Court Opinion

ID: 6352997
Source: CourtListenerOpinion
Date Created: 2022-06-23 17:02:23.552008+00
Date Added: 2024-06-11T09:13:48.907229
License: Public Domain

Filed 6/23/22
                              CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
                              THIRD APPELLATE DISTRICT
                                        (Sacramento)
                                              ----

    RICK FOWLER,                                                     C092179

                  Plaintiff and Respondent,                   (Super. Ct. No. 34-2019-
                                                             80003150-CU-WM-GDS)
          v.

    GOLDEN PACIFIC BANCORP, INC.,

                  Defendant and Appellant.

      APPEAL from a judgment of the Superior Court of Sacramento County, James P.
Arguelles, Judge. Reversed with directions.

      Law Office of Stephanie J. Finelli and Stephanie J. Finelli for Defendant and
Appellant.

        Tisdale & Nicholson and Michael D. Stein for Plaintiff and Respondent.

        This is an action to compel an inspection of books and records pursuant to
Corporations Code section 1600 et seq.1 Plaintiff Rick Fowler (Fowler) sought a writ of

1       Undesignated statutory references are to the Corporations Code.

                                               1
mandate against defendant Golden Pacific Bancorp, Inc. (Bancorp), to enforce his
statutory rights as a director and majority shareholder to inspect corporate books and
records. Bancorp opposed the petition, arguing that the trial court should curtail Fowler’s
inspection rights because he is involved in ongoing litigation with Bancorp and could use
the information to undermine Bancorp’s position in the lawsuit. Unpersuaded that
Bancorp met the heavy burden necessary to curtail Fowler’s inspection rights, the trial
court granted Fowler’s writ petition.
       Bancorp appealed, contending that the trial court erred by (1) allowing Fowler to
submit additional evidence on reply without permitting Bancorp an adequate opportunity
to respond; and (2) granting the writ petition and permitting Fowler to have unfettered
access to Bancorp’s corporate books and records.
       After we issued an oral argument waiver notice, Bancorp moved to dismiss the
appeal as moot. Bancorp asserted that due to the recent acquisition of Bancorp by Social
Finance, Inc., Fowler is no longer a Bancorp board member, and therefore it is impossible
for this court to grant effective relief. Fowler requested oral argument. We deferred
ruling on the motion until after oral argument.
       We shall conclude that the primary issue raised in this appeal is moot because
Fowler is no longer a member of Bancorp’s board of directors and therefore has no
director’s inspection rights. Nevertheless, we exercise our discretion to reach the merits
because it presents an issue of substantial and continuing public interest: whether a
director’s “absolute” right of inspection under section 1602 may be curtailed because the
director and corporation are involved in litigation and there is a possibility the documents
could be used to harm the corporation.
       We shall conclude the mere possibility that information could be used adversely to
the corporation is not by itself sufficient to defeat a director’s inspection rights. Rather,
any exception to the general rule favoring unfettered access must be limited to extreme
cases, where enforcing an “absolute” right of inspection would produce an absurd result,

                                               2
such as when the evidence establishes the director’s clear intent to use the information to
breach fiduciary duties or otherwise commit a tort against the corporation.
       We decline to reach the other question referenced in the parties’ briefs concerning
Fowler’s inspection rights as a shareholder, because that issue was not resolved by the
trial court and the record is insufficiently developed for us to determine whether it is
moot. Thus, we shall remand this matter for the trial court to consider whether that issue
is moot and, if not, to resolve any remaining disputes in the first instance.
                   FACTUAL AND PROCEDURAL BACKGROUND
       Bancorp was a bank holding company conducting business through its wholly
owned subsidiary, Golden Pacific Bank, N.A. Fowler was a member of Bancorp’s board
of directors and its largest individual shareholder, holding over 19 percent of the
outstanding stock. Fowler also is the chief operating officer of a law firm, Kronick,
Moskovitz, Tiedemann & Girard (KMTG).
       In July 2018, Bancorp filed a lawsuit in the Sacramento County Superior Court
(case No. 34-2018-00236905) against KMTG, an individual attorney at KMTG, and
Fowler (the malpractice lawsuit). The lawsuit arose out of KMTG’s representation of
Bancorp in prior litigation against a company called BillFloat, Inc. (the BillFloat
litigation). Bancorp’s amended complaint alleges claims against KMTG and its attorney
for breach of contract, breach of professional duties, professional negligence, and breach
of fiduciary duties in connection with the prosecution and eventual settlement of the
BillFloat litigation. Among other things, the complaint alleges that KMTG and the
attorney overbilled for services, negligently failed to evaluate and prepare the case for
trial, and caused Bancorp to accept a grossly inadequate settlement amount.
       The complaint also alleges claims against Fowler for negligence, breach of
fiduciary duty, concealment, and fraud based on his actions as a Bancorp director.
Specifically, it asserts that Fowler breached his fiduciary duties by persuading Bancorp to
hire KMTG for the BillFloat litigation despite knowing that KMTG was not competent to

