author: Rippey, J. Lehman, Ch. J.

text:
    Wendel Foundation, Appellant, v. Moredall Realty Corporation, Respondent.

      Argued November 21, 1939;
    reargued January 24, 1940;
    decided March 5, 1940.

      Harold Harper, Benjamin A. Matthews and James E. Austin for appellant.
    The tenant covenanted to pay further rent measured by the prevailing income tax rates applied to the fixed annual rent in accordance with an arbitrary standard which expressly disregarded the actual tax liability of the landlords. (Old Colony Trust Co. v. Commr. of Internal Revenue, 279 U. S. 716; United States v. Boston & Maine R. R., 279 U. S. 732; O’ Neil Supply Co. v. Petroleum Heat & Power Co., 280 N. Y. 50.) Defendant’s construction deprives the charities of the exemption the law designed for them and transfers the benefit of the exemption to the tenant as a pure windfall. (Illinois Central R. R. Co. v. Decatur, 147 U. S. 190; German Society v. City of Philadelphia, 9 Phila. 245; Jetton v. University of the South, 208 U. S. 489; People ex rel. Muller v. Board of Assessors, 93 N. Y. 308.)

      Milton R. Weinberger, Samuel Seabury, William Klein, Adolph Lund and Leopold Friedman for respondent.
    If no tax was required to be paid upon the reserved rent, then under the lease defendant was not obliged to pay the sums provided in paragraph “ Third.” (Wisser Oil Co. v. Ganfrank Holding Corp., 163 Misc. Rep. 357; Ayer v. Bonwit, 161 App. Div. 122; Clark v. Coolidge, 8 Kan. 133; Soulard v. Peck, 49 Mo. 477; Scott v. Society, 59 Neb. 571; Neponsit P. O. Assn. v. Emigrant Ind. Sav. Bk., 278 N. Y. 248; Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125; Afgo Eng. Corp. v. State, 244 App. Div. 395; 268 N. Y. 716; Barkin Constr. Co. v. Goodman, 221 N. Y. 156; Little v. Banks, 77 Hun, 511; 151 N. Y. 669; Pollock v. Penn. Iron Works Co., 13 Misc. Rep. 194; 157 N. Y. 699; Worthington v. Herrmann, 89 App. Div. 627; Russell v. Allerton, 108 N. Y. 288.) The construction of the lease by the courts below is in harmony not only with the expressed intent of the parties but also with the rules of law applicable to the construction of a written lease. (Columbus Spa, Inc., v. Star Co., 216 App. Div. 218; Moskowitz v. Diringen, 48 Misc. Rep. 543; Orr v. Doubleday, Page & Co., 223 N. Y. 334; Auerbach v. Foster’s Place, Inc., 128 Misc. Rep. 875; Cohen v. Margolies, 192 App. Div. 217; Afgo Eng. Corp. v. State, 244 App. Div. 395; 268 N. Y. 716; Hopwood Plays, Inc., v. Kemper, 263 N. Y. 380; Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125; Farmers Loan & Trust Co. v. Park & Tilford, 127 Misc. Rep. 59; Crown Corset Co. v. Baumann & Co., 213 App. Div. 113; Bernstein v. Smith, 119 Misc. Rep. 34; 205 App. Div. 880.)
   Rippey, J.

On November 1,1916, the surviving children, individually or as trustees under a deed of trust made by John G. Wendel (now deceased), were the owners of certain premises located on the southwest corner of Broadway and West Fifty-first street in the city of New York. The entire title ultimately vested on July 20, 1930, in Ella V. von E. Wendel. Miss Wendel died March 13, 1931, leaving a last will and testament by which she devised her residuary estate (including the aforesaid property) to various charitable corporations. Upon Miss Wendel’s death temporary administrators of her estate were appointed, entered upon the discharge of their duties and continued to act as such until June 29, 1933, when executors were appointed and entered upon the discharge of their duties as such. The surviving of those executors delivered possession of the premises to the residuary beneficiaries named in the will on August 8, 1934, as of June 29, 1934, subject to the lease hereinafter referred to and the power of sale contained in the will, who retained possession and were entitled to all income from the premises, due and becoming due to December 1, 1936. In the meantime and on May 16, 1935, the plaintiff was incorporated by an act of the State Legislature (Laws of 1935, ch. 947) to manage and liquidate the residuary estate. Plaintiff took title by conveyance dated December 1, 1936, from the surviving executors and residuary beneficiaries under the will of Miss Wendel and held title and became entitled to the income from the property, then due and to become due, until August 10, 1937, when the property was conveyed to the Stonehurst Land & Development Company, Inc., with an assignment of the lease thereon and sums due and to become due thereunder as rent, excepting and reserving, however, all sums due from the tenant under the lease or in arrears other than the fixed annual net rent reserved. Both the residuary beneficiaries under the will of Miss Wendel and plaintiff were exempt from payment of all income, excise and license taxes or duties of every kind (Laws of 1935, ch. 947, § 7; Tax Law [Cons. Laws, ch. 60], § 4, subd. 6; People ex rel. Trustees Masonic Hall & Asylum Fund v. Miller, 279 N. Y. 137; U. S. Code, tit. 26, § 103 [6, 14]).

On December 1, 1916, the owners of the premises above referred to leased the property to defendant by a written instrument, binding upon and enuring to the .benefit of the parties, their heirs, administrators, executors, successors and assigns, for a period of twenty-one years, in which a net annual rental (for the period involved in this suit) of $51,000 was reserved and the defendant also agreed to pay to the landlords, in addition to the rent so reserved and as additional rent, such sums each year as they might legally be required to pay on account of taxes (including income taxes), repairs, insurance, etc., arising out of their ownership of the property and the income derived therefrom.

Plaintiff brought this action to recover a sum equal to the amount of annual income taxes, not heretofore advanced by defendant, which it and the representatives and residuary legatees of Miss Wendel would have been compelled to pay on the annual net rental of $51,000 had they been subject to the payment of such taxes on the theory that such sums were due and payable as rent additional to the specified net annual rent reserved notwithstanding that the hypothetical taxes which the sum sued for represents were never and never could be legally imposed, levied or assessed against the landlords or exacted from them by any governmental authority and that none such were ever paid. By its answer, defendant put in issue certain material allegations of the complaint, and, in addition, set up two separate defenses and counterclaimed for moneys which it had erroneously paid to the representatives of the estate of Miss Wendel and to the residuary charitable corporate legatees and returned by them to plaintiff. Plaintiff moved at Special Term to strike the separate defenses and counterclaim from the answer. Defendant made a cross-motion to dismiss the complaint on the ground that it failed to state facts sufficient to constitute a cause of action. Defendant’s motion was granted, plaintiff’s motion was denied. Thereupon judgment was entered dismissing the complaint and severing the action to continue the counterclaim. On appeal, the Appellate Division unanimously affirmed. The case is here by permission of this court.

The parties agree that the rights of the parties turn upon the construction to be placed on paragraph third of the lease. That paragraph, so far as material, reads as follows:

“ Third. That the Tenant, its successors and assigns shall pay to the Landlords, their heirs, successors or assigns in each and every year during the said term as further rent, a sum or sums of money equal to all the income, excise and license taxes or duties of every kind, additional and super as well as normal, extraordinary as well as ordinary, unforeseen as well as foreséen, that shall be imposed, levied or assessed in any such year upon the rent reserved by this lease or the income secured hereby from the demised premises, by any present or future law of the United States of America, or of the State of New York, or of any other public or governmental body whatsoever, having authority to impose, levy or assess the same (as though the said rent reserved were the only income belonging to the Landlords, their heirs, successors and assigns who for the purposes of the computation of the amount of any such taxes or duties hereunder are to be considered as one person), without the benefit to the Tenant, its successors or assigns, of any deductions or exemptions to which the Landlords, their heirs, successors or assigns may be entitled, * * * and the said sum or sums of money shall be payable to the Landlords, their heirs, successors or assigns not later than five days after the first day the latter are required by law to pay the income, excise, license taxes or duties on the said rents or income for such year to the collector or receiving agent thereof; * * * but it is imderstood and agreed that in any event the full amount of the rent reserved hereby shall be paid to the Landlords, their heirs, successors or assigns over and above the sum or sums of money required to be paid by the Tenant, its successors and assigns as further rent as aforesaid.”

