Manheim v. Manheim, 24 N.Y.2d 350 (1969)

When an appeal is taken to the Court of Appeals from a final judgment entered upon a prior nonfinal order of the Appellate Division, the scope of review extends only to the nonfinal determination of the Appellate Division.

Summary

This case clarifies the scope of review available to the New York Court of Appeals when an appeal is taken from a final judgment that was “necessarily affected” by a prior non-final order of the Appellate Division. The plaintiffs, minority stockholders, brought a derivative action alleging waste by the majority stockholders. The Court of Appeals held that its review was limited solely to the non-final order of the Appellate Division and could not extend to the merits of the final judgment itself. The court emphasized that appellants must carefully consider whether this special appeal mechanism is truly useful, given the limitations on review.

Facts

Plaintiffs, as trustees for minority stockholders of Kensington Plaza Garages, Inc., initiated a derivative action against majority stockholders Olsen and George, alleging excessive salaries and bonuses between January 1, 1957, and November 30, 1959. They also alleged that from December 1, 1959, Olsen, George, and Kolesar formed a partnership that wrongfully took over the corporation’s leased premises and business.

Procedural History

The Special Term found a breach of duty by the officers, imposed a trust on the partnership’s business, directed an accounting to the corporation, and found the salaries and bonuses excessive, but allowed credit for the reasonable value of services. A Special Referee determined the value of services rendered by Olsen and George. The Special Term entered a final judgment reflecting the Referee’s findings. The plaintiffs appealed to the Appellate Division, arguing that the Referee had departed from the interlocutory judgment. The Appellate Division modified and affirmed the final judgment, remitting the case to Special Term to find the precise amounts of special salaries and bonuses and the amount of profits to be paid to the corporation.

Issue(s)

Whether the Court of Appeals’ scope of review, in an appeal taken from a final judgment entered after a prior nonfinal order of the Appellate Division, extends to the merits of the final judgment or is limited solely to the prior nonfinal order of the Appellate Division that “necessarily affects” the final judgment.

Holding

No, because CPLR 5501(b) explicitly limits the Court of Appeals’ review to the non-final determination of the Appellate Division. The court reasoned that it should not review the final judgment in the first instance without prior appellate division review.

Court’s Reasoning

The Court of Appeals emphasized the explicit limitations imposed by CPLR 5501(b), which states that on such appeals, the “scope of review” extends only to the nonfinal determination of the Appellate Division. The court highlighted that the final judgment itself had not been reviewed by the Appellate Division, precluding the Court of Appeals from reviewing it in the first instance. The court acknowledged the alternative appellate path where the nonfinal order is reviewable on an appeal from an order of the Appellate Division “which finally determines an appeal” to that court from a “final judgment.” The court noted that the propriety of allowing the partnership to credit reasonable and proper expenses was a matter of equity that fell within the Appellate Division’s discretion. The court stated: “But plainly we may review ‘only the non-final determination of the appellate division’ (CPLR 5501, subd. [b]) and the merits of the final judgment may not otherwise be reviewed on this appeal.” The court underscored that the usefulness of this special appeal mechanism under CPLR 5601(d) depended on the specific facts and the nature of both the nonfinal order and the ultimate judgment. The court affirmed the judgment.