80 Cal.App.5th 205
Cal. Ct. App.2022Background:
- Rick Fowler was a Bancorp director and its largest individual shareholder (~19%); Bancorp sued Fowler and his law firm (KMTG) for malpractice related to prior BillFloat litigation.
- In Sept. 2018 Fowler demanded to inspect Bancorp books and records under Corporations Code §1602; Bancorp refused claiming Fowler sought records to undermine Bancorp’s malpractice suit against him.
- Fowler sought the same materials through discovery in the malpractice suit; a motion to compel was denied as overbroad/irrelevant, so he filed a peremptory writ petition to enforce his statutory inspection right.
- The trial court granted the writ, holding that §1602 gives directors an "absolute" right of inspection but that rights may be curtailed in extreme cases where a director intends to use the records to commit an irremediable tort against the corporation.
- While the appeal was pending, SoFi acquired Bancorp, replacing the board; the Court of Appeal found Fowler’s director-based inspection claim moot but exercised discretion to decide the merits on the narrow legal question and remanded to address any shareholder §1600 claim.
Issues:
| Issue | Plaintiff's Argument (Fowler) | Defendant's Argument (Bancorp) | Held |
|---|---|---|---|
| Mootness of director claim after SoFi acquisition | Fowler urged the appeal remain because public‑interest issue and he had other pending challenges to the merger | Bancorp argued Fowler is no longer a director after the merger, so the director inspection claim is moot | Appeal as to director inspection rights is moot (Fowler is no longer a director), but court exercised discretion to decide the legal issue on the merits |
| Trial court allowed supplemental evidence on reply without sur‑reply | Fowler submitted a supplemental declaration responding to Bancorp’s opposition; he argued he could rebut opposition evidence | Bancorp claimed it was denied fair opportunity to respond and sought leave to file a sur‑reply | Trial court didn’t abuse discretion; petitioner need only make prima facie showing and may rebut opposition; Bancorp had the opportunity to respond at hearing |
| Scope of §1602 director inspection right and whether pending litigation/conflict alone can defeat it | Fowler: §1602 grants an "absolute" right to inspect without a proper‑purpose requirement; mere conflict or litigation with corp. doesn’t defeat the right | Bancorp: a director embroiled in litigation and with divided loyalties may be denied access because documents could be used to harm the corporation | Court held §1602 generally gives broad/"absolute" access; exceptions are narrow and limited to extreme cases where evidence shows a director intends to use records to commit a tort or breach fiduciary duties causing irremediable harm |
| Sufficiency of evidence to impose restrictions here | Fowler: his stated purposes were corporate/board‑related; he credibly addressed why he sought records now | Bancorp: pointed to prior alleged breaches and prior unsuccessful discovery attempts to show improper purpose | Court found substantial evidence supports trial court’s credibility findings; Bancorp failed by preponderance to show Fowler intended to commit an irremediable tort or otherwise justify curtailing inspection rights |
Key Cases Cited
- Chantiles v. Lake Forrest II Master Homeowners Assn., 37 Cal.App.4th 914 (1995) (permits limiting inspection to protect competing rights such as voting privacy)
- Havlicek v. Coast-to-Coast Analytical Services, Inc., 39 Cal.App.4th 1844 (1995) (California does not impose a statutory "proper purpose" requirement; courts may impose conditions in limited circumstances)
- Saline v. Superior Court, 100 Cal.App.4th 909 (2002) (limits on director inspection appropriate only in extreme cases where director intends to use documents to commit an egregious, irremediable tort)
- Tritek Telecom, Inc. v. Superior Court, 169 Cal.App.4th 1385 (2009) (director cannot use inspection to access attorney‑client privileged materials generated defending a suit the director filed against the corporation)
- Wolf v. CDS Devco, 185 Cal.App.4th 903 (2010) (former director lacks standing to enforce §1602 inspection rights)
- Newsom v. Superior Court, 63 Cal.App.5th 1099 (2021) (an appeal is moot when subsequent events make effective appellate relief impossible)
- La Jolla Cove Motel & Hotel Apartments, Inc. v. Superior Court, 121 Cal.App.4th 773 (2004) (courts may decide technically moot issues when they present substantial and continuing public interest)