Sharman v. Fortran Corp.

Sharman v. Fortran Corp., 

.


STATE OF NORTH CAROLINA                 IN THE GENERAL COURT OF JUSTICE
                                            SUPERIOR COURT DIVISION
CATAWBA COUNTY                                     17 CVS 2669

DONNA SHARMAN; PETER
SHARMAN; JAMES TEMPLETON;
DOUGLAS MILLER; SHERRY
MILLER; PHILIP MILLER;
CHARLES MILLER;
CHRISTOPHER SHARMAN;
PEGGY TEMPLETON; WILLIAM
GWYNN; DAYNE MILLER; JAMES
TEN KATE; GLENN WITHERS; and
BRETT BERTOLAMI,                          ORDER AND FINAL JUDGMENT

                    Plaintiffs,

v.

FORTRAN CORPORATION,

                    Defendant.


     1.   THIS MATTER is before the Court upon Plaintiffs Donna Sharman, Peter

Sharman, James Templeton, Douglas Miller, Sherry Miller, Philip Miller, Charles

Miller, Christopher Sharman, Peggy Templeton, William Gwynn, Dayne Miller,

James Ten Kate, Glenn Withers, and Brett Bertolami’s (“Plaintiffs”) request to

inspect and copy Defendant Fortran Corporation’s (“Defendant,” “Fortran,” or “the

Company”) corporate records (the “Requests”) in the above-captioned case.

     2.   The Court, having considered the Requests, the pleadings, the briefs in

support of and in opposition to the Requests, the testimony and arguments advanced

at the March 20, 2018 hearing on the Requests, the materials submitted in support

of and in opposition to the Requests, and other appropriate matters of record,

GRANTS in part and DENIES in part the Requests and ENTERS FINAL

JUDGMENT in this action as set forth below.
        Troutman Sanders, LLP, by Sara S. Ash, for Plaintiffs Donna Sharman,
        Peter Sharman, James Templeton, Douglas Miller, Sherry Miller, Philip
        Miller, Charles Miller, Christopher Sharman, Peggy Templeton, William
        Gwynn, Dayne Miller, James Ten Kate, Glenn Withers, and Brett
        Bertolami.

        Hendrick Bryant Nerhood Sanders & Otis LLP, by Matthew H. Bryant,
        for Defendant Fortran Corporation.

                                          I.

                          PROCEDURAL BACKGROUND

   3.     Plaintiffs filed their Complaint on September 21, 2017 seeking inspection

and copying of corporate records pursuant to 

, et seq. as

their sole claim for relief. The Complaint alleges that the Plaintiffs are qualified

shareholders under 

(g) and, as such, are entitled to “a

complete accounting of the finances and business affairs of Fortran[.]” (Compl. ¶¶

34–35, ECF No. 3.)

   4.     The North Carolina General Statutes require the Court to dispose of the

Requests “on an expedited basis.” 

(b). As a result, promptly

after the issues were joined, the Court held a status conference with counsel on

December 18, 2017 to discuss whether Plaintiffs’ inspection rights, and Fortran’s

compliance with its statutory obligations, remained in dispute. Upon the parties’

representations that a case and controversy continued to exist, the Court scheduled

a hearing on the matter and established a briefing schedule. (Order 2–3, ECF No.

15.) After a continuance for good cause, the Court held an evidentiary hearing on
March 20, 2018 (“March 20 hearing”), at which counsel for Plaintiffs was present.1

During the hearing, the Court received live testimony from Plaintiff James

Templeton (“Templeton”).

    5.      The Requests are now ripe for determination.

                                             II.

                                  FINDINGS OF FACT

    6.    Fortran is a corporation organized under the laws of the State of North

Carolina with its principal place of business in Conover, Catawba County, North

Carolina. (Compl. ¶ 15.)2 Fortran’s shares are listed for trading on the over-the-

counter (“OTC”) markets. (Def.’s Statement Regarding Matters in Controversy 1

[hereinafter “Def.’s Statement”], ECF No. 23.)

    7.    Plaintiffs are shareholders of Fortran. (Compl. ¶ 18.) The evidence offered

at the hearing establishes that Templeton has held approximately 1.3 million shares

of Fortran stock at all times since 2013 and that each of the other Plaintiffs—except

Plaintiff Brett Bertolami (“Bertolami”)—have been shareholders of Fortran since at

least 2014.3



1 Defendant’s counsel submitted statements in opposition to the Requests but advised the
Court on March 19, 2018 that Defendant had requested that he not appear at the March 20,
2018 hearing on the Motion due to cost concerns. Thus, Defendant’s counsel did not appear
at the March 20 hearing.

2 Factual findings derived from the Complaint are allegations that Defendant admitted in its

Answer. (See generally Answer, ECF No. 12.)

3   The only evidence before the Court concerning Bertolami’s shareholder status is
Templeton’s testimony that Bertolami was promised shares in Fortran for work he performed
but that the shares were never issued. Accordingly, the Court does not find as a fact on this
record that Bertolami was a shareholder of Fortran.
   8.     Plaintiffs allege that Fortran’s chief executive officer and chairman, Douglas

Rink (“Rink”), has engaged in “mismanaging Fortran and misappropriating,

misapplying, and improperly using Fortran’s property and assets[.]” (Compl. ¶ 20.)

