Veiller v. Oppenheim — 26 N.Y.S. 1051

Majority

p. 1051

VEILLER v. OPPENHEIM et al.

(Supreme Court, General Term, First Department.

January 12, 1894.)

Headnote

L Discovert—Inspection op Books and Papers.

In an action for money alleged to be due under an agreement by which defendants employed plaintiff, whose compensation was to be a certain per cent, of the profits of business in lieu of salary, plaintiff is entitled to an inspection of defendants’ books for the purpose of' enabling him. to frame his complaint

p. 1052

-3. Same—Abuse of Privilege.

An order allowing plaintiff to inspect defendants’ books for the purpose of framing his complaint will not be modified by limiting the number of assistants whom plaintiff may employ to make the inspection, in order to prevent an abuse of the privilege, as the court will at all times see that its privilege is not abused.

Appeal from special term, New York county.

Action by Philip B. Veiller against Edward L. Oppenheim and ■others to recover money alleged to be due on a contract. From an ■order granting in part a motion to allow plaintiff to inspect the books of defendants for the purpose of enabling plaintiff to frame his complaint, defendants appeal.

Affirmed.

The opinion of Mr. Justice BARRETT on granting the motion is ■as follows:

The plaintiff was not a partner in the defendants’ firm, but he was not an ordinary employe. He was an important co-worker with the defendants, and his interest had a direct relation to the profita of the firm. This interest was increased by the profits, and decreased by the losses. As to the speculative account, it was expressly provided that he should have a specific interest •in the profits, and be responsible for a specific percentage of losses. It is .apparent, therefore, that he is entitled to an inspection of the firm books, provided he has made out a prima facie case for the reopening of the accounts or statements furnished to him from time to time. Such a prima facie case is, I think, clearly set forth in the rebutting affidavit used upon the previous motion, and made (with other papers) the direct basis of the .present motion. Several grave inaccuracies—to use the mildest expression-are pointed out, and, while the defendants seek to explain the plaintiff’s charges in some particulars, their explanations 'are not entirely satisfactory. They are certainly not conclusive against the application. One charge, in particular, is not met at all. I refer to the item of interest. By the agreement, the plaintiff’s percentage of profits was to be ascertained by deducting from the gross profits interest on cash capital at the rate of 5 per cent., together with interest at the same rate upon the sum of $30,000, representing the approximate value of the defendants’ seats in various exchanges. It appears that after the new firm was formed, on the 1st of May, 1891, the defendants privately arranged to credit themselves with 6 per cent, upon this $30,000. They also arranged to withdraw their capital, as firm capital, and to credit such capital to their individual accounts as in form a loan to the firm, at 6 per cent. These interest charges were credited monthly, thus practically effecting compound interest. The defendants make no satisfactory explanation of this wrongful breach of their contract. Indeed, they seem to have concealed their acts in this respect from the plaintiff, and when he accidentally discovered what they had done, and taxed them with it, they vouchsafed no explanation, but simply intimated that it was no affair of his how they arranged their business interests as between themselves. Indeed, this is the position which they deliberately assume upon the present application, for Mr. Edward L. Oppenheim declares in his affidavit that “the plaintiff has no concern whatever in the interest or the capital account to which, in his affidavit, he refers.” This position is quite untenable. It is true that the plaintiff has no concern with the private arrangements of the defendants, but he has every concern with them bringing their private arrangements into the accounts between him and them, and thus unjustly reducing his interest. I do not desire to comment harshly upon these acts, but I must say that, unless they were inadvertent, it is hard to see how they could have been, in intention, fair. Certainly, settlements based upon their concealment could not be permitted to stand. It is sufficient, however, for the purpose of this •application, that the acts charged—those just pointed out, and others specified in the papers—justify the inspection (in part) which the plaintiff seeks. And it is no answer to such an application, founded upon such facts, to say that the plaintiff has had, from time to time, an opportunity to examine the books.

p. 1053

He is not an accountant, and he is not to be deprived of an expert examination merely because he has at times looked into the books. The inspection, is to enable him accurately to frame his complaint. He might, possibly, without! an inspection, frame some sort of a complaint, but not such a complaint as the courts approve of. A complaint founded upon such an examination as he has already made, or might have made, would be a very general, and imperfect statement of his case,—a statement which might well be attacked as indefinite and uncertain. He is not precluded from an inspection, merely because, in general terms, he might aver certain broad facts justifying a prayer for an accounting. He has a right, and it is indeed his duty, to set forth the specific wrongs of which he complains, and to fortify his-prayer by distinct allegations as to each matter which may be the subject of adjudication. The examination should, however, be limited to the periods commencing May 1, 1891. That was the date of the formation of the new firm, and the plaintiff, at or about that time, gave the old firm a general release except as to certain specific matters referred to in the dissolution agreement. No case is presented justly questioning this release, even prima facie. Whatever wrong is pointed out specifically relates to the new firm, not to the old. Nor is a case made out for the inspection of Mr. Oppenheim’s private letter book. On the contrary, it clearly appears that that book has no real relation to the subject of the present discovery. The motion should therefore-be granted, so far as to permit an inspection by the plaintiff, and such expert accountant as he may select, of the defendant’s books containing the transactions of the firm between the 1st day of May, 1891, and the 15th day of April, 1893, including all the accounts which, under the dissolution agreement of' the old firm, were carried over to the new, and, which were excepted from the release given by the plaintiff to such old firm; costs to abide the event;, order to be settled on two days’ notice.

