# Berkey v. Third Avenue Railway Co.

> New York Court of Appeals · December 31, 1926 · 244 N.Y. 84

URL: https://www.frixlaw.com/law-library/cases/3608330

## Case

- **Full name:** Minnie B. Berkey, Respondent, v. Third Avenue Railway Company, Appellant; Charles P. Berkey, Respondent, v. Third Avenue Railway Company, Appellant
- **Court:** New York Court of Appeals
- **Decided:** December 31, 1926
- **Citations:** 244 N.Y. 84; 155 N.E. 58; 50 A.L.R. 599; 1926 N.Y. LEXIS 628
- **Precedential status:** Published
- **Opinion:** Dissent by Crane
- **Judges:** Cardozo, Crane
- **Cited by:** 295 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/3608330

## Opinion text

*96
Crane, J.
(dissenting). The United States Supreme Court in
Davis
v.
Alexander
( 269 U. S. 114 ) said: " Where one railroad company actually controls another and operates both as a single system, the dominant company will be liable for injuries due to the negligence of the subsidiary company.” This court decided in
Stone
v. Cleveland,
C., C. & St. L. Ry. Co.
( 202 N. Y. 352 ) “ that the ownership of a majority of the stock of a corporation, while it gives a certain control of the corporation, does not give that control of corporate transactions which makes the holder of the stock responsible for the latter.”
These two decisions are not inconsistent. Each depends upon the particular facts and the nature and extent of the control by the dominant company of the subsidiary. It is largely a question of degree. This was recognized in the opinion in the
Stone
case when referring to the Federal authorities. We there said (p. 361) that the facts in those cases were stronger for the plaintiff than in the
Stone
action.
On this appeal we must determine which of these two rules is applicable to the facts in this case. The Trial Term dismissed the plaintiff’s complaint. The Appellate Division has reversed and granted a new trial, holding that it was a question of fact for a jury to determine whether the Third Avenue Railway Company was liable for an injury to the plaintiff happening on the line of the Forty-second Street, Manhattanville and St. Nicholas Avenue Railway Company, called the Forty-second Street Railway Company.
The plaintiff was injured on the evening of October 4, 1916, by stepping into an unlighted excavation in the street, while alighting from a car at the corner of Broadway and One Hundred and Seventeenth street. The proof of negligence for this appeal is unquestioned and need not be further mentioned, so that we may turn our attention at once to the corporation responsible.
The Forty-second Street Railway Company is a street
*97
railroad corporation having a franchise to operate passenger cars through Broadway at the point in question. Its authorized capital stock is $2,500,000, of which $2,494,900 is outstanding, and of this the Third Avenue Railway Company owns $2,471,300. The Third Avenue Railway Company is also a duly authorized and chartered railroad, operating surface lines in the city of New York connecting with and transferring to the cars running on the Forty-second Street line. Its system, which includes the Third Avenue and Amsterdam line, the One Hundred and Twenty-fifth Street Crosstown line, Broadway-Kings-bridge line as well as the branches of the Forty-second Street Railway, was termed and called “The Third Avenue Railway System.” The car from which the plaintiff fell had on it the words, “ Third Avenue Railway System.”
The report of the president to the stockholders for the year ending June 30, 1917, stated:
“ The Third Avenue Railway System is composed of the Third Avenue Railway Company and the following subsidiary companies.”
The Forty-second Street Railway Company was one of these named subsidiary companies.
“ The Third Avenue Railway Company,” says the report, “ controls all the above companies through ownership of stock and to arrive at the result of the operations it is necessary to consolidate the income accounts and the balance sheets of all the corporations and eliminate the inter-company transactions so that all duplications may be avoided. This explanation is made in order that there may be no misunderstanding in considering the statements appearing in this report.”
The outstanding second mortgage bonds, amounting to $1,487,000, were entirely owned by the Third Avenue Railway Company. This second mortgage was past due.
415,152.98 was due for construction. It was repre
*98
sented by a note of the Forty-second Street Railway Company given years ago to the Third Avenue Railway Company. It is a demand note.
The officers for both companies were the same. Edward A. Maher, Jr., was the assistant manager of the Third Avenue Railway Company and of the Forty-second Street Railway Company. His father, Edward A. Maher, was the general manager of both. Each railway company had the same president, treasurer, secretary and the same board of directors with some slight variation. “ They were practically all the same directors.” The following question was asked of Edward A. Maher, Jr.:
“
Q. Take the Third Avenue Railroad Company and the Forty-second Street and Manhattanville Railroad Company, were they identical? A. They were.”
The general auditor, Walter Farrington, was asked:
“
Q. I notice on page 6 of this report this statement: The Employes Association — the statement is as follows: ‘ The Association on June 30th, 1917, had a membership of 3,412, and had to its credit on that date New York City bonds valued at $79,833.30, and cash on deposit amounting to $13,285.51, the total of $93,116.81.’ These employes were employes of the entire system? A. Yes.
“
