Ashley Bancstock Co. v. Meredith

Cite as 2017 Ark. App. 598
ARKANSAS COURT OF APPEALS
DIVISION IV
No. CV-16-657
ASHLEY BANCSTOCK COMPANY Opinion Delivered: November 8, 2017
APPELLANT
APPEAL FROM THE ASHLEY
V. COUNTY CIRCUIT COURT
[NO. 02CV-14-175]
PAUL MEREDITH, RICHARD
MEREDITH, AND JOHN POSEY HONORABLE DON GLOVER, JUDGE
APPELLEES
AFFIRMED
DAVID M. GLOVER, Judge
This is an appeal from a declaratory-judgment action. Paul Meredith, Richard
Meredith, and John Posey (shareholders) are shareholders of Ashley Bancstock Company
(ABC). These shareholders demanded to inspect and copy certain records of ABC pursuant
to Arkansas Code Annotated section 4-26-715 (Repl. 2016). Instead of providing the
requested records, ABC sued them in Ashley County Circuit Court seeking declaratory
relief regarding the nature and extent of the records the shareholders were entitled to inspect
and copy pursuant to the statute. The circuit court found the shareholders were entitled to
all the records they sought, and ABC appealed. We affirm.
I. Background
The proper interpretation of Arkansas Code Annotated section 4-26-715 is the crux
of this appeal. The pertinent language of this statutory section provides:
(b) Any person who shall have been a shareholder of record for at least
six (6) months immediately preceding his or her demand, upon written
demand stating the purpose thereof, shall have the right to examine, in
Cite as 2017 Ark. App. 598
person or by agent or attorney, at any reasonable time, for any proper
purpose, its books and records of account, minutes, and record of
shareholders and to make extracts therefrom.
(c)(1) Upon refusal by the corporation or by an officer or agent of the
corporation to permit an inspection of the corporation’s books, records
of account, minutes, or record of shareholders, the person making
demand for inspection may file a civil action in the circuit court of the
county in which the corporation maintains either its principal place of
business or its registered office for the purpose of securing an order of
the court directing the corporation, its officers, and agents to permit
the requested inspection.
(2) The proceeding shall be advanced upon the docket of the
court; and the court shall hear the parties summarily, by affidavit
or otherwise.
(3) If the applicant establishes that he or she is qualified and
entitled to the inspection, the court shall grant an order
permitting the inspection, subject to any limitations which the
court may prescribe; and the court may grant such other relief
as to the court may seem just and proper.
(4) The court may deny or restrict inspection if it finds that the
shareholder has improperly used information secured through
any prior examination of the books and records of accounts or
minutes or record of shareholders of the corporation or of any
other corporation, or that he or she was not acting in good faith
or for a proper purpose in making his or her demand.
On November 6, 2014, attorney Richard Griffin sent a demand letter to ABC on
behalf of the shareholders seeking certain records of ABC; its subsidiary, First National Bank
of Crossett (FNBC); and its former subsidiary, First Community Bank of Crawford County
(FCBCC) pursuant to Arkansas Code Annotated section 4-26-715. The shareholders
sought to inspect records from January 1, 2006, to November 6, 2014. The demand letter
stated ABC had reported significant losses and incurred substantial expenses since 2006 that
the shareholders believed were attributable to the acquisition, operation, and sale of FCBCC
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and significant loan write-offs by FNBC. The shareholders’ stated purpose for inspection
of the records was to review the actions of the respective directors and officers of ABC,
FNBC, FCBCC, and others to determine if those directors and officers and/or others may
have breached the duties they owed, and continue to owe, to ABC and its shareholders,
and whether legal action against those directors and officers and/or others is warranted to
recover assets of ABC that have been written off and lost by ABC.
ABC did not release the requested records. Instead, on November 17, 2014, it filed
a lawsuit seeking declaratory relief to determine the rights of the parties under Arkansas
Code Annotated section 4-26-715. In its complaint, ABC alleged the shareholders
requested highly sensitive, confidential, and proprietary information. It asked the circuit
court to consider whether the shareholders sought to inspect records for a proper purpose
and to determine the extent of information it was required to provide. In addition, ABC
sought a protective order to enjoin the shareholders and their counsel from disseminating
the information they received to third parties.
Shortly thereafter, on December 8, 2014, ABC offered to tender certain records to
the shareholders if they signed a confidentiality agreement. The shareholders refused to sign
the confidentiality agreement because it imposed severe monetary penalties for violation.
