ILNews

Court: Records inspection needs testimony

Jennifer Nelson
January 1, 2008
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The Indiana Court of Appeals reversed a trial court decision to allow a couple to inspect a company's financial statements, finding the trial court relied only on an affidavit - and not testimony - to allow the inspection.

In Bacompt Systems, Inc. v. Angelina Peck and David C. Peck, No. 29A02-0708-CV-646, the Pecks made separate written requests to view Bacompt's financial documents. The Pecks, who lived in Pennsylvania, owned approximately 25 percent of the company's stock. Prior to David C. Peck's termination as president of Bacompt in May 2006, Angelina filed for divorce in Pennsylvania.

David C. Peck made his request to Bacompt for the financial documents to see if Buddy C. Stanley, the principal shareholder of Bacompt, had misappropriated funds. Stanley had filed a suit in federal court accusing David of writing unauthorized Bacompt checks for his and Angelina's personal use. Angelina requested Bacompt's financial documents to try to value her stock holdings in the company.

Initially, Bacompt refused to hand over the documents, citing David didn't specify his purpose for the documents in his written request and the company's belief that Angelina's request was untimely. Later, the company agreed to hand over certain documents, but would not turn over the KSM report, which is prepared by the company's outside accountant and included an analysis relating to the checks that are of issue in the federal lawsuit as well as a review of expenses charged to Bacompt from 2003 through 2005.

The Pecks then filed a petition for inspection of corporate records, which the trial court granted based on an affidavit submitted from Angelina with the pre-hearing brief that stated she needed to inspect the records to value her stock in her pending divorce.

Bacompt appealed, stating the Pecks didn't prove under Indiana Code 23-1-52-2 that their demand for inspection was in good faith and for a proper purpose, as well as the trial court erred in allowing the KSM report in the inspection of documents.

The Court of Appeals found no abuse of discretion when the trial court accepted Angelina's affidavit after a motion was filed. However, the appellate court did find the trial court erred in relying on Angelina's affidavit to enter its judgment.

Pursuant to Trial Rule 43(A), testimony was required to be given in open court in order to allow Bacompt the right to cross-examine and to observe witnesses' demeanor and determine credibility, wrote Judge Cale Bradford.

"In that Angelina's affidavit was introduced into evidence in lieu of her testimony for purposes of establishing - as a matter of fact - the Pecks's purpose in seeking to inspect Bacompt's corporate records, we conclude this was an error," he wrote.

In regards to Bacompt's appeal, the KSM report should not be included for inspection; the appellate court ruled the trial court should determine that on remand. Since there was no factual record in this case demonstrating a proper purpose, Judge Bradford wrote it was unnecessary for the appellate court to address this issue.
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  1. Not enough copperheads here to care anymore, is my guess. Otherwise, a totally pointless gesture. ... Oh wait: was this done because somebody want to avoid bad press - or was it that some weak kneed officials cravenly fear "protest" violence by "urban youths.."

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