Lang v. WPPO
| Decision Date | 29 September 2004 |
| Docket Number | No. 23113.,23113. |
| Citation | 2004 SD 107,688 N.W.2d 403 |
| Parties | David H. LANG, M.D., David W. Boyer, M.D., Bryan D. Den Hartog, M.D., Stephen G.J. Eckrich, M.D., Stuart E. Fromm, M.D., Timothy J. Gill, M.D., Mark Harlow, M.D., Lew W. Papendick, M.D., and Rand L. Schleusener, M.D., Petitioners and Appellees, v. WESTERN PROVIDERS PHYSICIAN ORGANIZATION, INC., Respondent and Appellant. |
| Court | South Dakota Supreme Court |
Jennifer K. Trucano, Patrick G. Goetzinger of Gunderson, Palmer, Goodsell & Nelson, Rapid City, for petitioners and appellees.
William F. Jones, Paul F. Lewis, R. Hunter Ellington of Moye, Giles, Denver, CO, Barton R. Banks of Banks, Johnson, Colbath, Sumner & Kappelman, Rapid City, for respondent and appellant.
[¶ 1.] This case is an appeal from an Order and Writ of Mandamus issued by the trial court. The petition for mandamus was brought against Western Provider's Physician Organization, Inc. (WPPO) by several physician members of the nonprofit corporation (Petitioners). Petitioners were granted a writ requiring WPPO to allow them full inspection of all documents, books, and records relating to the business concerns of the corporation. WPPO appeals the granting of the writ. We affirm.
[¶ 2.] Petitioners are physicians and charter members of a non-profit corporation WPPO. WPPO has a fifty percent ownership interest in Western Providers, Inc. (Western). Western implements managed care plans for employer groups and WPPO physicians contract with Western to provide services under negotiated fee plans. Western and WPPO are independent non-profit corporations but share the same board of directors and administrative personnel.
[¶ 3.] As part of a routine investment review, Petitioners requested various WPPO corporate documents from the South Dakota Secretary of State. That request led Petitioners to discover WPPO had failed to file annual reports since 1999 and was not in good standing as a South Dakota corporation. Petitioners then requested an inspection of WPPO books and records. WPPO denied the initial request and further requests were made. Eventually WPPO began turning over some of the requested documents but resisted an unlimited inspection of documents.
[¶ 4.] Initially, WPPO produced minutes from meetings, a "Consent in Lieu of Annual Meeting," and a receipt from the South Dakota Secretary of State. Upon inquiry, WPPO indicated that these documents comprised all of the corporate records. However, WPPO later indicated that additional records were found and these were also provided to Petitioners. Petitioners attempted several more times to attain further records. WPPO insisted that the few documents that had been produced represented all documents, but it refused to certify this.
[¶ 5.] Petitioners asked the circuit court for an Order and Writ of Mandamus to compel WPPO to allow review of all corporate documents. Petitioners relied on SDCL 47-24-2 as authority for their right to inspect the corporate documents. It provides:
All books and records of a corporation may be inspected by any member, or his agent or attorney, for any proper purpose at any reasonable time.
SDCL 47-24-2.
[¶ 6.] Pursuant to that statute, the court entered an Order and Writ of Mandamus:
commanding [WPPO] to immediately provide any and all documents, books and records relating to [WPPO's] business concerns. The term "documents, books and records" is hereby intended to include without limitation, documents in written or electronic form; minutes, bylaws, dividend or other financial ledgers; all journals, books of account, cash books, subsidiary documents, subscribers' ledgers, and real estate documents; all financial records, tax returns, and tax forms; membership lists and provider lists; and all business communications, including those to the South Dakota Secretary of State, members or owners or providers of Western Providers Physician Organization, Inc., Western Providers, Inc., and Rapid City Regional Hospital administration; all of which relate to the ongoing business concerns of [WPPO] from its inception to the present date. This writ encompasses any documents concerning [WPPO's] business concerns held in the possession of [WPPO's] representatives or which may be held in the files of its related entity, Western Providers, Inc. This Order is consistent with and follows the law as provided by SDCL §§ 47-24-2 and 47-30-7.
