### IN THE CO URT OF APPEALS OF TE NNE SS EE
AT NASHVILL E Apr il 8, 2 00 8 S es si on

CIT Y OF FRANKLIN, TE NNESSEE v. MI DDLE TENNE SSEE

ELE CTRIC MEM BERSH IP CORPORATI ON

Appeal f rom the Chancer y Court for Rutherford County
No. 05-1243-C V Royce Taylor, Jud ge

No. M2007- 1060-COA-R 3-CV - F iled Jul y 31, 2009

The C i ty of Fr anklin, a member of the nonprofit Middle Tenne ssee Electric Membership Corporation, sued the corpor ation to obtain acc ess to its rec ords in order to dete rmine whether it
would be in the City ’s interest to acquir e those assets which lay within the City boundarie s. The trial

court dismiss ed the suit ag ree ing with the corpor ation that the City ’s reque st was not in confor mance with the statutory require ment of Tenn. Code Ann. § 48-66-102( c) that it be made “in g ood faith or for a proper purpose.” We reve rse the tr ial court’s or der a nd rema nd for f urther pr ocee dings.

Tenn. R. App . P . 3 Appeal as of Right; Judgme nt of th e Chancer y Court
Reve rsed and Rem anded

P A T R I C I A J

. C O T T R E L L , J

., delivere d the opinion of the court, in which F R A N K G. C L E M E N T , J R

. and
AN D Y D. B E N N E T T , J J ., joined.

Doug las Be rry , Marc R. J enkins, Nashville, Tenne ssee , fo r t h e appellant, City of Fr anklin,
Tenne ssee.

J ames C. Cope, J osh A. M cC rea ry , Murfre esboro, Tennessee

, for the appellee

, Middle Tenne ssee Electric Membership Corporation.

OP INION

I. A D O C U M E N T R E Q U E S T

T h e Middle Tenne ssee Electric Membership Corporation (her einaf ter “MTEMC” or “th e
corpor ation”) is a nonprofit corpor ation which opera tes under the authority of The Rural Electric and
Communi ty

Service s Cooperative Act, Tenn. Code Ann. § 65-25-201 e t seq. The Ac t sets out the

purposes for which such corpor ations are org anized including the “primar y purpose” of “[s] upply ing

or furnishing at wholesale or reta il, elec tric power and ener g y service s to, and promoting the eff icient
use and c onserva tion thereof by one (1) or more patrons . . . .” Te nn. Code Ann. § 65-25- 204.I n 1929, the City of Fr ankli n beg an rec eiving elec trical service s throug h a fra nchise

ag ree ment with Fr anklin Power & L ight C o m p an y

. MTEMC took over the fra nchise in 1970,
there by making the City both a patron and a member of the corpor ation. The fra nchise was schedule d to expire in 1999. Prior to that date, City officia ls beg an to consider chang es to the terms of the fra nchise. To that end, they initiated neg otiatio n s wi th MTEMC, but they wer e unable to

rea ch ag ree ment. A maj o r p o i n t o f contention was the City ’s long- standing eff ort to place utilit y lines underg round, an expensive proposition that mi g ht have r equire d imposing a f ranc hise fee on the corpor ation’s members within the City to he lp pa y for the costs. MTEMC was not particula rly
interested in the unde rg rounding of utility lines and wa s opposed to the idea of a fr anchise fee

.

Starting aro u n d 2 0 0 4

, the C ity beg an to explore other possi ble avenues for acc omplishi ng i t s g oals. I t reta ined a consulting firm, Utility Advisors Networ k, to help it deter

mine whet h er i t would be fea sible for it to buy and opera te the assets of MTEMC within the City ’s boundarie s. The
consultant prepa

red a preliminary fea sibili ty repor t, which included a tech nical, financ ial and

org anizational analy sis of the utilit y ’s assets and conclude d that the City an d its residents could
benef it from acquir ing them, but that further information from the corpor ation would be neede d to

acc urate ly

deter mine the value of

those assets.

On May 17, 2005, Fr anklin May or Tom Miller sent a letter to Fr ank J enning s, the President
of the corpor ation’s Boa

rd of Direc tors, explaining that the city was “eva luating whether to acquir e the assets of MTEMC located within the City limit s under the Municipal Electric Plant L aw of 1935,
Tenn. Code Ann. §§ 7-52-101 to 135.” The letter went on to ask the corpor ation to furnish it with 1 copies of an extensive list of documents rela ting to assets, customer counts, ra t es , demands,

reve nues, expenses and losses for MTEMC within the city

, so that it could “make a fair and equitable
offe r to MTEMC for the pur chase of its fac iliti es.”

