State v. Sherman Oil Company

31 Del. 570 | Del. Super. Ct. | 1922

This case is before the court on a motion to quash certain parts of respondent's answer or return to the alternative writ.

There are three questions raised by the petition and answer:

(1) The right of the petitioner to inspect the books and papers of the defendant company.

(2) The right to inspect the books and papers of the Gates Oil Company.

(3) The right to make copies of such books and papers.

[1] The right of the petitioner to inspect the books and papers of the Sherman Oil Company, the respondent, is not seriously controverted; indeed, it is granted in the return. But, even if it were not granted or admitted, the court would feel constrained to concede the right, under the law of this as well as other states.

Where the reason or motive for inspection is a proper one, the court will grant the right to inspect such books and papers of the respondent corporation as may be necessary to furnish the information desired by the petitioner, such right to be exercised at reasonable and proper times and places.

The reason alleged for inspection in this case is to obtain information that will enable the petitioner to ascertain the value of his stock.

The reason alleged seems to be a proper one, and the court are not convinced by anything averred in respondent's return that it is improper, or not made in good faith.

[2] But the respondent insists that it would be unable to allow inspection of the books and papers of the Gates Oil Company because it has neither the possession or control of them.

It is undisputed that the two companies are legally separate and independent entities; that the directors and officers are entirely distinct; that all the books and papers are kept, not only in different offices, but in different states, and far apart. It is averred in the return that the respondent acquired its stock in the Gates Oil Company purely as an investment; that it has had nothing to do with the financing, management or control of said company, which was and is a going concern, having a profitable business and making gains which could be applied to dividends.

While it is alleged in the petition that the respondent has control of the management, books and papers of the Gates Oil Company, it is not claimed that it is not legally a separate and independent corporation, having directors, officers and place of business entirely distinct from the respondent; it is not alleged that there has been any meeting of the stockholders of the Gates Oil Company since the respondent acquired its stock therein in September last, at which the respondent voted, or could have voted its stock and thereby obtained control of the company.

The relator's case is based entirely on the theory that, because the respondent has a largely preponderating amount of the capital stock of the Gates Oil Company, it has the power to produce, for the inspection of one of its share holders, the books and papers of said company.

It may be that, because of the respondent's large interests in the company, it might exert such persuasive power as to secure the production of its books for the relator's inspection, but in this proceeding we are not dealing with possibilities, but only with the legal power or ability of the respondent to comply with the command of the court, if a peremptory writ should be issued as prayed for by the petitioner.

If the power of the respondent to comply with the writ would be lacking, then, under all the authorities, it should not be issued. To entitle the relator to the issuance of the writ, his right to the relief sought must be clear, and the ability of the respondent to grant the relief must sufficiently appear.

It is true, as argued by the relator, that the respondent's return is not to be accepted as true in respect to averments that are conclusions of law, or that are merely argumentative, but it must be taken to be true as to averments of facts, and the court are of the opinion that from such averments it sufficiently appears that the respondent would not have the legal ability to furnish the relief asked for. The writ is never issued if the court is convinced that it would be unavailing or that it would be vain and futile for the purpose for which it is sought.

The relator's thought seems to be, that the court may compel the respondent to secure a meeting of the stockholders of the Gates Oil Company, and thereby gain control of the company and furnish for inspection the books and papers desired. It is quite possible that the defendant might be able, by virtue of its stock holdings in said company, to acquire control of it by voting its stock, if a stockholders' meeting were held, but it does not appear that such a meeting has been held since the respondent secured its stock; neither does it appear when or how a meeting could be held under the laws and rules governing the corporation. It is sufficient to say, it is not shown that the respondent was, at the time the petition was filed, is now, or would be if the writ was issued in a position to comply with its mandate.

So far as the court are informed, this is the first time the question we are now discussing has been distinctly raised in this or any other state. And it so happens that the one case in which a question somewhat analogous to the present one was passed on was in our own state, viz.: Martin v. Martin, 10 Del. Ch. 211, 88 Atl. 612, 102 Atl. 373. But that case was different from the one at bar in these particulars: (1) It was in a court of equity where the principles of law are not so controlling as in this court. (2) The companies that were required to produce their books and disclose the information required in connection with the charge of fraudulent mismanagement of corporate affairs, were practically one and the same in so far as management and control were concerned. There were eight companies engaged in the same general business. The president of the respondent company was president of all the allied companies but one, the respondent company owned all the shares of stock of seven of them. All the members of the boards of directors of four of the allied companies were directors of the respondent company, and a majority of the members of the boards of directors of the other four were directors of the respondent company.

It was held that the subsidiary corporations should be regarded by a court of equity as mere instrumentalities of the respondent, and compelled to produce the books of such companies, for discovery, as well as its own.

Certainly a court of equity, under the searching and almost unlimited power it possesses, and its disregard of mere forms, in discovering and revealing fraud, had, under such circumstances the right to compel the production of the books and papers of such companies. The case was different from the one before us, not only because of the character of the court in which it was brought, but also because of the close relations existing between the companies and the identity of management and control. They were not, in fact, independent entities, or separate and distinct, as in the present case.

But, even though the relator has a right to inspect the books, records and papers of the respondent corporation for the purpose of ascertaining the value of his stock, has he the right to make copies thereof?

This question has been considered and passed upon by our own courts, which hold, in conformity with the law laid down by text writers and adjudicated cases elsewhere that:

"The right of a stockholder to make copies, abstracts and memoranda of documents, books and papers is an incident to the right of inspection. * * * The right rests, as does the similar right to examination, upon the broad ground that the business of the corporation is not the business of the officers exclusively, but the business of the stockholders." 4 Fletcher's Enc. ofCorporations, 4123, 4124, § 2840; Swift v. Richardson, 7Houst. 338, 6 Atl. 856, 32 Atl. 143, 40 Am. St. Rep. 127;State v. Jessup Moore Paper Co., 1 Boyce 379, 398,77 Atl. 16, 30 L.R.A. (N.S.) 290; State v. Jessup MoorePaper Co., 3 Boyce, 329, 331, 83 Atl. 30.

In the last-cited case, it was held that a stockholder has the right to inspect and make copies of such of the books, papers, accounts and writings of the respondent mentioned in his petition, and only of such of them, as are found essential and sufficient to furnish the information whereby the relator may determine the value of his stock.

The court hold in the present case that the relator is entitled to inspect and make copies of such of the books, records and papers of the respondent company, mentioned in his petition, as are essential and sufficient to furnish the information whereby the relator may determine the value of his stock, and that a peremptory writ should be issued for that purpose; but also hold that such writ should not be issued against the respondent company commanding it to permit the relator to inspect and make copies of the books, records and papers of the Gates Oil Company.

The relator's motion to quash the return of respondent is accordingly granted in part and refused in part.