Tag Archives: Litigation

Ekstrom v. Marquesa at Monarch Beach Homeowners Association

(2008) 168 Cal.App.4th 1111

[Architectural Control; Board Powers] An association’s board of directors may not adopt rules that are in conflict with the CC&Rs.

Kulik, Gottesman, Mouton & Siegel, LLP, Thomas M. Ware II, Sharon Barber; Borton, Petrini & Conron, LLP, Matthew J. Trostler for Defendant and Appellant.
Enterprise Counsel Group, David A. Robinson, Benjamin P. Pugh; Jeffrey Lewis for Plaintiffs and Respondents.

OPINION
O’LEARY, J.-

Marquesa at Monarch Beach (Marquesa) is a common interest development governed by the Davis-Stirling Common Interest Development Act (Civ. Code, § 1350, et. seq.). It is comprised of single family homes in the Monarch Beach development of Dana Point, many of which have ocean and golf course views. The community is managed by the Marquesa at Monarch Beach Homeowners Association (the Association), which is governed by a board of directors (the Board), and is subject to a recorded declaration of conditions, covenants, and restrictions (CC&Rs).

Plaintiffs are individual homeowners within Marquesa whose views have been blocked by many palm trees in the development (some planted by the original developer, and some planted by homeowners), which have grown to heights exceeding the rooftops. [FN. 1] Because trimming a palm tree would effectively require its removal, the Association has taken the position over the[1114]years that the CC&Rs’ express requirement “[a]ll trees” on a lot be trimmed so as to not exceed the roof of the house on the lot, unless the tree does not obstruct views from other lots, does not apply to palm trees. Accordingly, it denied the Plaintiffs’ demands that it enforce the CC&Rs and require offending palm trees be trimmed, topped, or removed.

The trial court granted the Plaintiffs’ request for declaratory relief and mandamus to compel the Association to enforce its CC&Rs. The Association appeals contending: (1) the business judgment rule precludes judicial intervention in this matter; (2) the judgment is overbroad and void for vagueness; and (3) the judgment is void because the Plaintiffs did not join as defendants the individual homeowners whose trees might be affected by the judgment. We reject the contentions and affirm the judgment.

FACTS & PROCEDURE

CC&Rs

The Marquesa CC&Rs, recorded in 1989, provide for approval of all exterior improvements by the Association’s Architectural Review Committee (ARC). Section 7.13 of the CC&Rs requires the owner of each lot to submit an exterior landscaping plan to the ARC for approval and “[e]ach Owner shall properly maintain and periodically replace when necessary all trees, plants, grass, vegetation and other landscaping improvements located on the Owner’s lot. . . . If any Owner fails to install or maintain landscaping in conformance with architectural rules . . . the [ARC] . . . shall have the right either to seek any remedies at law or in equity which it may have or to correct such condition and to enter upon such Owner’s property for the purpose of doing so, and such Owner shall promptly reimburse the [ARC] for the cost thereof. . . .”

Section 7.10 of the CC&Rs provides: “View Impairment. Each Owner, by accepting a deed to a Lot, acknowledges that grading of, construction on or installation of improvements on other property within [the development] and surrounding real property may impair the view of such Owner, and consents to such impairment.”

Section 7.18 of the CC&Rs, pertaining to plantings, provides: “Trees. All trees, hedges and other plant materials shall be trimmed by the Owner of the Lot upon which they are located so that they shall not exceed the height of the house on the Lot; provided, however, that where trees do not obstruct the view from any of the other Lots in the Properties, which determination shall be within the sole judgment of the [ARC], they shall not be required to be so[1115]trimmed. Before planting any trees, the proposed location of such trees shall be approved in writing by the [ARC] which approval shall consider the effect on views from other lots.”

Section 13.1 of the CC&Rs, regarding their enforcement, provides: “The Association, Declarant and any Owner shall have the right to enforce, by any proceedings at law or in equity, all restrictions, conditions, covenants and reservations now or hereafter imposed by the [CC&Rs]. Failure by the Association, Declarant or any Owner to enforce any covenants or restrictions contained in the [CC&Rs] shall [not] be deemed a waiver of the right to do so thereafter.” [FN. 2]

The Plaintiffs Buy View Homes

When each of the Plaintiffs purchased their homes in Marquesa, their homes had ocean and/or golf course views for which they paid a premium. Many of those views are now blocked by palm trees, which have been allowed to grow far above the height of the houses on the lots on which they are situated.

