“I sit on a few Boards including two common interest developments, one commercial and one residential. My fellow Directors love your stuff. A friend serves on his HOA Board and since he’s the new guy, he wants to get up to speed. They are self managed and he’s facing resistance from the rest of the Board as he tries to get the corporate records he is entitled to. You’d think he’s pulling teeth versus just trying to get some meeting minutes. He doesn’t want to throw in the towel but it’s starting to not be worth his time. Any words of wisdom?”

The California Court of Appeal, Third Appellate District recently reaffirmed the right of directors of a California corporation to inspect their company’s books and records in Fowler v. Golden Pacific Bancorp, Inc. The court clarified that this right exists even when a director has a conflict of interest or is involved in litigation with the corporation. Generally, directors may be denied access to books and records only in extreme cases where evidence shows that the director intends to abuse their rights under California Corporations Code section 1602.

The case arose out of separate ongoing litigation commenced by Golden Pacific Bancorp. Fowler was a member of Bancorp’s board of directors and the chief operating officer of Bancorp’s former outside counsel. Bancorp sued Fowler and their former outside counsel for various breaches of contract and duties. Two months after the commencement of that litigation, Fowler sought to inspect and copy various books and records of Bancorp pursuant to Corporations Code section 1600, et seq. Bancorp denied the demand, arguing that Fowler had a conflict of interest and was seeking access to the books and records for an improper purpose.

Rather than enforce his statutory right immediately, Fowler attempted to acquire the same documents through discovery in the ongoing suit. Bancorp refused, and the trial court denied a motion to compel production. Only then did Fowler file an action against Bancorp to enforce his section 1602 rights.

Fowler filed for a peremptory writ of mandate to enforce his rights as both a shareholder, under section 1600, and as a director, under Section 1602. Bancorp responded that Fowler was seeking the records for the improper purpose of defending Bancorp’s lawsuit against him. The Court sided with Fowler on the section 1602 argument.

Bancorp appealed, but the Court of Appeal held that the section 1602 dispute was moot because Fowler was no longer a director. Nevertheless, the Court decided to address the issue because it was of substantial public interest.

The Court focused on the language of section 1602, which provides that directors have the absolute right at any reasonable time to examine and copy corporate records and documents of every kind. Although the absolute nature of this right must be far-reaching to reflect the legislature’s choice, section 1602 still has limits. For example, courts may curtail inspection rights when a director intends to use them to harm the corporation. This exception, however, is narrow; in this case, the Court saw no evidence that Fowler intended to harm the corporation, and the mere possibility of harm is not enough to limit directors’ inspection rights.

The Court explained that California law accords directors a broad right of inspection of corporate books and records, reflecting a policy that greatly favors an expansive right of access to allow directors to materially participate in corporate affairs. California corporations still have a remedy against directors who abuse their right of inspection through a direct action against a director for breach of fiduciary duty if they abuse section 1602 to harm the corporation.

Your friend should forward this blog post to his fellow Directors along with his formal request, again, and see what their response is.