On December 9, 2014, the shareholders propounded interrogatories and requests for
production on ABC. ABC objected and sought a protective order because the information
the shareholders requested in discovery mirrored the information requested in the demand
letter that served as the basis of the declaratory-judgment action.
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The shareholders answered ABC’s declaratory-judgment complaint on January 14,
2015. In their answer, the shareholders asserted their demand was proper in all respects
and requested that ABC be required to make all requested information and documents
available for inspection and copying.
Later, on May 26, 2015, the shareholders filed a notice of deposition duces tecum
seeking discovery of essentially the same records. ABC filed a motion for protective order
from the deposition. In response, the shareholders filed their own motion for protective
order seeking to have ABC enter into a confidentiality agreement and provide the requested
documents. The shareholders also filed a motion to compel ABC to answer discovery.
The circuit court held a motion hearing on July 14, 2015. It considered the various
motions for protective orders and the shareholders’ motion to compel. The hearing was
adjourned without a ruling.
The circuit court held a trial on the merits of ABC’s declaratory-judgment complaint
on November 12, 2015. The trial took place in the judge’s chambers, and no witnesses
were allowed to testify. During the trial, the circuit court orally granted the shareholders’
motion to compel. At the conclusion of the trial, the circuit court found the shareholders
were entitled to all the records that they had requested. The circuit court instructed counsel
for the shareholders to prepare a proposed judgment.
On January 7, 2016, ABC filed a motion objecting to the entry of the proposed
judgment and requesting that the court make findings of fact and conclusions of law pursuant
to Arkansas Rule of Civil Procedure 52. The motion was denied.
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A judgment was entered on January 28, 2016. The circuit court found the
shareholders had a proper purpose for inspecting the requested records and that their demand
was made in good faith. The circuit court ordered ABC to produce for inspection all
documents requested by the shareholders. ABC timely filed its notice of appeal of the
judgment on February 1, 2016. Thereafter, ABC filed an amended notice of appeal on
February 19, 2016, from the order denying its motion for findings of fact and conclusions
of law pursuant to Rule 52.
On appeal, ABC advances several arguments in support of reversal. ABC argues
generally that the circuit court erred by finding that Arkansas Code Annotated section 4-
26-715 required it to produce all the records the shareholders requested and by committing
several errors during the proceedings.
II. The Statute
This appeal requires us to interpret Arkansas Code Annotated section 4-26-715.
ABC contends the circuit court erroneously found that Arkansas Code Annotated section
4-26-715 required it to produce the records the shareholders requested. Particularly, ABC
argues the circuit court erred in finding the statute (1) required it to produce sensitive
financial records that spanned a nine-year period; (2) entitled the shareholders to inspect and
copy the records of FNBC and FCBCC; and (3) entitled the shareholders to copies of
liability-insurance policies for ABC, FNBC, and FCBCC.
Issues of statutory interpretation are reviewed de novo. Holbrook v. Healthport, Inc.,
2014 Ark. 146, 432 S.W.3d 593. The basic rule of statutory construction is to give effect
to the intent of the legislature. Id. When interpreting a statute, we must construe it just as
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it reads, giving the words their ordinary and usually accepted meaning in common language.
Gerber Prods. Co. v. Hewitt, 2016 Ark. 222, 492 S.W.3d 856. Words cannot be inserted,
under the guise of interpretation, to add a significant additional qualification to the law
enacted by the General Assembly. Brandt v. Willhite, 98 Ark. App. 350, 255 S.W.3d 491
(2007). If the language in a statute is clear and unambiguous and conveys a clear and definite
meaning, it is unnecessary to resort to the rules of statutory interpretation. Holbrook, supra.
As a preliminary matter, we acknowledge that a fundamental issue presented in this
appeal is whether ABC or the shareholders had the burden of proof. ABC argues that the
shareholders had the burden of proof because the statute requires the applicant seeking to
inspect records to establish that he or she is qualified and entitled to the inspection by
demonstrating, among other things, a proper purpose for inspection. Ark. Code Ann. § 4-
26-715(b) & (c)(3). The shareholders argue that because ABC filed the lawsuit, it had the
burden of proving that they sought the records for an improper purpose. We agree with
ABC. The statute clearly and unambiguously provides that the shareholders bear the burden
of proving entitlement to inspection.
With the burden of proof established, we consider ABC’s argument that the
shareholders failed to prove a proper purpose to inspect ABC’s records. Any shareholder
“shall have the right to examine” the records of a corporation “for any proper purpose.”
