IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
September 17, 2009 Session
BETH PROFFITT v. SMOKY MOUNTAIN WOODCARVERS SUPPLY,
INC.
Appeal from the Circuit Court for Blount County
No. E-22595 W. Dale Young, Judge
No. E2009-00667-COA-CV - FILED MARCH 31, 2010
The plaintiff filed this action seeking to review the business records of the defendant,
asserting under oath that she is a 25 percent shareholder of the defendant corporation. The
defendant moved to dismiss. The trial court found that the plaintiff had complied with the
requirements of Tenn. Code Ann. §48-26-104(a) – the corporate records statute – and ordered
the defendant to comply with the request to inspect and/or copy corporate records. The trial court
also ordered the defendant to pay the plaintiff’s attorney fees. We reverse.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Reversed; Case Remanded
J OHN W. M CC LARTY, J., delivered the opinion of the Court, in which C HARLES D. S USANO,
J R. and D. M ICHAEL S WINEY, JJ., joined.
L. Lee Kull, Alcoa, Tennessee, for the appellant, Smoky Mountain Woodcarvers Supply, Inc.
Melanie E. Davis, Maryville, Tennessee, for the appellee, Beth Proffitt.
Robert E. Cooper, Jr., Attorney General & Reporter, Michael E. Moore, Solicitor General,
and Steven A. Hart, Special Counsel, Nashville, Tennessee, for the State of Tennessee.
OPINION
I. BACKGROUND
On August 4, 2008, by a letter from her former attorney, Beth Proffitt (“Ms. Proffitt”)
requested “all business records that are in existence . . . .” from counsel for Smoky Mountain
Woodcarvers, Supply, Inc. (“Woodcarvers” or “the corporation”). No mention was made at
that time regarding Tenn. Code Ann. §48-26-102 as the basis for the letter, nor was the
request made for the records specified in Tenn. Code Ann. §48-26-102, nor was any reason
or purpose given. A copy of the letter was not sent to Woodcarvers. Later, Ms. Proffitt’s
attorney stated that he had become aware of Tenn. Code Ann. §48-26-101, et seq. and that
he considered the August letter to be a request under the statute.
On August 19, 2008, Ms. Proffitt filed a complaint. She asserted that she is
shareholder with a 25 percent in Woodcarvers, a for-profit corporation with its principal
office in Blount County. Pursuant to Tenn. Code Ann. §48-26-104, Ms. Proffitt requested
the trial court to summarily order that she may inspect and copy corporate records and to
award her costs and reasonable attorney fees. No summons was issued pursuant to Tenn. R.
Civ. P. 4, nor a copy of the complaint was served on Woodcarvers. A copy of the complaint
was sent to the attorney for Woodcarvers, but no summons was served. According to
Woodcarvers’ attorney, he repeatedly informed Ms. Proffitt’s attorney that he could not
accept service for the corporation.
The following month, Ms. Proffitt filed a motion to set a trial date. The motion was
not served on Woodcarvers (a copy was sent to its counsel). In a letter, Woodcarvers’
attorney responded by again informing Ms. Proffitt’s attorney that he could not accept service
for the corporation.
After an ex parte order was entered setting a trial date on the complaint, a copy of the
order was received by Woodcarvers and its attorney, but no copy of the complaint was served
on the corporation.
In October 2008, Woodcarvers appeared specially to file a motion to dismiss asserting
lack of jurisdiction over the person, insufficiency of process, and insufficiency of service of
process. Woodcarvers claimed that Ms. Proffitt had failed to serve a summons and a copy
of the petition on the corporation. At the subsequent hearing, no proof was offered or taken
regarding Ms. Proffitt’s status as a shareholder, the sufficiency of her August 4, 2008 letter
requesting examination of corporate documents, her “application,” or the basis for Ms.
Proffitt’s request for attorney fees.
The trial court’s memorandum opinion, rendered on October 29, 2008, stated:
The Court finds that the shareholder has complied with the requirements of
[Tenn. Code Ann. §48-26-104(a)] relative to a request for the ability to copy
and/or inspect corporate records and that the corporation has actual knowledge
and constructive knowledge of that fact. The Statute allows the Court to
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summarily deal with the situation and the Court further finds that a lawsuit is
not required in order to effectuate the intent of the Statute.
The Court finds that an application is all that is required and as long as the
mandates of the Statute have otherwise been complied with no service of
process was necessary.
Accordingly, the Court finds Ms. Proffitt’s “Petition” constitutes “an
application” as required by the Statute and the Court orders the corporation to
comply with the reasonable request to inspect and/or copy corporate records.
