Court Opinion

ID: 2752842
Source: CourtListenerOpinion
Date Created: 2014-11-19 10:04:59.418839+00
Date Added: 2024-06-11T11:26:02.782418
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                                August 19, 2014 Session

         RONALD T. DAUGHERTY v. LAVADA J. DOYLE, ET AL.

                Appeal from the Chancery Court for Davidson County
                   No. 111408IV    Russell T. Perkins, Chancellor

            No. M2013-02509-COA-R3-CV          - Filed November 17, 2014

A shareholder in a closely-held family business brought this action pursuant to Tenn. Code
Ann. § 48-26-102(b) to inspect the company’s accounting records. The trial court
determined that the shareholder’s request was made in good faith and for a proper purpose.
On appeal, the defendants assert that the trial court erred in finding that the shareholder’s
request was made in good faith and in awarding him his attorney fees and the expenses he
incurred in hiring a forensic accountant. We reverse the trial court’s decision to award the
shareholder the expenses he incurred for the forensic accountant, but remand for a
determination of an award based on the accountant’s fees concerning testimony about
whether the records requested by Mr. Daugherty were accounting records. In all other
respects, we affirm the decision of the trial court.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed in
                      Part, Reversed and Remanded in Part

A NDY D. B ENNETT, J., delivered the opinion of the court, in which F RANK G. C LEMENT, J R.,
P.J., M.S., and R ICHARD H. D INKINS, J., joined.

James R. Kelley, Marc T. McNamee, and Stephen M. Montgomery, Nashville, Tennessee,
for the appellants, LaVada J. Doyle, Mike Doyle, William O. Daugherty, III, and Volunteer
Thread Company, Inc.

William L. Harbison and Lisa K. Helton, Nashville, Tennessee, for the appellee, Ronald T.
Daugherty.
                                        OPINION

                        F ACTUAL AND P ROCEDURAL B ACKGROUND

        Ronald T. Daugherty, LaVada J. Doyle, and William O. Daugherty, III, are the
children of William O. Daugherty, Jr. W.O. Daugherty, Jr., owned all of the stock in
Volunteer Thread Company, Inc. (“VTC”). At her father’s death in November 2008, Ms.
Doyle served as the personal representative of his estate. The VTC stock passed into the
estate until it was distributed in equal shares to the three children in December 2010.

       Ronald Daugherty (“Mr. Daugherty”) worked at VTC for many years and states that
he ran the company until the early 1980’s. In 2007, according to Mr. Daugherty, his father
asked him to help out at VTC because the company was sustaining some losses. After W.O.
Daugherty, Jr.’s death, VTC asked Mr. Daugherty to continue his efforts to turn the company
around. He served as president of VTC and as a member of the board of directors until
August 2009, when he resigned. (Mr. Daugherty and Ms. Doyle gave differing testimony
as to why he decided to leave the company.) Mr. Daugherty subsequently refused requests
from Ms. Doyle and others to serve on the board again.

        Mr. Daugherty claims that, after he left VTC and resigned from the board, he was
denied access to information regarding the company. He filed a motion to compel in his
father’s estate case in November 2009, and the parties entered into an agreed order pursuant
to which Ms. Doyle was required to provide certain information to Mr. Daugherty regarding
VTC and Hilos, a wholly owned subsidiary of VTC, including weekly reports of financial
information, monthly summaries of financial information, identities of members of the
boards of directors and their compensation, minutes of the meetings of the boards of
directors, and a list of persons who advised the companies. Mr. Daugherty subsequently sent
letters to the board expressing his concerns about the company’s significant losses and its
failure to send him information.

      In April 2010, Mr. Daugherty made an expression of interest to purchase VTC, and
was asked by Ms. Doyle on behalf of the estate to sign a confidentiality agreement. Ms.
Doyle also made an offer to buy the company at a higher price on the same day. Mr.
Daugherty did not sign the confidentiality agreement.

       On April 7, 2011, Mr. Daugherty sent VTC a records inspection request under Tenn.
Code Ann. § 48-26-102. He requested to inspect and copy the following categories of
records for the time period from July 1, 2009 through March 31, 2011:

                                             2
       •      general ledger entries;
       •      records of all yarn purchases (including all put up, and regardless of twist);
       •      origin documentation/certification for all yarn purchases from original
              suppliers;
       •      itemized detailed monthly yarn inventory;
       •      monthly yarn final inventory totals;
       •      itemized detailed monthly finished goods inventory;
       •      monthly final finished goods inventory;
       •      dye tickets (both electronic and real);
       •      winding tickets (both electronic and real);
       •      yarn transfer documents (from Mill to VTC);
       •      picking tickets for greige yarn to be dyed;
       •      historical dye house production records;
       •      historical lab production records;
       •      weekly production reports/totals for all areas;
       •      official Company guidelines regarding complete breakdown of all different
              product lines (i.e., MS, PU, VT, VC);
       •      official Company guidelines regarding labeling and instructions for all product
              lines (i.e. MS, PU, VT, VC);
       •      official Company guidelines regarding inventory tracking guidelines for
              different origin products to ensure proper usage;
       •      official Company guidelines regarding system of checking origin information
              prior to signing NAFTA certificate;
       •      all historical signed NAFTA certificates (from both VTC and Hilos);
       •      official Company guidelines regarding finished goods values by location; and
       •      official Company guidelines regarding official description/designation of
              different inventory locations.

In his letter, Mr. Daugherty, through his attorney, stated that his demand for information was
made in good faith and for the purpose of helping him determine: “(1) whether the business
of VTC is being properly conducted; (2) whether there has been any breach of fiduciary duty
by any director or officer of VTC; and (3) the value of Mr. Daugherty’s ownership interest
in VTC.”

