Caspary v. Louisiana Land and Exploration Co.

• Decision Date: 11 May 1983
• Docket Number: No. 83-1343,83-1343
• Citation: 707 F.2d 785
• Parties: Delo H. CASPARY, Appellant, v. The LOUISIANA LAND AND EXPLORATION COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 785

707 F.2d 785

Delo H. CASPARY, Appellant, v. The LOUISIANA LAND AND EXPLORATION COMPANY, Appellee.

No. 83-1343.

United States Court of Appeals Fourth Circuit.

Argued April 14, 1983.

Decided May 11, 1983.

John Henry Lewin, Jr., Baltimore, Md. (Benson Everett Legg, Venable, Baetjer & Howard, Baltimore, Md.), for appellant.

Francis B. Burch, Jr., Baltimore, Md. (Robert J. Mathias, David Clarke, Jr., Piper & Marbury, Baltimore, Md., Cahill, Gordon & Reindel, Washington, D.C.), for appellee.

Before WINTER, Chief Judge, and MURNAGHAN and ERVIN, Circuit Judges.

MURNAGHAN, Circuit Judge:

At common law, a stockholder in a Maryland corporation enjoyed, regardless of the substantiality of his shareholding, a right to inspect corporate records, including a book listing all of the stockholders, simply upon the showing of a proper purpose. Parish v. Maryland and Virginia Milk Producers Ass'n, 250 Md. 24, 88, 242 A.2d 512, 547 (1968). In 1868 a general business corporation law was adopted by the Maryland General Assembly which, in Article 26 of the Annotated Code of Maryland Sec. 5, addressed the matter of rights to inspect corporate records generally and in Sec. 67 the matter of similar rights to inspect stockholder lists. ¹ That legislation eliminated the proper purpose limitation existing at common law. Consequently, after 1868 the statute afforded everything the common law had granted to the stockholder and more, since it too guaranteed the right of access to the stock ledger, yet freed the stockholder from the necessity of pleading and proving a proper purpose. Thereafter in 1908 there was a general revision of the corporate article. The pertinent section of that codification, Article 23 Sec. 73 of the Annotated Code of Maryland (identified in the 1911 Annotated Code of Maryland as the successor to the Article 26 Secs. 5 and 67 statutes enacted in 1868), permitted a stockholder or stockholders holding 5% of the capital stock to inspect the stockholder list. The section so providing, in its present form, now appears in the Corporations and Associations Article of the Maryland Annotated Code as Sec. 2-513. ²

Delo H. Caspary, alleging a proper purpose, namely, the desire to solicit proxies in order to achieve a change in management of a corporation of which he is a shareholder, and with whose operations he is dissatisfied, has sought to obtain access to the stock ledger of the Louisiana Land and Exploration Company, a Maryland corporation. The corporation is a large one, it being estimated that, while Caspary's holdings of stock in the corporation are worth $2,000,000 to $3,000,000, a 5% ownership of stock would have an aggregate value of approximately $55,000,000.

The corporation has refused to permit inspection of the stock ledger on the grounds that Sec. 2-513 abrogated the common law, and set up requirements which Caspary does not satisfy.

That position conflicted with Caspary's professed understanding that the statutory provisions were in addition to, not in replacement of, the common law. Not surprisingly, on April 4, 1983, the present diversity Addressing the merits, we have been cited to, and have found no Maryland authority squarely disposing of the matter to which we can turn for ready disposition. While presented by diligent and imaginative counsel appearing for Caspary with arguments based on supposed policy considerations and expounding a view of history concerning the rugged capacity of the common law to withstand repeal or abrogation by a statute dealing with the same subject matter, we have been directed to no Maryland authority (other than the district court opinion in the case sub judice ) which really addresses in the context of stock ledger inspection rights the position for which Caspary argues.

case was instituted by Caspary in the United States District Court for the District of Maryland to secure access to a list of stockholders. The district court, on April 8, 1983, stated its conclusion that the failure to meet the requirements of Sec. 2-513 rendered Caspary not entitled to the relief he sought. Judgment dismissing the complaint, accordingly, was entered for the company. An immediate appeal was taken. The degree of urgency is high in view of Caspary's wish to conduct a proxy fight to obtain shareholder votes to be cast at the election of directors scheduled to be held at an annual meeting, the date for which has been fixed as May 12, 1983. We accordingly have heard the appeal on an expedited basis on Thursday, April 14, 1983. That afternoon, following conclusion of oral argument, we announced our decision affirming the judgment of the district court, 560 F.Supp. 855. Chief Judge Winter dissented from the decision reached by Judges Murnaghan and Ervin. We noted that written opinions would follow.

