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MATTER OF KENNEDY
Factual and Procedural Background
The executors and trustees under the will of David Kennedy (the petitioners) sought a peremptory writ of mandamus directing the Dr. David Kennedy Corporation (the corporation or appellant) to exhibit to them, their attorneys, and an expert accountant the corporation's minute books and "in short every book of every kind kept by the corporation" from January 1, 1898 to the time of exhibition, and to permit extracts. The Special Term granted the writ. The Special Term's decision rested specifically on the ground that the David Kennedy estate owned stock in the corporation and that a proceeding was pending before the Ulster County treasurer to ascertain the value of that stock to fix the value of taxable transfers under Dr. Kennedy's will. The corporation appealed, and the Appellate Division reviewed the papers submitted on the mandamus application.
Legal Issues Presented
- Whether a peremptory writ of mandamus compelling inspection of the corporation's books should issue to stockholders (or their representatives) under the circumstances presented.
- Whether the asserted purpose for inspection—assisting the county treasurer in valuing the decedent's stock for tax purposes—justified issuance of the writ when other facts suggest an improper motive.
- What evidentiary rule applies when relators proceed wholly on the papers presented in an application for a peremptory writ of mandamus (i.e., which factual statements can be considered).
Arguments of the Parties
Petitioners' (Respondents below) Position
- The executors and trustees asserted the estate owned stock in the corporation and that a county-treasurer proceeding was pending to determine stock value for taxation, thereby justifying inspection of corporate books to assist in valuing the stock.
Appellant Corporation's Position
- The corporation's answering papers denied material facts alleged by the petitioners and presented facts showing that Dr. David Kennedy, before his death, had separated from the corporation, organized a rival business using his name, instituted lawsuits against the corporation, attempted to seize its mail, and obtained statements of its affairs. The answering affidavits indicated that the petitioners intended to obtain information to injure the corporation's business and benefit the rival business, rendering the petition a pretense.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| People ex rel. City of Buffalo v. N.Y.C. H.R.R. Co., 156 N.Y. 570 | The rule that when relators proceed wholly on the papers presented in an application for a peremptory writ of mandamus, only undisputed statements of fact in the petition can be considered and every other statement of fact in the answering papers must be assumed true. | The court applied this rule to treat the denials and factual averments in the corporation's answering papers as true, affecting whether the petition presented a proper case for mandamus. |
| People ex rel. Lewis v. Brush, 146 id. 60 | Supporting authority for the evidentiary rule governing applications for peremptory mandamus decided on the papers. | Used along with other authorities to justify assuming the truth of facts in the answering papers when the relators proceeded on the papers. |
| People ex rel. Corrigan v. Mayor, 149 id. 215 | Supporting authority for the same rule about considering only undisputed statements from the petition and assuming answering papers' statements true. | Relied upon to treat statements in the answering affidavits as controlling where they contradicted the petition. |
| People ex rel. Del Mar v. St. Louis San Francisco Ry. Co., 47 Hun, 543 | Supporting authority cited for the evidentiary rule applicable when applications for peremptory mandamus are decided on the papers. | Combined with the other cases to establish that the court must assume true non-undisputed statements in answering papers. |
| Matter of Steinway, 159 N.Y. 250 | The principle that a stockholder has the right to examine corporate books in a proper case and for a proper purpose. | The court acknowledged this settled right but emphasized that inspection must be for a proper case and proper purpose; applying that principle, the court found the present petition did not present a proper case because the asserted purpose was a pretense and an improper end was shown by the answering papers. |
Court's Reasoning and Analysis
The court began by applying the established evidentiary rule for peremptory writ applications decided on the papers: only undisputed factual statements in the petition may be considered; all other factual assertions in the answering papers must be assumed true. Using that rule, the court treated the facts set forth in the corporation's answering affidavits as true where they contradicted the petition.
On the facts (as appearing in the answering affidavits), Dr. David Kennedy had sold formulas, other property, and the good will of his proprietary medicines business to the corporation, became a stockholder and officer, later was deposed as an officer, and then organized a rival business using his name. He had previously engaged in hostile acts toward the corporation (lawsuits, attempted seizure of its mail) and had obtained statements of its affairs. After his death, the executors pursued similar efforts. These facts, the court found, made the petitioners' declared object—assisting the county treasurer to value the stock for tax purposes—appear to be a mere pretense.
