Judgment rendered November 17, 2021. Application for rehearing may be filed within the delay allowed by Art. 2166, La. C.C.P.
No. 54,160-CA
COURT OF APPEAL SECOND CIRCUIT STATE OF LOUISIANA
*****
NELL SHEHEE Plaintiff-Appellee
versus
KILPATRICK’S ROSE-NEATH Defendant-Appellant FUNERAL HOMES, CREMATORIUM AND CEMETERIES, INC.
Appealed from the First Judicial District Court for the Parish of Caddo, Louisiana Trial Court No. 614,718
Honorable Ramon Lafitte, Judge
WILLIAM T. F. DYKES, A LAW Counsel for Appellant CORPORATION By: William T. F. Dykes
AYRES, SHELTON, WILLIAMS, Counsel for Appellee BENSON & PAINE, LLC By: Dannye W. Malone Lee H. Ayres J. Todd Benson R. Chaz Coleman
Before MOORE, STEPHENS, and THOMPSON, JJ. THOMPSON, J.
This matter arises from disgruntled, polarized siblings who inherited
equal interests in the family business who find themselves embroiled in a
dispute regarding access to corporate financial documents. After repeated
demands to inspect and copy corporate documents were disregarded, one
sibling instituted this mandamus suit, seeking an order of the court to force
the family business to produce her requested voluminous documents.
Pursuant to the Louisiana Business Corporations Act, the trial court ordered
the business to produce the requested documents, subject to a confidentiality
order. On behalf of the family business, the siblings with operational control
seek review of that order, asserting the absence of the required good faith
and proper purpose for requesting the records.
After a detailed review of the nature of the records sought, a
determination that they are relevant to the financial practices and well-being
of the company and include information pertinent in valuing the ownership
interests of the parties, the trial court ordered the company to produce most
of the requested documents. Because that finding of the trial court was not
manifestly erroneous, we affirm.
FACTS & PROCEDURAL HISTORY
Plaintiff, Nell Shehee (“Shehee”), and her three siblings inherited the
defendant business, Kilpatrick’s Rose-Neath Funeral Homes, Crematorium
and Cemeteries, Inc. (“Rose-Neath”). Each sibling owns a 25% share in
Rose-Neath. There has been an apparent longstanding battle between the
siblings regarding the control and operation of Rose-Neath, and they have
aligned themselves in two factions. On May 16, 2018, Shehee submitted a shareholder records request to Rose-Neath, pursuant to La. R.S. 12:1-
1602(C)1 of the Louisiana Business Corporations Act. Shehee hired Chad
Garland (“Garland”), a certified public accountant and business valuation
expert, to review the records so that her shares could be valued. Garland
submitted a list of 16 categories of documents that he needed to review in
order to properly value her shares in Rose-Neath, and Shehee’s demand
letter to Rose-Neath listed those categories of documents. On May 31, 2018,
Rose-Neath, through its attorney, replied that it would not be providing the
documents requested because Shehee did not meet the requirements of La.
R.S. 12:1-1602.
In June and July of 2018, multiple letters were exchanged between the
parties in attempts to resolve the dispute regarding the records request, to no
avail. On January 25, 2019, Shehee re-urged her records request, seeking
review of the original 16 categories of documents, along with a request to
review Rose-Neath’s monthly bank statements for the past five years. The
final categories of documents that Shehee requested to review are: (1)
monthly balance sheets from the past five years, (2) monthly profit and loss
statements from the past five years, (3) Rose-Neath’s tax returns from the
past five years, (4) Rose-Neath’s monthly bank statements from the past five
1 A shareholder of at least five percent of any class of the issued shares of a corporation for at least the preceding six months is entitled to inspect and copy, during regular business hours at a reasonable location specified by the corporation, any and all of the records of the corporation if the shareholder meets the requirements of Subsection D of this Section and gives the corporation a signed written notice of the shareholder's demand at least five business days before the date on which the shareholder wishes to inspect and copy the records. A shareholder of less than five percent of a corporation's issued shares may exercise the rights provided in this Subsection if the shareholder delivers to the corporation, either before or along with the written notice of demand, written consents to the demand by other shareholders who, in the aggregate with the shareholder making the demand, own the required percentage of shares for the required period.
