Title: Retail Property Investors Inc. v. Skeens

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  Carrico, C.J., Compton, Stephenson, Lacy, Keenan, and 
Koontz, JJ., and Whiting, Senior Justice 
 
RETAIL PROPERTY INVESTORS, INC. 
 
OPINION BY JUSTICE ROSCOE B. STEPHENSON, JR. 
v.  Record No. 951718 
                                     June 7, 1996 
GEORGE A. SKEENS 
 
 
FROM THE CIRCUIT COURT OF HENRICO COUNTY 
 
Buford M. Parsons, Jr., Judge 
 
 
In this appeal, we decide whether the trial court erred in 
ordering a corporation to permit one of its shareholders to 
inspect and copy its shareholder list. 
 
George A. Skeens filed a petition for a writ of mandamus, 
pursuant to Code § 13.1-771, to compel Retail Property Investors, 
Inc. (RPI) to produce its shareholder list for his inspection.  
With leave of court, RPI's counsel deposed Skeens, and Skeens' 
counsel deposed Barbara Woolhandler, a senior vice president of 
RPI, and, without objection, these depositions were made a part 
of the record.  On June 16, 1995, the trial court conducted an 
evidentiary hearing, and, at its conclusion, the court ordered 
RPI to produce its shareholder list.  RPI appeals. 
 
RPI is a Virginia corporation operating as a real estate 
investment trust (REIT).  During 1989 and 1990, RPI shares of 
stock were sold by PaineWebber Incorporated (PaineWebber).  RPI 
is managed by PaineWebber Properties Incorporated, a wholly owned 
subsidiary of PaineWebber. 
 
In October 1990, Skeens purchased from PaineWebber 25,000 
shares of RPI at a price of $250,000.  Skeens testified that he 
made the investment after a PaineWebber broker "guaranteed" that 
he would double or triple his money, and, for approximately three 
 
 
 
 
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years thereafter, RPI paid dividends.  By early 1994, however, 
RPI's value, like the value of many other REITs, began to 
decline, and the payment of dividends ceased. 
 
By letter dated January 6, 1995, Skeens requested that RPI 
provide him with the names and addresses of all its shareholders 
and the number of shares held by each or to allow him or his 
attorney to inspect and copy such information.  Skeens stated in 
the letter that he was requesting the information so that he or 
his attorney could communicate with the other shareholders about 
the following: 
 
1) 
The misleading manner in which RPI's shares 
were sold to [him] and others . . . ; 
 
 
2) 
The mismanagement of RPI by its officers and 
directors . . . ; 
 
 
3) 
The generation and distribution of misleading 
information via . . . reports concerning the 
management and status of RPI . . . ; 
 
 
4) 
The misleading manner in which the 
shareholders' votes were solicited for the 
annual meeting held September 7, 1993; and 
 
 
5) 
The cessation of dividend payments by RPI 
. . . and the misleading explanation given by 
RPI for [the] dividend cessation. 
 
 
Woolhandler, on behalf of RPI, responded to Skeens' request 
by letter dated January 10, 1995.  She advised Skeens that she 
would send him the requested information after he signed an 
enclosed "certification" and paid a $300 administrative fee.  
Woolhandler explained that the certification was necessary "to 
assure that [Skeens'] request [was] for a proper purpose."  The 
 
 
 
 
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enclosed certification required Skeens and his counsel to certify 
that they 
 
[would] not use the [shareholder] List, directly or 
indirectly, for any purposes other than those specified 
purposes and, in particular, [would] not use the List 
as a means of soliciting, directly or indirectly, 
business and/or professional relationships or retainers 
of any nature from any RPI shareholder. 
 
 
By letter dated March 1, 1995, Skeens' counsel informed 
Woolhandler that neither he nor Skeens would sign the 
certification because Skeens wanted to communicate with other 
shareholders about litigation arising out of the matters set 
forth in his January 6, 1995 letter.  Woolhandler then advised 
Skeens' counsel that RPI would not supply the shareholder list. 
 
When deposed, Skeens was asked to explain, with respect to 
each of the reasons stated in his January 6, 1995 letter, what he 
intended to discuss with RPI's other shareholders.  Skeens' 
counsel, however, instructed Skeens not to answer the questions. 
 Consequently, Skeens testified only that "[he] would like to ask 
if any of [the other shareholders] were told that they would get 
two or three times their money back and then [had] the rug pulled 
out from under [them]."  When Skeens was asked how he had been 
misled, his counsel again objected and instructed him not to 
answer the question. 
 
Also during his deposition, Skeens was instructed by his 
counsel not to divulge any information regarding any additional 
matters he desired to communicate to the other shareholders.  
Skeens did state, however, that he sought the shareholder list 
 
 
 
 
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because he intended to file a lawsuit and wished to solicit other 
shareholders to join in the suit. 
 
Only two witnesses testified in the evidentiary hearing, 
Skeens and Joseph W. Robertson, Jr., a member of RPI's board of 
directors.  Skeens' testimony was scant and essentially mirrored 
his deposition.  He again stated that his purpose in seeking the 
shareholder list was to ascertain what the other shareholders had 
been told when they purchased RPI stock and whether they would 
join in the suit.  He sought the participation of the other 
shareholders in order to share the expenses of litigation.  On 
cross-examination, he admitted that he had never investigated 
whether his receipt of the shareholder list would be injurious to 
RPI. 
 