                                              3
handle the litigation. It further alleges that Fowler used his position as director to
persuade Bancorp to settle the BillFloat litigation for a grossly inadequate amount
because Fowler knew KMTG had failed to conduct sufficient discovery and investigation
to prepare the case for trial.
       In September 2018, two months after Bancorp filed the malpractice lawsuit,
Fowler delivered to Bancorp a written demand to inspect and copy the following books
and records pursuant to section 1600 et seq.:
       1.      A list of the names, addresses, e-mail addresses, and holdings of all
Bancorp shareholders;
       2.      A breakdown of the expense and income balance sheet items labeled
“Other” for Bancorp and its wholly owned subsidiary bank;
       3.      A breakdown of where on the 2017 and 2018 consolidated financial
statements the BillFloat settlement payment was booked, and where KMTG’s legal fees
for 2016, 2017, and 2018 were booked;
       4.      Any change in control/severance/golden parachute agreements for Bancorp-
affiliated parties;
       5.      Any resolutions approving change in control agreements or an increase in
director fees and/or bonuses for 2016, 2017, and 2018;
       6.      Any documents evidencing payment of the personal legal fees of Bancorp
president and chief executive officer, Virginia Varela, in 2016, 2017, and 2018;
       7.      The loan file pertaining to the Axis Energy SBA loan; and
       8.      The bank’s accounting books and records, and meeting minutes for its
board and committees from September 2017 through the date of the request.
       Fowler asserted that, as a director, he had an “absolute right” to inspect the records
under section 1602. Bancorp, however, refused to permit inspection, citing conflicts of
interest and concerns that Fowler was seeking the records for an improper purpose,
namely, to undermine Bancorp’s position in the malpractice lawsuit.

                                              4
       Fowler did not immediately seek a peremptory writ to enforce his statutory
inspection right. Instead, in November 2018, Fowler served Bancorp with a request for
production of documents in the malpractice lawsuit seeking records substantially similar
to those sought in his inspection demand letter.
       When Bancorp refused to produce the requested documents, Fowler filed a motion
to compel. In support of his motion, Fowler argued that the requested documents were
relevant to Bancorp’s claims and his defenses in the malpractice lawsuit. Bancorp
opposed the motion, asserting, inter alia, that most of the records Fowler requested were
irrelevant to the lawsuit and would only be of interest in his capacity as a “disgruntled
shareholder/director.” The court agreed with Bancorp. It denied the motion to compel,
concluding that the document requests were overbroad, invaded third party privacy
rights, and sought information that was not relevant.
       Shortly thereafter, Fowler filed this action for a peremptory writ of mandate to
enforce his statutory right to inspect Bancorp’s books and records. His amended petition
alleges that he has an “absolute right” as a director and shareholder to inspect and copy
the records pursuant to sections 1600 and 1602. In a supporting declaration, Fowler
stated that he requested the inspection to protect his interests as Bancorp’s single largest
shareholder and to fulfill his fiduciary duty as a director to stay informed about Bancorp’s
financial condition and operations.
       Bancorp opposed the writ petition, asserting that inspection should be denied
because Fowler is not a disinterested director and his only motive in requesting the
records is to “dismantle and undermine” Bancorp’s lawsuit against him and the law firm
for which he works. Bancorp characterized the petition as an attempted “end-run” around
the adverse discovery ruling in the malpractice lawsuit.

                                              5
       To support its claim that Fowler was requesting the documents for an improper
purpose, Bancorp submitted a declaration from Bancorp board member David Roche.2
Roche declared, inter alia, that (1) Fowler is a party to ongoing litigation with Bancorp in
which it is alleged Fowler breached his fiduciary duties; (2) Fowler repeatedly stated his
desire to have the litigation dismissed; (3) Bancorp’s board believes that allowing Fowler
to inspect and copy the requested records would “severely undermine” its position in the
litigation; (4) Fowler previously sought to compel discovery of the same records in the
lawsuit, but his request was denied; (5) it was only after the adverse discovery ruling that
Fowler filed the writ petition; and (6) Fowler never previously made a demand to inspect
Bancorp’s corporate records.
       In reply, Fowler filed a supplemental declaration responding to the factual
assertions made in Bancorp’s opposition papers. Fowler declared, “Contrary to
[Bancorp’s] supposition about my purpose in filing the Petition, I want to inspect the
subject corporate records, especially the financial statements and working papers for
these records, among other things, to learn how certain expenses and income items were
calculated and what certain large numbers consist of, as well as how the compensation
for [Bancorp’s] Chief Executive Officer and its directors is being determined and the
basis for and calculations of certain stock transactions with [Bancorp’s] preferred
shareholder.”
       In his supplemental declaration, Fowler also addressed why he never previously
invoked his statutory right to inspect Bancorp’s corporate records. He explained that
before July 2017, he regularly received reports, had frequent exchanges with the chief
executive officer and committee chairs, and had unrestricted access to most corporate
documents through an online platform. It was only when Bancorp “cut off” his ability to

2      The trial court sustained evidentiary objections to the Roche declaration. The
rulings on those objections are not challenged in this appeal.

