Hart v. Ogdensburg & Lake Champlain Railroad

Headnote

1. Discovert—When proper.

An order granting or withholding an order for discovery will not he disturbed by the general term unless it clearly appears that on the merits the special term has erroneously exercised its discretion.

S. Same.

In an action by a bondholder to prevent the consolidation of the corporation with a foreign company wherein an open commission was granted to examine the officers of the company, who refused to allow the books of the companies to be examined, an order for the discovery of such books and papers of the two companies was granted. Held, that there was no abuse of discretion.

Appeal from order granting a discovery and permission to take copies of defendants’ books and papers.

The facts appear in the opinion at special term, as follows :

Russell, J.—This action was brought to prevent the consolidation of the defendants, the practical annihilation of the Ogdensburg & Lake Champlain Railroad Company, which is a New York corporation, whose property lies in the state of New York, by being merged into the Central Vermont Company, which is a foreign corporation, under the guise of a consolidation provided for by the statutes of New York. A temporary injunction was granted in this action which was sustained upon a motion to vacate, and also by the general term on appeal, that branch of the

supreme court, however, not passing upon the merits, except so far as to consider it wise to prevent a consolidation until the trial of the action, when the merits could be more fully and thoroughly investigated.

It is for the purpose of having that trial had upon the merits, and to produce the records and evidence so that the trial may not fail on account of the absence of the records, that this motion is brought.

An open commission has been granted for the examination of the officers of the company who know the relations between the companies and who mainly reside out of this state. That commission will be practically useless, unless the oral testimony can be supplemented by the exact record evidenced by the books and documents of the two companies, and the defendants refuse to permit the inspection or discovery by any voluntary proceeding, standing upon their assumed legal rights to compel strict common law proof of the allegations of the complaint, without any concessions of opportunity to examine books and papers to the plaintiffs, as stockholders of the Ogdensburgh & Lake Champlain Company, or as parties litigant to the action. It is a case in which the ordinary processes of subpoena are futile. The situation presents the somewhat anomalous appearance of a New York corporation, created by the New York laws, enjoying the privileges afforded by the state, with property entirely within the state, and obliged by law to render public service under the jurisdiction of the courts of the state, officered by the agents and employes of a foreign corporation, and controlled entirely by that foreign corporation, with its records, accounts, papers and documents outside of the jurisdiction of the courts and in the custody of the foreign corporation ; and the defense to this motion practically rests upon the right of that foreign corporation to withhold from the view of the courts of this state the power to examine, in a litigation properly brought, the evidence of its dealings with the New York corporation upon an issue of an attempted illegal consolidation inequitably attempted, in which the foreign corporation exchanges its stock for that of a new corporation, share for share, while the New York corporation receives but one share for each ten, and also charging improper diversion of the funds and property of the New York corporation during the past years of the control by the foreign corporation, so that on a fair accounting the foreign corporation would be indebted to the other to an extent which would justify equitable relief.

As the inquiry must necessarily arise upon this motion whether the courts of this state have power in this litigation to compel the discovery of books and documents which concededly show the accounts between the parties, the course of dealing and the steps, formal and substantial, out of which the attempt to consolidate arose, it should be assumed that the Hew York courts still possess the power and ought to give in this, as well as in all other cases, a fair show to the litigants, who only ask the opportunity to prove their charges.

This is a petition not only for production and inspection, but

also for discovery. It would be needless, perhaps, to have the relief granted if the plaintiffs knew and could produce the evidence as to exactly what the books contain. It is because there is need for a discovery that such a remedy is given. The courts will infer that the books and accounts and documents required by law to be kept by corporations have been so kept, and it is not substantially denied that those books and papers will show the dealings between the companies on the matters at issue. Whether the inferences and presumptions which may be drawn from the papers and books, when produced in evidence, will sustain wholly or partially the plaintiffs’ claims, is precisely the object of the inquiry to be had at the trial of the action.

I do not think the fact that under the laws of Vermont subpoenas may be enforced for the attendance of witnesses who testify orally before a commissioner on an open commission, is sufficient answer to this motion. It is very evident that the defendants intend to concede no privilege or opportunities to the plaintiffs beyond those which the law gives, and,therefore, in addition to the remedy of a commission, must come the beneficial aid of a production, inspection and discovery, if that commission be effective, especially as the absence of the books and papers is a voluntary act of the substantial defendant, the Central Vermont Company, and an act upon which it ought not to be able to rely to prevent the necessary evidence upon the trial.

Nor do I think that the New York statute, which give, the privilege to stockholders to examine the stock book, is exclusive of all other rights of stockholders. It seems to me that stockholders are still owners of the corporation property, subject to its debts, and, as such, have some rights to know how their property stands and how their agents are administering their trusts, beyond the mere privilege of knowing who are the other stockholders in the company besides themselves.

The motion is granted, with ten dollars costs.