Nu Med Home Health Care, Inc. v. Hospital Staffing Services Inc. 664 So. 2d 353

WARNER, Judge.

Does a corporation have to provide a shareholder with information concerning other stock owners that is not a record of the corporation but may be obtained from outside sources? The trial court answered this question in the negative, denying the appellants’ request for the appellee corporation to produce a NOBO1 list even though the corporation neither had such a list nor intended to request one itself. We agree with the trial *354court that production of the list was not required and therefore affirm.

In February 1994, the appellants, who had recently acquired beneficial ownership in stock of the appellee, sought to replace the appellee’s directors via a consent solicitation of stockholders. In other words, the appellants sought to obtain proxies from a sufficient number of stockholders (50% plus one) to remove the present directors. This is significantly more difficult than removing the directors at the annual meeting, when only a majority vote by those present at the meeting would be necessary to remove the directors. The annual meeting was scheduled for May.

Pursuant to Florida law, the appellants had sixty days in which to secure a sufficient number of consents to accomplish their objective. § 607.0704, Fla.Stat. (1993). The appellants requested, and the appellee provided, a list of the shareholders required to be disclosed under section 607.1601(3), Florida Statutes (1993). Section 607.1601(3) requires a corporation to maintain a record “of its shareholders in a form that permits preparation of a list of the names and addresses of all shareholders in alphabetical order by class of shares showing the number and series of shares held by each.” Id. Because stock is held frequently in a street name and is reflected in the corporate records only by the name of the nominee,2 the securities industry has developed “CEDE” lists for publicly traded corporations, which identify the brokerage firms and other record owners who purchased shares in a street name and have placed those shares in the custody of depository firms which are then the nominees on the corporate records. To combat the consent solicitation commenced by the appellants, the appellee had obtained a CEDE list to communicate with its shareholders and furnished that list to the appellants.

That was insufficient, according to the appellants, who wanted what is known as a NOBO list. This is a list of “non-objecting beneficial owners” and contains the names of the beneficial owners of shares in a corporation who have given consent to the disclosure of their identities. Pursuant to Rule 14b-1(e) of the Securities & Exchange Commission, a NOBO list must be furnished by brokers and other record holders of stock in street names at the corporation’s request. While the CEDE list provides the record holders and brokerage houses holding stock in street names, the NOBO list provides the names of the beneficial owners of that stock held in street names.

Normally, when a corporation wants to communicate with its stockholders, including those beneficial owners, it can obtain the CEDE list and furnish the information or proxy solicitation materials to the names on the CEDE list in accordance with their stock holdings. Then the nominees and holders of the stock in street name mail the materials to the beneficial owners of the stock. A NOBO list makes direct contact between the corporation and the beneficial owners possible.

However, a NOBO list is not a corporate record and must be obtained from sources outside the corporation. It requires time and expense to prepare, and corporations do not routinely order them. In this case, the appellee did not order a NOBO list because it did not intend to contact the beneficial owners directly, but instead was willing to rely on contact through the CEDE list. Therefore, the appellee having provided the appellants the CEDE list, both sides of this corporate squabble had the same access to the shareholders.

Under section 607.1601(3), Fla.Stat. (1993), a corporation is required to maintain “a record of its shareholders in a form that permits preparation of a list of the names and addresses of all shareholders in alphabetical order by class of shares showing the number and series of shares held by each.” A shareholder is defined in section 607.01401(23), Florida Statutes (1993), as “one who is a holder of record of shares in a corporation or the beneficial owner of shares to the extent *355of the rights granted by a nominee certificate on file with a corporation.”3 A shareholder has a right to inspect and copy “the record of shareholders” and any other books and records of the corporation under section 607.1602(2), Florida Statutes (1998). There is nothing in the statute that suggests that the corporation is required to obtain information it does not possess from outside sources. Normally neither parties nor corporations are required to produce documents that they do not themselves possess.

Only a handful of courts across the country have addressed the issue of whether a corporation is required to furnish a NOBO list to a shareholder upon demand. The general rule is that a corporation is required to furnish a NOBO list that it has obtained to a shareholder, because the shareholder should be allowed the same avenue of communication with fellow shareholders that the corporation enjoys. Shamrock Assocs. v. Texas Am. Energy Corp., 517 A.2d 658 (Del.Ch.1986); Bohrer v. International Banknote Co., 150 A.D.2d 196, 540 N.Y.S.2d 445 (1989). All but one of the courts which have addressed the subject have held that a corporation is not required to produce a NOBO list if it does not have one in its possession. Cenergy Corp. v. Bryson Oil & Gas P.L.C., 662 F.Supp. 1144 (D.Nev.1987); RB Assocs. v. Gillette Co., No. Civ.A. 9711, 1988 WL 27731 (Del.Ch. Mar. 22, 1988); Parsons v. Jefferson-Pilot Corp., 333 N.C. 420, 426 S.E.2d 685 (1993). But c.f. Sadler v. NCR Corp., 928 F.2d 48 (2d Cir.1991). The rationale expressed by the majority of these courts is that the goal of fairness and equality is furthered when the shareholder has the same access to contact shareholders as the corporation has. However, meeting this goal does not require a corporation to provide a shareholder with a means of access that the corporation itself does not possess. We adopt this rule.