                                             6
contact employees and access corporate records online that it became necessary for him
to invoke his statutory inspection rights.
       The writ petition was heard on March 6, 2019. On the morning of the hearing,
Bancorp filed a declaration of Virginia Varela, Bancorp’s president and chief executive
officer, which sought to refute various statements in Fowler’s supplemental declaration,
including his assertions that (1) he previously had online access to the records discussed
in his September 2018 demand; and (2) he was wrongfully denied access to the basic
financial information necessary for him to carry out his duties as a board member. The
court agreed to consider the Varela declaration to the extent it responded to the factual
assertions in Fowler’s supplemental declaration, but refused to consider any new grounds
for denying inspection.
       After a hearing, the trial court granted the writ petition. In its ruling, the court
agreed with Bancorp that Fowler’s statutory inspection rights are not “absolute.”
However, the court ruled that a director’s inspection rights can be curtailed only in
“ ‘extreme circumstances’ ” in which the corporation establishes by a preponderance of
the evidence the director’s intent to commit an irremediable tort against the corporation.
The court ruled that, notwithstanding the inherent conflict raised by the malpractice
lawsuit, “[t]he preponderance of the evidence in this action does not establish Fowler’s
intent to commit a tort against [Bancorp], much less one that is irremediable in damages.”
The court thus enforced Fowler’s right to inspect the corporate books and records under
section 1602.
       Judgment was entered on March 17, 2020. Bancorp filed a timely notice of
appeal.
       While the appeal was pending, Bancorp was acquired by Social Finance, Inc.
(SoFi), by and through a merger with Gemini Merger Sub, Inc. (Gemini), a temporary
subsidiary of SoFi formed solely for that purpose. Pursuant to the terms of the
agreement, Gemini was merged into Bancorp, with Bancorp as the surviving corporation.

                                               7
Further, under the agreement, the directors of Gemini became the directors of the
surviving corporation. SoFi completed the acquisition of Bancorp on or about February
2, 2022.
                                        DISCUSSION
                                               I
                                          Mootness
         As a threshold issue, we consider whether the appeal is moot due to SoFi’s
acquisition of Bancorp.
         An appeal becomes moot when the occurrence of an event makes it impossible for
the appellate court to grant any effective relief. (Newsom v. Superior Court (2021) 63
Cal.App.5th 1099, 1109.) “ ‘[A]n action which originally was based upon a justiciable
controversy cannot be maintained on appeal if the questions raised therein have become
moot by subsequent acts or events.’ ” (Id. at p. 1110.)
         Bancorp argues that this appeal is moot and must be dismissed because, as a result
of the acquisition, Fowler is no longer a shareholder or member of Bancorp’s board of
directors, and therefore no longer has standing to assert any inspection rights.
         Fowler opposes Bancorp’s motion to dismiss. He argues the case is not moot for
several reasons, including that he filed a “dissenter’s right” lawsuit challenging SoFi’s
acquisition of Bancorp and seeking a determination of the fair market value of his shares.
Further, even if the case has been rendered technically moot, Fowler argues the appeal
still should be decided because it concerns an issue of public importance that is likely to
recur.
         We agree with Bancorp that the issue of Fowler’s inspection rights as a director is
now moot. It is well established that a director’s right to inspect corporate books and
records ends upon his or her removal from office. (Chantiles v. Lake Forrest II Master
Homeowners Assn. (1995) 37 Cal.App.4th 914, 920 (Chantiles).) A former director has
no right to an ongoing and enforceable right to inspect corporate records. (Wolf v. CDS

                                              8
Devco (2010) 185 Cal.App.4th 903, 919 (Wolf).) Here, it is undisputed that, as a result of
SoFi’s acquisition, Fowler is no longer a Bancorp director. Thus, Fowler can no longer
assert rights as a director to inspect Bancorp’s books and records, rendering the issue
moot. (Chantiles, supra, at p. 920; Wolf, supra, at p. 919.)
       Nevertheless, we may exercise our discretion to retain and decide an issue which
is technically moot where the issue is of substantial and continuing public interest.
(Chantiles, supra, 37 Cal.App.4th at p. 921; accord, La Jolla Cove Motel & Hotel
Apartments, Inc. v. Superior Court (2004) 121 Cal.App.4th 773, 781-782.) We do so
here. The scope of a director’s inspection rights is one of public importance which we
should decide, even if it is technically moot.
       We reach a different conclusion, however, regarding Fowler’s claim to
shareholder inspection rights under section 1600, subdivision (a). This issue was not
resolved by the trial court and the additional facts before us are inadequate for us to
determine whether subsequent events have rendered the issue moot. Accordingly, we
shall remand this matter for the trial court to consider whether subsequent events have
rendered this issue moot and, if not, to resolve any remaining disputes in the first
instance.
                                              II
                        Bancorp’s Request for Additional Briefing
       Turning to the merits, we first address Bancorp’s argument that the trial court
erred by allowing Fowler to provide additional evidence in his reply papers while
denying Bancorp a fair opportunity to respond.
       As described above, in reply to Bancorp’s opposition, Fowler submitted a
supplemental declaration giving his reasons for demanding an inspection and explaining
why he had not made similar demands in the past. Bancorp objected to the additional
evidence and, in the alternative, requested additional time to file a sur-reply brief

