Dines v. Harris, 12307.

• Decision Date: 30 June 1930
• Docket Number: 12307.
• Citation: 88 Colo. 22,291 P. 1024
• Parties: DINES et al. v. HARRIS.
• Court: Colorado Supreme Court

291 P. 1024

88 Colo. 22

DINES et al. v. HARRIS.

No. 12307.

Supreme Court of Colorado, En Banc.

June 30, 1930

Rehearing Denied Sept. 15, 1930.

Error to District Court, City and County of Denver; Henley A Calvert, Judge.

Petition by G. W. Harris for a writ of mandamus against Tyson Dines Jr., and another, to compel respondents, as officers of the Colorado & Utah Coal Company, to allow petitioner to inspect all the books, accounts, and papers of the corporation. To review a judgment for petitioner, respondents bring error.

Reversed with directions.

CAMPBELL and BURKE, JJ., dissenting, and BUTLER, J., dissenting in part.

Dines, Dines & Holme and Robert E. More, all of Denver, for plaintiffs in error.

Lewis & Grant and F. W. Sanborn, Jr., all of Denver, for defendant in error.

ADAMS J.

The parties' names appear here in inverse order from that in the trial court. Harris will be referred to as petitioner and Dines and Fancher as respondents, as in the district court.

Petitioner procured a peremptory writ of mandamus compelling respondents to allow him an inspection at all reasonable times, of all the books, accounts, and papers of the Colorado & Utah Coal Company (hereinafter called the company or coal company), and to take copies or make extracts therefrom. Respondents bring the case here on writ of error to review the judgment.

Pleadings, orders, and proceedings in the district court sufficient to be stated here consist of (1) petition for writ of mandamus, (2) alternative writ, (3) respondents' answer and return thereto, (4) petitioner's combination demurrer and answer to respondents' answer and return, (5) order sustaining above demurrer, (6) respondents elected to stand on this demurrer, (7) testimony by petitioner to substantiate the allegations of the alternative writ, and (8) issuance of peremptory writ.

Allegations in the alternative writ admitted by respondents are that petitioner and respondents reside in Denver; that the company is a Colorado corporation with an authorized capital of 10,000 shares of the par value of $100 per share, 9,990 of which are issued and outstanding; that petitioner is the owner and holder of 1,777.6 of said shares, and that he was one of the directors of the corporation when he brought mandamus; that the company is engaged in the business of mining and marketing coal and is not a railroad or telegraph company or an industrial corporation having a paid-up capital of $20,000,000 and maintaining a stock transfer agency in the city of New York; that respondent Tyson Dines, Jr., is secretary, and respondent A. N. Fancher is vice president and manager of sales of said company. Prior to the commencement of this action, petitioner made a written demand on respondents for inspection and examination of all of the books, accounts, and papers of the corporation. Respondents refused, but qualified their refusal, which is more fully explained hereinafter.

Allegations contained in the alternative writ that respondents deny are that petitioner has a right to examine all of said books, accounts, and papers, and that they have in their possession all of them that petitioner desires to inspect.

For convenience only, we here separate the affirmative allegations in respondents' answer and return under two heads: First, that which pertains to a certain prior suit; and, second, petitioner's alleged bad faith and improper purpose in making the request for the examination of corporate books, accounts, and papers. The prior suit is cause No. 102493 in the district court of the city and county of Denver, and was brought by the coal company against Harris (the present petitioner) and others. A copy of the complaint in said action is attached to and made a part of respondents' return to the alternative writ. Cause No. 102493 was commenced about four months before mandamus was brought, and remains pending and undetermined. That complaint alleges, in substance, among other things, that the company was promoted by Harris in the year 1914; that he was elected president at the organization meeting and held said office continuously until September, 1927, when the stockholders demanded his resignation; that he was also a director from 1914 to 1928; that in his official capacity he was guilty of gross breach of trust in fraud of the rights of the other officers, stockholders, and directors of the company, in that, while he was so serving, he learned of the strategic advantage of certain properties adjoining the property of the company; that he took advantage of an engineer's report made for the company, and did not divulge the information to the other officers and stockholders, but that he had acquired or is attempting to acquire such properties to be used in competition with the company and also to gain a wrongful private advantage thereby and from the sale of coal which, through wide advertising and great expense, the company has established with its customers under the trade name of 'Harris coal'; that he and his codefendants took property in the name of 'dummies' that rightfully belong to the company, all to the great injury, disadvantage, and detriment of the company. In that suit (cause No. 102493) the company seeks to recover the properties alleged to have been fraudulently acquired by Harris and his codefendants, and also to restrain and enjoin them from using for their private benefit, or in competition with plaintiff, any information which Harris obtained while president and director of the company.

