Matter of Casacci
Annotate this CaseDecided on March 23, 2006
Supreme Court, Erie County
In the Matter of the Application of Daniel J. Casacci, Petitioner, for an Order for the Inspection of the Books and Records of U.S. DRIVES, INC., Respondent
2005/11708
CHRISTOPHER W. McMASTER, ESQ.
Attorney for Petitioner
MICHAEL A. SMEADER, ESQ.
DAVID L. ROACH, ESQ.
BLAIR & ROACH, LLP
Attorneys for Respondent
Eugene M. Fahey, J.
Petitioner, Daniel J. Casacci, the shareholder of some twenty (out of 182) shares of Respondent, U.S. Drives, Inc., commences this Petition pursuant to Section 625 of the New York Business Corporation Law and the common law, for the inspection of its books and records.
Petitioner Casacci affirms that he acquired shares of the corporation in 1996 and 1997, when he was employed by the Respondent as Vice-President of Sales and Marketing, and that he left that position in February, 1999. Since that time, he has not received notices for any annual meetings, nor balance sheets and profit and loss statements.
The Petition requested an inspection and copying of the Respondent's minutes of meeting, listing of shareholders with the number of their shares, records of dividends, audited balance sheets and profit and loss statements for 1999 to the present, and income and franchise tax returns from 1999 to the present.
By Order dated February 2, 2006, the Court granted the Petition by making certain of the records available for inspection, and by ordering the Respondent turn over its 1999 through 2004 income tax records to the Court for in camera review.
The Court has now had an opportunity to complete that review and to review the common law and its codification, Section 624 of the Business Corporation Law:
"The right of a corporator, who has an interest, in common with the other corporators, to inspect the books and papers of the corporation, for a proper purpose and under reasonable circumstances, was recognized by the courts of king's bench and chancery from an early day, and enforced by motion or mandamus, but always with caution, so as to prevent abuse. Rex v. Fraternity [*2]of Hostment, 2 Strange, 1223 (see In Re Steinway, 159 NY 250 [1899])."
This ancient balancing test remains in the law although it is now framed in terms of "a request...made in good faith and for a proper purpose (see Tatko v. Tatko Brothers State Company, 173 AD2d 917 [3d Dept. 1991])."
The record suggests that Petitioner Casacci may have worked for a business competitor of the Respondent for a time. But Petitioner's stated purpose - to inspect the records to value his shares - is widely recognized as a wholly legitimate purpose. The Court also recognizes a second legitimate purpose: the shareholder's protection of his investment.
In this regard, the Court is persuaded that the equities in this situation favor the Petitioner, the "out" shareholder and thus a partial owner of this closely held corporation. There is very little address of this particular factual situation by the New York
courts. Tatko supra involved tax records and returns among other records and a finding that the lower court release of records was overly generous, particularly as to time, but with an inadequate record, so that the matter was remitted to the lower court. There are no New York cases precisely on point.
The question is addressed squarely in Friedman v. Altoona Pipe and Steel Supply Company, Inc., 460 F.2d 1212 (1972), by the Third Circuit applying the Pennsylvania common law and a statute not dissimilar to our own, and allowed the minority "out" shareholder an opportunity to inspect copies of the corporation's income tax records for the previous five years, for valuation purposes.
"The statute should be liberally construed in favor of the stockholder...(Crane Co. v. Anaconda Co., 39 NY2d 14, 21 [1976])."
The Court also notes that it is the corporation that has the burden of justifying its refusal by showing an improper purpose or bad faith (Crane supra at 20). This the Respondent U.S. Driver has failed to do.
The Respondent shall provide the Petitioner with lines 1 through 11 (relating to income), lines 12 through 29 (relating to deductions), lines 30 through 36 (relating to tax and payments), Schedule A (Cost of Goods Sold), Schedule C (Dividends and Special Deductions), Schedule E (Compensation of Officers) after names, social security numbers, percent of time devoted to business, and percentage of stock are redacted, Schedule K
(Other Information), and Schedule L (Balance Sheet per Books), all after Petitioner executes a Confidentiality Agreement relative to the same.
Submit order upon notice to opposing counsel.
EUGENE M. FAHEY, J.S.C.
[*3]
Dated: March 23, 2006
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