State of New Jersey. Some time before he moved to New Jersey, he had resided in Brooklyn and had an office in Manhattan.
At his death in 1942, Harry owned the 35 shares of Blue Ridge stock; his estate became the owner of them. The Marco estate never sold or otherwise disposed of those shares.
Marco Estate's Equitable Stock Ownership
By virtue of a certain 1951 assignment and 1951 merger (to be described in detail below) and the terms of said assignment and merger, the Marco estate, in 1951, became (and is) the equitable owner of shares in two other corporations, namely, 35 shares of Ridge Realization Corporation and approximately 13 1/2 shares of Blue Ridge Mutual Fund, Inc.
The records of the transfer agent of Ridge Realization Corporation show that there was issued to Harry Marco on August 7, 1951, 35 shares of stock of Ridge Realization Corporation. The certificate for said shares was never received by Harry's representatives, who suggest that the certificate must have been sent to either Harry's 1929 Brooklyn residence address or to his old Manhattan office address. In any event, the stock transfer records of Ridge Realization Corporation as of December 24, 1958, show that Harry is the registered owner of record of 35 shares of stock of Ridge Realization Corporation.
The stock records of Blue Ridge Mutual Fund, Inc. show that Harry is entitled to receive shares of that corporation as a Blue Ridge Corporation stockholder (pursuant to the plan of reorganization of Central States Electric Corporation). The actual issuance of Blue Ridge Mutual Fund shares to Harry's estate presently awaits only the submission of appropriate Surrogate's Court documents.
Contrary to defendants' contentions, the Marco estate is an equitable or beneficial owner of the above indicated stock of Ridge Realization Corporation and Blue Ridge Mutual Fund, Inc. As such owner, the estate has the necessary stock interests for purposes of this action.
Continuation of State Action by Ida Marco as Ancillary Administratrix
On or about November 24, 1943, letters of administration upon the estate of Harry Marco were issued to his wife, Ida, by the Atlantic County Surrogate's Court of the State of New Jersey. Ida qualified as administratrix.
On or about January 27, 1944, ancillary letters of administration were granted to Ida by the Surrogate's Court of Kings County, State of New York; and she qualified as ancillary administratrix.
On or about October 16, 1944,
as ancillary administratrix, Ida revived and continued the action which had been commenced by Harry in September 1936.
Premature Attempt to Substitute William Marco as Plaintiff in State Action
On July 12, 1956, Ida was discharged as administratrix by the Atlantic County Surrogate's Court of New Jersey. On July 13, 1956, her son William was substituted by the New Jersey court as administrator in her stead. William qualified as such administrator.
On or about July 19, 1956, Ida made an ex parte application before the Surrogate of Kings County for the revocation of her ancillary letters. Almost concurrently -- and while the ex parte application was still pending undetermined before the Surrogate of Kings County -- Ida moved in the Supreme Court of Kings County for an order substituting as plaintiff therein her son William (who had been appointed a few days previously in New Jersey, administrator of Harry's estate) as ancillary administrator in place of Ida.
At the time the motion to substitute William in place of Ida as plaintiff was made in the Kings County Supreme Court, not only was the aforesaid Kings County Surrogate's application for the revocation of Ida's ancillary letters still pending undertermined, but there was in force and effect a stay (issued on January 27, 1955 by Mr. Justice Keogh) against Ida from proceeding with the Supreme Court action until Ida submitted to an examination before trial as requested by defendants.
The argument of Ida's motion to substitute William 'as administrator' in her place 'as ancillary administratrix' as plaintiff came on to be heard before Mr. Justice Keogh on July 24, 1956. Mr. Justice Keogh denied Ida's motion from the bench (Marco v. Sachs, N.Y.L.J., July 26, 1956, Kings Co. Sp. T). The order, signed on September 12, 1956, was affirmed. 4 A.D.2d 785, c. 27, 165 N.Y.S.2d 563.
The opposition to Ida's motion to substitute William as plaintiff in the Supreme Court action, was based upon the circumstances, first, that William could not be substituted as plaintiff in place of Ida because no order had been made by the Kings County Surrogate's Court revoking Ida's ancillary letters; and, second, that there was an outstanding stay against any proceedings by Ida in the Supreme Court action.
