PAUL B. HANRAHAN & another vs. PUGET SOUND POWER & LIGHT COMPANY & others.

SPALDING, J. This suit is brought under G. L. (Ter. Ed.) c. 155, Section 22, to compel the exhibition of the stock and transfer books of the defendant Puget Sound Power & Light Company, hereinafter called Puget.

Facts which are not in dispute and from which this litigation arose are these. Puget is a corporation engaged in the business of supplying electric power in the State of Washington. It was organized under the laws of this Commonwealth and it has an office in this Commonwealth at 82 Devonshire Street, Boston. The sole officer of Puget in charge of this office is its clerk, the defendant Jackson. Stone & Webster Service Corporation (hereinafter called Stone & Webster), a New York corporation, is a transfer agent of Puget and has custody of the "master list" of stockholders and of the stock and transfer books of Puget at its office in Boston. Another transfer agent of Puget is located in Seattle, Washington, but that agent does not have a complete list of stockholders. Puget has outstanding 2,177,879 shares of common stock which are held by 12,065 stockholders. The plaintiffs Hanrahan and Murphy, stockholders of Puget, with eighty-one other persons purporting to be stockholders, on December 9, 1953, through

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their attorneys, presented to Jackson at 82 Devonshire Street separate applications to inspect "stock and transfer books of . . . [Puget], containing a complete list of all stockholders, their residences and the amount of stock held by each." These applications on that date were sent by Jackson to Stone & Webster. [Note 1] Failing to obtain inspection of the stock and transfer books, the applicants brought this suit on December 22, 1953, against Puget and Jackson. Subsequently motions to add Stone & Webster as a party defendant and to dismiss the bill as to all plaintiffs except Hanrahan and Murphy, hereinafter referred to as the plaintiffs, were allowed.

The judge made findings of material facts and entered a final decree ordering the defendants to exhibit the stock and transfer books of Puget for inspection by the plaintiffs and their attorneys; other provisions designed to effectuate its purposes were included in the decree. The defendants appealed. The evidence, which was documentary and oral, is reported.

The defendants' main contentions are that the plaintiffs are not entitled to prevail because (1) in making application to the clerk of the corporation they did not satisfy the requirements of G. L. (Ter. Ed.) c. 155, Section 22, and (2) the real purpose of the plaintiffs in seeking a list of stockholders "was for purposes other than the interest of the . . . [plaintiffs] as stockholders relative to the affairs of the corporation."

At common law a stockholder's right of inspection was enforceable by mandamus at the court's discretion on proof by the stockholder of his good faith and a proper purpose. Varney v. Baker, 194 Mass. 239, 241. Butler v. Martin, 220 Mass. 224, 226. Albee v. Lamson & Hubbard Corp. 320 Mass. 421, 424. The present suit is based not on the common law but on G. L. (Ter. Ed.) c. 155, Section 22, of which the portions here pertinent are: "The stock and transfer books of every corporation, which shall contain a

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complete list of all stockholders, their residences and the amount of stock held by each, shall be kept at an office of the corporation in the commonwealth for the inspection of its stockholders. . . . If any officer or agent of a corporation having charge of such copies, books or records refuses or neglects to exhibit them or to submit them to examination as aforesaid, he or the corporation shall be liable to any stockholder for all actual damages sustained by reason of such refusal or neglect, and the supreme judicial or superior court shall have jurisdiction in equity, upon petition of a stockholder, to order any or all of said copies, books or records to be exhibited to him and to such other stockholders as may become parties to said petition, at such a place and time as may be designated in the order, but in an action for damages or a proceeding in equity under this section for neglect or refusal to exhibit for inspection the stock and transfer books, it shall be a defence that the actual purpose and reason for the inspection sought are to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation."

We are of opinion that the requirements of Section 22 were satisfied here. By implication a stockholder is in no position to invoke the statutory remedies unless he shall have first applied for inspection to the agent or officer having charge of the books or records, for otherwise there could be no "refusal or neglect." The clerk is the officer who usually has charge of the books and records of a corporation. Fletcher, Cyc. Corporations, Sections 2189, 2193. And the by-laws of Puget require the clerk to keep accurate minutes of the meetings of the stockholders and to perform "all the duties commonly incident to his office." The fact that here custody of the stock and transfer books was actually in a transfer agent appointed by Puget did not make that ministerial duty any the less an "incident to . . . [the clerk's] office" within the purview of the by-laws. Hence a demand on Jackson would fulfil the requirements of a demand on

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the officer or agent having charge of such books. [Note 2] To decide otherwise would in every case put on an applicant the onerous task of determining at his peril the person in actual possession of the books. The difficulties of such a requirement are illustrated by the case at bar. Puget has two transfer agents, one in Boston and the other in Seattle, Washington, where Puget has its principal place of business. But only the Boston agent, Stone & Webster, keeps a master list of all transfers. Jackson, the clerk, was a person upon whom a stockholder might reasonably expect to make his application for inspection. The right of inspection ought not to be defeated merely because Puget saw fit to place the custody of the books in Stone & Webster for transfer purposes. We are not disposed to place an interpretation on the statute which would permit a corporation to divide the custody and control of the stock and transfer books in such a way as to make it difficult, if not impossible, for a stockholder to obtain the remedy provided by the statute. The purpose of the statute was to provide a stockholder with a simple, practical, and expeditious procedure for obtaining inspection of the stock and transfer books of a corporation.

