1997 -NMSC- 11, Schein v. Northern Rio Arriba Elec. Co-op., Inc.

• Decision Date: 16 January 1997
• Docket Number: No. 23333,23333
• Citation: 1997 NMSC 11,122 N.M. 800,932 P.2d 490
• Parties: , 1997 -NMSC- 11 Maureen SCHEIN, Plaintiff-Appellee, v. NORTHERN RIO ARRIBA ELECTRIC COOPERATIVE, INC., a New Mexico non-profit corporation, and Emery Maez, Defendants-Appellants.
• Court: New Mexico Supreme Court

Page 490

932 P.2d 490

122 N.M. 800, 1997 -NMSC- 11

Maureen SCHEIN, Plaintiff-Appellee, v. NORTHERN RIO ARRIBA ELECTRIC COOPERATIVE, INC., a New Mexico non-profit corporation, and Emery Maez Defendants-Appellants.

No. 23333.

Supreme Court of New Mexico.

Jan. 16, 1997.

Carpenter, Comeau, Maldegen, Nixon & Templeman, Richard N. Carpenter, Michael R. Comeau, Santa Fe, for Defendants-Appellants.

Peter J. Holzem, Chama, Rodey, Dickason, Sloan, Akin & Robb, P.A., William S. Dixon, Charles K. Purcell, Albuquerque, for Plaintiff-Appellee.

OPINION

BACA, Justice.

¶1 Pursuant to Rule 12-102 NMRA 1996, Defendant-Appellant Northern Rio Arriba Electric Cooperative ("NORA"), seeks review of a decision from the First Judicial District Court. At trial, the district court decided in favor of Plaintiff-Appellee, Maureen Schein, granting her mandamus action and requiring that NORA allow Schein access to its legal billing records as a member of NORA. We review two issues on appeal: 1) whether the trial court erred in permitting access to the records, and 2) whether the resulting writ exceeded the permissible scope of mandamus. As to the first issue, we affirm the trial court's decision, holding that the trial court did not err in allowing Schein access to the records. However, regarding the second issue, we reverse the trial court's decision, finding that the writ issued by the court exceeded the permissible scope of mandamus.

I.

¶2 NORA is a non-profit corporation organized under the Rural Electric Cooperative Act, NMSA 1978, § 62-15-1 (Repl.Pamp.1993). It provides electricity and electric utility service to the public in northern Rio Arriba County and has its principal place of business in Chama, New Mexico. Appellant Emery Maez, is the general manager of NORA.

¶3 Schein resides within Rio Arriba County, New Mexico, and within the territorial limits of the area served by NORA. Schein is a member in good standing with NORA and purchases her power from NORA. Schein is also employed by the Rio Grande Sun newspaper, a news periodical published in Espanola, New Mexico, which reports on and serves northern New Mexico. For several years Schein has attended NORA Board meetings. During this time, she has requested and received business information on NORA such as copies of contracts, annual budgets, financial statements, audit reports, vendor invoices, bank statements, reconciliations, check registers, board minutes, expense account information, and management salary data. Some of this information has been used in stories for the Rio Grande Sun.

¶4 Prior to the current claim, NORA and Schein had disagreed over Schein's access to some of NORA's corporate information. In 1992, Schein brought a mandamus action against NORA seeking access to seven years of financial information which NORA had declined to make available. Schein dismissed the suit when NORA surrendered the documents voluntarily. Subsequently, in 1994, Schein requested copies of NORA's 1994 budget materials. Copies were forthcoming; however, NORA did not include one page of the report in the materials offered. Eventually, Schein obtained the excluded page after her counsel sent a demand letter to NORA's attorney.

¶5 Also in 1994, Schein sought disclosure of the salary amounts of all NORA employees. NORA refused to reveal the compensation paid to anyone other than the cooperative's management positions. Schein then brought her second mandamus action seeking this payment information and also requesting present and future access to budgetary records. Testimony from the trial indicated that Schein's litigation costs were being covered by the Rio Grande Sun and that the information sought might be published in the Sun if it were deemed newsworthy. The trial court dismissed the mandamus action, reasoning primarily that the salary information, if disseminated, might infringe on the privacy interests of employees of NORA. Nonetheless, the trial court indicated that materials such as financial records, books, and reports should be accessible to Schein.

¶6 The conflict which eventually led to the current mandamus claim began on February 20, 1995. In a letter sent to Maez, Schein requested copies of certain bills submitted to NORA by the two law firms that had defended NORA in the two prior mandamus proceedings. NORA provided the requested attorney fee bills to Schein in redacted form. The bills disclosed the total amount of fees charged to NORA, but narrative portions of the bills which detailed the services performed and time spent were omitted. When it became apparent that NORA would not release any more information from the bills, Schein filed the current mandamus action against NORA.