Plaintiffs specifically claim, among other things, that Rink used Fortran’s funds or

assets for his own benefit, issued common and preferred shares to himself without

shareholder approval, failed to pay Fortran’s debts when they were due and owing,

failed to conduct necessary audits, and failed to hold any board or shareholder

meetings. (Compl. ¶¶ 21–22.)

   9.     To investigate Rink’s alleged wrongdoing, Plaintiffs sent a shareholder

inspection demand (the “Inspection Demand”) to Rink and Fortran’s chief financial

officer, Richard Wilson (“Wilson”), on July 19, 2017, requesting to inspect various

Fortran corporate records on July 26, 2017. (Compl. Ex. A.) Plaintiffs allege that

they sent the Inspection Demand for “the purpose of enabling Plaintiffs to determine

whether any improper transactions have occurred and to determine any possible

mismanagement of Fortran or any possible misappropriation, misapplication, or

improper use of any property or asset of Fortran.” (Compl. ¶ 25.)

   10.    The Inspection Demand, which is attached as Exhibit A to the Complaint,

requested the right to inspect the following records:

         1. Fortran’s current bylaws and articles of incorporation, including any
            amendments;

         2. All resolutions adopted by Fortran’s board of directors relating to the
            issuance of common and preferred stock;

         3. Minutes of all shareholders’ meetings, and records of all action taken by
            shareholders without a meeting, for the past three years;
4. All written communications to shareholders generally within the past
   three years and the financial statements required to be made available to
   the shareholders for the past three years;

5. All records relating to any board action taken regarding the merger of
   New Telephone Company and Burke Mills into Fortran;

6. All records relating to any board action regarding the acquisition of CCI
   Communications;

7. All records relating to any board action regarding the acquisition of
   Wyncom;

8. All records relating to any board action regarding the acquisition of Tower
   Performance Inc.;

9. All records relating to any board action taken regarding the election of
   officers and directors at Fortran;

10. All records relating to any board action regarding Fortran’s borrowing of
    funds, including but not limited to the borrowing of funds from TCA
    Global Fund (FL), Peoples Bank of Newton, NC, BB&T Bank, and James
    M. Templeton;

11. All records relating to any board action regarding the issuance of new
    Fortran common and preferred stock, including but not limited to the
    issuance of preferred shares to Douglas W. Rink and Richard W. Wilson;

12. All records relating to Douglas W. Rink’s use of Fortran’s funds or assets
    for his personal use or benefit;

13. All accounting records and financial statements of Fortran, including but
    not limited to balance sheets, general ledgers, income/profit and loss
    statements and cash flow statements;

14. All UCC filings related to Fortran, including documents and
    communications relating to those filings;

15. A complete record or list of Fortran’s shareholders, showing the name and
    address of each such shareholder, and transfer sheets reflecting changes
    in the names and addresses of Fortran’s shareholders and/or changes in
    the number of shares owned by each shareholder; and
         16. All records relating to the purchase, finance and ownership of the
             property located at 3210 16th Avenue SE, Conover, NC 28613.

(Compl. Ex. A, at 1–3 (listing Requests 1–16); see also Compl. ¶ 24 (a)–(p).)

   11.    Defendant refused to give Plaintiffs “the opportunity to inspect any of the

Company’s records[.]”    (Compl. Ex. B, at 1.)    In response, on August 29, 2017,

Plaintiffs sent their Inspection Demand to Defendant again. (Compl. Ex. B., at 1.)

   12.    Defendant has produced a portion of the records requested in the Inspection

Demand but has failed to fully comply with any of the Requests, with the exceptions

of Request 1—which seeks Fortran’s bylaws and articles of incorporation—and, as

discussed further below, Request 4—which concerns Fortran’s financial statements.

                                          III.

                              CONCLUSIONS OF LAW

   13.    Because Fortran is a North Carolina corporation, the North Carolina

Business Corporation Act (the “Act”), which is codified at Chapter 55 of the North

Carolina General Statutes, applies to this proceeding.

   14.    The Act provides certain inspection rights to qualified shareholders. A

qualified shareholder is a “person who shall have been a shareholder in the

corporation for at least six months immediately preceding his demand or who shall

be the holder of at least five percent (5%) of the corporation’s outstanding shares of

any class.” 

(g).

   15.    Based on the evidence presented, the Court finds that, other than Bertolami,

each Plaintiff has been a shareholder of Fortran since at least 2014 and thus was a

shareholder in the corporation for at least six months immediately preceding the
Inspection Demand. As a result, the Court concludes that each Plaintiff, other than

Bertolami, is a qualified shareholder under section 55-16-02(g) (hereinafter the

“Qualified Plaintiffs”).

   16.   The Act grants qualified shareholders rights of inspection in two “separate

and distinct categories.”   Russell M. Robinson, II, Robinson on North Carolina

Corporation Law § 10.01 (7th ed. 2017). 

(a) grants what

are generally referred to as “absolute rights” of inspection, and section 55-16-02(b)

grants what are generally described as “qualified rights” of inspection. 

 The Court

considers each in turn.

   A.    Absolute Rights of Inspection

   17.   

