Parrish v. Commonwealth Trust

181 A. 658 | Del. Ch. | 1935

Petition for inspection of books. This is a petition filed by the complainant in the above cause for an order on the defendant, Commonwealth Trust Company, to permit the complainant to inspect its books and records for the purpose of ascertaining the names and addresses of holders of trust certificates issued by Commonwealth Trust Company (the complainant being one), or for a direction to said company to supply the complainant with a list of such names and addresses.

The cause is one in which the complainant as the holder of certain of said trust certificates filed her bill against said company and another to remove the company as trustee on the ground of alleged fraud and breach of trust.

It appears from the bill that Commonwealth Trust Company entered into an agreement of trust by which as trustee it agreed to hold such oil royalty deeds and gas royalty deeds as might be transferred to it by Whealton Company (a partnership, now Whealton Company, a corporation), the trustor. The trustee was to take the properties at the valuation set upon them by the trustor and issue to the trustor trust certificates (called Trusteed Diversified Royalties) in an amount equal to the value placed on the properties by the trustor. Whealton Company sold the certificates received by it to the public. The complainant purchased nineteen certificates for nineteen hundred dollars.

Under the agreement the trustee was not to issue certificates except as oil and gas royalties deeds were transferred to it. The bill charges that it issued certificates to Whealton Company before such deeds had been transferred to it, that the properties received were over-valued and further that the trustee received some properties which were not of a character that conformed to the trust agreement. The bill charges that the scheme of the trust was designed to defraud the public and that the defendant, Commonwealth Trust Company, was a guilty participant in the fraud.

It was the duty of the trustee to receive the royalties income payable under the deeds and make monthly distribution

thereof to the certificate holders according to the terms of the agreement. Provision was also made for redemption of certificates. The bill charges that the income was insufficient to pay the rate of monthly yield specified in the certificates, and that the trustee had, in the matter of redemption, fraudulently disregarded the provisions which defined the procedure to be followed.

The prayers of the bill are twelve in number. They seek the general result of ousting Commonwealth Trust Company from its office of trustee, the appointment of another trustee to take and hold under the trust the assets now in possession of said company, the recovery and retention by the new trustee of other assets alleged to be subject to the trust, an accounting and an injunction.

Such is the nature of the cause in which the pending petition was filed.

The complainant in the cause sues in a representative capacity. She seeks relief not only on behalf of herself but as well of all other holders of trust certificates who shall come into the cause and contribute to the costs thereof.

Her solicitor makes the contention that her petition for an inspection of the names and addresses of her co-certificate holders stands on the same footing as it would if the case were one by a stockholder seeking relief on behalf of himself and all other stockholders against wrongs done to the corporation by its officers and directors. I shall accept without deciding that point of view as the correct one.

[1, 2] This court has no jurisdiction to order an inspection by a stockholder of corporate books and records as a matter of primary and independent relief. Mandamus at law is the appropriate remedy in such case. Harden et al. v. Eastern States Public Service Co.,14 Del.Ch. 156, 122 A. 705. When, however, books, papers and documents in the possession of an adversary are material to a party's side of the issues in a pending cause, there is ample power in the Court of Chancery to order their production and inspection. Such production is ordered only as incidental to an existing cause and as an aid to a party in sustaining his side of controverted issues, whether on the side of the complainant to support his bill or on the side of the defendant to sustain his defense.

This being the extent of the court's power to order the production and inspection of books, etc., it is obvious that the production sought must be of such documents as are relevant to the issues drawn before the court.

[3] Now what allegation is there in the pending bill to which the list asked for can be of any possible relevancy? Tested by the allegations of the bill, it is of no material moment to the complainant who sues in a representative capacity to know who the others are that are in the same situation as herself. Let them be few or numerous, their identities and residences as they may, the right of the complainant to proceed with her bill and the granting of relief prayed for, can be in no wise affected thereby.

The reasons set out by the complainant in her petition for desiring to learn who her co-certificate holders are, show that the information when gained can be of no relevant assistance in supporting a single allegation of her bill. Those reasons are briefly stated, that the wrongs complained about in the bill were perpetrated, that the petitioner desires to be able to communicate with the other certificate holders concerning the alleged wrongs and that some one associated with Whealton Company is circularizing the certificate holders with a request that they deposit their certificates with a protective committee which is in reality the agent of Whealton Company, an important if not the principal actor in the fraud alleged to have been perpetrated upon the investing certificate holders.

Suppose the complainant cannot discuss with her co-certificate holders the matters charged in the bill, and suppose Whealton Company is seeking to corral the certificate holders within the enclosure of a protective committee controlled by itself, how can those matters be of any possible relevancy to the cause of action or to any of the allegations in support thereof appearing in the bill? If this were a mandamus at law, it may be (I express no opinion on the point) that the reasons given might be held to be sufficiently

satisfactory to warrant an order of inspection. There the question would be addressed to a court having jurisdiction to order the relief prayed for. In this court, however, where the question arises as one of relevancy to issues in a pending cause, it is to be answered in the light of what is pertinent to an inquiry into those issues. Seeing no pertinency of that character, the petition should be denied.

Among the cases cited by the complainant in support of her petition are to be found cases at law in which writs of mandamus were sought. Those cases are manifestly of no assistance in this one, for here the question is one of equitable power and procedure. Huylar v. Cragin Cattle Co., 40 N.J.Eq. 392, 2 A. 274, was before the Court of Chancery of New Jersey and an order for production and inspection was entered. But the petition was filed as an original and independent proceeding by virtue of a statute, which conferred on the Chancellor jurisdiction to issue an order comparable to a mandamus at law. The proceeding here is not under a statute.

The complainant cites other cases, however, which she contends are not distinguishable in principle from this one. Those cases, it is true, arose in equity. They are a late case in the Court of Chancery of New Jersey, reported as McGahan v. United Engineering Corporation,118 N.J.Eq. 410, 180 A. 195, and Chable v. Nicaragua Canal Construction Co. (C.C.) 59 F. 846. But a reading of those cases will, I think, disclose them to be differentiable in a very marked respect. In the New Jersey case, the court had enjoined the holding of a stockholders' meeting which was to consider an amendment of the corporate charter in a particular that materially affected the rights of one class of stock, unless and until the holders of such stock were fully and truly advised as to the matters to be passed upon which would affect their rights. The court on the complainant's petition ordered a production of the books showing the names and addresses of the persons holding stock of the kind to be affected by the proposed amendments, to the end that the complainant might submit to his co-stockholders reasons against the adoption of the amendment. There the order was in aid of the efficacious enforcement of the court's own decree. In Chable v. Nicaragua Canal Construction Co. (C.C.) 59 F. 846, it was said that where a plan of reorganization of a corporation in receivership was to be voted upon by the stockholders, it was entirely proper for the court administering the receivership to order that a stockholder be afforded an inspection of the corporate records to the end that he might be equipped with information which would enable him to discuss intelligently with his fellow stockholders the merits of the proposed plan.

In these cases it seems clear that the inspection which was ordered or indicated as proper was one that bore a pronounced relation to the subject matter before the court and was calculated to contribute towards the accomplishment of a fair result in the court's final disposition of the matter in hand.

This case, however, presents no situation of that kind. Here, if the complainant secures the names and addresses she seeks, it can be of aid neither to herself in establishing the truth of her bill's allegations nor to the court in arriving at its final disposition of the cause.

The prayer of the petition will be refused.