     On April 14, 2011, VTC’s board of directors, through its attorney, responded to Mr.
Daugherty’s records inspection request as follows:

       I am responding to your letter of April 7, 2011. I have reviewed the
       information requested in your letter. Your request seeks records that are
       beyond the scope contemplated by T.C.A. § 48-26-102(b)(2). Accordingly,

                                              3
       Volunteer Thread Company, Inc. declines to make those records available.

       On October 14, 2011, Mr. Daugherty filed this action for declaratory judgment and
inspection of corporate records against Ms. Doyle; Mike Doyle, her husband; W.O.
Daugherty, III; and VTC. Mr. and Ms. Doyle and W.O. Daugherty, III, were members of the
VTC board of directors. The complaint details Mr. Daugherty’s unsuccessful efforts to
obtain information from VTC and his concerns about the financial decline of the company.
He asked the court to order the defendants to permit him to inspect and copy the records he
requested in the April 7, 2011 letter in accordance with Tenn. Code Ann. § 48-26-102(b)(2),
and to order the defendants to respond fully and completely to his requests for information
concerning VTC and Hilos. Mr. Daugherty also requested an award of attorney fees and
expenses.

       In January 2012, Mr. Daugherty filed a motion for a forensic accounting, which was
granted by the trial court. An accountant, David Wood, conducted a forensic accounting, but
he was not asked to prepare a written report.

                                           Trial

       The case was heard in a bench trial over three days in July 2013. On day one, the
court heard testimony from Mr. Daugherty. He was concerned that VTC was in trouble and
wanted to get the information necessary to determine what the problems were. When asked
if he was a competitor of VTC in any significant way, Mr. Daugherty testified:

       A. No. We met in the marketplace just like you could say the corner market
       or the convenience store is competing with the convenience store across town.
       You’re both in the convenience store business, and a customer of one may go
       to the other, but you’re within your own market.

       Q. Do you, in fact, still operate a thread business of your own?

       A. I do.

       Q. And what’s it called?

       A. Miami Thread.

       Q. And did you operate Miami Thread during your father’s lifetime?

       A. I did.

                                             4
       Q. And was your father aware of the kind of business that you were doing
       through [Miami] Thread?

       A. Yes. I started it while I was at Volunteer, and he knew very well I was
       running Volunteer. And I incorporated and started in ‘86 and worked for
       Volunteer until July 10th of 1987. And he visited me several times at the plant.

       Q. I’m going to ask you straight up, Mr. Daugherty. Were you trying—by
       asking information about the company, were you trying to eliminate a
       competitor in the marketplace?

       A. No. The two of us together have such a miniscule amount of the overall
       market share that—during my father’s lifetime, we had our eyes on a bigger
       prize. And LaVada said as much in her deposition, when asked who were your
       biggest competitors, and she said American & Efird and Coats American.

       ...

       Q. And is it true that you are a competitor?

       A. It’s only true that we meet just at the edges in the marketplace. Most of the
       things that I sell, the bulk of my business is Nomex and Kevlar, which is
       sold—it’s a different family of fiber, and it’s sold to—from firemen’s turnout
       gear, it could be a pilot’s flight suit. It could be someone who works on the
       deck of an aircraft carrier. Volunteer Thread never made any of that, didn’t
       have the technology to make that.

       On cross-examination, Mr. Daugherty asserted that it had been his father’s intention
to give VTC to him, but that his father had been convinced to change his will shortly before
his death to divide the business equally among the three children. Mr. Daugherty felt that he
had made the company profitable while his two siblings had very little or no knowledge
about how to run the business.

        The next witness was David Wood, a certified public accountant with a special
certification in financial forensics. He was hired by Mr. Daugherty to do a forensic
accounting on VTC. Mr. Wood concluded that Mr. Daugherty had a valid concern about the
declined value of his asset. In analyzing the causative factors, Mr. Wood cited the fact that
the company was in a difficult business, one “that has substantially gone overseas.” Second,
without Mr. Daugherty, VTC “had no management.” Third, VTC was highly dependent on
one customer, and that customer was highly dependent on one customer (Wal-Mart). Mr.

                                              5
Wood questioned the timeliness of VTC’s liquidation procedures and did not see any
legitimate buyer wanting to acquire the company now that there were such large losses.

       Mr. Wood continued to testify on day two. He opined that the company was not
viable by 2012. He agreed that Mr. Daugherty had valid concerns with the position taken by
VTC in 2012 that the company was viable. He testified as follows:

       I don’t know of any legitimate management team that would have looked to
       come into that business, at least without taking a substantial portion of the
       ownership, because it was in a major turnaround with one major customer, a
       potential loss or loss of that major customer, the financial issues involved with
       falling revenues, et cetera, the cash loss is building up. I don’t—the
       determination that the company was still valid in January of 2012 just doesn’t
       make sense to me.

       Mr. Wood testified about the kinds of summaries and reports that the defendants had
been sending to Mr. Daugherty. He stated that these would be part of what he would call the
second tier of financial statements, which would not provide a level of detail sufficient to
enable a person to determine the reason for losses. From the information provided to him,
Mr. Daugherty would not have been able to verify any of the numbers for accuracy or
reasonableness. He could not have determined whether VTC was being properly managed.

        Mr. Wood was shown the list of VTC documents Mr. Daugherty requested to inspect
in his letter and then in his lawsuit. Mr. Wood explained the various levels of financial
statements, beginning with summary financial statements and ending with support papers.
Asked whether the documents requested by Mr. Daugherty were considered accounting
records, Mr. Wood opined that they were. He further opined that there was nothing that Mr.
Daugherty requested that would not be considered an accounting record.

       On cross-examination, Mr. Wood recalled his deposition testimony in which he
observed that the rent for the buildings used by VTC, which were owned by the siblings, was
high given the company’s performance.

