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Maryland: Hogans v. Hogans Agency, Inc.

In Hogans v. Hogans Agency, Inc., Hogans was a 37.5% stockholder of Hogans Agency, Inc., an insurance and real estate brokerage company, and an owner of a competing business.[1] In December 2013, Hogans sent a letter to the corporation requesting inspection of corporate records; the corporation responded by providing copies of the bylaws, minutes of the proceedings of stockholders, an annual statement of affairs for the most recent tax year available, and the name, address, and shares of each stockholder.[2]  The corporation also agreed to schedule a time for Hogans to inspect and copy the books of account, conditioned upon Hogans signing a confidentiality agreement that would prohibit him from disclosing the information to third parties.[3]  Hogans objected to signing a confidentiality agreement and filed a suit asserting his right as a stockholder for immediate inspection and demanding that the corporation bear the cost of photocopying.[4]  After a hearing, the trial court ordered, among other things, that: (i) the corporation permit Hogans to inspect the records; (ii) Hogans sign a confidentiality agreement prior to inspecting the records; and (iii) the parties share the cost of copying the documents.[5]

On appeal, the corporation argued that requiring a confidentiality agreement “is an acceptable prophylactic measure that does not infringe on [Hogans’] right of inspection or to use the information he discovers to protect his shareholder interests, but protects [the corporation] from misuse of the information.”[6]  Hogans, on his part, argued that “possible competition” between a stockholder and a corporation is not sufficient to deny a stockholder his right of inspection.[7]  The court noted that, under the Maryland statute, a stockholder in Hogans’s position is entitled to inspect and copy the corporation’s books of account and its stock ledger.[8]  At the same time, the court acknowledged the tension between a stockholder’s right to inspection and a corporation’s need to safeguard its interests.  Ultimately, the court concluded that a corporation may not deny a stockholder the right to inspect corporate books but that it may require the stockholder to sign a confidentiality agreement where the agreement advances the purpose of protecting the corporation against disclosure and misuse of confidential information by the stockholder.[9]  Here, the court found that the confidentiality agreement advanced that purpose, because the requesting stockholder was also the owner of a company that is in competition with the corporation, and affirmed the trial court’s judgment.[10]

To be sure, the case does not squarely address what constitutes proper purposes under Maryland law.  Instead, by letting a possible competitor proceed to inspection upon signing a confidentiality agreement, the court seems to suggest that it is not so much the purpose as the manner of inspection that determines whether a stockholder can enforce his inspection right, though it would be premature to reach that conclusion based on this case alone.

This post was a part of a multi-part blog series on shareholder inspection rights and the limits thereof.  In our next post, we will discuss restrictions on shareholder inspection under Delaware law.

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

About the Author

Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C., which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: 407-517-0064; [email protected], or

[1] Hogans v. Hogans Agency, Inc. (Md. Ct. of Special Appeals, Aug. 28, 2015), at 2.

[2] Id.

[3] Id.

[4] Id. at 2–3.

[5] Id. at 4.

[6] Id. at 4–5.

[7] Id. at 7.

[8] Id. at 7–8 (internal citations omitted).

[9] Id. at 12 (internal citations omitted).

[10] Id.