(a) provides qualified shareholders with an

absolute right to inspect and copy certain corporate records:

         A qualified shareholder of a corporation is entitled to inspect and
         copy, during regular business hours at the corporation’s principal
         office, any of the records of the corporation described in G.S. 55-16-
         01(e) if he gives the corporation written notice of his demand at
         least five business days before the date on which he wishes to
         inspect and copy.

(a). The records described in section 55-16-01(e)
include the following:

          (1) [The corporation’s] articles or restated articles of incorporation
         and all amendments to them currently in effect;

         (2) [The corporation’s] bylaws or restated bylaws and all
         amendments to them currently in effect;

         (3) Resolutions adopted by [the corporation’s] board of directors
         creating one or more classes or series of shares, and fixing their
         relative rights, preferences, and limitations, if shares issued
         pursuant to those resolutions are outstanding;
          (4) The minutes of all shareholders’ meetings, and records of all
          action taken by shareholders without a meeting, for the past three
          years;

          (5) All written communications to shareholders generally within
          the past three years and the financial statements required to be
          made available to the shareholders for the past three years under
          G.S. 55-16-20;4

          (6) A list of the names and business addresses of [the corporation’s]
          current directors and officers; and

          (7) [The corporation’s] most recent annual report delivered as
          required by G.S. 55-16-22.

(e).

   18.    As discussed above, the Qualified Plaintiffs are qualified shareholders under

section 55-16-02(g).     The Qualified Plaintiffs have demanded inspection of the

documents described in sections 55-16-01(e)(1)–(5).            (See Compl. Ex. A, at 1–2

(Requests 1–4).)     It is undisputed that Fortran received notice of the Qualified

Plaintiffs’ Inspection Demand within five days of the date of the requested inspection

as required under section 55-16-02(a).          (Compl. Ex. A, at 1.)       Fortran has not

challenged the Qualified Plaintiffs’ right to inspect and copy each of these records.

(See Answer 3.)

   19.    The evidence of record shows that Defendant has produced (i) its bylaws and

articles of incorporation, (ii) a one-page, illegible document addressed to

shareholders, (iii) certain interim and annual consolidated financial statements, (iv)


4 

 provides that a North Carolina corporation must “make available

to its shareholders annual financial statements . . . that include a balance sheet as of the end
of the fiscal year, an income statement for that year, and a statement of cash flows for the
year unless that information appears elsewhere in the financial statements.”
certain UCC filings, (v) certain documents relating to stock issuance, and (vi) a link

to a website containing certain letters to shareholders.     Based on the evidence

presented, however, it appears to the Court that Fortran has not produced all

documents responsive to Request 2 (resolutions adopted by Fortran’s board relating

to the issuance of common and preferred stock) or Request 3 (minutes of shareholders’

meetings and records of action taken by shareholders without a meeting, for the past

three years). These Requests conform to the documents described in sections 55-16-

01(e)(3) and (4), respectively, and the Court will therefore require Fortran to make

all documents responsive to Requests 2 and 3 available for inspection and copying.

     20.   As to Request 4, however, the evidence shows that Fortran has provided

consolidated interim and final quarterly and annual financial statements of the sort

contemplated under section 55-16-20 through links to the otcmarkets.com website

since at least April 30, 2013.5 Annual financial statements are currently available

on the website for the periods ending June 30, 2013 (filed November 13, 2013), June

30, 2014 (filed October 6, 2014), June 30, 2015 (filed September 9, 2015), June 30,

2016 (filed September 22, 2016), and June 30, 2017 (filed September 28, 2017).

     21.   The Qualified Plaintiffs acknowledge that Fortran has produced “certain

interim and annual consolidated financial statements” but complain that the

Company has failed to comply with its obligations under section 55-16-02(a) because

the Company did not “produce any standalone financial statements of its

subsidiaries.” (Pls.’ Statement Supp. Inspection Demand 8, ECF No. 22.) Section 55-



5   www.otcmarkets.com/stock/FRTN/disclosure.
16-20(a) provides, however, that the financial statements that must be made

available to shareholders “may be consolidated or combined statements of the

corporation and one or more of its subsidiaries, as appropriate.” 

-

16-20(a) (emphasis added). Accordingly, the Court concludes that Fortran was within

its rights under section 55-16-02(a) to produce consolidated financial statements and

was not required to provide the Qualified Plaintiffs with standalone financial

statements of Fortran’s subsidiaries. The Court thus finds that Fortran has complied

with Request 4 to the extent it relates to the Company’s financial statements.

   22.   Request 4 also seeks “all written communications to shareholders generally

within the past three years[,]” as provided in section 55-16-01(e)(5). (Compl. Ex. A,

at 2; Compl. ¶ 24(d).)      It appears to the Court that at least some of these

communications are available on the otcmarkets.com website, but the evidence of

record is not clear that all such communications may be found there. Thus, the Court

will require Fortran to make available all such written communications to the extent

that it has not already done so.

   B.    Qualified Rights of Inspection

   23.   

(b) provides a qualified shareholder the right to

inspect and copy certain records in addition to those listed in § 55-16-01(e) if (1) “[the

qualified shareholder’s] demand is made in good faith and for a proper purpose,” (2)

“[the qualified shareholder] describes with reasonable particularity his purpose and

the records he desires to inspect,” and (3) “[t]he records are directly connected with
[the qualified shareholder’s] purpose.”       