       The first witness for the defendants was Paul Gontarek, an attorney representing
William O. Daugherty, III, in the estate proceedings pending in Williamson County. He also
represented William O. Daugherty, III, and Ms. Doyle in two partition lawsuits regarding
VTC real estate. Mr. Gontarek was asked to testify about MRK, “a company that had
expressed some interest in Volunteer Thread in purchasing its assets, and it appeared to be
an avenue that was worth exploring in order to try and sell the company as a going concern
to MRK so that my client [W.O. Daugherty, III] would realize cash from the estate as a result

                                              6
of the sale.” According to Mr. Gontarek, MRK “appeared on the scene in the spring of
2010.” For various reasons, the sale never happened.

        Bonnie Bowman, the comptroller at VTC after the death of W.O. Daugherty, Jr.,
testified about the accounting system at the company and the reports she prepared for Ronald
Daugherty when he was in charge of the company.

       The next witness was Arthur Rebrovick, a business consultant who was hired by VTC
to do an assessment of the business. He received a call in June or July of 2011 and was asked
to look at three areas:

       Was the business viable as we looked at it? Should the business be closed?
       Could the business be sold? And our basic recommendation when we came
       back was that the business was viable. There was no reason to close it. But
       if there was a concern on that, we could look at it on a very regular basis to see
       if something needed to be changed. And I told them, based on that very
       preliminary assessment, that the business should and could be sold if that’s
       what they wanted.

Mr. Rebrovick recommended that VTC bring in an interim general manager to help find a
permanent general manager. Then, they would have the option of continuing to run the
business or looking for a buyer. VTC decided to hire Mr. Rebrovick as an interim general
manager.

        In working as the general manager, Mr. Rebrovick identified one factor as being “the
real problem”: the fact that the two buildings in which VTC operated were owned separately
from the business; they were owned a third each by the three siblings. This meant that “the
business was under what I called a 30-day out, and if one of the shareholders was trying to
have the businesses removed from the facilities in 30 days . . . you could not vacate the
buildings in 30 days because of the equipment, . . . you would have to shut down the
business, and it was no longer a marketable business.”

     The following testimony by Mr. Rebrovick, concerning a meeting he had with Mr.
Daugherty, is relied upon by the defendants on the issue of Mr. Daugherty’s good faith:

       Q. And what did he say about his siblings?
       A. At one point, he said specifically that LaVada and Billy were paying blood
       [sic] for what they’d done.
       ...
       Q. Did he talk about the will, his dad’s will?

                                               7
       A. He did. He specifically said, when he referenced that they would pay in
       blood, that LaVada and Billy had met with their dad just prior to his death and
       gotten him—and as a result, [W.O. Daugherty, Jr.] changed the will.

     Mr. Rebrovick testified that his meeting with Mr. Daugherty, which occurred in
November 2011, changed his outlook on the future of VTC:

       Because of the real estate issue and with the continued legal issues that were
       using cash resources and tying up time, and it ended up impacting my time as
       general manager more than I anticipated, it became more and more difficult to
       look at how the business was going to go forward. But, again, at that point in
       time, it was still cash-flowing, and there was still that chance, but the real
       estate piece was very important to it.

At a board meeting around November 2012, the board decided to have “a systematic closeout
where we could make production and eventually sell everything, because we needed—what
we told the board was that, if you’re going to maximize your value on the equipment, you
can’t move it out of here in 30 days. You have to have a program. So the second part of the
maximization was to—if we could run most of the raw materials through the plant, we could
gain that back.” By the end of February, production had stopped.

       The final witness was Ms. Doyle, sister of Mr. Daugherty and W.O. Daugherty, III,
and personal representative of the estate of W.O. Daugherty, Jr. Ms. Doyle testified that Mr.
Daugherty’s company, Miami Thread, was a direct competitor of VTC. On cross-
examination, her deposition testimony from March of 2011 was read into evidence. At that
time, she had stated that she was not concerned that her brother’s company was a competitor
of VTC. Ms. Doyle explained that she now thought that Miami Thread was a competitor of
VTC because “their thread was in our biggest customer’s plant.”

       The following deposition testimony of Ms. Doyle was also read into evidence:

       Q. Miami Thread, you’re not sure whether it’s big small or indifferent?
       A. I really don’t know anything about Ronnie’s company.
       Q. Okay. So, whether his company was a competitor or not was not really an
       issue for you in terms of providing information to Ron?
       A. No.
       Q. It was just the policy of the company?
       A. It was the policy that had been in place and the information was not sent
       out to anyone. They just didn’t do it.
       ...

                                             8
       Q. Okay. What’s your position on sharing information with Ron at this point?
       A. I feel like Ronnie should serve on the Board, and then he has all the
       information he wants.
       Q. What if he’s merely a shareholder; should he be provided with that
       information?
       A. I’m not sure.
       Q. Have you thought about it?
       A. No. I don’t know why he would want to be a shareholder and not be on the
       Board.
       Q. So, in your mind, you think he has a duty to be on the Board?
       A. I think if he wants to complain about how things are run, he should serve
       on the Board and take part in how things run.
       ...
       Q. Okay. So, are you telling me that if he requests information about the
       company now, you are not sure how you would vote, whether to provide it to
       him or not to provide it to him?
       A. I am not sure.

                                      Court’s decision

       In a memorandum and order, entered on August 6, 2013, the court noted that:

       Contrary to Defendants’ assertions, there is nothing in the statute that provides
       that a shareholder’s statutory entitlement to accounting records can be
       conditioned upon the shareholder entering a confidentiality agreement.
       Similarly, the statute does not state that a shareholder’s right to inspect
       corporate accounting records can be forfeited or diminished if the shareholder
       declines to accept a seat on the board of directors.

After reviewing Mr. Daugherty’s requests to inspect documents, the reasons stated, and
VTC’s response, the court found that VTC’s “response did not raise bad faith, lack of proper
purpose, or that the records requested were not properly limited to Mr. R. Daugherty’s
asserted purpose. It simply stated that the requested records themselves fell outside the scope
of Tenn. Code Ann. § 48-26-102(b)(2).”

