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Ashley Bancstock Co. v. Meredith

Court of Appeals of Arkansas, Division IV

November 8, 2017



          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.


         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 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 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.

         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 ...

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