Opinion
March 5, 1962
In a stockholder's derivative action brought by plaintiff on behalf of all the stockholders of the defendant corporation, Allis-Chalmers Manufacturing Company, for an accounting as to the loss and damages which said corporation sustained by reason of the misconduct of the other corporate and the individual defendants, and for other relief, the defendant Allis-Chalmers appeals from a resettled order of the Supreme Court, Special Term, Nassau County, dated July 13, 1961, which denied its motion to dismiss the second cause of action for patent insufficiency, pursuant to subdivision 4 of rule 106 of the Rules of Civil Practice. Order affirmed, with $10 costs and disbursements. The complaint in this derivative action brought by a stockholder of Allis-Chalmers contains two causes of action. The first cause of action is against the members of the board of directors of Allis-Chalmers, and is based on allegations that they engaged in a course of conduct to violate Federal antitrust laws, causing the corporation to pay fines and to be subject to treble damage suits, with attendant expense. Sufficient excuse for plaintiff's failure to make demand on the directors to institute action against themselves is alleged. The second cause of action incorporates the allegations of the first cause of action and also alleges that the other two corporate defendants, General Electric Company and Westinghouse Electric Corporation, induced and compelled the individual defendants to join in the conspiracy to violate the Federal antitrust laws, with resultant damage. The first cause of action was stayed by order duly made. Defendant Allis-Chalmers has moved to dismiss the second cause of action for insufficiency on the grounds: (a) that it is directed solely against the other corporate defendants, General Electric and Westinghouse, since the damage to Allis-Chalmers is alleged to have resulted from their acts; and (b) that there is no allegation either of a demand on the directors of Allis-Chalmers to institute suit against such other corporate defendants or of facts sufficient to excuse such demand. The said motion to dismiss was denied at Special Term on the ground that Allis-Chalmers did not have the right to move to dismiss, since the action was brought on its behalf. While we affirm the order, we do not pass on the question whether Allis-Chalmers had the right to move to dismiss the second cause of action. That question was not argued or briefed at Special Term. Nor does the plaintiff in his brief here seek to sustain the order on that ground. The second cause of action incorporates all the allegations of the first cause of action, and so read it alleges a cause of action against the individual and the corporate defendants, with damages to Allis-Chalmers as the result of the active wrongdoing of both the individual and the corporate defendants. Since sufficient excuse is alleged for the plaintiff's failure to demand the institution of suit against the individual defendants, the motion to dismiss the second cause of action for insufficiency was properly denied. It is not necessary presently to consider the sufficiency of that cause of action against defendants General Electric and Westinghouse for failure to allege a demand on the directors of Allis-Chalmers to institute suit against them. The time of the defendants to serve an answer with respect to the second cause of action is extended until 30 days after entry of the order hereon. Beldock, P.J., Ughetta, Kleinfeld, Christ and Hopkins, JJ., concur.