Towle v. Robinson Springs Corp.

Towle v. Robinson Springs Corp.  (97-328); 168 Vt. 226; 719 A.2d 880

[Filed 28-Aug-1998]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                            No. 97-328


Roderick M. Towle, as Executor               Supreme Court
of the Estate of James F. Tooley
                                             On Appeal from
    v.                                       Lamoille Superior Court

Robinson Springs Corporation and             May Term, 1998
Olaf Rasmussen


Ronald F. Kilburn, J.

       Peter G. Anderson, Stowe, for Plaintiff-Appellee.

       Harold B. Stevens and Elizabeth A. Magovern, Law Clerk (On the Brief),
  of Stevens Law Office, for Defendant-Appellant.


PRESENT:  Amestoy, C.J., Dooley, Morse, Johnson and Skoglund, JJ.


       AMESTOY, C.J.   Defendant Robinson Springs Corporation (RSC) appeals
  from an order of the Lamoille Superior Court directing it to provide James
  F. Tooley access to its books and records and to pay the shareholder's
  attorney's fees.(FN1)  RSC argues that the court erred in (1) ordering it to
  allow the shareholder to inspect its records and adopting the shareholder s
  proposed findings verbatim, and (2) awarding attorney s fees.  We affirm
  the trial court's ruling, but remand for further evidence as to the
  reasonableness of the award of attorney's fees.

       Tooley was a shareholder of RSC, a closely held Vermont corporation. 
  In 1995, he requested to inspect RSC's books and records in order to
  examine its accounting practices and allegedly excessive expenses.  RSC
  denied this request.  Later the same year, Tooley renewed his request,
  asking to inspect RSC's payroll journals, cash disbursement journals,
  purchase

 

  journals, cash receipts journals, the general ledger, and RSC's federal and
  state corporate income tax returns.  Tooley requested these materials for
  the stated purposes of valuating his shares of RSC stock and ascertaining
  the financial status and health of the corporation.  RSC again denied the
  request.  In response to this refusal, Tooley sought an injunction
  requiring RSC to make its books and records available for inspection and
  examination.

       The court found that Tooley had made the request in good faith and for
  a proper purpose. See 11A V.S.A. § 16.02(c)(1) (requiring such showing as
  prerequisite to inspection rights).  The court also found that RSC had no
  reasonable basis to deny the request because it had failed to meet its
  burden to prove that the request was made for an improper purpose.  The
  court then ordered RSC to produce specific corporate records for
  inspection, and, pursuant to 11A V.S.A. § 16.04(c), to pay all costs,
  including Tooley's reasonable attorney's fees.  RSC appeals.


                  I.  The Shareholder's Right to Inspection

       RSC argues that the court erred in ordering the inspection of its
  books and records because Tooley did not have a proper purpose to conduct
  the inspection and because substituted items would suffice.  Vermont's
  Business Corporation Act, 11A V.S.A. §§ 1.01 - 20.16, permits a shareholder
  to inspect and copy corporate records only if "(1) the shareholder
  establishes that the shareholder's demand is made in good faith and for a
  proper purpose; (2) the shareholder describes with reasonable particularity
  the shareholder's purpose and the records the shareholder desires to
  inspect; and (3) the records are directly connected with the shareholder's
  purpose."  Id. § 16.02(c).  In a request to inspect corporate records, the
  shareholder bears the initial burden of stating a proper purpose.  See 11A
  V.S.A. § 16.02(c)(1).

