Alabama Case Law
FOGARTY v. PARKER, 1040335 (Ala. 1-12-2007) Charles M.
Fogarty and Jane C. Fogarty v. Parker, Poe, Adams, and
Bernstein, L.L.P., et al. No. 1040335. Supreme Court of
Alabama. Decided January 12, 2007.
Appeal from Baldwin Circuit Court (CV-04-68).
SMITH, Justice.
The plaintiffs below, Charles M. Fogarty and Jane C.
Fogarty, appeal from the trial court’s judgment dismissing
all claims against the defendants, J. Keith Jones, John T.
Baron, and Parker, Poe, Adams, and Bernstein, L.L.P. We
affirm in part, reverse in part, and remand.
Facts and Procedural History
Parker, Poe, Adams, and Bernstein is a North Carolina law
firm. Jones and Baron are licensed attorneys who practice
at that firm; Jones and Baron are apparently licensed to
practice law in various states, but they are not licensed
to practice law in Alabama (hereinafter all three appellees
will collectively be referred to as “Parker Poe”).
The Fogartys are residents of South Carolina; they were
minority members in three closely held companies:
Confederate Money, LLC; Pleasure Island Hotel Corporation;
and Victory Ventures, LLC. All of these companies were
organized under the laws of Alabama and were involved in a
failed real-estate venture in Gulf Shores, Alabama. The
majority shareholder in the venture was MacPherson Group,
Inc., which is made up of Gary Southworth, Ann Bearden, and
James Bearden.
In early 2002, the Fogartys became concerned by a sudden
deterioration in the finances of the venture. Based on this
concern, the Fogartys traveled to Gulf Shores and met with
Robert Grant, the accountant for Confederate Money. Based
on statements made by Grant, the Fogartys suspected that
Southworth and the Beardens had made numerous
misrepresentations regarding the affairs of the venture.
Jane Fogarty later returned to Robert Grant’s office, where
she was permitted only limited access to certain
Confederate Money records located at Grant’s office. Around
March 2002, the Fogartys initiated their ongoing attempts
to obtain certain accounting information and other records
of the failed real-estate venture from the MacPherson
Group, Inc. The Fogartys allege that Southworth illegally
deposited Confederate Money funds into a MacPherson Group
checking account.
Parker Poe delivered a letter to the Fogartys on April 17,
2002, explicitly stating that it represented the MacPherson
Group and Southworth, and stating that the Fogartys would
not be allowed to inspect and copy the records of
Confederate Money. It is unclear whether at that time
Parker Poe was also representing Confederate Money.
According to the Fogartys, Parker Poe repeatedly threatened
legal action against them if they continued to seek access
to the records and to claim that Southworth and the
MacPherson Group had committed fraud. The Fogartys allege
that Parker Poe misrepresented to them Alabama law by
stating that under Alabama law the Fogartys were not
entitled to review the books and records of Confederate
Money. After the Fogartys had retained their own attorney,
they received a letter from Parker Poe in July 2002,
stating that the Fogartys were already in possession of all
the records of Confederate Money. The Fogartys then
attempted to meet again with Robert Grant, but Parker Poe
sent letters to the Fogartys stating that the Fogartys did
not have the right to contact Grant. According to the
complaint, in August 2003, Parker Poe explicitly stated
that it had represented Confederate Money. Parker Poe never
produced the business records the Fogartys were seeking.
According to the complaint, Parker Poe removed the books
and records of Confederate Money from Alabama specifically
to prevent the Fogartys from having access to those books
and records.
Because of Parker Poe’s actions, the Fogartys allege, they
were unable to investigate how the funds they had
contributed to the venture had been used and the financial
status of Confederate Money, a company in which they were
minority members. The Fogartys also allege that they are
due statutory penalties as a result of Parker Poe’s role in
wrongfully preventing the Fogartys from inspecting the
company’s records.
