Eastern States Corp. v. Eisler

Collins, J., delivered the opinion of the Court. These are two appeals from the Circuit Court of Baltimore City. Charles Eisler, appellee, a stockholder of Eastern States Corporation, appellant corporation, filed an amended bill of complaint on July 8, 1942, alleging, ⁵²⁸ among other things, that the officers and directors of that corporation perpetrated acts which he claimed ultra vires, fraudulent and illegal; that the officers and directors of the corporation were unable to administer, manage and conduct, to the best interests of the stockholders, the affairs of the corporation; that the officers and directors had transferred to a number of other corporations, in which they were personally interested, the greater part of the assets of the corporation, thereby causing it to lose about $17,877,853.33. He further alleged that the corporation had been allowed to remain inactive for the past ten or twelve years after the aforesaid assets were transferred; that dividends due the preferred stockholders in the amount of about $6,560,000 had accumulated, while the corporate assets amounted to about $1,956,258.

Appellee prayed, among other things, that a receiver be appointed to institute legal proceedings against the officers and directors of the defendant corporation for the recovery of losses by reason of the violation of the trust duties by the officers and directors of the defendant corporation. The aforesaid amended bill of complaint was filed on July 8, 1942. Oh July 20, 1942, the appellee filed a petition praying for the examination of the corporate minutes, books and records of the defendant corporation under Discovery Rule 4 of the General Rules of Practice and Procedure adopted by this court pursuant to Chapter 719 of the Acts of 1939, effective September 1, 1941. On July 22, 1942, a demurrer was filed by the appellant to the amended bill of complaint.

On July 24, 1942, an answer was filed by the appellant to the petition for the examination of its books. On August 28, 1942, before the demurrer was ruled on, the chancellor below signed an order requiring the appellant corporation to produce: “General Ledgers, Cash Books, Journals, Stock Purchase Records, Stock Sales Records, Accounts Receivable and Accounts Payable Ledgers, Voucher Registers, Notes Payable and Receivable Records, Stock ⁵²⁹ Transfer and Stock Certificate Books, Check Books, Cancelled Checks and Bank Statements, Receipted Invoices and Vouchers, Petty Cash Vouchers, Accountants’ Reports, Minutes of Stockholders and Directors and Committees, Agreements and Contracts of any nature, Correspondence, Appraisal Reports, financial reports of companies in which investments were made, and all other books, papers, documents and records of the respondent relating to the business of the defendant, said production and examination to take place at * * The first appeal in these cases is taken from that order. Discovery Rule 4, Part Two, II, Rules of Practice and Procedure, 1941, provides in part as follows: “Upon motion of any party showing good cause therefor and upon notice to all other parties, the court may, at any time in any proceeding (1) order any party to produce and permit the inspection and copying or photographing, by or on behalf of the moving party, of any designated documents, papers, books, accounts, letters, photographs, objects, or tangible things, not privileged, which may constitute or contain evidence material to any matter involved in the proceeding and which are in his possession, custody, or control; or * * Discovery is no new process in the State of Maryland. As early as the year 1796 at law and the year 1798 in equity, methods for obtaining production and inspection of documents and properties have been provided by statute..

Previous to the adoption of Discovery Rule 4, supra, such discovery was limited to evidence necessary to the party’s own case. Under the new rule, the discovery is permitted of “evidence material to any matter involved in the proceeding.” This court said in the case of Williams v. Williams, 1 Md. Ch. 199, at page 201, in speaking of the power of the court to compel either of the parties to produce books and papers: “The power, therefore, is free from doubt, but as observed by a former chancellor, it is a power to be exercised with caution, and the party calling for its exercise should, with a reasonable degree of cer ⁵³⁰ tainty, designate the books and papers required, and the facts expected to be proved by them.” Williams v. Savage Manufacturing Co., 3 Md. Ch. 418, 430 . In the case of Bank v. Bank, 180 Md. 254 , at page 260, 23 A. 2d 700 , at pages 703 and 704, where one of the reliefs asked for in a bill of complaint was discovery, this court said: “The right of discovery is limited to matter which is material and pertinent to the issue in the case. It cannot be had for matters merely useful in supplying a clue whereby evidence may be found for use in an anticipated case. 17 Am.

