When Does A Corporation Deny Inspection "Without Justification"?

Four years ago, I wrote about an unpublished decision by the Court of Appeal concerning shareholder inspection rights under the California General Corporation Law.  The denouement of that opinion was that the shareholder was permitted to inspect certain accounting and financial records.  The shareholder then asked the trial court to award some $91,000 in attorneys' fees.  The basis for the claim was Section 1604 of the Corporations Code which provides:

In any action or proceeding under Section 1600 or Section 1601, if the court finds the failure of the corporation to comply with a proper demand thereunder was without justification, the court may award an amount sufficient to reimburse the shareholder or holder of a voting trust certificate for the reasonable expenses incurred by such holder, including attorneys’ fees, in connection with such action or proceeding.

Following a hearing, the trial court denied the shareholder's request finding in a detailed written order that "in light of all
the relevant circumstances of this case, the court cannot say there is a showing that on the whole, Iris [the corporation] acted without justification in refusing Farnum’s [the shareholder's] inspection demands."  In a published opinion, the Court of Appeal elucidated the meaning of "without justification" in Section 1604.  Farnum v. Iris Biotechnologies, Inc., 2022 WL 17750546.  According to the Court, denial of inspection is "without justification" if it is not "well grounded in law and fact".  In this case, Court found that the trial court had not abused its discretion in denying the requested attorneys' fees.