The wording of the clause seems fully and clearly to express the purpose and intention of the parties and their duties and obligations in clear and concise terms. Construction is solely for the court. The intention and purpose of the parties, if resort is needed to other portions of the lease, are clearly and certainly expressed. The intention must be found in the words used to express such intention (Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125, 133). The only rent reserved ” by the landlords for the period in question was $51,000 per year. That reservation as well as the distinction between rent reserved and other contingent sums which the tenant must pay if obligation was imposed on the landlords to pay and arising out of the tenancy is repeatedly referred to and made clear in various clauses of the lease. The purpose and intent are clearly expressed beyond successful contradiction to be that the landlords should receive a net annual rental of $51,000 under any and all contingencies, without any deduction for taxes, repairs, insurance, etc., and no more. Such an intention and purpose are expressed in the clause up for construction. In clause Two, relating to “ taxes, charges, assessments and payments * * * of every kind and nature whatsoever,” the parties say, It being the intention of the parties hereto that the rent reserved hereby shall be received and enjoyed by the landlords, their heirs, successors and assigns as a net sum ” so that they “ shall be enabled to apply the same to their own use without any diminution thereof by payment of any duty or tax.” (Italics ours.) In at least nine other clauses of the lease are similar provisions relating to improvements, damage actions and expenses, building construction, violation by the tenant of various covenants of the lease and of governmental regulations as to use, repairs, insurance and the like where agreement is made to indemnify the landlords for expenditures necessarily made or required to be made by them as additional rent. It is clear that clause Third provides for indemnity only to the landlords against liability for taxes imposed and only in the event of the levy, imposition and assessment of such taxes and the requirement that the landlords pay the same. There is no obligation on the tenant to pay as further rent a sum equal to taxes that might be imposed were the landlords not exempt from taxation. The obligation of the tenant was to pay if and when the landlords were required to pay and not otherwise.

It is argued that the expression that the additional rent is payable without the benefit to the Tenant, its successors or assigns of any deductions or exemptions to which the Landlords * * * may be entitled ” indicates a purpose to make the hypothetical taxes payable as additional rent regardless of any requirement on the part of the landlords to pay. It is safe to stand upon the wording of the written lease. If we take the words of the instrument to mean what they clearly say, it follows that the so-called exemption clause above quoted is consistent only with the requirement on the part of the landlords to pay taxes. It was immaterial who the landlords were, whether individuals or corporations, or what deductions or exemptions he or they might properly have in connection with income taxes to be paid. Unless such taxes were properly imposed and required to be paid, deductions and exemptions referred to are meaningless. But if and when income taxes were imposed, levied and assessed, then and then only did the parties remove from the realm of quibble and litigation the question of the amount to be paid as additional rent. As to that they said the additional rent to be paid is a sum equal to the amount of the tax imposed, levied and assessed without the benefit of any deductions or exemptions to which the landlords (taken as one) might be entitled. The above accords with the construction previously placed on the clause by the parties themselves.

Leases of the character of the one in question, where a fixed minimum rental is reserved and the tenant is required to pay as indemnity to the landlord, as additional rental, such sums as the landlord is required to pay as they arise out of and incidental to the ownership and leasing of the property, are not uncommon to men of business affairs. The parties to this lease were experienced in the practical business affairs of life. Any construction other than the one we have made would do violence to the language used and would be so refined and theoretical as to be unreal to men of business and practical affairs and lead to absurdity. We are not called upon to indulge in abstractions and unreality to remake the lease so as to impose obligations on the tenant that the parties never had in mind.

The mere fact, if it be a fact, that the tenant has heretofore on some occasions paid the tax as though actually imposed is of no force as affecting a practical construction that no obligation existed to pay the same (Brainard v. N. Y. C. R. R. Co., 242 N. Y. 125; Hopwood Plays, Inc., v. Kemper, 263 N. Y. 380).

The judgment should be affirmed, with costs.

Lehman, Ch. J.

(dissenting). The owners of a parcel of real property at Broadway and Fifty-first street in the city of New York leased the property, in November, 1916, to the defendant for a term of twenty-one years. The tenant agreed to pay the “ net yearly rent or sum of $51,000.” The lease provided:

“ Third. That the Tenant, its successors and assigns shall pay to the Landlords, their heirs, successors or assigns in each and every year during the said term as further rent, a sum or sums of money equal to all the income, excise and license taxes or duties * * * that shall be imposed, levied or assessed in any such year upon the rent reserved by this lease or the income secured hereby from the demised premises, by any present or future law of the United States of America, or of the State of New York, or of any other public or governmental body whatsoever, having authority to impose, levy or assess the same (as though the said rent reserved were the only income belonging to the Landlords, their heirs, successors and assigns who for the purposes of the computation of the amount of any such taxes or duties hereunder are to be considered as one person), without the benefit to the Tenant, its successors or assigns of any deductions or exemptions to which the Landlords, their heirs, successors or assigns may be entitled, with interest at the rate of six per cent per aupiim * * * and the said sum or sums of money shall be payable to the Landlords, their heirs, successors or assigns not later than five days after the first day the latter are required by law to pay the income, excise, license taxes or duties on the said rents or incomes for such year to the collector or receiving agent thereof; * * * but it is understood and agreed that in any event the full amount of the rent reserved hereby shall be paid to the Landlords, their heirs, successors or assigns over and above the sum or sums of money required to be paid by the Tenant, its successors and assigns as further rent as aforesaid.”

At the time the lease was executed the owners of the property, described in the lease as “ the landlords ” were Rebecca A. D. Wendel Swope, Mary Eliza Astor Wendel, Georgiana G. R. Wendel, Ella V. von E. Wendel; and Rebecca A. D. Wendel Swope and Mary Eliza Astor Wendel as trustees, under a deed of trust made to them by John G. Wendel, deceased. Ella V. von Wendel died in March, 1931. All the other owners of the property, named in the lease as “ landlords,” had died before her and at the time of her death she was the sole owner. By her last will and testament she left her residuary estate to fourteen charitable corporations.

In 1936 the premises leased to the defendant were conveyed to the plaintiff, a charitable corporation, incorporated by a special act of the Legislature to manage and liquidate the properties which passed to the legatees named in the residuary clause of Miss Wendel’s will. The plaintiff conveyed the premises in 1937 to Stonehurst Land & Development Co., Inc, a New York corporation. From the date of Miss Wendel’s death until the conveyance by the plaintiff in 1937, charitable corporations were entitled to receive the rent derived from the premises under the lease. Charitable corporations are not subject to an income tax under the “ law of the United States of America, or of the State of New York or of any other public or governmental body whatsoever ” and the defendant, for that reason, has refused to pay to the plaintiff, while it was the landlord, as further rent,” an amount measured, as it had been measured during the lifetime of Miss Wendel, in accordance with paragraph Third of the lease, by the amount of the income tax which would have been imposed upon the income derived from rents reserved under the lease “ (as though the said rent reserved were the only income belonging to the Landlords, their heirs, successors and assigns who for the purposes of the computation of the amount of any such taxes or duties hereunder are to be considered as one person), without the benefit to the tenant, its successors or assigns of any deductions or exemptions to which the Landlords, their heirs, successors or assigns may be entitled.” The plaintiff in this action seeks to recover such “ further rent.” The problem presented is whether the defendant’s obligation to pay as further rent ” a sum equal to an income tax so computed is subject to a condition that some tax, though computed in other manner, shall actually be imposed upon and payable by the landlord upon income derived from rents reserved under the lease.

We read the lease as a whole to determine the meaning and purpose of each paragraph of the lease. The rental reserved is the “ net yearly rent or sum of $51,000.” The implied obligation of the tenant to pay charges, which the landlord would otherwise be compelled to bear, is supplemented by obligations expressly assumed by the tenant in other paragraphs of the lease. These supplemental obligations, it is argued, are intended merely to carry out the clear intent of the lease to provide a net rental to the landlords of $51,000 "under any and all contingencies. In paragraph Two the tenant assumes expressly an obligation to pay, in addition to the rent, all taxes, duties, charges, assessments and payments that might be imposed upon the premises, or the estate or interest of the landlord therein or “ upon the rents reserved by the lease;” and the reason why the tenant assumes that obligation is stated: “ * * * it being the intention of the parties hereto that the rent reserved hereby shall be received and enjoyed by the Landlords, their heirs, successors and assigns as a net sum, and that the Tenant, its successors and assigns, shall pay any and all taxes imposed thereon, or upon the payment or devolution thereof, or upon such rents after they shall have been received by the Landlords, their heirs, successors and assigns, and as long as they retain their legal identity as rent, in such manner that the Landlords, their heirs, successors and assigns shall be enabled to apply the same to their own use without any diminution thereof by payment of any duty or tax.” (Italics are new.) We are told that the object of the provisions of both paragraphs Two and Three is solely to assure the landlords that the rent of $51,000 would be received by them as a net sum approximately tax free.