Contrary to defendants' present contentions, the basic right or status of William to prosecute the Supreme Court action was not before Mr. Justice Keogh nor decided by him. Under the particular circumstances, Mr. Justice Keogh's denial of Ida's application to substitute William as plaintiff does not constitute an adjudication binding on this Federal court that William lacks status to sue in the United States District Court.
Thereafter, in October 1956, the defendants appeared in the Kings County Surrogate's Court and filed papers opposing Ida's application to revoke her ancillary letters. On January 24, 1957, the Surrogate signed and order granting Ida's application and discharged her as ancillary administratrix.
At this point in the recital of the facts, it is necessary to return to the year 1942 and to consider the corporate history of Blue Ridge, particularly in relation to Central States Electric Corporation, which owned about 66 percent of Blue Ridge's stock.
Proceedings to Reorganize Central States Electric Corporation
Central States Electric Corporation (hereinafter 'Central States'), a Virginia corporation, owned 4,900,788 shares of Blue Ridge's outstanding 7,422,483 shares. Proceedings to reorganize Central States under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., were instituted in February 1942 in the United States District Court, Eastern District of Virginia.
Reorganization Proceedings and the Marco Action
On July 25, 1944, the court authorized the retention of Paul B. Barringer, Jr., as special attorney for the trustees, to advise them in connection with the Marco action and to investigate whether that action was meritorious.
On November 15, 1944, Carl J. Austrial was appointed by the United States District Court, Eastern District of Virginia, as an additional trustee for the purpose of conducting an appropriate investigation. See Committee for Holders of Central States Electric Corporation, 7% Cumulative Preferred Stock v. Kent, 4 Cir., 1944, 143 F.2d 684.
In November 1944, Mr. Barringer advised the trustees that there was at least one good cause of action (involving damages of about $ 2,840,000) and that further investigation might develop that there were others.
Under date of December 11, 1944, a report was filed by the trustees in the Eastern District of Virinia concerning Mr. Barringer's views, etc.
On December 23, 1944, United States District Judge Robert M. Pollard signed an order approving the action of the trustees and directors to employ Mr. Barringer's firm and to have an appearance entered in the Marco action and to take steps to protect the interests of Blue Ridge.
There can be no question or quibble that the United States District Court, Eastern District of Virginia, regarded and still regards potential proceeds of the Marco action as an asset to be dealt with in the reorganization proceedings of Central States.
On March 30, 1950, United States District Judge Sterling Hutcheson approved a Chapter X plan of reorganization of Central States, promulgated by the trustees; and the Court of Appeals for the Fourth Circuit affirmed (Central States Electric Corporation v. Austrian, 183 F.2d 879).
Purpose of Creating Ridge Realization Corporation and Blue Ridge Mutual Fund, Inc.
Under the plan of reorganization of Central States, two Delaware corporation were to be formed: Ridge Realization Corporation (hereinafter 'Realization') and Blue Ridge Mutual Fund, Inc. (hereinafter 'Mutual'). Realization was organized to collect certain contingent assets of Blue Ridge which could not then be valued, including the cause of action in the Marco stockholder's derivative action, then pending in the New York Supreme Court, Kings County. Mutual was organized as the corporation into which Blue Ridge would merge, after assigning certain contingent assets to Realization.
Assignment of Marco Action to Realization
Blue Ridge assigned to the newly organized Realization all of its interest in the Marco action. The assignment to Realization was executed in New Jersey on June 13, 1951; a similar assignment was executed in New York on June 15, 1951.
In exchange for the assets transferred by Blue Ridge to Realization, Realization issued and delivered to Blue Ridge its entire common stock consisting of 7,422,483 shares. Blue Ridge then declared and issued as a dividend to its shareholders -- including Central States, which owned 4,900,788 Blue Ridge shares -- one share of Realization stock for one share of Blue Ridge stock. The dividend was payable on August 7, 1951 to stockholders of record of Blue Ridge as of June 25, 1951.
Thus, Central States owns over 66 percent of the common stock of Realization; and all Blue Ridge shareholders have the same interest in the Marco ...