Under the second division of respondents' return, it shows that petitioner, without request on his part, is furnished each month with a complete detailed income, expense, and cost statement covering operations of the company, and with a detailed statement of all assets and liabilities as of the end of the preceding month. Respondents further allege that petitioner in making his demand for inspection did not act as a stockholder at all, but only as a competitor and adverse litigant under the guise of a stockholder to conduct a 'fishing expedition' into the files of the company and its attorneys to discover trade secrets and the material used by the company's attorneys in the preparation for trial in the pending suit; that petitioner's purpose was in no way connected with his interests or rights as a stockholder, but is entirely foreign to and antagonistic to his interests as a stockholder; that his purpose is to use any information thus obtained to cripple and injure the coal company and to promote the interests of himself and other codefendants as competitors of the company and as defendants and adverse litigants in the pending suit.

Respondents' present position is best told in their own words contained in a letter from their attorneys to petitioner in response to the latter's demand for inspection. This letter is set forth in respondents' return to the alternative writ and reads as follows:

'In response to your demand for inspection of the corporate records of The Colorado and Utah Coal Company, we wish to inform you, that, as a stockholder of said company, acting in good faith as such, you are at perfect liberty at all reasonable times to inspect and examine all the books, accounts and papers of said company.

'It is our opinion, however, that you may not, under the guise of exercising your rights as a stockholder, secure access to records of the company bearing either on the issues involved in the suit now pending between the company and yourself, or on information ordinarily recognized as trade secrets. As a litigant you are not entitled to the one, and as a competitor you are not entitled to the other.'

The assignments of error to be considered are that the court erred in sustaining petitioner's demurrer to respondents' return to the alternative writ, and in entering judgment against them.

1. It has been shown by an undenied affidavit, filed in this court after the respondents brought the case here, that the petitioner is no longer a director of the coal company, as he failed of re-election. His right of inspection on the score of his directorship is therefore a moot question, and need not be considered. Walker v. Walker, 85 Colo. 473, 276 P. 981. We shall determine the matter solely on the basis of petitioner's rights as a stockholder.

2. In general, petitioner's demurrer admits two things: First, the pendency of the former suit brought by the company against him; and, second, that when he made his demand for inspection of corporate books, etc., he was not acting in good faith or for a proper purpose. The position taken by petitioner's counsel is that his motives or good faith cannot be inquired into, and such was the view of the trial court. It is the sole question in this case.

Section 2267, C. L. 1921, reads as follows: 'It shall be the duty of the directors or trustees of every corporation, except railroad and telegraph companies, to cause to be kept at its principal office or place of business in this state, correct books of account of all its business, and any stockholders in such corporation shall have the right, at all reasonable times, to inspect and examine all the books, accounts and papers of the corporation, and shall have the right as aforesaid to demand of any officer, clerk, cashier, or agent of any such corporation having in his control or custody any such books, accounts, or papers, as such stockholders may desire to examine or inspect; and upon such demand being made in writing, every such officer, clerk, cashier or agent shall be bound to produce such books, accounts and papers to such stockholders, and afford due opportunity to examine and inspect the same; and such stockholders shall have the right to take copies or make extracts therefrom, but shall...