Edenfield, B. v. ECM Energy ( 2023 )


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  • J-A13006-23
    
    2023 PA Super 144
    BRIAN EDENFIELD                              :   IN THE SUPERIOR COURT OF
    :        PENNSYLVANIA
    Appellant              :
    :
    :
    v.                             :
    :
    :
    ECM ENERGY SERVICES, INC., A                 :   No. 999 MDA 2022
    CORPORATION, ADTRAK 360, LLC,                :
    WILLIAM H. HIGGINS, HARRY A.                 :
    WAHL AND DAVID PFLEEGOR                      :
    Appeal from the Order Entered June 27, 2022
    In the Court of Common Pleas of Lycoming County Civil Division at
    No(s): CV-2021-00041-MP
    BEFORE:      BOWES, J., LAZARUS, J., and STEVENS, P.J.E.*
    OPINION BY BOWES, J.:                                   FILED: AUGUST 1, 2023
    Brian Edenfield appeals from the June 27, 2022 order, which (1) made
    final the court’s March 16, 2021 order denying his petition to compel
    inspection of corporate books and records from ECM Energy Services, Inc.
    (“ECM”), and (2) denied his petition for further and compelled production of
    corporate books and records from AdTrak 360, LLC (“AdTrak”) (collectively,
    “Appellees”).1       Mr. Edenfield filed the underlying petitions pursuant to 15
    Pa.C.S. § 1508. We affirm.
    This case began on October 15, 2020, when Mr. Edenfield filed a formal
    demand for ECM and AdTrak to produce their corporate records and books.
    ____________________________________________
    * Former Justice specially assigned to the Superior Court.
    1 Edenfield also named William H. Higgins, Harry A. Wahl, and David Pfleegor,
    officers and directors of ECM and/or AdTrak, in the petitions to compel.
    J-A13006-23
    Three months later, he filed a petition to compel inspection of corporate
    records, claiming to be a minority shareholder of the two businesses and that
    they rebuffed or insufficiently complied with his prior informal requests for
    records and formal October 2020 request.       After a hearing, the trial court
    denied in part and granted in part the petition.     Specifically, it denied the
    petition as to ECM because Mr. Edenfield was not a shareholder when he
    served ECM with the formal demand, but granted the petition as to AdTrak,
    limited to records located within Pennsylvania. See Order, 3/16/21.
    In response, AdTrak retrieved some documents from the cloud-based-
    service QuickBooks for production to Mr. Edenfield. To do so, an individual
    within Pennsylvania accessed QuickBooks to procure the documents.             On
    August 27, 2021, Mr. Edenfield filed a petition for additional production of
    records from AdTrak because he contended that the response had been
    inadequate. AdTrak, contrarily, averred that it had complied with the court’s
    order and that there were no remaining responsive documents located in
    Pennsylvania.   After argument, the court ordered limited discovery of the
    location and type of pertinent records.
    Upon review of the submitted materials and following additional
    argument, the trial court distilled the dispute to a single question: whether
    “electronic records stored in the cloud, without an established physical location
    in Pennsylvania, [were] located within Pennsylvania for the purposes of Title
    15 solely by virtue of being theoretically accessible from Pennsylvania?” Id.
    at 7-8 (cleaned up). The court reasoned that the answer must be no and
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    denied Mr. Edenfield’s petition because it found that it lacked jurisdiction to
    compel AdTrak to allow inspection of its electronically-stored documents. See
    Trial Court Opinion, 6/27/22, at 9-10.
    This timely appeal followed. Mr. Edenfield complied with the trial court’s
    Pa.R.A.P. 1925(b) order to file a concise statement. In lieu of a Rule 1925(a)
    opinion, the trial court referred this Court to the opinion set forth in its June
    27, 2022 order. Mr. Edenfield presents the following issues for our review:
    1. Did the trial court err in determining that records of ECM
    Energy Services were not accessible for inspection under
    Pa.C.S. § 1508?
    2. Did the trial court err in determining that electronically-stored
    business records of a corporation that had a registered office
    in Pennsylvania, that was doing business in Pennsylvania, and
    that availed itself of the benefits of doing business in
    Pennsylvania were not accessible to the corporation’s
    shareholder?