Moreover, unless the NOBO list is in the corporation’s possession, it does not constitute a record of the corporation, nor can it be considered the official stockholder list required to be maintained by statute. That is so, because even the NOBO list does not include all of the beneficial owners of the stock held by nominees. Indeed, the Securities and Exchange Commission requires brokers to compile an OBO list of objecting beneficial owners who do not desire personal solicitations from the corporation or dissident shareholders. See 17 C.F.R. § 240.14b-l(b)(l)(ii) (1994). Thus, the NOBO list cannot constitute the record of shareholders within the meaning of Florida’s statute.

The only case requiring the corporation to provide a NOBO list it did not already possess to a shareholder is Sadler v. NCR Corp., 928 F.2d 48 (2d Cir.1991). In Sadler, the court held that because of the requirement of a vote of eighty percent of all outstanding shares (not merely those present) at a special meeting called for the purpose of removal of directors, fairness required that the shareholder be furnished the NOBO list. However, even the Sadler court conceded that the New York statute may not require the compilation of NOBO lists routinely for shareholders. Id. at 53. As the North Carolina Supreme Court did in Parsons, we therefore limit Sadler to its specific facts, which are not present here. In this case, the dissenting shareholders needed only fifty percent plus one consent proxies to remove the directors without a meeting, or they could wait another month and obtain proxies to remove the directors at the annual meeting where only a majority vote by those present would be necessary to accomplish removal.

The dissent adopts a very broad reading of Sadler and disparages Delaware corporate law. However, Florida courts have frequently resorted to Delaware corporate law in construing our own corporation statute. See, e.g., Naples Awning & Glass, Inc. v. Cirou, 358 So.2d 211 (Fla. 2d DCA), cert, denied, 364 So.2d 882 (Fla.1978); De La Rosa v. Tropical Sandwiches, Inc., 298 So.2d 471 (Fla. 3d DCA 1974), cert, denied, 312 So.2d 760 (Fla.1975); Davidson v. Ecological Science Corp., 266 So.2d 71 (Fla. 3d DCA 1972).4 Furthermore, we think that both Sadler and *356the dissent go too far when they say that every NOBO who is not directly solicited is a vote for the corporation. The requesting shareholder is still entitled to and is provided with the corporate list of shareholders and the number and class of shares held by the shareholder, and in this ease, the appellant received the CEDE list. Written materials could be sent to all of the shareholders, both NOBO and OBO, through written solicitations sent to the brokers who hold the stock in street name and who are responsible for disseminating corporate information. There are alternate means of contacting these shareholders and securing their vote. The dissident shareholders have not been deprived of all communication with other shareholders. They have the same means to communicate with the NOBOs as does corporate management.

Although the sixty day period for obtaining the consent solicitation has long since passed, and the request for the NOBO list is moot as to this particular solicitation, we have addressed this issue as one capable of repetition yet evading review.

Affirmed.

STEVENSON, J., concurs.

KLEIN, J., dissents with opinion.

KLEIN, Judge,

dissenting.

All of the cases relied on by the majority emanate from Shamrock Associates v. Texas American Energy Corp., 517 A.2d 658 (Del. Ch.1986), a case holding that if the corporation has obtained the NOBO list, it must give it to the shareholder. The eases simply appear to conclude that it follows from Shamrock that if the corporation has not already obtained the NOBO list, it does not have to obtain and produce it. In my opinion, the second proposition does not follow from the first. After all, NOBOs are shareholders, the corporation is statutorily required to maintain a list of its shareholders, NOBOs have indicated that they want to receive communications regarding the corporation, and the NOBO list is easily obtained.

The cases relied on by the majority also appear to suffer from another infirmity, which is that they have failed to consider the fact that when NOBOs cannot be reached, and thus do not vote, their failure to vote is, in effect, a vote in favor of management. I therefore find the Sadler ease more well reasoned.

In Shamrock, in which the corporation had already obtained the NOBO list, the chancellor reasoned that there was no distinction between a CEDE list and a NOBO list which would warrant different treatment; that beneficial owners, by allowing their names to appear on the NOBO list, indicated that they welcomed direct communications from the corporation as well as other stockholders; and that requiring the corporation to furnish both lists is beneficial to all stockholders. Id. at 661.

Although the reasoning in Shamrock would appear to support obtaining and producing the NOBO list, even if the corporation does not have it, in the next case, RB Associates of New Jersey v. Gillette Co., 1988 WL 27731 (Del.Ch.) 13 Del.J.Corp.L. 1220 (1988), the chancellor concluded that “broad concepts of fairness” do not require the corporation to obtain the NOBO list and furnish it to a shareholder if the corporation does not already have it. Although the chancellor acknowledged that this would prevent the shareholders from telephoning NOBOs, he concluded that “[t]he idea of equality of access to information concerning identity of shareholders ought not, in my opinion, go so far as to compel the directors to exercise a judgment to obtain NOBO lists when the corporation itself has no need for them and thus no intention to obtain them.” Id. at 1230-1231.