On January 16, 2004, the Fogartys sued 13 defendants,
including Parker Poe. The complaint stated 14 counts, all
of which arise out of the failed real-estate development
venture in Gulf Shores. The Fogartys’ complaint sought a
preliminary injunction (count 1) and a declaratory judgment
(count 2). The complaint also sought damages for money owed
(count 3), oppression (count 4), breach of fiduciary duty
(count 5), conversion (count 6), fraud, suppression, and
misrepresentation (count 7), conspiracy to defraud and
suppress (count 8), and civil theft/embezzlement (count 9).
The complaint further alleged violations under the Alabama
Limited Liability Company Act, § 10-12-1 et seq.,
Ala. Code 1975 (count 10), and the Alabama Business
Corporation Act, § 10-2B-1.01 et seq., Ala. Code
1975 (count 11). Finally, the complaint alleged abuse of
corporate form (count 12), a derivative action (count 13),
and the unauthorized practice of law (count 14). The
unauthorized-practice-of-law claim is specifically directed
at Parker Poe, but all of the counts in the complaint
include demands for relief against the “defendants”
generally.
On April 21, 2004, Parker Poe filed a Rule 12(b)(6), Ala.
R. Civ. P., motion to dismiss all of the claims against
them. The grounds for the motion were: (1) that it
affirmatively appeared from the complaint that the Fogartys
were not clients of Parker Poe for purposes of a
legal-malpractice action because, it alleged, the Fogartys
were not in privity with Parker Poe and Parker Poe thus
owed no legal duty to the Fogartys; (2) that it
affirmatively appeared from the complaint that the
Fogartys’ claims arose out of the rendition of legal
services by Parker Poe and that the Fogartys’ exclusive
remedy for such claims is under the Alabama Legal Services
Liability Act, § 6-5-570 et seq., Ala. Code 1975
(“the ALSLA”) and no claim is made under that Act; and (3)
that no cause of action exists in Alabama either for the
unauthorized practice of law or for the violation of the
Alabama Rules of Professional Conduct, which prohibit the
unauthorized practice of law.
On June 28, 2004, the trial court entered the following
notation on the case-action summary: “Motion to dismiss
granted as to J. Keith Jones, John T. Baron, and Parker,
Poe, Adams and Bernstein, L.L.P.” The Fogartys filed a
motion to alter, amend, or vacate the judgment of
dismissal, which the trial court denied. On November 8,
2004, the trial court certified the order as final under
Rule 54(b), Ala. R. Civ. P. The Fogartys appealed.
Standard of Review
“This Court must review de novo the propriety of a
dismissal for failure to state a claim and must resolve
all doubts in favor of the plaintiff:
“‘It is a well-established principle of law in this state
that a complaint, like all other pleadings, should be
liberally construed, Rule 8(f), Ala. R. Civ. P., and that
a dismissal for failure to state a claim is properly
granted only when it appears beyond a doubt that the
plaintiff can prove no set of facts entitling him to
relief. Winn-Dixie Montgomery, Inc. v. Henderson, 371 So.
2d 899 (Ala. 1979). . . .
“‘Where a 12(b)(6)[, Ala. R. Civ. P.,] motion has been
granted and this Court is called upon to review the
dismissal of the complaint, we must examine the
allegations contained therein and construe them so as to
resolve all doubts concerning the sufficiency of the
complaint in favor of the plaintiff. First National Bank
v. Gilbert Imported Hardwoods, Inc., 398 So. 2d 258
(Ala. 1981). In so doing, this Court does not consider
whether the plaintiff will ultimately prevail, only
whether he has stated a claim under which he may possibly
prevail. Karagan v. City of Mobile, 420 So. 2d 57 (Ala.
1982).’
“Fontenot v. Bramlett, 470 So. 2d 669, 671 (Ala. 1985).”
Bay Lines, Inc. v. Stoughton Trailers, Inc., 838 So. 2d
1013, 1017-18 (Ala. 2002).