2 years, (5) Rose-Neath’s general ledger from the past five years, (6) any
audits from the past five years, (7) any contracts and/or obligations pending
between Rose-Neath and any third parties, (8) any pending lawsuits and/or
claims between Rose-Neath and any third parties, (9) all company credit
card statements from the last five years for cards which were issued to any
and all officers and directors of Rose-Neath, (10) any appraisals of property
owned by Rose-Neath, (11) any debts and obligations owed on property
owned by Rose-Neath, (12) any and all leases and subleases of the real
estate formerly occupied by Reeves Marine, (13) any and all contracts with
A&M Shehee Interest, Inc., (14) any and all leases, management
agreements, consulting agreements, and any other contracts with any entity,
which is owned (in whole or in part) by any shareholder of Rose-Neath, (15)
any contracts, purchase orders, and invoices to or from Travis Grisham, (16)
any contracts, purchase agreements, and invoices to or from Charter
Brokerage, and (17) all minutes from Rose-Neath’s board meetings over the
past five years.
On February 21, 2019, Rose-Neath again denied Shehee’s request to
review the documents. Thereafter, the parties unsuccessfully attempted to
draft a non-disclosure agreement, in an effort to release the records. Finally,
on February 29, 2019, Shehee filed a writ of mandamus, requesting that the
district court order the inspection and copying of the books and records she
had requested from Rose-Neath.
A hearing was held on September 16, 2019, whereby the parties
presented arguments about whether an exchange of letters between the
parties in 2017 constituted a contract between the two parties to sell
3 Shehee’s shares at book value, whether a protective order was appropriate,
and whether Shehee was entitled to the 17 categories of documents
requested as a shareholder, pursuant to La. R.S. 12:1-1602. Rose-Neath
argued that on February 20, 2017, Shehee sent a letter, wherein she stated
she was an oppressed shareholder and offered to sell her shares of the
company to Rose-Neath for fair market value. On March 20, 2017, Andrew
Shehee and Margaret Shehee, Shehee’s siblings and the shareholders with
operational control of Rose-Neath, sent her a letter, accepting her offer to
sell her shares of Rose-Neath at book value. They cited Article 12 of Rose-
Neath’s Articles of Incorporation, which is a right of first refusal and states
that no shareholder shall ever sell, assign, transfer, or dispose of any of the
capital stock of the corporation unless and until she has first offered, for a
period of 30 days, her stock to the Board of Directors for the benefit of its
shareholders who made desire to purchase the stock at book value.
On November 21, 2019, the court ruled on the parties’ arguments, first
finding that there was no contract between Shehee and Andrew and
Margaret Shehee or Rose-Neath. The court held that the original offer made
by Shehee was to the company at fair market value and that she did not offer
the sale of the stock to the Board of Directors. Thus, Article 12 was not
invoked, and no offer was made to the Board at book value. The court
further held that the issue of whether Shehee may sell her stock to the
corporation at fair market value or must first offer the stock to the Board at
book value was not before the court, and it specifically made no ruling
regarding that issue.
4 The court further held that any records granted to Shehee must be kept
confidential. The court noted that Rose-Neath desired specific penalties to
be put into place in the event of a breach of confidentiality but held that the
court’s right to hold her in contempt would suffice. Finally, the court held
that Shehee was a shareholder and that her purpose in requesting the
documents was to determine the value of her shares, implicitly finding that
she was in good faith and had a proper purpose. After arguments from
counsel, the court decided to hear expert witnesses on the matter of whether
the requested documents were directly connected to the shareholder’s
purpose.
At a February 13, 2020 hearing, the court took testimony from
Garland and two experts for Rose-Neath, Ben Woods (“Woods”) and
William Frazier (“Frazier”). Garland testified that 16 of the above 17
categories of documents are directly related to his appraisal of Rose-Neath,
admitting that he would not need the monthly bank statements. Garland
testified that he used a list generated by a renowned expert in business
valuation to create his list of categories of documents. Garland further
testified that, as a business valuator, it is always better to have more
information than less because until he examines the records, he will not
know whether they are material to the business valuation or not. When
questioned by Rose-Neath’s counsel, Garland testified that he had not been
asked to determine whether personal expenses had been charged to the
company and stated that he had never met or spoken to Shehee. He
repeatedly testified that he was hired to perform a business valuation on
5 Shehee’s shares of Rose-Neath and the documents he requested are directly
related to that purpose.