Mr. J enning s responde d with a letter dated J une 2, 2005, which stated that the corpor ation’s
Boa rd of Direc tors had unanimously decide d that its “member ship and fac iliti es within the city limit s of Fr anklin, in Wil liamson County

, or any other county serve d by the cooper ative are not for sale.”
The letter went on to state that even if the Boa rd felt differ ently

, the sale or l ea s e o f a s u b s t an tial portion of the corpor ation’s assets would require an aff irmative vote of a majority of its more than 160,000 members a

nd, depending on the price

, possibly a super- majority

. See Tenn. Code Ann. §
65-25-213. As for the reque st for documents, the letter stated that much of the information reque sted

was proprieta

ry and that MTEMC would not make it available to the public without the advice and
consent of the membership.

Fr anklin’s City Attorney replied with a letter asser ting that whether or not MTEMC’s assets

wer e for sale, the City still wanted to evalua te them “in the event there is a resolution to acquir e the

T h e c i t e d s t a t u t e s g i v e m u n i c i p a l i t i e s t h e p o w e r t o a c q u i r e a n d o p e r a t e e l e c t r i c a l g e n e r a t i n g p l a n t s a n d 1

t r a n s m i s s i o n l i n e s i n o r d e r t o p r o v i d e e l e c t r i c a l s e r v i c e s t o c o n s u m e r s a n d b u s i n e s s e s w i t h i n t h e i r c o r p o r a t e l i m i t s

. T h i s i n c l u d e s t h e p o w e r t o a c q u i r e p r o p e r t y t h r o u g h e m i n e n t d o m a i n “ f o r a l l a n d a n y p u r p o s e s n e c e s s a r y i n c o n n e c t i o n w i t h

t h e c o n s t r u c t i o n , o p e r a t i o n a n d m a i n t e n a n c e o f a n e l e c t r i c p l a n t o r i m p r o v e m e n t s t h e r e t o

. ” T e n n

. C o d e A n n

. § 7

- 5 2

- 1 0 5

.

-2-sy stem by

eminent domain . . . .” The City further asser ted that as a member of

MTEMC, it had a rig ht to inspect the documents it had reque sted under Tenn. Code Ann. § 48-66-102 of the Tenne ssee Nonprofit Corpora tion Act. I n an answering letter dated J uly 8, 2005, MTEMC’s attorney denied
that the City was entitled to the acc ounting rec ords i t reque sted, but ag ree d “for purposes of

cooper ation” to g ive the City acc ess to such materia ls as the char ter and by -laws of the cooper ative,
the minutes a

nd resolutions of its B oard of Dire ctors, its most rece nt annual repor t, a nd all written communications to members within the past thre e y ear s.

II. L E G A L P R O C E E D I N G S

On Aug ust 25, 2005, the City filed a complaint in the Chance ry Court of Rutherford County asking the court to order MTEMC to allow it t o i n s p ec t o r copy the reque sted rec ords at the

co rp o ra t i on’s expense. I t also asked the court to order the corpor ation to pay all the cost s an d
counsel fee s incurre d by the City

, beca use of the “the defe ndant’s ref usal to allow the inspection of
the rec ords not ha

ving been ma de in g ood faith.” See Tenn. Code Ann. § 48-66-104( c). MTEMC

answe red, asser

ting that the City was not entitled to the rec ords beca use its reque st was not made “in

g ood faith or for a proper purpose,” as is require d by T en n

. C o d e An n

. § 48-66-102( c) when a member of

such a c orpora tion asks to see its acc ounting r ecor ds.

The parties continued to ne g otiate afte r the c omplaint and answe r wer e filed, but w ere still
unable to rea ch ag ree ment. During discovery

, t h e defe ndant took the deposition of the owner of Utility Advisors Networ

k, She ree Br own, who had prepare d the Feasibility Report. She testified
that she had f

urnished the City

with the list of documents that it requested f rom the cor

poration.

The hear ing of the matter was conducte d on Marc h 29, 2007. The only witness to be called

to the stand was J ames R. J ohnson, the city administrator. He was asked, among other things,
whether the city officia ls who discussed among themselves the possibili ty of acquir ing the assets of
MTEMC had ever g iven any consideration to whether such an acquisition would be detrimental to MTEMC. Mr. J ohnson responde d that they did not. Sheree Br own’s depositi on was entered into
the rec ord in its entirety

. Substantial portions of the deposit i o n wer e also rea d into the rec ord, including Ms. Br own’s testimony that she had not evalua ted whether or not MTEMC would be likely

to benef it from the City ’s acquisition of its proper t y

. I n re s ponse to a question whether such an acquisition could be detrimental to MTEMC, she had stated that it “could be detrimental, could be positive.”

