author: Bubke, J. Van Voorhis, J. (dissenting).

text:
    George R. Baldwin, Sr., Individually and as a Member of the Board of Supervisors of Erie County, Respondent-Appellant, v. City of Buffalo, Appellant-Respondent, et al., Defendants. (Action No. 1.) In the Matter of Frank J. Grimm, Individually and as District Councilman of the City of Buffalo, Respondent-Appellant, against City of Buffalo et al., Appellants-Respondents, et al., Respondents. (Action No. 2.)
    Argued May 29, 1959;
    decided June 25, 1959.

      Anthony Manguso, Corporation Counsel (William J. OstrowsJci and Elmer 8. Stengel of counsel), for appellants-respondents.
    I. These local laws relate exclusively to the property, affairs or government of the City of Buffalo and are valid pursuant to the first sentence in section 12 of article IX of the Constitution and section 11 of the City Home Buie Law. (Adler v. Deegan, 251 N. Y. 467; City of New York v. Village of Lawrence, 250 N. Y. 429; State v. Newark, 53 N. J. L. 4; Johnson v. City of New York, 274 N. Y. 411; Matter of Schwarz v. General Aniline & Film Corp., 305 N. Y. 395; Amalgamated Housing Corp. v. Kelly, 193 Misc. 961; Matter of Matthews v. Matthews, 240 N. Y. 28; People v. Mancuso, 255 N. Y. 463; Matter of Emerson v. Buck, 230 N. Y. 380; Easton v. Pickersgill, 55 N. Y. 310; City of New York v. New York City Ry. Co., 193 N. Y. 543.) II. Supervisors are city officers. (Wenzler v. People, 58 N. Y. 516; Lane v. Johnson, 283 N. Y. 244; People ex rel. Clancy v. Board of Supervisors, 139 N. Y. 524; Salducco v. Etkin, 155 Misc. 361, 244 App. Div. 681, 268 N. Y. 606.) III. These local laws are not laws in respect to the mode of selection of officers, nor do they change the method of nominating and electing officers. (Lord v. Equitable Life

      Assur. Soc., 109 App. Div. 252; Bareham v. City of Rochester, 221 App. Div. 36, 246 N. Y. 140.) IV. Assuming the local laws are valid, a mandatory referendum is not necessary. (Matter of Burr v. Voorhis, 229 N. Y. 382.) V. The reasonableness of Local Law No. 1 and the other assertions as to the theory of the complaint of George R. Baldwin, Sr., are not proper subjects of inquiry, since the local law is part of the City Charter and was adopted pursuant to constitutional and legislative authority. (Matter of Stubbe v. Adamson, 220 N. Y. 459.) VI. Chapter 830 of the Laws of 1935 is changed by Local Law No. 1, pursuant to section 11 of the City Home Rule Law, and in harmony with section 21 of the City Home Rule Law.

      Emil L. Cohen and Harold M. Halpern for respondents-appellants.
    I. The city has no power to change ward boundaries so as to affect the nomination and election of supervisors under the provisions of section 12 of article IX of the Constitution and section 11 of the City Home Rule Law giving cities power to act with relation to their ‘1 property, affairs or government ”. (Schieffelin v. Berry, 217 App. Div. 451, 243 N. Y. 603; City of New York v. Village of Lawrence, 250 N. Y. 429; People v. Raymond, 37 N. Y. 428; People ex rel. Bolton v. Albertson, 55 N. Y. 50; Wenzler v. People, 58 N. Y. 516; Twin City Serv. Sta. v. City of North Tonawanda, 162 Misc. 271; People ex rel. Clancy v. Board of Supervisors, 139 N. Y. 524; Salducco v. Etkin, 155 Misc. 361, 244 App. Div. 681, 268 N. Y. 606; Lane v. Johnson, 283 N. Y. 244; Robertson v. Zimmermann, 268 N. Y. 52; Salzman v. Impellitteri, 305 N. Y. 414; Broschart v. City of New York, 166 Misc. 515, 255 App. Div. 776; McGrath v. Grout, 171 N. Y. 7.) II. The change in ward boundaries, if applied to the position of Supervisor who serves as a member of the Board of Supervisors of Brie County, relates to the affairs or government of a county. The city is restricted from enacting such legislation under subdivision 9 of section 21 of the City Home Rule Law. (Schieffelin v. Berry, 217 App. Div. 451, 243 N. Y. 603; Broschart v. City of New York, 166 Misc. 515, 255 App. Div. 776.) III. Local Law No. 1 of 1959 changing ward boundaries, being an enactment of the Common Council and Mayor, not enacted under specific legislative authority, and not specifically approved by the Legislature, is subject to attack, upon the ground of unreasonableness. (Condon v. Associated Hosp. Serv., 287 N. Y. 411; Kain v. Larkin, 141 N. Y. 144; Matter of Stubbe v. Adamson, 220 N. Y. 459; People ex rel. Knoblauch v. Warden, 216 N. Y. 154; Good Humor Corp. v. City of New York, 290 N. Y. 312.) IV. Both local laws are subject to mandatory referendum under subdivision 4 of section 15 of the City Home Buie Law, in that they change the method of nominating or electing an elective officer. (Bareham v. City of Rochester, 221 App. Div. 36, 246 N. Y. 140; People ex rel Clancy v. Board of Supervisors, 139 N. Y. 524; Wendell v. Lavin, 246 N. Y. 115; Lawrence Constr. Corp. v. State of New York, 293 N. Y. 634.) V. The local laws were adopted to affect the nomination and election of both Councilmen and Supervisors. There has been no showing that the local laws were to be effective with respect to Councilmen if Local Law No. 1 was ineffective with respect to Supervisors. (Loew v. McNeil, 170 Misc. 647, 279 N. Y. 806; People ex rel. Alpha P. C. Co. v. Knapp, 230 N. Y. 48; People v. Mancuso, 255 N. Y. 463.)

      Elmer R. Weil, County Attorney (George M. Nelson of counsel), for Board of Elections of Erie County, defendant in the first above-entitled action and respondent in the second above-entitled action.
    A determination of the issues herein in the near future would permit the Board of Elections to proceed with the necessary functions to prepare for the reception of petitions and further conduct of the primary election of 1959.
   Bubke, J.

Local Law No. 1 of 1959 of the City of Buffalo alters the boundaries of 26 of the 27 wards in the city. Local Law No. 2 divides the city into 9 councilmanic districts, each composed of 3 of the newly formed wards.

The validity of this legislation is challenged in two actions. One action seeks a declaratory judgment that Local Law No. 1 is invalid on the theory that it changes the mode of selection of members of the Erie County Board of Supervisors elected from the city, contrary to the prohibition found in the State constitutional and statutory home rule provisions, and that, in any event, a mandatory referendum on the local legislation is necessary. The complaint in this action also avers that the legislation is unreasonable, arbitrary and capricious.

The second action is a mandamus proceeding which attacks Local Law No. 2 on the ground that the redistricting of Buffalo for the purpose of electing members of the City Council is dependent upon Local Law No. 1, which is invalid, and further asserts that both local laws, to be effective, must be submitted to a referendum. A supplemental petition asked for an adjudication that both local laws are ineffective regardless of the referendum.

In Action No. 1, the Supreme Court granted the plaintiff summary judgment declaring Local Law No. 1 invalid insofar as it changed the ward boundaries for the election of members to the County Board of Supervisors, and further held that the law was not unreasonable and arbitrary. In Action No. 2, the court ordered both local laws submitted to a referendum, and dismissed the supplemental petition.

The Appellate Division affirmed, but did not reach the question of the reasonableness of Local Law No. 1.

We affirm the finding that the local laws are not unreasonable for the reasons stated by the Supreme Court. However, we disagree with the conclusion reached by the courts below that Local Law No. 1 is invalid insofar as it pertains to the election of members of the Brie County Board of Supervisors, and that both local laws must be submitted to a referendum, insofar as they affect the election of members of the City Council of Buffalo.

The issues presented in this appeal once again call for a review of the degree of autonomy granted to municipalities under the State constitutional and statutory home rule provisions. The theory behind home rule is very simple: it is the thought that local problems, in which the State has no concern, can best be handled locally. In our present State Constitution, the People of New York have withheld from their Legislature the power to enact, by special legislation, laws concerning the “ property, affairs or government” of municipalities. (N. Y. Const., art. IX, § 11.) On the other hand, they have granted home rule power to municipalities in the following terms: “ Every city shall have power to amend and adopt local laws not inconsistent with the constitution and laws of the state relating to its property, affairs or government. Every city shall also have the power to adopt and amend local laws not inconsistent with this constitution and laws of the state, and whether or not such local laws relate to its property, affairs or government, in respect to the following subjects: the powers, duties, qualifications, number, mode of selection and removal of all its officers and employees except members of the governing elective body of the county in which such city is wholly contained (N. Y. Const., art. IX, § 12; see, also, City Home Rule Law, § 11.)

The task of the judiciary has been, and is, to determine whether a specific act comes within the scope of the phrase ‘ property, affairs or government ” of a municipality. This phrase has been narrowly construed (see Adler v. Deegan, 251 N. Y. 467; Robertson v. Zimmerman, 268 N. Y. 52; Counties Securities v. Seacord, 278 N. Y. 34, 38), but if the phrase is to have any meaning at all there must be an area in which the municipalities may fully and freely exercise the rights bestowed on them by the People of this State in the Constitution. The lines of demarcation are, concededly, not precise and they must be defined on a case-by-case basis, but they must exist, else “ [h] orne rule for cities, adopted by the people with much ado and after many years of agitation, will be another Statute of Uses, a form of words and little else, if the courts in applying the new tests shall ignore the new spirit that dictated their adoption. The municipality is to be protected in its autonomy against the inroads of evasion.” (Matter of Mayor of City of New York [Elm St.], 246 N. Y. 72, 76.)

The mere altering of ward boundaries would seem, on its face, clearly to come within the scope of the terms ‘ ‘ property, affairs or government ” of a city. Only the city is affected by the change. Besidents of a county in which the city is contained are not affected. Certainly the State has no paramount interest in such changes. Historically, these changes have been unopposed on constitutional grounds and, indeed, local legislation is the usual method by which changes in ward lines are effected.