Plaintiff John Schoffel testified that when he moved into his house in 1997, he had a full ocean view that was not blocked by any trees. By 2002, he noticed palm trees growing into his view and by the time of trial, his home’s view was about 40 percent blocked by 15 to 20 palm trees.

When Plaintiff Robert Ekstrom bought his home in 1999, it had a full ocean view. At that time, no palm trees in the community exceeded the height of the rooftops. Ekstrom’s downhill neighbor, Davis Christakes–a member of the Association’s Board of Directors–had about 20 palm trees growing on his property. Ekstrom reviewed the CC&Rs before his purchase and was satisfied section 7.18 would require Christakes’ trees be trimmed or removed if they grew above the roofline and blocked Ekstrom’s view.

Plaintiff Steve Kron bought his house with a full ocean view in 2001. Concerned that palm trees might grow to interfere with that view, Kron[1116]reviewed the CC&Rs prior to closing escrow and understood that section 7.18 would protect his view from the trees.

There was evidence the Association routinely enforced section 7.18 of the CC&Rs as to other tree species, ordering homeowners to trim their trees when they exceeded the height of the house. There was also evidence that when approving an individual homeowners landscape plans in 1991, the ARC specifically did so on the condition that if any approved tree grew to a height where it became a view obstruction, the owner would be required to have the tree topped, trimmed, or removed. And on at least one occasion in 1992, the ARC advised a homeowner that palm trees (apparently planted without ARC approval), had become a view obstruction from adjoining lots and must be removed or relocated to an area where they would not interfere with neighbors views.

Christakes, who served on the Association Board for many years, owned a property on which over 20 palm trees are planted, several of which are among those now blocking the Plaintiffs’ views. He participated over the years in Board actions concerning the enforcement of section 7.18 of the CC&Rs, consistently taking the position that section 7.18 could not be enforced as to palm trees. When a resident suggested Christakes had a conflict of interest as to the applicability of section 7.18 to palm trees, Christakes told her that since he had lost his own ocean view due to construction outside the development, he did not care if she lost hers as well, and if she did not like the Board’s decision to exclude palm trees completely from enforcement under section 7.18, she could file a legal action.

View Home Owners Start to Complain

Sometime in 2002, various homeowners, including some of the Plaintiffs, saw their views being slowly eroded by growing palm trees. They demanded the Association enforce section 7.18 of the CC&Rs and require the offending trees be trimmed (or removed). The majority of the Board was of the opinion the aesthetic benefit to the entire community from the maturing and now very lush looking palm trees outweighed the value of preserving views of just a few homeowners. Since then, the community has been divided into two contentious factions: those opposing any effort to top or remove any existing palm tree and those wanting palm trees that obstruct individual homeowners’ views topped or removed.

In May 2002, the Board asked its then attorney, Gary Dapelo, for a legal opinion as to the interpretation of the CC&R’s and the Board’s responsibilities regarding enforcement of the CC&Rs as to palm trees. Dapelo opined the CC&Rs did not give any homeowner a right to maintain an existing view[1117]because section 7.10 acknowledged grading and construction of improvements could impair an existing view. Section 7.18 gave the ARC (which in this case was the Board) sole discretion to decide that a tree did not obstruct a view and thus trimming or removal of the tree was not required. Dapelo opined that consistent with that discretion, the Board could exempt all palm trees entirely from enforcement. Dapelo also concluded homeowners with palms trees had defenses they could assert to any attempt to enforce section 7.18 of the CC&Rs making it unlikely the Association would prevail in any attempt to require any palm tree be trimmed or removed.

In June 2002, the Board sent a memorandum to all homeowners advising them it had decided it would be unreasonable to require any homeowner to top or remove any palm tree in the community. It referred homeowners to a set of Board Rules and Regulations adopted in 1996, in which palm trees were specifically excluded from section 7.18 of the CC&Rs, and which stated palm trees need only be trimmed to remove dead fronds.