The trial court also ordered Woodcarvers to pay Ms. Proffitt’s attorney fees in the amount
of $1,600. An order to this effect was entered in January 2009. Woodcarvers moved the trial
court to stay proceedings to enforce the judgment, to alter or amend the judgment, and to
declare that Tenn. Code Ann. §48-26-101, et seq. is unconstitutional. Counsel for
Woodcarvers gave notice to the Attorney General for the State of Tennessee of its
constitutional challenge of Tenn. Code Ann. §48-26-101, et seq.
On February 24, 2009, Ms. Proffitt’s counsel served a “summons” upon Woodcarvers,
accompanied by the petition and order of the court previously entered. The summons advised
the corporation that there would be a hearing on Ms. Proffitt’s motion to set hearing date and
to defend any action previously taken by the court. The Attorney General responded by letter
opining that the case could be resolved addressing the constitutional challenge to the statute
because Ms. Proffitt’s attorney had now served a summons upon the registered agent of the
corporation. Therefore, the Attorney General announced his intention not to intervene or
appear at the scheduled hearing. Woodcarvers responded that the summons was not properly
issued thereby making it null, void, and of no affect.
On March 13, 2009, the trial court denied all of Woodcarvers’ motions without
comment. An order reflecting this action was entered ten days later. Additional attorney fees
were awarded to Ms. Proffitt. Woodcarvers filed a timely notice of appeal.1
II. ISSUES
Woodcarvers presents the following issues, which we restate:
1
Following the initiation of the appeal, another request for corporate records was issued by new
counsel for Ms. Proffitt. The request was honored. Accordingly, Ms. Proffitt is no longer seeking any
corporate records.
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A. Did the trial court err in entering orders against Woodcarvers without in
personam jurisdiction in violation of the due process requirements of the
Constitutions of the United States and Tennessee?
B. Did the trial court err in holding that Ms. Proffitt had complied with Tenn.
Code Ann. §48-26-102?
C. Did the trial court err in failing to hold that Tenn. Code Ann. §48-26-104
violates the due process clauses of the Constitutions of the United States and
Tennessee?
D. Did the trial court err in awarding Ms. Proffitt attorney fees without proof
by the shareholder that the corporation refused inspection without reasonable
cause and without proof of the basis for such fees?
Ms. Proffitt asserts that the issues raised in Woodcarvers’ brief – other than those concerning
with attorney fee – are moot inasmuch as Ms. Proffitt obtained the requested corporate
documents on May 4, 2009, and is now satisfied. The Attorney General raises two issues
regarding the constitutionality of Tenn. Code Ann. §48-26-104:
A. Must this court address the constitutionality of Tenn. Code Ann. §48-26-
104, especially given that the corporation has now produced the records to the
appellee shareholder?
B. May Tenn. Code Ann. §48-26-104 be reasonably interpreted so as to
comply with the constitutional due process requirements?
III. STANDARD OF REVIEW
Our standard of review in this matter is de novo upon the record with no presumption
of correctness. Tenn. R. App. P. 13(d).
IV. DISCUSSION
Ms. Proffitt claims that she simply wanted to review and copy corporate documents
for Woodcarvers, a corporation in which she holds a 25 percent interest as a shareholder.
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She states this was her legal right under Tenn. Code Ann. §48-26-101 et seq. She also asserts
Woodcarvers had actual or constructive notice of the complaint.
Tenn. Code Ann. §48-26-101 imposes upon corporations the obligation to keep certain
records permanently, including the minutes of corporate meetings, and requires the
maintenance of “appropriate accounting records.” Tenn. Code Ann. §48-26-102 (2002)
provides:
(a) A shareholder of a corporation is entitled to inspect and copy, during
regular business hours at the corporation’s principal office, any of the records
of the corporation described in §48-26-101(e), if the shareholder gives the
corporation written notice of the shareholder’s demand at least five (5)
business days before the date on which the shareholder wishes to inspect and
copy.
(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
shareholder’s demand at least five (5) business days before the date on which
the shareholder wishes to inspect and copy:
(1) Excerpts from minutes of any meeting of the board of
directors, records of any action of a committee of the board of
directors while acting in place of the board of directors on
behalf of the corporation, minutes of any meeting of the
shareholders, and records of action taken by the shareholders or
board of directors without a meeting, to the extent not subject to
inspection under subsection (a);
(2) Accounting records of the corporation; and
(3) The record of shareholders.
(c) A shareholder may inspect and copy the record described in subsection (b)
only if:
(1) The shareholder’s demand is made in good faith and for a
proper purpose;
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(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.
***
Tenn. Code Ann. §48-26-104 (2002) provides:
(a) If a corporation does not allow a shareholder who complies with §48-26-
102(a) to inspect and copy any records required by that subsection to be
available for inspection, a court of record having equity jurisdiction in the
county where the corporation’s principal office . . . is located may summarily
order inspection and copying of the records demanded at the corporation’s
expense upon application of the shareholder.
