Gregson v. Packings & Insulations Corp.

• Decision Date: 04 March 1998
• Docket Number: No. 96-597-M,96-597-M
• Court: Rhode Island Supreme Court
• Parties: David GREGSON v. PACKINGS & INSULATIONS CORPORATION et al. P.

Page 533

708 A.2d 533

David GREGSON v. PACKINGS & INSULATIONS CORPORATION et al.

No. 96-597-M.P.

Supreme Court of Rhode Island.

March 4, 1998.

John D. Deacon, Jr., Providence, for Plaintiff.

Paul F. Bailargeon, for Defendants.

Before WEISBERGER, C.J., and LEDERBERG, FLANDERS and GOLDBERG, JJ.

OPINION

LEDERBERG, Justice.

This case came before the Supreme Court on the petition for certiorari of three related Rhode Island corporations (petitioners) that sought review of a Superior Court order compelling them to allow the respondent, David Gregson, a stockholder in the corporations, to examine the petitioners' "books and records." For the reasons set forth below, we grant the petition in part and deny it in part. The facts insofar as they are pertinent to the petition follow.

Facts and Procedural History

This case stems from a family feud that spilled over from the boardroom to the courtroom. ¹ The Gregson family owns three local corporations, namely, Packings & Insulations Corporation (P & I), PIC Contractors, Inc., and MADAST Corporation (collectively Packings), that supply industrial packing and insulation materials. The respondent owns approximately one quarter of the stock of Packings; the remaining shares are owned by respondent's parents and two brothers. On December 14, 1995, the P & I board of directors fired respondent, who at that time was the company's president, treasurer, and general manager. The respondent's dismissal came in response to a number of transgressions that he allegedly had committed over the course of the prior two years. The allegations of wrongdoing included charges that respondent had awarded himself unauthorized bonuses in 1994 and had shirked his management duties following the board's earlier effort to limit his power and compensation. At the time of the firing, P & I also demanded that respondent return various corporate records, including confidential commercial information, that he allegedly had taken with him when he left the family business and started a competing enterprise, Gregson Industrial Supply, Inc. (GIS).

The various charges and countercharges between respondent and Packings resulted in three separate lawsuits. The first was an action by respondent against Packings and his family (in their capacity as shareholders) alleging wrongful conduct under G.L.1956 § 7-1.1-90 and seeking the liquidation of the three corporations. The second was a suit by P & I against respondent and GIS for respondent's alleged misconduct and removal of confidential information while employed at P & I. In the third suit, PIC Contractors, Inc., brought an action in replevin against respondent for his alleged refusal to return a company backhoe and other property. On or about March 5, 1996, in the course of respondent's suit against Packings, the parties agreed to a restraining order precluding Packings from making any financial distributions other than those in the ordinary course of business unless respondent's counsel first agreed to such a distribution or unless the court authorized it. The particular facet of the feud currently before us arose out of Packings' proposal to make such a distribution.

In a July 15, 1996 letter to respondent's counsel, Packings' attorney sought respondent's consent to a bonus distribution to shareholders (including respondent). The respondent's attorney replied, in a letter dated July 19, 1996, that his consent would have to be withheld until his client had the opportunity to inspect Packings' "interim financial records through June 30, 1996," and the counsel asked that these records be made available for inspection by respondent's accountant "forthwith." The respondent's counsel reiterated his client's wish to review Packings' financial records in a second letter dated August 2, 1996. Packings' attorney did not communicate with respondent's counsel about the request until August 21 when he informed respondent's counsel via letter that Packings compiled their financial records only on an annual basis, that "to compile interim financial data at this point would involve substantial and unnecessary duplication of effort and expense," and that such records would be made available to respondent around September 30 when they were ordinarily produced.

Evidently unsatisfied with this offer, respondent filed a motion on September 20, 1996, to compel production of these records and for assessment of a penalty pursuant to G.L.1956 § 7-1.1-46(c). A justice of the Superior Court presided at a hearing on the motion on October 16, 1996, and entered an order that permitted respondent "to examine the books and records of Packings & Insulations Corporation, PIC Contractors, Inc., and MADAST Corporation, either together with his accountant and/or attorney, acting singly or in concert therewith, at any reasonable times as he may determine." The hearing justice also found that Packings had denied respondent access to Packings' records in violation of § 7-1.1-46(c) but deferred the motion for assessment of a penalty until the trial. After the Superior Court granted respondent's motion to compel, Packings filed motions in the Superior Court to reconsider and vacate the order. After the denial of those motions, Packings filed this petition for certiorari.

Standard of Review

This Court limits its review on certiorari " 'to examining the record to determine if an error of law has been committed.' " City of Providence v. S & J 351, Inc., 693 A.2d 665, 667 (R.I.1997) (per curiam). "We do not weigh the evidence presented below, but rather inspect the record to determine if any legally competent evidence exists therein to support the findings made by the trial justice." Id. (citing Matter of Falstaff Brewing Corp. Re: Narragansett Brewery Fire, 637 A.2d 1047, 1049 (R.I.1994)).

Statutory Right to Inspection

Since the passage of the Rhode Island Business Corporation Act in 1969, stockholders in this state have had a statutory right to inspect corporate records. See Sarni v. Meloccaro, 113 R.I. 630, 638 n. 2, 324 A.2d 648, 652 n. 2 (1974). Section 7-1.1-46 provides, inter alia, that

"(b) Any person who shall have been a shareholder of record or of voting trust certificates therefor for at least six (6) months immediately preceding his or her demand or who shall be the holder of record of, or the holder of record of voting trust certificates for, at least five percent (5%) of all the outstanding shares of a corporation, upon written demand stating the purpose thereof, shall have the right to examine, in person, or by agent or attorney, at any reasonable time or times, for any proper purpose, its relevant books and records of account, minutes, and record of shareholders and to make extracts therefrom.

"(c) Any officer or agent who, or a corporation which, shall refuse to allow any shareholder or holder of voting trust certificates, or his or her agent or attorney, so to examine and make extracts from its books and records of account, minutes, and record of shareholders, for any proper...