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Debow v. Lakewood Hotel and Land Association

Decided: October 27, 1958.


Goldmann, Freund and Haneman. The opinion of the court was delivered by Goldmann, S.j.a.d.


Defendants failed to deposit security for costs prior to the hearing of this appeal, as required by R.R. 1:2-10, 2:2-5. No valid excuse is offered for failing to do so. As we have remarked on a number of occasions, our rules of court are more than mere guides and admonitions. They were made to be complied with and should not lightly be disregarded. This will result in a dismissal of the appeal.

However, it is not inappropriate to refer to the central problem posed on the appeal because of the importance of the statute involved, N.J.S.A. 14:3-15, relating to the posting of security in stockholders' derivative actions. Brief reference to the background facts will provide the setting for our discussion.

Plaintiff's complaint contained six counts. The first three respectively dealt with the three defendant corporations, interrelated, in which plaintiff was a minority stockholder. Suing on behalf of herself and others similarly situated, she demanded judgment to compel an accounting and repayment by defendant Haddad of various sums which she alleged he had diverted to his own benefit from the several corporations,

each controlled by him. In the fourth count she alleged that she had bought certain shares in defendants Lakewood Hotel and Land Association and Lakewood Country Club; that she had delivered the certificates to Haddad with the request that he transfer these shares on the company books and issue new certificates to her, and that he had failed and refused to do so. She demanded that he be ordered to issue the certificates. The fifth count alleged that Haddad owed her certain monies and stock under a contract of employment, and the demand was that judgment be entered for the sum due and defendant ordered to issue the stock. Finally, the sixth count alleged that Haddad had induced plaintiff to accept as part payment for monies due her a certain house on land owned by defendant Lakewood Hotel and Land Association, and plaintiff demanded judgment ordering him, as president of the company, to execute the necessary deed.

Pursuant to a motion by the corporate defendants, an order was entered requiring plaintiff to furnish $1,000 security to each of them for "reasonable expenses, including counsel fees, which may be incurred by said defendants in connection with this action * * *."

Lakewood Hotel and Land Association filed a counterclaim for monies collected by plaintiff and not paid over to the company. Haddad counterclaimed for $1,000 allegedly due him from plaintiff.

On October 15, 1957 the trial court entered its amended judgment dismissing plaintiff's claim under the contract of employment (fifth count); ordered defendant Lakewood Hotel and Land Association to convey the real estate involved in the sixth count; directed defendant Haddad to assign to plaintiff (or otherwise vest title in her) the shares involved in the fourth count; and dismissed plaintiff's stockholder's derivative action against the corporate defendants (first three counts). The court also dismissed the counterclaims of Haddad and the Lakewood Hotel and Land Association. Additionally, it directed Haddad to convey a certain yacht to plaintiff, or in lieu thereof pay her $4,250. (We find no mention of the boat in the pleadings before us.)

Defendant corporations were ordered to pay $2,000 to the court-appointed certified public accountant. They thereafter applied for costs and counsel fees. The trial court refused to award costs, stating that plaintiff had won in part and lost in part, so that she was neither entitled to costs nor required to pay any. Referring to the statute, N.J.S.A. 14:3-15, the trial judge remarked that if it were in his power to award counsel fees, the most he would allow would be $1,000 (presumably to each corporation). However, he considered the stockholders' derivative action as being separate and apart from plaintiff's personal actions and the counterclaims against her. Concluding that he was bound by the rules, he denied defendants' application for counsel fees.

We do not agree with defendant corporations' contention that the application for costs and counsel fees was well-founded under N.J.S.A. 14:3-15 and our rules of court. N.J.S.A. 14:3-15 provides:

"In any action instituted or maintained in the right of any domestic or foreign corporation by the holder or holders of shares * * * of such corporation having a total par value or stated capital value of less than five per centum (5%) of the aggregate par value or stated capital value of all the outstanding shares * * *, unless the shares * * * held by such holder * * * have a market value in excess of fifty thousand dollars ($50,000.00), the corporation in whose right such action is brought shall be entitled, at any stage of the proceeding before final judgment, to require the complainant or complainants to give security for the reasonable expenses, including counsel fees, which may be incurred by it in connection with such action and by the other parties defendant in connection therewith for which it may become subject pursuant to law, its certificate of ...

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