Elmore v. Superior Court

GARGANO, J.

Petitioners instituted a stockholders’ suit in the court below against Valley Nitrogen Producers, Inc., for injunctive relief, an accounting and damages. They also seek a declaration that the corporation, hereafter referred to as Valley, is a constructive trustee for certain undistributed patronage refunds. After issue was joined on petitioners’ complaint, °petitioners made a motion to inspect Valley’s audited C.P.A. reports, all work papers of Valley’s aeeountnats in connection therewith, and its shareholder ledger, each for 1961 through 1966. The superior court denied the motion without comment. Petitioners bring this action in mandamus to compel the superior court to grant .their .request for discovery. ' "" .. . ...'.

Petitioners hold 500 shares of Class A stock in VaÚéy,' a

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nonprofit cooperative corporation. As holders of such stock petitioners claim that they are entitled to patronage refunds in accordance with their annual purchases from Valley of anhydrous ammonia, aqua ammonia or liquid fertilizer containing ammonia. However, according to petitioners’ complaint, Valley’s directors failed to properly distribute the net profits from sales of these items, but instead commingled the profits with dry fertilizer profits through a misinterpretation of the by-laws. Because of this commingling petitioners allege that Valley’s directors distributed part of the anhydrous and aqua ammonia profits to Class B shareholders who were entitled to participate in dry fertilizer profits only. Thus, petitioners contend that they must examine Valley’s books in order to prepare their case.

The main question presented in this proceeding is whether the petitioners have shown good cause to discover the documents which they seek to examine and hence whether the court abused its discretion when it denied their request to do so. Petitioners moved for inspection of the documents under Code of Civil Procedure section 2031 which requires a showing of “good cause.” And a party required to show “good cause” under this section “shall show specific facts justifying discovery and mere proof of the relevance of the information sought to the subject matter of the action shall not be sufficient.” (Code Civ. Proc., § 2036.)

Prior to the enactment of section 2036 “good cause” was established to obtain discovery if an impartial tribunal was satisfied that the request could be granted without abuse of the inherent rights of the adversary