    3. Did the trial court err in deciding that a shareholder of a
    Pennsylvania-registered corporation may only have access to
    its hard copy business records that are physically located within
    Pennsylvania?
    4. Did the trial court err in deciding that it lacked jurisdiction to
    require a corporation that is registered in Pennsylvania, was
    doing business in Pennsylvania, and availed itself of the
    benefits of doing business in Pennsylvania to provide its
    business records to its shareholder for inspection?
    5. Did the trial court err in ruling that records of a Pennsylvania
    corporation were not available for inspection by a shareholder
    because the corporation was not actively doing business when
    the request was made, even though the corporation remained
    in good standing?
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    6. Did the trial court err in determining that electronic records
    were not “records” as defined under the Shareholder Inspection
    Act?
    Mr. Edenfield’s brief at 8-9 (reordered for ease of disposition).
    We begin with Mr. Edenfield’s contention that the trial court erred in
    concluding that he lacked standing to compel production of ECM’s records as
    he was no longer a shareholder when he made his request pursuant to § 1508
    in October of 2020.      In essence, this claim centers on what the term
    “shareholder” means within the statute. Thus, we review this claim in line
    with the following principles.
    “[O]ur standard of review is de novo, and our scope of review is plenary
    and non-deferential.” Crown Castle NG E. LLC v. Pennsylvania Pub. Util.
    Comm'n, 
    234 A.3d 665
    , 674 (Pa. 2020) (citation omitted). In conducting this
    review, our “duty is to give effect to the legislature’s intent and to give effect
    to all of a statute’s provisions.” 
    Id.
     (citation omitted). First, “we consider the
    statutory language in context and give words and phrases their common and
    approved usage. When statutory language is clear and unambiguous, courts
    must give effect to the words of the statute and must not disregard the text
    to implement its objective.” 
    Id.
     (cleaned up). Only if the statute’s language
    is ambiguous “do we resort to other means of discerning legislative intent.”
    
    Id.
     (cleaned up).
    With the foregoing in mind, we begin with the full text of the pertinent
    statute:
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    (a) Required records.--Every business corporation shall keep
    complete and accurate books and records of account, minutes of
    the proceedings of the incorporators, shareholders and directors
    and a share register.
    (b) Right of inspection by a shareholder.--On demand, in
    compliance with the requirements in subsection (b.1), a
    shareholder has the 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
    minutes of, and consents in lieu of meetings by, the incorporators,
    shareholders and directors and to make copies or extracts
    therefrom.
    (b.1) Contents and delivery of demand.--All of the following
    apply to a demand under subsection (b):
    (1) A proper purpose shall mean a purpose reasonably
    related to the interest of the person as a shareholder.
    (2) In every instance where an attorney or other agent is
    the person who seeks the right of inspection, the demand
    shall be accompanied by a verified power of attorney or
    other document in record form that authorizes the attorney
    or other agent to so act on behalf of the shareholder.
    (3) The demand must be:
    (i) made in good faith;
    (ii) in record form; and
    (iii) verified.
    (4) The demand          must     describe   with   reasonable
    particularity:
    (i) the purpose of the shareholder; and
    (ii) the records the shareholder desires to inspect and
    how the records relate to the purpose of the
    shareholder.
    (5) The demand must be delivered to the corporation:
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    (i) at its registered office in this Commonwealth;
    (ii) at its principal place of business wherever
    situated;
    (iii) in care of the person in charge of an actual
    business office of the corporation; or
    (iv) in care of the secretary of the corporation at the
    most recent address of the secretary shown in the
    records of the department.
    (c) Proceedings for the enforcement of inspection by a
    shareholder.--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 received, the
    shareholder may file an action in the court for an order to compel
    the inspection.     The court is hereby vested with exclusive
    jurisdiction to 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.
    (c.1) Burden of proof.--Where a shareholder has complied with
    the provisions of this section respecting the form and manner of
    making demand for inspection and the shareholder seeks to
    inspect:
    (1) the share register or list of shareholders of the
    corporation, the burden of proof shall be upon the
    corporation to establish that the inspection he seeks is for
    an improper purpose; or
    (2) the books and records of the corporation, other than the
    share register or list of shareholders, the burden of proof
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    shall be upon the shareholder to establish that the
    inspection the shareholder seeks is for a proper purpose.
