Fleisher Development Corp. v. Home Owners Warranty
Decision Date | 29 October 1986 |
Docket Number | Civ. A. No. 85-1766. |
Citation | 647 F. Supp. 661 |
Parties | FLEISHER DEVELOPMENT CORPORATION, et al., Plaintiffs, v. HOME OWNERS WARRANTY CORPORATION, et al., Defendants. |
Court | U.S. District Court — District of Columbia |
William E. Rollow, Arlington, Va., for plaintiffs.
William Casano, Washington, D.C., for defendants.
Fleisher Development Corporation, et al., at 11. The Court made this suggestion because several key issues of law were not briefed in Fleisher I: whether the plaintiffs have a right of inspection under the applicable law; whether the plaintiffs who made a demand for inspection asserted a "proper purpose"; whether the right to inspect the books of a nonstock corporation extends to the books of its wholly-owned subsidiaries; and whether the plaintiffs who did not make a demand for the books, records and membership list are barred by lack of standing. The Court today addresses these questions.
The facts of this case are thoroughly considered in Fleisher I. Nevertheless, the relevant facts will be reiterated here. Plaintiffs, builders and developers of residential housing, are members of the Home Warranty Corporation, a nonstock, profitmaking mutual. This corporation is incorporated in Delaware and has its principal office in the District of Columbia. The corporation is an umbrella organization overseeing two wholly-owned subsidiaries: Home Owners Warranty Corporation ("HOW") and the HOW Insurance Company ("HOWIC").
HOW is incorporated in the District of Columbia, and its principal office is likewise in the District. Through HOW, the Home Warranty Corporation administers a homeowners warranty program for the benefit of member-builders like the plaintiffs. Enrollees in the HOW program warrant that the homes they build are free from specified defects for specified periods of time. Through the use of trademarks and advertising, HOW promotes the warranty program as a sales tool for its members.
Members are also eligible to obtain insurance covering the cost of repair or replacement, within specified periods of time, resulting from certain defects in the warranted homes. This service is provided by Home Warranty Corporation's second subsidiary, the HOW Insurance Company ("HOWIC"). HOWIC, like its parent, is incorporated in Delaware and has its principal office in the District of Columbia.
The instant action arose in 1983 when several of the plaintiffs2 made demand upon the defendants, by a written document, under oath, requesting permission to inspect the books, records, and membership lists of all the defendant corporations. The plaintiffs' request embraced, inter alia, the following items: a current list of the builder-members of HWC, minutes from each meeting of the Board of Directors, and Executive Committee, annual meeting, and all special meetings of the builder-members from January 1, 1983; copies of all financial information filed with the federal government, Delaware, and New Jersey from January 1, 1983; lists of all the officers and directors of HWC and all distributions paid to these officers and directors since January 1, 1983; and finally, any reports filed with regulatory bodies, any reports prepared by certified public accountants, and a list of enrolled buildermembers' capital contributions. See Letter from Thomas A. Paparone (member-builder) to Hamilton H. Boykin (Secretary of HWC) (April 16, 1985).
The plaintiffs grounded their request to inspect HWC's corporate books and records on their desire to achieve the following objectives:
The plaintiffs grounded their request to inspect HWC's corporate books and records on their desire to achieve the following objectives:
Though HWC claimed to be ready, willing and able to comply with requests for information, supported by a proper purpose, the corporation rejected all of the plaintiffs' requests for inspection. The requests were denied on the ground that all the purposes articulated by the plaintiffs were deficient.
The present controversy is in federal court on the basis of diversity jurisdiction, 28 U.S.C. § 1331. In diversity cases, a federal court is bound to apply the state law of the jurisdiction in which it resides to resolve substantive issues, Erie Railroad Company v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938), and a state's choice of law rules is a substantive issue under Erie. Klaxon Company v. Stentor Electric Manufacturing Company, 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). The District of Columbia has adopted the governmental interest analysis approach to resolve choice of law questions. Williams v. Williams, 390 A.2d 4, 5 (D.C.1978). This approach requires a court "to evaluate the governmental policies underlying the applicable conflicting laws and to determine which jurisdiction's policy would be most advanced by having its law applied to the facts of the case under review." Id. at 5-6.
Notwithstanding this general approach, such balancing cannot be undertaken when the Supreme Court requires a court to refuse jurisdiction for some special reason. In Rogers v. Guaranty Trust Company of New York, 288 U.S. 123, 53 S.Ct. 295, 77 L.Ed. 652 (1933), the Supreme Court held as follows:
It has long been settled doctrine that a court — state or federal — sitting in one State will as a general rule decline to interfere with or control by injunction or otherwise the management of the internal affairs of a corporation organized under the laws of another State but will leave controversies as to such matters to the courts of the State of the domicile.
Id. at 130, 53 S.Ct. at 297 (emphasis added). Of the three defendants, only HOW is organized under the laws of the District of Columbia. Thus, if the matter before the Court concerns "internal affairs," Rogers compels the conclusion that the Court must decline jurisdiction with regard to the two corporations at issue not organized under the laws of the District of Columbia.
Resolution of this jurisdictional question requires the Court to determine whether a request to inspect the membership list, books and records of HWC constitutes an invasion of the internal affairs of those corporations. All of the cases uncovered support the conclusion that shareholders' or members' rights to inspect corporate books and records do not touch upon the internal affairs of a corporation where such books are within the jurisdiction of the reviewing court. See, e.g., Genetti v. Victory Markets, Incorporated, 362 F.Supp. 124, 126 (M.D.Pa.1973); Donna v. Abbotts Dairies, Incorporated, 399 Pa. 497, 161 A.2d 13, 16 (1960); McCormick v. Statler Hotels Delaware Corporation, 55 Ill.App.2d 21, 203 N.E.2d 697, 703 (Ill.App. Ct.1964); Restatement (Second) of Conflict of Laws § 313 (1971). Apparently, this is the majority rule. McCormick, supra, 203 N.E.2d at 703. The defendants do not contest the plaintiffs' assertion that all the defendants' books and records are housed in the District of Columbia, see Plaintiffs' motion supporting summary judgment at 11. As such, the plaintiffs' claims fall without the Rogers doctrine, and this Court retains jurisdiction.3
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