While this latter fact is not conclusive of the constitutional validity of the acts involved, it lends great weight to the conclusion that such legislation affects only the property, affairs or government of the municipality involved. (Easton v. Pickersgill, 55 N. Y. 310, 315; City of New York v. New York City Ry. co., 193 N. Y. 543; Bareham v. City of Rochester, 246 N. Y. 140.) Let us recognize in our decision the useful division which custom and practice have made between those things which are considered State affairs, and those which are purely the affairs of cities.” (Adler v. Deegan, 251 N. Y. 467, 478, supra.)

But we are told that the alteration of ward boundaries is not exclusively an affairs of the city since members of the County Board of Supervisors are elected from these wards. It must be conceded that, for some purposes, a member of a County Board of Supervisors elected from a city is a city officer. (See Lane v. Johnson, 283 N. Y. 244; People ex rel. Clancy v. Board of Supervisors, 139 N. Y. 524.)

The Legislature has also recognized that the City Supervisors are, to some extent, city officers. In alloting representation on the Board of Supervisors of Erie County, it assigned one Supervisor to each of the 25 towns, the City of Tonawanda and the City of Lackawanna — a total of 27 Supervisors. It also alloted the City of Buffalo 27 Supervisors. Thus power and responsibility were equally divided between Buffalo and the smaller communities. The Legislature thus also indicated that it was alloting Board of Supervisors representation to local communities of government as well as to citizens generally.

Further, section 426 of the City Charter of Buffalo provides that vacancies in the Board of Supervisors from Buffalo shall be filled by the City Council, and not by the voters of the particular ward or district in which the vacancy occurs.

Hence we conclude that the alteration of ward boundaries is properly an affair of the municipality. A contrary construction of the Constitution—that the State Legislature may change district lines for local elections in every city of the State—leaves the citizens of these communities with virtually no redress or remedy where these boundaries are altered against their will. However, with this power properly residing in the local government, the citizens have an immediate and effective remedy, since they may remove those local officials who tamper with district lines contrary to their will in the next succeeding election.

It is true that section 12 of article IX of the State Constitution prohibits a municipality from enacting legislation which affects the mode of selection of an officer, whose only function is to serve on the elective board of the county in which the city is wholly contained. It is also true that any local law which changes the mode of selection of the members of the City Council must be submitted to the electors of the city for approval (City Home Rule Law, § 15, subd. 4). However, we hold that the present alteration of ward boundaries does not come within the scope of the term ‘ ‘ mode of selection ’ ’. In Bareham v. City of Rochester (246 N. Y. 140, 146, supra) this court suggested that the “term ‘mode of selection’ expresses an intent to allow a city to determine not only that it shall cause its officers either to be elected or appointed but connotes also that a municipality may define the precise method by which either an election or appointment shall be effected.” This court, therefore, sustained that part of the local law of the City of Rochester which provided for the nonpartisan nomination and election of four members of the City Council.

The opinion of this court in Bareham does not suggest that alteration of ward boundaries constitutes a change in the mode of selection and, indeed, such changes do not alter the “ precise method ” by which the election is effected.

Members of the City Council and members of the County Board of Supervisors from the City of Buffalo are elected in precisely the same manner after the changing of the boundaries as before their alteration.

Since, then, the changing of the ward boundary lines affects neither the mode of selection of members of the Erie County Board of Supervisors, nor the mode of selection of members of the City Council, the local laws are a valid exercise of the power granted to the municipality under the provision of the State Constitution, and do not require a mandatory referendum.

The pleadings in Action No. 1 suggest that, since Local Law No. 1 is to be effective immediately, it affects the tenure of the present incumbents elected from the wards to the Board of Supervisors. This argument is without substance. The clear intent of the law is to change the ward boundaries for the succeeding municipal election, and the incumbents will remain duly elected officials representing their respective areas until the expiration of their terms.

Accordingly, in Action No. 1, the judgment of the Appellate Division, insofar as it declares Local Law No. 1 invalid, should be reversed, without costs. In Action No. 2, the order of the Appellate Division, insofar as it directs the submission of Local Laws Nos. 1 and 2 to a mandatory referendum, should be reversed, without costs.

Van Voorhis, J. (dissenting).

The alteration of the boundary lines of wards so as to change the constituencies from which members of the Erie County Board of Supervisors are elected from within the City of Buffalo has nothing to do with the property, affairs or government of the city as a municipal corporation. Even in the case of redistricting for the selection of City Councilmen, the court did not rely on that grant of power to cities (Bareham v. City of Rochester, 246 N. Y. 140). Local Law No. 1 of 1959 of the City of Buffalo could have been adopted only under the powers granted to cities by the second sentence of the Home Buie Amendment to the Constitution (N. Y. Const., art. IX, § 12) to adopt local legislation relating to 1 ‘ the powers, duties, qualifications, number, mode of selection and removal, terms of office and compensation ” of aE officers and employees of the city. That is the grant of power which was held to enable the redistricting of the City of Bochester for the purpose of electing City Councilmen in the Bareham case. “Mode of selection”, italicized at page 146 of the Bareham opinion, was held to be a broader term than merely designating whether city officers should be appointed or elected, and was held to have extended to the establishment of the constituencies of the City Councilmen. The very power, however, which was granted to cities to adopt local legislation establishing the constituencies of City Councilmen has been denied by the Constitution to cities when it comes to the selection of members of the governing elective body of the county in which the city is contained. This limitation was added to the Constitution at the 1938 Convention, so as to insure that the powers exercisable by a city in relation to the mode of selection of its City Councilmen could not be extended so as to determine the number, term of office, quaEfications or constituencies of members of the County Board of Supervisors who are elected from within the city. There is no legal necessity that the City Councilmen and Supervisors shall be elected from the same areas within the city.

In reviewing the orders appealed from, it is necessary to take one of three positions: (1) that the power to determine ward boundaries so as to establish the constituencies of members of the Board of Supervisors of Erie County pertains or does not pertain to the property, affairs or government of the City of Buffalo; (2) that the realignment of the wards constitutes an exercise of the power to determine the ‘‘ mode of selection ’ ’ of Supervisors chosen from within the city, or (3) that changing the ward boundaries does not pertain to the “ mode of selection ” of Supervisors. This revision of wards in order to change the constituencies of Supervisors has nothing to do with the property or affairs of Buffalo as a unit of government. It concerns the government of the county not the city. If the power to change the constituencies by which Supervisors are elected pertains to the “ mode of selection ” of Supervisors, it is expressly forbidden to be exercised by the city by this limitation incorporated into the Home Rule Amendment in 1938. If it does not pertain to the ‘ ‘ mode of selection ’ ’ of Supervisors, then the power to change ward boundaries has not been granted to the city, and remains in the Legislature. Section 12 of article IX of the Constitution makes clear that in either instance it was intended to remain in the Legislature, so as not to offer an inducement to city administrations to revise constituencies of Supervisors while they are in power and have the opportunity.

For the reasons stated by Mr. Justice Noonan at the Erie County Special Term, I dissent and vote to affirm in the above-entitled action and special proceeding.

Chief Judge Conway and Judges Desmond, Dye, Fuld and Froessel concur with Judge Burke; Judge Van Voorhis dissents and votes to affirm in a separate opinion.

Judgment and order reversed, without costs, and Local Law No. 1 and Local Law No. 2 declared valid and not subject to referendum.


source: Caselaw Access Project

author: Fulo, J.

license: Public Domain

text:
    In the Matter of Public Service Coordinated Transport, Appellant, against State Tax Commission of the State of New York, Respondent.
    Argued May 22, 1959;
    decided July 8, 1959.

      Harold J. Drescher for appellant.
    Section 186-a of the Tax Law imposes a privilege tax on omnibus carriers operating exclusively in interstate commerce, and thus, as to such carriers, it is repugnant to the commerce clause of the Federal Constitution. (Greyhound Lines v. Mealey, 266 App. Div. 648, 296 N. Y. 18, 334 U. S. 653; Canton R. Co. v. Rogan, 340 U. S. 511; Capitol Greyhound Lines v. Brice, 339 U. S. 542; Spector Motor Serv. v. O’Connor, 340 U. S. 602; Railway Express Agency v. Virginia, 347 U. S. 359; Northwestern States Cement Co. v. Minnesota, 358 U. S. 450; Matter of United Air Lines
      v. Joseph, 282 App. Div. 48, 307 N. Y. 762; Matter of United Piece Dye Works v. Joseph, 282 App. Div. 60, 307 N. Y. 780, 348 U. S. 916; Mid-States Frgt. Lines v. Bates, 279 App. Div. 451, 304 N. Y. 700.)

      Louis J. Lefkowits, Attorney-General (Edwin B. Oberwager and Paxton Blair of counsel), for respondent.
    I. A tax on so much of a bus company’s gross operating income as reflects the ratio of mileage operated within the State to mileage operated without the State does not contravene the commerce clause. (Greyhound Lines v. Mealey, 296 N. Y. 18, 334 U. S. 653; Maine v. Grand Trunk ry. Co., 142 U. S. 217; National Leather Co. v. Massachusetts, 277 U. S. 413; Educational Films Corp. v. Ward, 282 U. S. 379; Western Life Stock v. Bureau of Revenue, 303 U. S. 250; Canton R. Co. v. Rogan, 340 U. S. 511; Northwestern States Cement Co. v. Minnesota, 358 U. S. 450; Spector Motor Serv. v. O’Connor, 340 U. S. 602; Railway Express Agency v. Virginia, 347 U. S. 359.) II. Since section 186-a of the Tax Law is the same in practical operation as a tax for the use of the highways of the State and is designed to help defray the cost of their maintenance, it is valid and is not violative of the commerce clause. (Matter of Babylon Milk & Cream Co. v. Bragalini, 5 N Y 2d 736; Mid-States Frgt. Lines v. Bates, 279 App. Div. 451, 304 N. Y. 700, 345 U. S. 908.)

      Samuel Weiss and C. Frank Ortloff for Hudson Transit Lines, Inc., amicus curies.

    This statute levies a tax for the privilege of continuing to engage in business rather than imposing a tax to compensate New York for the depreciation of its facilities as they are used by that business. Since this section levies the former, it is illegal, though the alleged aim is to accomplish the latter. (Spector Motor Serv. v. O’Connor, 340 U. S. 602; Greyhound Lines v. Mealey, 266 App. Div. 648; Mid-States Frgt. Lines v. Bates, 304 N. Y. 788.)
   Fulo, J.