Woods testified that he would unconditionally provide access to four
of the categories of documents: (4) Rose-Neath’s tax returns from the past
five years, (6) any audits from the past five years, (10) any appraisals of
immovable property, and (17) all minutes of Rose-Neath board meetings and
shareholder meetings. Woods further stated that, in the absence of audited
financial statements, he would also agree that nine other categories of
documents should be produced.2 Woods testified that four categories of
documents would not be necessary because the data would be included in
audited financial statements, including (1) monthly balance sheets from the
past five years, (2) monthly profit and loss statements from the past five
years, (3) Rose-Neath’s bank statements from the past five years, and (5)
Rose-Neath’s general ledger from the past five years. However, Woods
testified that he has used the general ledger to perform an evaluation of a
company when there are unaudited financials. Under questioning, Woods
testified that if he did not have audited financial documents, he would need a
majority of the categories of documents requested by Shehee in order to
produce a proper business valuation.
2 Those categories of documents include: (7) any contracts and/or obligations pending between Rose-Neath and any third parties, (8) any pending lawsuits and/or claims between Rose-Neath and any third parties, (9) all company credit card statements from the last five years for cards which were issued to any and all officers and directors of Rose-Neath, (10) any appraisals of property owned by Rose-Neath, (11) any debts and obligations owed on property owned by Rose-Neath, (12) any and all leases and subleases of the real estate formerly occupied by Reeves Marine, (13) any and all contracts with A&M Shehee Interest, Inc., (14) any and all leases, management agreements, consulting agreements, and any other contracts with any entity, which is owned (in whole or in part) by any shareholder of Rose-Neath, (15) any contracts, purchase orders, and invoices to or from Travis Grisham, and (16) any contracts, purchase agreements, and invoices to or from Charter Brokerage.
6 Frazier also agreed that some of the documents requested by Shehee
were appropriate for an appraisal, including (4) tax returns for the past five
years, (6) any audits for the past five years, (11) any debts and obligations
owed on real or immovable property owned by Rose-Neath, and (17) all
minutes from Rose-Neath’s board meetings over the past five years. Frazier
testified that he would not have requested many of the categories of
documents. He testified that his process is to requested a smaller number of
documents because much of the information is contained in audited
financials. He testified that he has never requested a general ledger. He and
Woods both testified that after examining the documents they had originally
requested, they would request further documentation from the company if
they found that they needed further information.
After reviewing the testimony and evidence, on August 25, 2020, the
trial court ruled that Rose-Neath must produce 16 categories of documents,
removing the monthly bank statements from the list of documents to be
produced. The court, in a detailed ruling, listed each category of documents
requested by Shehee and described the testimony elicited from each expert
regarding that category. The court noted that Rose-Neath’s experts testified
that many of the categories of documents to which they objected would in
fact be necessary if the company did not have audited financial records. The
court confirmed with Rose-Neath’s counsel that the company did not have
five years of audited financial records before ruling that Rose-Neath must
produce all of the requested documents, except the monthly bank statements,
to Shehee.
7 The court also confirmed that despite Rose-Neath’s own experts
testifying that several categories of documents would be necessary for a
business valuation, Rose-Neath had not provided any documents to Shehee,
except the minutes from the last five years of board meetings. Considering
this, the trial court found that Rose-Neath was not in good faith and,
pursuant to La. R.S. 12:1-1604, ordered the company to pay Shehee’s
attorney’s fees and costs, including expert witness fees in connection with
the hearing. This appeal followed.
