CORPORATE ENTITIES CANNOT BE COMPELLED TO PRODUCE DOCUMENTS THAT DO NOT EXIST

By: Richard E. Guttentag, Esq., Stearns, Roberts & Guttentag, LLC

Florida Statute, Sections 607.1602 and 608.4101 allow shareholders and members of corporations and limited liability companies (LLCs) access to certain books and records of such entities.

In Omes v. Ultra Enterprises, Inc., 2013 WL 3336867 (Fla. 3rd DCA 2013), an individual who held various positions and a minority ownership interest in certain corporations and LLCs filed a lawsuit against the entities for the unlawful denial of access to records based on the above-referenced statutes.  In the case, the trial court granted the appointment of an independent certified public account to manage the production and copying of records provided by the corporations and limited liability companies.

After the documents were produced, the trial court conducted hearings to assess the corporations and LLCs’ compliance with the corporate and LLC records statutes. The court determined that no further records were required to be produced to the individual, and entered a final judgment to that effect. The individual disagreed, and appealed the final judgment.

The individual argued on appeal that pursuant to Florida Statute, Section 607.1620(1), corporate entities must include a statement of cash flows for each year in the annual financial statements to be provided to shareholders, and that such statement should be provided to the individual pursuant to its request. However, the corporate entities did not have the statement of cash flow at the time of the individual’s request.

Consequently, the legal issue before the appellate court was whether a corporation or limited liability company that fails to maintain an accounting record specified to be accessible to shareholders can be ordered to either: (a) prepare and provide such a record, or (b) produce those “source” or original accounting records that would be necessary to produce the statement.

The appellate court held that a corporation is not obligated to produce a corporate record that it does not have at the time the request is made, and a corporation is not required to prepare the requested record from documents that it might obtain from others.  However, a corporation is required to provide access to its existing records that would be used to prepare the requested document.  The appellate court explained that the statutory inspection rights of shareholders neither obligate a corporation to prepare a record that does not exist, nor entitle shareholders to a free-range of discovery of corporate financial records to substantiate a later lawsuit.

In this case, the trial court considered the sufficiency of the records produced by the entities in lieu of a cash flow statement, and concluded that such documents could be used to prepare the cash flow statement. Accordingly, the appellate court determined that the procedure used by the trial court afforded the individual ample access to the entities’ records for the purpose of valuation as expressed in his request for corporate information, and that the entities had complied with the applicable statutes.  Thus, the appellate court concluded that substantial competent evidence supported the trial court’s final judgment.

This case demonstrates that pursuant to Florida law, a corporation and a limited liability company are required to produce certain books and records to its shareholders and members, and that such shareholders and members can bring an action to enforce the production of such documents. However, the statutes neither require a corporate entity to produce a record that does not exist, nor require the entity to prepare the requested document. The corporate entity must produce those existing source or original accounting records that would be necessary to produce or prepare the document that does not exist.

About the Author: Richard E. Guttentag is a partner with Stearns, Roberts & Guttentag, LLC, and is Board Certified in Construction Law by the Florida Bar. Mr. Guttentag exclusively in construction law including construction lien claims and defense, payment and performance bond claims and defense, bid protests, construction contract preparation and negotiation, and construction and design defect claims and defense. He can be reached for consultation at [email protected].

Share Now:

Categories

Subscribe To Our Newsletter