Ackerman, E. v. Kasual Computing, Inc. ( 2016 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
EDWARD P. ACKERMAN IN THE SUPERIOR COURT OF
PENNSYLVANIA
Appellee
v.
KASUAL COMPUTING, INC.
Appellant No. 2046 MDA 2015
Appeal from the Order Entered November 3, 2015
In the Court of Common Pleas of Dauphin County
Civil Division at No(s): 2015-CV-281-MP
BEFORE: GANTMAN, P.J., PANELLA, J., and JENKINS, J.
MEMORANDUM BY JENKINS, J.: FILED MAY 25, 2016
Kasual Computing, Inc. (“Kasual”) appeals from an order granting in
part and denying in part the petition of Edward Ackerman to compel
inspection and examination of Kasual’s corporate books and records. For the
reasons set forth below, we affirm.
Ackerman is a forty percent owner of Kasual, and he also was an
officer of Kasual until leaving the company in June 2013.1 After he left, the
parties discussed whether Kasual would repurchase his shares, but they
were unable to reach an agreement. On August 8, 2013, through counsel,
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1
Ackerman asserts that Kasual “abruptly and wrongfully terminated [him]
without cause or explanation.” Brief For Appellee, at 2. Kasual states that
Ackerman voluntarily resigned due to his felony convictions on multiple
counts of rape and involuntary deviate sexual intercourse. Brief For
Appellant, at 7.
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Ackerman wrote to Kasual demanding to examine and inspect Kasual’s
books and records pursuant to section 1508 of Pennsylvania’s Business
Corporation Law, 15 Pa.C.S. § 1508. Ackerman enclosed an itemized list
requesting 33 categories of documents. On October 2, 2013, Kasual sent
Ackerman some, but not all, of the requested documents. The cover letter
to Kasual’s response claimed that “any documents requested but not
provided herewith either do not exist or are not subject to inspection under
15 Pa.C.S. § 1508.”
On November 21, 2014, Ackerman, through counsel, made a second
demand to inspect Kasual’s books and records. On December 23, 2014,
Kasual sent Ackerman some, but not all, of the requested documents. With
regard to the vast majority of requests, Kasual responded that they fell
outside the bounds of section 1508 because they were “not reasonably
related to the purposes stated by Mr. Ackerman for examination of corporate
records.”
On January 13, 2015, Ackerman filed a petition under section 1508 to
compel Kasual to submit to “statutory inspection and examination of
corporate books and records.” Ackerman requested records relating to:
a) whether the corporation is being properly managed; b) the
manner in which the corporation’s finances have been managed;
c) the manner in which the business and of the corporation have
been conducted; d) the value of the corporation’s assets; e) the
value of [Ackerman’s] interest in the corporation; f) the identity
and extent of the other shareholders’ interests in the
corporation; g) circumstances surrounding [Ackerman’s]
unilateral termination as an employee/owner of the Company.
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Petition to Compel, ¶ 10. Following completion of the pleadings, the court
held oral argument, and the parties submitted post-hearing memoranda.
Attached to Ackerman’s memorandum was an affidavit by Robert Ribic, a
valuation expert, stating that he needed thirteen categories of documents to
properly value Ackerman’s forty percent ownership interest in Kasual.
Kasual did not file any response challenging Ribic’s affidavit.
On November 3, 2015, the trial court granted Ackerman’s petition in
part, limiting access to the documents sought by Ackerman’s accountant.