STANDARD OF REVIEW
The parties disagree as to the standard of review appropriate in this
case. Rose-Neath urges this court to examine the matter under a de novo
standard of review, citing Lawrence v. Terral Seed, Inc., 35,019 (La. App. 2
Cir. 9/26/01), 796 So. 2d 115, writ denied, 01-3134 (La. 2/1/02), 808 So. 2d
341. Lawrence, supra, involves the interpretation of a contract, meaning the
preliminary inquiry into whether the contract is ambiguous is a question of
law. Shehee asserts that the appropriate standard of review is manifest error,
and we agree.
A district court’s findings of fact in a mandamus proceeding are
subject to a manifest error standard of review. Town of Sterlington v.
Greater Ouachita Water Co., 52,482 (La. App. 2 Cir. 4/10/19), 268 So. 3d
1257, writ denied 19-0913 (La. 9/24/19), 279 So. 3d 386. An appellate court
may not set aside a trial court’s findings of fact in absence of manifest error
or unless it is clearly wrong. Bernard v. Louisiana Testing & Inspection,
Inc., 19-575 (La. App. 3 Cir. 2/5/20), 290 So. 3d 239, citing Rosell v. ESCO,
549 So. 2d 840 (La. 1989). Where there is a conflict in testimony,
8 reasonable evaluations of credibility and reasonable inferences of fact should
not be disturbed on review, even if the appellate court feels that its own
evaluations and inferences are as reasonable. Stobart v. State, Through
Dept. of Transp. & Dev., 617 So. 2d 880 (La. 1993); Wells v. Town of Delhi,
53,607 (La. App. 2 Cir. 3/3/21), 316 So. 3d 1257. The appellate court may
not reverse simply because it is convinced that, had it been sitting as trier of
fact, it would have ruled differently. If there are two permissible views of
the evidence, the factfinder’s choice between them can virtually never be
manifestly erroneous or clearly wrong. Lewis v. State, Through Dept. of
Trans. & Dev., 94-2370 (La. 4/21/95), 654 So. 2d 311.
ASSIGNMENTS OF ERROR
Appellant, Rose-Neath, asserts eight assignments of error, primarily
focused on the trial court’s ruling on the breadth, width, and scope of the
documents ordered disclosed by the trial court, as well as Shehee’s motive
when requesting the documents. We will address each of the assignments of
error individually below.
DISCUSSION
This yet another sad situation of disputes between siblings that arise
when control of a family business changes hands from generation to the
next. Such intrafamily struggles and contention become so volatile that
relations are strained or broken and attorneys are brought in to litigate family
disputes, was likely the impetus for the coining of the phrase “turning over
in their grave” regarding deceased parents relative to unseemly disputes
between their children.
9 A shareholder’s financial interest in a corporation is at the core of the
right to inspect the books and records of the corporation. The crux of this
proceeding is the parties’ ongoing disagreement over whether Shehee’s right
to view the documents and the content of her demand satisfies the provisions
of La. R.S. 12:1-1602, which states that a shareholder of a corporation is
entitled to inspect and copy any of the records of the corporation as long as
the shareholder: (1) owns at least five percent of any class of the issued
shares, (2) gives the corporation a signed written notice of demand at least
five days prior to the inspection, and (3) satisfies the requirements set forth
in subsection (D) of the statute. La. R.S. 12:1-1602(C). Subsection D of the
statute provides:
A shareholder may inspect and copy the records described in Subsection C of this Section only if the following conditions are satisfied:
(1) 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.
(3) The records are directly connected with the shareholder's purpose.
La. R.S. 12:1-1602(D).
It is undisputed that Shehee owns more than five percent of Rose-
Neath and that she provided timely written demand to view corporate
records.
Assignment of Error Number 1: Whether or not plaintiff has the burden of proof regarding each of the statutory requirements [mandated by La. R.S. 12:1-1602(C)] described in La. R.S. 12:1- 1602(D)(1), (2), and (3).
10 Rose-Neath asserts that Shehee has the burden of proving each
element of La. R.S. 12:1-1602(D). Rose-Neath contends that the trial court
correctly stated the statute but argues that it failed to make a finding of fact
regarding whether Shehee had satisfied her burden.
