6th Circuit Court of Appeals Confirms that
Kentucky Business
Corporation Act
Does Not Govern Unincorporated Syndicates
In a November 8 decision, the 6th
Circuit Court of Appeals, on an almost summary basis, dismissed the suggestion
that the Kentucky Business Corporation Act and specifically the provisions
thereof affording shareholders the right to inspect corporate records should apply
to an unincorporated syndicate. KNC Investments, LLC v. Lane’s End
Stallions, Inc., 2012 WL 5440032 (6th Cir. 2012).
KNC Investments, a member of an
unincorporated syndicate managed by Lane’s End Stallions and managing the
Thoroughbred Lemon Drop Kid, sought, under both the syndicate agreement and the
Kentucky Business Corporation Act, financial information with respect to the
syndicate as well as the names and contact information of the other syndicate
owners. Those efforts were rejected in a
decision here reviewed on November 30, 2011 (“An Unincorporated Syndicate is Not Governed by Corporate Law.”).
The dispute was then appealed
to the 6th Circuit. The
primary focus of this decision was an effort by Lane’s End to have the appeal
set aside on the basis that the syndicate agreement had been expressly amended
to preclude KNC’s claimed right to inspect the records. The Court of Appeals directed that that
dispute needed to be taken up with the trial judge and not with it. At the same time, however, the court was able
to reject the notion that the document inspection rights afforded under the
Kentucky Business Corporation Act in some manner apply to an unincorporated
syndicate:
We need no additional facts,
however, to reject KNC’s claim that the Kentucky Business Corporations Act
gives it the right to inspect and copy the syndicate’s records. Kentucky law
treats owners of horse-ownership syndicates as tenants in common. See, e.g., Weisbord/Etkin/Goldberg v.
Gainesway Mgmt. Corp., No. 2007-CA-000280-MR, 2008 WL 820950, at *1
(Ky. Ct. App. Mar. 28, 2008). And by its terms, the Business Corporations Act
applies only to corporations, not to unincorporated syndicates. See Ky.
Rev. Stat. §§ 271B.1-400(4) & (10) (distinguishing a “corporation,” which
includes only incorporated for-profit corporations, from an “entity,” which
includes unincorporated associations and persons sharing common economic
interests); id. § 271B.16-020 (giving shareholders only of a “corporation”
the right to inspect and copy corporate records). We thus need no additional
facts to conclude that the district court correctly rejected KNC’s claims under
the Business Corporations Act.
Otherwise the case was remanded
back to the district court.
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