At the conclusion of the City ’s proof, MTE MC moved the court to dismiss the complaint. The attorney for the corpor ation arg ued that the City ’s re quest was not made for the be nefit of the

corpor ation or for

the bene fit of the City

in its capa city as a member of the corporation, but rathe r for the benef

it of the City alone, in its capa city as a municipality with the power of eminent domain.
He further arg ued that the City ’s motive was to ultimately compete with the corpor ation, that such competition was ini mical t o the corporation’s best interests, and thus that the C ity was requesting
the corpor ation’s rec ords for an improper purpose. He cited sever al ca ses from other jurisdictions

-3-involving for- profit cor porations wher e the c ourts have disa pproved reque sts f

or documents when it found that the reque sting shar eholder soug ht the company ’s re cords in orde r to compete with it.

For his pa rt, the City

attorney noted that the cor

poration wa s perf

orming the func tions of a public utilit y for its 160,000 members in the citi es and counties o f T en n es see and that if it wer e a municipality or a privately owned utilit y , its rec ords would have to be open to public inspection. He
further arg ued that the City had neg otiated in g ood faith with the corpor ation to modify the fra nchise

ag ree ment, but to no avail. He disputed the rele vance of some of the case s cited by the corpor ation
and observe d that there wer e a number of other case s which stand for the proposition that even when

a share holder’s purpose is contra ry to the avowe d intentions of the corpor ation’s manag ement, that
did not nece ssarily make the share holder’s purpose improper. Finally

, he asser ted that there was no proof that the corpor ation would not benef it from the sale of its assets, since it could use the proce eds to streamline its opera tions.

After a rec ess, the trial court announce d its decision from the bench. The court decla red that,
“. . . wha t the City

is wanting to do is appropriate , and the sa me ca n be said for

Middle Tennesse e Electric

. Both of them are looking out for their members or citizens or residents,” but since “.

. . the City is acting as a City

, as a municipality

, and not as a member of M i d d l e Tenne ssee Electric ,” it
could not demonstrate a proper purpose for its reque st. The court noted that the City had the power
to acquir e the corpor ation’s proper ty throug h eminent domain if it wished, but ruled that “under this

narr ow i n terpre tation of the statute” it was not entitled to the rec ords it soug ht. The court’s
deter mination was memorialized in a judg ment filed on April 10, 2007. This appe al followed.

III. T H E Q U E S T I O N O F P R O P E R P U R P O S E

Under Tenne ssee Code Annotated § 48-66-102( a) of the Tenne ssee Nonprofit Corporation Act, members of nonprofit corpor ations are entitled to inspect and rec eive copies of cer tain ty pes of

rec ords of the corpor ation, so long as the member g ives the corpor ation five day s notice in w riting
and pay s a rea sonable char g e for the labor and materia ls require d for copy ing such docum ents. These rec ords include the char ter and by laws of the corpor ation, cer tain resolutions by its board of
direc tors, minutes of all board meeting s, and the corpor ation’s most rec ent annual repor t. These are the exact same rec ords that MTEMC’s attorney offe red to furnish to the City in his letter of J uly 8, 2005, “for

purposes of c oopera tion.”

Un d er T enn. Code Ann. § 48-66-102( c) members also may inspect and rec eive copie s o f other ty pes of r ecor ds of the cor

poration, including acc ounting r ecor ds, but only if

(1) The member' s demand is made in g ood faith and f or a pr oper pur

pose; (2) The member descr ibes with rea sonable particula rity the purpose and the rec ords
the member

desires to inspec t; and (3 ) T h e rec ords are direc tly connec ted with the purpose for which the deman d i s made.

-4-MTEMC does not question whether the City adequately descr ibed the acc ounting rec ords it

soug ht or its purpose for s eeking them, nor whether thos e re cords a re dire ctly

connec ted with that

announce d purpose. Both parties acknow ledg e that the onl y question befor e thi s court is whether the City ’s demand w as made “for a prope r purpose .”

A. P R O P E R A N D I M P R O P E R P U R P O S E S

On the question of which purposes are deeme d to be proper and which to be improper, there

are no Tenne ssee case s prec isely on point, but other jurisdictions have statutes with simil ar lang uag e, and the parties have appropr iately relied on case s from other jurisdictions a nd case s involving forprofit cor porations. 2

Whil e courts have addre ssed the question of prope r purpose in c ases involving a varie ty of situations, their opinions show a g rea t deal of consistency in reg ard to g ener al principles. I n Delaney

v. Santa Fe Healthcare

, Inc.