This case concerns the tax liability of Public Service Interstate Transportation Company, an interstate omnibus carrier, under section 186-a of the Tax Law, as amended by chapter 601 of the Laws of 1951, for the period from July 1 through November 30, 1951. The company, to whose rights and obligations the petitioner has succeeded through merger, was a New Jersey corporation engaged in the transportation of passengers by omnibus and had no routes in this State except as part of an interstate carriage.

Following the Tax Commission’s demand for taxes and penalties assertedly due under section 186-a, Public Service paid a sum in excess of $7,100 and then sought a refund on the ground that the taxes were unconstitutionally exacted since it was engaged exclusively in interstate commerce. The argument revolves about the question whether the tax is one for the use and maintenance of the State’s highways, in which case it would be valid, or whether it is a tax on the privilege of doing business, having no relationship to the use of the highways, in which event (it is said) it would be unconstitutional. The commission decided against the company and, in this article 78 proceeding, brought to review the commission’s determination, the Appellate Division agreed with the commission and confirmed its determination. The appeal to this court has been taken as of right on constitutional grounds, it being asserted that the tax imposed violates the commerce clause of the United States Constitution (art. I, § 8).

The tax was imposed, as already indicated, by virtue of section 186-a of the Tax Law, as amended by chapter 601 of the Laws of 1951, but, since Public Service urges that the predecessor provisions of this enactment must be considered in determining the issue raised, we devote a few words to its history.

In 1933, in order to aid the City of New York in meeting the relief problems created by widespread unemployment, the Legislature authorized the city to impose, for one year, “ any tax which the legislature would have power and authority to impose ” (L. 1933, ch. 815). Thereupon, by Local Law No. 19 of that same year, the city imposed a tax of 1%% upon the receipts of all utilities subject to State regulation—that is, subject to supervision by the Public Service Commission or the Transit Commission—and operating within the city. The tax was said (in the Act, § 3) to be “for the privilege of exercising its corporate franchise, or of holding property, or of doing business in the city”. (New York Steam Corp. v. City of New York, 268 N. Y. 137, 146.) The enabling power was renewed from time to time and the city not only reimposed the utility tax, but also imposed other taxes, notably a sales tax. In 1937, the Legislature, concluding that relief was a State-wide problem requiring new sources of revenue, determined to impose a utility tax of 2% payable to the State and to permit all cities within the State to impose a similar tax not to exceed 1%. The first was done by adding section 186-a to the Tax Law and the second, by adding section 20-b to the General City Law (L. 1937, ch. 321). The law granting such taxing power to New York City was amended so as to limit its power to impose a utility tax to conform to the general scheme (L. 1937, ch. 327). Although the 1937 tax was also designated as a temporary emergency measure, it too was renewed from year to year and in 1947 it was made permanent (L. 1947, ch. 89).

During all this period, omnibus carriers not subject to the supervision of the Department of Public Service, that is, carriers engaged in interstate service, were not included among those taxed. The present tax was imposed in 1951 (L. 1951, eh. 601), by amending (1) the definition of “utility,” so as to include “ every person * * * engaged in the business of operating one or more omnibuses having a seating capacity of more than seven passengers ” and (2) the definition of “gross operating income,” so as to include “receipts from all transportation, whether originating, terminating or traversing this state * * * allocated on the basis of mileage within and without this state ”.

Our guide must, of course, be the decisions of the Supreme Court of the United States, for in this field they are determinative. It is settled by such decisions that a nondiscriminatory gross receipts tax on an interstate enterprise may be sustained ‘ ‘ if fairly apportioned to the business done within the taxing state * * * and not reaching any activities carried on beyond the borders of the state.” (Canton R. Co. v. Rogan, 340 U. S. 511, 515.) More specifically, where interstate transportation is concerned, ‘ ‘ an apportionment according to the mileage within the [taxing] state is an approved method. Greyhound Lines v. Medley, 334 U. S. 653, 663.” (Canton R. Co. v. Rogan, 340 U. S. 511, 516, supra; see, also, Railway Express Agency v. Virginia, 358 U. S. 434, 448, per Brennan, J., concurring.) Greyhound Lines v. Medley (334 U. S. 653, cited in the Canton R. Co. case), also arose out of section 186-a. The taxpayer was a New York corporation and, operating routes which brought it under the supervision of the Public Service Commission, it was subject to the tax imposed by section 186-a even before the 1951 amendment. However, the taxpayer claimed that the tax base could not properly include receipts from a route which, although originating and terminating in New York, had 43% of its mileage in New Jersey and Pennsylvania. Both the Appellate Division and this court concluded that the tax was valid and that the entire receipts might be included in computing the tax (296 N. Y. 18, affg. 266 App. Div. 648). The Supreme Court, however, reversed that decision, holding that such receipts were the product of interstate commerce and, therefore, within the protection of the commerce clause. In so doing, though, the court did not strike those receipts from the tax base; instead, it held that “the entire tax need not fall.” Deciding that the tax could be upheld if the receipts realized from the transportation were apportioned on a mileage basis, the court stated (334 U. S., at p. 663): “ The tax may be ‘ fairly apportioned ’ to the business done within the state by a fair method of apportionment. ’ Western Live Stock v. Bureau of Revenue, 303 U. S. 250, 255. There is no dispute as to feasibility in apportioning this tax. On the record before us the tax may constitutionally be sustained on the receipts from the transportation apportioned as to the mileage within the State. See Ratterman v. Western Union Telegraph Co., 127 U. S. 411, 427-28. There is no question as to the fairness of the suggested method of apportionment. ’ ’

Public Service, pointing to the court’s observation in Spector Motor Service v. O’Connor (340 U. S. 602, 608) that “the question whether a state may validly make interstate commerce pay its way depends first of all upon the constitutional channel through which it attempts to do so ’ ’, contends that the present tax is imposed for the privilege of doing business in New York, a forbidden channel. This characterization of the tax, that it is for the privilege of doing business in the State, is unquestionably the petitioner’s and not New York’s. Neither in the title of chapter 601 of the Laws of 1951, which imposed the tax, nor in the body of the enactment is there any mention of privilege or any similar operative incident, and the legislative history makes plain that no such design was present. The State Tax Commission, which drafted the amendment, supported it on the ground that omnibuses were exempt from the highway use tax under article 21 of the Tax Law and that omnibuses engaged in interstate commerce should pay part of the cost of maintaining the highways. (See N. Y. Legis. Annual, 1951, pp. 291, 296-297.) “ Since interstate omnibuses use the highways of this State, in part, on interstate journey which originates, terminates or traverses this state, it is proper ’ ’, it was said in the report recommending the enactment, “ that they pay a part of the expense of the constructing, maintaining and policing of the highways just as trucks do. This bill is designed to conform [to] the truck mileage tax imposed by Article 21, as added by Chapter 74 of the Laws of 1951. Article 21 imposes no tax on omnibuses on the theory that they are sufficiently taxed under said section 186-a. This bill, therefore, will place all omnibus receipts under section 186-a.”

Since, as the Appellate Division pertinently noted, the highway use tax was enacted in 1951, and domestic bus companies were already taxed under section 186-a, “ it was entirely consistent to exempt all omnibuses from the coverage of article 21 [imposing the truck mileage tax] and to amend section 186-a so that all omnibus carriers were covered.” The purpose of the amendment, it is quite clear, was to have all bus carriers, interstate as well as domestic, pay their share for the use of the State highways.

The petitioner’s argument, in effect, concedes that, if the 1951 tax had resulted from a separate enactment, it would have been subject to no constitutional infirmity. However, it urges that, by virtue of its incorporation in section 186-a, the omnibus tax necessarily acquired the characteristics of that section and that, since the section has been recognized as prescribing a privilege tax, the omnibus tax must likewise be so regarded. Neither phase of the argument is convincing.

Although incorporated for convenience into section 186-a, the purpose of the omnibus tax was to require interstate carriers to make some contribution to the maintenance of the highways which they are using. It requires no detailed discussion to establish that a tax for such a purpose is constitutionally permissible (see, e.g., Maine v. Grand Trunk Ry. Co., 142 U. S. 217, 228; National Leather Co. v. Massachusetts, 277 U. S. 413, 423; Canton R. Co. v. Rogan, 340 U. S. 511, 515-516, supra; Northwestern Cement Co. v. Minnesota, 358 U. S. 450, 462-463) and such purpose is not tainted by the novel suggestion, which has been advanced, of guilt by association. Rather, the imposition of this tax in the same section under which domestic carriers are taxed demonstrates the absence of any intention to discriminate against interstate commerce. Manifestly, characterization of the taxes imposed by section 186-a, other than the one with which we are now concerned, is of no moment or consequence where interstate commerce is not involved. At any rate, the characterization would necessarily have to come after the event, for the Legislature supplied no label. It is true that New York City, as it was free to do under the broad legislative authority granted, designated its original utility tax, among other things, as one for the privilege of doing business in New York. At that time, however, as already indicated, the section applied only to domestic corporations and nothing turned upon its being termed a privilege tax. And, beyond this, when the Legislature imposed its own utility tax in 1937, it did not adopt this label, nor did it otherwise follow the language of the local enactment. So far as interstate commerce is concerned, the court in the Greyhound case (334 U. S. 653, supra), evidently brushed aside the suggestion that the tax there imposed might be justified as a privilege tax on a domestic corporation, for the majority opinion does not even mention the company’s state of incorporation.

However, to support its argument that the tax is not one related to the use of the highways, the petitioner points to the last phrase in clause (a) of subdivision 2 of section 186-a, as amended by chapter 601 of the Laws of 1951, reading ‘1 regardless * * * of whether use is made of the public streets ”. The phrase was added by a 1941 amendment to section 186-a (L. 1941, ch. 137) and, as the declaration of legislative intent contained in that act clearly established (§ 1), it relates only to those persons selling or furnishing utility services of a peculiarly local character, such as ‘ ‘ gas, electricity, steam, water * * * telephone or telegraph service, by means of mains, pipes or wires ” (§ 186-a, subd. 2, cl. [a]). The words relied upon by the petitioners have no application whatsoever to interstate carriers, and, in the very nature of things, they could not since the tax upon such carriers is expressly allocated on the basis of mileage within and without this state ”. Consequently, if there were no use of the public streets, there would be no tax.

