| N.Y. Sup. Ct. | Mar 11, 1948
The first and second defenses in the answer of Universal Laboratories, Inc., hereinafter referred to as the “ Corporation ” and the first defense in .the answer of tKe transfer agent are founded upon an erroneous interpretation of section 113 of the Stock Corporation Law. The provision of that section permitting inspection by a stockholder of record for at least six months immediately preceding his demand does not require that the inspection be made by the- stockholder personally. Such a construction would unduly penalize a crippled or blind stockholder unable to make the inspection himself, as it would a stockholder living at a great distance from,the location of the stock transfer books. The inspection may be made by the lawfully authorized agents of the stockholder.
There is nothing in the further language of the section to justify the respondents’ construction of- the statute. That language was intended merely to permit one who was a stockholder of record for less than six months to obtain an inspection if he held at least 5% of the outstanding shares in his own right, or if his holdings together with those of others who. authorized him in writing. to demand an inspection totaled at least 5% of the outstanding shares.
The third defense in the corporation’s answer is also insufficient. It alleges that subdivision (a) of section 80a-20 of title 15 of the United States Code requires the consent of the Securities and Exchange Commission before proxies may be solicited and that the making of the instant application for the inspection of the stock transfer book is therefore premature. Subdivision (a) applies, however, by its terms, only to solicitation of proxies by an ie investment company ” and it is clear
The remaining defense, contained in both answers, is that the application is not made in good faith but solely for the purpose of enabling petitioner to communicate with other stockholders in an endeavor to induce them to participate in a derivative action commenced in this court and thus avoid the necessity of giving security for costs. In Matter of Baker v. Macfadden Publications (270 A.D. 440" court="N.Y. App. Div." date_filed="1946-02-08" href="https://app.midpage.ai/document/baker-v-macfadden-publications-inc-5382868?utm_source=webapp" opinion_id="5382868">270 App. Div. 440) the court declared that (p. 443) “ The time for determining the right of the corporation to security is when the action is instituted or when the motion for security is made ” and that6 6 when the corporation’s right to security is once determined and an order granted, the right is fixed and is not subject to defeasance by a change in the amount of stock that may subsequently be joined in the action.” Accordingly, since the sole purpose of plaintiff’s motion for an examination of the list of stockholders was to enable them to get other stockholders to join in the action and thus, as they erroneously believed, make unnecessary .the furnishing of security, the Appellate Division reversed the order granting
It is unnecessary, however, for the purposes of the present application to determine which is the determinative date, for even if it be the date of the .commencement of the action the ■ motion should, nevertheless, be granted. True it is that, if the sole purpose of the desired inspection were to avoid giving security, a holding that the date of the commencement of the action controls the corporation’s right to security would require denial of the motion on the authority of Matter of Baker v. Macfadden Publications (270 A.D. 440" court="N.Y. App. Div." date_filed="1946-02-08" href="https://app.midpage.ai/document/baker-v-macfadden-publications-inc-5382868?utm_source=webapp" opinion_id="5382868">270 App. Div. 440, supra). In the instant case, however, petitioner disclaims any such purpose and as proof of this disclaimer offers to stipulate that'the stockholders’ list, if submitted to her inspection, will not be used in aid' of such alleged purpose. (A stipulation of this kind, it should be observed, would be difficult, if not impossible, to enforce.) Petitioner maintains that she desires to know the identity of the other stockholders only for the purpose of enlisting their aid in ousting the present board of directors at the next annual election. Petitioner seeks “ the same opportunities and advantages in the solicitation of proxies as are possessed by the self-designated Grotthilf management.” Uothing in the answering papers even tends to disprove the petitioner’s claim as to the purpose of her proposed inspection.
It is to. be noted that the corporation can in no way be prejudiced if it be the fact that petitioner seeks the inspection partly or solely for the purpose of avoiding the necessity of furnishing security, even if the determinative date is the time the action was commenced. In that case it would do petitioner no good to obtain the stockholders’ list for the joinder of additional stockholders would not obviate the necessity of giving security. (Matter of Baker v. Macfadden Publications (supra) has no application because although there the corporation could not have been prejudiced by the inspection, it would admittedly have been futile and a waste of time, since its sole object, viz., the avoidance of security by joinder of stockholders, could not be attained by such joinder.
For the reasons indicated the motion for an inspection of the stock book is granted. It is accordingly unnecessary to pass upon the sufficiency, for pleading purposes, of the various defenses, although what lias heretofore been said indicates that the only defenses which may be good, from a pleading standpoint, are the fourth defense in the corporate answer and the second defense in the answer of the transfer agent. Settle order.