Petition of B & F Towing and Salvage Co., Inc.

• Decision Date: 07 September 1988
• Docket Number: No. 244,244
• Citation: 551 A.2d 45
• Parties: In the Matter of the Petition of B & F TOWING AND SALVAGE COMPANY, INC., B & F Racing Team, Inc., and Diamond State Wrecker Service, Inc., For a Writ of Prohibition. . Submitted:
• Court: Supreme Court of Delaware

Page 45

551 A.2d 45

In the Matter of the Petition of B & F TOWING AND SALVAGE

COMPANY, INC., B & F Racing Team, Inc., and

Diamond State Wrecker Service, Inc., For

a Writ of Prohibition.

No. 244.

Supreme Court of Delaware.

Submitted: Sept. 7, 1988.

Decided: Oct. 21, 1988.

As Corrected on Denial of Rehearing Dec. 13, 1989.

Raymond M. Radulski, Wilmington, for complainants.

Michael J. Goodrick, of Theisen, Lank, Mulford & Goldberg, P.A., Wilmington, for respondent Robert D. Fenimore.

Francine R. Solomon (argued) and Jean A. Crompton, Wilmington, for respondent Mary R. Fenimore.

Before CHRISTIE, C.J., and WALSH, and HOLLAND, JJ.

CHRISTIE, Chief Justice:

B & F Towing and Salvage Company, Inc., B & F Racing Team, Inc., and Diamond State Wrecker Service, Inc., ("Complainants"), three closely held Delaware corporations, brought this action seeking a writ of prohibition to prevent discovery of their books and records by Mrs. Mary L. Fenimore. Mrs. Fenimore has obtained an order from the Family Court requiring the corporations to comply with her discovery demands. Complainants allege that the Family Court does not have jurisdiction to order discovery of their books and records since they are not parties to the litigation before the Family Court. Alternatively, complainants assert that even if Family Court has the authority to order discovery of their corporate records, the scope of the proposed discovery is so broad that it exceeds the jurisdiction of the Family Court. We rule that Family Court has authority to order the non-party corporations to comply with reasonable discovery demands and that matters which might be the subject of a protective order are not properly brought before this Court by writ of prohibition, except under extraordinary circumstances not here present.

I.

Mary R. Fenimore ("Wife") and Robert D. Fenimore ("Husband") are parties to a divorce proceeding in the Family Court. In connection with the divorce, the Wife petitioned for a distribution of the marital assets pursuant to the provisions of 13 Del.C. §§ 1507 and 1513.

In order to place a value on the assets of the marital estate in connection with an equitable division thereof, the Wife sought to determine the value of the Husband's one-third equity interest in B & F Towing and Salvage Company, Inc. ("B & F"), a Delaware corporation which is closely held by the Husband and his two brothers. Neither B & F nor the Husband's brothers are parties to the Family Court proceeding.

Initially, the Husband, an officer and director of the complainants, appeared to be unable to respond fully to all of the demands for B & F's financial records. Thereupon the Family Court entered an order requiring the Husband to respond to discovery and to take the necessary steps to obtain the information demanded by the Wife. Despite the Family Court discovery order, some of the Wife's discovery requests remained unanswered. The Wife also noticed a deposition of the Husband and obtained a subpoena duces tecum.

In the course of the Husband's deposition, Wife's counsel learned for the first time that Diamond State Wrecking Service, Inc., another closely held Delaware corporation was owned by Husband and his brothers. The Wife then moved to postpone trial in Family Court while she sought additional discovery from the corporations. Several weeks later, Husband's counsel revealed the existence of a third corporation, B & F Racing Team, Inc., similarly held by Husband and his brothers.

On May 24, 1988, Family Court issued a letter decision and order directing that the complainant corporations require their personnel to submit to depositions, comply with subpoenas duces tecum, and supply other responses to the Wife's discovery demands. The Family Court found that the documents sought were necessary in order to determine the value of the corporations and that the Wife's discovery demands were reasonable.

II.

Complainants argue that the Family Court has no jurisdiction to compel discovery of a non-party corporation's books. They also assert that the Court of Chancery alone is vested with the authority to determine whether access to corporate documents should be permitted.

"The Family Court's divorce jurisdiction was granted it to provide litigants with a forum in which emotionally charged issues could be resolved under the least disruptive and most efficacious conditions." Bruce E.M. v. Dorothea A.M., Del.Supr., 455 A.2d 866, 873 n. 10 (1983). Although the Delaware Family Court has limited subject matter jurisdiction, it does have the necessary authority to fully resolve those matters which are properly before it. The grant of general jurisdiction to the Family Court, 10 Del.C. § 925, expressly authorizes it to "[h]ear, determine, render, and enforce judgment in any proceeding before the Court." 10 Del.C. § 925(9).