Undoubtedly that is the object of paragraph Second and it accomplishes that object. When the obligations assumed by the tenant in that paragraph were carried out, the landlords received the rents as a net sum and in such manner that they were enabled to apply the same to their own use without any diminution thereof by payment of any duty or tax.” The sums received as rent by the landlords then lost their identity and became part of the general income of the landlords. Those sums were then no longer taxable as rent. The income tax which the landlords might be compelled to pay might be increased because the rents received would increase the income and, therefore, might increase the tax payable on such income; but the tenant never agreed in paragraph Third or any other paragraph of the lease to pay such increase.

It is concededly impossible to give a literal effect to all the words of paragraph Third. The tenant, in terms, agreed that it shall pay as further rent, a sum or sums of money equal to all the income, excise and license taxes or duties * * * that shall be imposed, levied or assessed * * * upon the rent reserved by this lease or the income secured hereby from the demised premises, by any present or future law of the United States of America, or the State of New York; * * * and the said sum or sums of money shall be payable * * * not later than five days after the first day the latter are required by law to pay the income, excise, license taxes or duties on the said rents or income.” The provisions of the same paragraph, which amplify the obligation and define the manner in which the sum or sums shall be computed, which the tenant must pay as further rent, make clear, however, that, in truth, the sum or sums of money which the tenant agreed to pay are not equal to a tax on the rents or income which the landlord is actually required to pay but a sum equal to a tax computed on a theoretical and impersonal basis, which might be much less or much greater than the amount which any actual landlord would pay.

Rents received from real property by a landlord who is subject to income taxes under the laws of the United States and of the State of New York form a part of the base upon which the amount of such income tax is calculated. Nevertheless, no tax is imposed separately upon the income or profits derived from specific property; the tax is solely upon the aggregate of all the net income received by the taxpayer after deducting the amount of losses and expenses incurred by the taxpayer, and after making allowance for the exemptions to which he is entitled. The rate of any tax imposed upon the landlord is determined, not by the amount of rent received, but by the amount of the entire net income of the landlord, and where losses or expenses of the landlord incurred through ownership of other property or transactions in nowise connected with the ownership of the demised real property exceed all the income received, including rents from the demised property, no tax is payable by the landlord. The parties might have agreed that the tenant would pay the proportion of any income tax imposed upon the landlord which the amount of the rents received bears to the entire income of the landlord or that the tenant would pay the amount by which the landlord’s income tax is increased through receipt of rentals from the demised property. They have not done so. The amount which the tenant agrees to pay in addition to the fixed annual rental bears no substantial relation to any actual income tax which the landlord might be compelled to pay. What the tenant has agreed to pay is an amount computed upon a theoretical basis which excludes the most important factors which would measure the amount of any tax which the landlord in fact would pay upon the income of which the rents would be a part. The real landlords were several persons; the fictitious landlord was one person. The real landlords might have great incomes outside of the rents of the demised premises; or, on the other hand, expenses incurred or losses suffered by the landlords in transactions not connected with ownership of the demised property, might exceed those rents, and the landlords might have no net income subject to tax. The fictitious landlord had no income other than the rents reserved in the lease. The real landlords would be entitled to deductions and exemptions, but such deductions and exemptions, the parties stipulated, must be disregarded in computing the amount which the tenant was to pay.

Though the amount which the tenant has agreed to pay as further rent is not the amount of the tax or of any fractional part of such tax which might be imposed in fact upon the landlord, but is merely an amount computed according to a formula defined in the lease, which incorporates by reference the provisions of the income tax laws, and though the definition of that formula expressly prescribes that the computation shall be made without allowing the “ benefit to the tenant, its successors or assigns of any deductions or exemptions to which the landlords, their heirs, successors or assigns may be entitled,” we are told that the obligation which the tenant assumed under the provision of paragraph Third of the agreement is conditioned upon the imposition of some income tax upon the landlord, and becomes payable only five days after the tax actually imposed upon the landlord becomes payable.

That construction would have the strange result that, though the parties indisputably agree that in computing the amount which the tenant must pay, the tenant should be without benefit from any exemption to which the landlord might be entitled in reduction of the tax to which the landlord is subject, yet where the landlord is entitled to complete immunity from any tax, the tenant obtains the full benefit of that immunity. If, reading the lease as a whole, it appeared plainly that the dominant purpose of paragraph Third was to provide for the landlords some indemnity or protection against the income taxes which the landlord will be required to pay, then to effectuate that purpose, a construction might be placed upon the language of paragraph Third which would otherwise seem strained. The fact, however, that the amount which the tenant undertook to pay in accordance with the agreed formula bears little, if any, relation to the income tax which the actual landlord must pay, and the fact that it was expressly agreed that the tenant should receive no benefit in such computation from any deduction or exemptions to which the landlord might be entitled, indicates that this was not the dominant, and certainly not the sole, purpose of the provision. In clearest terms, the parties agreed that the obligation of the tenant should be fixed regardless of the personality or the deductions and exemptions to which the landlord might be entitled.

The landlords exacted from the tenant an express promise to pay a net rent or sum of $51,000 and further rent measured by an income tax computed upon a purely impersonal basis. The tenant voluntarily agreed to assume that obligation, which, because computed on an impersonal basis, was concededly not intended to vary with change in the person of the landlord but which, it is said, might cease to exist by reason of such a change. Tax exempt securities are a much more desirable form of investment for an investor with a very large income than property which brings the same income where such income must be included in the base upon which an income tax is levied. The comparative value is measured by the rate of taxation. The disparity increases with every increase of tax and diminishes with diminution in the amount of a tax. Doubtless the landlords, in exacting a sum as further rent ” equal to an income tax computed upon an impersonal basis, had in mind such considerations and sought compensation for such disparity; but that does not mean that the parties intended that a landlord who was not subject to any income tax would not be entitled to the further rent which the tenant agreed to pay.

Such a construction would, I think, disregard those practical considerations which govern people in their business dealings. Because the original landlords were subject to an income tax, an investment in real property bringing in a rental of $51,000 would be much less valuable to them than an investment in tax exempt securities bringing in the same return; but tax exempt securities bringing in such return would probably also cost much more. The landlords might not be able to exact as further rent a sum equal to the additional tax which a landlord having other large income would pay but the landlords would and did exact as further rent a sum equal to the income tax which a landlord having no other income would pay. Real property on which a tenant will pay a net rent or sum of $51,000 and as further rent a sum equal to the income tax, computed as provided in the lease, will, it is plain, have more value than real property upon which only a net rent of $51,000 is paid; and the owner of the property should be able to transfer that value to any person to whom the property is transferred. Under the construction urged by the defendant, a transfer of the real property to a natural person would carry with it the right to further rent equal to the income tax imposed by the laws of the State of New York and of the United States, for the income of a natural person is subject to the tax imposed both by the State and by the United States. A transfer to a business corporation would not carry with it a right to further rent equal to the income tax imposed by the laws of the State of New York, for only natural persons are subject to the income tax imposed by the State of New York; and a transfer, as here, to a charitable corporation, exempt under the laws of the United ■ States, would not carry with it a right to any further rent for such a corporation is not subject to any income tax imposed by either the United States or the State of New York. Thus the benefit and the burden of the lease would vary with the person of the landlord and no corporation which is not subject to an income tax could afford to buy or hold the property, for it would be much more valuable to a landlord subject to the tax than it would be to a landlord whose income is immune from taxation.

The judgment of Special Term and the Appellate Division should be reversed and the motion of the plaintiff to strike out the defenses and counterclaims should be denied, with costs in all courts.

Loughran, Finch, Lewis and Conway, JJ., concur with Rippey, J.; Lehman, Ch. J., dissents in opinion, in which Sears, J., concurs.

Judgment affirmed.


source: Caselaw Access Project

author: Lehman, Ch. J.

license: Public Domain

text:
    In the Matter of Stork Restaurant, Inc., Respondent, against John P. Boland et al., Constituting the New York State Labor Relations Board, Appellants. In the Matter of New York State Labor Relations Board, Appellant, against Stork Restaurant, Inc., Respondent. Hotel, Restaurant and Cafeteria Employees Organization Committee, Intervener, Appellant.

