Case ID: ad_73/html/0178-01.html
Source: Caselaw Access Project
Author: {"author": "O’Brien, J.:", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In the Matter of the Petition of Russell R. Coats, Respondent, for an Inspection of the Books and Records of The Empire City Fire Insurance Company, Appellant.
    
      Inspection of the books of an insurance company — what peremptory mandalmus therefor is not sufficiently limited—effect of proof that the application is made for the purpose of wrecking the company.
    
    A stockholder of a fire insurance company made an application for a peremptory writ of mandamus to obtain an inspection of the books of the corporation, in opposition to which application the corporation submitted affidavits tending to show that the petitioner was not the real party in interest, but was a mere dummy for certain persons who were seeking to obtain control of the company in order to throw it into liquidation, and that the purpose of the inspection was to obtain information which would be of use in effecting their purpose. Notwithstanding these affidavits the Special Term granted a peremptory writ of mandamus compelling the company to turn over to the stockholder, “ and his attorney and accountants, all the books of accounts, vouchers and records and other papers, * * * and all minutes * * * covering the period from September 1, 1901, to the time of such exhibition, and to permit them, and each of them, freely to examine the same and to take extracts therefrom,” without any restriction as to the place or duration of the inspection and without adequate provision made against interfering with the business of the company during the continuance of the inspection.
    
      Held, that the order should be reversed, first, because it did not provide proper safeguards to prevent the abuse of the privilege of inspection thereby granted; and, second, because, upon the facts as set forth in the opposing affidavits, which, for the purpose of the application, were to be taken as true, the application should have been denied.
    Appeal by The Empire City Fire Insurance Company, from an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 18th day of April, 1902, granting a peremptory writ of mandamus against The Empire City Fire Insurance Company and its acting officers and directors for the inspection of the books of the said company.
    The petitioner avers that he is the holder of about one-fourth of the capital stock of the Empire City Fire Insurance Company, and that from the reports of the company, which show a decrease in surplus and an increase in losses, and from its failure to continue the payment of dividends, he became alarmed for the security of his investments, but his request for specific information as to the financial management and condition has been refused; that he had made a formal offer to purchase all the stock of the company at par or above the market quotation, but such offer to the president and directors was not considered; that subsequently three serious fires in Norfolk, Va., in .Waterbury, Conn., and Paterson, N. J., occurred and he requested access to the books of the company, but was refused. In opposition to the motion made by the petitioner for a peremptory writ of mandamus for inspection of the books of the company, affidavits were submitted particularly with a view to showing that the petitioner Coats is not the real party in interest, but that he is acting for other persons who are bent on getting possession of the company for the purpose of throwing it into liquidation. Thus it is stated, and not denied, that Coats for many years has been employed as a stenographer by Price, who, with Baker, is endeavoring to get control of the company; and it is averred that within three months there was transferred to Coats upon the books of the company no less than $40,000 worth of stock, some of which had passed through Baker’s hands, who, it is conceded, has been actively engaged in purchasing the stock of this company, writing letters to stockholders derogatory of the company and offering them exceptional prices, and to the president himself the sum of $5,000 and an assured position in other work for stock transfers. The purposes of Price are disclosed by his letter to the president of the company in which he says he represents “the largest single owner ” and is desirous of obtaining control and is in a position to purchase all of the stock provided upon terms attractive to his principals, and he had recently purchased the Eagle Fire Insurance Company. In connection with such operations, particularly concerning the Hanover Fire Insurance Company, proof was offered that Price had been characterized and condemned in the Weekl/y 'Underwriter, an insurance periodical, as an avowed wrecker; and that the purchase and subsequent liquidation of the Merchants’ Fire Insurance Company, of which Price held stock, was similarly severely denounced by an insurance commissioner. There is but one affidavit in reply, which is by Price, and therein he asserts that Baker is not his agent, that all reference to him (Price) in the affidavits is irrelevant, that he does not intend to wreck the 'company, and that statements to that effect are untrue.
    The Special Term granted a peremptory writ to the petitioner' -commanding the company to exhibit to him “ and his attorney and -accountants all the books of accounts, vouchers and records and other papers * * * and all minutes * * * covering the period ffirom September 1, 1901, to the time of such exhibition, and to permit them and each of them freely to examine the same and to take extracts therefrom * * * from day to day during ordinary business hours and in such manner as not to interrupt more than necessary the business of the said corporation.” From the order so entered the insurance company appeals.
    
      Charles Gibson Bermett, for the appellant.
    