Analysis
On appeal, the Fogartys have not specifically stated which
of the 14 counts in the complaint they contend should not
have been dismissed for failure to state a claim against
Parker Poe. It appears that the actions alleged in counts
1- 6, 9, 12, and 13 are not applicable to Parker Poe, and
the Fogartys have not specifically mentioned those counts in
their brief to this Court.[fn1] We will thus consider
whether the trial court erred in dismissing counts 7
(fraud, suppression, and misrepresentation), 8 (conspiracy
to defraud and suppress), 10 (violations of the Alabama
Limited Liability Company Act), 11 (violations of the
Alabama Business Corporation Act), and 14 (unauthorized
practice of law).
On appeal, Parker Poe asserts the same three grounds for
dismissal of the Fogartys’ claims against it for failure to
state a claim upon which relief can be granted as Parker
Poe raised in its motion to dismiss. While it is unclear
the precise grounds on which the trial court granted the
motion to dismiss for failure to state a claim, the three
grounds for dismissal asserted by Parker Poe in its Rule
12(b)(6) motion are the only grounds addressed by either
party on appeal.
First, Parker Poe alleges that the motion to dismiss for
failure to state a claim was properly granted because, it
argues, all of the claims alleged in the complaint arise
solely out of the rendition of legal services by Parker
Poe, and the exclusive remedy for such claims is the ALSLA,
and the Fogartys make no claim under the ALSLA in the
complaint. We disagree with Parker Poe’s assertion that the
ALSLA is the exclusive remedy for the Fogartys’ claims
against it. The ALSLA applies only to allegations of legal
malpractice, i.e., claims against legal-service providers
that arise from the performance of legal services, and only
to allegations against attorneys licensed to practice law
in the State of Alabama. Thus, it does not apply to Parker
Poe in the present case.
The ALSLA is codified at §§ 6-5-570 to-581,
Ala. Code 1975, and creates one form of action against
legal-service providers, as follows:
“There shall be only one form and cause of action against
legal service providers in courts in the State of Alabama
and it shall be known as the legal service liability
action and shall have the meaning as defined herein.”
§ 6-5-573, Ala. Code 1975.
The ALSLA defines a legal-service provider as:
“Anyone licensed to practice law by the State of Alabama
or engaged in the practice of law in the State of Alabama.
The term legal service provider includes professional
corporations, associations, and partnerships and the
members of such and partnerships and the persons, firms,
or corporations either employed by or performing work or
services for the benefit of such professional
corporations, associations, and partnerships including,
without limitation, law clerks, legal assistants, legal
secretaries, professional corporations, associations,
investigators, paralegals, and couriers.”
§ 6-5-572(2), Ala. Code 1975.
In Cunningham v. Langston, Frazer, Sweet & Freese, P.A.,
727 So. 2d 800 (Ala. 1999), this Court throughly discussed
the issue of the applicability of the ALSLA to claims
against legal-service providers that do not arise from the
performance of legal services. In Cunningham, a lawyer sued
a law firm, alleging breach of contract and negligence or
wantonness arising out of a fee-splitting arrangement in an
underlying case. Cunningham, 727 So. 2d at 801-02. After a
thorough examination of the language of the entire Act,
this Court held that “the ALSLA does not apply to an action
filed against a `legal service provider’ by someone whose
claim does not arise out of the receipt of legal services.”
Cunningham, 727 So. 2d at 804 (emphasis added).
Counts 7, 8, 10, 11, and 14 of the complaint do not allege
tortious conduct resulting from the receipt of legal
services by the Fogartys from Parker Poe. Also, Parker Poe,
in arguing that no “privity” existed between itself and the
Fogartys, expressly states that it never provided legal
services to the Fogartys. Therefore, it appears that the
ALSLA does not apply to the Fogartys’ claims; thus, it
cannot be, as Parker Poe asserts, their exclusive remedy.
Furthermore, it appears that the ALSLA applies only to
attorneys who are licensed to practice law in Alabama.