, 741 S o.2d 595, 598 (F l. App. 1999), a case involving a nonprofit

corpor ation, the Florida court noted that “[a] proper purpose is one that is lawful in char acte r and not

contra ry to the interest of the corpor ation.” Such a purpose may be one which is “re asonably rela ted to such person’ s interest as a member,” and further, “[t ]he fac t that the re quest is being made by a stockholder or member who disag ree s wi t h the policies of the manag ement of the corpor ation, or

even has filed suit ag ainst the corporation, is not sufficie nt to defe at the reque st.” Id. (citing Oil Conservationists, Inc. v. Gilbert

, 471 So.2d 650, 653 (F l. App. 1985)). See also State ex rel Lowell
W iper Supply Co. v. He len Shop, Inc

. , 362 S.W .2d 787, 792 (Tenn. 1962)

.

I n Lake v. B ucke

ye Ste el Castings C o. , 206 N.E. 2d 566, 569 (Ohio 1965), the c ourt stated
that in order for a share holder to exercise t h e rig ht of inspection of a corpor ation’s rec ords, “[n] othing more is require d than t hat, acting in g ood faith for the protection of t he int ere sts of t he

corpor ation and his own interests

, he desires to asce rtain the condition of the corpor ation’s business (empha sis in orig inal). See also Carlson v. Rabkin

, 789 N.E.2d 1 1 2 2

, 1 1 29-30 (Ohio Ct. App. 2003). I n Dave

y v. Unitil Corp., 585 A.2d 858 (N.H. 1991) the court stated that “[a] proper purpose is g ener ally define d as a pur pose that is (1) r elated to a leg itimate interest of a

share holder a

nd (2)
not harmful to the cor

poration or its share holders.” 585 A .2d at 860. 3

M u c h o f t h e a v a i l a b l e c a s e l a w i n v o l v e s f o r

- p r o f i t c o r p o r a t i o n s , a n d w e n o t e t h a t T e n n

. C o d e A n n

. § 4 8

- 2 6

- 1 0 2 2

o f t h e T e n n e s s e e B u s i n e s s C o r p o r a t i o n A c t d e s c r i b e s t h e r i g h t s o f s h a r e h o l d e r s o f s u c h c o r p o r a t i o n s t o i n s p e c t a n d c o p y

t h e c o r p o r a t i o n ’ s r e c o r d s i n l a n g u a g e t h a t i s v i r t u a l l y i d e n t i c a l t o t h e l a n g u a g e i n t h e T e n n e s s e e N o n p r o f i t C o r p o r a t i o n
A c t w h i c h s e t s o u t t h e r i g h t s o f a n o n p r o f i t ’ s m e m b e r s , i n c l u d i n g t h e r e q u i r e m e n t t h a t a d e m a n d f o r a c c o u n t i n g r e c o r d s b e m a d e i n g o o d f

a i t h a n d f

o r a p r o p e r p u r p o s e

. W e t h e r e f o r e b e l i e v e w e c a n r e l y o n s u c h c a s e s a s p e r s u a s i v e a u t h o r i t y

w h e r e c a s e s s p e c i f

i c a l l y i n v o l v i n g n o n p r o f i t c o r p o r a t i o n s a r e n o t a v a i l a b l e

.

A m o n g t h e p u r p o s e s t h a t v a r i o u s c o u r t s h a v e f o u n d t o b e p r o p e r w e r e a m e m b e r

- r e p o r t e r ’ s i n t e n t i o n t o w r i t e 3

a s t o r y a b o u t t h e m a n a g e m e n t o f a n o n p r o f i t u t i l i t y ( S c h e i n v

. N o r t h e r n R i o A r r i b a E l e c t r i c C o o p e r a t i v e
, I

n c

. , 9 3 2 P

. 2 d

4 9 0 ( N

. M

. 1 9 9 7 ) )

, t h e d e s i r e o f a d o c t o r

- m e m b e r o f a n o n p r o f i t h e a l t h c a r e c o r p o r a t i o n t o m a k e s u r e t h a t p r o p e r t y

c o n v e y e d t o t h e c o r p o r a t i o n w a s u s e d f o r t h e p u b l i c p u r p o s e o f f u r n i s h i n g h e a l t h c a r e t o i n d i g e n t p a t i e n t s ( D e l a n e y v

. S a n t a F e H e a l t h c a r e
, I n c

. , s u p r a )

, a n d t h e i n t e n t i o n o f a s h a r e h o l d e r i n a r e a l e s t a t e c o r p o r a t i o n t o m o n i t o r t h e f i n a n c i a l ( c o n t i n u e d

. . . )

-5-Wit h reg ard to the share holder-inter est prong , in Lowell W iper Supply v. Helen Shop, the

court spoke of a stockholder’ s proper purpose as o n e t h at wa s “g erma ne to his interest as a

s t o ck h o l d er , ” 3 62 S.W .2d at 792. I n other case s courts have spoken of reque sts that wer e “re asonably rela ted t o the l eg itimate interests of the s hare holder,” Schein v. Northern Rio

, 932 P.
2d at 493-494, or “re asonably rela ted to the person’ s int er es t as a share holder,” North Oakland County Board of R ealtors v

. Realcom p, Inc., 572 N.W.2d 240, 242 (Mich. App. 1997); Delaney v. Santa Fe He althcare, Inc

. , 741 So.2d at 597.