In 2003, a newly elected board member, who sympathized with the home owners wanting to preserve their views, prevailed upon the Board to obtain a second legal opinion. It had been discovered that Christakes had a close personal relationship with Dapelo, who was inexperienced in representing homeowner’s associations. In 2004, the Association retained attorney Richard Tinnelly to review the matter.

In May 2004, Tinnelly advised the Board that section 7.18 of the CC&Rs protected views from being obscured by trees growing above roof height on the lot where the tree was located, and the Board had no authority to exclude palm trees from application of the CC&Rs. Tinnelly advised the Board that CC&Rs section 7.10, concerning view impairment, applied to construction of physical improvements on properties, such as houses, fences, decks, but did not apply to view obstruction by trees, because that was specifically covered by section 7.18. He advised the Board it had no authority to promulgate rules and regulations that directly contradicted the express protection provided in the CC&Rs. Tinnelly advised the Board that if it wanted to continue with its policy of the wholesale exclusion of palm trees from the ambit of section 7.18, it would have to amend the CC&Rs, a prospect Tinnelly believed had little chance of success.

Tinnelly recommended to the Board that as to existing palm trees, it should ascertain which specific palm trees interfered with views and as to those trees, the Board should determine which were planted with ARC approval (as part of a homeowner’s approved landscaping plan), and which were planted without approval. As to palm trees planted with ARC approval, Tinnelly believed the homeowner might have detrimental reliance defense to forced[1118]removal of the tree and the Board would need to look at each case individually to determine the possibility of success in any attempt to have the trees removed. Tinnelly advised the Board to require trimming or removal of unapproved palm trees growing above roof lines if it determined the tree blocked a view. He believed the Board did have discretion to formulate a definition of view.

The Board then attempted to amend the CC&Rs to exempt palms trees entirely from section 7.18, but could not garner sufficient homeowner votes. After the amendment attempt failed, one Board member commented within hearing of a homeowner that the Board could adopt regulations defining what constituted a view so narrowly that no palm trees would have to be removed.

Litigation Begins

In September 2004, Ekstrom wrote to the Board again about the palm trees obstructing his view. The Board did not respond. In November, the Plaintiffs’ attorney wrote to the Board demanding it begin enforcing section 7.18 as to palm trees that were obstructing the Plaintiffs’ views, and requesting mediation of the dispute.

At a board meeting on December 9, 2004, Tinnelly again urged the Board to start enforcing section 7.18 as to palm trees. He also urged the Board to engage in mediation with the Plaintiffs. Chrisakes commented that 75 percent of the homeowners did not want any palms trees removed and the Plaintiffs should be forced to “spend their own money if they want to sue to have trees removed.” The Association refused to participate in mediation, and the Plaintiffs filed this action on December 17, 2004, seeking enforcement of the CC&Rs. The Plaintiffs’ declaratory relief cause of action sought a declaration the Association had a duty to enforce section 7.18 as to growing palm trees, and sought an injunction directing the Board to appoint a committee to make a determination as to which palm trees obstructed the Plaintiffs’ views and to direct that those trees be trimmed or removed as necessary. [FN. 3]

The Board Adopts New Rules Concerning Palm Trees

While this lawsuit was pending, the Board adopted new rules and regulations concerning the enforcement of section 7.18 of the CC&Rs as to palm trees. The 2006 rules defined “view” as used in section 7.18 as being only that which is visible from the back of the view house, six feet above ground level, standing in the middle of the outside of the house looking straight[1119]ahead to infinity, with nothing to the left or right of the lot lines being considered part of the home’s view. This definition of “view” precluded most of the Plaintiffs from claiming any view obstruction from palm trees either because of the shape of the lot (for example the Ekstroms’ lot was pie shaped with the narrow point being at the back of the lot), or because the Plaintiffs’ primary view was from the second floor of the house, not the first.

The 2006 rules provided no palm tree planted before adoption of the rules would be removed without the tree owners’ approval. If the owner of the palm tree agreed to permit a palm tree be removed, the owner of the view lot would have to pay the cost of removal. The rules set out requirements for trimming and maintenance of each palm tree species (e.g., how many fronds the palm tree could have, which direction the fronds could be pointing, how often a palm tree owner could be required to trim the tree).

