196 N.E. 304 | NY | 1935
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *400
The corporate defendant, George Henriques Co., Inc., has been engaged in the business of selling securities to the public. The defendant George Henriques manages and controls the corporation. In April, 1933, an order was granted upon the application of the Attorney-General, pursuant to the provisions of section
The courts can never grant judgment depriving a defendant of his liberty or property unless there has been opportunity to defend the action. Without opportunity to meet a charge, there is no due process of law. (Hovey v. Elliott,
Before considering whether in the present case the trial judge had power to strike out the defendants' answer as punishment for a contempt, we must determine whether there is evidence to sustain the finding that in fact there has been a willful disobedience of the court's order for *404
the production of the defendants' books and records. It is clear that there can be no willful disobedience unless at the time the order was made the books and records were in the possession or control of the defendants. The order for the production of the books and records was granted ex parte. At that time there was no opportunity for the defendants to urge that the books were lost and destroyed. The question is not before us whether an order, made upon notice, for the production of books and papers constitutes an adjudication that the books and papers are in the possession or control of the party ordered to produce them, or at least places upon such party the burden of proof of showing that they are not within his possession or control. (Cf. Oriel v.Russell,
Here it is undisputed that the defendants kept records and books of their proceedings from the time they began business in March, 1932. Business men who have nothing to conceal ordinarily safeguard carefully the records and books of their business transactions, at least for a reasonable time. Only under extraordinary circumstances does a business man lose or part with control of his business records. Thus unless a credible explanation is given for failure to produce, the inference is almost irresistible that a failure to produce books and records is willful. The burden of producing evidence which would constitute explanation or excuse then shifts to the parties who alone have knowledge of the actual facts. So the referee ruled in this case, and the defendants attempted to produce such evidence.
The referee rejected the attempted explanation and found that in December, 1932, when, it appears, the Attorney-General asked to see these books, they were *405 still in existence and in the control of the defendants. Without analysing in detail the testimony of the defendants, we state our conclusion that the finding of the referee was fully justified. What happened to the books between December and April does not appear; and the referee refused to rule that there is a presumption that the existence of the books within the control of the defendants continued until the date of the order of examination. Perhaps when the defendants learned in December that an investigation was being made as to their business practices, they not only suppressed but actually destroyed books and records which might tend to show wrongful practices. At that time no charges against them had been formulated. None had been formulated against them at the time when the order for the production of their books was made in the following April.
Even though we should assume that upon the date set for the production of the defendants' books and records they were still within the possession or control of the defendants, the question would still remain whether the disobedience of the order justifies the inference that these defendants are guilty of the charges subsequently formulated.
The destruction by the defendants of their books and records or the failure of the defendants to produce such books and records if in their possession or control would be evidence of a consciousness of guilt. If, at the time of such suppression or failure to produce, definite charges had been pending against the defendants, the truth of which could be proven or disproven by the books and records, the defendants' conduct might even lead to an inference of the truth of the particular charges. To sustain the judgment in this case we must, however, go a step further and find an inference not merely of general consciousness of guilt, but also of guilt of specific charges thereafter formulated. That gap cannot be easily *406 bridged. The justice presiding at Special Term has found every allegation of fraud set forth in the amended complaint. His decision includes nineteen separate findings of fact and twenty-four separate conclusions of law. Certainly guilt of some of the charges embodied in the decision can hardly be inferred from suppression of evidence before these charges were formulated. If disobedience of an order for the production of books and records before an action has been commenced justifies denial of a hearing upon charges subsequently formulated in the complaint, then a plaintiff can obtain judgment upon any charges he thereafter chooses to make. We find no statute of this State which confers such an extraordinary power upon the courts, and no case which would sustain the exercise of such power.
It is said that such power is conferred upon the court by section 405 of the Civil Practice Act. That section provides that the court may strike out a pleading of a party to an action in which he was subpoenaed as an additional punishment for failure to obey a subpoena or to obey an order made by the court or a judge "in an action * * * requiring him to attend and be examined, or so to attend and bring with him a book or paper." The scope of that section is limited to punishment for failure to obey subpoenas or orders in an action. Here, as we have said, no action was pending at the time when the order was served. It is said, however, that testimony which is material to an expected party in the prosecution or defense of an action may be taken pursuant to an order of a court or judge before the action is brought (Civ. Prac. Act, § 295), and that such an order is an order in the action thereafter brought. It may be true that an order of examination before an action is commenced is, for purposes of appeal, regarded as an intermediate order in the action subsequently brought. (Cf. People ex rel. Morse v.Nussbaum,
Moreover, the order for examination in this case was not made pursuant to provisions of the Civil Practice Act but pursuant to the General Business Law, section
The judgments should be reversed and a new trial granted, with costs to abide the event.
CRANE, Ch. J., O'BRIEN, HUBBS, CROUCH and LOUGHRAN, JJ., concur; FINCH, J., not sitting.
Judgments reversed, etc. *410