Opinion ID: 2205144
Heading Depth: 1
Heading Rank: 5

Heading: Grant of Order and Writ Proper Purpose

Text: [¶ 10.] WPPO contends the trial court failed to require Petitioners to meet their burden of proving a proper purpose for an inspection, thereby abusing its discretion in granting an Order and Writ of Mandamus. [1] This proposition fails for two reasons. First, WPPO has not preserved this issue for appeal. In its response brief to the trial court, WPPO initially made a general statement that Petitioners lacked a proper purpose, but then WPPO went on to clarify this argument by saying that Petitioners do not have a proper purpose to request any inspection beyond those documents which they have received. This can only be understood to be an admission that Petitioners did have a proper purpose for inspecting some of the records. In fact, during the prior year WPPO had turned many documents over to Petitioners without questioning whether the purpose was proper, and WPPO has never introduced any evidence of an improper purpose. Then at the hearing before the trial court, WPPO failed to raise the issue at all. Since WPPO has not previously disputed the issue of proper purpose for an inspection, it cannot do so for the first time on an appeal before this Court. We have often held that an issue not raised in trial cannot be raised for the first time on appeal. See State v. Hays, 1999 SD 89, ¶ 16, 598 N.W.2d 200, 203; see also Breckweg v. Knochenmus, 81 S.D. 244, 255, 133 N.W.2d 860, 866 (1965). [¶ 11.] Although the above finding resolves the proper purpose issue, it is appropriate for this Court to address a second matter introduced by WPPO's statement of the issue. WPPO presumes Petitioners had the burden of proving a proper purpose under SDCL 47-24-2. However, this Court has never addressed whether SDCL 47-24-2 places the burden of proving a proper purpose on the corporate member, here Petitioners, or whether the purpose is presumed to be a proper purpose. A presumption of proper purpose would place the burden of proving an improper purpose on the corporation resisting inspection of its documents. Since South Dakota has not addressed the issue, guidance may be helpful from other jurisdictions that have done so. [¶ 12.] According to the New Mexico Supreme Court, the common-law majority rule is that members are presumed to have a proper purpose in making a document request. Schein v. Northern Rio Arriba Elec. Coop., Inc., 122 N.M. 800, 932 P.2d 490, 493 (1997). Placement of the burden of proof in this manner requires that a corporation demonstrate strong and articulable reasons for denying a shareholder/member access to information regarding his proprietary interests and legitimate concerns. Id. ( citing 5A William M. Fletcher et al., Fletcher Cyclopedia of the Law of Corporations § 2213 at 336 (Perm. Rev. Ed. 1995)). Consistent with this rationale, the New Mexico Supreme Court adopted the majority common-law rule which presumed members had a proper purpose. Id. ( citing Fletcher, supra, § 2253.10 at 535). This Court hereby adopts the same rule. However, we recognize that a practical application of this rule requires that the party seeking inspection must first give a reason for the inspection. This avoids putting the corporation in the impossible position of speculating as to the member's purpose. Thus a full statement of our rule is that a member must disclose his purpose for inspecting and this purpose is presumed proper. [2] The burden is then on the corporation to prove there is an improper purpose. For this additional reason, WPPO's first allegation of error fails.