461 F. 2d 852 - Wood Walker Co v. M Evans

In this diversity action the plaintiffs, shareholders of Equity Oil Corporation, sought and obtained an order in the district court, 300 F.Supp. 171, allowing the inspection and copying of the Equity shareholders' list. The suit also sought damages in the form of a statutory penalty which is provided in the same Colorado statute, Sec. 31-5-17.

On this appeal we are not concerned with the part of the judgment granting to plaintiffs the right to examine and copy the shareholders' list. It is the refusal of the court to award a money judgment which is here in issue. The trial judge awarded actual damages in the amount of $386.63 and at the same time refused plaintiffs' demand for imposition of the statutory penalty in an amount in excess of $40,000.00 (ten percent of the value of the shares owned by plaintiffs). The sole issue here is whether the trial court erred in its refusal to award to the plaintiffs the statutory penalty which it demanded. It is our opinion that the trial court's judgment was correct and we affirm it.

The facts are relatively simple. The annual meeting of Equity was scheduled to be held on May 10, 1969. Plaintiffs, shareholders of Equity, in anticipation of a proxy fight at the annual meeting, started on or about April 1, 1969 to work to obtain a shareholders' list. On April 1 plaintiffs wrote to Equity at its Salt Lake City headquarters demanding that they be allowed to examine and copy the most current list of stockholders of Equity Oil Corporation. This notice was given pursuant to C.R.S.1963 Sec. 31-5-17, which section gives to a shareholder of record for at least six months, or holding at least five percent of all outstanding stock of the corporation, the right to examine the books of the corporation at a reasonable time or times.1

In the April 1 letter sent by one of plaintiffs' counsel, Mr. Wegher, the dates of April 3 and 4 during regular business hours were given as the times when plaintiffs desired to inspect and copy the shareholders' list. The reason that plaintiffs chose April 3 was because Wegher and the plaintiff Patton were planning to be in Salt Lake City on April 3 for the purpose of taking the deposition of Mr. Dougan, the secretary of Equity. This was in connection with another suit. At this deposition Wegher talked to Equity's attorney regarding the demand for inspection. Also, in connection with Mr. Dougan's deposition, the letter of demand was read into the record. Finally, on the evening of April 3 Patton sent telegrams of demand to all persons to whom the letter of April 1 had been mailed.

On April 4 Mr. Wegher went to the office of Equity in Salt Lake City to carry out the inspection and copying of the list. Present in the office was one A. K. Clayton, the assistant secretary of Equity. He stated that he did not have the authority to make the list available and that no one was present in the office who did. Mr. Wegher returned on Saturday, but was still unable to get the list.

From the evidence presented, the letter of demand was not received by any officer of Equity until Monday, April 7. The exact cause of their failure to receive this letter mailed April 1 is not apparent. The record suggests that it was due to the absence of the officers from the office and perhaps to delays in the mail.2 It does seem apparent that the officers of Equity were not exactly cooperative by making themselves available to receiving notices.

On April 8, 1969, the present suit was commenced. The trial court granted the mandatory injunction without delay finding that plaintiffs had been wrongfully denied access to the list and also finding bad faith on the part of Equity in failing to furnish the list. The court went on to determine that the plaintiffs had also acted in bad faith and were thereby precluded from enforcing the penalty. Following the entry of this judgment plaintiffs objected to the court's considering their good faith or bad faith, contending that this was not in the pleadings. Thereupon the court reopened the judgment and heard plaintiffs' further evidence regarding their good faith.3 In a second memorandum opinion, filed on June 29, 1971, the trial court carefully analyzed the evidence and adhered to its previous ruling.

The essential thrust of the plaintiffs' position on this appeal is that the defendants were in clear violation of the statute, whereby plaintiffs are entitled not only to the relief granted, namely the mandatory injunction, but are also entitled to recover the penalty in the amount of $40,000.00 plus. Plaintiffs further contend that the trial court improperly considered the issue of their good faith, but in any event that the court's finding was contrary to the evidence in the case and, therefore, the cause should be reversed with directions to the trial court to enter judgment in the full amount.

We need not determine whether the pretrial order was sufficiently broad to justify the court's considering the good faith issue, nor is it necessary to decide whether the statute contemplates barring a recovery for lack of good faith in a fact situation such as that before us, wherein the plaintiffs filed suit without perhaps fully exhausting other efforts. Moreover, we do not hold, as defendants would have it, that the statute is a penal one in the sense that the federal court will under no circumstances enforce it. We need not reach the foregoing questions because in our view the trial court had a discretion to refuse to award the statutory penalty. We cannot agree with plaintiffs that upon making a finding of the existence of the basic conditions required for corporate liability under Sec. 31-5-17, the court must proceed automatically and mechanically to award the full penalty. It is true that the statute declares that the corporation and/or its officers shall be liable for the penalty, but the courts which have directly considered the issue have held that use of the word "shall" in this context does not mean that the amount is mandatory, but rather means that the corporation and its officers are thereby mandatorily subjected to liability. The courts have always been guarded about imposing liability based on failure to comply with a duty imposed by statute where the amount of the damage is fixed on a somewhat liquidated measure without regard to injury suffered. Such statutes are strictly construed. See Huntington v. Attrill, 146 U.S. 657, 13 S.Ct. 224, 36 L.Ed. 1123 (1892).4

Thus in McCormick v. Statler Hotels Delaware Corporation, 55 Ill.App.2d 21, 203 N.E.2d 697 (1964), the court had before it an Illinois statute which is virtually identical to that of Colorado. Had the full amount of the penalty been imposed in that case the judgment would have been in the amount of $4,425.00. However, the trial court had awarded $2,000.00 rather than the entire ten percent. In affirming this award the Illinois appellate court stated:

Surely a trial judge has it in his power to reduce the penalty from the ten per cent maximum in a proper case, and we have been presented with no evidence nor any convincing argument to rebut the presumption that the Court below acted properly in this matter. (203 N.E.2d at 702).

The reasoning was that the insertion of the word "liable" in the statute served to indicate that the defendants were subject to an assessment up to ten percent of the value of the stock owned. To the same effect is Smith v. Chauvin, 212 So.2d 498 (La.Ct. of Appeals, 1968).

We fully understand the trial court's reluctance to impose the penalty in the full amount under the facts of this case. The circumstances did not justify it, and the trial court was not inaccurate in observing that the plaintiffs may have been more anxious to have the lawsuit than the list.

The plaintiffs have cited no cases which support their position that the full amount of the prescribed penalty is to be granted on any kind of push-button basis. To so construe such a statute would be irrational and inequitable. The main purpose of the statute is, after all, to emphasize that the right to the list of shareholders is clear and unequivocal. As an aid in the enforcement of the statute the penalty is authorized, but this is a secondary and not a primary aspect and purpose.

We hold then that under C.R.S. Sec. 31-5-17 the trial court may award a penalty in a sum up to ten percent of the value of the plaintiffs' shares in the exercise of sound discretion. On the other hand, the court is at liberty to withhold the award of the penalty if in view of all the circumstances the award of such damages would not serve the ends of justice. The trial court's view was that an award of the actual damages incurred in the trip to Salt Lake City would be sufficient. We are unable to say that this was an abuse of discretion.

The judgment is affirmed.