I n the prese nt case , MTEMC does not dispute that the City soug ht its rec ords for a purpose that was lawful in char acte r. The City admits that it was acting for its own interests, but as the case law we have cited indicates, such a purpose is not in and of itself improper. The corpor ation arg ues, howeve r, that the City is not entitled to its acc ounting rec ords beca use its reque st was not rela ted to the City ’s intere sts as a member of the c orpora tion.

We note t h at b oth parties have acknow ledg ed that the City of Fr anklin is a member of
MTEMC only beca

use its municipal fac iliti es rec eive elec tricity from the corpor ation. Thus, for the

p u rp o s es o f this case there is no meaning ful distinction betwee n the City ’s interest in t h e
corpor ation’s re cords a s a member and its interest as a

customer.

As a purcha ser and consumer of elec tric power , the City has a leg itimate interest in how that

power is delivere d and at what cost. I t has a leg itimate interest in underg round lines for bring ing

power to its own municipally -owne d fac iliti es; the fac t that it also has an interest in p ro v i d i n g elec tricity by that method to r esidents of the City does not r educe the leg itimacy of its intere st a s a member of the nonprofit corporation. The City also has an inter est, as a member and customer of MTEMC, in information useful in deciding whether it would be better serve d by p u rc h as i ng its

power needs from MTEMC or from itself if it wer e to acquir e M T E M C ’s as sets. The ability to decide to acquir e cer t ai n assets from the utilit y is unique to entities like municipalities, and most members would not have that choice

. 4

Acc ording ly

, we believe that the City ’s eff orts to asce rtain the value of th e co rpora tion’s

assets within its boundarie s for the purpo se of deciding whether to acquir e those assets is in
further ance of its interests as a me mber.

MTEMC also arg ues that the City ’s purpose is improper beca use the acquisition of the

corpor ation’s assets by the City would be contra ry to the corpor ation’s interest. I t did not offe r any

(

. . . c o n t i n u e d ) 3

h e a l t h o f t h e c o r p o r a t i o n a n d i t s c o m p l i a n c e w i t h b y l a w s ( N o r t h O a k l a n d C o u n t y B o a r d o

f R e a l t o r s v

. R e a l c o m p
, I n c

. , 5 7 2 N

. W

. 2 d 2 4 0 ( M i c h

. A p p

. 1 9 9 7 ) )

.

S i n c e b o t h M T E M C a n d t h e C i t y a r e c r e a t i o n s o f t h e G e n e r a l A s s e m b l y , a n d s i n c e t h e p o w e r s a n d p u r p o s e s 4

o f b o t h e n t i t i e s a r e d e f i n e d b y s t a t u t e , m a n y o f t h e p r i n c i p l e s a p p l i e d i n o t h e r c a s e s t o t h e i n t e r e s t s o f s h a r e h o l d e r s o f

f o r

- p r o f i t c o r p o r a t i o n s o r t o m e m b e r s o f n o n p r o f i t c o r p o r a t i o n s w h o a r e n o t m u n i c i p a l i t i e s d o n o t d i r e c t l y a d d r e s s t h e i n t e r e s t s i n t h i s c a s e

.

-6-proof of this proposition at t rial, b u t trea ted i t as self-evident. On appeal, i t arg ues t hat t he C ity ’s

action s wo u l d am o u nt to a hostile takeove r of MTEMC which would place the City in direc t

c o mp e tition with the corpor ation. MTEMC’s brief on appea l states, “[b] eca use MTEMC is curr e n tl y the elec tric provider within the City of Fr anklin’s municipal boundarie s, it is axiom atic that a hostile acquisition of those asse ts would be inimical to the interests of MTEMC.”

The corpor ation phrase s the test as involving harm to the corpor ation’s “intere sts” rathe r than
harm to the corpor ation itself. As the case s descr ibed ear lier demonstrate, a corpor ation cannot protec t its rec ords on the basis that the share holder’s p u rp ose is contra ry to the manag ement’s

conce ption of the corpor ation’s interests. Additionally

, we have serious question about whether the
for- profit conc ept of “ competition” should be applied to a ctivity by nonprofit entities.

