Kalanges v. Champlain Valley Exposition, Inc.

EO.91-600; 160 Vt. 644; 632 A.2d 357


                                 ENTRY ORDER

                       SUPREME COURT DOCKET NO. 91-600

                               MAY TERM, 1993


 William C. Kalanges               }          APPEALED FROM:
 and Bernard P. Lemieux            }
                                   }
      v.                           }          Chittenden Superior Court
                                   }
                                   }
 Champlain Valley Exposition, Inc. }
                                   }          DOCKET NO. S138-87CnC


              In the above entitled cause the Clerk will enter:

      Plaintiffs Kalanges and Lemieux are shareholders in the Champlain Valley
 Exposition (the Fair).  Plaintiffs are appealing a superior court decision
 denying their challenge to the Fair's status as a nonprofit corporation, the
 method and price of sale of its stock and their demand for access to the
 Fair's corporate records.  The trial court found that plaintiffs' principal
 claims were barred by the statute of limitations and granted defendant's
 motion for summary judgment.  Further, the court denied plaintiffs access to
 the records, holding that their purpose in demanding access was not "proper."
 We affirm in part and reverse in part.

      To grant summary judgment, the court must find that there are no genuine
 issues of material fact, and that the moving party is entitled to judgment as
 a matter of law.  V.R.C.P. 56(c).  Review of the facts must be considered in
 the light most favorable to the nonmoving party. Pierce v. Riggs, 149 Vt. 136,
 139, 540 A.2d 655, 657 (1987).  The undisputed facts show that defendant is a
 Vermont corporation created in 1922 to promote and maintain an agricultural
 and industrial fair.  Since 1922, the Fair has authorized 2,000 shares of
 stock to be sold, but has never paid a dividend to the shareholders, nor paid
 any member of the Board of Directors.  The Fair has always been considered
 tax-exempt by the Internal Revenue Service.  In 1969, at the annual
 shareholders' meeting, the Fair presented an amendment to its Articles of
 Association, clarifying its nonprofit status and the absence of shareholder
 rights to corporate earnings.  The Fair's records show that all shareholders
 with known addresses were sent the agenda and the proposed amendment before
 the meeting.  Lemieux was not present at the meeting, and does not recall if
 he was contacted.  The amendment passed and was filed with the Secretary of
 State in 1972.  Lemieux acquired one share of stock in 1965, which he
 continues to hold; Kalanges has sixteen shares of stock, the first of which he
 acquired in 1978.

      In 1987, plaintiffs filed suit claiming that the 1969 amendment was
 illegal because the Fair failed to notify all the shareholders of the
 meeting, and as a result, failed to secure the approval of two-thirds of the

 

 shareholders.  The trial court found that the Fair had made reasonable
 attempts to contact all the shareholders and that it was likely, therefore,
 that Lemieux had been appraised of the meeting.  Hence, his cause of action
 against the illegal amendment would have accrued in 1969.  Even if Lemieux
 could prove that he was not notified of the meeting, the court found he would
 have had notice of the amendment in 1972 when the change was filed with the
 Vermont Secretary of State.  Finally, the court found that Kalanges's cause of
 action would have accrued at the latest in 1978 when he acquired his stock and
 was on notice as to the profit status of the Fair.

      The Vermont statute of limitations for general civil actions is six
 years.  12 V.S.A. { 511.  The trial court found that a reasonable share-
 holder, similarly situated to plaintiffs, knew or should have known of the
 profit status of the Fair either in 1969, 1972 or 1978.  Applying the six-year
 statute of limitations, and using 1978 as the latest date their cause-of-
 action could have accrued, plaintiffs' time to file suit expired in 1984.
 Therefore, the trial court concluded that based on the undisputed evidence,
 and as a matter of law, plaintiffs' claims were barred by the statute of
 limitations.  We agree and affirm that portion of the trial court's decision.

      Plaintiffs' remaining challenge is to the trial court's denial of access
 to the Fair's corporate records.  A shareholder, as an owner of the corporate
 property, is entitled to examine all the books and records of the corporation.
 Lewis v. Brainerd, 53 Vt. 510, 516 (1881).  The Vermont Nonprofit Corporation
 Act, 11 V.S.A. { 2372, states that nonprofit corporations must keep complete
 books and records, and minutes of proceedings, available for inspection by any
 member of the corporation, for any proper purpose.  Plaintiffs asked to
 examine the corporate records of annual and special meetings of the Fair, and
 their request was denied.  The trial court found for the Fair on this issue,
 stating that plaintiffs' purpose in requesting the information was not
 "proper."

