Litigation Does Not Necessarily Vitiate Director's Absolute Right To Inspect

This space has previously discussed the question of just how absolute a director's "absolute" right of of inspection really is.  See When Is A Director’s Inspection Right Not Absolute? and Defining The Metes And Bounds Of A Director's Absolute Right To Inspect.  Now, we have a new decision, Fowler v. Golden Pacific Bancorp, Inc., Cal. Ct. App. Case No. C092179 (June 23, 2022).  

The case involved a director's demand for inspection that was made after the corporation had sued the director.  When the corporation refused to permit inspection, the director tried to obtain substantially the same information through discovery in the ongoing litigation. After the corporation refused to produce the information and the director's motion to compel was denied, the director filed an action for peremptory writ of mandate to enforce his "absolute" right of inspection under Section 1602 of the California Corporations Code.

Although the question became moot as a result of the corporation's merger, the Court of Appeal nonetheless exercised discretion to decide the question because the "scope of a director's inspection rights is one of public importance".  In an opinion by Justice Peter A. Krause, the Court of Appeal held that the mere possibility that information may be used to harm the corporation is insufficient to defeat a director's "absolute" right of inspection.  Thus, the Court was not persuaded that a director's right of inspection must be denied solely because the director has a conflict of interest or is embroiled in litigation with the corporation.  

Notably, this did not involve the issue of whether the inspection would conflict with constitutional or statutory rights.  Nor did the case involve inspection of privileged documents created in defense of a suit for damages that the director filed against the corporation.  l hazard to speculate that this will not be the last case to test the metes and bounds of a director's absolute right to inspect.