Pearson v. Westervelt Co., 2140546.

• Decision Date: 08 January 2016
• Docket Number: 2140546.
• Citation: 203 So.3d 73
• Parties: Claudia PEARSON v. The WESTERVELT COMPANY.
• Court: Alabama Court of Civil Appeals

203 So.3d 73

Claudia PEARSON

v.The WESTERVELT COMPANY.

2140546.

Court of Civil Appeals of Alabama.

Jan. 8, 2016.

Andrew P. Campbell, Stephen D. Wadsworth, and Campbell Guin Williams of Guy & Gidiere LLC, Birmingham, for appellant.

Thomas A. Woodall and Barry A. Ragsdale of Sirote & Permutt P.C., Birmingham, for appellee.

THOMPSON, Presiding Judge.

Claudia Pearson appeals an April 2, 2015, judgment of the Tuscaloosa Circuit Court denying her claim seeking to require The Westervelt Company ("Westervelt"), a Delaware corporation with its principal place of business in Tuscaloosa, to allow her to inspect certain of its corporate records.

The record on appeal indicates that Pearson was one of several plaintiffs in an earlier action, filed in the Jefferson Circuit Court, against Westervelt, Jon W. Warner, Jr., and others involving claims related to Westervelt's decision to approve a recapitalization plan. On September 17, 2011, the Jefferson Circuit Court entered a summary judgment in favor of the defendants in that action.¹

A few weeks after the judgment was entered in the Jefferson Circuit Court action, Pearson sent a letter dated October 6, 2011, to Ray Frank Robbins at Westervelt. Robbins is a vice president of Westervelt and served, at some point in the past, as Westervelt's general counsel. In that October 6, 2011, letter (hereinafter "the demand letter"), Pearson stated that "I am a record shareholder of [Westervelt]," and she asserted a demand to inspect certain of Westervelt's records "pursuant to 8 Del.Code 1953 § 220(b)." Specifically, Pearson sought the production of Westervelt's financial records and "all documents demonstrating" any form of compensation paid to Jon W. Warner, Jr., Michael Case, Alicia Cramer, and Ray Frank Robbins (hereinafter referred to collectively as "the officers"). The record indicates that Warner is the chairman of the board for Westervelt, that Cramer is a Westervelt vice president, and that Case is the company's chief executive officer. In the demand letter, Pearson stated that "[t]he purpose of this inspection is for purposes of proper valuation of my shares in Westervelt."

By a letter dated October 18, 2011, Robbins, on behalf of Westervelt, responded to Pearson's demand letter, stating that Westervelt would make its financial statements available to her but that Westervelt did not agree that the information concerning the compensation paid to the officers was "reasonably related" to her claimed purpose of using the information for valuing her stock.

On December 8, 2011, Pearson filed a complaint in the Tuscaloosa Circuit Court ("the trial court") citing § 10A–2–16.02, Ala.Code 1975, and 8 Del.Code § 220(b), and seeking to compel Westervelt to produce its most recent financial records and any documentation pertinent to the specific compensation paid by Westervelt to each of the four officers named in her demand letter. In her complaint, Pearson acknowledged that Westervelt had offered to provide her an aggregate figure of the compensation for the four officers.

Westervelt moved the trial court to dismiss Pearson's action. The trial court ultimately denied that motion, and Westervelt filed an answer. Westervelt then filed a motion for a summary judgment. While that summary-judgment motion was pending, Pearson filed a motion seeking the recusal of the trial-court judge. The trial-court judge denied the motion to recuse on May 28, 2013. On June 2, 2013, the trial court entered an order stating that the summary-judgment motion was still under advisement.

The record does not indicate whether the trial court ruled on the summary-judgment motion, but the fact that the trial court ultimately conducted a hearing on the merits indicates that it at least implicitly denied that motion.² We note that, during the pendency of this action, Westervelt produced the financial statements that Pearson had requested to inspect and that the trial court required Pearson to execute a confidentiality agreement in order to be allowed to inspect those documents. In addition, Westervelt offered to provide Pearson documentation revealing the aggregate compensation of the four individual officers for which she had requested compensation information, but Pearson rejected that offer and continued to insist that she was entitled to the specific compensation information for each of the four named officers.

On March 26, 2015, the trial court conducted a hearing on the merits of Pearson's claim that she was entitled to the specific compensation information regarding each of the four named individual officers. On April 2, 2015, the trial court entered a judgment in favor of Westervelt. The trial court concluded that, given the facts and the procedural history of the action, Pearson had failed to demonstrate that she was entitled to inspect the remaining documents at issue, and it therefore denied Pearson's claims requiring Westervelt to allow her to inspect the compensation records pertaining to each of the four officers. Pearson timely appealed to our supreme court, which transferred the appeal to this court pursuant to § 12–2–7, Ala.Code 1975.