Parker Poe argues that it was “engaged in the practice of
law in the State of Alabama” and, thus, falls under the
second prong of the ALSLA’s definition of a legal-service
provider. However, this Court has expressly stated that
“[t]he plain language of § 6-5-572(2), as well as
that of the other portions of the ALSLA, clearly indicates
that the Legislature intended for the ALSLA to apply only
to lawyers and to entities that are composed of members who
are licensed to practice law within the State of Alabama.”
Alabama Educ. Ass’n v. Nelson, 770 So. 2d 1057, 1059 (Ala.
2000) (emphasis added).
According to the complaint, Jones and Baron were not
licensed to practice law within the State of Alabama, and
Parker Poe does not dispute this allegation. Thus, the
ALSLA would not apply to the claims against Parker Poe, and
the ALSLA could not be the Fogartys’ exclusive remedy. The
trial court erred, therefore, in granting Parker Poe’s Rule
12(b)(6) motion on Parker Poe’s first stated ground.
Next, Parker Poe alleges that no cause of action exists in
Alabama for the unauthorized practice of law. The Fogartys,
however, argue that Armstrong v. Brown Service Funeral Home
West Chapel, 700 So. 2d 1379 (Ala.Civ.App. 1997), does
recognize such a cause of action. Parker Poe, in turn,
argues that this Court should overrule Armstrong.
In Armstrong, certain customers brought an action against a
funeral home, alleging fraudulent suppression and the
unauthorized practice of law under § 34-3-6, Ala.
Code 1975. Armstrong, 700 So. 2d at 1380. Section 34-3-6,
Ala. Code 1975, provides, in pertinent part:
“(a) Only such persons as are regularly licensed have
authority to practice law.
“(b) For the purposes of this chapter, the practice of
law is defined as follows:
“Whoever,
“(1) In a representative capacity appears as an advocate
or draws papers, pleadings or documents, or performs any
act in connection with proceedings pending or prospective
before a court or a body, board, committee, commission or
officer constituted by law or having authority to take
evidence in or settle or determine controversies in the
exercise of the judicial power of the state or any
subdivision thereof; or
“(2) For a consideration, reward or pecuniary benefit,
present or anticipated, direct or indirect, advises or
counsels another as to secular law, or draws or procures
or assists in the drawing of a paper, document or
instrument affecting or relating to secular rights; or
“(3) For a consideration, reward or pecuniary benefit,
present or anticipated, direct or indirect, does any act
in a representative capacity in behalf of another tending
to obtain or secure for such other the prevention or the
redress of a wrong or the enforcement or establishment of
a right; or
“(4) As a vocation, enforces, secures, settles, adjusts
or compromises defaulted, controverted or disputed
accounts, claims or demands between persons with neither
of whom he is in privity or in the relation of employer
and employee in the ordinary sense;
“is practicing law.”
In Armstrong, the complaint alleged that the customers and
the funeral home had entered into a burial contract
pursuant to which the customers were charged $175 for
assistance with preparing certain Social Security, legal,
and insurance forms. 700 So. 2d at 1380. The funeral home
filed a motion to dismiss for failure to state claim under
Rule 12(b)(6), Ala. R. Civ. P., and the trial court granted
the motion. The Court of Civil Appeals reversed the trial
court’s order, holding that the fraudulent-suppression
claim and the unauthorized-practice-of-law claim were
“cognizable theories of law which may, upon proof of the
proper facts, entitle the plaintiffs to recover against the
defendant.” 700 So. 2d at 1382. Thus, Armstrong did
recognize a cause of action for the unauthorized practice
of law.
In the present situation, as was the case in Armstrong, the
Fogartys have stated a claim alleging the unauthorized
practice of law under § 34-3-6, Ala. Code 1975. In
accordance with that statute, the Fogartys have alleged
that Jones and Baron were not licensed to practice law in
Alabama, that Jones and Baron were making representations
concerning Alabama law for both the majority shareholders
of Confederate Money and for Confederate Money itself, and
that the Fogartys were injured as a result. Therefore, it
appears that the Fogartys can prove a set of facts
entitling them to relief on this claim; thus, the trial
court erred in dismissing count 14 under Rule 12(b)(6).