(c).        These

additional records include:

      (1) Records of any final action taken with or without a meeting by the
          board of directors, or by 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 without a meeting, to the extent not
          subject to inspection under G.S. 55-16-02(a);

      (2) Accounting records of the corporation; and

      (3) The record of shareholders;

      provided that a shareholder of a public corporation shall not be
      entitled to inspect or copy any accounting records of the corporation or
      any records of the corporation with respect to any matter which the
      corporation determines in good faith may, if disclosed, adversely affect
      the corporation in the conduct of its business or may constitute
      material nonpublic information at the time the shareholder’s notice of
      demand to inspect and copy is received by the corporation.

(b).

   24.   The Qualified Plaintiffs contend that the records they seek in Requests 5–

16 of their Inspection Demand fall within these three categories. The Court will

examine each of these Requests for compliance with the requirements of sections 55-

16-02(b) and (c).

          1. Good Faith and Proper Purpose

   25.   The Official Comments to Chapter 55 provide useful guidance in

determining whether a qualified shareholder has stated a “proper purpose” to support

an inspection demand. See, e.g., Parsons v. Jefferson-Pilot Corp., 

,

 (1993) (“[T]he commentary to a statutory provision can be helpful

in some cases in discerning legislative intent.”); see also Miller v. First Bank, 

, 

, 827–28 (2010) (holding that although Official

Comments are not binding because they are not enacted into law, “they were included

with the printing of the statute and are, therefore, relevant in construing the intent

of the statute”). The relevant Comments here explain that “[a] ‘proper purpose’

means a purpose that is reasonably relevant to the demanding shareholder’s interest

as a shareholder.” 

 Official Comment 3. The Comments

further advise that “[a]s a practical matter, a shareholder who alleges a purpose in

general terms, such as . . . to determine whether improper transactions have occurred,

has been held to allege a ‘proper purpose.’” 

 Once a proper purpose is alleged, our

courts have held that “[t]he burden of proof rests upon [the corporation], if [it]

wish[es] to defeat the shareholder’s demand, to allege and show by facts, if [it] can,

that the shareholder is motivated by some improper purpose.” Carter v. Wilson

Constr. Co., 

, 

 (1986).

   26.   Here, the Qualified Plaintiffs allege that they made their Inspection

Demand to determine whether “any improper transactions have occurred and to

determine any possible mismanagement of Fortran or any possible misappropriation,

misapplication, or improper use of any property or asset of Fortran.” (Compl. ¶ 25.)

Such a motive constitutes a proper purpose under Chapter 55. See, e.g., Parsons, 333

N.C. at 428–430, 426 S.E.2d at 691–92 (holding that a proper purpose could include

“determining any possible mismanagement of the Company or any possible

misappropriation, misapplication or improper use of any property or asset of the

Company”); Carter, 

, 

 (“the shareholder’s good
faith desire to . . . investigate the conduct of the management” is a proper purpose

supporting a demand for corporate records).

   27.   Since the Qualified Plaintiffs have stated a proper purpose in their

Complaint, Defendant can overcome the presumption of good faith in favor of the

Qualified Plaintiffs’ Requests only by carrying its burden to show that the Qualified

Plaintiffs’ purpose is improper. Carter, 

, 

. To

that end, Defendant contends that the Qualified Plaintiffs do not have a proper

purpose for their Inspection Demand because Plaintiff Templeton is a judgment

creditor of Fortran and, in Fortran’s view, is advancing the Inspection Demand to

pressure Fortran to pay its outstanding debt to Templeton, force a shareholder

buyout, and obtain pre-lawsuit discovery for a derivative action. (Def.’s Statement

3.) Defendant also makes a general contention that Plaintiffs lack good faith in

making the requests because certain requested documents are available to the public

on the otcmarkets.com website. (Def.’s Statement 3.)

   28.   The Court is unpersuaded. Defendant offers no evidence to support its

speculation that the Qualified Plaintiffs are improperly using the Inspection Demand

to pressure Fortran, and the documents that are available on the otcmarkets.com

website are responsive to some but not nearly all of Requests 5–16.       Moreover,

without more, obtaining corporate records to investigate and prepare a derivative

action is not improper and generally encouraged.          See, e.g., In re Quintiles

Transnational Corp. S’holders Litig., 

, at *13–25 (N.C. Super.

Ct. Dec. 19, 2003) (admonishing plaintiffs in derivative actions to seek corporate
books and records before filing complaint); see also Beam ex rel. Martha Stewart

Living Omnimedia, Inc. v. Stewart, 

, 980–82 (Del. Ch. 2003)

(encouraging shareholder records inspection prior to filing derivative action).

   29.   In marked contrast to Defendant’s meager showing, the Qualified Plaintiffs

have supported their Requests with a certified transcript of a recorded telephone

conversation in which Fortran’s CFO candidly discussed his view that Rink had

potentially engaged in illegal activities as Fortran’s CEO and caused Fortran to

engage in improper and potentially illegal transactions. (See generally Pls.’ Notice

Suppl. Information Supp. Position Statement Ex. A, ECF No. 26.1.) This proof, when

added to the Qualified Plaintiffs’ allegations of purpose in the Complaint and

Defendant’s corresponding lack of proof, is more than sufficient to establish that the

Qualified Plaintiffs’ Inspection Demand is made in good faith and for a proper

purpose, even without the benefit of the presumption of good faith which the

Qualified Plaintiffs enjoy here. Accordingly, the Court concludes that the Qualified

Plaintiffs have established the good faith and proper purpose requirements of section

55-16-02(c).