On appeal, Pearson challenges various aspects of the trial court's judgment determining that she was not entitled to specific compensation information for each of the four officers.

In its April 2, 2015, judgment, as one basis for rejecting Pearson's claims, the trial court determined that Pearson had not met the requirements of § 10A–2–16.04(b), Ala.Code 1975, which provides a method of inspecting corporate records. Section 10A–2–16.04(b) provides, in pertinent part:³

"(b) If a ... foreign corporation with its principal office within this state does not within a reasonable time allow a shareholder to inspect and copy any other record, the shareholder who complies with Section 10A–2–16.02(b) and (c)[, Ala.Code 1975,] may apply to the circuit court in the county where the corporation's principal office ... is located for an order to permit inspection and copying of the records demanded...."

In determining that it could not consider the action, the trial court found that Pearson had not complied with § 10A–2–16.02, Ala.Code 1975, as is required by § 10A–2–16.04(b). Section 10A–2–16.02 states, in pertinent part:

"(b) A shareholder of ... a foreign corporation with its principal office within this state who shall have been a holder of record of shares for 180 days immediately preceding his or her demand or who is the holder of record of at least five percent of the outstanding shares is entitled to inspect and copy ... all of its books, papers, records of account, minutes and record of shareholders, if the shareholder gives the corporation written notice of his or her demand, stating the purpose therefor, at least five business days before the date on which he or she wishes to inspect and copy...."

(Emphasis added.)

The trial court found that Pearson did not own five percent of the outstanding shares of Westervelt and, therefore, that Pearson had failed to comply with § 10A–2–16.02(b).⁴ Specifically, the trial court determined that "[a]lthough Pearson alleged in her complaint and at trial that she is also demanding the records on behalf of shares owned by trusts of which she is a trustee, she made no demand in any representative capacity before filing this action, and she has offered no reason why such a failure should be legally excused." The record supports the trial court's finding with regard to the content of Pearson's October 6, 2011, demand letter. In that demand letter, Pearson alleged, in pertinent part, only that "I am a record shareholder of [Westervelt]," and she then specified the list of information for which she sought inspection.

However, Pearson argues on appeal that the trial court could not properly base a part of its decision on its finding that her complaint did not comply with § 10A–2–16.04(b) because, she says, Westervelt did not raise that issue, which she characterizes as an issue of "standing."⁵

In asserting that argument in her brief on appeal, Pearson has confused the theory of standing with that of capacity. "Standing ... turns on ‘whether the party has been injured in fact and whether the injury is to a legally protected right. ’ " State v. Property at 2018 Rainbow Dr., 740 So.2d 1025, 1027 (Ala.1999) (quoting Romer v. Board of Cnty. Comm'rs of Cnty. of Pueblo, 956 P.2d 566, 581 (Colo.1998) (Kourlis J., dissenting)). A lack of standing may affect the jurisdiction of the court. Penick v. Most Worshipful Prince Hall Grand Lodge F & AM of Alabama, Inc., 46 So.3d 416, 425–26 (Ala.2010). Under the facts of this case, Pearson has standing to assert a claim that she has a right to inspect corporate records. The issue identified by the trial court was whether she had properly complied with applicable statutes in order to assert that right; in other words, whether Pearson had the capacity to assert a claim for the inspection of corporate records. "Black's Law Dictionary has described the ‘capacity to sue’ as ‘[t]he legal ability of a particular individual or entity to sue in ... the courts of a forum.’ Black's Law Dictionary 207 (6th ed.1990)." Ex parte Tyson Foods, Inc., 146 So.3d 1041, 1049 (Ala.2013) (Shaw, J., concurring in the result).

It is clear, therefore, that, in her brief on appeal, Pearson is arguing that the trial court could not determine that she lacked the capacity to seek redress in that court based on her purported failure to comply with § 10A–2–16.04(b). We agree that the issue whether Pearson properly complied with § 10A–2–16.04(b) is one of capacity. See, e.g., CAG MLG, L.L.C. v. Smelley, 163 So.3d 346, 350 (Ala.2014) ("A foreign entity's failure to comply with the registration requirements of a statute such as § 10A–1–7.01 [, Ala.Code 1975,] is a capacity defense, and it does not per se implicate standing or subject-matter jurisdiction."); and Penick, 46 So.3d at 425 ("A foreign corporation's failure to obtain authorization to do business in...