Parker Poe seems to concede that if a private cause of
action for the unauthorized practice of law does exist and
if the ALSLA does not apply to this claim, then the
Fogartys have stated a claim upon which relief can be
granted. However, Parker Poe asks this Court to overrule
Armstrong and to hold that the unauthorized practice of law
is not a cognizable claim in Alabama. We are not persuaded
to do so. In Alabama, the unauthorized practice of law is a
criminal act. Section 34-3-7, Ala. Code 1975, states:
“Any person, firm or corporation who is not a regularly
licensed attorney who does an act defined in this article
to be an act of practicing law is guilty of a misdemeanor
and, on conviction, must be punished as provided by law.
Any person, firm or corporation who conspires with, aids
and abets another person, firm or corporation in the
commission of such misdemeanor must, on conviction, be
punished as provided by law.”
This Court has long recognized that “[e]ven though an act
may constitute a crime, if it also results in injury to the
person or property of another, the act may still be the
basis of a civil action for damages.” Martinson v. Cagle,
454 So. 2d 1383, 1385 (Ala. 1984). Therefore, the Armstrong
decision, which recognizes a private cause of action for
the unauthorized practice of law, is consistent with
Alabama caselaw that recognizes a private cause of action
for a criminal act that results in injury.
Furthermore, Armstrong is consistent with the law in other
jurisdictions recognizing the unauthorized practice of law
as a private cause of action. In McMahon v. Advanced Title
Services Co. of West Virginia, 216 W. Va. 413, 607 S.E.2d
519 (2004), the Supreme Court of Appeals of West Virginia
recognized the right of a plaintiff to predicate a claim
for relief upon allegations of the unauthorized practice of
law. In making this recognition, that court listed several
other jurisdictions, including Alabama, that recognize such
a claim:
“Our research indicates that in cases from a number of
jurisdictions, courts have recognized the right of
plaintiffs to predicate claims for damages and other
relief upon allegations of the unauthorized practice of
law by a defendant. See, e.g., Armstrong v. Brown Service
Funeral Home West Chapel, 700 So. 2d 1379 (Ala.Civ.App.
1997) (claims for damages and class action relief for
unauthorized practice held cognizable); American Abstract
and Title Co. v. Rice, [186 S.W.3d 705 (Ark. 2004)]
(unfair trade practices and class action claims
cognizable, existence of State Bar Committee on
unauthorized practice did not oust trial court of
jurisdiction); accord, Speights v. Stewart Title Guaranty
Co., [186 S.W.3d 715 (Ark. 2004)]; Herman v. Prudence
Mutual Casualty Company, 41 Ill. 2d 468, 244 N.E.2d 809
(1969) (plaintiff could seek injunctive relief against
unauthorized practice); Kim v. Desert Document Services,
101 Wash. App. 1043 . . . (Div. 1 2000) (unpublished)
(plaintiffs could bring private action asserting
unauthorized practice of law), review denied, 142 Wash. 2d
1026, 21 P.3d 1149 (2001); J.H. Marshall & Associates v.
Burleson, 313 A.2d 587 (D.C. 1973) (individual plaintiff
had standing to seek injunction against unauthorized
practice of law); Dressel v. Ameribank, 468 Mich. 557, 664
N.W.2d 151 (2003) (plaintiffs asserted class action claim
for unauthorized practice); accord, Perkins v. CTX
Mortgage Co., 137 Wash. 2d 93, 969 P.2d 93 (1999); but
compare Reliable Collection Agency, Ltd. v. Cole, 59 Haw.
503, 584 P.2d 107 (1978) (statute prohibiting
unauthorized practice of law did not confer standing).”