          2. Direct Connection to Proper Purpose

   30.   Based on the Court’s review of the record, the Court further concludes that

the Qualified Plaintiffs have offered sufficient evidence to show that they have a good

faith belief, supported by evidence, that CEO Rink has engaged in substantial

wrongdoing, including self-dealing, corporate mismanagement, corporate waste, and

other breaches of his fiduciary duties to Fortran. (See Compl. Ex. A, at 3.) The Court
has carefully reviewed Requests 5–16 and concludes that each Request is directly

related to the Qualified Plaintiffs’ proper purpose of determining whether “any

improper transactions have occurred and to determine any possible mismanagement

of Fortran or any possible misappropriation, misapplication, or improper use of any

property or asset of Fortran.” (Compl. ¶ 25.) Accordingly, the Court concludes that

the Qualified Plaintiffs have established the “direct connection” required by section

55-16-02(c) for Requests 5–16.

         3. Reasonable Particularity

   31.   Having determined that the “good faith and proper purpose” and “direct

connection” requirements of section 55-16-02(c) have been met, the Court’s

determination of whether the Qualified Plaintiffs are entitled to the documents they

have requested in most instances rises and falls with the Qualified Plaintiffs’

compliance with the statute’s “reasonable particularity” requirement.

   32.   For purposes of section 55-16-02(c), “reasonable particularity” requires “that

the designation be sufficient to apprise a man of ordinary intelligence what

documents are required.” Parsons, 

, 

 (quoting 8

Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 2211, at 628–

31 (1970)). Because “a shareholder should make more meaningful statements of

purpose and the desired records when ‘feasible[,]’ [w]hether a shareholder has

described his purpose or the desired records with reasonable particularity necessarily

depends upon the facts and circumstances of each case.” Id. (citing 

 Official Comment 3).
   33.   Turning first to Requests 5–11, the Qualified Plaintiffs seek “all records

relating to any board action” taken regarding certain specifically identified corporate

transactions. (Compl. Ex. A, at 2; Compl. ¶ 24(e)–(k).) The Qualified Plaintiffs’

formulation of these particular requests is overbroad. Section 55-16-02(b) makes

plain that a qualified shareholder is entitled to “[r]ecords of any final action” by the

board of directors or a committee of the board―not “all records relating to any board

action.” See 

(b). Moreover, the statute’s focus on the “final

action taken” is conscious and deliberate. See Robinson, supra, § 10.03[2] (“The

drafters of the North Carolina statute substituted this reference to ‘final action taken’

in lieu of the Model Act’s reference to ‘excerpt from minutes’ with the intent of

excluding discussions and preliminary actions by the board and its committees.”).

Accordingly, the Court will not enforce these Requests as drafted.

   34.   The remainder of Requests 5–11 are stated in clear and plain language and

specifically identify the specific transaction for which records are sought. They reflect

the Qualified Plaintiffs’ actual knowledge of Fortran’s records at the time of the

Requests such that more particular requests were not then feasible.           They also

sufficiently advised Fortran of the requested documents to permit full compliance.

The Court therefore concludes that Requests 5–11, modified to seek “records of any

final action” by the board of directors rather than “all records relating to any board

action,” are stated with reasonable particularity under section 55-16-02(c).        The

Qualified Plaintiffs are therefore entitled to inspect and copy “records of any final

action” with respect to the specific items identified in Requests 5–11.
   35.   Request 12 seeks “[a]ll records relating to Douglas W. Rink’s use of Fortran’s

funds or assets for his personal use or benefit.” (Compl. Ex. A, at 2; Compl. ¶ 24(l).)

In contrast to the preceding Requests, this Request is vague and broadly stated and

does not provide Fortran sufficient information to determine which specific

documents the Qualified Plaintiffs seek to have produced.

   36.   Although the Qualified Plaintiffs clarified Request 12 in their brief in

support of the Inspection Demand by identifying certain specific transactions—the

purchase of property in Conover, North Carolina through the issuance of a Fortran

debenture, the placement of Rink Media LLC vehicles on a B&L Telephone, LLC

(“B&L”) insurance account, and the retention of proceeds of certain B&L vehicles

after they were sold—our courts are clear that the Court’s assessment of “reasonable

particularity” must focus on the Qualified Plaintiffs’ actual demand, not on any

subsequent court filings. See Parsons v. Jefferson-Pilot Corp., 

,

 (1992), aff’d in part and rev’d in part on other grounds, 

, 

 (1993) (“To determine whether a shareholder's demand meets

the requirements of N.C.G.S. § 55-16-02(c), the trial court must focus upon

the demand itself, not upon the shareholder’s subsequent pleadings or motions filed

in an attempt to compel inspection under N.C.G.S. § 55-16-04(b).”).

