Shareholders in a Georgia corporation generally have a statutory right to inspect certain corporate records to monitor their investment. If the company fails to provide the required records, Georgia law enables the requesting shareholder to file a lawsuit to secure prompt access to those records.
In the recent decision of Cardea Corporate Holdings, Inc. v. LaRocco, the Georgia Court of Appeals further clarifies a shareholder’s right to inspect the company’s books and records and the corporation’s right to fight such a request. As explained in a prior post, the primary issue posed in LaRocco revolves around one predicate: the individual seeking access to records must actually be a shareholder.
As part of her compensation package, Cardea awarded shares to Carolyn LaRocco, who served as its president, later assumed the role of its chief executive officer, and sat on its board of directors. When the company later terminated Ms. LoRocco’s employment, she made a written demand to Cardea to inspect its books and records. Upon Cardea’s refusal, she filed a lawsuit to obtain the records.
The board of directors at Cardea, sans LoRocco, adopted a resolution purporting to rescind Ms. LoRocco’s Cardea shares. Ms. LoRocco then filed a separate lawsuit seeking a declaratory judgment to invalidate the purported recission of her Cardea stock.
When a lawsuit is served, Georgia law gives a defendant 30 days to file a response. Yet, the corporate records statute mandates that the judge rules in “expedited” and “summary” fashion.
Just 21 days after the first lawsuit was served on Cardea, and before the company filed a response, the trial court ordered Cardea to make the documents requested by Ms. LoRocco available and further ordered Cardea to pay her costs in filing the suit. Cardea appealed, arguing that LoRocco’s pursuit of expedited and summary relief under the corporate records statute couldn’t deprive Cardea of its right to be heard before the trial court ruled.
Shareholder in Georgia
Cardea alleged that LoRocco was no longer a shareholder and cited the declaratory judgment action she filed as an indicia of doubt regarding her ownership. Cardea contended that until LoRocco’s shareholder status was determined, the company had no obligation to open its books to her. Cardea further claimed that the trial court’s order compelling the production of those records was premature. The Court of Appeals agreed and remanded the case to the trial court for further proceedings.
Two takeaways from this case are:
- The defendant/company must be given the opportunity to respond to a lawsuit seeking access to company records by a putative owner before the Court can rule on that issue, notwithstanding the expedited and summary nature of the proceeding.
- If doubts arise about the plaintiff’s ownership interest in the entity, the company likely has grounds to withhold access to its books and records until resolving those doubts.
Determining who a company’s shareholder is sometimes more complex than it would initially appear. Experienced counsel can help in navigating these challenges. If you require assistance, please let us know if we can help.
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