Opinion
March 31, 1939.
Proceeding by Jasper G. Kirchner against Insuranshares Corporation of Delaware for a writ of mandate directing defendant to permit plaintiff or his duly authorized representative to inspect the original or duplicate stock ledgers of the defendant. To review an adverse judgment, defendant brings error.
Judgment sustained.
Supreme Court, No. 5, October Term, 1938. Writ of Error to the Superior Court for Kent County.
The plaintiff below, Jasper G. Kirchner, a stockholder of the defendant corporation, made application under Section 29 of the General Corporation Law for permission to examine the original or duplicate stock ledger of the company. The company refused permission. The applicant filed his petition in the Superior Court of Kent County praying for the issuance of a writ of mandamus directing the company to permit him or his duly authorized representatives to inspect the original or duplicate stock ledger.
The cause was heard on petition and answer and oral testimony. The facts were not disputed. It appeared that in December, 1937, the then Board of Directors of the defendant company entered into an illegal and fraudulent conspiracy to divert the assets of the company to a Canadian corporation organized by Morris, Robb and Solomont. The Board of Directors resigned and others, including Morris, Robb and Solomont, were elected in their places. This Board of Directors proceeded to carry forward the fraud. In March, 1938, Morris, Robb and Solomont resigned as members of the Board of Directors, leaving as members those who represented the persons and interests who had conceived the unlawful and fraudulent scheme. Morris, Robb and Solomont were indicted for grand larceny in the State of New York, and other legal proceedings were instituted in Massachusetts, Canada and Delaware for the protection of the company and the stockholders. All of the directors of the company who were directly or indirectly associated with the persons charged with the illegal and fraudulent acts either resigned or were removed from the Board of Directors and their places were filled with persons of integrity and ability. On June 13, 1938, a letter signed by four directors, constituting the Board, was sent to the stockholders, and their proxies were solicited for their representation at the ensuing meeting of the stockholders. The letter purported to outline the manipulations of the prior Boards of Directors; to set forth the assets of the company; to express the disapproval of the existing Board of the acts and conduct of the prior Boards; to inform the stockholders that independent legal counsel had been retained to protect the company and the stockholders; to disclose the names of the directors constituting the existing Board; and it stated, "If you wish to be represented by the undersigned at the coming stockholders' meeting, do not fail to sign and return the enclosed proxy". It was not stated in the letter for whom as directors the proxies would be voted.
The petitioner testified that he desired to inspect the stock ledger for the purpose of communicating with other stockholders to ascertain whether it was their wish to keep the existing Board of Directors in power, it having more or less perpetuated itself by reason of an outgrowth of prior wrongdoing Boards of Directors; and for the further reason that neither the letter of the Board of Directors, nor the proxy, informed the stockholders for whom as directors the proxies would be voted.
Section 2061 (Sec. 29 of Chapter 65), Revised Code 1935, provides in part, as follows:
"The original or duplicate stock ledger containing the names and addresses of the stockholders, and the number of shares held by them, respectively, shall, at all times, during the usual hours for business, be open to the examination of every stockholder at its principal office or place of business in this State * * *".
Ivan Culbertson, of Wilmington, for plaintiff in error.
Max Terry, of Dover, and Samuel Saline, of New York City, for defendant in error.
LAYTON, C. J., RODNEY and SPEAKMAN, JJ., sitting.
LAYTON, Chief Justice, delivering the opinion of the Court:
[1, 2] The right of a stockholder of a corporation seeking to inspect the stock ledger has been declared in terms so clear and explicit as to forbid misunderstanding. State of Delaware v. Cities Service Co., 1 W.W.Harr. 514, 31 Del. 514, 115 A. 773, 22 A.L.R. 8. In that case it was held that, notwithstanding the absolute terms of the statute, it was still permissible for defenses to be made to a petition for a writ of mandamus brought to enforce the stockholder's right; and that it would be a sufficient defense if the corporation could show that inspection was sought from idle curiosity or for an improper or unlawful purpose, for, it was not meant to deprive the court of the right to exercise that sound discretion which has always been incident to the extraordinary remedy of mandamus. But, with equal clearness, it was said that the petitioning stockholder need show no reason or occasion for rendering an examination opportune and proper, or a definite and legal purpose.
[3, 4] Where an inspection of the stock ledger is sought by a stockholder, the burden is upon the corporation to show that the stockholder is attempting to exercise the statutory right for a purpose not connected with his interest as a stockholder, or that his purpose is otherwise improper or unlawful. The petitioning stockholder need allege no more than the bare essentials: that he is a stockholder in the respondent company; a proper demand; and a failure or refusal to comply with the duty imposed by law.
In the instant case, the petitioner was not content to confine his petition to bare essentials. He set forth at length the history of unlawful and fraudulent acts and conspiracies of former Boards of Directors of the company, and there was nothing in the petition to suggest that the petitioner was moved by idle curiosity, or by any reason or purpose disassociated from his interest as a stockholder.
The defendant corporation's answer offered no defense whatever; and the Court below would have been entirely justified if it had awarded the writ notwithstanding the answer, and without hearing.
At the hearing, the petitioner's right was more strongly developed. He testified that he desired to communicate with the stockholders for two reasons: because the Board of Directors had not been elected by them, and because the letter soliciting proxies had not set forth the names of the persons for whom as directors the proxies would be voted.
Although the cited case would seem to be sufficiently intelligible, the defendant, surprisingly, insisted that the burden was upon the petitioner to show that the directors, in denying permission to inspect the ledger, were moved by an improper or fraudulent purpose, the presumption being that their refusal of permission was an act within the sound judgment of the Board and for the best interests of the corporation.
The presumption relied upon, however applicable in many situations, cannot, of course, prevail against the authoritative language of the statute. The contention of the defendant amounts to nothing more than a declaration of the directors that they are honest and able men who are doing their utmost to right grievous wrongs; that they, in their opinion, have given the stockholders all information that they need to have concerning their company's affairs; and that to allow the petitioner to obtain the names and addresses of the stockholders so that he, too, might circularize them, would only foment discussion and cause discord. This is but saying that a Board of Directors, even a Board that has not been elected by the stockholders directly, has a greater right to approach the stockholders and to seek their proxies to the end that it may retain itself in power, than the stockholders themselves who are the owners of the company. Briefly and bluntly the proposition is, a stockholder ought not to be allowed to conduct a proxy campaign if the Board of Directors should deem it prejudicial to the interests of the corporation. Conceivably a situation might arise where such an argument would have weight; but such is not the case here.
The petitioner and the defendant corporation have been put to needless trouble and expense, the former in the assertion, the latter in the denial, of a clear right.
The judgment of the Court below is sustained.