   37.   Nevertheless, the Court observes that the fact that the Qualified Plaintiffs

were able to produce a list of corporate records with such specificity shows that they

had the ability to provide greater particularity than they did in Request 12 in the

Inspection Demand. Cf. Parsons, 

, 

 (“[A] shareholder
should make more meaningful statements of purpose and the desired records when

‘feasible.’” (quoting 

 Official Comment 3)). For each of these

reasons, the Court concludes that the Qualified Plaintiffs have failed to state Request

12 with reasonable particularity under section 55-16-02(c). As a result, the Court will

not enforce this Request.

   38.      Request 13 seeks “[a]ll accounting records and financial statements of

Fortran, including but not limited to balance sheets, general ledgers, income/profit

and loss statements and cash flow statements.” (Compl. Ex. A, at 2; Compl. ¶ 24(m).)

As an initial matter, the Court has already addressed the production of Fortran’s

financial statements in its discussion of Request 4 above and concluded that Fortran

has satisfied its obligations under section 55-16-02(a) concerning the production of

those requested documents. The Qualified Plaintiffs’ demand in Request 13 to obtain

financial statements for periods beyond the past three years is contrary to applicable

law.     See 

(e)(5) (requiring retention of “the financial

statements required to be made available to shareholders for the past three years”).

   39.     As to the Qualified Plaintiffs’ Request for Fortran’s accounting records,

Chapter 55 provides that a qualified shareholder who satisfies the requirements of

section 55-16-02(c) and makes timely demand may inspect a corporation’s “accounting

records.” 

(b). Although the term is left undefined in the

Act, the Official Comments describe “accounting records” as “records that permit

financial statements to be prepared which fairly present the financial position and

transactions of the corporation.” 

 Official Comment 2. The
Court of Appeals has further observed that “accounting records . . . are generally

defined as ‘the formal journals and ledgers, and the vouchers, invoices,

correspondence, contracts, and other sources or support for such records[.]’” Parsons,

106 N.C. App. at 318–19, 416 S.E.3d at 921 (citing Kohler's Dictionary for

Accountants 13–14 (W.W. Cooper & Y. Ijiri eds., 6th ed. 1983)). Based on this

precedent, the Court concludes that Request 13’s demand to inspect and copy

“accounting records,” including “general ledgers,” is stated with reasonable

particularity under section 55-16-02(c) and that the Qualified Plaintiffs are therefore

entitled to inspect and copy these documents.6

    40.   Request 14 seeks “[a]ll UCC filings related to Fortran, including documents

and communications relating to those filings.” (Compl. Ex. A, at 2; Compl. ¶ 24(n).)

Fortran has indicated that it will provide all of its UCC filings to the Qualified

Plaintiffs, (Answer 4), and the Court will enforce Fortran’s agreement. However, the

Court cannot conclude that the “documents and communications relating to those

filings” are “financial statements,” “accounting records,” or any other documents that

a qualified shareholder is permitted to inspect and copy under Chapter 55. Thus, the

Court will deny Request 14 to this extent.



6  Although section 55-16-02(b) excludes public corporations from shareholder inspection
demands for accounting records, Chapter 55 defines a “public corporation” as “any
corporation that has a class of shares registered under Section 12 of the Securities Exchange
Act of 1934, as amended (

 l ).” 

(18a). Based on the
evidence of record, the Court is persuaded that Fortran is not a company with a class of
shares registered under Section 12 and thus is not covered by the public corporation
exemption under section 55-16-02(b). See First Citizens BancShares, Inc. v. KS Bancorp, Inc.,

, at *15–16 (N.C. Super. Ct. Mar. 21, 2018) (holding publicly traded
corporation without shares registered under Section 12 is not a “public corporation” under
section 55-1-40(18a)).
   41.    Request 15 seeks “[a] complete record or list of Fortran’s shareholders” as

well as “transfer sheets” reflecting shareholder change information. (Compl. Ex. A,

at 2; Compl. ¶ 24(o).) 

(b)(3) provides that a qualified

shareholder satisfying section 55-16-02(c) and making timely demand is entitled to

inspect and copy “[t]he record of shareholders” of the corporation. As the Supreme

Court has observed, the “legislative intent embodied in N.C.G.S. § 55-16-02(b)(3) is

that shareholders be entitled to the information concerning the identity of

shareholders which is possessed by the corporation in order that they may have the

same     opportunity   as   the   corporation   to   communicate     with   the   other

shareholders.” Parsons, 

, 

 (emphasis omitted).

   42.    While the corporation does not have to provide the shareholder information

it possesses in any particular format, “a fair reading of the statute would require that

the list include alphabetically the names and business addresses of shareholders and

the number of shares held by each.” Robinson, supra, § 10.03[4]; see also 

(c) (requiring a corporation to keep “a record of its shareholders, in a

form that permits preparation of a list of the names and addresses of all shareholders,

in alphabetical order by class of shares showing the number and class of shares held

by each”).

   43.    Applying these principles here, the Court concludes that the Qualified

Plaintiffs have satisfied the reasonable particularity requirements of section 55-16-

02(c) and that Fortran should provide its most recent list of shareholders to the

Qualified Plaintiffs showing the names, business addresses, and share ownership of
each Fortran shareholder. See generally Parsons, 

, 

(“[R]equiring a corporation to divulge all of the shareholder information in its

possession would completely effectuate the goal of fairness and equality between a

corporation and its shareholders in [accessing shareholders].” (emphasis omitted)).

