Cardiovascular Specialists, P.S.C. v. Xenopoulos

• Citation: 328 S.W.3d 215
• Decision Date: 24 November 2010
• Docket Number: No. 2009-CA-001442-MR.,2009-CA-001442-MR.
• Parties: CARDIOVASCULAR SPECIALISTS, P.S.C., Appellant, v. Nicholaos XENOPOULOS, M.D., Appellee
• Court: Court of Appeals of Kentucky

328 S.W.3d 215

CARDIOVASCULAR SPECIALISTS, P.S.C., Appellant,

v.Nicholaos XENOPOULOS, M.D., Appellee

No. 2009-CA-001442-MR.

Court of Appeals of Kentucky.

Nov. 24, 2010.

Robert B. Craig, Covington, KY, for appellant.

Trevor L. Earl, Louisville, KY, for appellee.

Before KELLER, MOORE, and STUMBO, Judges.

OPINION

KELLER, Judge:

This is an appeal from an order of the Jefferson Circuit Court directing Cardiovascular Specialists, P.S.C. (Cardiovascular Specialists) to provide one of its shareholders, Nicholaos Xenopoulos, M.D. (Dr. Xenopoulos), with certain documents and information. For the following reasons, we vacate and remand.

FACTS

Cardiovascular Specialists is a professional service corporation formed pursuant to Kentucky Revised Statutes (KRS) Chapter 274, and Dr. Xenopoulos is a shareholder. On January 7, 2009, Dr. Xenopoulos's counsel sent a letter (the January 7th letter) to the President of Cardiovascular Specialists requesting that Cardiovascular Specialists allow Dr. Xenopoulos to inspect certain business records. Specifically, the letter stated that Dr. Xenopoulos wished to inspect and copy the following records:

A. The current articles of incorporation and bylaws of the Corporation, together with any amendments or addenda thereto;

B. The minutes of all shareholders' meetings, and records of all action taken by shareholders without a meeting since January 1, 2005;

C. All written communications to shareholders generally within the past three (3) years, including financial statements. In the event that financial statements have not been given to shareholders, then demand is made alternatively under KRS 271B.16-200 for the financial statements for 2005-2008 inclusive. Please provide, in addition to the companies' financial statements, federal, state and local tax returns for the Corporation for 2007 and for 2008 upon completion.

D. All minutes from 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, records of action taken by the board of directors without a meeting since January 1, 2005; and

E. All accounting records of the Corporation for fiscal years 2005, 2006, 2007, and 2008.

The letter stated that "Dr. Xenopoulos' [sic] demands under subsection (2) of KRS 271B.16-020 are made in good faith and for the purpose of obtaining a true and accurate valuation of his shares in the Corporation." It is undisputed that Dr. Xenopoulos received all of the documents requested in the January 7th letter.

On March 5, 2009, Dr. Xenopoulos's counsel sent another letter (the March 5th letter) requesting additional information. Specifically, the letter stated that, after having reviewed the various materials previously provided by Cardiovascular Specialists with Dr. Xenopoulos's accountant, "it is apparent that we need some additional information about a few items on the financial statements...." The following additional items were requested:

1. We would appreciate receiving information relating to any loans to the PSC's shareholders, or other entities, including but not limited to, Kentuckiana Medical Center, and evidence of repayment within the last five years.

2. A detail of the rent and lease payments made to landlords and lessors for 2007 and 2008. In addition, we would like to know whether, and to what extent, any of the shareholders have an interest in entities leasing space or equipment to the PSC.

3. We would like to see the computation of allocation of income and expenses resulting in the amount paid to each of the shareholders for 2007 and 2008.

4. Please forward a schedule of the staff which works not only for the Practice but also for Kentuckiana Medical Center and/or Dr. Rumisek. In this connection, we would like to see the allocation of the hours of various members of the shared staffand the allocation of their compensation to the two entities.

5. Finally, we would appreciate seeing a written accounts receivable collection policy, if there is one, and copies of uncollected invoices from all the physicians currently over 180 days old as of February 28, 2009.

Cardiovascular Specialists did not provide Dr. Xenopoulos with these additional documents. On May 13, 2009, Dr. Xenopoulos filed a Verified Petition For Order Enforcing Shareholder's Right of Inspection in the Jefferson Circuit Court, and on June 23, 2009, Dr. Xenopoulos filed a Motion for Order Compelling Inspection of Corporate Records. On July 13, 2009, the trial court entered an order granting Dr. Xenopoulos's motion and directing Cardiovascular Specialists to provide Dr. Xenopoulos with the requested documents within twenty days from the date the order was entered. The trial court did not make any findings or provide any reasoning for its decision in its order. This appeal followed.

STANDARD OF REVIEW

Matters of statutory construction are subject to de novo review and this Court is not bound by the trial court's interpretation. Halls Hardwood Floor Co. v. Stapleton, 16 S.W.3d 327, 330 (Ky.App.2000). However, when there are questions of fact, or mixed questions of law and fact, we review the trial court's decision pursuant to the clearly erroneous standard. Moore v. Asente, 110 S.W.3d 336, 354 (Ky.2003). Under this standard, this Court will only set aside the findings of fact of the trial court if those findings are clearly erroneous. The dispositive question is whether the findings are supported by substantial evidence. Id.

ANALYSIS

Cardiovascular Specialists contends that the trial court erred in granting Dr. Xenopoulos's motion. Specifically, Cardiovascular Specialists argues that Dr. Xenopoulos did not have a statutory right to inspect the requested documents.

As noted above, Cardiovascular Specialists is a professional service corporation formed pursuant to KRS Chapter 274. Except as otherwise provided under KRS Chapter 274, a professional service corporation has the "same powers, authority, duties, and liabilities as a corporation formed under KRS Chapter 271B." KRS 274.015(2). Because KRS Chapter 274 does not address a shareholder's right to inspect corporate documents, we must look to KRS Chapter 271B.

KRS 271B.16-020 creates two rights of inspection of corporate records by a shareholder. The first, under KRS 271B.16-020(1), pertains to certain documents which a corporation is required to have available at its principal office. This includes the corporation's articles of incorporation, bylaws, resolutions regarding classes of shares, minutes or records of shareholders' actions for the past three years, all written communications to the shareholders within the past three years, including financial statements furnished to the shareholders, names and addresses of current directors and officers, and the most recent annual report. See KRS 271B.16-010(5). A shareholder has the right to inspect these corporate records after giving five days' notice. KRS 271B.16-020(1).

A separate right of inspection for other corporate documents is provided under KRS 271B.16-020(2), which states that:

A shareholder of a corporation shall be entitled to inspect and copy during regular business hours at a reasonable location specified by the corporation any ofthe following records of the corporation if the shareholder meets the requirements of subsection (3) of this section and gives the corporation written notice of his demand at least five (5) business days before the date on which he wishes to inspect and copy:

(a) 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 (1) of this section;

(b) Accounting records of the corporation; and

(c) The record of shareholders.

Subsection (3) of KRS 271B.16-020 provides that:

A shareholder may inspect and copy the records described in subsection (2) of this section only if:

(a) His demand is made in good faith and for a proper purpose;

(b) He describes with reasonable particularity his purpose and the records he desires to inspect; and

(c) The records are directly connected with his purpose.

Based on the preceding, the first step in our analysis is to determine whether documents requested by Dr. Xenopoulos are corporate records that a shareholder is entitled to inspect. Dr. Xenopoulos argues that, pursuant to KRS 271B.16-020(2)(b), he does have a right to inspect all of the documents requested in the March 5th letter because they are all "[a]ccounting records of the corporation." Cardiovascular Specialists contends...