In view of the fact that the controversy before us involves a tax solely for the year 1951, no purpose is to be served by considering later amendments to section 186-a, to which the petitioner has called our attention. It is enough to say that the 1951 amendment to section 186-a imposes an appropriate tax on interstate omnibus carriers to compensate New York for their use of its highways; it does not levy a tax upon them for the privilege of continuing to engage in business. No basis exists for the claim that the tax is either by design or in its operation repugnant to the commerce clause of the Federal Constitution.

The order appealed from should be affirmed, with costs.

Chief Judge C'onway and Judges Desmond, Dye, Froessel, Van Voorhxs and Burke concur.

Order affirmed.


author: Per Curiam.

text:
    The People of the State of New York, Respondent, v. George F. Scanlon, Individually and Doing Business under the Name of Sloat and Scanlon, Appellant.
    Submitted March 12, 1959;
    decided July 8, 1959.

      Raymond J. McGrover for appellant.
    I. The Supreme Court has the power to vacate a Martin Act injunction. There is and can be no statutory bar if, in the Supreme Court’s discretion, it deems the vacatur of the injunction necessary and proper to serve the ends of justice. (Vanderbilt v. Schreyer, 81 N. Y. 646; Ladd v. Stevenson, 112 N. Y. 325; Donnelly v. McArdle, 14 App. Div. 217; Wood v. Wesley, 75 Misc. 521, 151 App. Div. 897; Lipman v. Lipman, 252 App. Div. 862; Siegel v. State of New York, 138 Misc. 474; Drivers Union v. Meadowmoor Co., 312 U. S. 287; United States v. Swift & Co., 286 U. S. 106; Enterprise Window Cleaning Co. v. Slowuta, 299 N. Y. 286; McMurray v. McMurray, 66 N. Y. 175; Byrnes v. Byrnes, 109 App. Div. 535; People v. Television Corp. of America, 1 Misc 2d 183; People v. Haynes, 2 Misc 2d 983.) II. The Supreme Court as a court of equity vacated the injunction here because changed circumstances showed that it was not necessary and that it had become an instrument of oppression. Only a temporary injunction should have been entered in the first place. (United States v. Swift & Co., 286 U. S. 106; People v. Hoyt, 233 App. Div. 874; Enterprise Window Cleaning Co. v Slowuta, 299 N. Y. 286.)

      Louis J. Lefkowitz, Attorney-General (Daniel M. Cohen and Paxton Blair of counsel), for respondent.
    Article 23-A of the General Business Law (the Martin Act) does not contemplate that a permanent injunction granted thereunder may be vacated for subsequent 1 ‘ good behavior ’ ’ in other fields of endeavor. Since in article 23-A the Legislature enacted remedial legislation of a nature designed to protect the investing public, the Appellate Division correctly held that Special Term erred when it assumed the legislative function of determining that such ‘1 good behavior ’ ’ constituted an appropriate ground for vacating a Martin Act decree. (People v. McKnight, 284 App. Div. 892; People v. Small, 261 App. Div. 803; People v. Durkin, 191 Misc. 341; People v. Riley & Co., 188 Misc. 969; People v. Television Corp. of America, 1 Misc 2d 183; People v. Haynes, 2 Misc 2d 983; People v. Ruocco, 208 Misc. 877; People v. Federated Radio Corp., 244 N. Y. 33.)
   Per Curiam.

The present appeal has been taken by defendant, as of right, from an order of the Appellate Division, Second Department, which unanimously (1) reversed an order of the Supreme Court, Kings County, at Special Term, granting a motion by defendant for an order vacating a final judgment of the Supreme Court, entered May 1, 1939, permanently enjoining defendant from acting as a dealer in securities, and (2) denied the motion to vacate.

The injunction was issued on the consent of defendant in an action brought against him by the Attorney-General under article 23-A of the General Business Law. The complaint alleged failure to keep proper books and fraudulent practices by defendant. In May of 1958 defendant moved on affidavits for an order to dissolve and vacate the injunction upon the ground that his conduct had been exemplary since 1939; that he had paid his obligations in full; that he is now a responsible and important businessman and that it would be unfair for the injunction to remain effective against him. Special Term treated the case as within the purview of the power of a court of equity to vacate its own judgments and granted the defendant’s application. On appeal, the Appellate Division reversed, holding that Special Term was without power to vacate a permanent injunction issued pursuant to the provisions of article 23-A of the General Business Law after two years had expired after the entry of such judgment.

Inasmuch as this appeal has been taken as of right and it is not an appeal pursuant to subdivision 3 of section 588 of the Civil Practice Act, it must be from a final determination.

There is no question but that the judgment of permanent injunction issued in 1939 was a final determination. The order of the Appellate Division reversing the order to vacate that judgment neither adds to nor detracts from the rights of the parties as determined by such judgment—it merely adheres to the already final determination; That being so, it is nonfinal in character and the defendant’s appeal therefrom must be dismissed (see Cohen and Karger, Powers of the New York Court of Appeals, pp. 141-147; Di Raffaele v. Gerkhardt, 246 N. Y. 646; Bright v. Goshen Sanitarium Co., 309 N. Y. 1000). This is to be distinguished from a new and separate special proceeding authorized by statute (Matter of Henry, 3 N Y 2d 258, 260) or a motion, to amend a previous final determination which is granted at Special Term but denied in the Appellate Division (see, e.g., Enterprise Window Cleaning Co. v. Slowuta, 299 N. Y. 286; see, also, Cohen and Karger, Powers of the New York Court of Appeals, p. 147 et seq.).

The appeal should be dismissed upon the ground that the order sought to be appealed from does not finally determine the action within the meaning of the Constitution.

Chief Judge Conway and Judges Desmond, Dye, Fuld, Froessel, Van Voorhis and Burke concur.

Appeal dismissed, etc.


author: Ftjld, J.

text:
    United States Gypsum Company, Appellant, v. Riley-Stoker Corporation, Respondent.
    Argued May 25, 1959;
    decided July 8, 1959.

      Wallace J. Stakel and Wendell J. Brown for appellant.
    I. The interests of justice require that the stricken language be restored to the complaint. (Matter of Jensen v. Southern Pacific Co., 215 N. Y. 514; Matter of Delinousha v. National Biscuit Co., 248 N. Y. 93; Matter of Sweeting v. American Knife Co., 226 N. Y. 199; Matter of Woodward v. Conklin & Son, 171 App. Div. 736; Travelers Ins. Co. v. Brass Goods Mfg. Co., 239 N. Y. 273.) II. The position of the Second Department in Liberty Mut. Ins. Co. v. American Stevedores (278 App. Div. 661) should be approved by this court. (Commissioners of State Ins. Fund v. Clark Carting Co., 274 App. Div. 559; Commissioners of State Ins. Fund v. Wilaka Constr. Co., 201 Misc. 148, 279 App. Div. 1043.) III. The statutory assignment of the cause of action does not preclude the pleading of the allegations under attack. (Skakandy v. State of New York, 274 App. Div. 153, 298 N. Y. 886; Travelers Ins. Co. v. Brass Goods Mfg. Co., 239 N. Y. 273; Travelers Ins. Co. v. Padula Co., 224 N. Y. 397.) IV. Rule 103 of the Rules of Civil Practice does not require the striking of the controversial allegations. (Nasmie Constr. Co. v. Quasman, 215 App. Div. 724; Gerseta Corp. v. Silk Assn. of America, 220 App. Div. 302.)

      Donald F. Hathaway and James A. Reed for respondent.
    I. The injured employee’s failure to commence an action resulted in an absolute assignment of this cause of action to his employer. (Matter of Woodward v. Conklin & Son, 171 App. Div. 736; Travelers Ins. Co. v. Brass Goods Mfg. Co., 239 N. Y. 273; Taylor v. New York Cent. R. R. Co., 294 N. Y. 397; Skakandy v. State of New York, 274 App. Div. 153; Travelers Ins. Co. v. Padula Co., 224 N. Y. 397; Commissioners of State Ins. Fund v. Clark Carting Co., 274 App. Div. 559; Liberty Mut. Ins. Co. v. American Stevedores, 278 App. Div. 661; Commissioners of State Ins. Fund v. Wilaka Constr. Co., 201 Misc. 148, 279 App. Div. 1043; Marmet
      v. Rankins, 4 A D 2d 485.) II. The language stricken is not necessary to a plain and concise statement of the cause of action and should not be permitted to stand under rule 103 of the Buies of Civil Practice.
   Ftjld, J.

An employee of plaintiff United States Gypsum Company, one Thomas G. Steele, was injured in the course of his employment through the negligence of a workman for the defendant, the Biley-Stoker Corporation, while that company was engaged in installing a steam generating unit in the plaintiff’s power plant. Steele received an award of compensation in June of 1956. In the following January, the plaintiff, a self-insured employer, notified him that the omission on his part to commence an action against the defendant would operate as an assignment of the cause of action to the plaintiff pursuant to section 29 of the Workmen’s Compensation Law. Steele did not bring suit within the time limited and the plaintiff, as the former’s assignee under the statute, instituted the present action to recover damages for his personal injuries. The statute provides, in part, that, if the employer ‘ recover * * * a sum in excess of the total amount of compensation awarded to such injured employee * * * and the expenses for medical treatment paid by it, together with the reasonable and necessary expenditures incurred in effecting such recovery, it shall forthwith pay to such injured employee or his dependents, as the case may be, two-thirds of any such excess, and to the extent of two-thirds of any such excess such recovery shall be deemed for the benefit of such employee ” (§ 29, subd. 2).

The complaint before us contains the usual allegations of a cause of action for personal injuries as well as allegations required to show that the plaintiff is entitled to proceed as assignee under section 29. Specifically, after reciting that the plaintiff had paid Steele $930 in compensation and about $1,120 for hospital and medical expenses and after relating the circumstances of the assignment of the cause of action to the plaintiff, the complaint continues:

"18. * * * the said Thomas G. Steele is entitled to the recovery Herein a portion thereof [sic] over and above the amounts for compensation, hospital and medical expenses heretofore or hereafter paid by the plaintiff.
“ 19. [That by reason of the foregoing,] the said Thomas Gr. Steele was damaged, [and the plaintiff has been, or will in the future be, damaged, all in the sum of $75,000.00.] ”

The defendant, considering itself prejudiced by the reference to the injured employee’s interest, moved, under rule 103 of the Rules of Civil Practice, to strike the quoted, and unbracketed, portions of the 18th and 19th paragraphs of the complaint as 1 ‘ frivolous, irrelevant and redundant ’ ’. The Justice at Special and Trial Term, believing that he was concluded by an earlier decision, granted the motion; the Appellate Division affirmed, certifying a question to us for our review.