Jur., p. 11 , Sec. 12; p. 14, Sec. 16; 27 C. J. S., Discovery, p. 7, Sec. 2; 18 C. J. Dis., Sec. 57, p. 1060, note 57; p. 1068, note 56; 27 C. J. S., Discovery, Sec. 3, note 53; Sec. 11, note 6; Brandenburg v. Buda Co., 299 Ill. 133 , 132 N. E. 514 ; Carden v. Ensminger, annotation 58 A. L. R. 1264; People ex rel. Lemon v. Supreme Court, 245 N. Y. 24 , 156 N. E. 84 , 52 A. L. R. 200.” Duvall v. Farmers’ Bank, 2 Bland 686 ; Eschbach v. Lightner, 31 Md. 528 ; Goldsborough v. County Trust Company of Maryland, 180 Md. 59 , 22 A. 2d 920 . The order passed by the chancellor in the case now before us, from which the appeal is taken, may be useful in supplying evidence in an anticipated case, but it appears doubtful that, at this stage of the proceeding, all of these books and records are material to any matter involved in the proceeding. The new rule, extending the right of discovery from evidence necessary to the party’s own case to evidence material to any matter involved in the proceeding, is not contrary to the interpretations laid down in the cases hereinbefore cited.

This Discovery Rule 4, supra, is patterned after Rule 34 of the Federal Rules of Civil Procedure, 28 U. S. C. A. following Section 723c, and we may well look to the Federal courts as to the interpretation of the rule. In the case of Archer v. Cornillaud, D. C. W. D. Ky. 1941, 41 F. Supp. 435 , at page 436, in which the plaintiff asked for a blanket order for discovery of all the books, documents and records pertaining to the nature and extent ⁵³¹ of the business of the defendant, the court, in denying plaintiff’s motion, said: “Plaintiff bases his claim to inspect and copy the documents, papers and books of the defendant upon Rule' 34 of the Federal Rules of Civil Procedure, 28 U. S. C. A. following Section 723c. But his present motion goes far beyond the scope and purpose of that rule. It is well settled by numerous decisions that the rule was never intended to permit a party to engage in a ‘fishing expedition’ among the books and papers of the adverse party.

Not only must the plaintiff designate specifically the particular books and records that contain the information which he desires, but he must state facts showing that the information contained there is material to the issue. The mere statement of plaintiff’s counsel that the information desired is material to the matter involved in the action is a conclusion. See. Kenealy v. Texas Co., D. C. S. D. N. Y., 29 F. Supp. 502 ; Welty v. Clute, D. C. W. D. N. Y., 29 F. Supp. 2 ; Thomas French & Sons v. Carleton Venetian Blind Co., D. C. E. D. N. Y., 30 F. Supp. 903 ; Sonken-Galamba Corp. v. Atcheson, Topeka, Santa Fe Ry.

Co., D. C. W. D. Mo., 30 F. Supp. 936 ; Vendola Corp. v. Hershey Chocolate Corp., D. C. S. D. N. Y., 1 F. R. D. 359; Corteau v. Interlake S. S. Co., D. C. W. D. Mich., 1 F. R. D. 525; Federal Trade Commission v. American Tobacco Co., 264 U. S. 298 , 44 S. Ct. 336 , 68 L. Ed. 696 , 32 A. L. R. 786. The plaintiff’s motion does not ask for designated documents but demands ‘all records, papers, books,’ etc. The plaintiff apparently admits that his motion is essentially a fishing expedition, when his counsel states in his reply brief that it is evident that there are fish in the defendant’s pond and ‘we think that these fish should be caught and that we have the right to catch them’.” Rosenblum v. Dingfelder et al., D. C. S. D. N. Y. 1941, 2 F. R. D. 309; United States v. Schine Chain Theatres, Inc., D. C. W. D. N. Y. 1942, 2 F. R. D. 425; Clark v. Chase National Bank, D. C. S. D. N. Y. 1941, 2 F. R. D. 94;