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SNYDER v. PLEASANT VALLEY FINISHING CO.

November 8, 1990

JUDITH SNYDER, PLAINTIFF,
v.
PLEASANT VALLEY FINISHING CO., INC., PLEASANT VALLEY FINISHING CO., INC., LIQUIDATING TRUST, ROBERT JUDELL AND LEONARD TURETZKY, DEFENDANTS.



The opinion of the court was delivered by: Kram, District Judge.

MEMORANDUM OPINION AND ORDER

Plaintiff brings this action, styled as a shareholder derivative suit, to recover a $120,000 payment by defendants Pleasant Valley Finishing Co., Inc. ("Finishing"), Robert Judell ("Judell") and Leonard Turetzky ("Turetzky") to Turetzky through an entity called LST Realty, during the "winding down" of Finishing. The complaint alleges that such $120,000 payment to Turetzky is inconsistent with his fiduciary obligations as a director of Finishing and as a trustee of Pleasant Valley Finishing Co., Inc., Liquidating Trust (the "Liquidating Trust"). Defendants interposed an answer to the complaint denying its material allegations and raising various affirmative defenses.

Defendants now move for an order, pursuant to 28 U.S.C. § 1332(a), dismissing the complaint for lack of subject matter jurisdiction, pursuant to Rule 17(a) of the Federal Rules of Civil Procedure, dismissing the complaint for lack of a real party in interest and, pursuant to Local Rules 21(a) and 22 of the Rules of the Southern District of New York, directing reassignment of the case to the White Plains Division of this Court. Plaintiff cross-moves for an order granting her leave to amend the complaint, and disqualifying defendants' counsel from representing any party to this litigation.

Background

Through February 25, 1981, Pleasant Valley Textiles Inc. ("Textiles") was a New York corporation, having as its sole shareholders Judell and plaintiff's decedent, Joseph R. Snyder ("Snyder"). Judell and Snyder each held a 50% interest in Textiles. On February 25, 1981, Snyder died leaving a will (the "Will") appointing plaintiff Executor, and appointing plaintiff and Sheldon Snyder, decedent's son, trustees (the "Trustees") with respect to the residuary estate, consisting of, among other things, decedent's intangible personal property. Will art. THIRD. The Will grants the residuary estate to the Trustees and directs them to hold it in a separate trust for the remainder of plaintiff's life, with payments of income and/or principal to be made to plaintiff in accordance with the provisions of article THIRD of the Will.

Through December 22, 1988, defendant Finishing was a New York corporation engaged in the business of textile processing, having as its shareholders Turetzky and Textiles. On that date the directors and shareholders of Finishing unanimously agreed to adopt a liquidation plan for Finishing which, among other things, created the Liquidating Trust. In accordance with Finishing's liquidation plan, Turetzky received one unit of beneficial interest in the Trust, and Textiles two units. By agreement dated December 28, 1988 by and between Finishing, Judell and Turetzky, Finishing's liquidation plan was effectuated.

By separate agreement dated December 28, 1988, by and between Textiles, Judell and plaintiff as Executor of decedent's estate (the "Transfer Agreement"), Textiles also adopted a plan of liquidation. In accordance with the Transfer Agreement, Textiles' shareholders surrendered their shares which were redeemed and cancelled by Textiles in exchange for two units of beneficial interest in the Liquidating Trust.

On December 28, 1988, Finishing paid to Turetzky, through an entity called LST Realty, the sum of $120,000 in connection with the sale of certain of Finishing's assets. In January 1989, plaintiff executed an instrument purporting to assign to herself "all the right, title and interest of the Estate of Joseph R. Snyder in and to the [Liquidating Trust] and all other assets remaining in the name of the said estate . . . as sole beneficiary under the [Will]" (the "Assignment"). Affidavit of Judith Snyder sworn to on May 10, 1990 ("Snyder Aff."), Exhibit "4". Plaintiff sues individually, and derivatively on behalf of Finishing, the Trust and all shareholders of Finishing and owners of beneficial interest in the Trust, to recover such $120,000 payment.

Discussion*fn1

Defendants contend that plaintiff has no standing to maintain this action in her individual capacity and argue that title to the unit of beneficial interest of the Trust belonging to the Estate of Joseph R. Snyder (the "Unit of Beneficial Interest") remains property of the Estate. According to defendants, in order for plaintiff properly to maintain this action at all, she must sue in her capacity as Executor. Defendants contend that as Executor, plaintiff should be deemed a citizen of New York rather than Florida, thereby destroying this Court's diversity jurisdiction.

Plaintiff relies on the Assignment to establish her entitlement to bring this derivative action in her individual capacity as a resident of the State of Florida, contending that as a result of the Assignment, she acquired all right, title and interest in and to the Unit of Beneficial Interest.

Diversity of Citizenship

In 1988, Section 1332 of Title 28 was amended to eliminate confusion as to whose citizenship controlled in cases involving personal representatives. Section 1332 now provides:

  the legal representative of the estate of a
  decedent shall be deemed to be a citizen only of
  the same state as the decedent, and the legal
  representative of an infant or an incompetent
  shall be deemed to be a ...

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