       There is little guidance from Vermont case law on what constitutes a
  proper purpose. Vermont's Business Corporations Act does not directly
  follow the Model Business Corporation Act, but we have looked in the past
  to both commentary on the Model Act and case law from other states to
  provide guidance in interpreting Vermont's law.  See Kalanges v. Champlain
  Valley Exposition, 160 Vt. 644, 645, 632 A.2d 357, 358 (1993).  To be
  proper, a purpose must

 

  be reasonably relevant to one s interests as a shareholder.  See id. 
  Proper purposes include the valuation of shares, ascertaining the
  possibility of mismanagement, and determining the performance and condition
  of the company.  See id.; 453 A.2d  at 792; Helmsman Management Servs., Inc.
  v. A & S Consultants, Inc., 525 A.2d 160, 165 (Del. 1987) (situations may
  arise in closely held corporation where shareholder needs to valuate his
  stock "to enable him to decide whether or not to sell, and, if so, on what
  terms").  Claims of mismanagement, however, must be supported by evidence. 
  See Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1031 (Del.
  1996).  Finally, although a single proper purpose is sufficient to warrant
  an inspection, see Weigel v. O Connor, 373 N.E.2d 421, 428 (Ill. App. Ct.
  1978), requesting an inspection for harassment or to satisfy idle curiosity
  constitutes an improper purpose, see CM & M Group v. Caroll, 453 A.2d 788,
  792 (Del. 1982).

       When requesting to inspect a corporation's records, the shareholder
  must state the proper purpose and the records to be searched with
  reasonable particularity.  See 11A V.S.A. § 16.02(c)(2).  Moreover, the
  requested records must be "directly connected with the shareholder s
  purpose."  11A V.S.A § 16.02(c)(3).  If the purpose is valuation of stock,
  the essential data needed is, in large part, a factual determination to be
  overturned only if clearly erroneous.  See CM & M Group, 453 A.2d  at 793.

       Once a shareholder asserts a proper purpose, the burden then shifts to
  the corporation to prove that an improper purpose is the primary purpose
  for inspection or that the shareholder s request is made in bad faith.  See
  Compaq Computer Corp. v. Horton, 631 A.2d 1, 3 (Del. 1993) ("[W]hen a
  shareholder complies with the statutory requirements as to form and manner
  of making a demand, then the corporation bears the burden of proving that
  the demand is for an improper purpose."); see also Kalanges, 160 Vt. at
  646, 632 A.2d  at 359 (the trend is to presume a proper purpose and shift
  the burden to defendant to prove an improper purpose) (citing Miles v. Bank
  of Heflin, 328 So. 2d. 281, 288 (Ala. 1975)).  Hostility between parties,
  however, is not itself sufficient to prevent access to corporate records. 
  See Kalanges, 160 Vt.

 

  at 645, 632 A.2d  at 359.

                  II. The Court's Findings and Conclusions

       RSC claims error in the court's ultimate conclusion that the evidence
  presented by Tooley established that "his reasons for seeking to inspect
  the records . . . [were] reasonably relevant to his interests as a
  shareholder."  RSC contends this conclusion is not supported by the
  findings of fact.  It asserts that no credible evidence exists to support
  three of the court's fifty-five findings of fact and challenges the court's
  verbatim adoption of Tooley's proposed findings.  In order to overturn a
  factual finding, "appellant must show [that] there is no credible evidence
  to support the finding."  Highgate Assocs. v. Merryfield, 157 Vt. 313, 315,
  597 A.2d 1280, 1281 (1991).  The trial court may adopt proposed findings
  verbatim.  See V.R.C.P. 52(a)(2); Mills v. Mills, __ Vt. __, __, 702 A.2d 79, 81 (1997).

       RSC argues that the court erred in finding that because its financial
  statements had not been audited, they were unreliable.  It contends that
  the court relied solely on Tooley's testimony for this finding despite
  contrary evidence and testimony from RSC's accountant.  The court, however,
  found the evidence and testimony Tooley presented to be more credible.  
  When the evidence is conflicting the credibility of the witnesses, the
  weight of the evidence, and its persuasive effect are questions for the
  trier of fact, and its determination must stand if supported by credible
  evidence even though there may be inconsistencies or substantial evidence
  to the contrary.   Concra Corp. v. Andrus, 141 Vt. 169, 173, 446 A.2d 363,
  365 (1982).