        The court found that the proof at trial, in particular the testimony of Mr. Wood,
“established that all of the requested records were accounting records within the meaning of
the statute.” The court further found that the records requested “related to the purposes
articulated in the April 7, 2011 request and those purposes were proper purposes within the
meaning of Tenn. Code Ann. § 48-26-102.”

                                              9
       The court then proceeded to consider the issue of whether the articulated purposes
were a pretext for improper purposes and whether Mr. Daugherty sought the records in bad
faith. The court made the following findings:

       After a review of the entire record, the Court is convinced that Mr. R.
       Daugherty genuinely had concerns about Volunteer Thread’s financial status,
       the value of his interest in the business, and the need for the requested records.
       The concern about the company was objectively reasonable in light of
       Volunteer Thread’s ensuing loss of revenue. Volunteer Thread’s reasons for
       wholly denying the request, therefore, were without merit under the statute.
       Although the question of whether Mr. R. Daugherty was acting in good faith
       is a close question, the Court concludes that, more likely that not, Mr. R.
       Daugherty was operating in good faith in seeking the records. Although he
       angrily vowed in a conversation with Mr. Art [Rebrovick] that his siblings
       “would pay in blood,” the simple truth is that Plaintiff was entitled to inspect
       the requested records under the statute and that his pursuit of these records was
       not in bad faith under the circumstances.

       Based on these findings, the court concluded that Mr. Daugherty was entitled to
attorney fees against VTC pursuant to Tenn. Code Ann. § 48-26-102(b)(2). The court further
concluded that Mr. Daugherty was entitled to an award of attorney fees in connection with
the defendants’ efforts to depose plaintiff’s counsel, Lisa Helton. The court found that this
deposition request was unreasonable. The court gave Mr. Daugherty thirty days to file an
application for attorney fees.

       After a hearing on attorney fees, the court entered a final order on October 4, 2013.
The court decreed that VTC “had no reasonable basis to doubt whether Plaintiff had a right
to inspect the records.” The court went on to find that, once Mr. Daugherty made his request,
VTC should have allowed the inspection “shortly thereafter.” VTC’s “failure to do so led
to substantial litigation expenses being incurred by the parties, particularly given Volunteer
Thread’s reason for not allowing the inspection.” The court awarded attorney fees, forensic
accounting fees ($67,034.92), and other expenses in the aggregate amount of $233,272.69
in favor of Mr. Daugherty against VTC. As to the litigation surrounding the effort to depose
Ms. Helton, the court awarded attorney fees and expenses in the amount of $11,144.50 in
favor of Mr. Daugherty against defendants Ms. Doyle, William O. Daugherty, III, and VTC.

                                       Issues on appeal

     On appeal, the defendants argue that the trial court erred (1) in finding that Mr.
Daugherty acted in good faith in making the shareholder records inspection request; (2) in

                                              10
holding that Mr. Daugherty was entitled to an award of attorney fees under Tenn. Code Ann.
§ 48-26-102(b)(2); (3) in finding that VTC had no reasonable basis to doubt that Mr.
Daugherty was acting in good faith and with a proper purpose in making the shareholder
records inspection request; and (4) in awarding Mr. Daugherty fees and expenses paid to the
forensic accountant he hired to inspect the records. Mr. Daugherty argues that the trial court
erred in applying an across-the-board twenty percent discount to the attorney fees that he
incurred in this litigation when making an award of attorney fees to him.

                                    S TANDARD OF R EVIEW

       In a civil case tried without a jury, we review the trial court’s findings of fact de novo
with a presumption of correctness unless the preponderance of the evidence is otherwise.
T ENN. R. A PP. P. 13(d). Our consideration of the preponderance of the evidence “is tempered
by the principle that the trial court is in the best position to assess the credibility of the
witnesses; accordingly, such credibility determinations are entitled to great weight on
appeal.” Rice v. Rice, 983 S.W.2d 680, 682 (Tenn. Ct. App. 1998). We review questions of
law de novo with no presumption of correctness. Nelson v. Wal-Mart Stores, Inc., 8 S.W.3d
625, 628 (Tenn. 1999).

                                  S TATUTORY F RAMEWORK

      Before analyzing the issues in this case, we will set forth the relevant statutory
framework.

       (b) A shareholder of a corporation is entitled to inspect and copy, during
       regular business hours at a reasonable location specified by the corporation,
       any of the following records of the corporation, if the shareholder meets the
       requirements of subsection (c) and gives the corporation written notice of the
       shareholders’s demand at least five (5) business days before the date on which
       the shareholder wishes to inspect and copy:
       ...
       (2) Accounting records of the corporation; and
       ...
       (c) A shareholder may inspect and copy the records described in subsection (b)
       only if:
       (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; and
       (3) The records are directly connected with the shareholder’s purpose.

                                               11
Tenn. Code Ann. § 48-26-102(b), (c). Tennessee Code Annotated section 48-26-104(c), the
other provision at issue here, addresses attorney fees:

       If the court orders inspection and copying of the records demanded, it shall
       also order the corporation to pay the shareholder’s costs (including reasonable
       counsel fees) incurred to obtain the order if the shareholder proves that the
       corporation refused inspection without a reasonable basis for doubt about the
       right of the shareholder to inspect the records demanded.

                                          A NALYSIS

                                              (1)

       The defendants’ first argument is that the trial court erred in finding that Mr.
Daugherty acted in good faith in making the record inspection request. We must respectfully
disagree.

