Texas Judiciary Online - HTML Opinion

The shareholders = cannot use=20 discovery to satisfy the threshold requirement that they plead=20 particularized facts showing that demand on the board would be=20 futile. See Beam, 845 A.2d at 1056. Once Crown = Castle=20 has responded to the shareholders=3D request for = production, in the=20 absence of sufficient pleading, it will have lost its right to = avoid the=20 burden and expense of providing the discovery. An appellate = remedy=20 is inadequate when the relator stands to lose its substantial=20 rights. Perry v. Del Rio, 66 S.W.3d 239, 257 (Tex.=20 2001). We hold that Crown Castle does not have an adequate = remedy by=20 appeal.

&= nbsp; &n= bsp; &nb= sp; &nbs= p; = ; =20 Conclusion

We therefore = conditionally=20 grant Crown Castle=3Ds petition for a writ = of=20 mandamus and direct the trial court to vacate its May 8, 2007 = order to the=20 extent that it denies Crown Castle=3Ds motion for = protective order=20 and fails to stay all discovery pending the = shareholders=3D having pleaded = adequately that=20 demand on the board of directors is excused. The writ will = issue=20 only if the trial court fails to act in accordance with this=20 opinion.

/s/ =20 Adele Hedges

Chief Justice

Petition = Conditionally Granted=20 and Opinion filed January 29, 2008.

Panel consists of = Chief Justice=20 Hedges and Justices Guzman and Boyce.

^{^[1]} The=20 individual defendants are Peter G. Abery, Wesley D. Cunningham, = Carol=20 Ferenbach, Ari Q. Fitzgerald, Robert E. Giles, Charles C. Green, = III,=20 Randall A. Hack, Dale N. Hatfield, E. Blake Hawk, Lee W. Hogan, = Kelly=20 (Cole) Hunter, Edward C. Hutcheson, Jr., David L. Ivy, John P. = Kelly, J.=20 Landis Martin, Robert F. McKenzie, Ted B. Miller, Jr., W. Benjamin = Moreland, Alan Reese, and Edward W. Wallander.

^{^[2]} =20 Five derivative shareholder lawsuits were filed, making the same=20 allegations. Those petitions were consolidated into a single = matter,=20 and the shareholders filed a consolidated derivative petition on = February=20 2, 2007.

^{^[3]} The=20 individual defendants joined in Crown Castle=3Ds special = exceptions.

^{^[4]} The=20 individual defendants joined in Crown Castle=3Ds motion = for=20 protective order.

^{^[5]} The=20 trial court=3Ds=20 orders specifically did not address Crown Castle=3Ds other = objections,=20 but, instead, stated that Crown Castle could set its other = objections for=20 a hearing subject to the automatic stay.

^{^[6]} =20 See In re CSX Corp., 124 S.W.3d 149, 152 (Tex. 2003) (per = curiam)=20 (orig. proceeding) (stating that Texas procedural rules define the = scope=20 of discovery).

^{^[7]} =20 See PennWell Corp. v. Ken Assocs., Inc., 123 S.W.3d 756, = 763 (Tex.=20 App.CHouston=20 [14th Dist.] 2003, pet. denied) (stating that procedural matters = are=20 governed by the law of the forum); In re Wells Fargo Bank = Minn.,=20 N.A., 115 S.W.3d 600, 605 n. 7 (Tex. App.CHouston = [14th Dist.]=20 2003) (orig. proceeding) (stating that even when the parties = contractually=20 choose the law of a state other than the forum state, matters of = remedy=20 and procedure are governed by the law of the forum = state).

^{^[8]} =20 Tex. Bus. Org. Code Ann. ' 21.561 = (Vernon Supp.=20 2006).

^{^[9]} =20 Tex. Bus. Corp. Act Ann. art. 5.14(K) (Vernon 2003).

^{^[10]} =20 Because section 21.562 and article 5.14(K) are substantively the = same and=20 our analysis and disposition do not differ under each, we need not = decide=20 which statute applies. Cf. Duncan v. Cessna Aircraft = Co., 665=20 S.W.2d 414, 419 (Tex. 1984) (stating that, before undertaking = choice of=20 law analysis, the court must first determine whether there is a = difference=20 between the relevant laws); St. Paul Surplus Lines Ins. Co. v. = Geo Pipe=20 Co., 25 S.W.3d 900, 903 n.2 (Tex. App.CHouston = [1st Dist.]=20 2000, no pet.) (stating that in absence of a true conflict, we do = not=20 undertake a choice of law analysis).

^{^[11]} =20 The Texas Business Corporations Act provides:

K. =20 In derivative proceeding brought in the right of a foreign = corporation,=20 the matters covered by this Article are governed by the laws of = the=20 jurisdiction of incorporation of the foreign corporation, except = for=20 Sections D, I, and J of this Article, which are procedural and not = matters=20 relating to the internal affairs of the foreign corporation.