Generally, plaintiffs have the burden of proving the elements of their
case by a preponderance of the evidence. Bernard, supra. The plain
language of La. R.S. 12:1-1602(D) states that shareholders will have the
right to inspect and copy records only if they satisfy the three conditions set
forth therein. Shehee, as shareholder, was required to satisfy the above three
conditions before she would be given access to the requested documents.
Although the trial court may not have explicitly stated that Shehee
satisfied her burden of proof, a review of the record reveals that the court
was familiar with the statutory language of La. R.S. 12:1-1602, stated it on
the record, and then applied the facts presented at various hearings to that
standard. Even implicit findings of fact fall under the manifestly wrong
standard of review. Virgil v. Am. Guar. & Liab. Ins. Co., 507 So. 2d 825,
826 (La. 1987); Port City Glass & Paint, Inc. v. Simmie Brooks, 52,534 (La.
App. 2 Cir. 2/27/19), 266 So. 3d 516. We cannot find that the trial court was
manifestly erroneous in its determination that Shehee satisfied her burden of
proof. This assignment of error is without merit.
Assignment of Error Number 2: Whether or not the “value” of the shares referenced in the demand letter means or includes the “oppressed shareholder” valuation standard of La. R.S. 12:1-1435 and, if so, whether or not such standard requires an investigation to determine whether personal expenses were paid.
Rose-Neath argues that because Shehee was not an oppressed
shareholder on the date of her demand letter, the value of her shares cannot
11 be determined utilizing the oppressed shareholder standard contained in La.
R.S. 12:1-1435(C).3 Rose-Neath argues that Shehee’s status as an oppressed
shareholder determines the value of her shares, i.e. whether they are valued
under a fair value or fair market value standard. Rose-Neath further argues
that because Shehee is not an oppressed shareholder, none of the records
demanded by her expert that relate solely to that standard are directly
connected to the shareholder’s purpose.
In her brief and in oral argument on this matter, Shehee does not
claim to be an oppressed shareholder. She instead argues that it is irrelevant
to this mandamus act if she is an oppressed shareholder or not. She is
asserting her right as a shareholder to inspect and copy corporate records,
and the determination of the type of value that will eventually be placed on
her shares is wholly irrelevant.
A review of the record indicates that while there was discussion at the
trial court about the differences between a fair value and fair market value
standard, Garland maintained that the categories of documents he requested
were necessary to the purpose of valuing Shehee’s shares. The issue before
the trial court and, thus, this appeal, is whether Shehee has a right to inspect
and copy corporate documents pursuant to La. R.S. 12:1602. The trial court
judge was very clear that the scope of his ruling was limited to whether
Shehee had a right to inspect and copy corporate records as a current
3 La. R.S. 12:1-1435(C) states (1) The term “fair value” has the same meaning in this Section and in R.S. 12:1-1436 as it does in R.S. 12:1-1301(4) concerning appraisal rights, except that the value of a withdrawing shareholder's shares is to be determined as of the effective date of the notice of withdrawal pursuant to Subsection D of this Section. (2) The context of the transaction requiring appraisal, as described in R.S. 12:1-1301(4), is a sale of the entire corporation in an arm's-length transaction by a person who owns all of the shares in the corporation.
12 shareholder. As Shehee notes in her brief, her shares are not currently being
offered for sale and she has not been able to even begin the process of
valuing her shares because she does not have the appropriate corporate
records. As such, we find the issue of whether or not the “value” of the
shares referenced in the demand letter means or includes the “oppressed
shareholder” valuation standard of La. R.S. 12:1-1435 is not an issue not
before this court. Insofar as this assignment of error is related to whether the
corporate records are related to Shehee’s purpose, that issue is discussed
under the sixth assignment of error. This assignment of error is without
merit.
Assignment of Error Number 3: Whether or not plaintiff described (a) her alleged purpose and (b) the records she desires to inspect with “reasonable particularity” within La. R.S. 12:1-1602(D)(2).
Rose-Neath argues that Garland’s testimony at trial established that
Shehee’s demand failed to describe her purpose in evaluating her shares of
stock with reasonable particularity, and because of this lack of particularity,
Garland requested a broad range of documents so he could perform his
appraisal. Rose-Neath again argues that the determination of whether a fair
market value or fair value appraisal is being conducted requires different
records to evaluate and, without support, argues that such a determination
must happen before the records are provided to the shareholder.
