Present: Carrico, C.J., Compton, Stephenson, Lacy, Keenan, and
Koontz, JJ., and Whiting, Senior Justice
RETAIL PROPERTY INVESTORS, INC.
OPINION BY JUSTICE ROSCOE B. STEPHENSON, JR.
v. Record No. 951718
June 7, 1996
GEORGE A. SKEENS
FROM THE CIRCUIT COURT OF HENRICO COUNTY
Buford M. Parsons, Jr., Judge
In this appeal, we decide whether the trial court erred in
ordering a corporation to permit one of its shareholders to
inspect and copy its shareholder list.
George A. Skeens filed a petition for a writ of mandamus,
pursuant to Code § 13.1-771, to compel Retail Property Investors,
Inc. (RPI) to produce its shareholder list for his inspection.
With leave of court, RPI's counsel deposed Skeens, and Skeens'
counsel deposed Barbara Woolhandler, a senior vice president of
RPI, and, without objection, these depositions were made a part
of the record. On June 16, 1995, the trial court conducted an
evidentiary hearing, and, at its conclusion, the court ordered
RPI to produce its shareholder list. RPI appeals.
RPI is a Virginia corporation operating as a real estate
investment trust (REIT). During 1989 and 1990, RPI shares of
stock were sold by PaineWebber Incorporated (PaineWebber). RPI
is managed by PaineWebber Properties Incorporated, a wholly owned
subsidiary of PaineWebber.
In October 1990, Skeens purchased from PaineWebber 25,000
shares of RPI at a price of $250,000. Skeens testified that he
made the investment after a PaineWebber broker "guaranteed" that
he would double or triple his money, and, for approximately three
years thereafter, RPI paid dividends. By early 1994, however,
RPI's value, like the value of many other REITs, began to
decline, and the payment of dividends ceased.
By letter dated January 6, 1995, Skeens requested that RPI
provide him with the names and addresses of all its shareholders
and the number of shares held by each or to allow him or his
attorney to inspect and copy such information. Skeens stated in
the letter that he was requesting the information so that he or
his attorney could communicate with the other shareholders about
the following:
1) The misleading manner in which RPI's shares
were sold to [him] and others . . . ;
2) The mismanagement of RPI by its officers and
directors . . . ;
3) The generation and distribution of misleading
information via . . . reports concerning the
management and status of RPI . . . ;
4) The misleading manner in which the
shareholders' votes were solicited for the
annual meeting held September 7, 1993; and
5) The cessation of dividend payments by RPI
. . . and the misleading explanation given by
RPI for [the] dividend cessation.
Woolhandler, on behalf of RPI, responded to Skeens' request
by letter dated January 10, 1995. She advised Skeens that she
would send him the requested information after he signed an
enclosed "certification" and paid a $300 administrative fee.
Woolhandler explained that the certification was necessary "to
assure that [Skeens'] request [was] for a proper purpose." The
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enclosed certification required Skeens and his counsel to certify
that they
[would] not use the [shareholder] List, directly or
indirectly, for any purposes other than those specified
purposes and, in particular, [would] not use the List
as a means of soliciting, directly or indirectly,
business and/or professional relationships or retainers
of any nature from any RPI shareholder.
By letter dated March 1, 1995, Skeens' counsel informed
Woolhandler that neither he nor Skeens would sign the
certification because Skeens wanted to communicate with other
shareholders about litigation arising out of the matters set
forth in his January 6, 1995 letter. Woolhandler then advised
Skeens' counsel that RPI would not supply the shareholder list.
When deposed, Skeens was asked to explain, with respect to
each of the reasons stated in his January 6, 1995 letter, what he
intended to discuss with RPI's other shareholders. Skeens'
counsel, however, instructed Skeens not to answer the questions.
Consequently, Skeens testified only that "[he] would like to ask
if any of [the other shareholders] were told that they would get
two or three times their money back and then [had] the rug pulled
out from under [them]." When Skeens was asked how he had been
misled, his counsel again objected and instructed him not to
answer the question.
Also during his deposition, Skeens was instructed by his
counsel not to divulge any information regarding any additional
matters he desired to communicate to the other shareholders.
Skeens did state, however, that he sought the shareholder list
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because he intended to file a lawsuit and wished to solicit other
shareholders to join in the suit.
Only two witnesses testified in the evidentiary hearing,
Skeens and Joseph W. Robertson, Jr., a member of RPI's board of
directors. Skeens' testimony was scant and essentially mirrored
his deposition. He again stated that his purpose in seeking the
shareholder list was to ascertain what the other shareholders had
been told when they purchased RPI stock and whether they would
join in the suit. He sought the participation of the other
shareholders in order to share the expenses of litigation. On
cross-examination, he admitted that he had never investigated
whether his receipt of the shareholder list would be injurious to
RPI.
