May the director of a nonprofit condominium association inspect the records of the association in order to obtain information to pursue her personal lawsuit against the association?

A trial court in California held that she had an absolute right to inspect under the statute and permitted the inspection.  It further prevented the members’ action of removing her from the board from becoming effective until after the inspection was supposed to take place.

A Court of Appeals, however, has said the trial court exceeded its jurisdiction in staying the effect of the removal.  And since the director was no longer on the board, she had no right to inspect the documents.  It specifically avoided deciding whether the statute’s absolute right means absolute.  (Villa Europa Homeowners Association v. Superior Court of San Diego County, Ct. of App., CA, Fourth App. Dist., Div. One, No. D056640, 4/22/10.)

The director had sued the association as an individual homeowner claiming that she had suffered water and mold damage to her unit.  She sought documents pursuant to discovery in that case, and also filed under the state Corporation Code, which provides that: “Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind ….”  The trial court granted the request under the Corporation Code.

Before the trial court’s decision, however, the other board members removed the suing director from the Board, and the members removed all of the directors from the board, including the suing director.  The trial court stayed the removal of the suing director until the documents were produced.  The Court of Appeals reversed.

When the director actually sought to review the records as part of her mold case, the manager asked her to sign a form acknowledging her fiduciary duty to the association, and agreeing to maintain the confidentiality of the documents and not provide them to her attorney in the mold case.  She refused to sign, claiming she had an absolute right under the statute.  She then filed the petition under the Corporation Code.

A month later, after the members had given notice of a special meeting to remove all of the board, the existing board removed the suing director.  A few weeks later, the members removed the entire board.  The trial court, however, prevented the removal from becoming effective until the documents had been produced.

Recognizing the “governmental nature” of a homeowners association, the Court of Appeals held that the trial court had no jurisdiction to block the effect of the recall election and that since the director was no longer a director, she had no right to inspect the records as a member of the board.  It declined to rule on the association’s claims that granting inspection would be an abuse of the discovery process in the mold case, or that production of the records would result in a breach of fiduciary duty by the director.  It said both questions were moot.

YOU NEED TO KNOW

Inspection rights are often stated differently for members of the corporation (who have rights and responsibilities analogous to shareholders of a business corporation) and directors of the corporation.  For members, there is usually a statement that the inspection must be for a proper corporate purpose, but that qualifying language is often missing from statutory language giving directors a right to inspect.  In this case, the statute actually said the directors had an absolute right. The directors’ rights are often broader because they are responsible for the operations of the organization.