Shehee’s demand letter stated that her purpose in examining the
company’s records was “to fully and completely evaluate the value of Ms.
Shehee’s shares of Rose-Neath stock.” Rose-Neath urges us to believe that
this stated purpose is vague and undefined.
13 The trial court examined the parties briefs on this matter and heard
extensive expert witness testimony on the appropriate documents for
Shehee’s stated purpose. Shehee’s expert provided a list of the categories of
documents he needed to inspect and testified at length about those categories
of documents. As a shareholder, Shehee is entitled to know the value of the
corporation in which she maintains an ownership interest. We cannot find
that the trial court was manifestly erroneous in its determination that Shehee
satisfied the requirements of La. R.S. 12:1-1602(D)(2). This assignment of
error is without merit.
Assignment of Error Number 4: Whether or not plaintiff’s demand is made “in good faith” and “for a proper purpose” within La. R.S 12:1602(D)(1).
Rose-Neath argues that Shehee is not in good faith because her
demand includes documents that it claims are not directly connected with the
shareholder’s purpose. Rose-Neath further argues that Shehee’s demand
was not made for a proper purpose. It alleges that her true purpose is not to
value her shares but, rather, is a fishing expedition to find information
regarding her siblings’ personal expenses allegedly being improperly paid by
Rose-Neath’s funds.
As to good faith, the burden of proving that a shareholder possessed
ill motive is on the corporation seeking to deny the shareholder’s right to
inspect the records. Ales v. Sewell, 00-2017 (La. App. 4 Cir. 10/17/01), 800
So. 2d 36. The corporation has the burden of proving any statutory defense,
such as the shareholder’s status as a business competitor, or the
confidentiality of the requested documents. Id. Rose-Neath has failed to
14 establish a shareholder’s inquiry in to the financial condition of the company
was not made in good faith.
Regarding proper purpose, Shehee’s asserted purpose is to determine
the value of the corporation so that she can determine the value of her
individual ownership interest. The Louisiana Business Corporation Act
(“LBCA”) does not define “proper purpose.” The Model Business
Corporation Act (“MBCA”), which Rose-Neath urges this court to consider,
suggests broadly that a proper purpose is “a purpose that is reasonably
relevant to the demanding shareholder’s interest as a shareholder.” Mod.
Bus. Corp. Act § 16.02 Official Comment 3 (2011).
Although not statutorily defined, Louisiana jurisprudence has found
that a shareholder has a proper purpose when he wants to ascertain the value
of his shares. Naquin v. Air Engineered Sys. & Serv., Inc., 423 So. 2d 713
(La. App. 3 Cir. 1983); Feil v. Greater Lakeside Corp., 09-441 (La. App. 5
Cir. 1/2610), 31 So. 3d 520.4 Other proper purposes include seeking reasons
for declining profits or to discover mismanagement or conflicts of interest.
Feil, supra. In Feil, supra, the court found that “the right to inspect should
extend to all relevant records necessary to inform the shareholder about
corporate matters in which he has a valid interest.” The court found that the
scope of the shareholder’s inspection right under the statute is wide-
reaching. However, the trial court can limit requests for indiscriminate or
4 Rose-Neath urges this court to discount the above jurisprudence because it was decided under a prior version of the statute, which required that a shareholder have a “proper and reasonable purpose” for examining the corporation’s records. We do not find this argument persuasive. The requirement that a shareholder have a “proper purpose” and a “proper and reasonable purpose” are not so different as to leave all case law that has cited the predecessor statute as irrelevant to the current issue.
15 blanket inspection of documents that it considers to be “fishing expeditions.”
Id.
Shehee asserted in her demand letter and has continued to assert
throughout this litigation that the records she is seeking are relevant and
crucial to her ability to determine the value of her shares of Rose-Neath.