Q. The next item to which I would call your attention is on page 6:' It is most gratifying to contrast the attitude of some of the employes of the company with the strikes, was the response of the men to the company’s invitation to subscribe to the Liberty Loan of 1917 within two weeks of the announcement of the company’s partial payment plan of 3,265 subscriptions which have been received from 73%, and investment of bonds to the value of $200,000.’ That refers to the employes of the subsidiary companies as well as of the others; as well as of the Third Avenue? A. May I see what you are reading from?
“
Q. Yes.
‘
Subscription to Liberty Loan Bonds.’ A. It does.
*99
“
Q. They are all treated as employes of the Third Avenue, with reference to that loan? A. Employes of all the companies.”
The company referred to, of which these men were the employes, was the Third Avenue Railway Company. In its report the company did not discriminate.
Again, the Third Avenue Railway Company had a printing plant, referred to as follows:
“ Q. I find on page 9 of this report this expression:
‘
The economical effect to the operation of its own printing plant has continued during the past year. All of the company’s printing has been done in its own plant.’ That refers to the printing plant which was used for printing matter of not only the Third Avenue Railway Company, but of the subsidiary Companies? A. It does, yes.”
As to pensions for employes, the report of the president said:
“
Under this plan, any employes who have reached the age of seventy years after at least twenty years service with the company, or who have reached the age of sixty-five and have been incapacitated are eligible for pensions,” etc. That the company referred to was the Third Avenue Railway Company appears from this testimony:
“
Q. You had a system of pensions for the employes, didn’t you? A. Yes.
“ Q. That was entirely under the control of the Third Avenue Railway Company, wasn’t it? A. Yes.
“
Q. Which handled that entirely; is that right? A. Yes.”
The executive officers, above referred to, were paid by the checks of the Third Avenue Railway Company; the general manager of the entire system had charge of the superintendents of operation, who in turn had control of the conductors and motormen, all of whom reported to a central school for instruction; repairs and construction were operated from a single department; the cars of
*100
both the Third Avenue Railway Company and the Forty-second Street Railway Company were marked “ Third Avenue Railway System; ” the Third Avenue Railway Company contracted and paid for the electricity to be used in the system; there was one common purchasing agent, and it is conceded that the Third Avenue Railway Company in the first instance paid the bills for all general and miscellaneous expenses, including salaries of claim agents and expenses for services and for material purchased. The Third Avenue Company owned ■ all the cars which were operated over the lines of the system. One paymaster for the entire system, with assistants, paid the motormen and conductors of the Forty-second Street Railway Company with cash obtained at the bank by checks drawn by Mr. Sage, who was the treasurer of the Third Avenue Railway Company and the Forty-second Street Railway Company. The testimony of this point is as follows:
“ Q. How many paymasters were there for the whole system? A. I think there was one so-called paymaster, possibly two assistants.
“ Q. And they were employes of the Third Avenue Railway Company? A. They were paid out of the Third Avenue Railway Company’s general fund.
“ Q. Was there any such department in the Forty-second Street and Manhattan Railway Company pay department? A. No. * * * They were employes just as much of the 42nd Street company as they were of the Third Avenue. * * *
“ Q. Who pays that paymaster and his subordinates? A. The paymaster was paid out of the Third Avenue Company’s fund.”
The legal department for the adjustment and settlement of claims and the claims themselves were paid by the Third Avenue Railway Company. So, too, the accounting department was for the entire system paid by the Third Avenue Railway Company. Walter Farring
*101
ton, the general auditor, testified as to the advertising: “ Q. Do you know where the money for that advertising came from, from the various advertisements? A. Yes.
“ Q. Who was it paid to? A. It was paid to the Third Avenue Railway.”
Ely M. T. Ryder, engineer of the Forty-second Street Railway Company, swore that the annual report of that company states that the road was held in joint title by the Third Avenue Railway Company and the Forty-second Street Railway Company.
“
Q. What does that mean, joint title? A. That is the title to the ownership of the road, which has nothing to do with maintenance.
“
Q. Then the ownership of the road is jointly in the ■two companies; is that right? A. It is so stated.
“
Q. Will you go a little further and read the next section, ‘ Operated jointly with/ and say whether the same statement is not made there? A. It states, ‘ Operated jointly with/
“
Q. That means the joint operation of the two, does it not? A. Yes.
“
Q. Do you still adhere to your former statement that it was operated alone by the Forty-second Street and Manhattanville Railway Company? A. I did not say that it was operated alone, but it was maintained by the Forty-second Street.
“
Q. You admit that it is jointly owned, jointly operated, but that you say that it is jointly — it is maintained solely by the one road? A. Correct.”
These being the facts regarding the maintenance and operation of the Third Avenue Railway System, what is our conclusion? Is it that the Forty-second Street -Railway Company maintained a separate and distinct existence as a corporation operating its railroad as a corporate entity under the guidance and control of its own officers and board of directors? Such to my mind
*102