Tex. Bus. Corp. = Act Ann.=20 art. 5.14(K).

The=20 Texas Business Organizations Code similarly provides;

(a)=20 In a derivative proceeding brought in the right of a foreign = corporation,=20 the matters covered by this subchapter are governed by the laws of = the=20 jurisdiction of incorporation of the foreign corporation, except = for=20 Sections 21.555, 21.560, and 21.561, which are procedural = provisions and=20 do not relate to the internal affairs of the foreign = corporation.

Tex.=20 Bus. Org. Code '=20 21.562(a).

^{^[12]} =20 Section 21.562 excludes procedural matters under sections 21.555, = 21.560,=20 and 21.561. See Tex Bus. Org. Code Ann. ' 21.555 = (providing=20 for the stay of a derivative proceeding if the corporation that is = the=20 subject of such proceeding commences an inquiry into the = allegations made=20 in a demand or petition); Id. ' 21.560 = (providing=20 for the discontinuance or settlement of derivative proceeding); = Id.=20 ' = 21.561=20 (providing for the payment of expenses by order of the trial court = upon=20 termination of the derivative proceeding). Article 5.14(K) = likewise=20 excludes procedural matters under sections D, I, and J of Article=20 5.14. See Tex. Bus. Corp. Act Ann. art. 5.14(D) = (providing=20 for the stay of a derivative proceeding if the corporation that is = the=20 subject of such proceeding commences an inquiry into the = allegations made=20 in a demand or petition); Id. art. 5.14(I) (providing for = the=20 discontinuance or settlement of derivative proceeding); Id. = art.=20 5.14(J) (providing for the payment of expenses by order of the = trial court=20 upon termination of the derivative proceeding).

^{^[13]} =20 Special exceptions may be used to challenge the sufficiency of a=20 pleading. Friesenhahn v. Ryan, 960 S.W.2d 656, 658 = (Tex.=20 1998). Under Texas law, a trial court may not dismiss a case = after=20 sustaining special exceptions without first giving the = nonexcepting party=20 an opportunity to amend its pleadings. Ford v. = Performance=20 Aircraft Servs., Inc., 178 S.W.3d 330, 336 (Tex. App.CFort Worth = 2005, pet.=20 denied).

^{^[14]} =20 Shareholders of Delaware corporations enjoy a qualified right to = inspect=20 the corporation=3Ds books = and=20 records. Saito v. McKesson HBOC, Inc., 806 A.2d 113, = 116=20 (Del. 2002); see also 8 Del C. ' 220 = (providing=20 requirements for shareholder to inspect corporation=3Ds books = and=20 records). A shareholder has the right to inspect the=20 corporation=3Ds=20 books and records if he has met certain formal requirements and = the=20 inspection is for a proper purpose. Kaufman v. CA, = Inc., 905=20 A.2d 749, 753 (Del. Ch. 2006). Such inspection, when sought = for=20 evaluating a possible derivative suit, is limited to books and = records=20 required to prepare a well-pleaded complaint. = Id. The=20 shareholders concede that they can make a books and records = inspection in=20 Delaware and review documents to use in support of their demand = futility=20 allegations, but argue this undercuts Crown Castle=3Ds = contention that=20 using discovery in pleading particularized facts is contrary to = Delaware=20 law. However, the Delaware Supreme Court has foreclosed this = argument, explaining that the general unavailability of discovery = to=20 assist the shareholder in sufficiently pleading demand futility = Adoes not = leave=20 plaintiffs without a means of gathering information, however. . . = . =20 this Court . . . [has] continually advised plaintiffs who seek to = plead=20 facts establishing demand futility that the plaintiffs might = successfully=20 have used a Section 220 books and records inspection to uncover = such=20 facts.@ =20 Beam, 845 A.2d at 1056.

^{^[15]} =20 See 8 Del. C. ' 141(a) = (providing=20 that the directors are granted the authority to manage the = business of the=20 corporation; Braddock v. Zimmerman, 906 A.2d 776, 784 (Del. = 2006)=20 (stating the demand requirement is a substantive right designed to = give=20 the corporation the opportunity to rectify an alleged wrong = without=20 litigation and control any litigation that arises); Pogostin v. = Rice, 480 A.2d 619, 624 (Del. 1984), overruled on other = grounds by=20 Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (A[T]he = derivative=20 action impinges on the managerial freedom of directors.@); = Aronson,=20 473 A.2d at 812 (A[T]he = demand=20 requirement is a recognition of the fundamental precept that = directors=20 manage the business and affairs of the corporation.@). =20