Statement of Decision

In its statement of decision, the trial court concluded section 7.18 was included in the CC&Rs to preserve ocean and golf course views. There was nothing unclear or ambiguous in the terms used. The provision required all trees be trimmed down to the height of the roof of the house on the lot where it sits if the tree obstructs the view from another lot. In the context of the CC&Rs, the plain meaning of the term “‘trimmed’ means removed, as by cutting, or cut down to a required size.” The word “[obstruct] means to block from sight or be in the way of (and thus even one palm frond would block some portion of a view)” and the term “[view] means that which is visible to the naked eye while standing, sitting or lying down anywhere in one’s home, or anywhere on one’s Lot, looking in any direction one wishes.” The court rejected the restrictive definition of view as used in the 2006 rules as being in conflict with the CC&R’s.

The trial court concluded section 7.18 (trees must be trimmed) did not conflict with section 7.10 (view impairment from improvements), because the latter provision did not apply to trees or vegetation. It found requiring palms trees be trimmed or topped (even assuming trimming would result in death of the tree) was not unfair to the tree owners as they acquired their properties with knowledge of section 7.18 and its requirement their trees could not be permitted to grow to block views from other lots. The court rejected the Association’s argument section 7.18 gave the ARC discretion to allow all palm trees that exceeded the roof height of the house. That sentence gave the ARC discretion to decide whether a particular palm tree obstructed a neighbor’s view, but not to allow a palm tree that does in fact block a view to remain untrimmed.[1120]

In its statement of decision, the court rejected the Association’s various defenses. The hardship on view lot owners if views (for which they paid a premium price) were destroyed outweighed the hardship on the owner of a palm tree if required to trim or remove the trees. There was no hardship to the Association because the CC&Rs require the owners of trees bear the expense of trimming, and the possibility of lawsuits against the Association by tree owners was speculative.

The four-year statute of limitations applicable to actions to enforce CC&Rs (Code Civ. Proc., § 337) did not commence until homeowners demanded enforcement of the CC&Rs in 2002, which was when their views started becoming obscured. The court concluded there was no basis for concluding the Association was estopped to enforce the CC&Rs (by having approved landscaping plans), and there was no evidence to support a waiver (by failing to enforce the CC&Rs) defense.

The court rejected several additional affirmative defenses because they had not been pled by the Association in its answer, or raised by it during trial, but were referenced for the first time in the Association’s request for a statement of decision. They included the business judgment-judicial deference rule, the litigation committee defense, and failure to join indispensible parties. The court also rejected those defenses on the merits as well. The business judgment-judicial deference rule did not apply to acts beyond the authority of the Board. The adoption of the 2006 rules did not resolve the matter because the rules conflicted with the CC&Rs. The “litigation committee” defense was applicable only in the context of shareholder derivative suits. And owners of lots with palm trees that might eventually need to be removed were not indispensible parties to this action.

The Judgment

In its judgment, the court ordered the Association to enforce section 7.18 as to palm trees. It ruled that consistent with the CC&Rs, the ARC had discretion, to be exercised in good faith, to determine whether any particular palm tree exceeding roof height in fact blocked a view, but the Association did not have discretion to exempt from enforcement palm trees that were found to block views. The ARC’s approval of a landscaping plan that included palm trees did not exempt the palm tree from the requirements of section 7.18. The judgment defined “‘view'” as “a view of the ocean or neighboring golf course visible in any direction from anywhere on a homeowner’s lot, inside or outside one’s house.” It defined “‘obstruct'” as “to block from sight or be in the way even partially, and thus even one palm frond could block some portion of a view.” Neither the Plaintiffs nor the Association had waived their rights to enforce the CC&Rs. The individual[1121]homeowners with trees violating section 7.18 were not indispensable parties and principles of res judicata would operate to bind all homeowners to the judgment. The judgment ordered the Association “to enforce [s]ection 7.18 and to utilize every enforcement mechanism available to it under the CC&Rs and the law in order to do so.” The court retained jurisdiction to enforce the judgment including jurisdiction to appoint a special master to ensure the Association’s compliance with the judgment. The Plaintiffs were declared the prevailing parties and awarded their costs and attorney fees.