would be an absurd conclusion, especially in the face of the declarations of the Third Avenue Railway Company through its officers. They certainly know the facts, and it is the facts, and the facts alone which the law seizes upon to form and to justify its conclusion. These facts are that the Third Avenue Railway Company owned and controlled the Forty-second Street Railway. It dominated its entire existence. It not only owned the majority of the stock; it owned nearly all of its bonded and floating indebtedness. It officered it with its own officers; it executed the work and the service by its own executives; it paid the employes, including motormen and conductors, by and through its own paymaster; it bought and paid for all materials, supplies and operating facilities. Every activity as an operating railroad was dominated, controlled and executed by the Third Avenue. Railway Company, its officers and employes. Ryder, the engineer, had it right when he said that both railroads jointly owned and operated this branch of the system.
These are the facts which cannot be changed by mere bookkeeping entries. It is true that the Forty-second Street Railway Company made out separate reports required by law; that it existed as a corporation; that it owned the street franchise; that upon the books of the Third Avenue Company charges were made for the various services and expenses to the Forty-second Street Railway Company as though it were in reality an independent, vital organism. But all these things cannot hide the reality or cover up the fact that the Third Avenue Railway Company in operation, in control, in dominance, in execution and in the furnishing of service to the city of New York was the Forty-second Street Railway Company.
No facts could exist which would justify the application of the statement in the
Davis Case (supra),
if these facts did not. “ Where one railroad company actually controls another and operates both as a single system, the
*103
dominant company will be liable for injuries due to the negligence of the subsidiary company.” Such was the rule with which I commenced this opinion, as laid down in
Davis
v.
Alexander
by the United States Supreme Court, and such is the law which must be applied to the Third Avenue Railway Company in this case. Its activities fit it exactly. Other cases, nowhere near as strong in their facts of dominance as is this case, have held the controlling company hable. An analysis of these cases is not necessary. I shall simply refer you to them.
Chicago, M. & St. P. Ry. Co.
v.
Minn. Civic Assn.
( 247 U. S. 490, 500, 501 ). A quotation may not be inapt at this point.
“
Much emphasis is laid upon statements made in various decisions of this court that ownership, alone, of capital stock in one corporation by another, does not create an identity of corporate interest between the two companies, or render the stockholding company the owner of the property of the other, or create the relation of principal and agent or representative between the two. * * *
“ While the statements of the law thus relied upon are satisfactory in the connection in which they were used, they have been plainly and repeatedly held not applicable where stock ownership has been resorted to, not for the purpose of participating in the affairs of a corporation in the normal and usuai manner, but for the purpose, as in this case, of controlling a subsidiary company so that it may be used as a mere agency or instrumentality of the owning company or companies.” (See, also,
U. S.
v.
Lehigh Valley R. R. Co.,
220 U. S. 257, p. 274 ;
Lehigh Valley R. R. Co.
v.
Delachesa,
145 Fed. Rep. 617;
Lehigh Valley R. R. Co.
v.
Dupont,
128 Fed. Rep. 840;
Summon. Snare & TriestCo.,
166 App. Div. 425 ;
Wichita Falls & N. W. Ry. Co.
v.
Puckett,
53 Okla. 463 ;
Foard Co.
v.
State of Maryland,
219 Fed. Rep. 827;
Atchison, Topeka & Santa Fe Ry. Co.
v.
Davis,
34 Kans. 199 .)
*104
The attorney for the appellant, with his customary fairness and frankness, admits that some of these authorities are directly against his contention, and he relies upon our ruling in
Stone
v.
Cleveland, C., C. & St. L. Ry. Co.
( 202 N. Y. 352 );
Elenkrieg
v.
Siebrecht
( 238 N. Y. 254 ), and
Doran
v.
N. Y. City Interborough Ry. Co.
( 239 N. Y. 448 ) as supporting his view, and as conflicting with these cited authorities. The
Stone
case I have already referred to. It follows
Peterson
v.
Chicago, Rock Island & Pac. Ry. Co.
( 205 U. S. 364 ) in holding that mere stock ownership and control is not sufficient to make the one company liable for the other, its subsidiary. The facts in this case go much further than the facts in the
Stone
case, as I have already explained.
Elenkrieg
v.
Siebrecht
( 238 N. Y. 254 ) dealt with real property owned by a corporation. It was there shown that the corporation and not the stockholder was liable for the care and maintenance of the real property. The corporation was in actual control as'much as any corporation can be and had engaged its authorized real estate agent to look after the property. We held that the fact that the principal stockholder had previously owned the real property which he conveyed indirectly to the corporation did not make him Hable for the neglect of this agent. Here also was a question regarding control or dominance, a question of degree. The
Doran
case dealt merely with a question of pleading. In speaking of the relationship between these very railroads, this court said regarding an allegation that a motorman was the employe of a group of railroads making applicable the Workmen’s Compensation Act, that a relation so extraordinary must rest upon something more than words of a doubtful import or equivocal conclusions. No such facts were related in the pleadings as were proved in this case. Besides, here one railroad, not a group of railroads, is sought to be held as the actual employer.
*105
For the reasons here stated, I believe the Appellate Division has rightly disposed of this case,
His cock, Ch. J., McLaughlin, Andrews and Lehman, JJ., concur; Crane, J., dissents in opinion in which Pound, J., concurs.
Ordered accordingly.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/3608330. Public record. Not legal advice.