I n other wo r d s , w h il e M T E M C’ s c o r p o r a te p u r p o ses include the supply ing of elec trical power and ener g y service s, nothing in its authorizing statutes or the nonprofit corpor ation statutes g ives it

any interest in being the entity to supply power to a particula r are a as opposed to a municipality

. We
d o not believe that a nonprofit utilit y can decline to provide the reque sted information by argui n g that the share holder’s reque st harms, interfe res with, or is contra ry to the corpor ation’s “intere st” in keeping all curr ent m ember s or custom er s

. S u ch a nonprofit corpor ation has no leg ally protec ted interest in avoiding competition or loss of customers.

As a m atter of public policy

, we cannot conclude that a municipality ’s attempts to obtain
information that would be helpful in deciding whether to acquir e the utilit y ’s assets located within
the municipality is inimical to any interest of the utilit y that the law would rec og nize or protec t. The
Gene ral Assembly has deter mined that municipalities should have the power to acquir e such assets by the power of eminent domain. We must assume that the leg islature considere d it important that

a municipality have the power neede d to enable i t t o p ro v ide elec tricity to itself, its municipally

owned fac iliti es, and its citizens. The public policy of this state is established by statute, and actions
in further ance of such policy will not ordinarily

be held to be f

or an imprope r purpose

.

I n the case befor e us, the deter minative question is whether the municipal i t y member’ s
purpose is harmful to the nonprofit utilit y corpor ation. The rec ord does not contain any actua l proof
of har m to the nonprofit corpor ation. A sale of assets for a fa ir price , whether procur ed by

mutual

ag ree ment or compe lled by eminent dom ain, i s not nece ssarily harmful to the corporation. Whil e the loss of its c ustomer base in Fr anklin will reduc e the reve nues of the company , that loss may be
offse t by reduc ed costs or liabiliti es. There is no proof that the corpor ation itself will be harme d in
its abilit y to provide ser

vice to its other customer s.

The corpor ation also sug g ested during oral arg ument that since its network, which includes
transmission lines and substations within the City

, does not beg in or end at the City ’s border s, those

assets cannot be sever ed from the network without damag e to the corpor ation. The only proof at trial

on this issue was in the deposit ion of Shere e B rown, who state d that there should be no “strande d
costs” rela ted to e lectric al g ener ation. Fur thermore , Ms. Brow n testified that while the a cquisition

-7-o f t h e city ’s assets could l ead to “seve ranc e and reinteg ration costs,” such costs can be avoid ed i f

both parties ar e ame nable to shar ing a ssets. 5

The absenc e of proof reg arding harm to MTEMC nece ssitates an examination of which party had the bur den of pr oof.

B. T H E B U R D E N O F P R O O F

Eac h of the parties a

rg ued, both in the trial cour t and on appea l, tha

t the other party should
bear the burden of proof when the court is deter mining whether a particula r purpose for inspecting
the books and rec ords of a nonprofit corpor ation is proper or not. Since the statute is silent as to the
burden of proof, we must turn to case law for g uidance

. There has been extensive litigation dealing
with g ener al questions involving acc ess to c orpora te rec ords, and while there is a split of authority

as to wher e the burden of proof lies, the majority view i s t h at the burden is on the corpor ation to

prove a n improper pur

pose. 18A Am.Jur. 2d, Corporati ons , § 346.

Tenne ssee is appar ently in acc ord with the majority view on this question, at least in reg ard

to for- profit corpor ations. I n Hillhaven Corp. v. State ex rel Manor Care, Inc., 565 S.W .2d 210, 212 (Tenn. 1978), minority share holders of a corpor ation “soug ht to inspect the books and rec ords of the

corpor ation and to obtain a list of shareh o l d er s , ” beca use they wanted to communicate to the

M T E M C f

u r t h e r a r g u e s i n r e l i a n c e o n s o m e c a s e s w h i c h h a v e h e l d t h a t a p u r p o s e i s i m p r o p e r i f i t i s s o l e l y i n 5

p u r s u i t o f s o c i a l o r p o l i t i c a l i n t e r e s t s

. T h e c o r p o r a t i o n c o n t e n d s t h a t t h e d e s i r e t o b u r y u t i l i t y l i n e s u n d e r g r o u n d i n t h e C i t y o f F r a n k l i n i s j u s t s u c h a s o c i a l o r p o l i t i c a l i n t e r e s t

. T h e c o r p o r a t i o n c i t e s P i l l s b u r y v H o n e y w e l l

, I n c

. , 1 9 1 N

. W

. 2 d

4 0 6 ( M i n n

. 1 9 7 1 )

, a n d M c M a h o n v

. D i s p a t c h P r i n t i n g
, 1 2 9 A

. 4 2 5 ( N

. J

. 1 9 2 5 )

, a s e x a m p l e s o f c a s e s i n w h i c h t h e c o u r t s h e l d t h a t t h e p l a i n t i f

f s h a r e h o l d e r s w e r e n o t e n t i t l e d t o i n s p e c t c o r p o r a t e d o c u m e n t s b e c a u s e t h e i r r e q u e s t s w e r e a c t u a t e d

b y s o c i a l o r p o l i t i c a l c o n c e r n s r a t h e r t h a n t o f u r t h e r t h e i n t e r e s t s o f t h e c o r p o r a t i o n o r t h e i r o w n i n t e r e s t s a s s h a r e h o l d e r s

.

