Mortgage Co. v. Rosenbaum

• Decision Date: 02 March 1926
• Docket Number: 19126
• Citation: 151 N.E. 122,114 Ohio St. 231
• Parties: The American Mortgage Co. v. Rosenbaum.
• Court: Ohio Supreme Court

151 N.E. 122

114 Ohio St. 231

The American Mortgage Co. v. Rosenbaum.

No. 19126

Supreme Court of Ohio

March 2, 1926

Corporations - Stockholder's right to inspect books and make copies thereof - Injunction to permit exercise of right, denied - Stock acquired for purpose of securing privilege - Intention to embarrass company and diminish value of assets.

One who acquires ownership of capital stock in a corporation, in order that he may thereby establish.a right to inspect the books and papers of the company and take copies thereof, and then seeks to exercise such privilege not in good faith to inform himself, as a stockholder, with respect to the management and status of the affairs of the company, but with the intent of giving publicity to the information so to be acquired which will diminish the value of the assets of the corporation, embarrass the company in the conduct of its business and thereby cause a loss to all other stockholders of the company, is not entitled to a writ of injunction commanding the officers and agents of the corporation to permit such inspection and copies to be made. (Cincinnati Volksblatt Co. v. Hoffmeister, 62 Ohio St. 189; 56 N. E 1033, 48 L.R.A. 732, 78 Am.St. 707, distinguished.)

The facts are stated in the opinion.

Messrs Ritchie, Hermann & Ritchie, for plaintiff in error.

Mr. Leo Weinberger, for defendant in error.

Messrs Dinsmore, Shohl & Sawyer, Messrs. Ernst, Cassatt & Cottle Mr. James J. Muir, and Mr. S. A. Headley, amici curiae. ______________

Corporations, 14 C. J. § 1302. ______________

KINKADE, J.

This is an action brought by a stockholder against a corporation, to compel the corporation to permit the stockholder to make an examination of the books and papers and take copies thereof. David N. Rosenbaum owns 20 shares of the capital stock of the American Mortgage Company. The day this stock was transferred to his name on the books of the company, he demanded the privilege of making an examination of the books and papers of the company and taking copies thereof. The demand was refused, and thereupon this action was commenced.

In his petition, Rosenbaum averred the ownership of the stock, the demand and its refusal, and prayed for a mandatory injunction requiring the corporation to grant him the privilege requested. The company by answer admitted that it was a corporation; that Rosenbaum owned the stock; that he had made the demand; and that the demand had been refused. The answer contains the further following allegations:

"Defendant says that it is engaged in the sale of its authorized and unissued preferred stock and in the sale of other securities and that its list of stockholders represents its list of customers for the sale of its stock, and is a trade secret of this defendant and a valuable business asset.

"Defendant says that the plaintiff desires to obtain this list, not in good faith, in accordance with his rights as a stockholder, but solely for the purpose of selling or disclosing said list of stockholders to brokers in the city of Cincinnati, who would use such list in competition with the defendant, whereby the defendant would be irreparably damaged; further, that the original demand made on the defendant for an examination of its stock ledger, was made on the same day that the stock of which the plaintiff is now the record holder, was transferred to him--said stock having been purchased or transferred to this plaintiff for the sole purpose of enabling him to demand said list of stockholders under color of a statutory right.

"Defendant says that plaintiff does not come into this court with clean hands, but is attempting to enforce a statutory right, given solely for the protection of stockholders, to obtain the trade secret and confidential information concerning the company for improper and illegal purposes."

A general demurrer was filed by plaintiff to this answer. The demurrer was sustained, and, the defendant not wishing to plead further, judgment was entered in favor of the plaintiff by the trial court. This judgment was affirmed by the Court of Appeals. The mortgage company prosecutes error in this court.

The claim of Rosenbaum is that his motive in seeking to secure the examination and make copies is wholly immaterial, that his right so to do is an absolute one, unconditional in character, and that his motive cannot be inquired into by any court, and he bases this conclusion upon a decision of this court in the case of Cincinnati Volksblatt Co. v. Hoffmeister, 62 Ohio St. 189, 56 N.E. , 1033, 48 L.R.A. 732, 78 Am.St. 707.

The mortgage company claims that a stockholder who is seeking an examination of the books and papers, with the right to take copies thereof, and who is intending to so use the information thus acquired as to accomplish an injury to all other stockholders of the company, by doing that which will directly tend to diminish the value of the assets of the corporation, even if it be conceded that the stockholder is exercising a legal right, has no right to have the extraordinary writ of injunction as an aid to him in promoting the contemplated wrong.

Section 8673, General Code, provides that the "books and records of such corporation at all reasonable times shall be open to the inspection of every stockholder."

Section 8685, General Code, reads as follows:

"Every corporation organized under the laws of Ohio, annually shall make a statement of its financial condition, setting forth its assets and liabilities, and furnish to each stockholder a true copy thereof, together with a list of its stockholders, and their places of residence."

It is true that both in the syllabus and in the opinion of the Volksblatt case, supra, it is stated that "the right to inspect does not depend upon the motive or purpose of the stockholder in demanding such inspection." In that case bad faith and improper motive were set up in the answer and denied in the reply, but this issue thus made in the pleadings was eliminated in the trial court by the finding of that court that the allegations in the answer in this respect were not sustained by any evidence. Speaking of this feature of the case, the following appears(62 Ohio St. at page 198, 56 N. E., 1035), in the opinion of this court in that case: " The finding by the court of all the issues for the plaintiff settles the questions of fact for this court, but it is not improper to add that there was an entire failure to show, on the part of defendant, that the plaintiff was acting from the improper motives charged in the answer, and that the evidence, all of which we have read and considered, fully justifies the finding in favor of the plaintiff."

It will be seen from the foregoing that it was not necessary- in order to decide that case, that there should be a decision on the subject of motive. All that is therein said as to motive is obiter.

The Volksblatt case, supra, has been cited in some courts as authority for the proposition that the motive of the stockholder is wholly immaterial in an action of this kind. We think this carries the decision beyond its proper scope, keeping in mind the issue that was before the court in that case.

The demurrer filed in this case admits the truth of the allegations of the answer, supra. The mortgage company is in the business of selling securities to persons seeking investments. The defendant in error knew...