        The question of whether a party acted in good faith presents an issue of fact; issues
of fact are entitled to a presumption of correctness. Dick Broad. Co., Inc. v. Oak Ridge FM,
Inc., 395 S.W.3d 653, 671 (Tenn. 2013); T ENN. R. A PP. P. 13(d). The defendants argue that
the trial court failed to cite any facts to support its finding that Mr. Daugherty acted in good
faith. In finding that Mr. Daugherty acted in good faith, however, the trial court did refer to
facts:

       After a review of the entire record, the Court is convinced that Mr. R.
       Daugherty genuinely had concerns about Volunteer Thread’s financial status,
       the value of his interest in the business, and the need for the requested records.
       The concern about the company was objectively reasonable in light of
       Volunteer Thread’s ensuing loss of revenue. Volunteer Thread’s reasons for
       wholly denying the request, therefore, were without merit under the statute.
       Although the question of whether Mr. R. Daugherty was acting in good faith
       is a close question, the Court concludes that, more likely than not, Mr. R.
       Daugherty was operating in good faith in seeking the records. Although he
       angrily vowed in a conversation with Mr. Art [Rebrovick] that his siblings
       “would pay in blood,” the simple truth is that Plaintiff was entitled to inspect
       the requested records under the statute and that his pursuit of these records was
       not in bad faith under the circumstances.

     The evidence does not preponderate against the trial court’s determination that Mr.
Daugherty acted in good faith in requesting to inspect the records. The court’s finding of

                                              12
good faith necessarily rests in part upon its assessment of the credibility of the witnesses. As
this court stated in another case involving a determination of good faith, “[t]he weight, faith
and credit to be given to any witness’ testimony lies with the trier of fact and the credibility
accorded will be given great weight by the appellate court.” Wood v. Lowery, 238 S.W.3d
747, 758 (Tenn. Ct. App. 2007).

        It is noteworthy that the only reason given by VTC in its letter refusing Mr.
Daugherty’s request to inspect the records was that they were “beyond the scope
contemplated by Tenn. Code Ann. § 48-26-102(b)(2).” Tennessee Code Annotated section
48-26-102(b)(2) states that a shareholder is entitled to inspect accounting records. At trial,
Mr. Daugherty put on the testimony of Mr. David Wood, a forensic accountant, who testified
that all of the requested records were accounting records. The defendants did not put on any
proof to rebut this evidence.

         At trial, and on appeal, the defendants make several additional arguments with respect
to Mr. Daugherty’s good faith in making his records request. The defendants assert that Mr.
Daugherty owned a business that was actively competing for VTC’s customers and refused
to accept any condition on his receipt of the requested records that would restrict his use of
the records for competitive purposes. The defendants cite two cases, Wood v. Myers Paper
Co., 3 Tenn. App. 128 (1926), and Advance Concrete Form, Inc. v. Accuform, Inc., 462
N.W.2d 271 (Wis. Ct. App. 1990), in support of the proposition that a shareholder “will not
be permitted to inspect the corporate books and records when it appears that the inspection
is for the purpose of obtaining information to be used in harming the corporation’s business
for the benefit of a competitor.” These cases are distinguishable from the present case,
however.

       In Wood, a minority shareholder and employee of the corporation terminated his
employment and opened a competing business the very next day. Wood, 3 Tenn. App. at 132.
The shareholder made statements that he would hold on to his stock in the corporation to gain
competitive advantage “in exercising his right as a stockholder to obtain information.” Id.
at 138. In the present case, there is no evidence that Mr. Daugherty retained his stock in
VTC in order to compete with VTC. In his direct testimony, Mr. Daugherty was asked
whether, in requesting information about VTC, he was attempting to eliminate a competitor.
Mr. Daugherty responded:

       No. The two of us [VTC and Miami Thread] have such a miniscule amount
       of the overall market share that—during my father’s lifetime, we had our eyes
       on bigger prizes. And LaVada said as much in her deposition, when asked
       who were your biggest competitors, and she said American & Efird and Coats
       American.

                                              13
Moreover, in her deposition in the estate case in March 2011, less than a month before Mr.
Daugherty’s record inspection request in April 2011, Ms. Doyle testified that she was not
concerned that Miami Thread was a competitor of VTC.
        In Accuform, the Wisconsin Court of Appeals stated that a writ requiring a corporation
to allow inspection of its books “‘[would] not be denied merely because the petitioner is
hostile to the respondent or because he is a member of a competing corporation.’” Accuform,
462 N.W.2d at 277 (quoting State ex rel. Boldt v. St. Cloud Milk Producers’ Ass’n, 273 N.W.
603, 609 (Minn. 1937)). The court went on to state that the writ “‘will not be granted where
it appears that the examination is desired for the purpose of obtaining information to be used
in crippling the business of the corporation for the benefit of a business rival.’” Id. The facts
in Accuform showed, inter alia, that Advance and Accuform were “direct and fierce
competitors,” that the principal of Advance (the shareholder seeking inspection of the records
of Accuform) stated on several occasions “that he wanted to put Accuform’s principal out
of business,” and that Advance wooed away Accuform’s only full-time sales person and
thereby acquired its stock in Accuform. Id. The appellate court concluded that the trial court
could reasonably infer from Advance’s prior conduct and other facts and circumstances that
the “true purpose for its inspection demand was to obtain a competitive advantage over
Accuform.” Id. at 278.

        In this case, unlike in Accuform, Mr. Daugherty never stated that he wanted to put
VTC out of business. Although there is evidence that Mr. Daugherty had hostile feelings
toward his siblings over the disposition of VTC, there is ample evidence that Mr.
Daugherty’s purpose in seeking to inspect the records was, as he stated in his letter, to make
sure the business was being properly conducted and to determine the value of his ownership
interest. There was some conflicting evidence concerning the level of competition between
VTC and Miami Thread and the degree to which that may have motivated Mr. Daugherty.
The trial court heard all of that evidence and determined that Mr. Daugherty acted in good
faith, out of genuine concern for VTC, not to gain a competitive advantage.

