Doggett v. North American Life Insurance

Mr. Justice Scanlan

delivered the opinion of the court.

A petition for a writ of mandamus' to compel North American Life Insurance Company of Chicago, its president, E. S. Ashbrook, and its secretary, W. O. Morris, to permit the petitioner, or his agents and attorneys, to inspect and examine the list of names of the stockholders of said corporation, the record of their addresses and the number of shares of stock held by them, and to make extracts therefrom. The case was tried by the court without a jury. A judgment was entered denying the writ. Petitioner appeals.

This was the second trial of this cause. In the first trial, also tried by the court without a jury, there was a judgment order entered awarding the writ and assessing a penalty of $288.33 against each of the respondents for their failure to permit the petitioner to examine the record of shareholders for a proper purpose. Respondents appealed and we reversed the judgment order and remanded the cause for a new trial upon the sole ground that the trial court erred in excluding certain evidence offered by the respondents. (See 314 Ill. App. 193, Abstract Opinion.)

Petitioner contends that “the evidence establishes the fact that his demand to examine the list of stockholders was made for a proper purpose, that the judgment should be reversed, that a writ of mandamus should be awarded him, and that each of the defendants should be assessed the statutory penalty for refusing to let him examine the list of stockholders.” Respondents contend that the petitioner’s demand was not made for a proper purpose and the judgment should be affirmed.

Petitioner owns 1,150 shares of respondent corporation’s stock, which he acquired in 1932. In addition members of his family own 2,300 shares. All of said stock was owned for many years by the father of petitioner, who died in December, 1930. After the petitioner acquired the stock he took an active interest in the affairs of the company and attended the meetings of stockholders. He became acquainted with the officers of the company and corresponded with the company in regard to its financial and administrative affairs. All of the directors of the company were officers of it or persons on the payroll of the company. After 1932 no dividends were paid by the company. Prior to the annual meeting of the.company in January, 1937, petitioner was aptive in organizing a-stockholders’ cooperative committee and he has since served as the chairman of that committee. The petitioner contends and the proof shows that the object of the committee was “to gain some outside representation for the minority group of stockholders on the Board.” We are satisfied, after a careful examination of this record, that the present contention of respondents that petitioner’s request for a list of the stockholders was not made for a proper purpose, is an afterthought, and without merit. On September 16, 1936, petitioner wrote a letter to E. S. Ashbrook, president of the respondent company, in which he requested that the company furnish him with a “copy of stockholders” as of January, 1936. In Ashbrook’s answer to that letter, dated September 25, 1936, he stated: “On the subject of a list of our stockholders, the Company from its very inception has adhered strictly to the policy of protecting its stockholders by not passing out any information about them.” On October 28, 1939, petitioner’s attorneys addressed a letter to the respondent corporation, “Attention: E. S. Ashbrook, President,” which contained the following: “Mr. Stanley H. Doggett desires to examine the record of the present shareholders of the Company, together with the record of their addresses and the record of the number of shares held by them. He wishes at the same time to make extracts from such records and desires to obtain such information in order that he may know who are his fellow shareholders, where they reside and what their interest in the Company amounts to, so that he may discuss with them matters of common interest pertaining to the management and affairs of the Company. His examination of the records will be made solely for the purposes herein set forth.” In Ashbrook’s answer to that letter he stated: “The policy of this Company has always been to not furnish an official Stockholders’ List to any one.” The instant petition for a mandamus was filed on November 3, 1939. On November 9, 1939, a small group headed by George E. Tribble acquired stock in the company, and shortly thereafter acquired a substantial amount of stock. In December, 1939, Tribble, through his attorneys, demanded that respondent company make him an executive officer with equal voice in the management of the affairs of the company. This demand was refused by the company, and on January 10, 1940, Tribble filed a suit in which he sought to have the previous election of directors declared illegal. Ashbrook testified in the instant trial that in August, 1940, he was one of “six home office officials and executives who acquired the holdings of that group,” and that when the deal was consummated the Tribble suit was" dismissed. Ash-brook also testified that in a written report he then made to the stockholders of the company he stated: “In addition to the above, one of our stockholders with whom we have had most cordial business relations for many years demanded a complete list of the company’s stockholders with their mailing addresses, together with details as to the number of shares owned by each; when refused this list suit was filed to obtain it in November, 1939”; that the stockholder to whom he referred in the foregoing was Mr. Doggett, the petitioner; that in the said report he also stated: “Otir stockholders’ list was most earnestly requested and desired by the group to which I referred. We know that the interests of this group were detrimental not only to the interests of our stockholders as a whole but even to those of the policy holders”; that the group that he referred to in this statement was Tribble’s group and his associates; that in the said report he also stated: “While toe do not question the integrity or sincerity of the present litigant for this list we earnestly believe it to be our duty to withhold the information. This issue is pending before the Appellate Court of the State of Illinois and we, of course, shall abide by the decision of the Court.” The following then occurred: “Q. [by petitioner’s attorney] : And the stockholder whose integrity and sincerity you did not question was Mr. Doggettf A. That is correct.” (Italics ours.) It is important to note that this report to the stockholders was made sometime after the instant proceedings were commenced. We cannot avoid the conclusion that at the time this important report was made to the' stockholders that respondents believed that their established policy not to furnish a list of the stockholders to anyone was a complete .defense to the instant action; that later they learned that it was no defense, and that then the defense that petitioner’s requests of the company to furnish him with a list of the stockholders were not made for a proper purpose was formulated. The report made by Ashbrook, the president of the company, to the stockholders after the instant proceedings had been commenced is a complete answer to the defense now interposed. The argument that the present defense is not made in good faith is not without some force.