Argued before VAN BRUNT, P. J., and O’BRIEN and FOLLETT,. JJ.

Horwitz & Hershfield, (Otto Horwitz, of counsel,) for appellants.

Smith & Perkins, (Edward C. Perkins, of counsel,) for respondent.

Little need be added to the opinion of the learned judge at special term, showing the reasons and necessity for the order appealed from. . The appellant insists that the judge, though he concluded that the plaintiff was not a partner, overlooked the statement in the plaintiff’s affidavit alleging that his action was-brought for an accounting, which he could not maintain, in view of his relation to the defendants as an employe, or at best a co-worker.. It is hardly just, however, to seize upon one expression in an affidavit, particularly where all the facts are presented to the court showing the character in which the plaintiff sues. The agreement with the defendants, which is set forth, shows that he was employed under an arrangement which would give him, in lieu of" salary, a certain percentage of the profits of the business, which, from time to time, was increased. In the leading case of Smith v. Bodine, 74 N. Y. 30 , it was held that under such an agreement,, which did not constitute the plaintiff a partner, he could not bring a suit in equity for an accounting, but was left to his action at law. This circumstance, however, instead of being an obstacle, seems to-us an additional reason why the inspection should be allowed. In an action at law it will be necessary for the plaintiff to state the amount which he seeks to recover, and, unless such amount can be-ascertained from an inspection of the books, plaintiff will not be in.

p. 1054

a position to know just what sum he is entitled to sue for. In such' an action at law an account between the parties at some stage of the proceeding is practically taken, and this, no doubt, is what was intended to be expressed by the statement in the plaintiff’s affidavit that his action was brought for an accounting and settlement, because we cannot assume that he was to commence .an action in form for an accounting, which, under the case above cited, would not lie. The suggestion that the application is made in bad faith, and is in the nature of a fishing excursion, we think is sufficiently answered by the opinion of the court below. In this connection, and upon the subject of the right to an inspection in general, we are referred to cases wherein it has been held that such motions should be granted with reluctance, and only in cases of necessity, and that it is the practice, except in a clear case, to deny such applications. We have no fault to .find with such decisions, or with the proposition of law thus appealed to; but we have had occasion frequently to say that in all these applications each must stand upon its own footing, and be determined by the merits involved in the particular application. The Code is authority for the. right, in a proper case, to have an inspection, and a moment’s reflection will show that there are cases which may be divided into classes, in one of which such right is more readily granted, and in another more uniformly denied. As an instance of the former may be cited the usual action between partners for an accounting, in. which an inspection is permitted almost as a matter of course. As an instance of the latter class might be cited cases wherein the person suing has no relation to the defendant or his business, and has no right growing out of any relation to an inspection of his books. In such cases, unless it clearly appears, either that the evidence sought is necessary for the purpose of framing a complaint, or is essential to the establishment of the plaintiff’s case upon the trial, and cannot be procured in any other way, such applications will be denied. We think, however, there is a third class, of which the present is a good illustration, in which, while the relation between the parties may be that of employe and employer, or co-workers, in one or more aspects it takes on the character of a copartnership. Here the plaintiff had a direct interest in the profits and losses of the business, his percentage being fixed upon the profits, which he was entitled to receive in lieu of salary. Where such relation is admitted, as in this ease, whether such relation constitutes the plaintiff a partner, or a principal bringing business to the firm, or an employe entitled to a share of the profits, or a co-worker with them in the general business, we think, as argued by the respondent, that “so long as the plaintiff, in one manner or another, under one name or another, was entitled to a portion of the proceeds of the common venture,” a prima facie case is presented, entitling those interested, in that venture to an inspection, where necessary, of the books of account containing 'a record thereof, and to all the information that can be derived from them; and it is only where it is apparent that the application is made in bad faith that such inspection should be denied.

p. 1055

It is insisted, however, that the order, if not refused, should be modified by limiting the number of assistants whom the plaintiff might employ, to the end that it might not result in an abuse of the privilege granted to him by the court, in overrunning the defendants’ office, and interfering with their business. In the order itself the alternative is given of depositing the books in court; but, as the defendants would probably prefer to retain them in their own custody, the court granting the order would at all times see to it that the privilege was not abused, and upon the facts showing any attempt to abuse it, or to make use of it for other than the purpose for which it was granted, namely, to furnish information to the plaintiff, it would be withdrawn. As we should not assume that the plaintiff intends to abuse the privilege, we do not feel warranted in modifying the order, it being within the defendants’ power, if their fears should be realized, to secure relief from the court. We think, therefore, that the order should be affirmed, with $10 costs and disbursements. All concur.

Cases cited

Smith v. Bodine 74 N. Y. 30 N.Y. 1878-05-28 p. 1053