Simply put, the issue posed is whether or not, in a suit by a carrier or self-insured employer pursuant to section 29 of the Workmen’s Compensation Law, the plaintiff is privileged to disclose, by pleadings and proof, the injured employee’s interest in the outcome. It is an issue on which the courts throughout the State have differed; the Appellate Division for the Second Department has taken the position that the employee’s interest may be alleged and proved (see, e.g., Liberty Mut. Ins. Co. v. American Stevedores, 278 App. Div. 661), while the First and Fourth Departments have held otherwise. (See, e.g., Commissioners of State Ins. Fund v. Wilaka Constr. Co., 279 App. Div. 1043 [First Dept.], affg. 201 Misc. 148; Commissioners of State Ins. Fund v. Clark Carting Co., 274 App. Div. 559 [Fourth Dept.].)

Section 29 provides for the assignment of the third-party cause of action of an injured employee primarily to enable the employer to recoup compensation costs and medical expenses. His recovery of the full measure of the employee’s damages, however,, would in many instances so greatly exceed his own losses that the statute also provides for the payment to the employee of two thirds of any recovery in excess of compensation benefits.

The jury must, of course, be apprised that the employer has paid compensation benefits and that, by operation of law, the assignment entitles him to the same measure of damages to which the employee would have been entitled had he brought the suit himself. Advised only of this, the jury could hardly escape the conclusion that any verdict for the plaintiff employer would be for his sole benefit and it would understandably be reluctant to return an award of more than he had paid to the injured employee. The jurors certainly would not choose to find for the employer an amount reflecting the injury, the pain, the suffering personal to the employee, unless they knew that the latter was entitled to a portion of any excess. The prejudice to the employee in such a situation is self-evident. On the other hand, if the jury is informed that the employee has an interest in the action and in any recovery over and above the employer’s expenditures, the danger that it will return a verdict in excess of the amount of damages shown to have been suffered by the injured employee, if existent at all, is assuredly no greater than in any negligence action. Balancing one consideration against the other, we are persuaded that the risk of prejudice to both employer and employee is far greater from concealment than from disclosure of the latter’s interest.

It might, perhaps, be urged that it is sufficient merely to instruct the jury that, under the Workmen’s Compensation Law, the employee has an interest in the outcome of the suit and that, for this reason, it is not necessary to allege his interest in the complaint. That may be so, but we see no reason for keeping this fact from the jury until the close of the case. Indeed, the jury is more likely to make a just appraisal of the situation if aware from the beginning of all the factors involved. As the court at Special and Trial Term very aptly put it, ‘ ‘ Instructions to the jury alone are insufficient, and merely delay to the end of the trial what the jury should know from the beginning. Truth and justice are so irrevocably commingled that to stifle one is to destroy the other.”

The order of the Appellate Division should be reversed, with costs in all courts, and the defendant’s motion denied. The certified question should be answered in the affirmative.

Chief Judge Cowway and Judges Desmowd, Dye, Froessel, Vaw Voorhis and Burke concur.

Order of Appellate Division reversed, with costs in all courts, and matter remitted to, Special Term for further proceedings in accordance with the opinion herein. Question certified answered in the affirmative.


author: Fuld, J.

text:
    The People of the State of New York, Respondent, v. Ferdinand Williams, Appellant.
    Argued May 21, 1959;
    decided July 8, 1959.

      Nancy Carley for appellant.
    I. In refusing to review the alleged trial errors herein the Appellate Division denied defendant due process of law. (People v. Reed, 276 N. Y. 5; Matter of Jones, 181 N. Y. 389; People ex rel. Miller v. Martin, 1 N Y 2d 406; People v. Cioffi, 1 N Y 2d 70; People v. Shaw, 1 N Y 2d 30; People v. Rozea, 267 App. Div. 569; People v. Taras, 269 App. Div. 694, 296 N. Y. 983.) II. In refusing defendant a review of the alleged trial errors herein, the Appellate Division denied defendant the equal protection of the law. (Eskridge v. Washington State Prison Bd., 357 U. S. 214; Griffin v. Illinois, 351 U. S. 12.)

      Frank D. O’Connor, District Attorney (Benj. J. Jacobson and Howard D. Stave of counsel), for respondent.
    I. The claimed errors at the trial in 1948 were not subject to review on the appeal from the resentence of 1957. (People v. Cioffi, 1 N Y 2d 70; People v. Sullivan, 3 N Y 2d 196; People ex rel. Miller v. Martin, 1 N Y 2d 406; People v. Nesce, 201 N. Y. 111; People ex rel. LaPieree v. Heacox, 231 App. Div. 652; People v. DeBernardo, 199 Misc. 563, 282 App. Div. 920; People ex rel. Naumo v. Jackson, 1 A D 2d 743; People v. Kerschman, 283 App. Div. 811; People v. Taras, 269 App. Div. 694, 296 N. Y. 983, 332 U. S. 818; People v. Rozea, 267 App. Div. 569.) II. Eskridge v. Washington State Prison Bd. (357 U. S. 214) does not apply here.
   Fuld, J.

In February of 1948, the defendant was convicted, following a jury trial, of two crimes of robbery in the first degree, two counts of grand larceny and of assault, in the County Court of Queens County. By reason of a 1935 conviction of attempted robbery in the Court of General Sessions, he was sentenced, as a second felony offender, to a term of imprisonment of not less than 30 nor more than 60 years. A month after the rendition of the judgment of conviction, the defendant filed a notice of appeal in the Appellate Division. In October, 1948, that court denied a motion made by the defendant to dispense with the printing of the record on the ground that the appeal lacked merit. In January of 1949, after three motions for enlargement of time had been granted, the appeal was dismissed for failure to prosecute it.

Some eight years later, the Court of General Sessions entered an order vacating the 1935 conviction which had been the predicate for the defendant’s sentence in the Queens County Court as a second offender. And, following this development, the defendant moved to vacate the February, 1948 judgment of conviction as a second offender and for resentence as a first offender. On March 27, 1957, the Queens County Court, granting that motion in part, resentenced the defendant, as a first offender, to a term of not less than 20 nor more than 30 years. The defendant, claiming that the sentence imposed was illegal under section 2189 of the Penal Law, applied for a further resentence. The defendant was again successful; the motion was granted and, on April 16, 1957, he was resentenced to a term of not less than 10 nor more than 15 years on each robbery count, the two terms to run consecutively.

Still dissatisfied, the defendant appealed to the Appellate Division from the judgment of conviction of April 16, 1957. Upon this appeal — taken on the original minutes and by assigned counsel — the defendant sought to review not only the validity of the consecutive sentences recently imposed, but also the trial proceedings held in 1948. The Appellate Division, though it held excessive the imposition of consecutive sentences and ordered that the sentence imposed upon each robbery count run concurrently, decided that the defendant was not entitled to a review on the merits — that is, on the facts and asserted questions of law—of the judgment rendered nine years before.

The time within which a defendant may appeal from a judgment convicting him is 30 days from the date of its rendition (Code Crim. Pro., § 521). After such period has expired, the defendant may not effect an extension by making a motion for resentence, on the ground that the sentence meted out was illegal, and then appealing from the order entered thereon. He may, of course, have a review of the legality of the resentence by appeal from the amended judgment thereafter entered, but his right to review the merits of the prior proceedings resulting in the adjudication of guilt was lost by his failure to appeal within the time allowed from the judgment of conviction entered on the original sentence. (See People v. Baumeister, 283 N. Y. 625; People v. Taras, 269 App. Div. 694, affd. 296 N. Y. 983, cert, denied 332 U. S. 818; People v. Faucetta, 301 N. Y. 758; see, also, People v. Sullivan, 3 N Y 2d 196, 198-199 and People ex rel. Miller v. Martin, 1 N Y 2d 406, 411, wherein we stated that, where a sentence is vacated, the validity of the prior proceedings remains unaffected.) And the consequence is precisely the same whether the defendant does or does not file a notice of appeal from the original judgment of conviction. (See People v. Taras, 269 App. Div. 694, affd. 296 N. Y. 983, cert, denied 332 U. S. 818, supra, no appeal taken; People v. Faucetta, 301 N. Y. 758, supra, appeal timely taken.)

We are, however, faced on this appeal with a further problem. The defendant argues that he was financially unable to print the record in 1948 in connection with his appeal from the original judgment of conviction and contends that the Appellate Division’s denial of his application to prosecute that appeal in forma pauperis denied him the equal protection of the laws. Since an appeal could not have been taken in 1949, either from that order or from the subsequent judgment of the Appellate Division dismissing the appeal for failure to prosecute (see People v. Carroll, 292 N. Y. 590; People v. O’Rafferty, 291 N. Y. 801; see, also, Cohen and Karger, Powers of the New York Court of Appeals, pp. 720-721; but see, contra, People v. Pitts, also decided today, 6 N Y 2d 288, holding that such an appeal currently lies), it follows that the defendant had no opportunity of raising the constitutional issue asserted. That does not mean that the question must, or should, be reviewed on an appeal from the amended judgment. A regard for proper and orderly procedure does not sanction departure from our settled rule that a defendant may not procure a review of the original judgment of conviction by appeal from an order or judgment of resentence.

This is not to say, though, that Williams is left without remedy in the courts of this State. A defendant should be accorded the opportunity of demonstrating, if he can, that the Appellate Division’s action in refusing to allow him to prosecute his appeal on the original record—which led to the later dismissal of the appeal—deprived him of a “ right ” to appeal and constituted a denial of the equal protection of the laws. Consequently, it is our view that the defendant should be privileged to raise the question involving the equal protection of the laws at the present time by an application addressed to the Appellate Division and upon such application the court should explore the validity of its 1949 dismissal of the defendant’s appeal in the light of the principles that have more recently been announced in Griffin v. Illinois (351 U. S. 12) and People v. Kalan (2 N Y 2d 278) and the cases which followed them. (See, e.g., People v. Pitts, 6 N Y 2d 288, also decided today; People v. Pride, 3 N Y 2d 545; Eskridge v. Washington Prison Bd., 357 U. S. 214.)

It is hardly necessary to add that, in suggesting this procedure, we intimate no opinion whatsoever as to what the decision should be.