    (c.2) Available relief.--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 Commonwealth and kept in
    this Commonwealth upon such terms and conditions as the order
    may prescribe.
    (c.3) Right to bylaws.--Every shareholder shall have the right
    to receive, promptly after demand and without charge, a copy in
    record form of the currently effective text of the bylaws. If the
    corporation does not provide a shareholder with a copy of the
    bylaws as required by this subsection, the shareholder may file an
    action in the court for an order to compel the production. The
    court shall summarily order the corporation to provide a copy of
    the bylaws unless the corporation establishes that the person
    seeking the bylaws is not a shareholder.
    (d) Certain provisions of articles ineffective.--This section
    may not be relaxed by any provision of the articles.
    (e) Reasonable restrictions permitted.--The corporation may
    impose reasonable restrictions and conditions on access to and
    use of information to be furnished under this section, including
    designating information confidential and imposing nondisclosure
    and safeguarding obligations on the recipient. In a dispute
    concerning the reasonableness of a restriction, condition or
    obligation under this subsection, the corporation has the burden
    of proving reasonableness.
    (f) Cross references.--See sections 107 (relating to form of
    records), 1512 (relating to informational rights of a director),
    1763(c) (relating to certification by nominee) and 2511 (relating
    to financial reports to shareholders) and 42 Pa.C.S. § 2503(7) and
    (9) (relating to right of participants to receive counsel fees).
    15 Pa.C.S. § 1508.
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    “Shareholder” is not defined within § 1508.         However, the 2022
    committee comment directs us to § 1103 of the Business Corporation Law of
    1988 for a definition of “shareholder”:
    “Shareholder.” A record holder or record owner of shares of a
    corporation, including a subscriber to shares. The term, when
    used in relation to the taking of corporate action, includes the
    proxy of a shareholder. If and to the extent the articles confer
    rights of shareholders upon holders of obligations of the
    corporation or governmental or other entities pursuant to any
    provision of this subpart or other provision of law, the term shall
    be construed to include those holders and governmental or other
    entities.
    15 Pa.C.S. § 1103.
    In concluding that Mr. Edenfield lacked standing, the trial court noted
    that he “concededly no longer owned any ECM stock at the time he served the
    verified demand upon ECM.” Order, 3/16/21, at 2. Applying what it termed
    a “natural reading” of the language of § 1508(b), the court concluded that Mr.
    Edenfield was “not a shareholder as provided for in section 1508(b) and
    lack[ed] standing to enforce the statute against ECM.” Id. at 2-3.
    Mr. Edenfield does not contest the fact that he no longer held any shares
    in ECM at the time he made his formal request in October 2020. See Mr.
    Edenfield’s brief at 23. Rather, he contends that “[t]he language of 15 Pa.C.S.
    § 1508 is plain and unambiguous and does not define shareholders as current
    shareholders.” Id. at 24.     In his mind, because “[t]he clear language of
    the statute does not expressly exclude former shareholders from its reach,
    and no Pennsylvania cases support the trial court’s finding that Mr. Edenfield
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    cannot maintain a 15 Pa.C.S. § 1508 action against ECM[,]” the trial court
    erred in concluding that the statute did not encompass Mr. Edenfield as a
    former shareholder. Id. at 23.
    We cannot countenance Mr. Edenfield’s interpretation.          As noted,
    “shareholder” is defined as a “record owner of shares of a corporation[.]” 15
    Pa.C.S. § 1103. It is undisputed that Mr. Edenfield owned no shares of ECM
    in October 2020, when he made his formal demand. As he was not a “record
    owner of shares” of ECM, he consequently was not a shareholder.            Upon
    review, our reading of the statute comports with that of the trial court. Stated
    simply, the plain language of §§ 1103 and 1508 refer only to current
    shareholders, and do not include former shareholders.            Based on the
    foregoing, the trial court properly concluded that Mr. Edenfield lacked standing
    to compel production of ECM’s records pursuant to § 1508. Thus, as to ECM,
    Mr. Edenfield is not entitled to relief.