Robertson, who was called by Skeens as an adverse witness, 
testified that production of the shareholder list would be 
injurious to RPI.  He explained that 
 
the cost to defend the lawsuit, the time of management, 
the time of the board of directors to prepare for that 
case . . . and defend it would be damaging to the 
corporation, based on what [the board has] planned and 
[is] currently studying as shareholder enhancement 
plans today. 
 
 
Robertson also testified that the board of directors had 
determined that producing the shareholder list would not be in 
RPI's best interests.  The board of directors, Robertson 
testified, 
 
made a judgment that based on what this company is, 
which we have not divulged to the public yet, some 
reorganization issues that are going on, the 
shareholder enhancement plans that will be implemented, 
 
 
 
 
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that we believe that to give Mr. Skeens and his 
attorney the shareholder list, which we believe was 
primarily for the use of soliciting a class action 
lawsuit, at this point in time for this company, based 
on the facts that we had, was not in the best interests 
of Mr. Skeens as a shareholder and the other 
shareholders. 
 
 
First, we determine what must be proved before a trial court 
may compel the production of a corporation's records to one of 
its shareholders and upon whom rests the burden of proof. 
 
Prior to 1956, a shareholder's right to compel production of 
corporate records was governed by common law principles.  In 
1956, however, the General Assembly enacted the Virginia Stock 
Corporation Act, Code §§ 13.1-601 to -779 (1993 Repl. Vol.) (the 
Act).  Code § 13.1-771(C) provides that a shareholder is entitled 
to obtain the record of shareholders "only if": 
 
 
1. He has been a shareholder of record for at 
least six months immediately preceding his demand or is 
the holder of record of at least five percent of all of 
the outstanding shares; 
 
 
2. His demand is made in good faith and for a 
proper purpose; 
 
 
3. He describes with reasonable particularity his 
purpose and the records he desires to inspect; and 
 
 
4. The records are directly connected with his 
purpose. 
 
 
Shortly after the effective date of the Act, we decided Bank 
of Giles County v. Mason, 199 Va. 176, 98 S.E.2d 905 (1957), a 
case in which two of the bank's shareholders sought certain 
corporate records.  The Act, however, was not in effect at the 
time the shareholders' suit was filed; thus, Mason was decided 
upon common law principles. 
 
We said, in Mason, nonetheless, that "the provisions of 
 
 
 
 
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§ 13.1-47 [now § 13.1-771] do not materially differ from the 
rules of the common law with respect to the rights of a 
stockholder to inspect the books and records of a corporation.  
Such statutes are generally held to be merely in affirmance of 
the common law."  Id. at 181, 98 S.E.2d at 908.  We also said 
that a stockholder's right to inspect corporate books and records 
is "not absolute and uncontrolled," but must be for a "proper 
purpose."  Id.  We explained that, before a trial court compels 
production of such records, the court must be satisfied that the 
stockholder's request is made in good faith and for the purpose 
of protecting his rights as an owner of stock and that granting 
the relief will not adversely affect the corporation's interests. 
 Id. at 181-82, 98 S.E.2d at 908.  Finally, we stated that the 
stockholder must prove to the court that a right of inspection 
exists.  Id. at 182, 98 S.E.2d at 909. 
 
Code § 13.1-771(C)(2) requires a shareholder to prove that 
his demand of specified corporate records is made "in good faith 
and for a proper purpose."  Reading Code § 13.1-771(C)(2) and 
Mason together, we conclude that a shareholder seeking corporate 
records pursuant to Code § 13.1-771(C)(2) has the burden of 
satisfying a trial court that he seeks such records for a proper 
purpose, meaning that he is acting in good faith to protect his 
rights as a shareholder and that the relief he seeks will not 
adversely affect the corporation's interests. 
 
Applying these principles of law in the present case, we 
 
 
 
 
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hold that Skeens failed, as a matter of law, to carry his burden 
of proving that he sought the records for a proper purpose.  All 
that Skeens showed by the evidence was that he sought the 
shareholder list so he could institute a lawsuit and, possibly, 
gain the support of other shareholders who would share in the 
litigation expenses.  Skeens presented no evidence that RPI's 
interests would not be affected adversely if he obtained the 
shareholder list.  To the contrary, Skeens, through his adverse 
witness, Robertson, presented clear, reasonable, and 
uncontradicted evidence that the production of such records would 
be injurious to RPI, and he is bound by such testimony.  Norfolk, 
Etc. R.R. Co. v. Mueller Co., 197 Va. 533, 539, 90 S.E.2d 135, 
139 (1955); Crabtree v. Dingus, 194 Va. 615, 622, 74 S.E.2d 54, 
58 (1953).  Consequently, we conclude that the trial court erred 
in ordering RPI to produce its shareholder list to Skeens. 
 
Accordingly, we will reverse the trial court's judgment and 
enter final judgment in favor of RPI. 
 
Reversed and final judgment.