The trial court decided the instant proceeding upon an erroneous theory of the law. In his opinion, he did not question the honesty of the petitioner, but he did question petitioner’s ability to aid the respondent company if he were elected a member of the board of directors. The court stated that in his experience as a lawyer and a judge he had discovered that furnishing lists of stockholders often caused wrecking of the business. He stated emphatically that the petitioner would have to show “shenanigans somewhere along the line” before he would enter the writ. The petitioner was not obliged to show mismanagement or maladministration of the respondent corporation before he would be entitled to a writ. The instant suit is based upon Section 45 of the Business Corporation Act (Ill. Rev. Stat. 1943, chap. 32, par. 157.45 [Jones Ill. Stats. Ann. 32.045]), and the trial court’s view of the law is not in accord with that section, which provides that “any person who shall have been a shareholder 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, 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 shareholders and to make extracts therefrom”; that “any officer, or agent, or a corporation which shall refuse to allow any such shareholder, or his agent or attorney, so to examine and make extracts from its books and records of account, minutes, and record of shareholders, for any proper purpose, shall be liable tp such shareholder in a penalty of ten per cent of the value of the shares owned by such shareholder, in addition to any other damages or remedy afforded him by law”; that “nothing herein contained shall impair the power of any court of competent jurisdiction, upon proof by a shareholder of proper purpose, irrespective of the period of time during which such shareholder shall have been a shareholder of record, and irrespective of the number of shares held by him, to compel by mandamus or otherwise the production for examination by such shareholder of the books and records of account, minutes, and record of shareholders of a corporation.”

In Morris v. Broadview, Inc., 385 Ill. 228, the court construed Section 45 and held that it was incumbent upon a petitioner in a proceeding brought under that section to prove good faith and a proper purpose in demanding a list of stockholders. The final statement of the court is (p. 235):

“Arbitrarily withholding a list from stockholders who are interested in protecting their investment is a practice not to be tolerated by the courts under our statute. The other extreme of exercising the right of inspection for speculative or other improper purpose is equally bad. The duty of the courts is to ascertain from the facts in each case the good faith of the respective parties and apply the remedy so as to administer justice between the parties in each case.”

Section 45 does not require that the petitioner prove mismanagement or maladministration by the respondents before he would be entitled to the writ, and the holding in the Morris case is, as we have heretofore stated, that the burden placed upon a petitioner by Section 45 is to prove good faith and a proper purpose in demanding a list of stockholders.

In Klein v. Scranton Life Ins. Co., 139 Pa. Super. 369, 11 A. (2d) 770, the plaintiffs, in their bill, sought to compel the defendants to permit them to examine the books of the corporation and to copy its list of shareholders. In passing upon a contention raised by the defendants that it was necessary for the plaintiffs to allege mismanagement or fraud to enforce the right of inspection the court held that it was not necessary for a stockholder to aver mismanagement or fraud to obtain his right to inspect the corporate records.