        We find no merit in the defendants’ argument that Mr. Daugherty exhibited a lack of
good faith in refusing to sign a confidentiality agreement as a condition of receiving the
records he requested in April 2011. At the time when Mr. Daugherty made his request to
inspect the records, the defendants did not ask him to sign a confidentiality agreement.
Rather, it was one year earlier, in April 2010, that the defendants asked Mr. Daugherty to
sign a confidentiality agreement. At that time, he made an expression of interest to buy VTC;
that same day, Ms. Doyle made an expression of interest to purchase the company at a higher
price. Mr. Daugherty did not sign the confidentiality agreement. That agreement would only
have allowed him to inspect VTC’s monthly profit and loss statements and balance sheets
for the months of August 2009 through March 2010. In light of the fact that the defendants
did not ask Mr. Daugherty to sign a confidentiality agreement as a condition to allowing him

                                               14
access to the accounting documents he first requested in April 2011, we reject their
confidentiality argument.

       The defendants’ next argument regarding good faith is that Mr. Daugherty unilaterally
attempted to evict VTC from its leased real property on short notice on three occasions.
According to the defendants, Mr. Daugherty’s actions “are inconsistent with those of a
person who is acting in good faith to learn more about VTC and protect it from potential
mismanagement.” Rather, they assert, Mr. Daugherty’s actions are “consistent with those
of a person who was intent on destroying VTC as quickly as possible because he did not
believe that he should have to share it with his siblings.”

        The timing of the various legal actions at issue is important. In June 2010, Mr.
Daugherty filed a partition action concerning the real property owned as tenants in common
by Mr. Daugherty, Ms. Doyle, and William O. Daugherty, III. He voluntarily dismissed the
action in September 2010. At trial, Mr. Daugherty testified that this action was not aimed
at evicting VTC; he noted that a new owner could lease the property to VTC. After Mr.
Daugherty dismissed his action, Ms. Doyle and William O. Daugherty, III, filed a partition
action. Mr. Rebrovick testified that the ownership of the real property by the three siblings
made the ongoing viability or sale of the business less certain. At the time of Mr.
Daugherty’s request for inspection of VTC records, the only litigation pending between the
parties was the estate.

       After VTC refused his inspection request, Mr. Daugherty demanded that VTC vacate
the parcels of real property and subsequently filed detainer actions against VTC. VTC
successfully opposed these attempts by Mr. Daugherty.

       The trial court heard all of this evidence and, despite the obvious hostility harbored
by Mr. Daugherty toward his siblings, concluded that he acted in good faith in making the
inspection request. See Accuform, 462 N.W.2d at 277 (Writ requiring a corporation to allow
inspection of its books “‘[would] not be denied merely because the petitioner is hostile to the
respondent or because he is a member of a competing corporation.’”); State ex rel. Watkins
v. Cassell, 294 S.W.2d 647, 654 (Mo. Ct. App. 1956) (“The mere fact that a stockholder
seeking inspection is on unfriendly terms with the officers and is also a stockholder in a rival
or competing corporation is not, apart from improper motives, grounds for denying his right
of inspection.”). The evidence does not preponderate against that finding.

       The defendants further argue that Mr. Daugherty was already receiving much of the
same information he requested in the records inspection request through the agreed order in
the estate case. The records Mr. Daugherty received under the agreed order were:

                                              15
       1. Weekly reports of financial information in the form regularly prepared by
       the companies;
       2. Monthly summaries of financial information in the form regularly prepared
       by the companies;
       3. Identities of the members of the boards of directors and their compensation
       if any;
       4. Minutes of the meetings of the boards of directors; and
       5. A list of persons who advise the companies.

When Mr. Daugherty entered into this agreed order, the estate was the sole shareholder of
VTC and, thus, he himself was not a shareholder. Once he became a shareholder, Mr.
Daugherty was entitled to inspect the accounting records and other records described in
Tenn. Code Ann. § 48-26-102(b), which include more than just the summaries and reports
listed in the agreed order. Two of the purposes asserted by Mr. Daugherty for his record
inspection request were to determine whether VTC was being properly run and to evaluate
the value of his ownership interest in VTC. Mr. Wood testified that the summaries supplied
under the agreed order would not give Mr. Daugherty the level of detail necessary for him
to understand why the company was sustaining significant losses or to determine whether it
was being properly managed. He further testified that the information provided under the
agreed order would not enable Mr. Daugherty to verify the accuracy or reasonableness of the
numbers in the summaries. The information provided under the agreed order is not a
substitute for the information requested by Mr. Daugherty under Tenn. Code Ann. § 48-26-
102.

        For all of these reasons, we find that the evidence does not preponderate against the
trial court’s finding that Mr. Daugherty acted in good faith in making his request for
inspection of records pursuant to Tenn. Code Ann. § 48-26-102.

                                             (2)

        The defendants assert that the trial court erred in holding that Mr. Daugherty was
entitled to an award of attorney fees under Tenn. Code Ann. § 48-26-102. The defendants’
argument here seems to be that the trial court ordered attorney fees based solely upon a
finding that Mr. Daugherty acted in good faith and with a proper purpose under Tenn. Code
Ann. § 48-26-102. We disagree with this interpretation of the trial court’s decision.

      In its memorandum and order entered on August 6, 2013, the trial court found that Mr.
Daugherty acted in good faith in seeking the requested records. The court went on to state:
“Consequently, Mr. R. Daugherty is entitled to an award of reasonable attorneys’ fees and
expenses against Volunteer Thread under Tenn. Code Ann. § 48-26-102(b)(2).” Taken out

                                             16
of context, this statement could be construed to mean that the attorney fee determination has
been made. The remainder of the memorandum and the final order, however, show this
interpretation to be erroneous. The court gives the plaintiff thirty days to make an application
for an award of attorney fees and the defendants twenty days to respond.