The court further observed that, under the Tax Law, the county treasurer could subpoena corporate officers and obtain necessary information directly, undermining the asserted necessity of the writ to assist the treasurer. Given the evident ulterior motive to obtain information to cripple the corporation's business and benefit a rival, the court concluded this was not a proper case or a proper purpose for mandamus, notwithstanding the general right of a stockholder to inspect books recognized in Matter of Steinway.
Holding and Implications
ORDER REVERSED; PETITION DISMISSED
The court reversed the Special Term's order granting the peremptory writ of mandamus and dismissed the petition, awarding ten dollars costs and the disbursements to the appellant. The direct consequence is that the executors and trustees were denied the compelled inspection and extracts they sought, and the corporation prevails on the motion. The opinion does not announce or establish a new rule beyond applying settled principles (the evidentiary rule on papers and the requirement that inspection be for a proper purpose); its effect is to deny relief on the particular facts presented.
FURSMAN, J.:
The executors and trustees under the will of David Kennedy, deceased, petitioned for and obtained from the Special Term an order for a peremptory writ of mandamus compelling the Dr. David Kennedy Corporation, a corporation engaged in the manufacture and sale of certain proprietary medicines, to exhibit to them, to their attorneys, and to an expert accountant of their selection, the book of minutes of the meetings of directors, committees and stockholders from January 1, 1898, to the time of such exhibition, and in short every book of every kind kept by the corporation, and to permit extracts to be taken therefrom at the will of the petitioners. This order was made on the ground and for the reason that the David Kennedy estate owned stock in the corporation and a proceeding was pending before the treasurer of Ulster county to ascertain the value of such stock in order that the value of the taxable transfers under the will of Dr. Kennedy might be fixed, and the learned justice at Specia Term placed his decision specifically on this ground. It is a settled rule of law that where in an application for a peremptory writ of mandamus the relators, as in this case, proceed wholly on the papers presented, only undisputed statements of facts contained in the petition can be considered, and every other statement of fact contained in the answering papers must be assume to be true. ( People ex rel. City of Buffalo v. N.Y.C. H.R.R.R. Co., 156 N.Y. 570; People ex rel. Lewis v. Brush, 146 id. 60; People ex rel. Corrigan v. Mayor, 149 id. 215; People ex rel. Del Mar v. St. Louis San Francisco Ry. Co., 47 Hun, 543.) From these papers it appears that Dr. David Kennedy in his lifetime sold to the Dr. David Kennedy Corporation certain formulas for the compounding of medicine, other property and the good will of a business comprising the manufacture of proprietary medicines made from these formulas. He became then a stockholder in the corporation and an officer of it. By canvassing the public and extensive and judicious advertising the corporation established a large and lucrative business, its customers extending over a very considerable part of the country. Afterwards he was deposed as an officer of the corporation, and thereafter organized a rival establishment in the same city for conducting and carrying on practically the same business as that of the corporation defendant. He had sold to this corporation his name in connection with the business, formulas and good will above mentioned, but he began to employ his name, which had become inseparably and valuably connected with these medicines, in the rival business. Even before this he had instituted lawsuits against the corporation, had attempted to seize its mail, and in many ways had manifested his ill-will towards it. He had asked for and obtained a reasonable statement of its affairs, assets, liabilities and business, and these petitioners, after his death, have pursued the same course, with an evident desire and intent to injure the business of the corporation and build up the new and rival business which he had instituted. The material facts of the petition other than the pendency of the inquiry before the county treasurer are denied; the other facts above enumerated distinctly appear in the answering affidavits, and the inferences therefrom above suggested are inevitable. There is no longer any doubt of the right of a stockholder to examine the books of a corporation in a proper case and for a proper purpose ( Matter of Steinway, 159 N.Y. 250), but it must be in a proper case and for a proper purpose. It is evident that the declared object of this desired examination, viz., to enable the county treasurer to ascertain the value of the stock of the corporation so that the value of the taxable transfers under Dr. Kennedy's will may be fixed is a mere pretense, inasmuch as under the Tax Law the treasurer can subpœna the officers of the corporation and obtain from them thereunder all necessary information. It is apparent from the papers that the real object of the petitioners is to obtain information that will aid them in crippling the business of the defendant corporation for the benefit of its business rival. This does not present a proper case for a peremptory mandamus, since it is clear that the object sought is not one of which the law approves.
The order must be reversed and the proceedings dismissed, with ten dollars costs and the disbursements to the appellant.
All concurred, except CHASE, J., not sitting.
Order reversed, with ten dollars costs and disbursements, and petition dismissed.
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