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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