Case Name: Henry B. Snyder, in His Own Right and on Behalf of All Other Stockholders of the De Forest Wireless Telegraph Company Who May Come in, etc., Respondent, v. De Forest Wireless Telegraph Company and Others, Appellants, Impleaded with American De Forest Wireless Telegraph Company and Others, Defendants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1906-06-15
Citations: 113 A.D. 840
Docket Number: 
Parties: Henry B. Snyder, in His Own Right and on Behalf of All Other Stockholders of the De Forest Wireless Telegraph Company Who May Come in, etc., Respondent, v. De Forest Wireless Telegraph Company and Others, Appellants, Impleaded with American De Forest Wireless Telegraph Company and Others, Defendants.
Judges: 
Reporter: Appellate Division Reports
Volume: 113
Pages: 840–844

Head Matter:
Henry B. Snyder, in His Own Right and on Behalf of All Other Stockholders of the De Forest Wireless Telegraph Company Who May Come in, etc., Respondent, v. De Forest Wireless Telegraph Company and Others, Appellants, Impleaded with American De Forest Wireless Telegraph Company and Others, Defendants.
First Department,
June 15, 1906.
Discovery of-books and papers of foreign corporation—when-stockholder suing to restrain transfer of patent rights entitled to discovery — when order of discovery too broad.
When in an-action by- a stockholder of a foreign corporation to set aside a transfer of valuable patent rights alleged to have been jnade for á nominal consideration in fraud óf stockholders, the plaintiff asks a discovery of the hooks and papers of the corporation and alleges that ihe same are within the State, which ,' is not denied by the defendant, he is entitled to an -inspection of thq contracts transferring the patent rights and the resolutions of the directors relating thereto.
But an order of discovery of all the hooks and papers of the corporation cannot be made on a mere allegation that all the books contain material entries. The plaintiff must show what specific books contain material entries to his positive knowledge and must disclose the sources or grounds of that knowledge. Ingraham and Lahghlin, JJ., dissented, with memorandum.
Appeal by the defendants, the De Forest Wireless Telegraph Company and others, 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 16th day of February, 1906, as resettled by an order entered in said clerk’s office on the 26th day of February, 1906, granting a discovery and inspection of certain books and papers of the De Forest Wireless Telegraph Company.
John J. Adams, for the appellants.
Roger Foster, for the respondent.

Opinion:
Patterson, J.:
This is an appeal from an order granting an inspection of books and papers. The order is very broad and sweeping in its terms and requirements, more so, we think, than can be sustained upon the papers on which the court below acted.
The plaintiff is a stockholder owning 27,000 shares of the capital stock of the De Forest Wireless Telegraph Company. He sued in his own right and on behalf of other stockholders of that company, who might come in and contribute to the expenses of the action, primarily to set aside a,- transfer or grant purporting to have been executed in the name of the De Forest Wireless Telegraph Company on January 4, 1904,. by which were transferred to the American De Forest"Wireless Telegraph Company the right to use "the franchises and the assets and profits " of the De Forest Wireless Telegraph Company for the period of ninety-nine years from the 1st day of January, 1904, at a nominal rental of no more than $500 a year. It is alleged in the petition ánd in the complaint that "the De Forest Wireless Telegraph Company was organized in 1902 for the purpose of permitting and rendering useful and practical to the public a method and system of wireless telegraphy, and on January 4, 1904, was the sole owner and absolutely controlled 'and*operated a large number of claims for letters patent of the United States for - such purposes; that that company issued to subscribers and sold a large part of its stock and had begun the introduction into general use of the system of wireless telegraphy which it then controlled, which system and patents were of great value; that on January 4, 1904, a paper was executed by the De Forest Wireless Telegraph Company to the American De Forest Wireless Telegraph Company of the character above mentioned, and that in the transfer were included all the letters patent and inventions owned by the De Forest Wireless Telegraph Company. It is claimed that this transfer was made in fraud; that the American De Forest Wireless Telegraph Company has taken possession of and used all the property pf the De Forest Wireless Telegraph Company and has sold and threatens, unless enjoined, to continue to sell its stock. A _ series of complicated transactions is set forth in the petition between various parties therein mentioned, who are made defendants in the action, but it is not necessary to refer particularly to those transactions. It is alleged in the petition that the plaintiff is . not in possession of any of the b.ooks and papers which will show the transaction between the De Forest Wireless