The court ordered:
Within thirty (30) days of the date of this Order, [Kasual] shall
provide to [Ackerman] full, complete and current copies of the
following documents for the calendar years 2010 through 2014
that are in the possession of [Kasual] and have not already been
provided to [Ackerman]:
a. Federal Income Tax Returns for Kasual Computing, Inc.
and/or Financial Statements;
b. Any and all Sales Tax Returns;
c. Any and all Detailed General Ledgers;
d. Any and all Adjusted Trial Balances;
e. Any and all Adjusting Entries, whether prepared by Kasual
Computing, Inc. or by independent accountants and/or auditors;
f. Any and all Sales Journals;
g. Any and all Purchase Journals;
h. Any and all Payroll Journals;
i. Any and all Accounts Receivable, Accounts Payable and
Inventory Ledgers;
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j. Any and all Liability Insurance policies, Property Insurance
policies, Casualty Insurance policies, Officers Insurance policies
and Life Insurance policies;
k. Any and all documents pertaining to open or closed bank
loans or mortgage documents, reflecting loans made to, co-
signed by, or made for the benefit of Kasual Computing, Inc.;
l. Any documents pertaining to the purchase or lease of any
Kasual Computing, Inc. assets; and
m. Any and all communications and documents of any kind
pertaining to the value of Edward P. Ackerman’s 40% ownership
interest in Kasual Computing, Inc.
Order Dated November 3, 2015.
On November 23, 2015, Kasual filed a timely appeal to this Court.2
Both Kasual and the trial court complied with Pa.R.A.P. 1925.
Kasual raises three issues in this appeal, but they effectively amount
to two arguments: (1) the corporate records sought by Ackerman fall
outside the scope of section 1508, and (2) Ackerman seeks these records for
an improper purpose.
Section 1508(b) provides:
Every shareholder shall, upon written verified demand stating
the purpose thereof, have a right to examine, in person or by
agent or attorney, during the usual hours for business for any
proper purpose, the share register, books and records of
account, and records of the proceedings of the incorporators,
shareholders and directors and to make copies or extracts
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2
Ackerman did not appeal the order to the extent that it denied access to
other documents.
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therefrom. A proper purpose shall mean a purpose reasonably
related to the interest of the person as a shareholder …
15 Pa.C.S. § 1508(b). Section 1508(c) states the procedure for enforcing a
shareholder’s right of inspection:
If the corporation, or an officer or agent thereof, refuses to
permit an inspection sought by a shareholder or attorney or
other agent acting for the shareholder pursuant to subsection (b)
or does not reply to the demand within five business days after
the demand has been made, the shareholder may apply to the
court for an order to compel the inspection. The court shall
determine whether or not the person seeking inspection is
entitled to the inspection sought. The court may summarily order
the corporation to permit the shareholder to inspect the share
register and the other books and records of the corporation and
to make copies or extracts therefrom, or the court may order the
corporation to furnish to the shareholder a list of its shareholders
as of a specific date on condition that the shareholder first pay to
the corporation the reasonable cost of obtaining and furnishing
the list and on such other conditions as the court deems
appropriate. Where the shareholder seeks to inspect the books
and records of the corporation, other than its share register or
list of shareholders, he shall first establish:
(1) That he has complied with the provisions of this section
respecting the form and manner of making demand for
inspection of the document.
(2) That the inspection he seeks is for a proper purpose.
Where the shareholder seeks to inspect the share register or list
of shareholders of the corporation and he has complied with the
provisions of this section respecting the form and manner of
making demand for inspection of the documents, the burden of
proof shall be upon the corporation to establish that the
inspection he seeks is for an improper purpose. The court may,
in its discretion, prescribe any limitations or conditions with
reference to the inspection or award such other or further relief
as the court deems just and proper. The court may order books,
documents and records, pertinent extracts therefrom, or duly
authenticated copies thereof, to be brought into this
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Commonwealth and kept in this Commonwealth upon such terms
and conditions as the order may prescribe.
15 Pa.C.S. § 1508(c) (emphasis added).
An order granting inspection under section 1508(c) is immediately
appealable. See Hagy v. Premier Mfg. Corp., 172 A.2d 263, 264-65
(Pa.1961). Under the italicized language in this subsection, we review the
court’s decision for abuse of discretion. Moreover, “whether a stockholder
has set forth a ‘proper purpose’ to inspect corporate records is a
determination which must be made on a case-by-case basis following a
careful consideration of the surrounding circumstances of the document
inspection request.” Zerbey v. J.H. Zerbey Newspapers, Inc., 560 A.2d
191, 198 (Pa.Super.1989).