      There is no Vermont case law as to what constitutes a "proper purpose,"
 and little other guidance on the issue.  The Model Business Corporation Act,
 { 16.02, states that when a shareholder requests to examine corporate
 documents, several conditions must be met:  (1) the request must be in good
 faith and for a proper purpose, (2) the request must be described with partic-
 ularity, and (3) the records must be directly connected with the purpose.
 Vermont's Business Corporation Act does not directly follow the Model Act, but
 the commentary on the Model Act provides guidance in interpreting Vermont's
 law.  According to the official commentators, a proper purpose is one reason-
 ably relevant to the demanding shareholder's interest as a shareholder.
 Proper purpose has been found where shareholders wanted to determine the value
 of their shares, to ascertain possible mismanagement of the corporation, and
 to communicate with other shareholders.  "Communication" includes soliciting
 proxies in an attempt to gain control of the management of the corporation.
 Fears v. Cattlemen's Inv. Co., 483 P.2d 724, 728 (Okla. 1971).  Even
 "hostility between parties, a threatened lawsuit, or an attempt to gain
 control of a corporation" are not sufficient, in and of themselves, to prevent
 access to corporate records.  Bergmann v. Lee Data Corp., 467 N.W.2d 636, 639
 (Minn. Ct. App. 1991).

   

      At common law, the burden of establishing proper purpose is on the
 shareholder, the party seeking access to the records.  Albee v. Lamson &
 Hubbard Corp., 69 N.E.2d 811, 813 (Mass. 1946); State ex rel. Costello v.
 Middlesex Banking Co., 88 A. 861, 862 (Conn. 1913); In re Steinway, 53 N.E. 1103, 1107 (N.Y. 1899).  However, the trend is away from this presumption to
 one where the shareholder's purpose is presumptively proper, and the burden
 shifts to the corporation to show improper purpose.  See, e.g., Miles v. Bank
 of Heflin, 328 So. 2d 281, 288 (Ala. 1975)(Shores, J., specially concurring);
 Derose v. Terry Steam Turbine Co., 214 A.2d 684, 687 (Conn. 1965); Florida
 Tel. Co. v. State ex rel. Peninsular Tel. Co., 111 So. 2d 677, 681 (Fla.
 1959); Dynamics Corp. of America v. CTS Corp., 479 N.E.2d 1352, 1353 (Ind.
 1958); Bennet v. Mack's Supermarkets, Inc., 602 S.W.2d 143, 146 (Ky. 1979);
 Hanrahan v. Puget Sound Power and Light Co., 126 N.E.2d 499, 503 (Mass.
 1955)(statutory law, departing from state common law tradition); Nationwide
 Corp. v. Northwest Nat'l Life Ins. Co., 87 N.W.2d 671, 679 (Minn. 1978); State
 ex rel. Jones v. Ralston Purina Co., 343 S.W.2d 631, 641 (Mo. 1961); Delmarvo
 Assoc. v. New Jersey Engineering and Supply Co., 424 A.2d 847, 848 (N.J.
 1980); Crane v. Anaconda  Co., 346 N.E.2d 507, 511 (N.Y. 1986); Carter v.
 Wilson Constr. Co., 348 S.E.2d 830, 832 (N.C. 1986); Celina Mutual Ins. Co.
 v. American Druggists Ins. Co., 369 N.E.2d 1066, 1069 (Ohio 1971); Babbit v.
 Pacco Investors Corp., 425 P.2d 489, 494 (Or. 1967).

      Neither plaintiffs nor defendant introduced any evidence relating to the
 purpose of plaintiffs' request to examine the documents. The trial court noted
 only an attempt by plaintiffs to gain control of the Fair's management
 without making any specific findings regarding that allegation, and on that
 basis denied access to the records.  As discussed above, this is not an
 improper purpose in and of itself.  Because there is no evidence in the
 record on this point, we find that the Fair did not meet its burden of
 establishing an improper purpose, and we reverse the court's denial of access
 to the records.

 Affirmed in part; reversed in part.


                                    BY THE COURT:

                                    _______________________________________
                                    Ernest W. Gibson III, Associate Justice

                                    _______________________________________
                                    John A. Dooley, Associate Justice

                                    _______________________________________
                                    James L. Morse, Associate Justice
 [ ]  Publish
                                    _______________________________________
 [ ]  Do Not Publish                Denise R. Johnson, Associate Justice

                                    _______________________________________
                                    Louis P. Peck, Associate Justice (Ret.),
                                    Specially Assigned