   44.   The Court also concludes that the Qualified Plaintiffs’ transfer sheet request

is stated with reasonable particularity and that, to the extent they exist and are in

the Company’s possession, Fortran should provide its “transfer sheets reflecting

changes in the names and addresses of Fortran’s shareholders and/or changes in the

number of shares owned by each shareholder” as requested. See 

 (stating that

under section 55-16-02(b)(3), “it is necessary that shareholders have access to . . .

[shareholder] information which the corporation itself has in its possession”).

However, because 55-16-02(b)(3) is meant to permit a qualified shareholder “the same

opportunity . . . to communicate with the other shareholders” as that typically

enjoyed by the corporation by a proxy solicitation, 

 or in preparation for a

stockholder meeting, see White v. Smith, 

, 

(1962), the Court will limit the production to transfer sheets for the period on and

after the date of the shareholder list, see Hoepner v. Wachovia Corp., 

, at *13–14 (N.C. Super. Ct. June 14, 2001) (requiring production of

shareholder list and daily transfer sheets created thereafter); see also Baron v.

Strawbridge & Clothier, No. 86-2474, 

, at *16–17 (E.D.

Pa. May 1, 1986) (requiring production of stockholder list and transfer sheets from

the date of the list); Schnell v. Chris-Craft Indus., Inc., 

, 853–54 (Del.
Ch. 1971) (requiring production of stock ledger or shareholder list and daily stock

lists of transfers thereafter made).

    45.      Request 16 seeks “[a]ll records relating to the purchase, finance and

ownership of the property located at 3210 16th Avenue SE, Conover, NC 28613.”

(Compl. Ex. A, at 3; Compl. ¶ 24(p).)            While this Request is set forth with

particularity, the Request does not seek records that a qualified shareholder has a

right to inspect and copy under sections 55-16-02(a) or (b). Accordingly, the Court

concludes that the Qualified Plaintiffs are not entitled to inspect and copy Fortran’s

records responsive to this Request.7

    C.      Costs and Fees

    46.     Plaintiffs seek to recover the costs and expenses of this action from

Defendant, including Plaintiffs’ reasonable attorneys’ fees. (Compl. 8.)

    47.     

(c) provides as follows:

          If the court orders inspection and copying of the records demanded, it
          shall also order the corporation to pay the shareholder’s costs (including
          reasonable attorneys’ fees) incurred to obtain the order unless the
          corporation proves that it refused inspection in good faith because it had
          a reasonable basis for doubt about the right of the shareholder to inspect
          the records demanded.

    48.     A good faith refusal of a shareholder’s inspection demand “normally will

involve reasonable doubt whether the shareholder had the necessary good faith and

proper purpose or whether the records demanded are directly connected to the

shareholder’s purpose.” 

 Official Comment. This analysis


7  In the absence of any specific language seeking records of action by Fortran’s board of
directors, the Court declines to read Request 16 as seeking “records of any final action” taken
by the board of directors with respect to the property described in this Request.
entails “a partially objective standard, in that the corporation must be able to point

to some objective basis for its doubt that the shareholder was acting in good faith or

had a purpose that was proper.” 

.   Here, Defendant contends that Plaintiffs did not act in good faith because

Templeton is a judgment creditor and the Inspection Demand involves an improper

attempt to pressure Fortran to pay or reduce the debt the Company owes to

Templeton or buy Templeton’s shares. Defendant, however, has not offered any

evidence to support this contention, and, on the record evidence here, Defendant’s

contention is implausible and supported only by speculation and conjecture. Not only

have the Qualified Plaintiffs offered substantial evidence of their proper purpose, but

Defendant has not offered any evidence or argument explaining how the Qualified

Plaintiffs’ Inspection Demand has any bearing on Fortran’s rights and remedies in

connection with Templeton’s judgment or a possible buyout of his shares. As a result,

the Court concludes that Fortran has failed to show that it had a reasonable basis to

doubt the Qualified Plaintiffs’ proper purpose for their Inspection Demand.

   50.   Defendant also refuses a number of the Requests on the grounds that they

are overbroad or deal with matters that are over three years old. As discussed above,

however, the Court has concluded that nearly all of the otherwise enforceable

Requests are described with reasonable particularity as required by applicable law.

Moreover, except for the Qualified Plaintiffs’ request for financial statements for the

past three years, Defendant seeks to impose a temporal limitation on certain of the

Requests that does not appear in Chapter 55. As a result, the Court concludes that
Fortran has failed to show a reasonable basis for doubt as to the Qualified Plaintiffs’

inspection rights based on these contentions.

   51.   Although Fortran has successfully resisted or caused modification of certain

of the Requests as set forth above, the Court concludes, based on the evidence of

record, that Fortran has failed to make documents available in response to a

substantial number of the Requests without a reasonable basis for doubt as to the

Qualified Plaintiffs’ right to inspect the requested documents. The Court therefore

concludes that Fortran should pay the Qualified Plaintiffs the costs and fees,

including attorneys’ fees, the Qualified Plaintiffs have incurred in seeking the records

for which they have successfully obtained an order for inspection and copying. The

Court will not award, however, the costs and fees incurred in the Qualified Plaintiffs’

pursuit of the Requests the Court has disallowed.