216 W. Va. at 417, 607 S.E.2d at 523.
The decision in Janssen v. Guaranty Land Title Co., 571
S.W.2d 702 (Mo.Ct.App. 1978), is the only example cited by
Parker Poe in which the unauthorized practice of law was
not recognized as a private cause of action. That decision
is easily distinguishable from the present case. In
Janssen, the plaintiffs based their cause of action on
Missouri Supreme Court Rule 5.25, which stated: “No
provision of Rule 5 shall limit the right of any individual
to seek any remedy afforded by law, nor shall this Rule
constitute an exclusive method for regulating the practice
of law.” 571 S.W.2d at 706. Based on this Rule the Missouri
Court of Appeals held:
“Rule 5 deals generally with complaints and proceedings
arising out of the practice of law and provides the
procedure for investigating charges against persons,
firms, or corporations accused of illegally practicing
law. The intendment of Rule 5 and the procedures
thereunder is to protect the public and those charged with
the administration of justice from individuals who are not
qualified and duly licensed attorneys; to maintain the
integrity of the courts and the honorable profession of
the practice of law. The main purpose is not punishment,
and certainly not punishment through the device of
punitive damages. Placed in its proper context, Rule 5.25
should be interpreted to preserve traditional remedies at
law for individuals who are harmed by unscrupulous
lawyers or by persons acting in an unauthorized legal
capacity. Such choses in action may be based, for example,
on a theory of fraud, or of negligence. But plaintiffs may
not bootstrap the injury suffered by virtue of a defective
title into a cause of action for the unauthorized
practice of law.”
571 S.W.2d at 706 (citations omitted; footnote omitted).
Unlike Janssen, the present cause of action is based on
statutes that specifically prohibit the unauthorized
practice of law, that make the unauthorized practice of law
criminal, and that expressly authorize some punishment. See
§§ 34-3-6 and 34-3-7, Ala. Code 1975. Also,
the Fogartys are not attempting to “bootstrap” the alleged
injury suffered into a cause of action for the unauthorized
practice of law. Instead, the Fogartys allege that they
were directly injured by the misrepresentations of Alabama
law made by Parker Poe. Therefore, the reasoning set forth
in Janssen is unconvincing and inapplicable in the present
situation. Parker Poe fails to provide this Court with any
convincing reason to overrule Armstrong, and we decline to
do so. Because Alabama does recognize a cause of action for
the unauthorized practice of law, we need not address
Parker Poe’s alternative argument regarding whether Alabama
recognizes such a cause of action based on a violation of
the Alabama Rules of Professional Conduct.
Finally, Parker Poe asserts that the Fogartys cannot bring
a legal-malpractice claim against Parker Poe because no
privity existed between the Fogartys and Parker Poe.
However, the Fogartys expressly state that they did not
allege a legal-malpractice claim in their complaint, and a
review of the complaint does not reveal any claims of legal
malpractice. (Fogartys’ reply brief at 15.) Therefore, we
see no need to determine whether there was sufficient
privity to support a legal-malpractice claim.
The sole issue before us is whether the trial court erred
in granting Parker Poe’s motion to dismiss. Our standard of
review requires us to reverse an order dismissing a claim
if the plaintiff could possibly prove any set of facts
allowing for recovery. Fontenot v. Bramlett, 470 So. 2d 669
(Ala. 1985); Bay Lines, supra. For the reasons already
discussed, Parker Poe’s motion to dismiss for failure to
state a claim should not have been granted based on its
arguments premised on the rendition of legal services, the
ALSLA, or the unavailability in Alabama of a cause of
action for the unauthorized practice of law.
Examining the individual allegations in the complaint also
leads us to conclude that the Rule 12(b)(6) motion should
not have been granted as to all of the Fogartys’ claims. As
already noted, it appears that counts 1-6, 9, 12, and 13
have no application to Parker Poe, and, on appeal, the
Fogartys do not make any explanation of how those claims
would apply. However, considering our standard of review on
a dismissal under Rule 12(b)(6) and our liberal
construction of a complaint, it does not appear “beyond a
doubt” that the Fogartys could not prove any set of facts
entitling them to relief on count 7 (fraud, suppression,
and misrepresentation), count 8 (conspiracy to defraud and
suppress), count 10 (violations of the Alabama Limited
Liability Company Act), count 11 (violations of the Alabama
Business Corporation Act), and count 14 (unauthorized
practice of law).