DISCUSSION

1. Standard of Review

An appealed judgment or order is presumed to be correct, and the appellant bears the burden of overcoming that presumption. (Stevens v. Owens-Corning Fiberglas Corp.(1996) 49 Cal.App.4th 1645, 1657.) The Plaintiffs’ sought and obtained declaratory relief and injunctive relief. Generally, the trial court’s decision to grant or deny such relief will not be disturbed on appeal unless it is clearly shown its discretion was abused. (Salazar v. Eastin (1995) 9 Cal.4th 836, 849-850 [injunctive relief]; Dolan-King v. Rancho Santa Fe Assn.(2000) 81 Cal.App.4th 965, 974 (Dolan-King) [declaratory relief].) Where, however, the essential facts are undisputed, “[I]n reviewing the propriety of the trial court’s decision, we are confronted with questions of law. [Citations.] Moreover, to the extent our review of the court’s declaratory judgment involves an interpretation of the [CC&Rs] provisions, that too is a question of law we address de novo. [Citations.]” (Ibid.)

2. Lamden Judicial Deference Rule

The Association contends the “judicial deference rule” adopted by the California Supreme Court in Lamden v. La Jolla Shores Clubdominium Homeowner’s Assn.(1999) 21 Cal.4th 249 (Lamden), which is an adaptation of the business judgment rule applicable to directors of corporations, precludes judicial review of any of its decisions concerning the enforcement or nonenforcement of section 7.18 of the CC&Rs as to palm trees. We disagree.

“‘The common law business judgment rule has two components–one which immunizes [corporate] directors from personal liability if they act in accordance with its requirements, and another which insulates from court intervention those management decisions which are made by directors in good faith in what the directors believe is the organization’s best interest.’ [Citations.] A hallmark of the business judgment rule is that, when the rule’s [1122] requirements are met, a court will not substitute its judgment for that of the corporation’s board of directors. [Citation.]” (Lamden, supra, 21.Cal.4th at p. 257.)

In Lamden, the owner of a condominium unit objected to the association’s board of directors’ decision to spot treat for termites rather tenting and fumigating the entire building. The Supreme Court adopted a rule it termed as analogous to the business judgment rule, holding “[w]here a duly constituted community association board, upon reasonable investigation, in good faith and with regard for the best[1123]interests of the community association and its members, exercises discretion within the scope of its authority under relevant statutes, covenants and restrictions to select among means for discharging an obligation to maintain and repair a development’s common areas, courts should defer to the board’s authority and presumed expertise.” (Lamden, supra,21 Cal.4th at pp. 253, 265.) The Supreme Court adopted the association’s position, at least as far as ordinary managerial decisions are concerned: “Common sense suggests that judicial deference in such cases as this is appropriate, in view of the relative competence, over that of courts, possessed by owners and directors of common interest developments to make the detailed and peculiar economic decisions necessary in the maintenance of those developments.” (Id. at pp. 270-271.)

[1]Lamden’s holding, however, is not so broad as the Association asserts. It applied the “rule of judicial deference to community association board decisionmaking” where owners “seek to litigate ordinary maintenance decisions entrusted to the discretion of their associations’ boards of directors. [Citation.]” (Lamden, supra,21 Cal.4th at pp. 253, 260.) And Lamden did not purport to extend judicial deference to board decisions that are outside the scope of its authority under its governing documents. Lamden specifically reaffirmed the principle that “‘Under well-accepted principles of condominium law, a homeowner can sue the association for damages and an injunction to compel the association to enforce the provisions of the declaration.[Citations.]” (Id.at pp. 268-269, citing Posey v. Leavitt (1991) 229 Cal.App.3d 1236, 1246-1247, Cohen v. Kite Hill Community Assn. (1983) 142 Cal.App.3d 642.)