Kasual argues that the trial court erred by ordering production of
documents that fall outside the items enumerated in section 1508(b), viz.,
the “share register, books and records of account, and records of the
proceedings of the incorporators, shareholders and directors.” Although
Kasual raised this objection in a letter to Ackerman’s counsel prior to
Ackerman’s petition to compel, Kasual failed to raise this argument in the
trial court: it is missing from Kasual’s answer to Ackerman’s petition to
compel and from Kasual’s post-hearing memorandum. Moreover, the
transcript from oral argument on Ackerman’s petition is not in the certified
record, so we are unable to tell whether Kasual raised this point at
argument. Therefore, Kasual waived this argument. See Pa.R.A.P. 302(a)
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(“issues not raised in the lower court are waived and cannot be raised for
the first time on appeal”).
Even if Kasual had preserved this issue for appeal, it is unconvincing,
given this Court’s willingness to grant access to corporate records beyond
those specifically identified in section 1508(b). See, e.g., Zerbey, 560 A.2d
at 192, 198-99 (granting shareholder access under section 1508 to records
relating to salaries and bonuses paid to officers, directors and employees,
pension contributions and expense reimbursements); see also Wolfington
ex rel. Wolfington v. Wolfington Body Co., Inc., 47 Pa. D. & C.4th 225,
242 (Phila. Cty. 2000) (granting minority shareholder access to accounting
workpapers under section 1508 where “the value of the companies is a key
issue in the present dispute and the requested accountant work papers could
be necessary to better assess the true value”).
Next, Kasual contends that the trial court erred by concluding that
Ackerman requested the documents for a proper purpose. The trial court
reasoned:
[Ackerman] asserts that he needs the requested information for
the following purposes: a) whether the corporation is being
properly managed; b) the manner in which the corporation’s
finances have been managed; c) the manner which the business
and of the corporation have been conducted; d) the value of the
corporation’s assets; e) the value of his interest in the
corporation; f) the identity of and shareholders’ interests in the
corporation; g) circumstances surrounding [Ackerman’s]
unilateral termination as an employee/owner of the Company.
[Ackerman] has set forth numerous purposes for his request, but
not all of them are proper under the statute. It is not a proper
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purpose to request this information under Pa.C.S. § 1508 to
determine the circumstances surrounding [Ackerman]’s
termination from [Kasual]. However, it is proper for a
shareholder to request to inspect certain records in order to
determine the current valuation of his stock. See Friedman v.
Altoona Pipe & Steel Supply Co., 460 F.2d 1212, 1213 (3d
Cir. 1972) (holding that a shareholder’s demand for inspection to
value her shares was an ‘admittedly proper purpose’).
In his Post-Argument Memorandum, [Ackerman] provided an
affidavit from his accountant of what records were needed from
[Kasual] in order to provide a current valuation of [Ackerman]’s
stock. It is these records, and only these records, that we
ordered [Kasual] to produce. The production of the records set
forth in our November 3, 2015 Order is limited to the purpose of
valuing [Ackerman]’s stock.
Pa.R.A.P. 1925(a) Opinion, at 3. We find this reasoning persuasive. It
clearly is proper for a shareholder to inspect corporate records to determine
the proper valuation of his stock. See Friedman, 460 F.2d at 1213; Taylor
v. Eden Cemetery Co., 10 A.2d 573, 575-76 (Pa.1940) (trustee of estate
had standing to bring action to examine corporate books to assess value of
estate’s interest). Ackerman has the right to inspect Kasual’s records to the
extent they are pertinent to valuation of his forty percent interest in Kasual.
Furthermore, the court tailored its order to prevent access to records which
Ackerman does not have a proper purpose to examine. For these reasons,
the trial court’s order was entirely proper.3
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3
Kasual also claims that it has already produced all documentation
necessary for Ackerman to value his ownership interest. The trial court
order protects Kasual from duplicative requests by only requiring it to
produce documents that “have not already been provided to [Ackerman].”
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Order affirmed.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 5/25/2016
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