                                                 9
addressing Fowler’s new evidence. The court overruled Bancorp’s objections and denied
its request to file a sur-reply brief.
       We review the trial court’s ruling for an abuse of discretion (Alliant Ins. Services,
Inc. v. Gaddy (2008) 159 Cal.App.4th 1292, 1299), and find no abuse here. As the trial
court held, “Although Fowler is the petitioner in this proceeding, it was not his initial
burden to provide reasons for the inspection.” Unlike director inspection rights in other
states, “[t]he California statutory scheme does not impose a ‘proper purpose’
requirement . . . .” (Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39
Cal.App.4th 1844, 1851 (Havlicek); cf. Del. Code Ann. tit. 8, § 220.) Thus, Fowler was
not required in his moving papers to articulate a proper purpose for the inspection
reasonably related to his interests as a director. He merely needed to show that he was a
director and that he made a demand for inspection, which was refused. (§§ 1602, 1603.)
       When Fowler made that showing, the burden shifted to Bancorp to show why the
inspection should be curtailed by “just and proper conditions.” (§ 1603; Havlicek, supra,
39 Cal.App.4th at p. 1856; Saline v. Superior Court (2002) 100 Cal.App.4th 909, 915
(Saline).) In attempting to meet that burden, Bancorp presented evidence to show that
Fowler was seeking the documents for an improper purpose. The trial court correctly
ruled that Fowler was entitled to respond with countervailing evidence in his reply.
       Bancorp argues that because the court allowed Fowler to refute the evidence
presented in the opposition, the court was obliged to give Bancorp the same opportunity.
But Bancorp was given an opportunity to refute the additional evidence presented in the
reply. On the morning of the hearing, Bancorp filed the Varela declaration to “refute
many of the misstatements and omissions” in Fowler’s supplemental declaration. The
court considered that declaration to the extent it responded to the factual assertions in the
supplemental declaration. The record shows that Bancorp had a fair opportunity to
respond. Bancorp has failed to demonstrate that the trial court abused its discretion in

                                             10
refusing to allow it additional time to file a sur-reply, much less that it was prejudiced by
the refusal.
                                             III
                       Fowler’s Right to Inspect Corporate Records
       Bancorp next argues that the trial court erred in granting the petition to enforce
Fowler’s right to inspect corporate books and records under section 1602. We disagree.
       A.      The scope of a director’s inspection rights
       In reviewing the trial court’s judgment granting a petition for writ of mandate, we
apply the substantial evidence test to the trial court’s factual findings. (Vasquez v. Happy
Valley Union School Dist. (2008) 159 Cal.App.4th 969, 980.) Legal issues, such as
statutory interpretation, are reviewed de novo. (Ibid.) The scope of a director’s right to
inspect corporate documents is a question of law subject to de novo review. (Saline,
supra, 100 Cal.App.4th at p. 913.)
       In construing section 1602, as with any statute, our task is to ascertain the intent of
the lawmakers so as to effectuate the purpose of the law. (Sierra Club v. Superior Court
(2013) 57 Cal.4th 157, 165.) We begin “with the words of the statute because they
generally provide the most reliable indicator of legislative intent.” (Hsu v. Abbara (1995)
9 Cal.4th 863, 871.) If the language contains no ambiguity, we generally presume the
Legislature meant what it said, and the plain meaning controls. (Garcetti v. Superior
Court (2000) 85 Cal.App.4th 1113, 1119.)
       Section 1602, which governs the right of inspection, provides in relevant part:
“Every director shall have the absolute right at any reasonable time to inspect and copy
all books, records and documents of every kind and to inspect the physical properties of
the corporation of which such person is a director and also of its subsidiary corporations,
domestic or foreign.” (§ 1602.) By its plain terms, section 1602 establishes a broad right
of inspection. (Havlicek, supra, 39 Cal.App.4th at p. 1852.) The Legislature’s choice of
the word “absolute” suggests a right “having no restriction, exception, or qualification.”