      Argued November 16, 1939;
    reargued January 23, 1940;
    decided March 5, 1940.

      Ralph T. Seward, Henry A. Silver, Eugene Cotton and Daniel Kornblum for New York State Labor Relations Board, appellant.
    The Board’s findings are fully supported by substantial evidence. Courts may not substitute their judgment for that of the Board and the Board’s findings of fact, if supported by evidence, are conclusive. (Metropolitan Life Ins. Co. v. New York State Labor Relations Board, 280 N. Y. 194; Washington, Virginia & Maryland Coach Co. v. National Labor Relations Board, 301 U. S. 142; Consolidated Edison Co. v. National Labor Relations Board, 95 Fed. Rep. [2d] 390; 305 U. S. 197; Federal Trade Comm. v. Pacific States Paper Trade Assn., 273 U. S. 52; Florida v. United States, 292 U. S. 1; Matter of Chetney v. Manning Co., 273 N. Y. 82; National Labor Relations Board v. Kentucky Fire Brick Co., 99 Fed. Rep. [2d] 89; National Labor Relations Board v. Nebel Knitting Co., 103 Fed. Rep. [2d] 594; National Labor Relations Board v. Wallace Mfg. Co., 95 Fed. Rep. [2d] 818; Agwilines, Inc., v. National Labor Relations Board, 87 Fed. Rep. [2d] 146; United States v. Louisville & Nashville R. R. Co., 235 U. S. 314; Federal Trade Comm. v. Algoma Lumber Co., 291 U. S. 67.)

      Joseph D. Drazen and Jerome Drazen for intervener, appellant.
    There is substantial evidence to support and sustain the findings made by the Board. (National Labor Relations Board v. Fansteel Metallurgical Corp., 306 U. S. 240; Davega City Radio, Inc., v. New York State Labor Relations Board, 281 N. Y. 13; Washington, Virginia &

      Maryland Coach Co. v. National Labor Relations Board, 301 U. S. 142; National Labor Relations Board v. Pennsylvania Greyhound Lines, Inc., 303 U. S. 261; Consolidated Edison Co. v. National Labor Relations Board, 305 U. S. 197; Metropolitan Life Ins. Co. v. New York State Labor Relations Board, 280 N. Y. 194; National Labor Relations Board v. Nebel Knitting Co., 103 Fed. Rep. [2d] 594; Matter of Collier Service Corp. v. Boland, 167 Misc. Rep. 709; Matter of New York State Labor Relations Board v. Inter-borough News Co., 170 Misc. Rep. 347.) The Board’s order, supported by substantial evidence, is proper in all respects. (National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U. S. 1; National Labor Relations Board v. Pennsylvania Greyhound Lines, Inc., 303 U. S. 261.)

      Edward J. Chapman and Harry Rodwin for respondent.
    The record discloses no substantial evidence to support the decision and findings made by the Board and the Appellate Division, therefore, properly vacated its order. (Matter of International Ry. Co. v. Boland, 169 Misc. Rep. 926; National Labor Relations Board v. Columbian Enameling & Stamping Co., 306 U. S. 292; National Labor Relations Board v. Sands Mfg. Co., 306 U. S. 332; National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U. S. 1; Associated Press v. National Labor Relations Board, 301 U. S. 103; National Labor Relations Board v. Union Pacific Stages, Inc., 99 Fed. Rep. [2d] 153; Ballston-Stillwater Knitting Co. v. National Labor Relations Board, 98 Fed. Rep. [2d] 758; National Labor Relations Board v. Fansteel Metallurgical Corp., 306 U. S. 240; Ford Motor Co. v. National Labor Relations Board, 305 U. S. 364.)
   Lehman, Ch. J.

In the summer of 1937 the Hotel, Restaurant and Cafeteria Employees Organization Committee (hereinafter referred to as the union) was established jointly by twelve local unions, affiliated with the American Federation of Labor. Its purpose was to conduct a campaign to organize workers in the hotel and restaurant industry in New York city. Shortly before Labor Day some of the waiters employed by Stork Restaurant, Inc., which conducts a restaurant widely known as the Stork Club, joined the union. Within three weeks they and other waiters who had joined the union were discharged and a few days thereafter the employees of the Stork Club had formed an organization which they called the Stork Restaurant Employees Association (hereinafter referred to as the association). Promptly after its organization the association presented a demand for a wage increase and for improvement in some respects of working conditions. These were immediately granted by the restaurant, which, at the same time, recognized the association as the representative of the employees for purposes of collective bargaining,

The Legislature, by chapter 443 of the Laws of 1937, added to the Labor Law (Cons. Laws, ch. 31) article 20, entitled, New York State Labor Relations Act. It provides that “ employees shall have the right of self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in concerted activities, for the purpose of collective bargaining or other mutual aid or protection, free from interference, restraint, or coercion of employers.” (§ 703.) To protect these rights guaranteed by section 703, the same article of the Labor Law creates a Labor Board, empowered and directed, as provided in the statute, “ to prevent any employer from engaging in any unfair labor practice.” (§ 706.) The union has, in this case, charged that the Stork Restaurant, Inc., has engaged in unfair labor practices which interfere with the exercise by its employees of the rights guaranteed by the Labor Law.

The acts which constitute “ unfair labor practices ” in which employers may not engage, and which the Board is empowered to prevent, are enumerated in section 704. So far as relevant to the charges made by the union against Stork Restaurant, Inc., that section provides:

“ It shall be an unfair labor practice for an employer:

“1. To spy upon or keep under surveillance, whether directly or through-agents or any other person, any activities of employees or their representatives in the exercise of the rights guaranteed by section seven hundred three.

“2. To prepare, maintain, distribute or circulate any blacklist of individuals for the purpose of preventing any of such individuals from obtaining or retaining employment because of the exercise by such individuals of any of the rights guaranteed by section seven hundred three.

“ 3. To dominate or interfere with the formation, existence, or administration of any employee organization or association, agency or plan which exists in whole or in part for the purpose of dealing with employers concerning terms or conditions of employment, labor disputes or grievances, or to contribute financial or other support to any such organization, by any means, including but not limited to the following: (a) by participating or assisting in, supervising, controlling or dominating (1) the initiation or creation of any such employee organization or association, agency, or plan, or (2) the meetings, management, operation, elections, formulation or amendment of constitution, rules or policies, of any such employee organization or association, agency or plan; (b) by urging the employees to join any such employee organization or association, agency or plan for the purpose of encouraging membership in the same; (c) by compensating any employee or individual for services performed in behalf of any such employee organization or association, agency or plan, or by donating free services, equipment, materials, office or meeting space or anything else of value for the use of any such employee organization or association, agency or plan; provided that, an employer shall not be prohibited from permitting employees to confer with him during working hours without loss of time or pay.

4. To require an employee or one seeking employment, as a condition of employment, to join any company union or to refrain from forming, or joining or assisting a labor organization of his own choosing.

“ 5. To encourage membership in any company union or discourage membership in any labor organization, by discrimination in regard to hire or tenure or in any term or condition of employment: Provided that nothing in this article shall preclude an employer from making an agreement with a labor organization requiring as a condition of employment membership therein, if such labor organization is the representative of employees as provided in section seven hundred five. * * *

9. To distribute or circulate any blacklist of individuals exercising any right created or confirmed by this article or of members of a labor organization, or to inform any person of the exercise by any individual of such right, or of the membership of any individual in a labor organization for the purpose of preventing individuals so blacklisted or so named from obtaining or retaining employment.

10. To do any acts, other than those already enumerated in this section, which interfere with, restrain or coerce employees in the exercise of the rights guaranteed by section seven hundred three.”

“ Whenever a charge has been made that any employer has engaged in or is engaging in any unfair labor practice, the board shall have power to issue and cause to be served upon such employer a complaint stating the charges * * *.” (§ 706.) The complaint which the Board issued and caused to be served upon Stork Restaurant, Inc., as thereafter amended, stated in substance that the employer had engaged in the unfair labor practices enumerated in section 704, by discharging eleven waiters, named in the complaint, because of their union activities; by spying and keeping its employees under surveillance; by forming and dominating a company union, known as the Stork Restaurant Employees Association, and by otherwise interfering with, restraining and coercing its employees in the exercise of the rights guaranteed them by section 703 of the Labor Law.