Ark. Code Ann. § 4-26-715(b). The circuit court found, based on the joint trial stipulations,
the shareholders had proved a proper purpose to inspect the requested records. 1
1
ABC emphasizes that in remarks from the bench, the circuit court admitted that it
had not read the stipulations. However, the circuit court’s judgment provides that it relied
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The joint stipulations included the shareholders’ demand letter that explained their
purpose for the request. That letter provided that ABC had reported significant losses and
incurred substantial expenses since 2006 that the shareholders believed were the result of
the acquisition, operation, and sale of FCBCC and significant loan write-offs by FNBC.
The shareholders stated their demand was made in good faith and that they were entitled to
review the actions of the respective directors and officers of ABC, FNBC, FCBCC, and
others to determine if those directors and officers and/or others may have breached the
duties they owed, and continue to owe, to ABC and its shareholders, and whether legal
action against those directors and officers and/or others was warranted.
ABC argues that the shareholders’ stated purpose is insufficient to demonstrate a
proper purpose for examination of the requested records pursuant to Arkansas Code
Annotated section 4-26-715. In support of its argument, ABC relies on case law from
other jurisdictions. Specifically, ABC cites cases that require shareholders to prove credible
evidence of wrongdoing to warrant investigation. See Cain v. Merck & Co., Inc., 1 A.3d 834
(N.J. Super. 2009); W. Coast Mgmt. & Capital, LLC v. Carrier Access Corp., 914 A.2d 636
(Del. 2006). Additionally, ABC urges our court to consider the scope of the requested
examination and the inconvenience and financial burden it could place on a corporation
and hold that a court should exercise its power with great care to safeguard the interest of
the corporation and all of its shareholders. See Abdalla v. Qadorh-Zidan, 913 N.E.2d 280
(Ind. Ct. App. 2009).
on the joint stipulations, and a circuit court’s written order controls over its oral
pronouncements. See Nat’l Home Ctrs. v. Coleman, 370 Ark. 119, 257 S.W.3d 862 (2007).
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As the shareholders emphasize, other jurisdictions do not impose these stringent
requirements. Other jurisdictions merely impose on shareholders a requirement that they
have a good-faith belief in mismanagement to establish a proper purpose for inspection. See
Meyer v. Bd. of Managers of Harbor House Condo. Ass’n, 583 N.E.2d 14 (Ill. App. Ct. 1991).
We are convinced the shareholders’ interpretation is the proper one. To interpret
Arkansas Code Annotated section 4-26-715 in the way in which ABC suggests would be
contrary to our rules of statutory construction. Again, when interpreting a statute, we must
construe it just as it reads, giving the words their ordinary and usually accepted meaning in
common language. Gerber Prods. Co., supra. Words cannot be inserted, under the guise of
interpretation, to add a significant additional qualification to the law enacted by the General
Assembly. Brandt, supra. This statute includes no language requiring a shareholder to
include specific allegations of wrongdoing in order to be entitled to records. Only a proper
purpose must be established. Accordingly, the circuit court did not err in finding the
shareholders’ stated purpose complied with the statute.
In addition, ABC challenges the nine-year time frame for which the circuit court
required it to produce records for inspection. ABC argues that the shareholders should not
have been allowed to inspect nine years of records because they alleged a breach of fiduciary
duty, which carries a three-year statute of limitations. They further contend the nine-year
time frame placed an overwhelming burden on it. 2
2
We acknowledge the circuit court’s order found ABC would bear only the burden
of costs associated with copying documents dated November 6, 2011, to present, and the
shareholders would bear the costs associated with copying all documents dated prior to
November 6, 2011.
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The shareholders respond by referring to the statute itself. Arkansas Code Annotated
section 4-26-715 imposes no time limit on the inspection of records. The rules of statutory
construction require that a time limit cannot be assumed. See Gerber Prods. Co., supra. The
shareholders further mention that allowing shareholders to obtain records dating back only
to the relevant statute of limitations would be improper because a statute of limitations can
be tolled in some instances and that shareholders do not necessarily seek to inspect records
for litigation. We agree that the statute authorized the shareholders to seek the nine years
of records they requested.
Next, ABC challenges the circuit court’s decision requiring it to produce records of
FNBC, its subsidiary, and FCBCC, its former subsidiary.