Telegraph Company and the American De Forest Wireless Telegraph Company, but that the books and papers of the De Forest Wireless Telegraph Company-are in the possession of the American De Forest Wireless Telegraph Company and under the control of its officers, and contain entries of such transactions and an inspection is asked of the documents constituting the alleged transfer, of "the minute books containing the resolutions of the directors or stockholders' of the De Forest Wireless Telegraph Company relating to such transfer, and also of the ledgers, journals, cash book and books of account, check stubs and letter books of the De Forest Wireless Telegraph Company, each of which is said to contain entries concerning the matter as to which the petitioner seeks a discovery and inspection. It is alleged in the petition that one Bntlér is "the treasurer of the De Forest Wireless Telegraph Company, and-that he has possession of and control óf all the books, etc.; that Charles Galbraith is the vice-president of thé De Forest Wireless Telegraph Company, and in the absence of the president of the .company from the State, he is acting -president thereof, and lie has control and possession of all the papers,'minutes, check stubs and.other books and documents of the De Forest Wireless Telegraph Company; that that company has an office in the city of Mew York, and that the office of. the American De Forest Wireless. Telegraph Company is in the same room; that both of said corporations are foreign corporations hav-. ing a nominal office in the State of Maine, and that all transfers of the corporate stock are made in the city of Mew York. The order appealed' from requires Butler and Galbraith to produce the books and papers of the De Forest Wireless Telegraph Company.
It is sufficiently made to appear that Butler is not an officer or: director of the company, and the order should, therefore, be reversed as to him individually. Mr. Galbraith does not deny that he is the vice-president-of the De Forest Wireless Telegraph Company. He only says that he has not acted-as such for about a year.. There- is nothing in the affidavits produced in opposition to the motion which shows that the books .and papers are not in the city of Mew York. That they were in the city is not denied, and there is no presumption to.be indulged in that they have -been removed and there is a fair inference that they are under the control of Galbraith as vice-president of -the De Forest Wireless Telegraph Company.
We are of the opinion that the plaintiff has shown himself entitled " to ah inspection of the contracts or transfers and of the resolutions of the directors and stockholders of the De Forest Wireless Telegraph Company, relating to the transfer of its patents, rights and assets to the American De Forest Wireless Telegraph Company. In the affidavits used in opposition to the motion, the affiants are very careful to avoid denying that a transfer of the patents, patent rights and assets of the De'Forest Wireless Telegraph Company was-made to the American De Forest Wireless Telegraph Company. .All that those affidavits state is that a transfer Upon the terms of $500 a year was not made. They simply deny that a transaction of that character was made. We think it is necessary for the plaintiff to have an inspection of the documents constituting the evidence of the transfer and of the minute books of the corporation, in order that he may prepare for trial. But it does not follow that, he is entitled to an inspection of all the books of the De Forest Wireless Telegraph Company, even -for the purposes of an accounting. He is claiming now as a litigant and not in the' right óf a stockholder as such to examine the books of the corporation. He lias not. sufficiently shown in what books of. the corporation material entries are to be found, .but only makes a broad and sweeping allegation that all the books contain material entries. It was incumbent upon him to show what specific books contain entries which it is necessary for- him to see before he can proceed to trial. The mere statement that all the books of the corporation contain entries' material to the proof of his case is in. its nature speculative, and-unless it is accompanied by a statement that the petitioner has positive knowledge of that fact, and the sources or grounds- of liis knowledge are- disclosed, it is valueless. . Otherwise, a corporation 'might be compelled upon an unsupported allegation to open all its books to a general inspection and roaming examination. Mor do we consider that the petition and affidavits of the plaintiff sufficiently disclose a present necessity for the-examination of thé De Forest Wireless Telegraph Company's books of account.
' The order should be, modified by limiting the inspection and discovery to the contracts or transfers, and to the minute books of the _ directors' and stockholders',meetings of the corporation, at which - resolutions were passed relating to such transfers.
As modified the order should be affirmed, with ten dollars: costs and disbursements "to .the appellants. -
O'Brien, P. J., and Clarke, J., concurred ; Ingraham and Laughlin, JJ., dissented.