Garland repeatedly testified that he prepared the list of documents requested
and that he was hired to value Shehee’s shares in Rose-Neath. He explicitly
denied that he was asked to conduct a forensic accounting or to search
specifically for personal expenditures charged by Shehee’s siblings to the
company. Garland testified that he based his requested documents on a
seminal business valuating text created by a pioneer in the field and
provided a copy of that text to the trial court. Garland further testified that
he had not discussed with Shehee or anyone on her behalf any other motive
or purpose for his appraisal.
The documents and records requested by Shehee all fall under the
umbrella of information pertinent to establishing the financial condition and,
therefore, the value of Rose Neath. There is ample evidence in the record
that Shehee satisfied her burden of proving that she was in good faith and
that she had a proper purpose in seeking the requested documents. There is
no manifest error in the trial court finding that Shehee was in good faith and
with a proper purpose, and this assignment of error lacks merit.
Assignment of Error Number 5: Whether or not (a) the right of first refusal provided in Article XII of defendant’s Articles of Incorporation places a ceiling on the value of plaintiff’s shares and (b) the trial judge erred in excluding relevant evidence.
Rose-Neath’s next argument contends that because of the date of
Shehee’s demand letter, she was legally obligated under Rose-Neath’s
16 Articles of Incorporation to sell her share to other shareholders at book
value. As discussed above, Article XII of Rose-Neath’s Articles of
Incorporation is a right of first refusal, which states that no shareholder shall
ever sell, assign, transfer, or dispose of any of the capital stock of the
corporation unless and until she has first offered, for a period of 30 days, his
stock to the Board of Directors for the benefit of its shareholders who made
desire to purchase the stock at book value. Rose-Neath argues that because
Shehee’s shares of stock are subject to the Article XII first right of refusal,
Shehee could not possibly have a valid interest in determining the value of
her shares and, thus, has no proper purpose for seeking the corporate
documents. We find this argument unpersuasive.
As a preliminary matter, Article XII of Rose-Neath’s articles of
incorporation does not establish the value of the corporation or a
shareholder’s ownership interest. Instead, it merely provides a formula to
set a potential purchase price by which a specific identified class of potential
purchasers may purchase the shares in the corporation. The right of first
refusal is not an obligation to purchase. There is no requirement the right of
first refusal must be exercised. If not exercised, Shehee would be free to sell
her shares based on fair market value.
As noted in the second assignment of error, whether Shehee ever sells
her shares, the value that she will later seek for her shares, and to whom she
sells those shares is not currently at issue before this court. The trial court
specifically found that “whether Nell may sell her stock to the corporation at
fair market value or must first offer the stock to the Board is an issue that is
currently not before the Court at this time.” We agree. The matter before us
17 is whether an undisputed 25% shareholder of a company has a right to
inspect and copy records of the corporation. The trial court found that the
issue of whether Rose-Neath’s Articles of Incorporation will be applicable to
any future sale of Shehee’s stock is not relevant to this proceeding. A
shareholder is entitled to review those documents generally accepted to be
relevant to determining the financial condition and value of the corporation,
notwithstanding any right of first refusal which includes share price
valuation formula. We find no manifest error in the holding of the trial
court, and accordingly, this assignment of error is without merit.
Assignment of Error Number 6: Whether or not the records demanded by plaintiff are “directly connected with the shareholder’s purpose” within La. R.S. 12:1-1602(D)(3).
Rose-Neath contends that the district court imposed the burden of
proof on it to show that the records requested by Shehee were not directly
connected to valuing her shares. Additionally, Rose-Neath asserts that the
trial court erred in determining that 16 of the 17 categories requested by
Shehee were necessary due to Rose-Neath not having consecutive audited
financial statements covering 2014 to 2018.
A review of the record reveals that the trial court was familiar with the
applicable statutes and jurisprudence and took witness testimony from both
parties regarding whether the 17 categories of documents were directly
connected with Shehee’s purpose of valuing her shares. In a lengthy ruling,
the trial court examined each of the 17 categories of documents, in turn,
discussing each expert’s testimony about whether that category was directly
related to valuing shares or under what circumstances it could be necessary
to the value her shares. The three experts’ testimony varied in the categories
18 of documents that they each felt would be necessary for a business valuation.
The trial court noted that all three experts agreed that if there were no
audited financial statements for a year, the business valuator would need
additional documents to replicate the information that would be contained in
an audited statement.