       Tennessee Code Annotated sections 48-26-104(b) and (c) provide:

       (b) If a corporation does not within a reasonable time allow a shareholder to
       inspect and copy any other record, the shareholder who complies with § 48-26-
       102(b) and (c) may apply to the court of record having equity jurisdiction . .
       . for an order to permit inspection and copying of the records demanded. . . .
       (c) If the court orders inspection and copying of the records demanded, it shall
       also order the corporation to pay the shareholder’s costs (including reasonable
       counsel fees) incurred to obtain the order if the shareholder proves that the
       corporation refused inspection without a reasonable basis for doubt about the
       right of the shareholder to inspect the records demanded.

(Emphasis added). From this statutory framework, it is possible to see how the trial court,
in its memorandum, might move to the issue of attorney fees after concluding that Mr.
Daugherty met the requirements of Tenn. Code Ann. §§ 48-26-102(b) and (c). In its final
order, the trial court clearly addressed the key issue required by Tenn. Code Ann.§ 48-26-
104(c): “Defendant Volunteer Thread Company, Inc. (“Volunteer Thread”) had no
reasonable basis to doubt whether Plaintiff had a right to inspect the records.”

       We find no error in the trial court’s statutory analysis.

                                              (3)

       The defendants’ next argument is that the trial court erred in finding that VTC had no
reasonable basis to doubt that Ronald Daugherty was entitled to inspect the requested
records. As discussed above, this finding is required for an award of attorney fees under
Tenn. Code Ann. § 48-26-104(c).

       The award of attorney fees is within the trial court’s discretion and will not be
overturned absent an abuse of discretion. Wright ex rel. Wright v. Wright, 337 S.W.3d 166,
176 (Tenn. 2011). In reviewing the award, we look at the evidence in the light most
favorable to the trial court’s decision. Id. Thus, we are required to uphold the trial court’s
ruling “as long as reasonable minds could disagree about its correctness,” and “we are not
permitted to substitute our judgment for that of the trial court.” Caldwell v. Hill, 250 S.W.3d
865, 869 (Tenn. Ct. App. 2007).

                                              17
        The defendants argue that the trial court’s finding that VTC had no reasonable basis
to doubt that Mr. Daugherty was entitled to inspect the records was “directly contradictory”
to its previous findings that “it was a ‘close question’ and only ‘more likely than not’ that
Ronald Daugherty acted in good faith.” In maintaining that Mr. Daugherty failed to prove
that VTC had no reasonable basis to doubt that he was entitled to inspect the records, the
defendants rely on the same arguments used to assert that Mr. Daugherty did not act in good
faith—including that Mr. Daugherty was a competitor of VTC, that he would not sign a
confidentiality agreement, that he tried to have VTC evicted, and that he made statements
reflecting his hostility toward his siblings.

       As set forth above, the abuse of discretion standard does not allow this court to
substitute our judgment for that of the trial court. We are required to uphold the trial court’s
decision “as long as reasonable minds could disagree” about the correctness of the decision.
Id. We find no basis upon which to conclude that the trial court abused its discretion in
determining that Mr. Daugherty was entitled to an award of attorney fees pursuant to Tenn.
Code Ann. § 48-26-104(c).

                                              (4)

       The defendants’ final argument is that the trial court erred in awarding Mr. Daugherty
fees and expenses he paid to the forensic accountant he hired to inspect the records. In its
final order, the court concluded that “the expenses incurred for the work of the forensic
accountant is fully compensable in the amount of $67,034.92.” We have concluded that the
defendants have the better argument on this issue.

        Mr. Daugherty makes two main arguments to justify the award of his expenses in
hiring the forensic accountant. First, he asserts that Mr. Wood, the accountant, was a court-
appointed expert witness compensable under Tenn. R. Evid. 706(b). The record does not
support this assertion. Mr. Daugherty filed a motion for a forensic accounting, and the court
granted the motion, authorizing an accountant hired by Mr. Daugherty to have access to
VTC’s books and to perform a forensic accounting. Nowhere in the court’s order was the
forensic accountant classified as a court-appointed expert, and the court did not follow the
procedures set forth under Tenn. R. Evid. 706 for the court appointment of an expert.
Moreover, Mr. Daugherty filed a motion to quash to prohibit the defendants from taking Mr.
Wood’s deposition on the basis that he was a consulting expert under Tenn. R. Civ. P.
26.02(4)(B).

      Mr. Daugherty’s second argument is that Mr. Wood was an expert witness regarding
whether the records requested by Mr. Daugherty were accounting records. Under Tenn.
Code Ann. § 48-26-104(c), a shareholder is entitled to recover costs (including reasonable

                                              18
attorney fees) “incurred to obtain the order if the shareholder proves that the corporation
refused inspection without a reasonable basis for doubt . . . .” (Emphasis added). We must
determine whether the statute authorizes the recovery of Mr. Wood’s forensic accounting
fees in this case.

        The construction of a statute is a question of law. Lee v. Franklin Special Sch. Dist.
Bd. of Educ., 237 S.W.3d 322, 332 (Tenn. Ct. App. 2007). The standard of review is de novo.
Id. In construing Tenn. Code Ann. § 48-26-104(c), we apply these well-settled principles
articulated by our Supreme Court:

       The leading rule governing our construction of any statute is to ascertain and
       give effect to the legislature’s intent. To that end, we start with an examination
       of the statute’s language, presuming that the legislature intended that each
       word be given full effect. When the import of a statute is unambiguous, we
       discern legislative intent “from the natural and ordinary meaning of the
       statutory language within the context of the entire statute without any forced
       or subtle construction that would extend or limit the statute’s meaning.”

Myers v. AMISUB (SFH), Inc., 382 S.W.3d 300, 308 (Tenn. 2012) (citations omitted).