N e i t h e r o f t h e s e c a s e s i s a n a l o g o u s t o t h e o n e b e f o r e u s

. I n P i l l

s b u r y v

. H o n e

y w e l l

, t h e p l a i n t i f

f w a s a n

o p p o n e n t o f t h e V i e t n a m w a r w h o b o u g h t a s i n g l e s h a r e o f H o n e y w e l l s t o c k i n o r d e r t o b e a b l e t o s e e k c o r p o r a t e d o c u m e n t s t h a t m i g h t e n a b l e h i m t o p e r s u a d e s h a r e h o l d e r s t h a t H o n e y w e l l s h o u l d n o t b e i n v o l v e d i n t h e b u s i n e s s o f

m a n u f a c t u r i n g a m m u n i t i o n f

o r t h e w a r

. T h e M i n n e s o t a c o u r t h e l d t h a t t h i s w a s n o t a p r o p e r p u r p o s e b e c a u s e i t w a s n o t

g e r m a n e t o h i s i n t e r e s t a s a s t o c k h o l d e r

. P i l l s b u r y a t 4 1 0

. T h e p l a i n t i f

f i n M c M a h o n v

. D i s

p a t c h P r i n t i n g , 1 2 9 A

. 4 2 5 ( N

. J

. 1 9 2 5 )

, o w n e d 3 0 s h a r e s o f p r e f e r r e d s t o c k i n t h e d e f

e n d a n t p r i n t i n g c o m p a n y

. H e w a s h o s t i l e t o t h e p r e s i d e n t o f

t h e p r i n t i n g c o m p a n y , w h o w a s a l s o t h e N e w J e r s e y S e c r e t a r y o f S t a t e

. T h e p l a i n t i f f w i s h e d t o d i s c r e d i t t h e p r e s i d e n t

p o l i t i c a l l y s o h e w o u l d n o t b e a b l e t o r e t a i n h i s g o v e r n m e n t a l p o s t

. T h e N e w J e r s e y c o u r t h e l d t h a t t h e p l a i n t i f f ’ s p u r p o s e

w a s n o t p r o p e r a n d d i d n o t e n t i t l e h i m t o i n s p e c t t h e r e c o r d s o f t h e c o r p o r a t i o n

. M c M a h o n a t 4 2 6

. I n t h e p r e s e n t c a s e , t h e C i t y o f F r a n k l i n w a n t e d t o p l a c e i t s e l e c t r i c a l l i n e s u n d e r g r o u n d

, b u t w a s u n a b l e t o d o s o u n d e r t h e t e r m s o f i t s f r a n c h i s e w i t h M T E M C

. I t s o u g h t t h e r e c o r d s o f t h e c o r p o r a t i o n i n o r d e r t o h e l p i t d e t e r m i n e w h e t h e r i t w o u l d b e i n t h e C i t y ’ s i n t e r e s t t o p u r c h a s e o r a c q u i r e b y e m i n e n t d o m a i n t h e a s s e t s o f t h e c o r p o r a t i o n w i t h i n i t s b o u n d a r i e s s o i t w o u l d

b e f r e e t o d e l i v e r e l e c t r i c i t y t o i t s m u n i c i p a l l y

- o w n e d f a c i l i t i e s a n d t o i t s c i t i z e n s i n t h e m a n n e r i t p r e f e r r e d

. S u c h a

p u r p o s e i s v e r y d i f

f e r e n t f r o m t h e p u r p o s e s o f

t h e p l a i n t i f

f s i n P i l l s b u r y a n d M c M a h o n , w h i c h w e r e e x t r a n e o u s t o b o t h

t h e i n t e r e s t s o f t h o s e d e f e n d a n t c o r p o r a t i o n s a n d t o t h e i n t e r e s t s o f t h e p l a i n t i f f s a s s h a r e h o l d e r s

. W e t h e r e f o r e f i n d t h a t

t h e M T E M C ’ s a r g u m e n t o n t h i s p o i n t t o b e w i t h o u t m e r i t

.