Numerous hearings on the charges stated in the complaint were held between October 28, 1937, and February 17, 1938, before different members of the Board and one hearing before the Secretary of the Board, who had been designated as Trial Examiner for that hearing. The employer had full opportunity to be heard, to examine and cross-examine witnesses and to introduce evidence. On June 10, 1938, the Board prepared proposed findings of fact and conclusions of law. Opportunity was offered to all parties to file exceptions to the proposed findings and conclusions and to argue the questions involved. The employer filed exceptions on June 17, 1938, but wrote that it would dispense with argument as its position was adequately presented in the Brief and Exceptions heretofore filed to which the Board’s attention is again respectfully directed.” On October 25, 1938, the Board filed a “ Decision, Findings of Fact and Order of the Board,” signed by two of its members. In that decision the Board, after a detailed review of the evidence, made fifty-nine formal findings of fact and eleven conclusions and it based on those findings and conclusions an order which directed the employer to “ cease and desist ” from certain acts there specified and also to take other specified affirmative action which the Board finds will effectuate the policies of the Act.”

It is not disputed that eleven waiters named in the complaint, who were members of the union, were discharged in September. The Board found that ten of the eleven were discharged because they joined the union, assisted the union or were suspected of being members of the -union. It found that one of the eleven waiters was discharged for other cause. The Board also found that another one of the eleven waiters, though discharged because of membership in the union, was thereafter reinstated; that he then became ill and that the evidence does not show that he " was replaced or refused reinstatement after his illness because of his membership in or assistance of the union.” The employer was commanded to offer to the other nine discharged waiters immediate and full reinstatement to the positions they had previously held and was commanded to “ make whole ” these waiters for any loss of pay they have suffered by reason of their having been discharged, by payment to them of a sum of money equivalent to that which they would normally have earned from the date of their discharge to the date of such offer of reinstatement, less the amount earned by each of them during such period.”

If, as the Board found, ten waiters who had joined the union were discharged for that reason, hostility of the management toward the union might perhaps be, also, an inducing cause for the organization of the Stork Restaurant Employees Association in the same month. The Board found that the restaurant’s supervisory employees * * * initiated and brought about the formation ” of the association and that the association “ was intended to prevent further attempts on the part of the Union to organize the employees of the Stork Club, and was designed to create the impression among the employees * * * that they were represented thereby for the purposes of collective bargaining and the discussion of grievances, terms or conditions of employment.” The Board further found that since its formation, the Association has been dominated and controlled by the respondent [Stork Restaurant, Inc.] acting through trusted supervisory employees.” The Board found also that the restaurant did not circulate a blacklist of these employees who had joined the union and that it “ has not spied upon or kept under surveillance the activities engaged in by its employees in the exercise of their right to join or assist a labor organization of their own choosing.”

Other findings of the Board amplify or support the findings which we have quoted or set forth in summary. The Board based upon these findings conclusions that “ Stork Restaurant Employees Association is a company union within the meaning of section 701, subdivision 6, of the act.” That Stork Restaurant, Inc., “ by participating in, dominating and interfering with the formation, existence and administration of the Stork Restaurant Employees Association and by urging, through its supervisory employees, that its employees join the said Association, has engaged in and is engaging in unfair labor practices within the meaning of section 704, subdivisions 3 and 10, of the Act.” That the restaurant has discriminated in regard to the hire and tenure of employment of nine of its waiters thereby discouraging membership in the Union and encouraging membership in the Association, and has thereby engaged in and is engaging in unfair labor practices within the meaning of section 704, subdivision 5, of the Act.” That the restaurant “ by interfering, restraining and coercing its employees in the exercise of the rights guaranteed them by section 703 of the Act, has engaged in and is engaging in unfair labor practices within the meaning of section 704, subdivision 10, of the Act,” and that by such acts the restaurant has required its employees, as a condition of employment, to join the Association, and to refrain from joining or assisting the Union, a labor organization of their own choosing, within the meaning of section 704, subdivision 4, of the Act.” In addition to its commands that the restaurant reinstate nine waiters and make them whole for loss of wages the Board commanded that the restaurant “ withdraw all recognition from the Stork Restaurant Employees Association as the representative of its employees for the purpose of dealing with its employees concerning grievances, terms or conditions of employment, and completely disestablish the Stork Restaurant Employees Association as such representative,” and give appropriate notice that, among other things, all recognition is withdrawn from the Stork Restaurant Employees Association and that the said Association is disestablished as the exclusive representative of its employees for the purpose of collective bargaining,” and that the employees of the respondent are free to join, or assist any labor organization of their own choosing.”

When, after a hearing, the Labor Board has determined that an employer has engaged in or is engaging in any unfair labor practice, it must state its findings of fact and must issue an order requiring the employer to cease and desist from such unfair labor practice, and to take such further affirmative or other action as will effectuate the policies of this article, including, but not limited to (a) withdrawal of recognition from and refraining from bargaining collectively with any employee organization or association, agency or plan defined in this article as a company union or established, maintained or assisted by any action defined in this article as an unfair labor practice; (b) awarding of back pay; (c) reinstatement with or without back pay of any employee discriminated against in violation of section seven hundred four * * *.” (§ 706, subd. 3.)

When an order of the Board is challenged, the Board may petition the Supreme Court for the enforcement of such order ” or “ any person aggrieved by a final order of the board * * * may obtain a review of such order in the supreme court * * * by filing in such court a written petition praying that the order of the board be modified or set aside.” (§ 707.) The Stork Restaurant, Inc., filed such a petition. The same section of the statute which provides for a judicial review of- orders of the Board also defines the scope of the review, “No objection that has not been urged before the board * * * shall be considered by the court, unless the failure or neglect to urge such objection shall be excused because of extraordinary circumstances. The findings of the board as to the facts, if supported by evidence, shall be conclusive(Italics, of course are ours.) The Supreme Court at Special Term held that the findings were supported by the evidence and refused to set aside or modify the order. The Appellate Division, by a closely divided court, reversed the order of Special Term and set aside the order of the Board.

The only substantial question presented by this appeal is whether the findings of the Board are supported by the evidence. The conclusions of the Board are firmly based upon the findings, if there is evidence to sustain the findings; and the orders of the Board to the employer are authorized by the statute and do not exceed the powers of the Board if the findings and conclusions of the Board are sound. The respondent does not seriously contend otherwise. True, it has argued in this court that the proceedings of the Board do not accord with the requirements of due process of law but the argument is based largely upon objections not raised before the Labor Board and not raised or considered in the court below. Those obj ections which we are free to consider are, we think, without substance and the respondent places small reliance upon them. We examine the record to determine whether, upon the evidence presented, the Board might reasonably find that nine waiters who joined the union were discharged, as the union claims, because of union membership and as part of a definite plan to prevent the employees of the Stork Club from joining the union of their choice, or whether the Board was bound to find, as the employer claims, that they were discharged for incompetence or misconduct and because of complaints received by the management of the club.

Where there is conflict in the testimony produced before the Board, where reasonable men might differ as to whether the testimony of one witness should be accepted or the testimony of another witness be rejected, where from the evidence either of two conflicting inferences may be drawn, the duty of weighing the evidence and making the choice rests solely upon the Board. The courts may not weigh the evidence or reject the choice made by the Board where the evidence is conflicting and room for choice exists. (Cf. National Labor Relations Bd. v. Waterman S. S. Co., 309 U. S. 206, decided unanimously by United States Supreme Court, Feb. 12, 1940.) We attempt, in this opinion, to state and analyze the testimony only so far as necessary to determine whether there is evidence which might reasonably be believed and which, if believed, adequately supports the findings of the Board.

