Tuesday, November 13, 2012

Business Corporation Act Does Not Govern Unincorporated Syndicates

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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