        The key statutory language here is that the costs must be “incurred to obtain the
order.” There are no Tennessee cases interpreting this statutory language. Mr. Daugherty
argues that Mr. Wood was an expert witness regarding whether the records requested by Mr.
Daugherty were accounting records. More specifically, he maintains that, because the
defendants denied his inspection request, he “had no choice but to engage an accountant to
study the requested records, determine whether they were accounting records, and ultimately
testify at trial . . . .” He relies on the case of Shell v. King, No. E2003-02124-COA-R3-CV,
2004 WL 1749186 (Tenn. Ct. App. Aug. 5, 2004), to support his position that the statute
contemplates that costs include expert witness fees.

       While we agree that costs may include expert witness fees under Tenn. Code Ann. §
48-26-104(c), we do not find that Mr. Wood’s fees fit the statutory requirements in this case.
The Shell case addresses expert witness fees in the context of an action for dissolution
pursuant to Tenn. Code Ann. § 48-245-903, a statute which allows for the award of
reasonable attorney fees and costs to the prevailing party. Shell, 2004 WL 1749186, at *8.
That statute does not contain the key language limiting the award of costs to those “incurred
to obtain the order.” Tenn. Code Ann. § 48-26-104(c). Thus, we find Shell to be
distinguishable.

       Tennessee Code Annotated section 48-26-104(c) is part of the Tennessee Business

                                              19
Corporation Act, Tenn. Code Ann. §§ 48-11-101– 48-27-103, and codifies a version of the
Model Business Corporation Act’s shareholder inspection rights. See Browning Jeffries,
Shareholder Access to Corporate Books and Records: The Abrogation Debate, 59 D RAKE
L. R EV. 1087, 1110 n.131 (2011). The defendants cite a case from Georgia, a state which has
enacted a version of the Model Business Corporation Act’s shareholder inspection rights
provision similar to Tennessee’s.1

        In the Georgia case, G.I.R. Systems, Inc. v. Lance, 466 S.E.2d 597, 598 (Ga. Ct. App.
1995), a shareholder requested corporate records for the purpose of helping him assess the
value of his stock. The appellate court affirmed the trial court’s finding that the shareholder
was seeking the records for a proper purpose. G.I.R. Sys., 466 S.E.2d at 599. The trial court
ordered that the shareholder’s certified public accountant (“CPA”) be permitted to inspect
the records and ordered the corporation to pay half of the accountant’s fee to inspect the
records. Id. at 599-600. On appeal, the corporation argued that the trial court erred in
requiring it to split the cost of the shareholder’s CPA inspection of the corporate records. Id.
at 600. In concluding that the trial court exceeded its authority, the appellate court reasoned,
in part, as follows: “This section [Ga. Code Ann. § 14-2-1604(c)] is clearly inapplicable as
the costs assessed to G.I.R. [the corporation] were not costs incurred by Lance [the
shareholder] in obtaining the inspection order.” Id.

       We cannot agree with Mr. Daugherty’s position that a full forensic accounting was
necessary for him to obtain the records he requested. The testimony he adduced from Mr.
Wood concerning whether the records he requested qualified as accounting records was
limited to going over the list of the records he requested and asking Mr. Wood whether those
types of documents qualified as accounting records. The forensic accounting conducted by
Mr. Wood, for which Mr. Daugherty sought reimbursement, was designed to determine how
the company was being run and whether there was mismanagement. Tennessee Code
Annotated section 48-26-104(c) does not contemplate a shareholder being paid for such costs
because they were not incurred to obtain the order to inspect the records requested. Mr.

        1
            Georgia’s provision states:

        If the court orders inspection and copying of the records demanded, it shall also order the
        corporation to pay the shareholder’s costs (including reasonable attorneys’ fees) incurred
        to obtain the order unless the corporation proves that it refused inspection in good faith
        because it had a reasonable basis for doubt about the right of the shareholder to inspect the
        records demanded.

Ga. Code Ann. § 14-2-1604(c) (emphasis added). Although the Georgia statute puts the burden of proof on
the corporation, while the Tennessee statute puts the burden of proof on the shareholder, this difference is
not significant for purposes of the present analysis.

                                                     20
Daugherty is only entitled to be paid for the cost of Mr. Wood’s testimony concerning
whether the records requested by Mr. Daugherty were accounting records.

                                               (5)

      Mr. Daugherty’s final argument is that the trial court erred in allowing defendants a
20% discount regarding the attorney fee award.

       In its final order, the court stated:

       The Court concludes that the services captured in the portion of Plaintiff’s
       request for attorneys’ fees that is not related to Defendant’s effort to depose
       Ms. Helton [one of plaintiff’s attorneys] were reasonable and necessary. The
       Court awards the full amount requested ($196,474.75) minus 20%
       ($39,294.95) for a total of $157,179.80, taking into account duplication of
       effort. There were instances when one lawyer could have readily handled
       certain matters and there were instances when the time spent on a particular
       matter by both counsel could have been less extensive in the exercise of
       discretion and/or billing judgment.

       Mr. Daugherty argues that he attempted to keep attorney fees down but that the
defendants’ aggressive litigation of the case drove the costs up. The reasons given by the
court, however, are not reflective of the length or complexity of the litigation, but of
instances when the court saw duplication of effort on the part of Mr. Daugherty’s attorneys.
As stated above, our standard of review with respect to attorney fees is the abuse of
discretion standard. We find no basis upon which to conclude that the trial court abused its
discretion in applying a discount with respect to attorney fees.

       Furthermore, we decline to grant Mr. Daugherty’s request for an award of attorney
fees on appeal.

                                          C ONCLUSION

       For the foregoing reasons, we reverse the trial court’s decision with respect to the
award of forensic accounting costs; in all other respects, we affirm the judgment of the trial
court. The case is remanded for the trial court to determine how much of the cost of the
forensic accounting is attributable to Mr. Wood’s testimony concerning whether the records

                                               21
 requested by Mr. Daugherty qualified as accounting records. Costs of the appeal are
assessed against the appellants.

                                                      _________________________
                                                      ANDY D. BENNETT, JUDGE

                                         22