Down to December 22, 1953, when suit was brought neither Jackson nor Stone & Webster had exhibited the books to the plaintiffs. On that date Puget's attorneys sent a letter to the plaintiffs' attorneys replying to the applications to inspect. The letter stated that since the applications did not comply with the requirements of G. L. (Ter. Ed.) c. 155, Section 22, and since there was reason to believe that the applications were made for purposes other than the applicants' interest as stockholders relative to the affairs of the corporation, Puget's directors had determined not to exhibit the books at that time. Included in the letter was a list of fourteen questions directed to each applicant.

The defendants argue that there has been no neglect or refusal to exhibit the books. We do not agree. When a

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stockholder applies for inspection of the stock and transfer books he is prima facie entitled to inspect them. See Shea v. Parker, 234 Mass. 592. If the books are not exhibited for inspection, the stockholder is then entitled to invoke the remedies provided by Section 22. True, after the decision in Shea v. Parker the statute was amended by providing that in an action for damages or in a proceeding in equity "it shall be a defence that the actual purpose and reason for the inspection sought are to secure a list of stockholders for the purpose of selling said list or copies thereof or of using the same for a purpose other than in the interest of the applicant, as a stockholder, relative to the affairs of the corporation." But this is an affirmative defence as to which the defendants have the burden of proof. If they sustain that burden then, of course, the plaintiffs cannot prevail. But that is a question to be decided by the court and not by the defendants. We are of opinion that the plaintiffs did all that they were required to do and that there was such neglect or refusal on the part of the defendants as to entitle the plaintiffs to bring these proceedings.

We now turn to the question whether the defendants have established that the plaintiffs' purpose for seeking an inspection of the books was an improper one under the statute. The judge found that the plaintiffs' reason and purpose for inspection were not within the terms of the statutory defence. Although much of the evidence consisted of depositions and documents, some of it was oral, and we can reverse this finding "only if we are satisfied that, giving to the oral testimony all the weight the judge could justifiably give to it, the . . . [finding is] nevertheless plainly wrong." Murphy v. Hanlon, 322 Mass. 683, 685.

There was evidence that the plaintiffs are interested in having Puget merge with The Washington Water Power Company (hereinafter called Washington), a corporation organized under the laws of the State of Washington, which supplies the eastern part of that State with electric power. There is no specific merger plan now in existence, but the plaintiffs would like to elect a management which would

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actively seek a merger. Each plaintiff testified that he intended to use the list of stockholders to communicate with other stockholders. With the business merits of such a merger we are not concerned; that is a question for the stockholders to determine. All that we are concerned with is whether this objective is such a purpose as to fall outside the plaintiffs' interest "as a stockholder, relative to the affairs of the corporation." Plainly a change in the management and policy of the corporation affects the plaintiffs' rights as stockholders and is certainly relative to the affairs of the corporation. Powelson v. Tennessee Eastern Electric Co. 220 Mass. 380, 384. If, therefore, this were the only purpose of the plaintiffs we should say, without hesitation, that it would not defeat their right of inspection.

But each has admitted that it is his intention to turn the list over to a group called the Stockholders Committee for Puget Sound Power & Light Company (hereinafter called the committee) of which each plaintiff is a member. It becomes important, therefore, to determine if the propriety of the plaintiffs' purposes is affected by the purpose, motives, and membership of the committee. The testimony of members of the committee shows that their purpose generally is to seek a merger with Washington and to prevent the further development of "public" power by opposing any merger with a publicly owned enterprise. The relative merits of "public" power as opposed to "private" power are no more to be considered than the merits of a merger. The fact that the committee also plans to use the list of stockholders to solicit proxies does not render the purposes of the plaintiffs improper. If a petitioning stockholder must bear all the expense and burden of solicitation to promote a legitimate end and loses the right to inspect if he invokes the aid of a committee which represents other stockholders, the relief afforded by the statute would be of little practical value.

The membership of the committee at the time of the hearing below was sixteen, of which all but four were nonstockholders, and all but the plaintiff Murphy were partners in

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firms or officers in corporations engaged in investment banking or in the purchase and sale of securities. There is no evidence that they intend to use the list for commercial purposes such as the solicitation of stockholders for the purchase of other securities. A showing of no more than a possibility of abuse by the securities dealers or their agents is not sufficient ground for refusing inspection to the plaintiffs. See Morris v. United Piece Dye Works, 137 N. J. L. 262; Bundy v. Robbins & Myers, Inc. 38 Ohio Ops. 77.

Finally the defendants argue that the committee is "dominated, directed and financed" by Washington. Without reviewing the history of the committee or enumerating the activities of some of its members individually and as a group, we think it sufficient to state that neither separately nor collectively do they necessarily taint the purpose of the plaintiffs in seeking a list of the stockholders. The finding of the judge to the effect that the purpose of the plaintiffs was not improper under the statute was not plainly wrong and must stand.

We have dealt with the principal questions argued by the defendants; those not discussed in this opinion have not been overlooked. We find nothing in them that requires discussion. At the arguments before us we were informed that the plaintiff Murphy has ceased to be a stockholder of Puget. Accordingly the final decree should be modified by dismissing the bill as to him and appropriate changes should be made so that the only plaintiff who will be affected by the decree will be Hanrahan, and as so modified, the decree is affirmed with costs of this appeal.

So ordered.