Opinion
March 31, 1930.
Yaselli Ferretti, of New York City, for plaintiff.
Charles H. Tuttle, of New York City, for defendant.
Action by the Italian Star Line, Inc., against the United States Shipping Board Emergency Fleet Corporation and others. Verdict for plaintiff. On motions by defendant named to set aside verdict and to dismiss.
Motions granted.
The action was brought to recover the sum of $421,877.04 damages for alleged abuse of process in connection with the equity receivership of the Italian Star Line, Inc. The complaint alleged that the defendant fleet corporation and federal attorneys conspired to obtain the records and documents of the plaintiff and of its president for use in a contemplated criminal prosecution against the president and others, and to create legal business for brother-in-law of federal attorney; that, in accomplishment of this purpose, a creditor's bill was caused to be filed by the United States of America against plaintiff and receiver appointed; that by means of receivership, the defendant fleet corporation seized the records and documents of the plaintiff and of its president for use in criminal proceedings; and that defendant's brother-in-law was paid large sums for representing the receiver, and that as result of wrongful acts, entire assets of the plaintiff were dissipated.
No claim was made that there was no right to institute the receivership proceeding for proper purpose, but rather that purpose for which the proceeding might properly be instituted was abused in furtherance of illegal purpose.
Plaintiff was organized to engage in merchant shipping business, and commenced extensive campaign to raise capital by sale of stock. The president of plaintiff corporation through a broker obtained a charter for a ship from the United States Shipping Board Emergency Fleet Corporation at monthly charter hire of $39,125, with option to purchase vessel for $1,584,327.75 or $215 a dead weight ton, with deduction on account of accrued depreciation. $10,000 was paid the broker for securing the purchase and one-half of such amount was given to employee of the defendant fleet corporation in charge of ship sales, who participated in negotiations. Criminal proceedings were brought against the president of the plaintiff corporation in which the president was completely exonerated.
The vessel was operated by the plaintiff at considerable loss, internal dissension existed among the directors of the plaintiff company, and a stockholders' suit was brought in federal court for appointment of receiver, which was dismissed. Federal attorney, who was one of defendants, requested reconsideration, with leave to apply for receiver on behalf of the defendant fleet corporation. Plaintiff's attorney testified that he offered federal attorney amount due to the defendant fleet corporation in effort to avoid receivership, but that tender was refused by federal attorney, but subsequently plaintiff's attorney signed answer and consented to appointment of receiver, though he claimed plaintiff's president told him not to consent.
The receiver retained as counsel, firm of which federal attorney's brother-in-law was a member, and such firm received during course of receivership $7,500 for legal services under orders of federal court. Receiver liquidated assets of the plaintiff corporation and attaching creditor succeeded in obtaining payment in full of their respective claims, leaving substantially nothing for unsecured creditors. When the receiver was appointed, there was concededly more than $114,000 due to the defendant fleet corporation from the plaintiff. An admiral testified that it was the established policy of the defendant Shipping Board to apply for receivership in the then deplorable state of the shipping industry, in cases where a critical financial condition existed.
On question whether receivership was instituted to obtain papers for criminal prosecution, president of the plaintiff company testified that at a conference with the federal attorney, all material papers and correspondence relating to the company's affairs and to the payment for ship's purchase were submitted and examined before receivership proceedings, and that such papers were left with the Shipping Board to be copied or photographed.
Plaintiff claimed as damage $158,432.70, representing company's investment in ship at contract price, which was not worth of ship at time of receivership. Item of over $48,000 cash in bank was claimed as damage, but money was subject to attachments against company, on which receiver was ultimately compelled to pay $34,440 on orders of court, and balance of money was used by receiver in operations of vessel. Other items claimed were money due from stock agents and money due from stockholders, representing accounts receivable, which proved to be uncollectible by receiver. Other items included advances for payments for oil, supplies and wages and insurance and estimated profit in approaching voyage, all of which were absorbed in the subsequent operations of the receiver. Final item was claim of $76,500 damages representing good will of plaintiff as going concern, which was mere speculative estimate.
I do not think the jury's verdict in this case should be permitted to stand, as the proof of damage is totally insufficient to sustain the verdict, and no cause of action has been proved against the Fleet Corporation. The action is for abuse of process; and the damages claimed are the net worth of the plaintiff company at the time the receiver was appointed, it being insisted that the entire assets of the company were lost as a result of the receivership. The difficulty with this contention is that the validity of the receivership is conceded, and is not open to collateral attack in this action. There is, therefore, no possible relation between the operating losses of the receivership and any abuse of the court's process, as alleged in the complaint. Furthermore, many of the items of loss claimed are mere book losses, which have no reality or substance. This is particularly true of the item of $158,432.70, stated to have been the value of the equity of the Liberty Land as appearing on the books at the time of the receivership. This valuation was based on an optional cost price for the vessel of $215 a dead weight ton, which manifestly was out of all proportion to the real value on December 6, 1920, when the receiver was appointed. Instead of the vessel having an actual value at that time of anything like $158,432.70, it is clear that there was no equity whatever when the receiver was appointed.
With respect to the few items which did have an actual value on December 6, 1920, I am satisfied from a careful reading of the record of the receivership that these items were eaten up in the regular operation of the vessel under the receiver during a period of utter demoralization in the shipping industry. And it is at least open to question whether the plaintiff could have operated the vessel during this period with any greater degree of success than the receiver enjoyed. But however that may be, there is certainly nothing in these operating losses which, by any stretch of the imagination, can be said to have been caused by any abuse of the court's process in the particulars urged by the plaintiff.
I am clear, also, that no abuse of process was shown against the Fleet Corporation. The only proof with respect to the allegation that the receivership was engineered to create law business for Carson, Conrad's brother-in-law, consisted of an admission of the relationship existing between the two men, and testimony that Carson was present with Conrad during some of the negotiations preceding the receivership. Obviously, such proof is insufficient to sustain a claim of abuse of process.
I think, too, there was nothing to leave to the jury on the issue with respect to the books and documents. All of the records and papers relating to the criminal charge were voluntarily submitted to the Shipping Board, prior to the receivership, for examination and to be photographed. There was therefore no reason for the receiver to obtain possession of these same records and papers. Furthermore, there was ample justification for the receivership in the then critical condition of the company without searching for some ulterior purpose to discredit an otherwise entirely proper proceeding. In any event, there was nothing to connect the Fleet Corporation with any purpose to bring about the receivership in order to create law business for a relative of one of the Fleet Corporation's own counsel, or to secure possession of records and papers for use in criminal proceedings.
The motions of the defendant to set aside the verdict and to dismiss are therefore granted.
I find nothing in Slocum v. N.Y. Life Insurance Co., 228 U.S. 364, 33 S. Ct. 523, 57 L. Ed. 879, to conflict with the practice followed in this case. It is not at all unusual in this district to reserve decision, on consent of the parties, on motions to dismiss until after the verdict of the jury. And I can see no illegality or impropriety in such procedure. The motion raises only a question of law, and the decision thereon is in no way a usurpation of the functions of the jury.