Facts which are undisputed or established by testimony which cannot reasonably be rejected form the background against which the controversy must be viewed. The Stork . Club is a restaurant with a well-established reputation. It seeks to maintain standards of service as high as any restaurant in New York and to employ only trained, competent waiters. The waiters who, it is said, were discharged because they joined the union, had been employed during the previous year. Many of them had been brought to the restaurant in September, 1936, by a headwaiter who was employed by the Stork Club after the close of the summer season at Saratoga. It was not unusual for the Stork Club to hire a new headwaiter or a new captain after the close of the season at Saratoga and, with the new headwaiter or captain, to hire also a number of new waiters. In August, 1937, the waiters at the Stork Club were greatly disturbed by well-defined rumors that a new headwaiter with a crew of new waiters was coming from Saratoga and that a wholesale discharge of old waiters was impending. While these rumors were current some of the old waiters went to the headquarters of the union and joined the union. Some waiters had, indeed, several months before discussed with the organizer of the union plans for the organization or unionization of the Stork Club. Membership in the union was followed by prompt discharge. On September 3, 1937, four waiters joined the union and two of them distributed application cards among other waiters in the dining room., One of the waiters who joined the union was discharged the same night and another was discharged two days thereafter.., On September 4th five more waiters joined the union and three more joined a few days thereafter. One waiter had been a member of the union when engaged and remained a, member of the union. On or before September 23rd all these thirteen workers who were members of the union had been discharged, though some of them were reinstated at least temporarily and two of those reinstated were still in the employ of the restaurant at the time that charges were made and were heard by the Board. The coincidence in all these cases of membership in the union followed promptly by discharge from employment would certainly justify at least a very strong suspicion that discharge followed membership as result follows cause. Unless other satisfactory explanation of the discharge is supplied, justified suspicion becomes a reasonable — indeed perhaps a necessary — inference when membership in the union is related to discharge by other circumstances, proven in this case beyond possibility of challenge.

On September 4th, the day after two waiters distributed, in the restaurant, application cards for membership in the union, the manager of the restaurant, who was in complete charge whenever the proprietor _was absent, called each waiter to Ms office, and had a private talk with him. In regard to the details of what was there said, there is some conflict between the testimony of some of the waiters and the testimony of the manager. The difference is, perhaps, not very serious. There is no dispute that the manager referred to rumors of impending discharge of waiters and that he told each waiter that he would not lose Ms job if he did his work properly and that no waiters need join the union to hold their jobs. The testimony of waiters who were discharged, corroborated by at least one waiter produced as a witness by the restaurant and who was not discharged, shows that at the same time the manager asked each waiter whether he had joined the union.

The proprietor, who was away over the Labor Day weekend when these talks with the manager were held, returned on September 7th. On the same day he called the waiters together and made a little speech to them. He was not a witness at the hearings held by the Board but waiters who heard the speech were produced as witnesses by each side and there is substantial agreement as to what was said. He told the waiters that he had heard that rumors were current that waiters would lose their jobs unless they joined a umon and that he wanted to tell them that tMs was not true; that they were free to join a decent union or to join none but that he would have nothing to do with the “ racketeering ” umon controlled by Dutch Schultz,” who had dominated a waiters’ umon with wMch the restaurant had had a controversy several years before; and that he would rather close the place than have anything to do with that umon. Several of the discharged waiters testified that on the same day the proprietor questioned them not only about their own umon affiliations but also as to the umon affiliations of other waiters. One of these witnesses even testified that he said, “ You know union men only a bunch of racketeers. I wouldn’t have nobody employed in my place here if I know they are union men ” (sic).

The discharge of several waiters followed the next day; but two days thereafter the discharged waiters were told by the manager (and here we quote from the manager’s testimony), “ I can’t absolutely promise you this, first of all I want you boys to know I am not talking to you as a group, I am talking to you individually. I am quite sure if you will sit down and write a letter of apology for the different things that you have done and we have had complaints on that Mr. Billingsley will forgive you and give you your jobs back.” Several waiters testified also that when they spoke to Mr. Billingsley, the proprietor, he had in his hand a list of waiters, suspected of being members of the union, and that he questioned them about others whose names appeared on the list.

The New York State Labor Relations Act leaves an employer free to employ or to discharge as he sees fit for good reason or for poor reason or for no reason at all — subject only to one limitation, that he may not require an employee or one seeking employment, as a condition of employment, to join any company union or to refrain from forming, or joining or assisting a labor organization of his own choosing.” . Nor may an employer “ encourage membership in any company union or discourage membership in any labor organization, by discrimination in regard to hire or tenure or in any term or condition of employment.” A member of a union has under the statute no security of tenure, which the Board may protect, greater than other employees who are not members. The policy of the statute is that employees shall be free to join a union of their choice or, if they prefer, to join no union. The statute confers upon the Board power to prevent discrimination by the employer which interferes with such freedom of his employees. The Board may not command an employer to retain in his employ a discharged employee who is a member of the union unless it appears that the discharge was influenced by the employee’s membership in the union and was calculated to interfere with the freedom of choice guaranteed by the act to all employees. Here, the employer claims that the members of the union were discharged because of incompetence and the employer has produced evidence to show that many complaints had been made against the discharged employees and that before they joined the union their names had been placed upon a list of employees who were to be replaced after Labor Day. The Appellate Division has said that “ the substantial evidence in the record calls for a conclusion which should have resulted in a' decision, findings and an order entirely exonerating the appellant [Stork Restaurant] of all charges.” (257 App. Div. 74, 76.) Assuming here that Stork Restaurant has produced substantial evidence which might have sustained findings and conclusions in its favor, the question still remains whether the Board might reasonably reject or disregard that evidence and base findings and conclusions against the restaurant on other evidence.

In considering that question we do not ignore the fact that an employer, exercising his right to discharge unsatisfactory employees, has not under the statute the burden of justifying the discharge. The burden of proving a charge against an employer of “ unfair labor practices ” rests upon those making the charge. The evidence to prove the charge may, of course, be circumstantial, but it must be sufficient to permit a reasonable inference of violation, by the employer, of rights guaranteed by the statute. The testimony which we have stated in brief summary shows beyond possibility of dispute that in the month of September twelve waiters joined the union. In the same month they and one waiter who had long been a member of the union were discharged. During the days when these waiters were joining the union and were being discharged, the manager and the proprietor of the restaurant were warning the waiters against “ racketeering unions,” assuring the waiters that they need join no union to save their jobs and inquiring of individual waiters whether they had joined a union. While the management of this restaurant was inquiring about the union affiliations of the waiters in its employ and was discharging waiters who were members of the union, other employees were forming the association confined to employees of the Stork Club. The head waiter of the restaurant and the head captain — occupying important supervisory positions - - took an active part in the formation of the association. Indeed, respondent in its brief states that apparently these two “ were the first to formulate the idea and were the first to take active steps to bring the Association into existence.” They took the lead in retaining a lawyer to take care of the legal formalities. The organization meeting was held in the captain’s dining room in the Stork Club, while the manager of the club was in the building and the restaurant was open. The vote to form the organization was taken by a show of hands, though there is testimony that one of the waiters asked that the voting should be secret. The attorney who had been retained was present at the meeting. He is active in the labor movement and represents other labor organizaüons and there is no reason to doubt that he represented in good faith the interests of the members of the association who were his clients and not the interests of the restaurant management. He was, however, a frequent customer of the restaurant and had previously acted as attorney for the proprietor in a law suit. A week later an election was held in the same room in the Stork Club. The head captain was elected president of the association and in behalf of the employees he presented to the proprietor demands for increase of wages and for improvement in some particulars in working conditions. Within twenty-four hours the proprietor accepted all the demands of the association without any discussion and agreed to recognize the association as the representative of the employees.

We need not extend this opinion by reference here to other testimony — much of it not challenged — which lends additional support to the findings and conclusions of the Board. The testimony to which we have already referred briefly is, it is plain, cogent evidence which might reasonably induce and perhaps even compel the Labor Board to draw the inference that the Stork Club had engaged in "unfair labor practices, unless that evidence is rebutted by the testimony produced by the restaurant and relied upon by a majority of the judges in the Appellate Division in setting aside the order of the Board.

Many witnesses testified that the discharged waiters were incompetent, insolent, unruly and dishonest, and that for months before their discharge the management had received many complaints about their conduct until the patience of the management was exhausted. They were retained until September, it is said, only because it is the practice of the Stork Club to replace unsatisfactory employees after the close of the Saratoga season. There is testimony that even before they joined the union, their names were, as we have already said, placed upon a list of employees who were to be discharged and the list so prepared was introduced and admitted in evidence. Testimony was produced also to show that the employees of the Stork Club organized the association without suggestion from the management and even without the knowledge of the management; that the management did not dominate or interfere with the administration of the association and that the management had recognized the association and granted its demands only because the association had been organized by the employees as their chosen representative for collective bargaining. We are told that, in the light of this testimony, the only reasonable inference is that the employees were discharged because of complaints against them. Suspicion or knowledge that their discharge was impending induced them, it is argued, to join the union; the fact that they had joined the union neither induced nor averted the discharge.

