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September 9, 1974

CHARLES H. WOLPERT and MARTHA WOLPERT, as stockholders of the FIRST NATIONAL BANK OF EAST ISLIP, suing on behalf of themselves and all other stockholders of the FIRST NATIONAL BANK OF EAST ISLIP similarly situated, Plaintiffs,

The opinion of the court was delivered by: NEAHER


 NEAHER, District Judge.

 This is a derivative action by shareholders of The First National Bank of East Islip, Suffolk County (hereinafter "the Bank"), on behalf of themselves and other shareholders against the Bank and its board of directors. The complaint alleges various acts of self-dealing, mismanagement and violation of federal statutes by the directors causing substantial losses to the Bank. Plaintiffs seek removal of the present directors, an accounting, and recovery of any losses. The case is still in the preliminary phases, most of the activity to date having centered on the motions described below.

 Following a hearing held shortly after commencement of the action, the court denied plaintiffs' motion for a preliminary injunction restraining the holding of the Bank's annual meeting and election of directors. *fn1" The election was held on March 5, 1974, as scheduled, and the defendant board of directors was reelected in toto. Alleging irregularities in its conduct, plaintiffs now move to set aside that election and to schedule a new one. Alternatively, they seek the appointment of three directors proposed by plaintiffs in the place of three incumbents. Plaintiffs allege that the proposed directors were elected at the meeting by the cumulative votes of dissenting shareholders, which the defendants wrongfully rejected.

 Defendants not only oppose plaintiffs' motion on the merits but also challenge their right to seek such relief by motion in this derivative action. A derivative action, as defendants correctly point out, seeks to redress a wrong done to the corporation -- here alleged derelictions by the directors affecting the business and assets of the Bank. Plaintiffs' motion, on the other hand, seeks to remedy alleged injury to them individually in the exercise of franchise rights as shareholders. Since the procedural challenge, if correct, would bar adjudication of the merits, it requires threshold consideration. To place the somewhat novel issue presented in proper perspective, some facts must be stated in addition to those appearing in the court's prior memorandum, n. 1, supra.

 The Bank's proxy statement, which sought the re-election of the ten defendant directors, contained the following notice:

"1. ELECTION OF DIRECTORS: . . . A shareholder entitled to vote for the election of directors may make nominations for election to the Board of Directors. However, the shareholder making such nomination must give written notification of such intent to the President of the Bank and to the Comptroller of the Currency no later than seven days after the receipt of this notice."

 A copy of the Bank's statement was received by Ira M. Hariton, Esq. of plaintiffs' law firm, and a stockholder of record in the Bank, on February 21, 1974.

 It is undisputed that on February 27, 1974 -- within the seven-day period -- Hariton hand-delivered a letter to defendant Jay W. Woods, president of the Bank and a director, which gave notice of Hariton's intention to nominate an opposing slate of ten directors at the annual meeting. The letter listed the ten prospective nominees by name, community of residence and occupation, and is reproduced below as an Appendix. *fn2"

 At the meeting, however, all of plaintiffs' attempts to place the opposing candidates in nomination or to have at least some of them elected by the cumulated votes of dissenting shareholders were rebuffed by the defendant management, who had taken charge of the meeting despite a challenge to the validity of some of their proxies. The Hariton notice was ruled deficient for failing to state the residence addresses of the nominees and the number of shares held by Hariton as required by the Bank's by-laws. And although plaintiffs' asserted ownership or proxy control of some 18% of the Bank's stock (approximately 110,300 shares out of 616,173 issued), their efforts to vote these shares cumulatively for three of the opposing nominees on a write-in basis were likewise ruled invalid. *fn3"


 May the court entertain plaintiffs' motion in this action or must they seek relief by way of a separate proceeding, as defendants contend? The argument that a separate proceeding is required stems from the provision in New York law for the contest of a corporate election by an aggrieved shareholder. N.Y. Bus. Corp. L. § 619 (McKinney's 1963). *fn4" The purpose of the statute "is to provide a summary review of a contested election, free from the procedural complications of a plenary [stockholder's] action." In re William Faehndrich, Inc., 2 N.Y.2d 468, 474, 161 N.Y.S.2d 99, 104, 141 N.E.2d 597, 600 (1957); Saull v. Seplowe, 218 N.Y.S.2d 777, 779 (Sup. Ct. 1961). The procedural vehicle employed is a special proceeding initiated by petition, which "does not have the character of an equitable action" such as a stockholder's suit. Saull v. Seplowe, supra.

 New York's Business Corporation Law does not apply to a corporation formed under its own Banking Law, N.Y. Bus. Corp. L. § 103(a), but it does apply to a corporation "formed by or under any act of congress . . .", id., § 103(b). *fn5" A federal court would thus be justified in seeking guidance from the standards for reviewing a corporate election, as developed in the cases brought under N.Y. Bus. Corp. L. § 619 and its predecessor, N.Y. Gen. Corp. L. § 25. But that does not extend to the procedure required by the State courts. The type of proceeding contemplated by § 619 is unknown to the federal courts, which are governed exclusively by the "one form of action" concept applicable to all civil suits whether cognizable at law or in equity, Rules 1 and 2, F.R.Civ.P.

 Defendants' contention amounts to a demand that plaintiffs be required to resort either to a § 619 proceeding in the State court or a new and separate civil action in this court to review the election they contest. Neither § 619 nor the Federal Rules of Civil Procedure mandate such alternatives. Certainly the right of summary review provided in § 619 is not exclusive to the State courts. In historical essence it is the common law writ of mandamus authorizing a court summarily to direct an official, public or private, to perform a duty owing to the plaintiff. See 5 W. Fletcher, Cyclopedia of the Law of Private Corporations §§ 2069, 2366, 2367, 2375 (1967).

 The real question to be answered here is whether plaintiffs' motion is an appropriate one in this action. As already noted, the defendants are sued herein as directors and officers of the Bank as well as individually. Although the named plaintiffs sue in the right of the Bank and on behalf of other stockholders similarly situated, there is in fact a complete identity of parties on the motion as well as in the action. Moreover, the relief sought in the action includes inter alia the removal of defendants for alleged misconduct in office.

 Although different issues are involved in the present motion, the particular dispute is obviously but a facet of the underlying contest between these parties over the affairs of the Bank. The "just, speedy and inexpensive determination" *fn6" of the controversy will not be furthered by multiplying the litigation. *fn7" Nor will a separate action here provide the "summary" disposition to which plaintiffs are entitled under the standard of N.Y. Bus. Corp. L. § 619. That can best be accomplished by this motion without prejudicing any substantial rights of defendants. *fn8"

 Finally, defendants' attempt to preclude consideration of the merits by drawing a distinction between relief sought by a shareholder on direct and representative claims is without merit. It is now well settled that theoretical distinctions between a shareholder's direct and representative capacity need not inhibit the granting of appropriate relief when the damage the shareholder suffers flows from the damage done the corporation rather than from the damage inflicted directly upon him. J. I. Case Co. v. Borak, 377 U.S. 426, 432, 12 L. Ed. 2d 423, 84 S. ...

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