                                             11
(Merriam-Webster Unabridged Dict. Online (2022)  [as of June 10, 2022], archived at
.) This “absolute” right reflects a legislative judgment that
directors are better able to discharge their fiduciary duties to the corporation and its
shareholders “if they have free access to information concerning the corporation.”
(Havlicek, at p. 1852; Hartman v. Hollingsworth (1967) 255 Cal.App.2d 579, 581-582.)
       Nevertheless, decisional authority establishes that a director’s right to inspect
documents is subject to exceptions. (Havlicek, supra, 39 Cal.App.4th at p. 1855.) While
the “absolute right” to inspect documents is the general rule in California, courts have
held that the literal meaning of the words of the statute may be disregarded where
necessary to avoid absurd results. (Havlicek, at p. 1856; see also Anderson Union High
School Dist. v. Shasta Secondary Home School (2016) 4 Cal.App.5th 262, 279 [the
language of a statute should not be given a literal meaning if doing so would result in
absurd consequences].) Thus, a trial court may impose “just and proper conditions”
upon a director’s inspection rights in appropriate cases. (§ 1603, subd. (a);3 Havlicek, at
p. 1856; Saline, supra, 100 Cal.App.4th at p. 914.)
       The full scope of exceptions to a director’s “absolute” inspection rights remains
unsettled. But our colleagues in other appellate districts have identified certain
circumstances in which inspection rights may be curtailed.
       In Chantiles, supra, 37 Cal.App.4th 914, the Fourth Appellate District, Division
Three, held that the “absolute” right of a homeowners association director to access

3      Section 1603, subdivision (a) provides, in part: “Upon refusal of a lawful demand
for inspection, the superior court of the proper county, may enforce the right of inspection
with just and proper conditions or may, for good cause shown, appoint one or more
competent inspectors or accountants to audit the books and records kept in this state and
investigate the property, funds and affairs of any domestic corporation or any foreign
corporation keeping records in this state . . . and to report thereon in such manner as the
court may direct.”

                                              12
records may be limited to preserve the constitutional rights of members to keep their
voting decisions private. (Id. at pp. 918, 926.) In Chantiles, a director who believed that
he had been shortchanged in the tabulation of proxy votes, filed a petition to inspect and
copy all the ballots cast in the association’s annual election. (Id. at p. 919.) But the trial
court refused to permit the director unfettered access to the ballots. Instead, the court
established a procedure whereby the director’s attorney could inspect the ballots while
preserving the secrecy of how each individual member voted. (Id. at pp. 920, 926.) The
appellate court affirmed. It held that the trial court had properly balanced the competing
interests and determined that the director’s statutory right to an unqualified inspection
must yield to the members’ constitutional right of privacy. (Id. at pp. 925-926; but see
conc. opn. of Crosby, J. at pp. 927-929 [concluding damages, rather than a rejection of
inspection rights, is the appropriate remedy for misapplication of corporate records].)
       In Havlicek, the Second Appellate District, Division Six, considered whether the
trial court properly denied inspection of corporate books and records by two dissident
directors who were opposed to a corporation’s pending merger. (Havlicek, supra, 39
Cal.App.4th at pp. 1848-1850.) The directors asserted an absolute right to inspect the
records, but the corporation refused to permit access because it suspected the directors
might use the documents to establish a competing business. (Id. at pp. 1849-1850.) The
directors filed a lawsuit to enforce their inspection rights, which the trial court denied.
(Id. at p. 1850.) The appellate court reversed and remanded. (Id. at pp. 1856-1857.) It
concluded that the trial court erred in refusing to grant the directors, “at the very least, an
‘inspection with just and proper conditions.’ ” (Id. at p. 1848.)
       For guidance on remand, the court explained that because the right of inspection
arises out of a director’s fiduciary duty—a duty to act with honesty, loyalty, and good
faith in the best interests of the corporation (Berg & Berg Enterprises, LLC v. Boyle
(2009) 178 Cal.App.4th 1020, 1037)—courts may limit inspection rights when a director
intends to misuse those rights to harm the corporation. (Havlicek, supra, at pp. 1852,

                                              13
1855-1856.) The court offered the following hypothetical to illustrate the point: “A
disgruntled director unambiguously announces his or her intention to violate his or her
fiduciary duties to the corporation and the shareholders by using inspection rights to learn
trade secrets, gain access to confidential customer lists, and compete with the
corporation. In this situation, does the Legislature want the judiciary to come to the aid
of the disgruntled director, enforce the ‘absolute right’ to inspect and help the director
commit a tort against the corporation? No.” (Id. at pp. 1855-1856.) Thus, the court
concluded, when the evidence shows an unfettered inspection will result in a tort against
the corporation, the trial court may “exercise its broad discretion under section 1603,
subdivision (a) to fashion a protective order imposing just and proper conditions on the
inspection.” (Id. at p. 1856.)
       In Saline, supra, 100 Cal.App.4th 909, the Fourth Appellate District, Division
Three, followed Havlicek in concluding that a court may place restrictions on a director’s
access to corporate records when there is evidence the director intends to use the
documents to commit a tort against the corporation. (Saline, at p. 914.) However, the
court clarified that this principle should “only be applied in extreme circumstances where
a preponderance of the evidence establishes the director’s clear intent to use the
documents to commit an egregious tort—one that cannot be easily remedied by
subsequent monetary damages—against the corporation.” (Id. at p. 915.)
       The Saline court refused to limit the inspection rights of a director despite
evidence that the director had a conflict of interest, breached fiduciary duties, breached a
confidentiality agreement, and publicly defamed management, because there was no
evidence to show the director intended to use the documents obtained to “disclose trade

