On December 14, 2021, Justice Platkin of the Albany County Commercial Division issued a decision in Galasso v. Cobleskill Stone Prods., Inc., 2021 NY Slip Op. 51190(U), holding that the common law right of inspection cannot be used to circumvent limitations on the scope or timing of disclosure in pending litigation, explaining:
Petitioner acknowledges that he has no statutory right to review CSP’s tax returns and, instead, invokes a common-law right to inspect CSP’s books and records.
The common-law right of inspection is qualified and can only be asserted where the shareholder is acting in good faith and has established that inspection is for a proper purpose. The general rule is that a stockholder has a right to examine the original papers and vouchers of the corporation, where some property right is involved, or some controversy exists, or some specific and valuable interest is in question, to settle which an inspection of these documents is necessary. On the other hand, inspection will not be granted for speculative purposes or the gratification of curiosity.
When asserting a common-law right of access the petitioner must plead and prove that inspection is desired for a proper purpose. Further, the common-law remedy lies in the discretion of the court in light of equitable principles.
Initially, the verified Petition is devoid of any articulated purpose for the inspection of CSP’s tax returns (and the other requested financial material). Rather, the Petition merely alleges that production of the tax returns is appropriate because Petitioner submitted an affidavit of no improper purpose.
Likewise, the affidavit from petitioner that accompanies the Petition merely attests that the inspection of CSP’s books and records is not for a purpose which is in the interest of a business or object other than the business of the Corporation. But petitioner cannot meet his burden of pleading and proving a proper purpose by attesting to his lack of an improper purpose.
Petitioner submits a second affidavit in opposition to CSP’s dismissal motion, in which he avers that CSP has always produced corporate tax returns and financial statements and that petitioner has never used them for an improper purpose. Again, however, petitioner fails to affirmatively plead or prove a proper purpose for inspecting CSP’s tax returns.
Finally, the memorandum of law submitted by petitioner’s counsel in opposition to the motion states that the use of the tax returns in the Dissolution Proceeding would constitute a proper purpose. In this regard, petitioner argues that the requested material contains information prior to the January 24, 2019 valuation date and will serve to confirm what a hypothetical buyer may have forecasted as of the Valuation Date. Petitioner further argues that the tax returns are relevant to Petitioner’s purpose of ensuring the Estate’s stock is protected.
The Court finds that petitioner’s alleged desire to use the tax returns in the Valuation Proceeding is not a proper purpose, and, even if it were, the Court declines, in the exercise of discretion, to grant the common-law remedy of inspection under the circumstances of this case.
Petitioner has had a full and fair opportunity in the Dissolution Proceeding to obtain all relevant information bearing on the value of the Estate’s shares in CSP. Fact discovery was completed about 18 months ago, expert reports and rebuttal reports were exchanged earlier this year, and numerous expert depositions have been conducted. The only disclosure remaining in the Dissolution Proceeding are the depositions of the parties’ two “lead” experts, which were delayed due to a medical issue concerning one of the experts.
The common-law right of inspection cannot be used to circumvent limitations on the scope or timing of disclosure in pending litigation.
(Internal quotations and citations omitted) (emphasis added).