Where there is conflicting testimony between witnesses and experts, it
is the duty of the trial court to make credibility determinations. Martin v. E.
Jefferson Gen. Hosp., 582 So. 2d 1272 (La. 1991); Wells, supra. Credibility
determinations made by the trial court are not to be disturbed unless
manifestly erroneous or clearly wrong. Wells, supra. We cannot say that
the trial court erred in its determinations regarding the conflicting expert
witness testimony and holding that Shehee was entitled to 16 of the 17
requested categories of documents. This assignment of error is without
Assignment of Error Number 7: Whether or not defendant “refused inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder to inspect the records demanded” within La. R.S. 12:1-1604(C).
Rose-Neath argues that the trial court erred in finding that it was not
in good faith in refusing to provide the documents requested by Shehee and
awarding her attorney’s fees and costs, including expert witness fees.
Again, this court is bound to determine whether the trial court was
manifestly erroneous and not to conclude whether we would have reached a
different conclusion.
The record is clear that Shehee made her initial demand for
documents on May 16, 2018. After Rose-Neath’s refusal to provide her with
the requested documents, she filed this mandamus action. The trial court
19 ruled on November 21, 2019 that Shehee had a right to inspect the requested
records, implicitly finding that she was in good faith and had a proper
purpose. After argument by counsel, the court agreed to hear expert witness
testimony regarding whether each category of document requested was
directly connected with her stated purpose of valuing her stock.
At the February 13, 2020 hearing, Rose-Neath’s experts both testified
that Rose-Neath’s tax returns from the past five years, any audits from the
past five years, and all minutes of the board meetings and shareholder
meetings should be produced, as they are directly connected to valuing
shares. Both experts also testified that they would need additional
documents if there were no audited financial statements. It is undisputed
that Rose-Neath does not have five consecutive years of audited financials.
At the August 25, 2020 hearing, Rose-Neath’s counsel informed the
trial court that Rose-Neath had only provided Shehee with the minutes from
the board meetings and had not provided her with any other documents, even
though its own experts agreed that some of the categories of documents
would be necessary for a valuation of her shares. Apparently, the decision to
deliver to Shehee the documents that were undisputedly appropriate
somehow fell victim to the ongoing dispute regarding other requested
documents. We cannot say there was manifest error in the trial court’s
finding that Rose-Neath was not in good faith when it refused to provide any
documents, save the minutes, to Shehee. This assignment of error is without
Assignment of Error Number 8: Whether or not the trial judge abused his discretion in refusing to issue an appropriate Protective Order under La. R.S. 12:1-1604(D) (a) prohibiting plaintiff from
20 making unauthorized disclosures of confidential information and (b) imposing reasonable restrictions on the use and distribution thereof.
Rose-Neath argues that the trial court abused its discretion in refusing
to issue an appropriate protective order under La. R.S. 12:1-1604(D). At the
November 21, 2019 hearing, the trial court ruled the following:
Additionally, Nell is hereby granted the right to inspect the requested records outlined in her petition, however, these records must be kept confidential. If, of course, and I know there is some concern as past dealings, if they are not kept confidential, you do have a right to file a rule for contempt on behalf of your clients. I’m not going to state what she would face if they’re not kept confidential at this time, but if she does not keep them confidential and we’re back here before the Court again, she will be held in contempt.
La. R.S. 12:1-1604(D) states “if the court orders inspection and copying of
the records demanded, it may impose reasonable restrictions on the use or
distribution of the records by the demanding shareholder.” La. R.S. 12:1-
1604(D) allows a court to impose restrictions on the use or distribution of
records by a demanding shareholder, but it does not mandate that a court
impose those restrictions.
Although not mandated to do so, the trial court imposed a
confidentiality order on Shehee, and the breach of that order could result in
contempt. This assignment of error is likewise without merit.
CONCLUSION
For the foregoing reasons, we affirm the trial court’s ruling and tax
costs of the appeal to the defendant, Kilpatrick’s Rose-Neath Funeral
Homes, Crematorium and Cemeteries, Inc.
AFFIRMED.