Judicial review of determinations of an adminsitrative board is often limited, as it has been limited in the New York State Labor Relations Act, by a statutory provision to the effect that the findings of the board as to the facts, if supported by evidence, shall be conclusive.” (§ 707, subd. 2.) A finding is supported by the evidence only when the evidence is so substantial that from it an inference of the existence of the fact found may be drawn reasonably. A mere scintilla of evidence sufficient to justify a suspicion is not sufficient to support a finding upon which legal rights and obligations are based. That requires “ such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." (Consolidated Edison Co. v. National Labor Relations Board, 305 U. S. 197, 229.) The same test is applied in trials before a court and jury. Evidence which is sufficient to require the court to submit a question of fact to a jury is sufficient to support a finding by the administrative board. (Cf. National Labor Relations Board v. Columbian E. & S. Co., 306 U. S. 292.)

There is often greater difficulty in applying the test than in formulating it. The evidence produced by one party must be considered in connection with the evidence produced by the other parties. Evidence which unexplained might be conclusive may lose all probative force when supplemented and explained by other testimony. The Board must consider and sift all the evidence — accepting the true and rejecting the false — and must base inferences on what it has accepted as true. Choice lies with the Board and its finding is supported by the evidence and is conclusive where others might reasonably make the same choice. (Cf. Matter of Metropolitan Life Ins. Co. v. N. Y. State Labor Relations Board, 280 N. Y. 194.)

The Board has rejected the testimony produced by the Stork Club in its defense. We have stated that testimony only in barest outline. If the court had power to weigh the evidence, the picture should be drawn in greater detail. Few additional details are necessary to show that the Board might reasonably reject the testimony. True, it is in large part not contradicted, but also in large part it could not be contradicted even if untrue; and inherent improbabilities, furnish good reason for its rejection.

At the outset, question must arise why men as incompetent and as insolent as the discharged waiters must have been, if the picture painted by the employer be true, should have been retained for many months in a restaurant of established reputation and why, in spite of their shortcomings, the restaurant should have been willing to reinstate them if they would apologize." Doubt is cast upon the good faith of the complaints against the discharged waiters by the undisputed fact that after their discharge, others retained in the employ of the restaurant, were directed to try to remember and to write in little black books furnished them for that purpose, every complaint against the discharged waiters which they had heard. The testimony that the list of employees who were to be discharged in September was prepared and handed to the headwaiter before any of the discharged employees joined the union, cannot be contradicted directly but the Board has pointed out good reasons for doubting the accuracy of the testimony. Ground for rejecting the explanation of the discharges, furnished by the Stork Club, might be pointed out in greater detail but the clearest justification for the decision of the Board is that throughout the testimony of the manager of the restaurant, it appears unmistakably that the fact that employees of the Stork Club were joining the union was an important factor in everything done during the month of September. The record considered as a whole clearly supports the inference that the discharge of union waiters and the organization of the association as a company union were part of a single plan. The undisputed facts are consistent with that inference. We do not decide whether they are consistent with any other inference or whether the testimony in favor of the Stork Club is true. We decide only that the decision and order of the Board is sustained in all respects by the evidence.

The order of the Appellate Division should be reversed and that of the Special Term affirmed, with costs in this court and in the Appellate Division.

Loughran, Finch, Rippey, Sears, Lewis and Conway, JJ., concur.

Ordered accordingly.


author: Loughran, J. Finch, J.

text:
    The People of the State of New York, Respondent, v. Joseph Feolo, Albert Mastrone, Norman J. Brabson and Carl Summerfeld, Appellants.

    Argued November 20, 1939;
    reargued January 22, 1940;
    decided March 5, 1940.

      Samuel Markewich and Jerome G. Rosenhaus for Joseph Feolo, appellant.
    The trial court’s refusal of a separate trial for Feolo deprived him of due process of law and of a fair and impartial trial. (People v. Davis, 56 N. Y. 95; People v. Storrs, 207 N. Y. 147; Logan v. United States, 144 U. S. 263; People v. Doran, 246 N. Y. 409; People v. Snyder, 246 N. Y. 491; People v. Fisher, 249 N. Y. 419.) Reversible error was committed by the trial court when it instructed the jury that Summerfeld’s confessions could be considered as against all of the defendants for the purpose of corroborating Funicello’s testimony that he refused to participate in the crime. (People v. Cascone, 185 N. Y. 317.)

      Newman Levy, John Caldwell Myers and Donald Peter MacArthur for Norman J. Brabson, appellant.
    It was error for the trial court to deny defendant Brabson’s motion for a severance. (People v. Snyder, 246 N. Y. 491.)

      Leo H. Klugherz, Joseph D. Edelson, Frederick J. Sullivan and John T. Hogan for Albert Mastrone, appellant.
    Funicello was an accomplice as a matter of law. (People v. Clougher, 246 N. Y. 106; People v. Richardson, 222 N. Y. 103; People v. Warder, 231 App. Div. 215; People v. Cohen, 223 N. Y. 406; People v. Swersky, 216 N. Y. 471; People v. Zucker, 20 App. Div. 363; People v. Elbroch, 250 App. Div. 583; Luck v. State, 67 S. W. Rep. [2d] 302; People v. Hooghkerk, 96 N. Y. 149.)

      John Mc Kim Minton, Jr., Irving Mendelson and Lawrence J. McManus for Carl Summerfeld, appellant.

      Thomas E. Dewey, District Attorney (Stanley H. Fuld, Burr F. Coleman and Charles W. Manning of counsel), for respondent.
    The witness Funieello was not an accomplice. (People v. Cohen, 223 N. Y. 406; People v. Swersky, 216 N. Y. 471; People v. Duffy, 160 App. Div. 385; 212 N. Y. 57.) The motions for separate trials were properly denied and no prejudice resulted therefrom. (People v. Fisher, 249 N. Y. 419; People v. Doran, 246 N. Y. 409; People v.
      Snyder, 246 N. Y. 491; People v. Schemnitzer, 142 Misc. Rep. 16; People v. Gowasky, 244 N. Y. 451; People v. Barnes, 202 N. Y. 77; People v. Betson, 362 Ill. 502.)
   Loughran, J.

The four defendants — Feolo, Mastrone, Brabson and Summerfeld — have been convicted of murder in the first degree. The crucial question is whether the trial judge abused his discretion when he denied to Feolo, Mastrone and Brabson a trial disconnected from the issue as against Summerfeld.

Early on the morning of September 14,1931, three hold-up men entered a speakeasy at 18 East Thirteenth street, Manhattan, city of New York. Two of them drew guns and commanded the proprietor and his patrons to put up their hands. While the third intruder was taking a pocketbook from a patron, Sergeant Timothy Murphy of the city police department entered the premises and, drawing bis revolver, demanded to know what was going on there. Shots were fired and the robbers fled. The sergeant had suffered two fatal bullet wounds. A little later, Police Officer Frederick Khocke saw three men running on University place a few blocks away. One of them, when seized by Khocke, shot the officer in the chest and disappeared. Policemen who then searched the neighborhood found in an areaway of premises on East Ninth street near University place a revolver with a sawed-off barrel, i Officer Khocke survived his wounds. Six years later, when the killers of Sergeant Murphy yet remained at large, one Emillio Funicello, then in prison for life as a fourth offender, was at his request given a hearing by the authorities. The indictment and trial of these defendants was the result.

None of the persons who were in the speakeasy at the time identified any of the defendants as one of the hold-up men. At the trial, Officer Knocke singled out Feolo as “ a man who looks like the man who shot me.” Feolo was sixteen years old when Sergeant Murphy was killed. He made no confession nor any admission tending to show his guilt.

There was evidence of an admission by Mastrone that two weeks before the homicide he had looked over the speakeasy on Thirteenth street in an endeavor to appraise its suitability as a place for a shakedown by means of an impersonation of a Federal officer. But the evidence was that Mastrone also asserted he had not gone near the place again. No other relevant statement was made by Mastrone at any time.

When Brabson was arrested in another State, his brother came to the police station where he was in custody and asked why. Brabson stated that he was arrested for a holdup and a minder that happened six years ago in New York city, and he thought it blew over.” This was the only relevant statement made by Brabson.

In short — except for confessions of Summerfeld, which it will be convenient to pass for the moment — the conviction of the defendants hangs on testimony given against them by Funicello.