On the other hand, Louisiana Land has had the good fortune to be able to cite two cases construing the Maryland law which give strong indications of the result the Maryland Court of Appeals would reach if it were to address the question presently before us. First we turn to Parish v. Maryland and Virginia Milk Producers Ass'n, supra. There, the question for resolution was whether the statute, by analogizing a member in a membership corporation to a stockholder in an ordinary business corporation, set up a prerequisite of a group of 5% of the members insisting on production to trigger a successful demand for a list of all members. The court in Parish held that the analogy was not apt and that, consequently, the 5% requirement had no application to a membership corporation. The opinion for the Court of Judge Wilson K. Barnes, while, therefore, not concerned with a stockholder's rights of inspection of a company's records, nevertheless, provided two salient insights into how the Maryland Court of Appeals might be expected to resolve the issue which confronts us.

First, in a passing allusion the court identified as the purpose of the 5% restriction the prevention of "an abuse of the common law right of a single stockholder to demand inspection of books, etc., with possible attendant substantial expense when the amount of the stockholding was insignificant compared to the whole stock structure. It was, in short, to prevent 'strike' suits by litigious stockholders holding less than five percent of the corporate stock ...." Parish, supra, 250 Md. at 90-91, 242 A.2d at 549 (emphasis in original). That observation tends to support Louisiana Land's side of the case, suggesting as it does that the common law was to yield to the statute, yet it is but a dictum, and, as such, could perhaps be distinguished if it were at odds with another stronger contra-indication, either obiter statement or persuasive policy consideration. ³ The second insight to be derived from Parish is more, however, than dictum. The member there seeking a membership list had established the existence of a proper purpose for the request. ⁴ Accordingly, if Caspary's contention in the present case were sound, the court in Parish unnecessarily labored (250 Md. at 86-93, 242 A.2d at 547-550) to rule that a member in a membership corporation is not to be equated or analogized to a stockholder. That question would not even have arisen if a stockholder, and so, a fortiori, a member (present as he would be only by analogy to a stockholder) were free of the necessity for a 5% showing upon demonstration of a proper purpose. The whole objective of the court's inquiry was to determine whether the 5% requirement had to be met. Obviously, the Maryland court assumed it would apply were Parish a stockholder in a business corporation rather than a member in a membership corporation.

Furthermore, that intimation from Parish is fortified by the recent decision of Rosengarten v. Buckley, Civ. No. HM-80-2935 (D.Md., February 23, 1982, Murray, J.). In responding to a corporation's insistence on the security required of a stockholder holding less than 5% of the stock (Maryland Rules of Procedure Sec. 328(b)), the shareholder sought to have the court condition the security on the provision to him of a shareholder list. Judge Murray declined to do so, saying:

Not only does Maryland law not provide for such a procedure, but another statute expressly limits those persons entitled to a shareholder list to persons who hold more than five percent of a corporation's stock. MD.CORP. & ASSOC.CODE ANN., Sec. 2-513. The plaintiff's requested procedure would thus endow him with a right he does not possess under Maryland law and one that the legislature of this state has clearly chosen not to give him.

Caspary would construe the omission by Judge Murray of any mention of a common law right to inspect stock records for a proper purpose and without meeting the statutory 5% requirement as an inadvertent oversight. Judge Murray is simply too careful for such a suggestion to be lightly accepted. It is far more probable that, if Judge Murray had entertained any belief that a common law right existed, he would have explored the matter of whether the party seeking the stockholder list had a proper purpose. We read the omission as evidence of Judge Murray's belief that there was no such common law right. Thus, Judge Murray denied the request on the grounds that Sec. 2-513 expressly limited entitlement to those persons holding 5% or more of the corporation's stock. ⁵

To counter those Maryland authorities, Caspary relies especially on the New York law. ⁶ Aside from the fact that we are There is no similar Maryland statutory language preserving to the courts the continued right to compel production of the stock ledger as theretofore permitted by the common law. ⁷ It is true, of course, that the Maryland Constitution guarantees the continued enjoyment by the people of the common law "subject, nevertheless, to the revision of, and amendment or repeal, by the Legislature of this State." In Re Davis, 17 Md.App. 98, 102, 299 A.2d 856, 859 (1973) makes it all very...