       RSC asserts that two findings related to its response to Tooley's
  requests were not supported by credible evidence.  First, the court found
  that "[a]s a shareholder of RSC, plaintiff has had ongoing concerns
  regarding the management of RSC which he has addressed to the corporation
  through Olaf Rasmussen [RSC s president].  RSC has failed to adequately
  respond to said concerns."  Second, the court found that "[d]espite
  repeated requests by plaintiff to examine the corporate records, RSC has
  denied plaintiff personal access to said records. Instead, RSC has
  attempted to predetermine who should access the records on behalf of
  Plaintiff

 

  and which records could be accessed."  The record supports both of the
  challenged findings. The shareholder wrote letters in 1985 and 1986 to
  Rasmussen voicing concerns about RSC s management.  In addition, the record
  contains at least four letters from Tooley's attorney to RSC and its
  attorney over a six month period in late 1995.  These letters state
  Tooley's concerns about mismanagement and his desire to inspect RSC's books
  and records.  In response to these requests, Rasmussen and his attorney
  reiterated RSC's refusal to allow Tooley to inspect the books because he
  had allegedly failed to establish good faith and a proper purpose. 
  Although on occasion, RSC wrote that it would allow inspection of a portion
  of its records, the record supports the court's findings that the records
  offered for review by RSC were insufficient to adequately address Tooley's
  concerns.

       Finally, RSC argues that at most, Tooley established only a need to
  inspect corporate records related to a mortgage transaction involving the
  son of the president of the corporation, and the payment of rent by the
  president's spouse.  The extent and scope of an inspection is largely a
  factual determination to be overturned only if clearly wrong. See CM & M
  Group, 453 A.2d  at 793.  RSC's argument to limit the scope of Tooley's
  inspection to specific transactions is contravened by the findings of the
  trial court.  Those findings -- that Tooley was entitled to inspect records
  related to the value of the corporation's stock, the financial status of
  the corporation, and claims of financial mismanagement -- are adequately
  supported by the record. Accordingly, the court's findings will not be
  disturbed.

                            III. Attorney's Fees

       RSC contends that the court erred in awarding Tooley attorney's fees. 
  Under the Business Corporation Act, "[i]f the court orders inspection and
  copying of the records demanded, it shall also order the corporation to pay
  the shareholder's costs (including reasonable counsel fees) incurred to
  obtain the order."  11A V.S.A. § 16.04(c).  The award may be avoided if
  "the corporation proves that it refused inspection in good faith because it
  had a reasonable basis for doubt about the right of the shareholder to
  inspect the records demanded."  Id.  The

 

  court concluded that RSC did not meet this burden and we discern no clear
  error.  Where an award of reasonable attorney's fees is statutorily proper,
  it will not be reversed.  See In re Gadhue, 149 Vt. 322, 327, 544 A.2d 1151, 1154 (1988) (under American Rule, awarding attorney's fees is proper
  if statutorily authorized).

       The corporation contends that even if an award of attorney's fees is
  proper, there was insufficient evidence to support the reasonableness of
  the amount.  In view of the court s statement that it was "difficult if not
  impossible . . . to conclude from the evidence presented which of Attorney
  Anderson s charges were reasonable and necessary," we remand for further
  evidence as to the reasonableness of the award of attorney s fees.  See 
  Bruntaeger v. Zeller, 147 Vt. 247, 255, 515 A.2d 123, 128 (1986) (When an
  attorney s fees in dispute, "the record is often best served on the issue
  of reasonableness by the receipt of expert testimony from independent
  counsel.").

       Affirmed, except the award of attorney's fees, which is remanded for
  further proceedings.


                              FOR THE COURT:



                              _______________________________________
                              Chief Justice




  ---------------------------------------------------------------------------
                                  Footnotes


FN1.  During the pendency of this appeal James F. Tooley died. 
  Pursuant to an order of this Court, Roderick M. Towle, executor and sole
  trustee of appellee's estate, was substituted as the proper party.  See
  V.R.A.P. 43(a).