We first consider whether Arkansas Code Annotated section 4-26-715 requires a
corporation to produce records of its subsidiaries. ABC argues that it should not have to
provide records of its subsidiaries because they were not parties to the litigation. ABC
highlights caselaw that requires a showing of fraud to entitle a shareholder to inspect a
subsidiary’s books. Saito v. McKesson HBOC, Inc., 806 A.2d 113 (Del. 2002). By contrast,
other jurisdictions require a corporation to produce records of its subsidiaries because they
are assets of the corporation. See Danzinger v. Luse, 815 N.E.2d 658 (Ohio 2004); Meyer v.
Ford Indus., Inc., 538 P.2d 353 (Or. 1975).
Again, we are persuaded that the shareholders’ interpretation is proper. Because
subsidiaries are assets of a corporation, their books and records are corporate records. By
the plain language of the statute, they are subject to inspection. We hold the statute
authorizes a shareholder to inspect records of a corporation’s subsidiaries.
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ABC also argues that the circuit court erred by requiring it to produce nine years of
records of its former subsidiary, FCBCC. ABC reminds our court that the parties stipulated
that ABC owned FCBCC from October 31, 2006, to January 31, 2014, but that the
shareholders requested records from January 1, 2006, to November 6, 2014. It contends,
for the time that it did not own FCBCC, it could not have control over FCBCC’s records;
thus, the circuit court erred when it required ABC to produce books and records for this
period. We are not influenced by this argument. A corporation is required to produce “its
books and records of account” after a proper demand from a shareholder. Ark. Code. Ann.
§ 4-26-715(b). We interpret this provision to mean that a corporation must provide to
shareholders only the books and records it possesses.
Finally, ABC argues that Arkansas Code Annotated section 4-26-715 does not
authorize the shareholders to inspect copies of its liability-insurance policies and that the
circuit court erred by finding that it did. ABC contends liability-insurance policies are not
books and records of account within the meaning of the statute, and the shareholders failed
to prove a proper purpose for the request of the insurance policies.
We begin by considering whether liability-insurance policies are books and records
of account. ABC looked to other jurisdictions for guidance on the meaning of books and
records of account. In Pederson v. Arctic Slope Regional Corporation, Alaska’s supreme court
held that books and records of account “encompasses monthly financial statements, records
of receipts, disbursements and payments, accounting ledgers, and other financial accounting
documents.” 331 P.3d 384, 386–87 (Alaska 2014). ABC utilizes the Pederson case to attempt
to demonstrate that insurance policies are not books and records because they are not
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financial documents, and ABC cautions against a definition of books and records that is
overly broad because it could lead to harassing fishing expeditions.
Our reading of the Pederson case leads us to a different conclusion. The items
catalogued as books and records of account in Pederson are not an exhaustive list, and notably,
the inspection of liability-insurance policies was not at issue. Moreover, the language of the
Pederson case provides that a “shareholder’s right is an important method for monitoring
agent performance and enhancing principal control over corporate agents.” Id. at 393. We
interpret the Pederson case to impose a broad definition of books and records to protect
shareholders’ interests.
The shareholders direct our court to other jurisdictions that have similarly adopted a
broad definition of books and records of account. The Oregon Supreme Court in Meyer v.
Ford Industries, Inc., held that the term “‘books and records of account’ should be the subject
of a broad and liberal construction so as to extend to all records, contracts, papers and
correspondence to which the common law right of inspection of a stockholder may properly
apply.” 538 P.2d 353, 355 (Or. 1975).
We conclude that a broad definition of the term books and records of account is
proper. Courts tend to broadly define the term so that shareholders’ rights are protected.
Adopting this approach, we hold liability-insurance policies are books and records of
account within the meaning of the statute. Insurance policies are contracts. Lumbermen’s
Mut. Cas. Co. v. Moses, 224 Ark. 67, 271 S.W.2d 780 (1954). And contracts are business
records pertinent to the operations of a corporation.
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ABC further argues that if liability-insurance policies are books and records of
account, the shareholders failed to prove their proper purpose for inspecting them as
required by the statute.
ABC contends the statements in the shareholders’ demand letter were insufficient to
show a proper purpose for the inspection of liability-insurance policies. ABC offers that
liability-insurance policies are normally disclosed only in cases in which a judgment must
be satisfied, and this is a declaratory-judgment action in which no money damages are
sought. In response, the shareholders assert that a review of the insurance policies as well as
the other records requested are pertinent to an investigation of corporation management,
specifically whether ABC breached its fiduciary duties.
We previously concluded that shareholders need not present evidence of
mismanagement to establish proper purpose. They must demonstrate only a good faith
belief in mismanagement. The presence or absence of a liability-insurance policy may be
pertinent to issues of fiduciary duty. Accordingly, we hold the liability-insurance policies
are subject to inspection and copying by the shareholders.