According to Rule 8(a), Ala. R. Civ. P., a claim for relief
need only contain (1) a short and plain statement of the
claim showing that the pleader is entitled to relief and
(2) a demand for judgment for the relief to which the
pleader deems himself entitled.
As to counts 7 and 8, the Fogartys allege that Parker Poe
engaged in fraud, suppression, and misrepresentation, and
that it conspired to defraud the Fogartys. It appears that
the Fogartys could prove a set of facts that would support
a claim for fraud, suppression, and misrepresentation, or
conspiracy to defraud, and Parker Poe does not offer any
explanation as to why these particular claims should be
dismissed except for the implausible arguments discussed
above.
Count 10 alleges violations under the Alabama Limited
Liability Company Act against “defendants” generally and
demands judgment for various types of relief the Fogartys
believe they are entitled to. Included in the Alabama
Limited Liability Company Act is § 10-12-16, Ala.
Code 1975, which provides:
“(a) Each limited liability company shall keep at the
office referred to in subdivision (1) of subsection (a) of
Section 10-12-15 the following records:
“(1) A current list of the full name and last known
business or residence street address of each member, and
each manager, if any.
“(2) A copy of the filed articles of organization and all
amendments thereto, together with executed copies of any
powers of attorney pursuant to which any documents have
been executed.
“(3) Copies of the limited liability company’s federal,
state, and local income tax returns and reports, if any,
for the three most recent years.
“(4) Copies of any then effective operating agreements
including any amendments thereto.
“(5) Copies of any financial statements of the limited
liability company for the three most recent years.
“(b) Those records, and any other books and records of
the limited liability company, wherever situated, are
subject to inspection and copying for any proper purpose
at the reasonable request, and at the expense of, any
member or the member’s agent or attorney during regular
business hours. Any agent, member, or manager of a limited
liability company who, without reasonable cause, refuses
to allow any member or the member’s agent or attorney to
inspect or copy any books or records of the limited
liability company for any proper purpose shall be
personally liable to the member for a penalty in an amount
not to exceed 10 percent of the fair market value of the
membership interest of the member, in addition to any
other damages or remedy.”
(Emphasis added.)
In their complaint, the Fogartys allege that Parker Poe was
acting as an agent of Confederate Money and that it,
without reasonable cause, refused to allow the Fogartys to
inspect certain records even though the Fogartys were
members of the limited liability company. If proven, these
facts could support a claim for relief under §
10-12-16, Ala. Code 1975. Therefore, the motion to dismiss
should not have been granted as to count 10.
Count 11 alleges violations under the Alabama Business
Corporation Act. This allegation may be construed to
include violations of § 10-2B-16.02, Ala. Code 1975,
which provides, in part:
“(a) A shareholder of a domestic corporation or of a
foreign corporation with its principal office within this
state is entitled to inspect and copy, during regular
business hours at the corporation’s principal office, or
if its principal office is outside this state, at a
reasonable location within this state, specified by the
corporation, any of the records of the corporation
described in Section 10-2B-16.01(e) if he or she gives the
corporation written notice of his or her demand at least
five business days before the date on which he or she
wishes to inspect and copy.
“(b) A shareholder of a domestic corporation or of a
foreign corporation with its principal office within this
state who shall have been a holder of record of shares for
180 days immediately preceding his or her demand or who
is the holder of record of at least five percent of the
outstanding shares is entitled to inspect and copy during
regular business hours at a reasonable location within
this state specified by the corporation, or in the case of
accounting records of the corporation, if the records are
maintained outside the state and inspection and copying
within this state is impracticable, at a reasonable
location outside the state specified by the corporation,
for any proper purpose, all of its books, papers, records
of account, minutes and record of shareholders, if the
shareholder gives the corporation written notice of his
or her demand, stating the purpose therefor, at least
five business days before the date on which he or she
wishes to inspect and copy. . . .
