Opinion
July 22, 1949.
Shaine, Weinrib, Mallin Gross, New York City (Stephen Weinrib, New York City, of counsel), for petitioner.
Klein Weinberger, New York City, for respondents.
Motion by a stockholder to examine the corporate books of the respondent, Select Theatres Corporation. The petitioner seeks an inspection of the stockbook, minute book and all books of account and monthly audits of the respondent corporation. The petition is made by Abraham L. Hecht, President of Public Operating Corp. and its nominee and claims that 250 shares of the common stock of Select Theatres Corporation is registered in his name as such nominee. It appears from the papers submitted that there are outstanding 38,000 shares of preferred stock of the par value of $10 per share and 200,000 shares of common stock of the par value of 10¢ per share. It would appear, therefore, that the petitioner owns slightly more than one-tenth of one percent of the common stock and none of the preferred stock. A searching examination of the petition discloses that the sole ground upon which the application is based is stated in paragraph 11 as follows: "Your petitioner cannot understand why on the basis of substantial and increasing surplus no dividends were declared and your petitioner, as an officer of the aforesaid stockholder, believes that the stock stockholder is entitled to have detailed information * * * as to why there has been no declaration of dividends". The rule is well established that, where a proper reason is shown, the court's discretion should be exercised in favor of granting the right of inspection. Matter of Durr v. Paragon Trading Corp., 270 N.Y. 464, 1 N.E.2d 967. The court may, in its discretion, deny such an application where the purpose is not consonant with law, the business of the corporation or good faith. Matter of Tate v. Sonotone Corp., 272 App.Div. 103, 69 N.Y.S.2d 535. While the burden is not on the stockholder to establish good faith the papers before the court must establish that the purpose of the inspection is related to the welfare of the petitioner as a stockholder, otherwise the motion must be denied. Matter of Tate v. Sonotone Corp., supra. Facts must be established prima facie at least that the information sought is necessary for the protection of petitioner's interest in the corporation. The moving papers are wholly lacking in this respect. Not only is there no claim of mismanagement or waste or any wrongful act or omission, there is no allegation of fact to support even an inference that the corporate stock has been or is likely to be depreciated. The fact that a surplus of some size has accumulated and no dividend has been declared and petitioner's lack of knowledge of certain details of the affairs of the corporation do not, without more, establish a proper basis for granting the relief demanded. Matter of Latimer v. Herzog Teleseme Co., 75 App.Div. 522, 78 N.Y.S. 314; People ex rel. Giles v. Klauder-Weldon Dyeing Mach. Co., 180 App.Div. 149, 167 N.Y.S. 429. The affidavits presented by the respondent contain an adequate explanation concerning the amount of surplus in view of the specialized character of the business conducted by the corporation and the absolute necessity of retaining a surplus in view of the hazards encountered in a business of this type. The motion is accordingly denied, except with respect to the inspection of the stockbook which will be made available on July 27, 1949, at 10:30 A.M. at the office of the respondent corporation.