The provisions of 13 Del.C. § 1513, ¹ expressly subject all marital property to equitable distribution regardless of how title to the assets is held. In order to carry out the legislative intent that there be a full and final settlement of marital and financial ties, the Family Court was given broad authority to "finally and equitably untangle and apportion a complex of marital property." M v. M, Del.Supr., 321 A.2d 115, 119 (1974).

The Family Court has rules of procedure which "shall be construed to secure the just, speedy and inexpensive determination of every proceeding." Fam.Ct.Civ.R. 1(a). Under the provisions of these rules, a party seeking discovery must file a formal motion, specifically identifying the party's reason for needing formal discovery. Fam.Ct.Civ.R. 26(b). In the absence of such a motion, no formal discovery may be conducted. ² This procedure appears to stem from a desire to encourage prompt voluntary exchange of information and documents without the formality of court intervention. Fam.Ct.Civ.R. 26(a). ³

However, when a formal discovery motion has been granted, the parties may obtain discovery of "any matter, not privileged, which is relevant to the subject matter involved in the pending action...." Fam.Ct.Civ.R. 26(g)(1). This provision is similar in scope to that found in the rules of other courts of this State. See generally Ch. Ct.R. 26; Super.Ct.Civ.R. 26; Com.P.Ct.Civ.R. 26. Although no request is required in other courts before parties may engage in formal discovery, there is no indication that the scope of allowable discovery in a Family Court action, once granted, is different from that of other Delaware courts. Under 13 Del.C. § 1522(a) ⁴ persons within the ambit of Family Court jurisdiction "must be accorded the same procedural rights as they would have in the Superior Court." See Eberly v. Eberly, Del.Supr., 489 A.2d 433, 445 (1985).

The Superior Court may compel third persons to respond to discovery demands. The Family Court has corresponding authority. The Family Court Civil Rules contemplate such a situation. See e.g. Fam.Ct.Civ.R. 30(a) (permitting "any party [to] take the deposition of any person" when discovery has been authorized by the Court); Fam.Ct.Civ.R. 34(c) (allowing, expressly, motions for production of documents and things against non-parties); Fam.Ct.Civ.R. 45 (allowing the grant of a subpoena commanding the person to whom it is directed to produce "books, papers, documents or tangible things which constitute or contain matters within the scope of the examination permitted by Rule 26(g)." )

After Family Court has granted a discovery motion, the parties may obtain discovery by:

[d]eposition upon oral examination or written questions; written interrogatories; production of documents or things or permission to enter upon land or other property, for inspection and other purposes; physical and mental examinations; and requests for admissions. Unless the Court orders otherwise under subdivisions (d) and (h) of this Rule, the frequency of use of these methods is not limited.

Fam.Ct.Civ.R. 26(f). ⁵ Complainants have not asserted that the requested documents are privileged in any way; in fact, they admit that their corporate books and records are not privileged. It is clear that complainants' records may be the proper subject of discovery.

A similar result has been reached in other jurisdictions which have faced this issue. For example, in Gerson v. Gerson, 148 N.J.Super. 194, 372 A.2d 374 (1977), the Superior Court of New Jersey, Chancery Division, recognized that certain characteristics of family-owned or closely-held corporations make valuation of a stockholder's interest difficult. Therefore, in order to fairly allocate the assets of a marital estate subject to equitable distribution, the court authorized an examination of the financial structure and condition of the corporation. The examination was, however, to be subject to limitations by way of protective order should the discovery "threaten the legitimate interests of the other shareholders or the corporate entity itself." Id. at 377.

Factors considered by courts of other jurisdictions when deciding whether and to what extent to authorize discovery include: 1) the extent of the spouse's interest in the corporation; 2) the nature of information requested; 3) whether the information could be obtained from other sources; and 4) whether the corporation is domiciled in the state. Annotation, Spouse's Right to Discovery of Closely Held Corporation's Records During Divorce Proceedings, 38 A.L.R. 4th 145, 148 (1985). See also Merns v. Merns, 185 N.J.Super. 529, 449 A.2d 1337 (1982) (permitting discovery to value a minority interest in a corporation); Elkins v. Elkins, Fla., 228 So.2d 105 (1969) (allowing discovery of financial records of a wholly-owned corporation).

We conclude that the discovery requested by the Wife is authorized by statute and rule. Complainants' allegation that Family Court did not have jurisdiction to order discovery from third party corporations is without merit.

Complainants' contention that Family Court indicated it was...