The judgment of the Appellate Division should be affirmed.

Chief Judge Conway and Judges Desmond, Dye, Froessel, Van Voorhis and Burke concur.

Judgment affirmed.

      . Section 2189 provides that a person never convicted of a felony shall receive an indeterminate sentence, the minimum of which shall not be more than one half of the longest period prescribed for the crime of which he was convicted. It was his argument that the 20 years imposed as the minimum exceeded the one half of the 30 years which the Legislature had prescribed as the maximum for first degree robbery (Penal Law, § 2125).


text:
    In the Matter of 225 East 70th Street Corp., Appellant, against Robert C. Weaver, as State Rent Administrator, Respondent.
    Argued May 29, 1959;
    decided July 8, 1959.

      Harry Meisnere for appellant.
    I. Neither section 33 nor section 34 of the State Rent and Eviction Regulations, nor any statute authorizes the modification of the order dated October 28, 1955 by the Local Rent Administrator. (Matter of Alamac Estates v. McGoldrick, 2 N Y 2d 87.) II. Administrator’s opinion No. 120 is void insofar as it is claimed to be authority for modification of order dated October 28, 1955. III. Administrative finality bars modification of order dated October 28, 1955 on February 28, 1958. (People ex rel. Finnegan v. McBride, 226 N. Y. 252; Matter of Alamac Estates v. McGoldrick, 2 N Y 2d 87; Walfrice v. Buffalo Pottery Co., 176 Misc. 472, 263 App. Div. 787; Matter of Evans v. Monaghan, 306 N. Y. 312; People ex rel. Tishman & Son v. Cantor, 109 Misc. 495; People ex rel. Chase v. Wemple, 144 N. Y. 478.) IV. Equity and legislative intent require reversal of the order. (Ettlinger v. Weil, 184 N. Y. 179.)

      Emory Gardiner and Harold Zucker for respondent.
    When remission of real estate taxes was obtained by the landlord, there was so significant a change in the basis underlying the original rent increase grant as to warrant revision. (Matter of Hiltzik v. Weaver, 16 Misc 2d 629, 7 A D 2d 1023; Matter of Aronson v. Temporary State Housing Rent Comm., 17 Misc 2d 71; Matter of Harby Realty Co. v. Gilroy, 17 Misc 2d 76; Matter of Rapice Realty Corp. v. Weaver, 17 Mise 2d 78; Matter of Andrea Realty Corp. v. Weaver, 17 Misc 2d 78; Matter of 2284 Second Ave. Corp. v. Weaver, 17 Misc 2d 79; Matter of Davis v. McGoldrick, 3 Misc 2d 830; Matter of Alamac Estates v. McGoldrick, 2 N Y 2d 87; Matter of Rochester Tr. Corp. v. Public Serv. Comm., 271 App. Div. 406, 296 N. Y. 1061; Matter of Cupo v. McGoldrick, 286 App. Div. 809, 286 App. Div. 962; Matter of First Terrace Gardens v. McGoldrick, 1 N Y 2d 1.)
   Ftjld, J.

This appeal, here by permission of the Appellate Division, poses a question which has been frequently litigated during the past several years: may rent increases, granted by the State Rent Administrator, to compensate a landlord for the installation of a capital improvement be revised by the Administrator when the landlord thereafter obtains an abatement of taxes by reason of the same improvement?

The appellant owns a 20-family tenement in New York City, which it purchased in 1957. Up to 1955 the premises consisted of cold water unheated flats. In that year, the appellant’s predecessor in title installed central heating and obtained an increase in rents on the basis of such installation, pursuant to section 33 of the Rent and Eviction Regulations promulgated by the Rent Administrator. Rents had been $25 a month for three-room apartments and $33 a month for four-room units. The landlord’s application indicated an expenditure of $9,000 to make the improvement and an increase was granted of $12 a month for the three-room units and $16 a month for the four-room units, in conformity with the scale of $4 a month for each radiator installed, as set out in the Schedule of Rental Values issued by the Rent Commission.

Thereafter, on December 31, 1955, the City of New York enacted a law permitting tax abatement to any owner who installed central heating (Local Laws, 1955, No, 118) and the owner made an application in September, 1956, for such relief. The application was granted; the city allowed the owner a tax abatement of $6,750, which amounted to 75% of the cost of the improvement, spread over a nine-year period, and tax exemption for a period of 12 years on the increase in the assessed valuation resulting from the improvement.

Some months thereafter, in April of 1957, the appellant contracted to purchase the premises and, in connection with the sale, submitted to the Rent Commission for certification the rent roll which, of course, reflected the increases earlier allowed. The Commission certified the rent roll as submitted and some time later the appellant took title to the property.

On December 19, 1957, the Administrator issued an Opinion, referred to as No. 120. Dealing with the Effect of Tax Abatement on Rent Increases Otherwise Allowable for the Installation of Central Heating and Hot Water Systems and Other Improvements ”, the Opinion recites, in effect, that, when a tax abatement is allowed a landlord who had earlier obtained a rent increase for the same capital improvement, 1 ‘ the Local Rent Administrator will re-open the proceeding in order to give the tenant credit for two-thirds of the tax abatement pursuant to the second unnumbered paragraph of Section 33 of the Rent and Eviction Regulations.” In accordance with this Opinion, and in February of 1958, the Local Rent Administrator began a proceeding under section 33 of the Rent Regulations to revise and adjust the 1955 allowances to the appellant’s predecessor on the ground that there had been a substantial change in the basis on which those allowances had been granted. Some Weeks later, on February 28, 1958, orders were issued reducing the rents, prospectively, by $1.78 a month for the three-room apartments and $2.38 a month for the larger ones. These orders were affirmed by the State Rent Administrator, and the latter’s determination was confirmed by the court at Special Term and the Appellate Division in this article 78 proceeding brought by the appellant.

Underlying the Rent Administrator’s decision is the thought that, when a rent increase is granted because of some capital improvement by the landlord, he is not entitled to a duplicating or multiple ‘ ‘ increase ’ ’ by way of a tax abatement from the city for the same improvement and that, if he obtains the abatement, it is only fair and proper that it be shared with the tenants through a prospective readjustment of the rent increases earlier allowed. This is good sense and sound law.

The Rent Control Law empowers the Rent Commission to adopt, promulgate, amend or rescind, such rules, regulations and orders as it may deem necessary or proper to effectuate the purposes of this act ” (State Residential Rent Law [L. 1946, ch. 274, as amd.], § 4, subd. 4, par. [a]). And section 33 of the State Rent and Eviction Regulations, which provides for the increase of rent, specifically authorizes the Administrator ‘ ‘ to revoke or modify any adjustment” previously made if there has been a substantial change in the basis upon which such adjustment was granted. ’ ’ An increase in rent, on the basis of $4 for each radiator installed was undoubtedly authorized and proper. An incentive was thus accorded landlords to make needed and socially desirable improvements and the formula of $4 a radiator was thought to afford a fair base for assuring the landlord a recoupment of his cost in installing a central heating system within a reasonable time.

The scheduled allowance—resulting in this case in rent increases of $12 and $16 a month — did not envisage or take into account any further benefits to the landlord by way of a further recoupment in the form of tax abatement or tax exemption from the city. Accordingly, when such tax abatement relief was later obtained by the landlord, the Rent Administrator was fully warranted in “ adjusting ” the rent increases previously granted, for, otherwise, the cost of the improvement would have been paid, in effect, twice, once by the tenants through rent increases and once by the city through tax abatement. The purpose of the local legislation was to assist owners to remove fire and health hazards and render less burdensome the replacement of inadequate and obsolete sanitary facilities by reducing the cost of the improvements by a grant of tax abatement. While the legislation permitted the owners to reduce their cost, it was never its design that the landlords, in addition, would be entitled to receive thoroughly duplicating rent increases based upon the total expenditures for the same improvements.

The Rent Control Law and the Regulations promulgated under it contemplated that a landlord would receive a full measure of relief for any capital improvement such as central heating, but only one full measure of relief. In 1955, when the rents were adjusted at the rate of $4 a radiator, such full measure of relief was achieved; the increase was designed to afford the landlord complete compensation for the expenditures of the substantial sums made. The whole basis for this grant was significantly altered when the landlord’s request for remission of real estate taxes was granted by the city. The net effect of the change thus accomplished was that the landlord was now able to recoup almost the entire cost of the improvement as a windfall, in addition to the full relief already granted by the Rent Commission in the form of rent increases. Such a result was neither written into the law nor intended.

The original increase was authorized by section 33 of the Rent Regulations and the same section provides for an adjustment of any increase previously granted “if there has been a substantial change in the basis upon which such * * * [increase] was granted. ” When a landlord, after having received the full measure of relief from the Rent Commission, deliberately seeks additional and duplicating relief, he plainly alters the basis upon which the relief from the Commission was granted. Only a revision of the relief initially granted, which will take into account the additional and duplicating factor, can re-establish the propriety of the basic relief. And so the lower courts, in confirming similar rulings by the Administrator, have consistently held. (See, e.g., Matter of Hiltzik v. Weaver, 16 Misc 2d 629, affd. 7 A D 2d 1023; Matter of Aronson v. Temporary State Housing Rent Comm., 17 Misc 2d 71; Matter of Harby Realty Co. v. Gilroy, 17 Misc 2d 76; Matter of Raplee Realty Corp. v. Weaver, 17 Misc 2d 78; Matter of Michael Heier, Inc., v. Weaver, N. Y. L. J., Oct. 9,1958, p. 12, col. 2; Matter of Todar Realty Corp. v. Weaver, N. Y. L. J., Oct. 27, 1958, p. 12, col. 7; Matter of 2284 Second Ave. Corp. v. Weaver, 17 Misc 2d 79.)

. The appellant argues, however, that the doctrine of finality of administrative determination precludes the “ reopening” of the basic proceeding and, in addition, that a rule of estoppel prevents a reduction of the rent after the Commission had certified the rent roll containing the then current rents, including past increases.