“(c) Any officer or agent who, or a corporation which,
without reasonable cause, shall refuse to allow any such
shareholder, or his or her agent or attorney so to examine
and make copies of and extracts from its books, papers,
records of account, minutes and record of shareholders,
for any proper purpose, shall be liable to such
shareholder for a penalty of an amount not to exceed 10
percent of the value of the shares owned by such
shareholder, in addition to any other damages or remedy
afforded him or her by law. It shall be a defense to an
action brought to collect the penalty specified in this
section that the person suing therefor within the two
years next preceding the demand has sold or offered for
sale any list of shareholders of such corporation, or any
other corporation or knowingly has aided or abetted any
person in procuring any list of shareholders, or
improperly has used any information secured through any
prior examination of the books, papers, records of
account, minutes or record of shareholders, or was not
acting in good faith or for a proper purpose in making
this demand.”
(Emphasis added.)
Again, under the facts alleged in the complaint, the
Fogartys contend that Parker Poe was acting as “an agent”
who obstructed the Fogartys from examining certain records.
If proven, these facts could support a claim for relief.
Therefore, the motion to dismiss for failure to state a
claim should not have been granted as to count 11.
Finally, count 14 alleges that Parker Poe was engaged in
the unauthorized practice of law and that there existed a
causal connection between this practice and the injuries
suffered by the Fogartys. As discussed earlier, contrary to
Parker Poe’s allegation, Alabama does recognize such a
cause of action. The facts alleged by the Fogartys may
support a claim for relief; thus, the motion to dismiss
should not have been granted as to count 14. Furthermore,
as already discussed, this claim was the only claim that
specifically referenced Parker Poe, and Parker Poe appears
to concede that if Alabama recognizes such a cause of
action then the Fogartys have stated a claim upon which
relief could be granted.
Conclusion
We express no opinion on the merits of the case; however,
we affirm the trial court’s dismissal for failure to state
a claim as to counts 1-6, 9, 12, and 13, and we reverse as
to counts 7, 8, 10, 11, and 14. We remand the cause for
proceedings consistent with this opinion.
AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
Nabers, C.J., and Woodall, Stuart, and Parker, JJ., concur.
Lyons, J., recuses himself.
[fn1] Count 1 seeks a preliminary injunction to freeze the
assets of the real-estate venture, and it is not alleged
that Parker Poe has any control over the spending of those
assets. Count 2 seeks a judgment declaring the interest of
each party in the various limited liability companies, and
it is undisputed that Parker Poe does not have any
ownership interest in any of the limited liability
companies. Count 3 seeks money owed the Fogartys from
capital contributions made toward the real-estate venture.
Parker Poe does not control the funds of the real-estate
venture, and, based on the facts alleged in the complaint,
there is no indication that Parker Poe had any involvement
whatsoever in the alleged capital contributions. Counts 4
and 5 allege oppression and breach of fiduciary duty by the
majority shareholders in the real-estate venture, and
Parker Poe is not a shareholder in the venture. Count 6
alleges conversion of funds, and it is apparent from the
factual allegations in the complaint that this allegation
concerns conversion of the assets of the venture by the
majority shareholders, not Parker Poe, for their own
personal use. Count 9 alleges civil theft/embezzlement,
again stemming from the alleged personal use of funds
dedicated to the venture by the majority shareholders, not
Parker Poe. Count 12 specifically alleges that “Southworth,
the Beardens, [Gerald] McGill, [Eric] Nelson, and/or
[Robert] Young” in their capacities as “stockholders,
officers or managers” of the real-estate venture abused the
corporate and limited-liability forms of the various
entities involved in the venture for their own personal
advantage. Parker Poe is not named in that count, and there
are no factual allegations in the complaint that Parker Poe
is a stockholder, officer, or manager of any of the
entities involved in the venture or that Parker Poe made
personal use of the corporate or limited-liability form of
any of those entities. Finally, count 13 is a derivative
action directed specifically at the “directors, officers,
and/or managers” of the real-estate venture, and again it
is not alleged that Parker Poe fits any of those
descriptions.