In Drake v. Newton Amusement Corporation, 123 N. J. L. 560, 9 A. (2d) 636, the Supreme court of New Jersey said (p. 637):

“And the common law also accords the right of inspection to a stockholder, if exercised in good faith for some purpose germane to his status or interest as a shareholder. Such inspection is justified if only for the purpose of ascertaining whether there has been proper management of the corporate affairs and business. Proof of maladministration is not a sine qua non. It is self-evident that the right is essential to the protection of the stockholder’s property interest. ” ,

In Hauser v. York Water Co., 278 Pa. 387, the petitioners alleged that they were dissatisfied with the management and believed that the best interests of the company required the election of a new board of directors and therefore they desired a list of stockholders in order to obtain proxies for use at the annual election. The court said (p. 390):

“As the list of stockholders was sought for a proper purpose, it was not necessary to aver mismanagement, or to state why plaintiffs desired a new board of directors. Indeed, such a list must be given, ‘even though [relator’s] only object is to ascertain whether the business has been properly conducted’: Hodder v. George Hogg Co., 223 Pa. 196, 198.”

In the instant case the petitioner proved that his purpose in requesting a list of the stockholders was to solicit proxies from the stockholders in order to bring about the election of outside directors. In Hohman v. Illinois-Iowa Power Co., 305 Ill. App. 17, 20, the court stated that where the purpose of the stockholder in asking for a list of the stockholders was the solicitation of proxies such purpose was a proper one. (See, also, Hauser v. York Water Co., supra.) It is a matter of common knowledge that the management of most of the well known corporations solicit proxies from the stockholders for use at the annual meetings of the stockholders held for the election of directors, the proxies to be used for the election of directors designated by the management.

Upon the. first appeal in the instant case it appeared that respondents offered to prove certain facts and that the trial court sustained petitioner’s objection to the offer. The respondents in this court contended that the evidence offered tended to prove that George E. Tribble was actuated by improper motives in starting his proceeding to have the previous election of directors declared illegal, and that there was sufficient evidence in the record to make out a prima facie showing that the petitioner and Tribble were engaged in a common purpose to obtain partial or complete control of the management of the respondent company and that therefore the evidence offered that related to the conduct of Tribble was competent against petitioner in the trial of his petition as tending to prove the purpose of the petitioner in requesting a list of the stockholders. In our opinion we stated that if the respondents proved to the satisfaction of the trial court the alleged facts set up in their offer, a writ of mandamus should not be awarded. The respondents now contend that in the instant trial they introduced evidence tending to prove the facts set up in their offer upon the first trial as to the Tribble group and that therefore the purpose of the petitioner in requesting the list is res judicata. It is a sufficient answer to this strained contention to say that the case presented upon the first trial and the case presented upon the second trial are not the same; that they differ very materially. In view of the evidence in the instant trial as to certain statements in the report made by respondent company to its stockholders after the ‘ ‘ six home office officials and executives ’ ’ acquired the holdings of the Tribble group and the Tribble suit had been dismissed, any claim that the petitioner was acting in concert with Tribble comes with poor grace from the respondents, and should be disregarded. The petitioner argues, with some force, that the fact that the respondents bought out the Trible group while he is compelled to still fight for his rights also tends to show that he was not acting in concert with the Tribble group; that the report made to the stockholders is an acknowledgment that petitioner was not a party to that group.

The record shows that a small group, owning only ten or twelve per cent of the capital stock of respondent corporation, has retained complete control of its affairs for years, and there is merit in the contention that they have retained control because they have always refused to furnish a stockholders’ list to anyone. The petitioner and the members of his family have owned a substantial amount of the stock of the company for many years. They have not held it for speculative or improper purposes. They are interested in protecting their investment. The report to the stockholders shows conclusively that respondents refused petitioner the list solely because of their established policy not to furnish a list of the stockholders to anyone.

The petitioner is not only entitled to his writ of mandamus as prayed for in his petition, but he is also entitled to have judgment entered against each of the respondents for their wrongful refusal to comply with the demand of petitioner for permission to examine the books and records of the corporation. The parties have stipulated that the value of the stock of the petitioner at the time of his demand for a list of stockholders was $2,883.30.

The judgment of the Superior court of Cook county is reversed and the cause is remanded with directions to the trial court to award the petitioner a writ of mandamus as prayed for in his petition and to also enter a penalty judgment against each of the respondents in the sum of $288.33, in accordance with the provisions of Section 45 of the Business Corporation Act (Ill. Rev. Stat. 1943, chap. 32, par. 157.45 [Jones Ill. Stats. Ann. 32.045]).

Judgment reversed and cause remanded with, directions.

Friend, P. J., and Sullivan, J., concur.