(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 in
the county where the corporation’s principal office . . . is located for an order
to permit inspection and copying of the records demanded. The court shall
dispose of an application under this subsection on an expedited basis.
(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.
(d) If the court orders inspection and copying of the records demanded, it may
impose reasonable restrictions on the use or distribution of the records by the
demanding shareholder.
Woodcarvers contends that the trial court did not have in personam jurisdiction over
it because no service of process was ever issued nor was the complaint filed herein provided
to Woodcarvers. This court considered this issue in Watson v. Garza, No. W2007-02480-
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COA-R3-CV, 2008 WL 4831300, at *1 (Tenn. Ct. App. W.S., Nov. 7, 2008), holding as
follows:
Because the trial court’s jurisdiction of the parties is acquired by service of
process, proper service of process is an essential step in a proceeding. The
record must establish that the plaintiff complied with the requisite procedural
rules, and the fact that the defendant had actual knowledge of attempted
service does not render the service effectual if the plaintiff did not serve
process in accordance with the rules.
“The Tennessee Rules of Civil Procedure govern the service of process, and
the Supreme Court has held that the Rules of Civil Procedure are ‘laws’ of this
state, in full force and effect, until such time as they are superseded by
legislative enactment or inconsistent rules promulgated by the Court and
adopted by the General Assembly.” “Service of process must strictly comply
to Rule 4 of the Tennessee Rules of Civil Procedure.”
***
As stated above, in Tennessee, “[s]ervice of process must strictly comply to
Rule 4 of the Tennessee Rules of Civil Procedure.” Plaintiff has cited no
authority in support of his contention that such “second-hand” or “passed
along” service of process is authorized under the Rules of Civil Procedure. In
effect, Plaintiff asks us to hold that service was proper because Defendant . .
. ultimately received the summons and had notice of the lawsuit. However,
that is not the standard for proper service. The fact that Defendant . . . “had
actual knowledge of attempted service does not render the service effectual if
the plaintiff did not serve the process in accordance with the rule.”
Id. at *2, 7 (internal citations omitted).
We note further that Tenn. R. Civ. P. 4.01 provides:
(1) Upon the filing of the complaint the clerk of the court wherein the
complaint is filed shall forthwith issue the required summons and cause it, with
necessary copies of the complaint and summons, to be delivered for service to
any person authorized to serve process. This person shall serve the summons,
and the return indorsed thereon shall be proof of the time and manner of
service. . . .
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***
(3) If a plaintiff or counsel for plaintiff (including third-party plaintiffs)
intentionally causes delay of prompt issuance of a summons or prompt service
of a summons, filing of the complaint (or third-party complaint) is ineffective.
Woodcarvers asserts that it defies logic and due process that an unserved “petition”
can be acted upon “summarily” without an opportunity to defend when the law provides for
an answer to a complaint. Woodcarvers contends that the wording in subsection (c) of §48-
26-104 clearly indicates that the word “summarily” does not mean without due regard for the
position of the defendant.
“Notice by service of process in some other manner provided by law is essential to
give the trial court personal jurisdiction over the parties.” If a defendant is not before the
court either by service of process or by the entry of an appearance, a judgment is void and
subject to attack. In re Estate of Graham, No. 85-114-II, 1986 WL 3156, at *3 (Tenn. Ct.
App. M.S., Mar. 12, 1986) (citing Overby v. Overby, 457 S.W.2d 851, 852 (Tenn. 1970);
Boyd v. Baynham, 24 Tenn. (5 Humph.) 385, 386 (1844); Rooney v. Callins, 459 S.W.2d 430,
438 (Tenn. Ct. App. 1970); and Johnson v. McKinney, 222 S.W.2d 879, 883 (Tenn. Ct. App.
1949)). Because the trial court’s jurisdiction of the parties is acquired by service of process,
proper service of process is an essential step in a proceeding. Yousif v. Clark, No. E2008-
02626-COA-R3-CV, 2010 WL 118799, at *4 (Tenn. Ct. App. E.S., Jan. 13, 2010) (citing
Watson, 2008 WL 4831300, at *2). The record must establish that the requisite procedural
rules have been followed. Id.
V. CONCLUSION
To allow the trial court to issue orders without notice to Woodcarvers renders useless
the defenses in Tenn. R. Civ. P. 12 regarding jurisdiction and process. Thus, under the facts
of this case, we must conclude that Woodcarvers was never before the trial court as a party.
Without jurisdiction, the orders entered in this matter are void.
We do not find it necessary for the determination of this case to decide the
constitutional challenge to the statute. Our ruling pretermits the other issues raised.
For the foregoing reasons, we reverse the orders of the trial court. This case is
remanded to the trial court for further proceedings consistent with this opinion. Costs of this
appeal are assessed against the appellee, Beth Proffitt.
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___________________________________
JOHN W. McCLARTY, JUDGE
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