Opinion ID: 2205144
Heading Depth: 1
Heading Rank: 7

Heading: Scope Relevant to Proper Purpose

Text: [¶ 14.] WPPO argues that the trial court erred by not limiting the scope of production to documents relevant to Petitioners' stated proper purpose. This argument rests on the position that the proper purpose language in the South Dakota inspection statute serves not only to limit the circumstances under which an inspection may be made, but also serves to limit the scope of any proper shareholder inspection. Because this Court has not previously addressed this issue, we look to other jurisdictions for guidance. [¶ 15.] Many states have statutes similar to SDCL 47-24-2. [3] Illinois' statute is nearly identical [4] and its caselaw relating to that statute states: The right to examine records may even extend to records for which a proper purpose has not been directly shown, so long as one has been shown for some records: the shareholder is not required to establish a proper purpose for each record he requests. Once that purpose has been established, the shareholder's right to inspect extends to all books and records necessary to make an intelligent and searching investigation and from which he can derive any information that will enable him to better protect his interests. Patel v. Illinois State Med. Soc'y, 298 Ill. App.3d 356, 232 Ill.Dec. 497, 698 N.E.2d 588, 593 n. 4 (1998) (quoting Meyer v. Board of Managers of Harbor House Condominium Ass'n, 221 Ill.App.3d 742, 164 Ill.Dec. 460, 583 N.E.2d 14, 18 (1991) (additional citations omitted)). We adopt the same position; that is, as long as a member has stated a proper purpose, which is presumed, the member may inspect all books and records necessary to make an intelligent and searching investigation. [¶ 16.] Here, Petitioners requested access to the following: WPPO's complete books, records, and all business documents and communications, including without limitation, those in electronic form, minutes, bylaws, dividend or other financial ledgers, all journals, books of account, cash books, subsidiary documents, subscribers' ledgers, real estate documents, all financial records, tax returns, tax forms, membership lists, provider lists, and all business communications including those to the South Dakota Secretary of State, WPPO, Western Providers, Inc., Rapid City Regional Hospital administration, which relate to the ongoing business concerns of WPPO. Petitioners' stated purpose for requesting access to these documents was to investigate suspected administrative negligence that potentially placed WPPO at risk as well as jeopardize[d] its officers, directors, and members for personal liability. Petitioners specifically stated in their Affidavit in Support of Petition for Writ of Mandamus that they had grave concerns the following deficiencies existed: a. WPPO was administratively dissolved by the SOS [Secretary of State] office. b. WPPO failed to file statutorily mandated annual reports. c. WPPO failed to hold annual meetings of members and directors. d. WPPO bylaws have not been signed. e. Meetings of WPPO members were not properly noticed. f. WPPO did not file the annual tax returns required of nonprofit corporations. g. WPPO failed to maintain an accurate list of its members. h. WPPO has discriminated in the payment of distributions to its members. i. WPPO's corporate books and records were in deplorable condition. j. WPPO's corporate books and record [sic] were not available at the address of the principal place of business listed in state filings. k. The corporate documents incorrectly listed WPPO's registered agent and the address of RCRH [Rapid City Regional Hospital] as its principal place of business. l. WPPO had not [sic] corporate minutes until our inquiries began. m. WPPO's non-profit status is unclear as no IRS determination letter or Form 1023 was found in the corporate records. Form 1120's, not Form 990's, were filed by WPPO. Form 1120's are filed by for profit corporations, and non-profits who have not yet achieved non-profit status. Additionally, the hearing record reflects other concerns. [5] The concerns and suspected deficiencies could affect not only the members' investments but also their status as medical practitioners. Such concerns are not without merit and only a very broad and unlimited inspection would serve to satisfy Petitioners' concerns of administrative negligence. The requested documents, although sweeping in breadth, are necessary to make an intelligent and searching investigation into whether administrative negligence was occurring at WPPO. We find no error.