There was not, except in a most technical sense, a reopening of the original 1955 proceeding. As already amply appears, the $4 per radiator allowance made in that year was designed to recompense the landlord for installing a heating system. The tenants were assessed not only for the benefit which they were gaining, but to reimburse the landlord in part for the highly desirable capital improvement he had made. A change in circumstances and facts called for action to prevent a duplication of relief to the landlord, to prevent his receiving a double recoupment of cost. The new conditions required, in reason and in justice, that something be done, that the tenants be permitted to share somewhat in the benefits granted the landlord. Matter of Alamac Estates v. McGoldrick (2 N Y 2d 87), upon which the appellant relies, has nothing to do with the ease. All that the court there held was that the Administrator could not simply decrease, and retroactively, a scheduled increase on the basis of which the landlord had undertaken a major capital improvement. Indeed, in so ruling, the court explicitly observed that the Administrator may, ‘ ‘ under appropriate circumstances, change his determination” (p. 89). The present is quite obviously such a case.

Nor does any rule of estoppel apply to conclude the Administrator from ruling as he has. Even assuming, contrary to law (see, e.g., Matter of Rochester Tr. Corp. v. Public Serv. Comm., 271 App. Div. 406, 411, motion for leave to appeal denied 296 N. Y. 1061), that an administrative agency might be subject to the doctrine of estoppel, there would be no warrant for invoking it here. The Commission certified the rent roll submitted to it by the appellant before the latter actually took title, but the certification signified nothing more than that the rents set forth were the rents then being paid by the tenants. There was no representation, either express or implied, that those rents would remain constant or that they would not be adjusted if the facts required a change. The appellant knew, or should have known, that the 1955 allowances were adjustments effected under section 33 of the Rent Regulations and it knew, or should have known, that this very section empowered the Administrator to modify any previous ‘ adjustment ’ ’ if the basis upon which it had been granted was thereafter substantially changed. The grant of tax abatement and of partial tax exemption to the appellant’s predecessor in title — continuing in part during the appellant’s ownership—unquestionably represented the sort of substantial change which justified the Administrator’s further adjustment.

The order appealed from should be affirmed, with costs.

Chief Judge Conway and Judges Desmond, Dye, Froessel, Van Voorhis and Burke concur.

Order affirmed.


text:
    Warren S. Tenney, Suing as a Director of New York Water Service Corporation, Respondent, v. Richard L. Rosenthal et al., Appellants, et al., Defendants.
    Argued May 12, 1959;
    decided July 8, 1959.

      Jesse Glimenko and Martin I. Shelton for corporate appellants.
    Plaintiff, as Special Term held, has not legal capacity to continue the prosecution of this action. He is no longer a representative of New York on whose behalf this action is purportedly brought. (Hamilton v. Gibson, 145 App. Div. 825; Manix v. Fantl, 209 App. Div. 756; Wangrow v. Wangrow, 211 App. Div. 552; Kehaya v. Axton, 32 F. Supp. 266; Johnson v. Baldwin, 221 S. C. 141; Smith v. Industrial Acceptance Corp., 265 App. Div. 931; Gleicher v. Times-Golumbia Distrs., 283 App. Div. 709; Matter of Cohen v. Cocoline Prods., 309 N. Y. 119; Woods v. Lancet, 303 N. Y. 349; Sears, Roebuck & Co. v. 9 Ave.-31 St. Corp., 274 N. Y. 388.)

      Henry J. Friendly, Leonard S. Sheriff and Sedgwick W. Green for individual appellants.
    I. Even if the Appellate Division was correct in believing that the cause of action conferred on a director by section 61 of the General Corporation Law is the corporation’s, a plaintiff director loses his standing to control the action when, as here, he has ceased to be a director. (Johnson v. Baldwin, 221 S. C. 141; Polish Amer. Pub. Co. v. Wojcik, 280 Mich. 466; Cyrowski v. Wojcik, 280 Mich. 476; Malcolm v. Cities Serv. Co., 2 F. R. D. 405; Smith v. Industrial Acceptance Corp., 265 App. Div. 931; Gleicher v. Times-Columbia Distrs., 283 App. Div. 709; Ream v. Ream, 281 N. Y. 395; Donovan v. Donovan, 241 App. Div. 906; Breese v. Metropolitan Life Ins. Co., 37 App. Div. 152; Stephenson v. Stephenson, 6 Paige Ch. 353; Campbell v. Bowne, 5 Paige Ch. 34; McCarthy v. Anable, 169 Misc. 595; Morris v. Morris, 172 App. Div. 719; Burras v. Looker, 2 Edw. Ch. 499.) II. In fact, a director’s cause of action under section 61 of the General Corporation Law is his rather than the corporation’s, and it therefore abates on his loss of status. (Miller v. Barlow, 78 App. Div. 331; Dresdner v. Goldman Sachs Trading Corp., 240 App. Div. 242; Loewenstein v. Diamond Soda Water Mfg. Co., 94 App. Div. 383; Brackett v. Griswold, 103 N. Y. 425; Hegerich v. Keddie, 99 N. Y. 258; Zabriskie v. Smith, 13 N. Y. 322; People ex rel. Stanton v. Tioga Common Pleas, 19 Wend. 73; Manufacturers’ Liab. Ins. Co. v. Overseas Shipping Co., 130 Misc. 710.)

      Milton Pollack, Warren S. Tenney and Samuel N. Greenspoon for respondent.
    I. The Legislature required only that respondent be a director when suit was brought; a trial on the merits does not depend upon continued success at the polls. (Miller v. Quincy, 179 N. Y. 294; Schoenherr v. Van Meter, 215 N. Y. 548; Williams v. Robinson, 9 Misc 2d 774, 5 A D 2d 823; Ward v. Petrie, 157 N. Y. 301; Marco v. Sachs, 304 N. Y. 912; Holmes v. Camp, 227 N. Y. 635; Weinert v. Kinkel, 296 N. Y. 151; Manix v. Fantl, 209 App. Div. 756; Wangrow v. Wangrow, 211 App. Div. 552; Abberger v. Kulp, 156 Misc. 210; Handler v. Belmare Light. Co., 8 Misc 2d 687; Kehaya v. Axton, 32 F. Supp. 266.) II. The legislative purpose would be frustrated if this action were defeated on respondent’s failure of re-election. (Lederer v. Wise Shoe Co., 276 N. Y. 459; Williams v. Robinson, 9 Misc 2d 774, 5 A D 2d 823; Matter of Rouss, 221 N. Y. 81; Holmes v. Camp, 186 App. Div. 675, 227 N. Y. 635; Weinert v. Kinkel, 296 N. Y. 151; Ream v. Ream, 281 N. Y. 395; Baer v. McCullough, 176 N. Y. 97; Sigua Iron Co. v. Brown, 171 N. Y. 488; Griggs v. Griggs, 56 N, Y. 504; Manchester v.
      Herrington, 10 N. Y. 164; Colegrove v. Breed, 2 Denio 125.) III. The Gocoline case has no application whatsoever to this action. (Matter of Cohen v. Cocoline Prods., 309 N. Y. 119; Zabriskie v. Smith, 13 N. Y. 322; Patton v. Brady, 184 U. S. 608; Armstrong v. Du Mont Labs., 137 F. Supp. 659.) IV. Rules governing stockholder suits do not apply. (Koral v. Savory, 276 N. Y. 215; Myer v. Myer, 271 App. Div. 465, 296 N. Y. 979; Miller v. Barlow, 78 App. Div. 331; Loewenstein v. Diamond Soda Water Mfg. Co., 94 App. Div. 383.) V. The rule of Manicc v. Fantl was re-enacted by the Legislature as part of section 61. (Matter of Trosk v. Cohen, 262 N. Y. 430; Matter of Scheftel,, 275 N. Y. 135; Matter of Guardian Life Ins. Co. of America v. Joseph, 272 App. Div. 481, 297 N. Y. 976; Schieffelin v. Berry, 217 App. Div. 451, 243 N. Y. 603.)
   Fuld, J.

Certified questions call upon us to say whether a director of a corporation may continue to maintain an action, brought by him while a director on behalf of the corporation, pursuant to section 61 of the General Corporation Law, after he has been defeated for re-election to such office.

In May of 1957, Warren S. Tenney became a director of the New York Water Service Corporation and in December of that year commenced this suit, as director, pursuant to section 61 of the General Corporation Law, against fellow directors and a wholly-owned subsidiary of Water Service. The latter is also named as a nominal defendant.

On May 14, 1958, a day before the annual meeting of stockholders to elect directors, the corporate defendants moved to dismiss the complaint on the ground that the plaintiff ‘ has not legal capacity to sue ” (Rules Civ. Prac., rule 107, subd. 2) and, in support of the motion, the defendants asserted that the plaintiff, not included on the “ slate of persons proposed by Management ”, would not be re-elected as a director at the election to be held on May 15 and that, consequently, the plaintiff would not be in office at the time of the hearing of the motion. The forecast was accurate; the plaintiff was not elected. Then, on May 16, the day following the election, and after their time to make motions had expired, the individual defendants moved, nunc pro tunc as of May 14, to dismiss the complaint on two grounds— (1) pursuant to section 82 of the Civil Practice Act, “ because the action has abated ” and (2) pursuant to rule 107, on the ground, specified in the earlier motion, that the plaintiff “ has not legal capacity to sue

The court at Special Term, ruling in favor of the defendants, dismissed the complaint. The Appellate Division, however, unanimously reversed and denied the defendants’ motions. It granted leave to appeal, certifying two questions for our review.

It is sufficient, for present purposes, to observe that the four causes of action alleged in the complaint before us assert breaches by the defendant directors of the duties owed by them to their corporation. The first cause of action alleges that the defendant directors have exceeded their authority to manage the business of the corporation by making ultra vires investments of corporate funds; the second, third and fourth causes of action charge that the defendant directors severally named therein have failed to discharge their duties to the corporate defendant by wasting the corporate assets through excessive or unlawful payments to or for the benefit of certain individual defendants. These causes of action are unquestionably within the scope of section 60 of the General Corporation Law and were properly brought, pursuant to section 61, by the plaintiff as a director of the corporation. These causes, it is manifest, do not assert a right which is personal to the plaintiff or a right which belongs to him by virtue of his status as director. The right which he seeks to vindicate in each cause of action is the right of the corporation to the faithful services of its directors in the management of its corporate affairs and, quite obviously, this right of the corporation, as well as the causes of action for the alleged breaches of duty by the defendant directors, survive unaffected by the fact that the plaintiff is no longer a director.