The Plaintiffs contend the Association has waived the application of the Lamden rule of judicial deference because it is in the nature of an affirmative defense that was not pled in the Association’s answer or litigated at trial. The Association responds it was not required to raise the Lamden rule below because the rule merely embodies the proper standard of judicial review–it is not a defense at all. But the very language used in Lamden, indicates judicial deference is owed only when its has been shown the Association acted after “reasonable investigation, in good faith and with regard for the best interests of the community association and its members . . . .” (Lamden, supra,21 Cal.4th at pp. 253, 265.) A defense of good faith is necessarily factual in nature. (Everest Investors 8 v. McNeil Partners 114 Cal.App.4th 411, 432.) Just as the corporate business judgment rule, which is a rule of judicial deference to good faith management decisions of corporate boards, is a defense (see Finley v. Superior Court 80 Cal.App.4th 1152, 1157), so to is the rule of judicial deference to decisions of homeowner association boards articulated in Lamden. An affirmative defense may be waived if it is not raised below. (California Academy of Sciences v. County of Fresno (1987) 192 Cal.App.3d 1436, 1442.) The defense was raised for the first time after trial in the Association’s request for a statement of decision. The trial court correctly ruled the Association waived application of the Lamden rule of judicial deference by not raising it earlier.(2003) (2000)

Even if the judicial deference rule was not waived, we conclude the trial court correctly found it inapplicable in this instance. We consider the rule in two contexts. First, we consider whether the Association’s position prior to the institution of this litigation that it could simply exempt all palm trees from the purview of section 7.18 of the CC&Rs is entitled to judicial deference. Second, we consider whether the Board’s adoption of the 2006 rules concerning the enforcement of section 7.18 as to palm trees is entitled to judicial deference.

[2] The former issue is not so hard. We review the interpretation of the CC&Rs de novo. (Dolan-King, supra,81 Cal.App.4th at p. 974.) Section 7.18 is not at all ambiguous. It provides that “[a]ll trees, hedges and other plant materials shall be trimmed by the Owner of the Lot upon which they are located so that they shall not exceed the height of the house on the Lot . . . .” (Italics added.) If, however, the ARC determines the trees “do not obstruct the view from any of the other Lots” then the trees do not need to be so trimmed (i.e., they may exceed the height of the house).The only reasonable construction to be given to the provision is that homeowners are afforded protection from having their views obstructed by vegetation, including trees. Nothing in the CC&Rs permits the Association to simply exclude an entire species of trees from section 7.18’s application simply because it prefers the aesthetic benefit of those trees to the community. Even if the Board was acting in good faith and in the best interests of the community as a whole, its policy of excepting all palm trees from the application of section 7.18 was not in accord with the CC&Rs, which require all trees be trimmed so as to not obscure views. The Board’s interpretation of the CC&Rs was inconsistent with the plain meaning of the document and thus not entitled to judicial deference.(Lamden, supra,21 Cal.4th at pp. 253, 265.)[1124]

The Association also argues the trial court was required to defer to the Association’s decision in 2006 to adopt rules to enforce section 7.18 as to palm trees. It urges the new rules represent an appropriate balance between the communities’ interest in maintaining the palm trees and the individual homeowner’s interests in preserving their existing views. Accordingly, the Association argues the 2006 rules render moot the entire dispute.

[3] We disagree the new rules are entitled to judicial deference under Lamden. As with the Board’s prior policy that palm trees are exempt from the CC&Rs, the new rules are in direct conflict with the CC&Rs. The rules specifically exclude all palm trees planted before 2006–which basically means all trees that might currently obscure the Plaintiffs’ views. But section 7.18 does not grant the Association discretion to exclude view-blocking trees, it only gives the ARC discretion to determine whether or not a particular tree blocks a view. Furthermore, the new rules established what might best be called a “bowling alley” definition of what constituted view. Even if the Board had some discretionary authority to define what was meant by view, it was not free to fashion a definition that rendered section 7.18 meaningless. (See Nahrstedt v. Lakeside Village Condominium Assn.(1994) 8 Cal.4th 361, 380-381 [CC&Rs to be interpreted according to rules of contracts with view toward enforcing reasonable intent of parties].)

