Smith v. Flynn

155 So. 2d 497, 275 Ala. 392, 1963 Ala. LEXIS 668
CourtSupreme Court of Alabama
DecidedJune 20, 1963
Docket1 Div. 28, 29
StatusPublished
Cited by17 cases

This text of 155 So. 2d 497 (Smith v. Flynn) is published on Counsel Stack Legal Research, covering Supreme Court of Alabama primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Smith v. Flynn, 155 So. 2d 497, 275 Ala. 392, 1963 Ala. LEXIS 668 (Ala. 1963).

Opinion

HARWOOD, Justice.

This is an appeal from rulings by the lower court sustaining the defendant’s demurrer to plaintiff’s complaint, and granting the defendant’s motion to stay the taking of pre-trial discovery depositions. Following such rulings, the plaintiff took a nonsuit with leave to appeal.

The basis of the proceedings below was the refusal of the defendant to permit the plaintiff, a stockholder, to examine the corporate records of the Alabama Dry Dock and Shipbuilding Company, Inc.

Hereinafter, for convenience, the appellant, who was plaintiff below, will be referred to as the plaintiff, the appellee as' the defendant, and the Alabama Dry Dock and Shipbuilding Company, Inc., as the company.

The complaint below, as amended, was in two counts.

Count one claimed $23,740 as a penalty provided by Act No. 414, approved 13 November 1959, (See 1959 Acts of Alabama, Reg. Sess. p. 1073) and now appearing in Sec. 21(46) Tit. 10, Code of Alabama 1940 (pocket part).

The count averred that the plaintiff was the owner of 2,279 shares of common stock, and 95 shares of preferred stock in the company, of a value of $237,400, and that he has owned such stock for twenty years.

That on 23 September 1960, the plaintiff made a written demand on the company, through its secretary, J. R. Maumenee, on behalf of himself and Frank M. Ladd, Jr., a substantial stockholder in said company for many years, for the right to examine the corporate books and records of account, minutes, and record of stockholders, and to make extracts therefrom, and that one of the items specifically referred to in the let *396 ter was the expense account of the defendant. In the letter it was stated that the purpose of the examination was to determine if funds of the company had been misappropriated.

It was further averred that the letter demanding the right to examine the company records was presented to the Board of Directors of the company at a regular meeting, and the Board passed a resolution approving plaintiff’s request. The defendant, as President of the company and as a director, was present at the meeting.

On 27 September 1960, the company, through its secretary, Mr. Maumenee, advised the plaintiff that the records would be made available to him and Mr. Ladd on 3 October 1960 at 9 A.M. The plaintiff and Mr. Ladd appeared at the time specified to examine the records.

Mr. Maumenee advised the plaintiff and Mr. Ladd that defendant’s expense account for the fiscal year ending 30 June 1960, amounted to $17,817.30, of which $9,557.51, was for cash items, and $8,259.78, was for charge items, and further informed them that if further information or records were wanted they would have to see the defendant. They then made demand on the defendant for the right to see all of the records relating to the defendant’s expense account.

The count further avers that although the company had receipts from the defendant totalling $9,557.51, for cash he had withdrawn from the company and further had bills totalling $8,259.78, representing items the defendant had charged to the company as expense, the defendant refused to allow the plaintiff and Ladd to see any of the corporate records, and as a result it was necessary for him and Mr. Ladd to obtain the records under a writ of mandamus.

Count one was obviously framed under the provisions of Act No. 414, supra, which in pertinent parts, reads:

“Any person who shall have been a stockholder of record for at least six months immediately preceding his demand or who shall be the holder of record of at least five per cent of all the outstanding shares of a corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person, or by agent or attorney, at any reasonable time or times, for any proper purpose, its books and records of account, minutes, and record of stockholders and to make extracts therefrom.
“Any officer or agent who, or a corporation which, without reasonable cause, shall refuse to allow any such stockholder, or his agent or attorney, so to examine and make extracts from its books and records of account, minutes, and record of stockholders for any proper purpose, shall be liable to such stockholder in a penalty of ten per cent of the value of the shares' owned by such stockholder, in addition to any other damages or remedy afforded him by law.”

Count 2, as amended, claims $50,000 as damages because of defendant’s refusal to permit the plaintiff to inspect the records of the company.

The averments of Count 2 are in many respects the same as those in Count 1, except that Count 2 fails to aver the defendant’s association or connection with the company.

In addition to the general claim of $50,000 as damages, Count 2 asserts:

“Plaintiff alleges that as a result of the illegal refusal of said Edward J. Flynn to allow him to examine the corporation’s records pertaining to the expense account of said Edward J. Flynn, he has been greatly damaged.”

Count 1

In their argument supporting the ruling of the lower court sustaining the demurrer to the complaint, counsel for appellees state:

*397 “Count One therefore is defective in its failure to allege a proper purpose for the demand, in failing to allege any refusal of such nature as to entitle the plaintiff to the penalty under the statute, in failing to allege that the refusal •was without reasonable cause, in failing to show that the records demanded were actually corporate records to which the plaintiff was entitled, and for the other reasons taken by the demurrers.”

Count 1 sets forth that the appellant had made a written demand to see the company records for the purpose of determining if funds of the company had been misappropriated; that the demand was presented to the Board of Directors at a regular meeting at which the appellee was present as president of the company, and the Board of Directors passed a resolution approving appellant’s request.

In Sawers v. American Phenolic Corp., 404 Ill. 440, 89 N.E.2d 374, 15 A.L.R.2d 1, the Illinois court considering an Illinois statute highly similar to our Act No. 414, stated:

“The proper purpose required by the statute, then, is one wherein a stockholder seeks information bearing upon the protection of his interest and that of other stockholders in the corporation. He must be seeking something more than a satisfaction of his curiosity and not be conducting a general fishing expedition.”

The averments in the present complaint •disclose that the demand was for a proper purpose, i. e., to determine if funds of the corporation had been misappropriated.

Section 34, Title 10, Code of Alabama 1940, provides:

“The stockholders of all such corporations have the right of access to, and of inspection and examination, in-person or by agent, of the books, rec•ords, and papers of the corporation at xeasonable and proper times.”

In Foster v. White, 86 Ala. 467, 6 So.

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Bluebook (online)
155 So. 2d 497, 275 Ala. 392, 1963 Ala. LEXIS 668, Counsel Stack Legal Research, https://law.counselstack.com/opinion/smith-v-flynn-ala-1963.