Section 82 of the Civil Practice Act declares, in terms clear and unambiguous, that1 ‘ An action does not abate by any event if the cause of action survives or continues”, and since 1924 the courts of this State have consistently held that, while a director’s right to bring the action does not exist after he has been defeated for re-election, the cause of action survives because it is brought for the benefit of the corporation; in other words, the action, once properly initiated, may not be defeated by the circumstance that the plaintiff loses, or is ousted from, his directorship. (See Manix v. Fantl, 209 App. Div. 756, 758-759; Wangrow v. Wangrow, 211 App. Div. 552, 557-558; Abberger v. Kulp, 156 Misc. 210 [Erie County]; Wyckoff v. Sagall, 16 Misc 2d 630, 631 [New York County]; Handler v. Belmare Light. Co., 8 Misc 2d 687, 691 [Kings County]; but see, contra, Kehaya v. Axton, 32 F. Supp. 266.) We agree with these views.

Matter of Cohen v. Cocoline Prods. (309 N. Y. 119), upon which the appellants rely, has nothing to do either with section 61 of the General Corporation Law or with the case before us. We simply held that, since a director’s absolute, unqualified right to inspect books is a personal right and is merely a procedural adjunct of his duty to keep informed of corporate matters, his absolute right terminates and becomes but a qualified one when his duty as director ceases. The plaintiff is not here suing to enforce a personal right given to him at common law so that he may keep himself informed. Bather, he brought suit on behalf of his corporation to vindicate a status given by statute and pursuant to statutory authorization.

Having concluded that the action has not abated, we are brought to the second certified question, which we interpret as posing the issue whether the plaintiff has standing to continue to prosecute the action now that he is no longer a director. Concededly, he had the legal capacity to bring the action, when he did, by virtue of the provisions of the statute (General Corporation Law, § 61), and we see no basis for holding that he lost that capacity or suffered a disqualification when he failed to be re-elected as director.

The plaintiff, and there can be no doubt of this, is prosecuting this action, in the right and for the benefit of the corporation, in a fiduciary capacity which may not inaptly be compared to that of a guardian ad litem (Whitten v. Dabney, 171 Cal. 621, 625, 631-632; see, e.g., Denicke v. Anglo California Nat. Bank, 141 F. 2d 285, 288, cert, denied 323 U. S. 739; Goodwin v. Castleton, 19 Wn. [2d] 748, 763.) The plaintiff is privileged to continue in such fiduciary capacity to prosecute the action for the benefit of the corporation so long as there is no compelling reason to remove him from his trust. To remove bim, it is not enough that the corporation, controlled by the very directors accused of negligence or misconduct, request that some one else, an unnamed person, prosecute the action on its behalf; a persuasive case has to be made out to establish that the proper protection of the corporation’s interest or the proper conduct of the litigation would be better served by the elimination or a change in the identity of the guardian ad litem. For example, following the analogy of Ream v. Ream (281 N. Y. 395), which held that a minor upon reaching majority is entitled to take control of an action on his behalf from his guardian ad litem, the corporation would be entitled to take control of an action if it could show that it was managed by a board of directors in no way involved in the misconduct alleged in the complaint. It may also be that, in a proper case, the plaintiff should be disqualified for conflict of interest or some other reason. In our opinion, however, the fact that the plaintiff has failed of re-election as a director does not automatically bar him from continuing to prosecute the action for the benefit of the corporation.

Strong reasons of policy dictate that, once he properly initiates an action on behalf of the corporation to vindicate its rights, a director should be privileged to see it through to conclusion. Other directors, themselves charged with fraud, misconduct or neglect, should not have the power to terminate the suit by effecting the ouster of the director-plaintiff. It is no answer to say that, if wrongs were committed, others are available to commence a new and appropriate action.

To support their position, the defendants urge the analogy of derivative suits brought by shareholders, wherein it has been held that the plaintiff loses his right to continue to prosecute the action if he ceases to be a shareholder. (See Gleicher v. Times-Columbia Distrs., 283 App. Div. 709; Smith v. Industrial Acceptance Corp., 265 App. Div. 931; Johnson v. Baldwin, 221 S. C. 141.) While there may be many similarities between the derivative action brought by a shareholder and one brought by a director — in both cases the action is prosecuted in the right and for the benefit of the corporation — there are important reasons why the rule of automatic disqualification upon loss of status should not be extended to the director’s action.

In the first place, the shareholder’s action was developed by the courts of equity in large measure to avoid a multiplicity of suits by shareholders similarly damaged by the negligence or misconduct of corporate directors. (See Prunty, The Shareholders’ Derivative Suit: Notes on its Derivation, 32 N. Y. U. L. Rev. 980.) The shareholder is under no fiduciary duty to the corporation prior to the institution of the action. When he sues derivatively, he does so as a volunteer insofar as his fellow shareholders are concerned; he is authorized to proceed only because of his proprietary interest in the corporation. It is significant that in 1944, when the Legislature undertook to combat abuses of the shareholder’s derivative action, the remedial legislation sought to strengthen the proprietary interest of the plaintiff in two ways: first, by requiring a showing that he was a shareholder at the time of the transaction of which he complained (L. 1944, ch. 667; General Corporation Law, § 61); and, second, by providing for his posting of security for litigation expenses unless his proprietary interest amounted to at least 5% of the outstanding shares of any class or was worth at least $50,000 (L. 1944, ch. 668; General Corporation Law, § 61-b). In a very real sense, in modern theory, the standing of the shareholder is based on the fact that, when he sues derivatively, he is defending his own interests as well as those of the corporation. If he disposes of his shares after initiating the derivative action, he destroys the technical foundation of his right to continue to prosecute the suit.

The situation is, obviously, quite different in the case of the director’s derivative suit. His right to sue is based on the public policy declared by the Legislature upon enactment of the statute. We may assume that the right to bring suit has been granted in order to facilitate and improve the director’s performance of the “stewardship obligation” which he owes to the corporation and its stockholders and to protect him from possible liability for failure to proceed against those responsible for improper management of the corporate affairs. (See Matter of Cohen v. Cocoline Prods., 309 N. Y. 119, 123, supra.) Consequently, the director is not a volunteer and there is no equitable ground for holding that he automatically forfeits his standing to continue to prosecute the action if he thereafter ceases to be a director. The analogy of the shareholder’s action is not persuasive here because no proprietary interest is involved. The analogy must be sought elsewhere. We have suggested that of the guardian ad litem. Once he has been properly appointed, as the director has been in this action, his standing is in no way affected by the fact that he is a stranger to his ward. His fiduciary obligations as guardian ad litem are separate from those which he had prior to the commencement of the action and are in no way diminished by his loss of status as a director.

In the second place, it is logical to hold, in the case of the shareholder’s derivative action, that, by the sale of his stock, the plaintiff forfeits his right to continue to prosecute the action for the benefit of the corporation. By the voluntary abandonment of his personal interest in the litigation, he has also by implication abandoned the cause of the corporation. However, no such abandonment of the corporate cause of action is inferable when the plaintiff director has failed of re-election as a director. For example, it may well be that a majority of the shareholders in a close corporation will vote against a director who properly insists that the corporation be managed for the benefit of all the shareholders, rather than only of the majority. Or, it may happen in a publicly held corporation that the proxies of quiescent shareholders will be voted against a director who has sought to expose wrongdoing by the same dominant directors who actually cast the votes. In such situations, it would hardly be argued that a director’s loss of status implies a voluntary abandonment of the corporation’s cause of action. If anything, the plaintiff’s failure of re-election may be simply another aspect of the unhealthy corporate condition which he is intent upon correcting.

In the present case, the record reveals that the plaintiff in 1957 had been elected a member, under the cumulative voting procedure, of a board of eight directors. After he instituted this action against the dominant directors, the latter exercised their power to reduce the membership of the board from eight to five. This made it mathematically more difficult for the plaintiff to be re-elected in 1958. Indeed, the record discloses that the dominant directors announced, prior to the election, that the plaintiff would be defeated. The defendants have pointed out that the plaintiff would have lost even if there had been no reduction in the number of directors. This, though, is not material; the pertinent fact is that the plaintiff did not voluntarily abandon his trust.

In the third place, the rule of automatic disqualification of the plaintiff shareholder in a derivative action, when he ceases to be a shareholder, is but one of a group of related rules worked out by the courts to sustain such suits while avoiding some of their potential abuses. This effort is still in the process of development. (See Clarke v. Greenberg, 296 N. Y. 146; cf. Fed. Rules Prac., rule 23, subd. [c].)

The statutory authorization for suits by directors seeks to achieve the same end, of vindicating the corporation’s rights by a method less subject to the risk of abuse. In the absence of legislative direction, we do not believe that we are warranted in extending to the director’s derivative action the rule of automatic disqualification of the plaintiff to prosecute the action upon loss of his status. On the one hand, a faithless director might be induced to resign, and thereby betray his trust, perhaps upon inducements from the individual defendants. On the other hand, the individual defendants, by virtue of the power they hold in the corporation, and which it is alleged they have misused, may find it advantageous to defeat the plaintiff’s bid for re-election rather than defend the suit. In either case, the corporation would be left defenseless even though it had—or, perhaps, particularly when it had — a meritorious case. This result can better be avoided by keeping the director as plaintiff so long as it is proper to do so and holding him to the strictest accountability as guardian ad litem for the corporation.

Finally, in view of the defendants ’ further argument, we have explored the record to ascertain whether there are any other compelling reasons to hold the plaintiff barred from going on with the litigation. We need but say that we find none. Even if we were to assume, as the defendants insist, that the plaintiff was motivated by personal gain in bringing this action as director, we perceive no conflict of interest or other ground requiring this court to hold as matter of law that the plaintiff is disqualified from continuing to prosecute the action for the benefit of the corporation.

In sum, then, the action, properly commenced by the plaintiff when he was a director, may not be defeated, either on the theory of abatement or of lack of capacity to sue, by effecting the plaintiff’s ouster as director. The plaintiff’s purpose and plan to bring to account those mismanaging the corporation may not be frustrated or interrupted by any such process. The action is for the benefit of the corporation and, to cull from the opinion in the Manix case (209 App. Div. 756, 759, supra), it should not be terminated “ on account of the mere fact that other directors succeed, by trick or otherwise, in defeating the plaintiff director for re-election. Such a construction of the statute would often render it practically ineffectual.”

The order appealed from should be affirmed, with costs, and the two certified questions answered in the negative.

Chief Judge Conway and Judges Desmond, Dye, Froessel, Van Voobhis and Burke concur.

Order affirmed, etc.