    Mr. Edenfield’s remaining claims challenge the trial court’s denial of his
    petition to compel the production of additional records from AdTrak based
    upon the court’s conclusion that it lacked jurisdiction.2 “[A]s a pure question
    ____________________________________________
    2 We note with disapproval that Mr. Edenfield listed five issues in the
    statement of questions pertaining to AdTrak, but only separated his argument
    as to AdTrak into three sections, in contravention of Pa.R.A.P. 2116(a) (“The
    statement of the questions involved must state concisely the issues to be
    resolved, expressed in the terms and circumstances of the case but without
    unnecessary detail.”) and 2119(a) (“The argument shall be divided into as
    many parts as there are questions to be argued; and shall have at the head
    (Footnote Continued Next Page)
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    of law, the standard of review in determining whether a court has subject
    matter jurisdiction is de novo and the scope of review is plenary.” Mazur v.
    Trinity Area Sch. Dist., 
    961 A.2d 96
    , 101 (Pa. 2008) (cleaned up).
    By way of background, AdTrak is a dormant, Delaware limited liability
    company that previously held offices in Williamsport, Pennsylvania.        See
    Deposition of William H. Higgins, 1/5/22, at 88. In February 2018, AdTrak
    ceased its operations in Pennsylvania, closed its Pennsylvania office, and
    destroyed all physical records stored in Pennsylvania.     Id. at 90-91.    All
    relevant financial information was stored electronically in QuickBooks. Id. at
    94-95. Over two years later, Mr. Edenfield formally demanded inspection of
    AdTrak’s corporate records and books pursuant to § 1508. At the time Mr.
    Edenfield made his demand in October 2020, a Pennsylvania accounting firm
    had access to AdTrak’s QuickBooks account for purposes of filing taxes. See
    Affidavit of Beau Vincenzes, 1/12/22. In response to the court’s March 16,
    2021 order, AdTrak provided Pennsylvania resident and ECM Chief Executive
    Officer, Mike Caseman, AdTrak’s credentials to QuickBooks for him to assist in
    procuring what AdTrak deemed to be the responsive documents.               See
    Deposition of William H. Higgins, 1/5/22, at 96-97. As of April 2021, AdTrak
    ____________________________________________
    of each part--in distinctive type or in type distinctively displayed--the
    particular point treated therein, followed by such discussion and citation of
    authorities as are deemed pertinent.”).
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    no longer utilized the accounting firm and it lost access to AdTrak’s electronic
    records. See Affidavit of Beau Vincenzes, 1/12/22.
    Our Supreme Court has held that “[w]hile our courts will not take
    jurisdiction for the purpose of regulating or interfering with the internal affairs
    of a foreign corporation, it is equally well settled that the granting of a right
    to inspect a foreign corporation’s books and records, which are within the
    jurisdiction, does not so offend.” Donna v. Abbotts Dairies, Inc., 
    161 A.2d 13
    , 16 (Pa. 1960) (per curiam) (citing Kahn v. American Cone & Pretzel
    Co., 
    74 A.2d 160
     (Pa. 1950)).
    Mr. Edenfield contends that the trial court erred in concluding that the
    “electronic records of a corporation doing business in Pennsylvania cannot be
    compelled for production under 15 Pa. C.S. § 1508 if [the hard copies] are not
    also located within the Commonwealth.” Mr. Edenfield’s brief at 20. He argues
    that he “established that AdTrak’s electronic records are located in
    Pennsylvania”    because   two    Pennsylvania    residents   accessed   AdTrak’s
    QuickBooks account in Pennsylvania to obtain documents in compliance with
    the court’s March 16, 2021 order. See id. at 17. In so arguing, he presumes
    that AdTrak is doing business in Pennsylvania.
    On the other hand, AdTrak maintains that “[a] company once doing
    business in Pennsylvania but has since departed should not be forever subject
    to 15 Pa.C.S. § 1508 and thereby required to bring books or records back into
    this Commonwealth.” Appellees’ brief at 18. According to AdTrak, it ceased
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    business operations in Pennsylvania on February 18, 2018, and within sixty
    days permanently closed its Pennsylvania office and destroyed or discarded
    all records stored in Pennsylvania. Id. at 19. All of this occurred before Mr.