The two cases from jurisdictions other than Delaware simply conclude, like RB Associates, that if the corporation has not obtained the NOBO list, there is no reason to require it to do so. In Cenergy Corp. v. Bryson Oil & Gas P.L.C., 662 F.Supp. 1144 (D.Nev.1987), the court relied on Shamrock, but gave no real explanation as to why it came to that conclusion. The court even acknowledged:

Bryson argues that it must have access to the NOBO materials, which would include the names and addresses of the beneficial *357owners of Cenergy stock, in order to wage a proxy battle. There is no doubt that this is true. Without the names and addresses of the beneficial owners of the shares, Bry-son could not contact them, and therefore could not run a proxy campaign.

Id. at 1147. The third ease on which the majority relies is Parsons v. Jefferson-Pilot Corp., 833 N.C. 420, 426 S.E.2d 685 (1993), which simply relied on the Delaware cases and Cenergy.

I am troubled by the above cases because they give management an unfair advantage for no good reason. Although this may be a coincidence, Delaware corporate law has been depicted as:

[T]he winner of a deplorable “race to the bottom” in which competition among the states for franchise taxes has led Delaware to produce a system of corporate law rules that permits corporate managers to exploit shareholders to their own ends.5

In contrast to the cases on which the majority relies, the second circuit, in Sadler v. NCR Corp., 928 F.2d 48 (2d Cir.1991), found that there is no reason to prevent a shareholder from obtaining a NOBO list and, where neither side has a NOBO list, management has an unfair advantage. After discussing the distinctions between a CEDE and NOBO list made by the Delaware court, the second circuit stated:

We do not find either distinction compelling.

Since compilation of a NOBO list is a relatively simple mechanical task, the fact that compilation takes longer than for a CEDE list is an insubstantial basis for distinction. As to both sets of information, the underlying data exist in discrete records readily available to be compiled into an aggregate list. Nor are the functions of the lists significantly dissimilar. Both facilitate direct communication with stockholders, in the case of a NOBO list; at least with those beneficial owners who have indicated no objection to disclosure of their names and addresses.

Though Delaware chooses to construe the reach of its requirements on stockholder fist disclosure narrowly in this respect, we think New York would construe section 1315 more generously. Once the Securities and Exchange Commission has acted to enable a corporation to obtain from brokers and other record owners a list of beneficial owners of its shares who do not object to such disclosure, we think New York would apply section 1315 to permit a qualifying shareholder to require the compilation and production of such list.

Even if the statute might not require compilation of NOBO lists routinely, we agree with Judge Stanton that compilation was properly ordered in this case. The effect of NCR’s 80 percent rule is to count as a “no” vote on the replacement of directors every share that is not voted at the special meeting. Thus, the shares of non-voting beneficial owners who might oppose management if solicited by management opponents armed with a NOBO list are counted in favor of management. Denying such opponents an opportunity to contact the NOBOs is inconsistent with the statute’s objective of seeking “to the extent possible, to place shareholders on an equal footing with management in obtaining access to shareholders.” Bohrer, 150 A.D.2d at 196-97, 540 N.Y.S.2d at 446. In effect, NCR already has the votes of those NOBOs who, for lack of solicitation, decline to vote. As to them, NCR has all the access it needs.

Sadler, 928 F.2d at 53. Although the majority chooses to limit Sadler to its facts, my reading of Sadler is that the second circuit did not so limit its holding.

In the present case, although the corporation does not have the 80% rule which the corporation had in Sadler, the shareholders against management would have had to obtain one more than 50% of the outstanding votes to remove the present directors. Accordingly, if there were 100 shareholders who each owned one share, and the appellants could only contact 50 (since they do not *358have the NOBO list), even if all 50 who were contacted voted to remove the present directors, appellants would still fall one vote short. The NOBOs who do not vote, in effect, vote for the present directors. Management thus has an unfair advantage in the present case, just as management had an unfair advantage in Sadler. The 80% rule which the corporation had in Sadler makes Sadler distinguishable only in the extent of the unfairness, not in the existence of it.

The shareholders presented evidence in this case that all that the corporation would have to do to obtain a NOBO list would be to fax a one paragraph letter to the entity having that information, ADP. The cost would be fifteen cents per name, and less than $1,000, which the shareholders offered to pay. And it could be obtained in no more than 10 days. As the court observed in Sadler, 928 F.2d at 52, it is “undisputed that a corporation can obtain a NOBO list, normally within ten days, by requesting compilation of the list by firms that offer data processing services for this task.”

I would follow Sadler and require the corporation to obtain the NOBO list when the shareholder requests it and offers to pay the cost.