On motion for production of records.
Conlon, J.c.c. (temporarily assigned).
Plaintiff seeks to recover some $72,500, which he claims to be due as commissions for producing a ready, willing and able purchaser for stock of the Condenser Service & Engineering Co., Inc., practically all of which stock is owned by the defendant. The contemplated sale included all of the stock of three affiliates or subsidiaries, Pottsville Casting & Machine Shops, Inc., Blackburn-Smith Mfg. Co., Inc., and Instrument Service Co., Inc., all of which were solely owned or controlled by the Condenser Service & Engineering Co., Inc. The sale was also to include all of the stock of the Edge Moor Iron Works, Inc., which the Condenser Company had an option to purchase.
The plaintiff alleges -- and it is not denied -- that the defendant is the owner of practically all of the stock of the Condenser Company and is therefore in virtual control of that company and its affiliates. It is further alleged that as of the date of the commission agreement on March 11, 1946, the most recent available consolidated balance sheet and profit and loss statement was that of October 31, 1945, and that the defendant falsely represented that the financial status of the several companies was substantially the same up to the time the plaintiff produced the prospective purchaser. It then developed that the balance sheets subsequent to that of October 31, 1945, showed inordinate and unexplained reductions in the financial status of the several companies. For instance, the consolidated balance sheets showed a profit for the year ending October 31, 1945, of about $715,000, while that for the year ending December 31, 1945, showed a profit of only about $315,000. Likewise the net worth reflected in the account of December 31, 1945, indicated a shrinkage of some $233,000.
The prospective purchaser, after signing an option to buy, retired from the deal after examining the later consolidated statements presented by the defendant. On the argument of this motion the defendant contended that the plaintiff's claim for commissions, under the circumstances, is so nebulous as not to warrant the relief here sought. That question is not
pertinent at this time, since no motion for summary judgment or motion for judgment on the pleadings is before the court.
The bona fides of the consolidated balance sheets is material to the plaintiff's cause of action. He has attempted repeatedly by interrogatories and depositions to elicit the requisite information but has been unsuccessful. The defendant has refused to disclose any details of the corporate accounts except those which he chose to. The defendant's position in substance is that since the corporations involved are distinct entities not parties to the suit, the defendant has no right of access to their books and that the court has no jurisdiction to order an examination.
A resolution of the question involves the construction of Rule 3:34-1. So far as I have been able to ascertain, it has had no judicial interpretation on the point in question in our appellate courts. The rule provides that the court may, for good cause, direct the examination of books which are in the "possession, custody, or control" of the other party. Where, as in this case, the books in question are not those of a party but of corporations not a party to the suit, it would seem that three elements should be considered by the court in determining as a matter of discretion whether the defendant should be subjected to the order here sought: (a) whether good cause has been shown for the examination; (b) whether one not a party to the suit may be unduly affected by revelation of its private affairs; and (c) whether the books and records are within the possession, custody or control of the other party.
The gravamen of the plaintiff's action is that either the consolidated balance sheets of October 31, 1945, were simulated or that the subsequent balance sheets are incorrect. The only method of ascertaining the unusual differences between the two would seem to be by an analysis of the several corporate accounts which the plaintiff is prepared to make at his own expense. Hence it would appear that good cause has been shown for the proposed examination.
If the facts disclosed that the private rights of a person
or corporation might be adversely infringed upon by the disclosure of records that might perchance be in the possession, custody or control of one of the parties to litigation, it might well be that the court would be justified in its discretion in declining to make such records the subject of public examination. No such situation presents itself in the instant case. The corporations involved are apparently within the sole control of the defendant. He selected and was able and willing to disclose to the plaintiff and the prospective ...