                                             14
secrets, compete with or otherwise harm” the corporation.4 (Saline, supra, 100
Cal.App.4th at pp. 912, 914.) The court reasoned: “Only issues related to the prevention
of a tort resulting from [the director’s] inspection of the documents—not the entirety of
his conduct as a director—are relevant to the question of whether limiting [his] access to
corporate documents was appropriate.” (Id. at p. 914.) Without evidence that the
director intended to use the documents to commit a tort against the corporation, the court
held it was improper to limit the director’s access. (Id. at pp. 914-915.)
       In Tritek Telecom, Inc. v. Superior Court (2009) 169 Cal.App.4th 1385 (Tritek), a
different division of the Fourth District (Division One) considered a related question:
whether a director’s right to inspect corporate records should include attorney-client
communications generated in defense of the director’s own suit for damages against the
corporation. (Id. at p. 1387.) The court decided it should not. (Id. at pp. 1391-1392.) In
that case, a disgruntled director sought to enforce his inspection rights after suing the
corporation to vindicate his individual rights as a shareholder. (Id. at pp. 1387-1388.)
The corporation did not dispute the director’s right to inspect corporate documents
generally, but objected that the right of inspection should not include documents
protected by the attorney-client privilege. (Id. at p. 1391.) The Court of Appeal agreed,
concluding that a director’s inspection rights may be restricted when the director intends
to misuse those rights to access privileged documents that were generated in defense of a
suit for damages that the director filed against the corporation. (Id. at pp. 1391-1392.)
       Here, in ruling on Fowler’s petition, the trial court followed Saline, supra, 100
Cal.App.4th 909, and concluded that a director’s right to inspect corporate records
generally may be curtailed only in “extreme circumstances” in which the corporation

4      The trial court’s order refused the director access to documents protected by the
attorney-client privilege and work product doctrine, and the director did not challenge
that condition. (Saline, supra, 100 Cal.App.4th at pp. 912-913.)

                                             15
establishes by a preponderance of the evidence the director’s intent to use the information
to commit a tort against the corporation that cannot easily be remedied in a damages
action. The trial court rejected Bancorp’s claim that the mere fact Fowler was involved
in litigation with the corporation should defeat his inspection rights.
       Bancorp argues that the trial court interpreted the scope of a director’s inspection
rights too broadly. Bancorp argues that a court may deny access to corporate records
whenever the director has a conflict of interest and there is a mere possibility the
documents could be used to harm the corporation. We disagree.
       Like the trial court, we conclude that exceptions to the general rule favoring
unfettered access should only be applied in “extreme” cases where enforcing the
“absolute” right of inspection would otherwise produce an absurd result. (Saline, supra,
100 Cal.App.4th at p. 915; Havlicek, supra, 39 Cal.App.4th at p. 1856.) We reach this
conclusion for several reasons.
       California has adopted a strong public policy favoring a broad right of access to
assist directors in performing their duties in an intelligent and fully informed manner.
(Saline, supra, 100 Cal.App.4th at p. 914; see also Chantiles, supra, 37 Cal.App.4th at p.
929 (conc. opn. of Crosby, J.).) The statutory scheme gives “ ‘[e]very director . . . the
absolute right . . . to inspect and copy all books, records and documents of every kind,’ ”
and imposes no “ ‘proper purpose’ ” requirement. (Havlicek, supra, 39 Cal.App.4th at p.
1851; § 1602.) Because the denial of access to corporate records may operate to deny a
director the ability meaningfully to participate in management, any exception to the
policy of “absolute” access must be construed narrowly, limited to the most extreme
cases where applying the literal meaning of the words would frustrate the manifest
purpose of the law. (Havlicek, at pp. 1855-1856; see also Anderson Union High School
Dist. v. Shasta Secondary Home School, supra, 4 Cal.App.5th at p. 279 [absurdity
exception should be used only in extreme cases].)

