The issue of whether a corporate director has the right to inspect documents protected by the attorney-client privilege in a lawsuit the director had filed against the corporation was addressed in the recent case of Tritek Telecom., Inc. v. Sup. Ct. (2009) 169 Cal.App.4th 1385.
Tritek, a California corporation, was sued by Mak, a shareholder and board member. During the lawsuit, Mak wanted to review corporate documents that were protected by the attorney-client privilege. When Tritek’s other directors refused to give Mak the corporate documents, Mak sought relief from the Superior Court. Tritek objected, claiming the documents fell under the attorney-client privilege. The Superior Court denied Tritek’s objections and ordered the corporation to produce the documents. Tritek then sought relief from the Court of Appeal.
A corporate director owes a fiduciary duty of care to the corporation and its shareholders and must serve in good faith in a manner the director believes to be in the best interests of the corporation and its shareholders. It is generally presumed that directors of a corporation are acting in good faith. Corporate directors have the absolute right, at any reasonable time, to inspect and copy corporate books, records and documents. This right represents a legislative judgment that directors are better able to discharge their fiduciary duties if they have free access to information concerning the corporation.
In reviewing this case, the Appellate Court recognized that the right of a director to free access of information is subject to exceptions and may be denied where a disgruntled director announces his or her intention to violate his or her fiduciary duties to the corporation.
Here, because Mak’s lawsuit against Tritek was filed in Mak’s capacity as a shareholder and prior to asking for the corporate records in his role as a director, the Court found that Mak was not a “disinterested” director and therefore the presumption of good faith did not apply. The Court determined that enforcing Mak’s “absolute” inspection rights was problematic because it would give him access to documents he could not obtain via discovery in the shareholder action. The filing of the shareholder action made Mak an adversary of the corporation. In so ruling, the Court stated:
Mak cannot take off his “shareholder’s hat” and swap it for his “director’s hat” and claim an absolute right to access all corporate documents.
The Court of Appeal held that in this situation, a court may properly limit a director’s inspection rights because 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 interests in obtaining damages against the corporation.
This case is important for homeowners associations because it sets forth the premise that a director who is involved in litigation against the association would not have the right to access documents covered by the attorney-client privilege where they could be used to advance the director’s personal interests in obtaining damages against the corporation. If an association is involved in a dispute with a director and receives a request from the director to review documents subject to the attorney-client privilege, the association should consult its legal counsel regarding whether or not to disclose those documents.