Hennesey v. Craven

Birdie Amsterdam, J.

This is a motion by plaintiffs for leave to examine before trial certain defendants in this stockholders’ derivative action and for related relief. While it is true, generally speaking,, that the policy of this Department has been that examinations before trial in stockholders’ derivative actions are not favored (Mann v. Luke, 272 App. Div. 19 [1947]; Van Aalten v. Mack, 7 A D 2d 289 [1959]; New York County, Supreme Ct. Buies, Trial Term, rule XI), nevertheless these authorities do not preclude nor bar such an examination. It has been consistently held that such examination will be allowed where special circumstances are shown to the court to warrant same.

Upon a study of the pleadings and papers submitted herein, I am persuaded that the issues involved and the special circumstances shown indicate the necessity and justification for the examination sought. Two basic issues on which plaintiffs seek to examine the named defendants are (1) whether the individual defendants expended over one million dollars of Alleghany’s funds to defend their corporate policies and Alleghany’s legitimate interest, or merely to retain Mr. Kirby in control, and (2) assuming that Mr. Kirby et al. properly plead corporate rather than personal interest in incurring the expenses, whether the expenses were fair and reasonable. The motion seeks to examine the individual defendants on both issues, and Alleghany on the second issue. The motion is opposed only by the individual defendants, but not by Alleghany. Plaintiffs show prima facie merit in their suit in the undisputed fact that the fiduciary defendants caused Alleghany to spend over one million dollars in a proxy contest. Further, plaintiffs evince a compelling necessity for the examination since they will be met with a severe burden of developing proof of the vital facts of their case in the first instance at the trial. This will also compel the trial to take an extraordinary period of time. I am satisfied that sufficient special circumstances are here exhibited which require favorable disposition to the relief sought. The motion is accordingly granted.