                                             16
       Second, to construe the exception broadly would risk allowing the exception to
swallow the rule. Differences of opinion invariably will arise among corporate directors.
If a minority director can lose access to corporate records merely because the director is
deemed hostile or adverse to management, the exception could remove the very
protections that the “absolute right” of inspection was intended to supply. This invariably
would impede inspections pursued for indisputably proper purposes, such as ascertaining
the condition of corporate affairs or investigating possible mismanagement. (See, e.g.,
Henshaw v. American Cement Corp. (Del.Ch. 1969) 252 A.2d 125, 129.)
       Third, applying the exception narrowly does not generally leave the corporation
unprotected. If a director abuses a right of inspection to the detriment of the corporation,
the corporation normally will have an adequate remedy in the form of an action against
the director for breach of fiduciary duty. (Saline, supra, 100 Cal.App.4th at p. 916;
Chantiles, supra, 37 Cal.App.4th at p. 929 (conc. opn. of Crosby, J.).)
       We therefore agree with the Court of Appeal in Saline that the mere possibility
that the information could be used to harm the corporation is not sufficient to defeat a
director’s otherwise “absolute” inspection rights. (Saline, supra, 100 Cal.App.4th at p.
914.) While inspection rights may be curtailed when the corporation adduces evidence
that a director intends to use those rights to violate his or her fiduciary duties or otherwise
commit a tort against the corporation, we are 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. Allowing a director to inspect records under
such circumstances does not necessarily lead to an absurd result. To conclude otherwise
would defeat the purpose of section 1602.
       The cases on which Bancorp relies, Wolf, supra, 185 Cal.App.4th 903, and Tritek,
supra, 169 Cal.App.4th 1385, are easily distinguishable. Wolf involved an inspection
demand by a plaintiff who formerly served as a director of the defendant corporation.
(Wolf, at pp. 906-907, 919.) Because the plaintiff was no longer a director, the appellate

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court held that the plaintiff did not have standing to enforce any inspection rights.5 (Id. at
p. 919.) The language in Wolf stating that the plaintiff’s threat to sue the corporation
“severely undermined” his inspection rights was unsupported dictum, which we find
neither compelling nor persuasive. (Ibid.)
       Bancorp similarly points to a statement in Tritek suggesting that a court may limit
a director’s inspection rights whenever “the director’s loyalties are divided and
documents obtained by a director in his or her capacity as a director could be used to
advance the director’s personal interest in obtaining damages against the corporation.”
(Tritek, supra, 169 Cal.App.4th at p. 1391.) But Bancorp’s argument takes this language
out of context and ignores the holding of the case, which is that a director does not have
the right to access privileged documents generated in defense of a suit for damages that
the director filed against the corporation. (Id. at pp. 1391-1392.) In such a scenario, the
director’s intent to misuse the information to harm the corporation is self-evident.
Therefore, consistent with the holdings in Havlicek, supra, 39 Cal.App.4th at pages 1855-
1856, and Saline, supra, 100 Cal.App.4th at pages 914-915, it was proper to limit the
director’s inspection rights to exclude the privileged documents. There has been no
similar showing here—that Fowler is seeking access to documents protected by the
attorney-client privilege. Thus, Tritek’s holding simply does not apply under the facts of
this case.
       Bancorp also argues the trial court interpreted Fowler’s inspection rights too
broadly by requiring Bancorp to show Fowler intended to use the information to commit

5      In the course of explaining the plaintiff’s lack of standing, the court in Wolf
suggested that a director’s inspection rights may be denied if the director is not
“disinterested.” (Wolf, supra, 185 Cal.App.4th at p. 919.) We find this language to be
erroneous dictum to the extent it suggests a director’s inspection rights may be denied
based merely on the existence of a conflict of interest or adversarial relationship between
the director and the corporation.

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“irremediable” harm. It contends that a threatened “irremediable” tort against the
corporation is merely an “example of when a director’s inspection may be curtailed,” and
not a requirement to curtail a director’s inspection rights. Bancorp argues the court
should have asked only whether Fowler intended to use the information to harm the
corporation.
       We find it unnecessary to reach this issue because the trial court expressly found
that the “preponderance of the evidence in this action does not establish Fowler’s intent
to commit a tort against [Bancorp,] much less one that is irremediable in damages.”
Thus, even under a more lenient standard, Bancorp failed to carry its burden.
       In sum, this is not a case in which the director’s right to inspect corporate records
was alleged to conflict with constitutional or other statutory protections, as in Chantiles,
supra, 37 Cal.App.4th 914. Nor is it a case involving access to privileged documents
generated in defense of a suit for damages that the director filed against the corporation,
as in Tritek, supra, 169 Cal.App.4th 1385. The only accusation in this case was that
Fowler intended to breach his fiduciary duties in some fashion by using the records
sought adversely to the corporation in the malpractice lawsuit. Under these
circumstances, the trial court properly considered whether Bancorp showed by a
preponderance of the evidence that a protective order was necessary to prevent Fowler
from breaching his fiduciary duties or otherwise committing a tort against the
corporation. (Saline, supra, 100 Cal.App.4th at p. 915; Havlicek, supra, 39 Cal.App.4th
at p. 1856.)
       B.      Sufficiency of the evidence for the trial court’s ruling
       We next consider the trial court’s finding that Bancorp failed to make a sufficient
evidentiary showing to justify restrictions in this case. This presents a question of fact.
(Saline, supra, 100 Cal.App.4th at p. 913; Hall v. Regents of University of California
(1996) 43 Cal.App.4th 1580, 1586; Hartman v. Bandini Petroleum Co. (1930) 107
Cal.App. 659, 661.)

