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Elster v. American Airlines, Inc.

Court of Chancery of Delaware, New Castle County

June 16, 1954

ELSTER
v.
AMERICAN AIRLINES, Inc.

Derivative action by stockholder to compel his corporation to cancel certain stock options. Plaintiff propounded to defendant certain interrogatories relating to identity of optionees and circumstances of issuance of stock options, to which interrogatories defendant objected. The Court of Chancery, Bramhall, Vice Chancellor, held, inter alia, that interrogatory, in which plaintiff asked the name, address and nature of employment of each optionee, the number of shares for which each option had been exercised, and the total number of shares held by each optionee, was proper in view of fact that questions propounded thereunder related to identity of persons who might have knowledge of relevant facts and to matters relevant to the issue.

Order in accordance with opinion.

See, also, 106 A.2d 202.

In stockholder's derivative action to compel his corporation to cancel certain stock options, interrogatory, in which stockholder asked corporation to describe the nature, terms and subject matter of each of certain documents called for by the interrogatory, and by which stockholder claimed to seek only such information as would enable him to identify a paper for purpose of ordering its production, would be allowed, within that limitation. Rules of Court of Chancery, rule 34, Del.C.Ann.

Page 517

[34 Del.Ch. 506] Objection of defendant to plaintiff's interrogatories.

Robert C. Barab, Wilmington, and William E. Haudek (of Pomerantz, Levy & Haudek), New York City, for plaintiff.

Richard F. Corroon (of Berl, Potter & Anderson), Wilmington, and Malcolm A. MacIntyre and Harold M. Childers (of Debevoise, Plimpton & McLean), New York City, for defendant.

BRAMHALL, Vice Chancellor.

This is a derivative action by plaintiff stockholder to compel defendant to cancel certain stock options. A more complete statement of the facts has been set forth in a former opinion dated October 14, 1953, found in 100 A.2d 219. A motion to dismiss was filed by defendant, alleging the lack of indispensable parties. Prior to the disposition of this motion plaintiff propounded to defendant certain interrogatories relating to the identity of the optionees and the circumstances of the issuance of the stock options. Defendant has objected to these interrogatories.

Defendant's general objection is based upon its contention that the defendant is not an adverse party. Having decided that defendant is an adverse party, that

Page 518

objection is of course overruled. I shall now consider the specific objections raised by defendant.

In Interrogatory No. 1 plaintiff asks the name, address and nature of employment of each optionee, the number of shares for which each option has been exercised and the total number of shares [34 Del.Ch. 507] held by each optionee. Defendant objects on the ground that if defendant should be compelled to answer, then plaintiff may be able to use the information supplied in defendant's answer to create jurisdiction in this court over the optionees. Defendant relies on the opinion of Chancellor Seitz in the case of Greene v. Allen, Del.Ch., 96 A.2d 349, 351. It is true that in that case Chancellor Seitz said that ‘ The information obtained and the action taken on the basis of the answers to these interrogatories cannot warrant a finding of jurisdiction if there was no jurisdiction without it.’ However, Chancellor Seitz also said in the same paragraph that he was expressing no opinion on the effect of such action under other circumstances and the ‘ possible related problem of ‘ joinder" . On appeal the supreme court, Greene v. Johnston, 99 A.2d 627, while not passing directly on the question as to whether or not such information might be elicited upon interrogatories, allowed the information which had been elicited to be used, stating that to hold otherwise would invite circuity of action. Defendant has moved to dismiss on the ground of lack of indispensable parties If plaintiff is to bring in such parties he must know who they are. Who better than defendant could furnish such information? See Frederick Hart & Co., Inc., v. Recordgraph Corp., D.C.D.Del.1947, 7 F.R.D. 43; Nachod & United States Signal Co., Inc., v. Automatic Signal Corporation, 2 Cir., 105 F.2d 981. See also Moore's Fed.Pr., Sec. 26.16, p. 1067. In the Hart case, Judge Rodney permitted the questions to be asked relative to the ascertainment of the jurisdictional feature of the existence of an actual controversy between the parties. In that case there was some question as to whether or not the defendant was ‘ in court’ . In addition, the defendant here has been served, has appeared and filed an answer to the complaint. The questions propounded under this interrogatory relate to the identity of persons who may have knowledge of relevant facts and to matters relevant to the issue. This interrogatory is proper and should be answered.

In Interrogatory No. 1(f) plaintiff asks whether consideration was received from the optionees for the granting of the options, and, if so, the nature of the consideration, and whether or not there was an agreement in writing. Defendant objects to this interrogatory [34 Del.Ch. 508] on the ground that it calls for the furnishing of opinions and legal conclusions. The court's attention is also called to the fact that in the numerous briefs filed and ...


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