Robertson, who was called by Skeens as an adverse witness,
testified that production of the shareholder list would be
injurious to RPI. He explained that
the cost to defend the lawsuit, the time of management,
the time of the board of directors to prepare for that
case . . . and defend it would be damaging to the
corporation, based on what [the board has] planned and
[is] currently studying as shareholder enhancement
plans today.
Robertson also testified that the board of directors had
determined that producing the shareholder list would not be in
RPI's best interests. The board of directors, Robertson
testified,
made a judgment that based on what this company is,
which we have not divulged to the public yet, some
reorganization issues that are going on, the
shareholder enhancement plans that will be implemented,
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that we believe that to give Mr. Skeens and his
attorney the shareholder list, which we believe was
primarily for the use of soliciting a class action
lawsuit, at this point in time for this company, based
on the facts that we had, was not in the best interests
of Mr. Skeens as a shareholder and the other
shareholders.
First, we determine what must be proved before a trial court
may compel the production of a corporation's records to one of
its shareholders and upon whom rests the burden of proof.
Prior to 1956, a shareholder's right to compel production of
corporate records was governed by common law principles. In
1956, however, the General Assembly enacted the Virginia Stock
Corporation Act, Code §§ 13.1-601 to -779 (1993 Repl. Vol.) (the
Act). Code § 13.1-771(C) provides that a shareholder is entitled
to obtain the record of shareholders "only if":
1. He has been a shareholder of record for at
least six months immediately preceding his demand or is
the holder of record of at least five percent of all of
the outstanding shares;
2. His demand is made in good faith and for a
proper purpose;
3. He describes with reasonable particularity his
purpose and the records he desires to inspect; and
4. The records are directly connected with his
purpose.
Shortly after the effective date of the Act, we decided Bank
of Giles County v. Mason, 199 Va. 176, 98 S.E.2d 905 (1957), a
case in which two of the bank's shareholders sought certain
corporate records. The Act, however, was not in effect at the
time the shareholders' suit was filed; thus, Mason was decided
upon common law principles.
We said, in Mason, nonetheless, that "the provisions of
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§ 13.1-47 [now § 13.1-771] do not materially differ from the
rules of the common law with respect to the rights of a
stockholder to inspect the books and records of a corporation.
Such statutes are generally held to be merely in affirmance of
the common law." Id. at 181, 98 S.E.2d at 908. We also said
that a stockholder's right to inspect corporate books and records
is "not absolute and uncontrolled," but must be for a "proper
purpose." Id. We explained that, before a trial court compels
production of such records, the court must be satisfied that the
stockholder's request is made in good faith and for the purpose
of protecting his rights as an owner of stock and that granting
the relief will not adversely affect the corporation's interests.
Id. at 181-82, 98 S.E.2d at 908. Finally, we stated that the
stockholder must prove to the court that a right of inspection
exists. Id. at 182, 98 S.E.2d at 909.
Code § 13.1-771(C)(2) requires a shareholder to prove that
his demand of specified corporate records is made "in good faith
and for a proper purpose." Reading Code § 13.1-771(C)(2) and
Mason together, we conclude that a shareholder seeking corporate
records pursuant to Code § 13.1-771(C)(2) has the burden of
satisfying a trial court that he seeks such records for a proper
purpose, meaning that he is acting in good faith to protect his
rights as a shareholder and that the relief he seeks will not
adversely affect the corporation's interests.
Applying these principles of law in the present case, we
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hold that Skeens failed, as a matter of law, to carry his burden
of proving that he sought the records for a proper purpose. All
that Skeens showed by the evidence was that he sought the
shareholder list so he could institute a lawsuit and, possibly,
gain the support of other shareholders who would share in the
litigation expenses. Skeens presented no evidence that RPI's
interests would not be affected adversely if he obtained the
shareholder list. To the contrary, Skeens, through his adverse
witness, Robertson, presented clear, reasonable, and
uncontradicted evidence that the production of such records would
be injurious to RPI, and he is bound by such testimony. Norfolk,
Etc. R.R. Co. v. Mueller Co., 197 Va. 533, 539, 90 S.E.2d 135,
139 (1955); Crabtree v. Dingus, 194 Va. 615, 622, 74 S.E.2d 54,
58 (1953). Consequently, we conclude that the trial court erred
in ordering RPI to produce its shareholder list to Skeens.
Accordingly, we will reverse the trial court's judgment and
enter final judgment in favor of RPI.
Reversed and final judgment.
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