Opinion
Submitted June 4, 1913
Decided June 20, 1913
George Welwood Murray for Iron Railway Company, appellant. Ralph Polk Buell and George S. Graham for William A. Dick et al., constituting the firm of Dick Bros. Co., appellants.
Achilles H. Kohn and Robert G. Starr for Jules S. Bache et al., composing the firm of J.S. Bache Co., appellant. Hugh A. Bayne for respondent.
I think that the demurrers to the complaint have been properly overruled and that the pleading sets forth a cause of action, of which the Supreme Court has jurisdiction. In a previous action, brought by this plaintiff against Lisman and others, the demurrers were sustained and the complaint was dismissed. ( Trotter v. Lisman, 199 N.Y. 497, 501.) We held that the complaint was defective; inasmuch as it did not appear that the plaintiff had recovered any judgment against the debtor railway company in any court of this state and no facts were stated, from which it would appear that such an action could not have been brought here and which would constitute an excuse for not bringing one. As the complaint was then framed, the plaintiff, notwithstanding that his judgment was recovered in the state of Ohio, was to be regarded merely as a general creditor, who had not complied with the requirements of the Code in such cases by first exhausting his legal remedies. It was observed that "no ground is made to appear by the bill for the exercise of the court's equitable powers. * * * The plaintiff alleges the recovery of a judgment upon his claim in a court of another state and an unsatisfied execution thereupon; but he does not state any sufficient excuse for not bringing an action in a court of this state." We recognized that the provisions of the Code of Civil Procedure did not affect the inherent power of a court of equity to take jurisdiction, when invoked in a case falling within some subject of equity jurisdiction; but no such exceptional case was made out. In the present action, however, the plaintiff has amended his complaint, so as to make it appear that he is a non-resident and that the sum of $600,000, paid under the contract for the sale by the Iron Railway Company of its property and franchises, was received by Lisman Co. in New York city and was there distributed by them to and among the parties defendant, as holders of the shares of the railway company's capital stock. It now appears that the plaintiff could not maintain an action in the courts of this state against the company, within the provisions of section 1780 of the Code of Civil Procedure; inasmuch as the cause of action, upon which his judgment had been recovered, did not arise within this state. That cause of action was the indebtedness of the company upon the Ohio contracts. The case is not brought under our statute governing creditors' actions. The plaintiff invokes the interposition of the equity powers of the court to redress a wrong, committed by persons within its jurisdiction, and there is no valid reason why he should be denied the equitable relief demanded. The Supreme Court possesses general jurisdiction in equity and creditors' actions to reach the personal property and things in action of their judgment debtors have always been of equitable cognizance. That the assets of a corporation constitute a trust fund for the payment of its debts and that its creditors have an equitable lien upon the same, superior to the right of the stockholders, is well settled. ( Bartlett v. Drew, 57 N.Y. 587; Cole v. Millerton Iron Co., 133 id. 164.) The object of this action is an accounting and the restoration of assets, which appear to have been diverted from the corporate treasury and to have been apportioned by Lisman Co. between themselves and the other stockholders, here resident. The allegations of fact in the complaint, which the demurrer admits, are that "the firm of F.J. Lisman Co. * * * during the performance of said contract * * * controlled the conduct of the affairs and business of the railway company, through ownership and through control of the capital stock thereof; and said firm arranged, directed and controlled the terms and provisions of said contract of June 2, 1902; and the said firm of F.J. Lisman Co., purporting to act on behalf of the railway company, received, in New York city, New York, the sum of $600,000, and interest thereon, a part of the consideration for said conveyance, and thereupon, and in accordance with the provisions of said contract hereinbefore recited, in October, 1902, said firm of F.J. Lisman Co., paid the same in said city to the following firms, who were * * * shareholders of the Railway Company." The cause of action set forth in the complaint is the diversion of the assets of the Iron Railway Company by the individual defendants, in New York, in fraud of the rights of the creditors of the railway company. The circumstances that the plaintiff is a non-resident, that his judgment debtor is a foreign corporation and that the judgment was founded on a cause of action arising in a foreign state affect his right to bring a creditor's action under the Code; but they are immaterial as affecting the fact that these defendants have received property of the railway company, which should be applied upon its debts and for which they should account. The necessity of bringing the action in this state is apparent and the Code has not deprived the Supreme Court of its equitable powers to intervene and to grant relief to a creditor, when its decrees can be enforced against a defendant. (See Nat. T. Bank v. Wetmore, 124 N.Y. 241; Miller v. Quincy, 179 id. 294; De Coppet v. Cone, 199 id. 56; Ernst v. Rutherford B.S. Gas Co. 38 App. Div. 388.) It would seem an intolerable assertion, under the allegations of fact in this complaint, that the court was without jurisdiction to entertain an action for the recovery of the corporate assets appropriated by the defendants. The plaintiff's cause of action is not derived from the Iron Railway Company; it is one which belongs to him as a creditor to proceed directly against the persons to whom, through the action of the corporation and by the subsequent act of Lisman Co., the only available corporate assets have been transferred in fraud of the rights of creditors.
The Iron Railway Company is not a necessary party to the action; but its presence as a nominal party defendant is proper enough, in order, if the plaintiff be eventually successful in his action, that, by its voluntary appearance therein, the other defendants may have the benefit of its being concluded by the judgment.
The orders appealed from should be affirmed and the questions certified should be answered in the affirmative.
CULLEN, Ch. J., WILLARD BARTLETT, HISCOCK, CHASE, HOGAN and MILLER, JJ., concur.
Orders affirmed, with costs.