¶7 At a hearing in October of 1995, the trial court examined the redacted information on the bills in camera. At the conclusion of the hearing, the court announced that it would grant the writ and compel disclosure of the withheld portions of the billing statements. It found that the sections were not protected by privilege. The trial court also adopted the proposed form of the writ which granted Schein access to all NORA books and records in the future upon reasonable request for inspection. Furthermore, the court retained jurisdiction in the event that NORA, in good faith, believes that any item requested in the future should not be disclosed.

¶8 On appeal, we address two primary issues: 1) whether the trial court erred in permitting Schein access to the specifics of NORA's legal billing statements, and 2) whether the trial court's declaration of continuing jurisdiction over future disputes between the parties exceeded the permissible scope of mandamus. We uphold the trial court's decision permitting access to the redacted portions of NORA's legal bills. However, we reverse the trial court's decision regarding the issued writ, finding it exceeded the permissible scope of mandamus.

II.

¶9 We find that the trial court correctly granted Schein access to the narrative portions of NORA's legal billing statements because Schein had a proper purpose in requesting the information and the narrative portions sought were not protected by the attorney-client privilege.

A.

¶10 Schein was not motivated by an improper purpose in requesting the data from NORA's legal billing records. This Court supports a policy which grants generous access to corporate information by shareholders/members. Schwartzman v. Schwartzman Packing Co., 99 N.M. 436, 439, 659 P.2d 888, 891 (1983) (holding that shareholders possess the right, at reasonable times and places, to inspect corporation's books and records for proper purposes). Such a policy recognizes the possessory or membership interests held by these individuals in the corporate entity. 5A William M. Fletcher et al., Fletcher Cyclopedia of the Law of Corporations § 2213, at 336 (perm.rev.ed. 1995); see also William Coale Dev. Co. v. Kennedy, 121 Ohio St. 582, 586, 170 N.E. 434, 435 (1930) (permitting shareholder access to corporate records and recognizing the shareholder's proprietary interest in the corporation). It also affirms the shareholder's/member's right to know how his agents, the corporation's decision-makers, are conducting the affairs of the organization. Shaw v. Agri-Mark, 663 A.2d 464, 467 (Del.1995).

¶11 Consistent with this policy of allowing generous access, the majority common-law rule, and the rule adopted by this Court, places the burden on the corporation to show improper purpose in denying shareholder access to corporate data. Fletcher, supra, § 2253.10, at 535; Kalanges v. Champlain Valley Exposition, Inc., 160 Vt. 644, 632 A.2d 357, 359 (1993); Curkendall v. United Fed'n of Correction Officers, Inc., 107 A.D.2d 935, 483 N.Y.S.2d 872, 873-74 (1985) (finding that nonprofit corporation resisting attempts by shareholder to inspect books has burden to show bad faith and improper purpose on part of party seeking inspection). 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. Fletcher, supra, § 2213, at 336; see also Kennedy, 170 N.E. at 435.

¶12 In New Mexico, shareholders have the right to inspect, at reasonable times and places, a corporation's books and records for proper purposes. NMSA 1978, § 53-11-50 (Repl.Pamp.1993); Schwartzman Packing Co., 99 N.M. at 439, 659 P.2d at 891. This right generally extends to members of nonstock, nonprofit corporations. See Fleisher Dev. Corp. v. Home Owners Warranty Corp., 856 F.2d 1529, 1530 (D.C.Cir.1988) (finding that where member of non-stock, for-profit mutual corporation had proper purpose for inspection, he should receive access to corporation's books); Bill Reno, Inc. v. Rocky Mountain Ford Dealers Adver. Ass'n, 151 Colo. 406, 378 P.2d 206, 207 (1963) (stating that member of nonprofit corporation is entitled to information regarding corporation's business activities and has right to inspect corporate books); State v. St. Cloud Milk Producers' Ass'n, 200 Minn. 1, 273 N.W. 603, 605-06 (1937) (upholding corporate records access rights for member of cooperative); cf. Shaw v. Agri-Mark, Inc., 67 F.3d 18, 19 (2d Cir.1995) (per curiam).

¶13 The determination of what constitutes improper purpose in requesting corporate information is an issue of first impression in New Mexico. Accordingly, we look to other jurisdictions which have made judicial determinations of the propriety of shareholder purpose. Furthermore, we look to jurisdictions where decisions of corporate law policy are consistent with a policy of open access for legitimate shareholder concerns. Shareholder access to corporate information should be limited to information reasonably related to the legitimate interests of the shareholder. See, e.g., Davey v. Unitil Corp., 133 N.H. 833, 585 A.2d 858 (1991); Shaw v. Hurst, 135 Pa.Cmwlth. 635, 582 A.2d 87, 89 (199...