When Is A Director’s Inspection Right Not Absolute?

California Corporations Code Section 1602 provides that every director "shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind . . .". While the statute seems to brook no exceptions, the California Court of Appeal last year held that a director can lose his "absolute" right of inspection if he was no longer disinterested and independent in the performance of his duties. Tritek Telecom, Inc. v. Superior Court, 169 Cal. App. 4th 1385 (2009). In that case, the director had filed a shareholder's action against the corporation. Now, according to a more recent decision, Wolf v. CDS DEVCO, 185 Cal. App. 4th 903 (2010), a director can also lose his or her right of inspection by ceasing to be a director. Incidentally, Allen Matkins represented the successful defendants in the appeal of that case.

Section 1602 is one of California's many "outreach" statutes. It applies to foreign corporations that pass (or fail, depending on your point of view) the shareholder and business tests in California Corporations Code Section 2115. Regardless of whether these tests are met and even when the corporation is exempt under Section 2115, Section 1602 applies when the corporation has its principal executive office in California or customarily holds its board meetings here. See my article:  Court of Appeal Applies California Inspection Rights To Delaware Corporation, 17 CEB California Business Law Reporter 168 (1996).

[updated citation 7/9/2013]