                                          IV.

                                   CONCLUSION

   52.   WHEREFORE, the Court, in the exercise of its discretion, hereby

ORDERS as follows:

          a. Plaintiffs’ Requests are hereby DENIED with respect to Plaintiff

             Bertolami.

          b. Plaintiffs’ Requests are hereby GRANTED in part and DENIED in

             part with respect to the Qualified Plaintiffs as follows:
i. No later than April 16, 2018, Defendants shall make available to

  the Qualified Plaintiffs the following records for inspection and

  copying:

      1. resolutions adopted by Fortran’s board of directors

         creating one or more classes or series of shares, and fixing

         their relative rights, preferences, and limitations, if shares

         issued pursuant to those resolutions are outstanding;

      2. the minutes of all shareholders’ meetings, and records of

         all action taken by shareholders without a meeting, for the

         past three years;

      3. all written communications to shareholders generally

         within the past three years that are not publicly available

         on the otcmarkets.com website;

      4. records of any final action taken by the board of directors

         regarding the merger of New Telephone Company and

         Burke Mills into Fortran;

      5. records of any final action taken by the board of directors

         regarding the acquisition of CCI Communications;

      6. records of any final action taken by the board of directors

         regarding the acquisition of Wyncom;

      7. records of any final action taken by the board of directors

         regarding the acquisition of Tower Performance Inc.;
8. records of any final action taken by the board of directors

    regarding the election of officers and directors at Fortran;

9. records of any final action taken by the board of directors

    regarding Fortran’s borrowing of funds, including but not

    limited to the borrowing of funds from TCA Global Fund

    (FL), Peoples Bank of Newton, NC, BB&T Bank, and

    James M. Templeton;

10. records of any final action taken by the board of directors

    regarding the issuance of new Fortran common and

    preferred stock, including but not limited to the issuance

    of preferred shares to Douglas W. Rink and Richard W.

    Wilson;

11. all accounting records of Fortran, including but not limited

    to Fortran’s general ledgers;

12. all UCC filings related to Fortran; and

13. the most current and complete record or list of Fortran’s

    shareholders, showing the name of, business address of,

    and the number of shares owned by each shareholder, and

    all transfer sheets reflecting changes in the names and

    addresses of Fortran’s shareholders and/or changes in the

    number of shares owned by each shareholder created

    thereafter.
ii. Defendant is further ordered to file a statement with the Court

   no later than April 16, 2018 certifying that Defendant has fully

   complied with paragraph 52(b)(i) above or attesting that it does

   not have any of the specific records the Court has ordered to be

   produced.

iii. Except as provided in paragraph 52(b)(i) above, Plaintiffs’

   Requests are DENIED, and specifically denied to the extent they

   seek:

      1. “the financial statements required to be made available to

           the shareholders for the past three years,” as requested in

           Request 4;

      2. “[a]ll records relating to any board action,” as requested in

           Requests 5–11;

      3. “[a]ll records relating to Douglas W. Rink’s use of Fortran’s

           funds or assets for his personal use or benefit,” as

           requested in Request 12;

      4. “documents and communications relating to [Fortran’s

           UCC] filings,” as requested in Request 14;

      5. “transfer      sheets”   reflecting   shareholder    change

           information created prior to the date of the most current

           complete record or list of shareholders produced under
         subparagraph (b)(i)(13) above, as requested in Request 15;

         and

      6. “[a]ll records relating to the purchase, finance and

         ownership of the property located at 3210 16th Avenue SE,

         Conover, NC 28613,” as requested in Request 16.

iv. Defendant is hereby ordered to pay the Qualified Plaintiffs’

   reasonable costs and fees, including attorneys’ fees, incurred in

   obtaining the relief ordered in paragraph 52(b)(i) above. The

   Qualified Plaintiffs shall file their request for costs and fees,

   including any affidavits and supporting materials, no later than

   April 16, 2018. The request shall include:

      1. the total amount of attorneys’ fees and costs incurred in

         obtaining the relief awarded;

      2. the identification of each attorney performing the work for

         which the Qualified Plaintiffs seek fees and costs;

      3. the hourly rates for each attorney performing the work for

         which the Qualified Plaintiffs seek fees and costs;

      4. the specific tasks the attorneys performed for which fees

         are sought; and

      5. the amount of time the attorneys spent in performing each

         such task;
         but shall exclude any costs and fees incurred in pursuit of the

         relief sought but disallowed in paragraph 52(b)(iii) above.

      v. Defendant shall file any opposition to the Qualified Plaintiffs’

         request for costs and fees, including any affidavits and supporting

         materials, no later than April 30, 2018.

     vi. The parties’ briefs concerning the Qualified Plaintiffs’ request for

         costs and fees shall comply with Business Court Rule 7.8.

     vii. The Court will determine at a later date whether a hearing will

         be held on the Qualified Plaintiffs’ request for costs and fees.

SO ORDERED, this the 2nd day of April, 2018.



                                    /s/ Louis A. Bledsoe, III
                                    Louis A. Bledsoe, III
                                    Special Superior Court Judge
                                      for Complex Business Cases