The Association cites Harvey v. Landing Homeowners Assn.(2008) 162 Cal.App.4th 809, for the proposition the trial court was required to defer to the Association’s chosen method for enforcing the CC&Rs, i.e., the 2006 rules. In Harvey, the association board permitted owners of units adjacent to common area attic space to utilize portions of the common area for exclusive storage. (Id. at p. 813.) The appellate court concluded the association board acted according to the authority granted to it in the CC&Rs. “‘The CC&R’s make clear the Board has the ‘sole and exclusive’ right to ‘manage’ the common area . . . ; to ‘adopt reasonable rules and regulations not inconsistent with the provisions contained in [the CC&R’s]’ relating to that use . . . ; to designate portions of the common area as ‘storage areas’ . . . ; and to authorize it to allow an owner to use exclusively portions of the common area ‘nominal in area’ adjacent to the owner’s unit, provided such use ‘does not unreasonably interfere with any other owner’s use or enjoyment of the project.'” (Id.at pp. 818-819, fn. omitted.)Harvey went on to conclude the Lamden rule of judicial deference applied to more than just ordinary discretionary maintenance decisions. “Under the ‘rule of judicial deference’ adopted by the court in Lamden, we defer to the [b]oard’s authority and presumed expertise regarding its sole and exclusive right to maintain, control and manage the common areas when it granted the fourth floor homeowners the right, under certain conditions, to use up to 120 square feet of inaccessible attic space common[1125]area for rough storage.” (Harvey, supra,162 Cal.App.4th at p. 821.) Harvey is inapposite. In Harvey, the board was acting consistently within the authority granted it in the CC&Rs. Here, the CC&Rs do not give the Board discretion to act as it did.

3. Vagueness and Overbreadth

The Association contends the judgment is void because it is too broad and too vague. Specifically, the Association attacks the language in the judgment ordering it not just to begin enforcing section 7.18, but “to utilize every enforcement mechanism available to it under the CC&Rs and the law in order to do so.”

[4] The Association first contends this language is too broad and impermissibly interferes with its discretion to determine how (and whether and when) to enforce the CC&Rs. It cites us to Lamdensupra,21 Cal.4th 249, Haley v. Casa Del Rey Homeowners Assn.(2007) 153 Cal.App.4th 863, and Beehan v. Lido Isle Community Assn. (1977) 70 Cal.App.3d 858, for the proposition the Association alone has discretion to determine how to enforce its CC&Rs. But as noted in Lamden, when an association refuses to enforce its CC&Rs, a homeowner may seek an injunction compelling it to do so. (Lamden,supra,21 Cal.4th at p. 268 [“‘[u]nder well-accepted principles of condominium law, a homeowner can sue the association for damages and an injunction to compel the association to enforce the provisions of the declaration'”].) In view of the Association’s historical position that it need not and would not enforce section 7.18 as to palm trees, a directive that it utilize all enforcement mechanisms available, is necessary to ensure the Association does not simply now make a token effort.

The Association also complains the directive that it “utilize every enforcement mechanism available to it under the CC&Rs and the law” is vague because it is could be construed as a directive that it commence legal action against specific homeowners who have not been identified. To satisfy the requirement that injunctions concerning real property be specific, the Association argues the judgment must specify “against which homeowners, what properties, and with respect to what trees” it must act. It complains the lack of such direction in the judgment “severely impairs” its ability to comply with the judgment. We disagree.

Under section 7.18, it is the Association, through its ARC, that has the sole discretion under the CC&Rs to determine whether a specific palm tree that has grown beyond roof-top height “obstruct[s] the view from any of the other Lots . . . .” Until now, the Association has simply avoided any exercise of this[1126]discretion by taking the position all palms trees are excluded from the directive. Until the Association begins to do its job, the specific trees that must be trimmed will not be identified. The judgment is sufficiently clear as to what the Association must do. It must comply with its obligations by exercising its discretion “in good faith” to determine which trees obstruct the Plaintiffs’ views and it must then undertake the procedures outlined in the CC&Rs to enforce the CC&Rs as to those trees. The Association cannot feign ignorance of what it should do–it has apparently had no difficulty figuring out how to carry out its responsibilities as to other trees species and has in the past required homeowners to trim or remove such trees.

