Photo of Mack Sperling

I’m a business litigator in North Carolina, with Brooks Pierce McLendon Humphrey & Leonard, LLP.

I grew up in New York, went to college there (at Union College in Schenectady), and then came to North Carolina to law school at UNC-Chapel Hill. I clerked for United States District Judge Frank Bullock of the U.S. District Court for the Middle District of North Carolina after graduating, and then joined Brooks Pierce.

I guess that every North Carolina lawyer doesn’t know that since October 2014, appeals of final decisions by the NC Business Court go directly to the NC Supreme Court instead of to the NC Court of Appeals.

You didn’t know that?  Well you are not alone.  The Notice of Appeal of Judge Gale’s Opinion in

It’s been a while since the Business Court devoted a full opinion to a shareholder’s rights to inspect corporate records.  But last week, Judge Bledsoe filled that gap with his Order and Final Judgment in Sharman v. Fortran Corp., 2018 NCBC 27

Fortran?  If you are thinking that Fortran Corp. must control the rights to the Fortran computer coding language, like I was, you are wrong. This Fortran Corporation is a "telecommunications system integrator dedicated to designing, sourcing, implementing and maintaining complex communications solutions."  That’s what its last Annual Report says.

The Sharman Opinion deals with the request of multiple Fortran shareholders to inspect a wide swath of Fortran’s corporate records.  I can’t think of another area of the law where you get a statutory right to discovery before filing a lawsuit (though it’s limited to what the statute says you can get).  And you are entitled to a response in five business days!  No thirty or sixty days waiting for a response.  Plus you might be entitled to recover your attorneys’ fees.  I wonder why every claim by a shareholder against a director or officer for, say, a breach of fiduciary duty, isn’t preceded by the use of this powerful tool.

There are two "separate and distinct categories" of inspection requests.  Op. 16 (quoting Russell M. Robinson, II, Robinson on North Carolina Corporation Law § 10.0 1(7th ed.2017)).  These are generally referred to as "absolute rights of inspection" (per. G.S.§55-16-02(a), and "qualified rights of inspection (per. G.S. §55-16-02(b)).

Absolute Right Of Inspection

Section 55-16-01(e) of the General Statutes lists certain records which a corporation is required to keep.  A shareholder is "entitled" to inspect these records:

(1)  Its articles or restated articles of incorporation and all amendments to them currently in effect;

(2) Its bylaws or restated bylaws and all amendments to them currently in effect;

(3) Resolutions adopted by its 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;

(6) A list of the names and business addresses of its current directors and officers; and

(7) Its most recent annual report delivered as required by G.S. 55-16-22.

"Absolute" Doesn’t Mean Automatic

Not every shareholder has these "absolute" inspection rights. Only "qualified shareholders" can exercise them.  Only those who have held their shares for more than six months before making their demand for inspection, or who hold at least five percent of any class of the corporation’s shares are "qualified."  N.C. Gen. Stat. §55-16-02(g). 

"Qualified" Rights Are Tougher To Obtain

Those shareholders trying to exercise the "qualified rights" of Section 55-16-02(b) have to satisfy a more difficult standard.  The requesting shareholder must show that his:


Continue Reading

It is hard to base your case on a breach of fiduciary duty when there is a contract in place between the parties.  Contracting parties owe no special duties to each other beyond the terms of the contract.  Branch Banking & Tr. Co. v. Thompson, 107 N.C. App. 53, 61, 418 S.E.2d 694, 699

The Defendant in SQL Sentry, LLC v. ApexSQL, LLC, 2017 NCBC 105 was alleged to have copied the Plaintiff’s software program which was designed to make "resource intensive T-SQL queries. . . in the Microsoft enterprise database platform, SQL Server."  Op. Par. 5.  (Ask your IT person).

Adding insult to injury, the Defendant marketed the