Silber v. Clarence Rainess & Co.

Eager, J.

The plaintiffs appeal from dismissal following a nonjury trial of their action brought against the defendant for an accounting. The action was brought by plaintiffs as stockholders of J. H. Frederick, Inc. (Frederick) 16 in behalf of themselves and all the parties to be benefited by the provisions ” of a written agreement hereinafter mentioned for the liquidation of the assets of Frederick and of an associated corporation, American Dixie Shops, Inc. (Dixie). The right to an accounting is claimed to be based upon the wrongful countersigning of checks by defendant firm of public accountants in its employment by the corporations in the liquidation affairs. It is alleged that the defendant’s acts “ were deliberate and reckless and in flagrant breach of its fiduciary duty to plaintiffs and to all of the parties who were to benefit by the accounting and distribution provided for by the terms of the agreement ’ ’.

We agree with the dissenting Justice that the corporations are not necessary parties to this action. Nevertheless, the dismissal of plaintiffs’ complaint should be affirmed on the ground that there was a failure to establish any obligation on the part of the defendant to account to plaintiffs as a fiduciary.

The defendant had been engaged as a certified public accountant to perform services in connection with the chapter XI bankruptcy proceedings of Frederick and Dixie. The liquidation agreement entered into between Louis H. Kahn & Sons, Inc. (Kahn), the stockholders of Frederick and Dixie, including the plaintiffs, and other parties, provided that Kahn should deposit a sum for the purpose of discharging fully all priority claims and administration expenses against the corporations and for the payment to general creditors of 14% of their claims. The assets of the two corporations were to be collected and liquidated in the manner provided for in the agreement with a distribution of proceeds to be made as therein provided. Included was a provision whereby Kahn, following payment of the priority claims, administration expenses and general creditors, would be entitled to a repayment on account of the sum deposited and on account of its own claims. There was further provision whereby the plaintiffs, as investors and stockholders, and the parties represented by them, would become entitled to payment from the assets of. the corporations following the payment directed to be made to Kahn and the payment for legal services, accounting fees and other items.

The agreement further provided that the defendant “ shall be retained to present a certified accounting of all the transactions involved herein and of the distributions to which the parties are entitled, in accordance with the provisions herein set forth. One or more employees of cülarenoe rainess & co. [defendant] shall be designated as signatories whose signatures shall be required jointly with any * * * person designated by Kahn, on all disbursements of the Debtors-in-Possession.”

The corporations, Frederick and Dixie, were not named in the agreement as parties. Although the defendant was also not a party to the agreement, its employees did undertake to perform the accounting services relative to the transactions under the liquidation agreement. The services of the defendant were rendered under its employment by the corporations. In this connection, defendant received and continued in charge of the books of the corporations and countersigned the checks.

Funds received in connection with the liquidation of the assets of the corporations, together with the deposit paid by Kahn, were deposited in corporate bank accounts. The gravamen of the plaintiffs’ claim is that the defendant in disregard of notice to it and prior to the preparation of a proper accounting by it, wrongfully countersigned checks whereby substantial sums were wrongfully paid over to Kahn.

Assuming arguendo, that the agreement of the defendant to countersign checks on the bank accounts of the corporations was for the purpose of the protection of the rights of plaintiffs and all other persons who were to benefit from a distribution of the assets of the corporation, the plaintiffs nonetheless have failed to establish a cause of action for an accounting. At the most, the plaintiffs’ proof merely established the existence of a bare agency on the part of the defendant in the matter of the countersigning of the checks. It was not established that the defendant wrongfully received or possessed any money withdrawn from the bank accounts as a result of the countersigning of the checks or that defendant wrongfully profited in any way from the transactions. Certainly, proof merely of the countersigning of the checks in breach of defendant’s agreement and of its alleged duties to the plaintiffs does not support an action for an accounting.

Proof merely of the existence of a bare agency is not sufficient to entitle the principal to an accounting by the agent. (See Marvin v. Brooks, 94 N. Y. 71, 80.) The right to maintain an action for an accounting against an agent depends upon whether or not the agent has acted as and breached his duty as a fiduciary. This ordinarily requires a showing that the agent has received property or funds belonging to his principal or has so dealt with the subject matter of his agency as to wrongfully profit at the expense of his principal. (See Marvin v. Brooks, supra; Conger v. Judson, 69 App. Div. 121; Lee v. Washburn, 80 App. Div. 410, 412; Talmudic Literature Publishers v. Lewin, 226 App. Div. 1, 2; Zeltser v. Mark, 7 A D 2d 851, 852. See, also, annotation “ Availability of equitable remedy of accounting between principal and agent ”, 3 ALR 2d 1310, and cases cited pp. 1318, 1319.) Applicable here is what was said by the court in Schantz v. Oakman (163 N. Y. 148, 156-157), to wit: “Transactions between parties, which will warrant one in holding the other accountable for his acts, must possess the elements of agency and of a trust reposed, with respect to moneys or other property received. " " If we might say, with respect to the purpose and object of their agreement [the particular agreement between the parties], that there resulted, to that extent, relations of a mutual and confidential nature, that would not aid the plaintiff’s case; for that fact must be followed by proof of money or property intrusted to the defendants, which imposed upon them the burden of accounting. (Marvin v. Brooks, supra.) ”

Furthermore, there is no showing by plaintiffs that the alleged wrongful countersigning of checks by defendant resulted in any damage to the plaintiffs or persons represented by them. Payments from the corporate bank accounts, including the sums represented by the checks to Kahn, countersigned by defendant, were in substantial compliance with the scheme of priorities provided for. It does not appear that the plaintiffs would have been entitled to any distribution from the funds represented by the countersigned checks. Absent a showing of damages, the plaintiffs have no right of action in equity or otherwise against the defendant.

The judgment dismissing plaintiffs’ complaint should be affirmed, with costs and disbursements to the defendant-respondent.