Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

KLEBANOW v. NEW YORK PRODUCE EXCH. EX REL. IRA HAU

August 18, 1964

Bernard KLEBANOW and George Lewis, Plaintiffs,
v.
NEW YORK PRODUCE EXCHANGE, New York Produce Exchange Clearing Association, Merrill Lynch, Pierce, Fenner & Smith, Inc., Ira Haupt & Company, MortonKamerman as Liquidating Trustee for the Benefit of Ira Haupt & Company, andothers presentlyunknown to the Plaintiffs, Defendants



The opinion of the court was delivered by: TYLER

Defendants other than Morton Kamerman and Ira Haupt & Company ('Haupt') assail the legal sufficiency of the complaint seeking treble damages for alleged Sherman Act violations by defendants. The plaintiffs are limited partners of Haupt and, as such, they purport to bring this suit on behalf of the partnership entity. The principal points urged by defendants in support of their motions to dismiss are that the complaint fails to sufficiently spell out the alleged offenses and, more importantly, that plaintiffs have no standing to prosecute this essentially derivative action on behalf of Haupt.

The complaint states that the brokerage firm of Haupt was organized as a limited partnership under the laws of New York State in 1960 for a period expiring on December 31, 1963. It is further stated that all the limited partners contributed 'at least $ 4,000,000' to the capital of Haupt. Of this total amount, plaintiffs contributed $ 600,000.

 Since December 31, 1963, when the partnership terminated in accordance with the provisions of the agreement, Haupt has been in liquidation. During the latter part of 1963, defendant Morton Kamerman was the sole managing partner of Haupt; since December 31 of that year he has been the sole liquidating trustee of Haupt pursuant to specific terms of the original partnership agreement of April 1, 1960.

 It is alleged that on or about November 20, 1963, Haupt appeared to be unable to meet its obligations as they matured. Thereafter, on November 25, 1963, Kamerman and the other general partners of Haupt entered into a contract ('contract of November 25, 1963') with various New York City banks, alleged creditors of Haupt, and with 'the Stock Exchange'. *fn1" On the same day, Kamerman and the other general partners of Haupt each executed a power of attorney to an employee of the Stock Exchange as a representative of the latter Exchange and the aforesaid creditor banks. Under these powers of attorney, as subsequently amended, and the contract of November 25, 1963, Kamerman and the other general partners 'divested' themselves 'of the power to do any act or thing on behalf of Haupt'. Kamerman also divested himself of the right and power to act as liquidating trustee of Haupt.

 It is claimed further that since November 25, 1963, the attorney in fact representing the Stock Exchange and creditor banks has 'exercised full control over the assets and business of Haupt and (has) been liquidating same'.

 Plaintiffs, according to their complaint, are obliged to prosecute this action not only because Kamerman and the other general partners have effectively divested themselves of power to act on behalf of Haupt, but also because the aforementioned banks and Stock Exchange have a substantial identity of interests with defendants in this case except, of course, Haupt and Kamerman. Specifically, with regard to the latter reason, it is stated that defendant Merrill Lynch, Pierce, Fenner & Smith Inc. and 'possible additional defendants' are members of the Stock Exchange and also of the defendant New York Produce Exchange. Similarly, it is claimed that members of the Board of Governors of the Stock Exchange are partners in firms which have other partners serving on the boards of the Produce Exchange and defendant New York Produce Exchange Clearing Association.

 Significant provisions of the partnership agreement of April 10, 1960 are incorporated in the complaint. Among these, of course, are standard requirements that limited partners be paid in liquidation their capital contributions, minimum profit participations and interest from assets of Haupt or, failing sufficient assets, from the assets of the individual general partners.

 Finally, there are allegations that defendants, in or before November, 1963, entered into an illegal conspiracy to monopolize trade in, and to fix the price of, cottonseed oil, which conspiracy caused monetary damage to Haupt in the sum of 'at least $ 11,000,000.'; and that the Stock Exchange will not permit either Haupt or defendant Kamerman to prosecute this claim.

 At least superficially, if not essentially, the question presented by the motions to dismiss is whether limited partners of a New York partnership in liquidation may bring a derivative action where the general partners or managing partner have divested themselves of power and authority to act and where the assignees of the general partners in control of the firm assets have conflicting interests in and with the principal defendants and thus will not permit the firm or its partners to prosecute such an action.

 Although the New York limited partnership law has existed with very few substantive changes since 1822, it does not appear that the New York appellate courts, at least, have been squarely confronted with this question.

 Section 115 of the New York Partnership Law, McKinney's Consol. Laws, c. 39 provides that:

 'A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership.'

 Defendants, naturally enough, urge that Section 115 standing alone precludes the plaintiffs from bringing this claim. Plaintiffs attempt to skirt Section 115 by urging that its plain language does not precisely fit the situation here where it is alleged that the suit is one of a derivative nature -- i.e. it is not a claim of which the limited partners are the immediate or direct beneficiaries -- and where it is pleaded that the general partners have divested themselves of all power and responsibility to act on behalf of the firm. For reasons to be developed hereinafter, I conclude that the defendants are correct, but not strictly for the reasons which they advance, in urging that this complaint will not lie.

 There is some support in logic, however, for the plaintiffs' argument that Section 115 of the Partnership Law does not precisely, and without more, fit the circumstances here. Then, too, it is initially tempting to lean toward the derivative action theory espoused by plaintiffs, because, for example, it might be argued that this would be one way of implementing the obvious policy of the New York Partnership Law to encourage and protect contributions of capital by limited partners to commercial partnership entities. See, for example, Ruzicka v. Rager, 305 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.