-8-share holders an of fer to buy share s of the cor

poration. The c orpora tion refuse d, and the minority

6
share holders filed a petition for mandamus. The trial court g rante d the petition, and the Tenne ssee S u p reme Court aff

irmed. The Court noted that very littl e fac tual proof was introduced by ei t h er party

, althoug h both had the rig ht and the opportunity to offe r such evidenc e. The court stated that
it ag ree d with the trial court that the failure of proof was fata l to the corpor ation’s case , beca use “it

was incumbent upon appellant [t he corpor ation], both by pleading and by proper proof, to establish

an i m p roper or i lleg al purpose, so as t o justify its ref usal to make available the books and records

reque sted.”

Cases from other jurisdictions in which the court specific ally h el d that a for- profit

corpor ation had to car

ry the burden of proving that a minority share holder’s reque st for rec ords was improper include Benne tt v. Mack ’s Supermarke ts Inc.

, 602 S.W .2d 143, 146 (Ky

. 1979); Crane Co.

v. Anaconda Co.

, 346 N.E.2d 507, 511 (N.Y. 1976); Carlson v. Rabkin

, 789 N.E.2d 1122, 1129-
1130 (Ohi o C t

. App. 2003) (citing Lake v. Buck eye Steel Castings Co.

, 206 N.E. 2d 566 (Ohio 1965)); Skoglund v. Orm and Industries, Inc., 372 A.2d 204, 209 (De l. Ch. 1976).

Schein v. Northern Rio Arriba Electric Cooperative, In c. , 9 3 2 P. 2d 490 (N.M. 1997), is

espe ci al l y helpful for our analy sis beca use the defe ndant in that case , like the defe ndant in the

prese nt case , was a nonprofit elec trical cooper ative. The plaintiff was a newspa per repor ter and was also a member in g ood standing of the c oopera tive, since she pur chase d her electric al power from
it. She soug ht cer

tain financ ial rec ords from the cooper ative for a story she was working on, but her

reque st w as denied. She then filed a petition for writ of mandamus, which the trial court g rante d.
The c oopera tive appea led.

The New Mexi co Supreme Court aff irmed. I t noted that under the law of that state (as under
Tenne ssee law) “shar eholder s have the rig ht to inspect, at reas o n ab l e t imes and place s, a
corpor ations’s books and rec ords for proper purposes.” I t then cited a number of case s from other jurisdictions to th e ef

fect that “this rig ht g ener ally extends to members of non-stock, nonprofit

corpor ations,” Schein

, 932 P.2d at 493, and conclude d that “[c]onsi stent with this policy of allowing

g ener ous acc ess, the majority common-law rule, and the rule adopted b y this Court, place s the
b u rd en o n the corpor ation to show improper purpose in deny ing share holder acc ess to corpor ate data.” Id

.

I n light of our Supreme Court’s approva l of the majority view in reg ard to the burden of proof applicable to for- profit corpo ra t i o n s and the holding of the courts of New Mexi co and other jurisdictions that nonprofit corpor ations should a lso be require d to pr ove improper purpose be fore they can deny member reque sts f or corpor ate documents, we hold that it was MTEMC’s burden in this case to prove that the City ’s purpose w as improper. The c orpora tion did not put on any proof

A t t h e t i m e t h e H i l l h a v e n c a s e w a s d e c i d e d

, a n e a r l i e r v e r s i o n o f t h e b u s i n e s s c o r p o r a t i o n a c t w a s i n e f f e c t

. 6

L i k e i t s s u c c e s s o r s t a t u t e , T e n n

. C o d e A n n

. § 4 8

- 7 1 7 a l l o w e d s h a r e h o l d e r s t o “ c o m p e l t h e p r o d u c t i o n f o r e x a m i n a t i o n

o f t h e b o o k s , d o c u m e n t s a n d r e c o r d s o f t h e c o r p o r a t i o n ‘ u p o n p r o o f o f p r o p e r p u r p o s e ’ ” H i l l h a v e n C o r p

. v

. S t a t e e x r e l

M a n o r C a r e , 5 6 5 S

. W

. 2 d a t 2 1 1

- 2 1 2

.

-9-as t o harm it might suffer from the C ity ’s acquisiti on of i ts assets, but only elicited testi mony that

the City of F ranklin did not consider the impact of such a n acquisition on the corpor ation.

T h e trial court g rante d dismiss al of the City ’s complaint at the close of the City ’s p ro o f. Consequently

, MTEMC did not put on its proof. Acc ording ly

, the case should be rema nded to the
trial court f

or fur ther proc eeding s consistent with this opi nion.

IV.

The order o f t h e t ri al court is reve rsed. We rema nd this case to the Chance ry Court of
Rutherford County for any further proce eding s nece ssary

. Tax the costs on appea l to the appellee

, the Middle Tenne ssee Ele ctric Me mbership Corpora tion.

____________________________________ PATRI CI A J . COTTREL L , P.J ., M.S.

-10-