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Friedman v. Altoona Pipe and Steel Supply Co.

decided: May 2, 1972.

ARLENE A. FRIEDMAN
v.
ALTOONA PIPE AND STEEL SUPPLY COMPANY, INC., A CORPORATION, APPELLANT IN NO. 71-1434, AND FRED A. PECHTER. APPEAL OF FRED A. PECHTER, IN NO. 71-1435. ARLENE A. FRIEDMAN V. ALPEN ASSOCIATES, INC., A CORPORATION, APPELLANT IN NO. 71-1436, AND FRED A. PECHTER. APPEAL OF FRED A. PECHTER, IN NO. 71-1437



Seitz, Chief Judge, and Adams and Hunter, Circuit Judges.

Author: Seitz

Opinion OF THE COURT

SEITZ, Chief Judge.

Essentially, this is an example of a not uncommon dispute between an "out" stockholder and an "in" stockholder of a closely held corporation. It manifests itself in two actions in the district court by the "out" stockholder. She seeks to compel an inspection of the corporate records under 15 P.S. ยง 1308, subd. B (1968), (Penna.), which provides:

"B. Every shareholder shall, upon written demand under oath stating the purpose thereof, have a right to examine in person or by agent or attorney, during the usual hours for business for any proper purpose, the share register, books or records of account, and records of the proceedings of the shareholders and directors, and make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a shareholder . . ."

Plaintiffs admittedly made the demands contemplated by the statute and defendant ultimately produced some records. The matter came before the district court on cross motions for summary judgment based on affidavits and depositions. The court denied defendants' motion and granted plaintiff the following relief:

"* * * plaintiff is hereby permitted to examine in person, or through her representatives and at her own expense, the books and records of account, the share register and records of the proceedings of shareholders and directors of the corporation, as well as copies of income tax returns filed by the corporations. The examination is permitted for records prepared within the past five years."

On appeal the defendants assert that summary judgment was erroneously granted plaintiff because (1) plaintiff has already been given more than sufficient corporate records to meet the stated purpose for the requested inspection and (2) there should have been an evidentiary hearing to explore the basis of plaintiff's "representations" of mismanagement by the "in" stockholder.

Plaintiff's written demand for inspection stated only one purpose, viz., to determine the value of plaintiff's shares. Plaintiff later advanced a second purpose, viz., to ascertain whether there was mismanagement by the individual defendant. But the opinion of the district court does not make an explicit finding as to either purpose. Since it could only have granted summary judgment on the basis of undisputed material facts and since it is clear to us that the record before the district court would not have supported summary judgment for plaintiff based on her claim of suspicion of mismanagement, we think the decision must have been based on her initial, admittedly proper purpose, viz., to determine the value of plaintiff's shares.

Defendants say that plaintiff has been provided with all the records needed to determine the value of her shares. Defendants originally provided plaintiffs with practically no records. At later times, defendants filed the following materials:

(a) summary of Altoona's [a corporate defendant] federal income tax returns for 1965 through 1968,

(b) balance sheets and operating income statements prepared by defendants' certified public accountants for the years 1966 through 1968,

(c) same as above for 1969,

(d) statements of transactions between Altoona and two other companies owned by Pechter ...


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