Ashley Bancstock Co. v. Meredith
2017 Ark. App. 598
| Ark. Ct. App. | 2017Background
- ABC, a corporation, refused shareholders Paul Meredith, Richard Meredith, and John Posey access to corporate records after a written demand under Ark. Code Ann. § 4-26-715; shareholders sought records from Jan 1, 2006 to Nov 6, 2014 to investigate suspected mismanagement and potential fiduciary breaches related to subsidiaries FNBC and FCBCC.
- Instead of producing records, ABC filed a declaratory-judgment action seeking guidance on the statute’s scope and a protective order; shareholders answered and moved to compel inspection and production.
- The circuit court held a summary/bench proceeding (in chambers), orally granted the shareholders’ motion to compel, and entered a written judgment ordering ABC to produce all requested documents; ABC appealed.
- Key disputed points: who bears the burden of proof; what constitutes a “proper purpose”; whether the statute authorizes inspection of nine years of records, subsidiary and former-subsidiary records, and liability-insurance policies; and alleged procedural errors (in-chambers hearing, exclusion of testimony, Rule 52 findings).
- The Court of Appeals reviewed statutory interpretation de novo, held shareholders bore the burden to prove entitlement, and affirmed the trial court: shareholders had a proper purpose, the statute permits broad inspection (including subsidiaries and insurance policies), and no reversible procedural error occurred.
Issues
| Issue | Plaintiff's Argument (Shareholders) | Defendant's Argument (ABC) | Held |
|---|---|---|---|
| Burden of proof for inspection demand | Not addressed as burden issue; sought inspection and relied on demand letter showing purpose | ABC: shareholders must prove entitlement and proper purpose (statute requires applicant to establish entitlement) | Court: shareholders bear burden to prove entitlement and proper purpose under § 4-26-715 |
| Standard for "proper purpose" | Good-faith belief of mismanagement stated in demand letter is sufficient | ABC: shareholders must show credible evidence of wrongdoing (more stringent standard) | Court: statute requires only a proper purpose / good-faith belief; no heightened pleading of wrongdoing required |
| Temporal scope (nine years requested) | No statutory time limit; shareholders entitled to requested historical records; limitations for costs applied by trial court | ABC: nine-year span is overbroad, burdensome, and beyond limitations for potential claims (e.g., 3-year statute of limitations) | Court: § 4-26-715 contains no time limit; nine-year request permitted; cost allocation acceptable |
| Subsidiary and former-subsidiary records | Subsidiaries are corporate assets; their records are corporate books and records subject to inspection | ABC: subsidiaries’ records are not ABC’s and should not be produced absent fraud or additional showing | Court: subsidiaries’ books and records are corporate records and subject to inspection; ABC must produce records it possesses (not records it never controlled) |
| Liability-insurance policies | Insurance policies are contracts/business records and relevant to investigating management; thus are "books and records of account" | ABC: insurance policies are not financial "books and records of account" and disclosure is typically limited; shareholders failed to show proper purpose for policies | Court: adopts broad construction of "books and records of account"; insurance policies are subject to inspection given shareholders’ stated proper purpose |
| Procedural complaints (in-chambers hearing, barred witness, Rule 52) | Shareholders: procedures complied with statute; public access and Rule 52 satisfied by written judgment | ABC: trial in chambers, exclusion of witness testimony, oral ruling on motion to compel, and denial of Rule 52 findings deprived ABC of fair trial | Court: no reversible error — exclusion of witness caused no prejudice and trial may be summary per statute; written judgment contained sufficient findings to satisfy Rule 52; oral bench ruling not effective until written order |
Key Cases Cited
- Holbrook v. Healthport, Inc., 432 S.W.3d 593 (Ark. 2014) (statutory interpretation reviewed de novo)
- Gerber Prods. Co. v. Hewitt, 492 S.W.3d 856 (Ark. 2016) (give statutory words their ordinary meaning)
- Brandt v. Willhite, 255 S.W.3d 491 (Ark. App. 2007) (court may not insert additional qualifications into statute)
- Nat’l Home Ctrs. v. Coleman, 257 S.W.3d 862 (Ark. 2007) (oral bench rulings effective only when reduced to writing)
- Pederson v. Arctic Slope Reg’l Corp., 331 P.3d 384 (Alaska 2014) (broad conception of financial records; right to inspect protects monitoring of agent performance)
- Meyer v. Ford Indus., Inc., 538 P.2d 353 (Or. 1975) ("books and records of account" construed broadly to include records, contracts, papers, correspondence)