This witness introduced himself to the jury as one who began a course of crime by juvenile delinquency in bis boyhood and ended it on his conviction of robbery as a fourth offense in 1932. On his direct examination he made specific mention also of his conviction of burglary in Virginia and of his conviction in Pennsylvania of highway robbery and of his escape from, prison in both States. On his cross-examination other facts of his personal history were added in this fashion: “ Q. You told the District Attorney about your convictions for which you were sent to jail? A. That’s right. Q. How many crimes have you committed outside of those? A. Well, in New York City, one on 41st Street, a holdup; one on 50th Street, a holdup, on the Avenue Second Avenue; one on 85th Street between Second and Third; one on 86th Street between Second and Third; 96th Street, between 96th and "95th Street on Broadway; 102nd Street between Second and Third; 116th Street west of Seventh Avenue; 117th Street where St. Nicholas and the other street comes together at; either on 118th or 120th Street east of Lennox Avenue, Democratic Club; one out in Long Island in ’28; one in Coney Island in ’31 or ’30; and is it a felony for passing counterfeit money? Well, about a thousand in New York State alone.”

On the main issue, Funicello’s testimony in substance was as follows: He and the defendants were members of a hold-up gang for whom he kept guns behind a removable panel in a hallway wall of an apartment house where he was janitor. On the morning of this crime, Feolo and Brabson came to his janitor’s quarters and woke him up. Brabson said: I just killed a cop.” Feolo said: I think I shot one too.” Funicello inquired: Where did it happen at?” Feolo replied: “ Down on 13th street where A1 [Mastrone] gave us a tip to.” At Feolo’s request, Funicello took their guns. When they expressed fear that Summerfeld had been caught, Funicello went with them to an apartment of his niece where Summerfeld came forth and gave to Funicello a like account of the robbery and homicide, adding that he also had shot the officer at the speakeasy.

These narrations, as reported to the jury by Funicello, were circumstantially complete, but the details are not vital. The revolver found by the police near the scene of the crime was identified by Funicello as the property of Mastrone. It had been fired twice. One of Sergeant Murphy’s two fatal wounds came from a bullet discharged therefrom.

Funicello openly avowed to the jury that his testimony against the defendants was engendered by his wrath at their failure to aid him when in 1932 he was convicted of felony a fourth time. Any time a member of the gang is arrested,” he said, “ the other part of the gang is supposed to help him, and they did not do it for me.”

We go now to the confessions of Summerfeld to which passing reference has been made. In their material parts, those confessions completely matched Funicello’s testimonial report of what had been said to him by Feolo, Brabson and Summerfeld as to the respective roles of the four defendants in the events of the morning of September 14, 1931. Summerfeld acknowledged that he and Feolo and Brabson “ went in and did the actual stickup.” Mastrone, he said, was “ the man that fingered the job.” Further items may again be passed over. Immediately after he had first confessed, Summerfeld attempted suicide and came pretty close to success. The District Attorney says in his brief: “ The uniform consistency with which Funicello’s trial testimony tallies in its details with those confessions is cogent proof of its veracity and accuracy.” We agree.

We may even suppose that no fair mind could read Funicello’s testimony and Summerfeld’s confessions conjointly and have left in it any reasonable doubt of the guilt of the four defendants. But it is not for us to adjudge guilt in any case; that is for the jury. The question for us on this record is whether substantial injustice was done to Feolo, Mastrone and Brabson by denial of their motions for separate trials.

When defendants are jointly indicted, the question whether there should be separate trials is addressed primarily to the practical good judgment of a trial judge. In the ordinary case, a ruling directing a joint trial will be on the safe side, though confessions or admissions made by one defendant will not be binding on another. (See People v. Doran, 246 N. Y. 409; People v. Snyder, 246 N. Y. 491.) The point at which discretion ends and severance becomes a duty is at times hard to fix. (People v. Fisher, 249 N. Y. 419.) Here the duty to sever was clear before this trial began, though that is not a controlling consideration now. In People v. Fisher (supra) we said: A retrospective view by an appellate court may reveal injustice or impairment of substantial rights unseen at the beginning. In a case where, without the existence of a confession by one defendant, the evidence against another would be too weak to justify a conviction or even where a conviction would be doubtful, our review of the judgment would compel us to conclude that an abuse of discretion had been committed. One who makes no confession must be found guilty, if at all, only on proof independent of a confession by a codefendant ” (pp. 427-428). To us it is here plain that without the confessions of Summerfeld, conviction of the other three defendants would have been far from a certainty. On this record, we cannot say, “ Cast out the confessions and the result would need to be the same.” (People v. Fisher, supra, p. 426.) Whether Funicello was an accomplice was a question for the jury on any test of that status. His story of antecedent association with Feolo did not go wholly uncontradicted.

True, the jury was charged that Summerfeld’s confessions were not valid evidence of the guilt of any of his three , codefendants. But the jury was also charged that those confessions were to be considered by them on the question of whether Funicello. was an accomplice or not, because Summerfeld has testified, at least, he in his statement stated that Funicello was not an accomplice.” This error makes inadmissible any argument that the confessions of Summerfeld could not have been weighed by the jury against Feolo, Mastrone or Brabson.

As to each of the defendants Feolo, Mastrone and Brabson the judgment of conviction should be reversed and a new trial ordered. As to the defendant Summerfeld, the judgment. of conviction should be affirmed.

Finch, J.

(dissenting). I am unable to concur in the conclusion that the verdict of the jury, unanimous as it must be, did not mete out justice to the defendants Feolo, Mastrone and Brabson. Funicello freely admitted on the witness stand his past career and the motive which induced his testimony. The jury were carefully instructed by Judge Nott, the trial ' justice, that the confessions of Summerfeld could not be considered against the other defendants. One of the crucial issues for the jury was the truth of the testimony of Funicello. They were not required to disbelieve his testimony. They found it credible, and it is conceded in the majority opinion that his story was true and that the defendants are guilty as charged. Nevertheless, the convictions of all except the one who confessed are about to be set aside. The error claimed is that the learned trial judge abused Ms discretion in not ordering a separate trial for those who did not confess. In People v. Fisher (249 N. Y. 419) a majority of tMs court reiterated that the statute concermng severance of trials (Code Crim. Proc. § 391) primarily vested discretion in the trial justice to determine whether defendants jomtly indicted should be tried together or separately, and that the Court of Appeals would not substitute its discretion for that of the trial judge, nor interfere uMess an abuse of discretion had been committed. In order for us to say that there has been an abuse of discretion, we must not only overturn the assumption that the jury obeyed the instructions of the trial justice, but also that a new jury would disbelieve the testimony of Fumcello, wMch it is now conceded is true. Whatever Imgering doubt may still exist as to techmcal errors would seem to be covered by the direction of the statute (Code Crim. Proc. § 542) that “ After hearmg the appeal, the court must give judgment, without regard to techMcal errors or defects or to exceptions wMch do not affect the substantial rights of the parties.”

Error is also claimed in connection with a request by counsel for Brabson after the court had completed without error the main charge dealing at length with all aspects of the case. As already noted, the court had fully and correctly charged that the confession of Summerfeld should not be considered agamst any one other than himself. As to the alleged error, it is sufficient to say that no counsel in the case, including counsel for Brabson, who made the request, deemed the remarks of the trial court, now emphasized as error, of sufficient importance to warrant objection or exception.

Secondly, wMle the failure of any of the defendants to take the stand may not be used against them, there is nothing in tMs record to contradict the testimony of Funicello that he would have nothing to do with the perpetration of tMs particular holdup, since neither Mastrone nor Brabson called any witnesses or produced any evidence on Ms own behalf. Within the authorities, Fumcello would not be an accomplice as a matter of law. In People v. Swersky (216 N. Y. 471) we said: “ To permit a jury to say that he did not join in it, when the only evidence is that he did not, would be to permit them to build their verdict upon speculation and suspicion ” (p. 478). Hence, any so-called error becomes immaterial and must be disregarded even if an objection and exception had been taken, particularly in view of the conceded guilt of all of the defendants.

On the one hand there is need for the certain and sure punishment of the guilty as a deterrent to crime Inimical to the interests of society and bringing undeserved misfortune to the victim. On the other hand is the fundamental requirement that even the most vicious criminals shall have a fair trial. As between these two stand the courts under a command of law which directs technical errors to be disregarded when they do not interfere with substantial justice.

A reading of this record shows a shocking condition wherein the jury were amply justified in finding a case of felonious crime planned as a business for profit, which resulted in murder.

I vote to affirm the convictions of all four defendants.

Lehman, Ch. J., Rippey, Sears, Lewis and Conway, JJ., concur with Loughran, J.; Finch, J., dissents in opinion as to Feolo, Mastrone and Brabson, but concurs as to Summerfeld.

Judgment accordingly.