      William Bvmsey, for the respondent.
   O’Brien, J.:

In Matter of Steinway (159 N. Y. 250) it was held that a stockholder has the right to inspect the books of his corporation at a proper time and place and for a proper purpose. This right of the stockholder we think applies as well to a fire insurance company as to any other corporation. It is, therefore, a matter of discretion whether the inspection shall be allowed or not, and this necessarily depends upon whether the facts show that the purpose is or is not a proper one. So far as appears from the petition herein, the object sought by the inspection is entirely proper. If, however, the affidavits in opposition sufficiently show that the petitioner is not the real party in interest, but is a mere dummy for those seeking to get control of the company, and that the purpose of Price or Baker was in fact to get possession of the company in order to destroy it, and the petitioner was closely connected with them in such a scheme so that an inspection is sought merely to obtain information that would in that connection be of assistance to the parties, the application should have been denied.

In determining an application for a peremptory writ of mandamus thus submitted the affidavits by a respondent must be taken as true. They are to be regarded just as a pleading that has been demurred to by the petitioner, for it is only upon conceded facts that a peremptory writ can issue. Applying this rule, it remains to determine whether the present was a proper case for the issuance of a peremptory writ.

Had Price or Baker made the application for an inspection it would undoubtedly have been denied upon the proofs submitted tending to show that the object for which the information was sought was neither proper nor legitimate nor in the interests of the stockholders of the company, but was in fact to obtain information which might be used to secure control of the company for the purpose, as in the instances cited, of throwing it into liquidation. Will a court permit to be done indirectly that which it would not sanction if applied for directly ? We think not. The question, therefore, really resolves itself into whether or not the company has presented facts from which the inference reasonably and naturally follows that Coats, the petitioner, is not the real party in interest, but is a mere dummy for the persons named who are seeking to get control of the company and with whom he is acting in concert.

In support of the contention that this represents the real attitude and relation of Coats as a stockholder, we have the facts, which are not denied, and though they had been, must be regarded as true, that he had not been known as a man of means, but had been employed by Price for many years as a stenographer, and that the transfer of the large amount of stock which he now claims to own, and which is worth a gre.at many thousands of dollars, was made to him while still so employed. This naturally suggests the inquiry as to where he got the large amount of money necessary to purchase such a large amount of stock, and how it was that, without some concert of action, he should by a strange coincidence have his money invested in the stock of a company of which his employer was then making strenuous efforts to secure control. Although employed as a stenographer, he appears not only to have had money enough to purchase the large block of stock now standing in his name, but, according to the averment of his petition, he offered to purchase all the stock of the company. When this averment is considered in connection with an almost identical offer made by Price in his letter to the president of the company, the conclusion is almost irresistible that Coats and Price are acting together.

With respect to these applications it must be remembered that the court is concerned not alone with according to a petitioning stockholder all the rights to which he is entitled with respect to information which he should properly receive from the officers and the books of the company, but must in that connection keep in mind the rights and interests of other stockholders and of the corporation itself; and, where there is a strong and natural inference that the granting of the application is inimical and destructive of these rights and interests, it would be an abuse of discretion to grant the application. The conclusion reached by us upon a reading of this record is, that the respondent made a strong case tending to show that it would be inimical to the interests of every one else concerned in the company to compel it to turn over to either Price or Baker, in the language of the writ granted at Special Term, “ and his attorney and accountants, all the books of accounts, vouchers and records and other papers, * * * and all minutes * * * covering the period from September 1,1901, to the time of such exhibition, and to permit them and each of them freely to examine the same and to take extracts therefrom.” That is the relief granted to this petitioner, without restriction as to the place or duration of the inspection, and without adequate provision made against interfering with the proper administration of the business of the company while such an unlimited inspection or exhibition proceeds; and if the company is right in its assertion that Coats, the petitioner, really represents either Price or Baker, or both, or is acting in concert with them, then the extent of the privilege accorded and the injury that might result therefrom are clearly foreshadowed in a way that would make it, as it seems to us, reprehensible for a court to lend its aid in the purpose sought.

On the other hand, we desire not unduly to restrict the right of a stockholder to have any legitimate information to which he is entitled, nor do we desire to intimate that specific information, if properly applied for by either the petitioner or Price or Baker as stockholders, should not be given. The order entered in any event was too broad in not providing proper safeguards against abusing the right of examination granted. Upon the showing made, however, the application should have been denied, and for that reason the order must be reversed, but we think with leave to renew the application upon papers from which the court may see, whoever the petitioner may be, that he is the real party in interest, and in good faith desires certain definite information. This, under proper restrictions, the Special Term can compel the company to furnish or allow the stockholder to obtain by a proper inspection of the books.

The order should accordingly he reversed, with ten dollars costs and disbursements, and the motion denied, with ten dollars costs, but with leave to renew the application in the manner indicated.

Ingraham and Hatch, JJ., concurred; McLaughlin, J., concurred in result.

Order reversed, with ten dollars costs and disbursements, and motion denied, with ten dollars costs, but with leave to renew application in the manner indicated in opinion.