    Edenfield served the inspection demand. Id.
    Upon review of the discovery and arguments of the parties, the trial
    court agreed with AdTrak that it was neither operating nor storing records in
    Pennsylvania.   Despite AdTrak previously maintaining a principal place of
    business in Pennsylvania and authorizing access to some of its electronic
    records to individuals located within the Commonwealth, the trial court
    concluded that it lacked jurisdiction to compel AdTrak to allow inspection of
    its electronically-stored documents. Trial Court Opinion, 6/27/22, at 9-10.
    The fact that the documents are in theory accessible within
    Pennsylvania, . . . is clearly insufficient by itself to put the
    documents within the court’s jurisdiction and render them located
    within Pennsylvania for the purposes of Title 15. If this were
    sufficient, then any of the Commonwealth’s courts of common
    pleas would have jurisdiction to compel any business organization
    – no matter where it is domiciled or whether it conducts business
    in Pennsylvania – to turn over all its share register, books and
    records of account, and records of the proceedings of the
    incorporators, shareholders and directors so long as there records
    are theoretically accessible from within the Commonwealth.
    Id. at 9 (cleaned up).
    The court elaborated as follows:
    There is no doubt that the advent of electronic recordkeeping
    changed the necessary calculus of shareholders’ rights to inspect
    corporate records, inasmuch as it is possible that a corporation’s
    records will have no physical location and can be remotely
    accessed from anywhere. Ultimately, though, physical location is
    a proxy for the truly essential legal requirement: jurisdiction. A
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    corporation that is incorporated in Pennsylvania, or a foreign
    corporation that keeps its principal place of business in
    Pennsylvania, will very likely be unable to resist a shareholder’s
    request to inspect its documents even if they are stored in the
    cloud. This is because, to the extent these businesses have
    voluntarily availed themselves of the benefits of doing business in
    Pennsylvania, a court order compelling them to provide their
    records for inspection will not offend concepts of jurisdiction. . . .
    Here, AdTrak has only conducted sparse business in Pennsylvania
    over the past four years, and only a small portion of its records
    have been accessed and utilized in the Commonwealth. [Mr.
    Edenfield] has been provided those records. In order to compel
    AdTrak to submit its remaining corporate records to [Mr.
    Edenfield] for inspection, the court would need to reach into
    another state – be it Texas, where [Mr.] Higgins resides;
    Delaware, where AdTrak is incorporated; or some other state
    where QuickBooks locates its cloud servers – to cause AdTrak to
    take action.
    Id. at 11 (cleaned up).
    We are persuaded by the trial court’s reasoning and the certified record
    bears out its factual findings. Since AdTrak ceased its business connections
    to Pennsylvania over two years before Mr. Edenfield demanded inspection
    pursuant to § 1508, he was only entitled to inspection of any records located
    in Pennsylvania. With regard to documents stored virtually, the trial court did
    not err in concluding that it lacked jurisdiction to compel AdTrak to access
    those records, as AdTrak was not incorporated in Pennsylvania, did not keep
    a principal place of business in Pennsylvania, and was not registered to
    conduct business in Pennsylvania. Plainly put, there were insufficient ties to
    permit the court to compel a foreign business to produce its records pursuant
    to § 1508. We highlight that the court did not conclude the records were
    inherently out of reach to Mr. Edenfield because they were stored virtually,
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    but rather, the cloud-based records were not subject to inspection in
    Pennsylvania because the business lacked a sufficient link to Pennsylvania.
    Concluding otherwise, as astutely noted by the court, would permit courts to
    compel any business utilizing QuickBooks or like services to produce records
    in Pennsylvania despite having no other connection to our Commonwealth, a
    result which is not contemplated by § 1508 or our jurisprudence.
    Based on the foregoing, we affirm the order of the trial court.
    Order affirmed.
    Judgment Entered.
    Joseph D. Seletyn, Esq.
    Prothonotary
    Date: 8/01/2023
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Document Info

Docket Number: 999 MDA 2022

Judges: Bowes, J.

Filed Date: 8/1/2023

Precedential Status: Precedential

Modified Date: 8/1/2023