WPPO appeals the granting of the writ.
[¶ 7.] Our standard of review for a Writ of Mandamus is abuse of discretion. Black Hills Cent. R. Co. v. City of Hill City, 2003 SD 152, ¶ 9, 674 N.W.2d 31, 34. Statutory interpretation is a question of law reviewed de novo. First Lady, LLC v. JMF Properties, LLC, 2004 SD 69, ¶ 5, 681 N.W.2d 94, 96.
[¶ 8.] WPPO raises the following issues on appeal:
[¶ 9.] Initially, we point out that the trial court did not enter findings of fact and conclusions of law. The record from which the trial court entered an Order and Writ of Mandamus consisted of the petition, a brief in support of petition, the respondent's brief and oral argument at the motion hearing.
[¶ 10.] WPPO contends the trial court failed to require Petitioners to meet their burden of proving a "proper purpose" for an inspection, thereby abusing its discretion in granting an Order and Writ of Mandamus.1 This proposition fails for two reasons. First, WPPO has not preserved this issue for appeal. In its response brief to the trial court, WPPO initially made a general statement that Petitioners lacked a proper purpose, but then WPPO went on to clarify this argument by saying that Petitioners "do not have a proper purpose to request any inspection beyond those documents which they have received." This can only be understood to be an admission that Petitioners did have a proper purpose for inspecting some of the records. In fact, during the prior year WPPO had turned many documents over to Petitioners without questioning whether the purpose was proper, and WPPO has never introduced any evidence of an improper purpose. Then at the hearing before the trial court, WPPO failed to raise the issue at all. Since WPPO has not previously disputed the issue of proper purpose for an inspection, it cannot do so for the first time on an appeal before this Court. We have often held that an issue not raised in trial cannot be raised for the first time on appeal. See State v. Hays, 1999 SD 89, ¶ 16, 598 N.W.2d 200, 203; see also Breckweg v. Knochenmus, 81 S.D. 244, 255, 133 N.W.2d 860, 866 (1965).
[¶ 11.] Although the above finding resolves the proper purpose issue, it is appropriate for this Court to address a second matter introduced by WPPO's statement of the issue. WPPO presumes Petitioners had the burden of proving a "proper purpose" under SDCL 47-24-2. However, this Court has never addressed whether SDCL 47-24-2 places the burden of proving a proper purpose on the corporate member, here Petitioners, or whether the purpose is presumed to be a proper purpose. A presumption of proper purpose would place the burden of proving an improper purpose on the corporation resisting inspection of its documents. Since South Dakota has not addressed the issue, guidance may be helpful from other jurisdictions that have done so.
[¶ 12.] According to the New Mexico Supreme Court, the common-law majority rule is that members are presumed to have a "proper purpose" in making a document request. Schein v. Northern Rio Arriba Elec. Coop., Inc., 122 N.M. 800, 932 P.2d 490, 493 (1997). "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." Id. (). Consistent with this rationale, the New Mexico Supreme Court adopted the "majority common-law rule" which presumed members had a "proper purpose." Id. (citing Fletcher, supra, § 2253.10 at 535). This Court hereby adopts the same rule. However, we recognize that a practical application of this rule requires that the party seeking inspection must first give a reason for the inspection. This avoids putting the corporation in the impossible position of speculating as to the member's purpose. Thus a full statement of our rule is that a member must disclose his purpose for inspecting and this purpose is presumed proper.2 The burden is then on the corporation to prove there is an improper purpose. For this additional reason, WPPO's first allegation of error fails.
[¶ 13.] WPPO argues that the trial court's order far exceeded the permissible scope allowed by law. It does so on a number of grounds, all of which will be addressed separately below.
[¶ 14.] WPPO argues that the trial court erred by not limiting the scope of production to documents relevant to Petitioners' stated proper purpose. This argument rests on the position that the "proper purpose" language in the South Dakota inspection statute serves not only to limit the circumstances under which an inspection may be made, but also serves...
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