III. Error in the Proceedings
ABC also advances several arguments in favor of reversal that stem from the
proceedings themselves. Specifically, ABC argues that the circuit court abused its discretion
by (1) conducting the trial in chambers, (2) refusing to allow witnesses to testify, (3) granting
the shareholders’ motion to compel during the trial, and (4) refusing its request for findings
of fact and conclusion of law pursuant to Arkansas Rule of Civil Procedure 52. As was
discussed in oral argument, an overarching question regarding these procedural issues is
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whether ABC was denied the right to a fair trial. We conclude it was not and hold that
there is no meritorious, procedural ground for reversal.
First, we consider whether the circuit court abused its discretion by refusing to allow
ABC to call G. Gerald Crawford as a witness. When ABC’s request to call Crawford was
denied, it proffered his testimony. The circuit court’s judgment included a finding that, had
the proffered testimony been admitted, it would not have affected the ruling. Our court
will not reverse a circuit court’s evidentiary ruling absent an abuse of discretion and a
showing of prejudice. Dodson v. Allstate Ins. Co., 345 Ark. 430, 47 S.W.3d 866 (2001).
Because ABC cannot demonstrate any prejudice that stemmed from the exclusion of
Crawford’s testimony, we affirm on this point. Furthermore, we acknowledge the statute
contemplates that a court faced with determining whether shareholders are entitled to
records “shall hear the parties summarily, by affidavit or otherwise.” Ark. Code Ann. 4-
26-715(c)(2). Thus, by the plain language of the statute, the circuit court was not required
to allow testimony.
Next, we direct our attention to the circuit court’s decision to hold the trial in
chambers over ABC’s objection. All trials must be conducted in public. Ark. Code Ann.
§ 16-10-105 (Repl. 2010). Furthermore, “the public has every right to ascertain by personal
observation whether its officials are properly carrying out their duties responsibly and
capably administering justice.” Commercial Printing Co. v. Lee, 262 Ark. 87, 95, 553 S.W.2d
270, 274 (1977).
The shareholders contend the public was not excluded from attending the in-
chambers trial and that anyone could have entered and observed the proceedings. We are
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not particularly persuaded by the shareholders’ argument. Nevertheless, we acknowledge
that the trial was transcribed by a court reporter, and accordingly, the public has access to
the proceedings so that it may ascertain whether the court was properly carrying out its
duties responsibly. In addition, counsel for ABC admitted in oral argument that he could
not say whether the in-chambers trial affected the outcome of the case. We conclude no
prejudice resulted from the in-chambers trial and affirm on this point.
ABC also argues that the circuit court erred by granting the shareholders’ motion to
compel during the trial. This issue is not preserved for our review. Although ABC
accurately represents the circuit court’s oral ruling on the shareholders’ motion to compel,
it was never reduced to writing. An oral order announced from the bench does not become
effective until reduced to writing and filed. Nat’l Home Ctrs., Inc. v. Coleman, 370 Ark. 119,
257 S.W.3d 862 (2007).
Finally, ABC contends the circuit court erred by denying its request for findings of
fact and conclusions of law pursuant to Arkansas Rule of Civil Procedure 52. Compliance
with Rule 52 is mandatory, and findings and conclusions pursuant to Rule 52 “should be
specific enough to enable an appellate court to understand the factual and analytical process
by which the trial court reached its decision.” CenterPoint Energy Gas Transmission Co. v.
Green, 2012 Ark. App. 326, at 5, 413 S.W.3d 867, 871. However, “the rule does not place
a severe burden upon the trial judge, for the judge needs only to make brief, definite, and
pertinent findings of fact and conclusions upon the contested matters.” Id.
The circuit court’s judgment included findings of fact and conclusions of law. It
provided that the shareholders had a proper purpose for their demand and that they made
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the demand in good faith. The judgment further stated that the shareholders were qualified
and entitled to inspect and make copies of all requested documents. These findings are
sufficient to comply with Rule 52, and we affirm on this basis.
Affirmed.
VIRDEN and BROWN, JJ., agree.
Streetman, Meeks & Gibson, PLLC, by: Thomas S. Streetman and Robert B. Gibson III,
for appellant.
Jackson Walker, L.L.P., by: Richard E. Griffin; and Hopkins Law Firm, A Professional
Association, by: Gregory M. Hopkins and Ryan J. Caststeel, for appellees.
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