American & British Manufacturing Co. v. International Power Co.

Smith, J.:

Upon the 11th day of December, 1914, the International Power Company, a corporation organized under the laws of the State of New Jersey, was declared insolvent by the Chancery Court of New Jersey, and its assets were vested in the appellant Sadler as the receiver thereof. Thereafter, and in May, 1915, one Charles H. Bidder was appointed receiver of the assets of said corporation within this State for the benefit of the New York creditors. A large part of the assets of said International Power Company consisted in the stock of the American and British Manufacturing Company, a corporation organized under the laws of the State of New York. The New Jersey receiver first moved in this court to compel the New York receiver to turn over to him as domiciliary receiver the said stock, that he might vote the same and control the said corporation. This motion was denied, and upon appeal this court affirmed the order denying the same. (172 App. Div. 906.) Thereafter the said Bidder, as the New York receiver, made application to the court for instructions as to how the said stock should be voted, and the order of the court made upon the said motion directed him to vote the stock for the re-election of the present directors. This part of the order thus made is ques*321tioned in the second appeal here considered. Sadler, as the domiciliary receiver, upon new affidavits moved (1) to be allowed to intervene in this action, in which the said Bidder was appointed the New York receiver; (2) to revoke the direction of said Bidder to vote the said stock for the re-election of the present directors; and (3) permitting the said Sadler, as receiver, to renew his application for a direction to the said Bidder to give to him a proxy for the voting of said stock. This motion was denied. Upon these two appeals then, by Sadler, the domiciliary receiver, the question is fairly presented as to whether the domiciliary receiver, with title to this stock, shall be allowed to vote the same, and thus control the corporation, or whether the control of the corporation shall be given to the New York receiver through the instructions given to him to vote the stock for the re-election of the present directors of the corporation.

In the view that I take of this case it is unnecessary to decide whether the domiciliary receiver, with title to this stock, is entitled as a matter of law to vote the same under section 23 of the General Corporation Law (Consol. Laws, chap. 23; Laws of 1909, chap. 28). The New York receiver cannot hold this property for the exclusive benefit of the New York creditors. It would be an unseemly administration of the law in different States if the receivers appointed in those different States were to contend for the possession of the assets for distribution among the creditors existing in their respective States, and, furthermore, the Constitution of the United States requires equality in the distribution of the assets. (U. S. Const, art. 4, § 2, subd. 1; Blake v. McClung, 172 U. S. 239; People v. Granite State Provident Association, 161 N. Y. 492.) Moreover, as these questions have arisen presenting apparent conflict between receivers of the different States, a comity has arisen recognized by the courts, whereby the receiver of the home State with title to the assets is given a primary right, and the receivers in States foreign to the home of the corporation are given only such power as may be necessary to secure to the creditors in their respective States a just distribution of the assets of the corporation. (See People v. Granite State Provident Association, 41 App. Div. 266, 267, where the respective *322rights of the domiciliary receiver and the receiver in other States is considered. See, also, Sands v. E. S. Greeley & Co., 88 Fed. Rep. 130.) Under this rule of comity our courts might well have compelled the New York receiver to transfer to the appellant this stock upon the giving by the appellant of a bond to pay to the New York creditors their just share in the distribution of the assets. On the other hand, as the plaintiff is a domestic corporation the court has deemed it wiser that the possession of the stock should remain in the New York receiver. It was not decided, however, upon the motion to transfer the stock to the appellant that the New York receiver should have full power to control the corporation, and thus practically to take out of the hands of the domiciliary receiver the closing up of the insolvent corporation. By the rule of comity adopted every power should be given to the domiciliary receiver, subject to instruction from the Chancery Court of that State, except such power as is necessary for the protection of the New York creditors. Within this rule of law the control of the insolvent corporation and of its assets, including its controlling interest in the plaintiff corporation, should vest in the home receiver. Affidavits are presented for and against the advisability of the continuation of the present directors. To my mind, however, that question is one which should be left to the domiciliary receiver, under the direction of the domiciliary court, and our courts, looking only to the securing by New York creditors of their fair share in the distribution, should not take upon themselves the responsibility of such a determination. It will not be presumed that the management is to be so far changed as will interfere with present contracts, or as in any way to obstruct the progress of the work. The good faith and the competency of the domiciliary receiver will not here be questioned. If necessary to the protection of New York creditors a bond could be required, as suggested by Mr. Justice Cullen in People v. Granite State Provident Association (41 App. Div. 257). No facts are here presented, however, which suggest the necessity of such a bond, and the first order appealed from should be reversed; the appellant, as receiver, made a party to this action, and the New York receiver directed to give to him a proxy'to vote the stock of the plaintiff corporation at the next meeting for the election *323of directors; and the second order, giving instructions to the New York receiver as to the voting of said stock, should be reversed, with ten dollars costs and disbursements.

Order entered March 30, 1916, reversed, with ten dollars costs and disbursements, and motion granted to allow Wilbur F. Sadler, Jr., as receiver of the International Power Company, to intervene and become a formal party to the above-entitled action; also, instructing the said Charles H. Bidder, as receiver, to give to Wilbur F. Sadler, Jr., as receiver, a proxy upon all stock of the American and British Manufacturing Company held by Charles H. Bidder as receiver, to vote upon the same at any meeting of the stockholders that may be held, with ten dollars costs upon such motion.

Order entered January 12, 1916, appealed from reversed, so far as said order gives instructions to Charles H. Bidder to vote the stock of the American and British Manufacturing Company upon the re-election of directors of the corporation, and in other respects affirmed, with ten dollars costs and disbursements to the appellant.

Clarke, P. J., Scott, Dowling and Page, JJ., concurred.

Order entered March 30, 1916, reversed, with ten dollars costs and disbursements, and motion granted as stated in opinion, with ten dollars costs. Order entered January 12, 1916, reversed to extent stated in opinion, and in other respects affirmed, with ten dollars costs and disbursements. Orders to be settled on notice. •