                                              19
       Bancorp argues that it submitted significant evidence demonstrating Fowler
intended to harm the corporation by using the documents to undermine the claims against
him in the malpractice litigation. The trial court disagreed, finding that Bancorp failed to
carry its burden. Although the court acknowledged the divergence of interests between
Fowler and Bancorp with respect to the malpractice lawsuit,6 the court was not persuaded
that Fowler’s inspection was motivated by an improper purpose or that he intended to
breach fiduciary duties or otherwise commit a tort against the corporation.
       It is not our function on appeal to reexamine whether a preponderance of the
evidence supports Bancorp’s position. We are bound by the fundamental appellate rule
that the judgment of the lower court is presumed correct and that all intendments and
presumptions will be indulged in favor of its correctness. (In re Marriage of Arceneaux
(1990) 51 Cal.3d 1130, 1133.) The appellant has the burden to overcome that
presumption and show reversible error. (State Farm Fire & Casualty Co. v. Pietak
(2001) 90 Cal.App.4th 600, 610.) Where, as here, the issue on appeal turns on a failure
of proof, the question for a reviewing court is whether the evidence compels a finding in
favor of the appellant as a matter of law, i.e., whether the evidence was “ ‘ “of such a
character and weight as to leave no room for a judicial determination that it was
insufficient to support a finding.” ’ ” (Sonic Manufacturing Technologies, Inc. v. AAE
Systems, Inc. (2011) 196 Cal.App.4th 456, 466; accord, Almanor Lakeside Villas Owners
Assn. v. Carson (2016) 246 Cal.App.4th 761, 769.) Bancorp falls well short of that
standard.

6      We grant Bancorp’s request to take judicial notice that on September 21, 2021,
Fowler filed a lawsuit against Bancorp challenging the proposed SoFi merger/acquisition,
but we take notice of it only for purposes of the mootness claim, and not for purposes of
judging the sufficiency of the evidence. (California School Bds. Assn. v. State of
California (2011) 192 Cal.App.4th 770, 803; Duronslet v. Kamps (2012) 203
Cal.App.4th 717, 737.)

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       In opposing the petition, Bancorp relied primarily on evidence that Fowler
(1) previously breached his fiduciary duties in connection with the BillFloat litigation;
and (2) unsuccessfully sought to obtain the same corporate records as part of his
discovery in the malpractice lawsuit. The first category of “evidence,” consisting largely
of unsupported allegations, had little persuasive value on the question whether Fowler
was likely to use the requested corporate records to breach his fiduciary duties or
otherwise commit a tort against the corporation. (Saline, supra, 100 Cal.App.4th at p.
914 [only the director’s likely use of the information is relevant, not the entirety of his or
her conduct as a director].)
       As to the second category of evidence, Bancorp argues that it proved Fowler’s
intent to harm the corporation by using the information to undermine Bancorp’s lawsuit.
The trial court, however, found otherwise. It credited Fowler’s declarations that the
purpose of the inspection was related to his continuing duties as a member of Bancorp’s
board of directors. “[W]e must defer to the trial court’s determinations of credibility.”
(Harris v. Stampolis (2016) 248 Cal.App.4th 484, 498.)
       Moreover, even if we were to find that Fowler had an ulterior motive, Bancorp
argued, and the trial court in the malpractice lawsuit agreed in its discovery ruling, that
the documents Fowler sought were irrelevant to the litigation. Thus, regardless of
Fowler’s motives, there is no support for Bancorp’s vague assertion that allowing Fowler
access to the records would “severely undermine” its position in the lawsuit. (See
Victrola 89, LLC v. Jaman Properties 8 LLC (2020) 46 Cal.App.5th 337, 357 [doctrine of
judicial estoppel prohibits a party from asserting a position that is contrary to a position
successfully asserted in the same or some earlier proceeding].)
       On this record, we conclude the trial court did not err in finding Bancorp’s
evidence insufficient to curtail Fowler’s “absolute” right to inspect corporate records.

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                                      DISPOSITION
       Bancorp’s request for judicial notice is granted. Bancorp’s motion to dismiss is
denied. The judgment is reversed as moot. This reversal does not imply that the
judgment was erroneous on the merits, but is solely for the purpose of returning
jurisdiction over the case to the trial court by vacating the otherwise final judgment solely
on the ground of mootness. On remand, the trial court is directed to dismiss Fowler’s
claim to a director’s right of inspection under section 1602 as moot. The trial court is
directed to consider whether Fowler’s claim to a shareholder’s right of inspection under
section 1600, subdivision (a) is also moot and, if not, to resolve any remaining disputes
between the parties relating to that issue. The parties shall bear their own costs on
appeal. (Cal. Rules of Court, rule 8.278(a)(5).)

                                                        KRAUSE                , J.

We concur:

      ROBIE                 , Acting P. J.

      HULL                  , J.

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