We are equally unimpressed by the Association’s assertion it should not be required to act at all to enforce section 7.18 as to palm trees because it has not been told how far it must go–specifically, if it must go so far as to commence legal action? The trial court specifically retained jurisdiction to oversee enforcement. (See Molar v. Gates (1979) 98 Cal.App.3d 1, 25.) It is pure speculation as to whether legal action against any homeowner will be necessary. And whether the Association should ultimately seek injunctive relief against any tree owner will have to be judged by the facts in existence at that time. (See Beehan, supra,70 Cal.App.3d at p. 866 [refusal of association to seek injunctive relief against homeowner in violation of CC&Rs “must be judged in light of the facts at the time the board consider[s] the matter”].) In current economic times, it might make little economic sense for the Association to pursue costly litigation against individual homeowners who refuse to comply with the CC&Rs, particularly since it is all the homeowners, including the Plaintiffs who will ultimately bear the cost of such litigation. And in such case, the Plaintiffs are certainly free to pursue their own litigation against individual homeowners to compel removal of any specific offending palm trees. (See Lamden,supra,21 Cal.4th at p. 268 [homeowner can sue directly to enforce CC&Rs].)

4. Failure to Join Indispensable Parties

The Association contends the judgment is void because the Plaintiffs failed to join as defendants the individual homeowners whose palm trees are obstructing their views as required by Code of Civil Procedure section 389. Accordingly, it argues the court in essence permitted an involuntary defense class action in which the rights of the individual tree owners have been adjudicated without their participation in this lawsuit. Because the Association did not raise this issue until after trial, in its request for a statement of decision, it has waived the argument on appeal. (McKeon v. Hastings College (1986) 185 Cal.App.3d 877, 889.) Furthermore, Civil Code section 1368.3 provides an association may defend litigation concerning enforcement of CC&Rs without joining the individual homeowners in the association.[1127]

DISPOSITION

The judgment is affirmed. The Respondents are awarded their costs on appeal.

Rylaarsdam, Acting P. J., and Aronson, J., concurred.


 

FN 1. The plaintiffs and respondents are Robert and Margaret Ekstrom, James and Shendel Haimes, Michael and Betty Sue Hopkins, Robert and Leona Kampling, Stephen and Cheryl Kron, Jim O’Neil, G. John and Joanne Scheffel, and Nicholas Shubin. For convenience, they will hereafter be referred to collectively as the Plaintiffs, unless the context indicates otherwise. In their respondents’ brief, the Plaintiffs inform us that while this appeal was pending, Robert Kempling passed away. His estate was not substituted in. Additionally, Jim O’Neil and Michael and Betty Sue Hopkins no longer reside in Marquesa, although they have not been dismissed from this action.

FN 2. As written, section 13.1 omitted the word “not,” which we have italicized above, reading, “Failure . . . to enforce any of the [CC&Rs] shall be deemed a waiver of the right to do so thereafter.” The Plaintiffs introduced deposition testimony of the original drafter of the CC&Rs (now Justice Alex McDonald), that this was a typographical error, and the sentence should read “shall not be deemed a waiver” as was his practice in all CC&Rs he drafted [and the norm for CC&Rs]. In its statement of decision, the trial court found the section contained a typographical error and was intended to read as we have recited. The Association does not challenge the court’s conclusion, but does assert the Board in good faith believed that by not enforcing the CC&Rs as to palm trees, it had waived the right to do so.

FN 3. The complaint also contained causes of action against individual Board members and the Association’s property management company. The individual Board members were dismissed after a successful summary judgment motion, and the management association settled.

Beehan v. Lido Isle Community Association

(1977) 70 Cal.App.3d 858

[Enforcement; Discretion to Litigation] A HOA’s Board of Directors may in its discretion decline to take legal action to enforce a perceived violation of the governing documents.

Joslyn, Roeth, Angerhofer, Olds & Condon and Daniel B. Condon for Plaintiffs and Appellants. Rutan & Tucker and Robert C. Braun for Defendant and Respondent

OPINION
KAUFMAN, J.

T. Edward Beehan and Claire E. Beehan (hereinafter plaintiffs) appeal from a judgment in favor of defendant Lido Isle Community Association (hereinafter Association) denying plaintiffs’ claim for reimbursement for attorney fees and costs incurred in obtaining a stipulated judgment against Robert P. and Loring P. Warmington (hereinafter Warmingtons).

[1] Findings of fact and conclusions of law were waived by plaintiffs’ failure to request them. (Code Civ. Proc., § 632.) Accordingly, we presume in support of the judgment each favorable finding of fact supported by the evidence. (Stewart v. Langer, 9 Cal.App.2d 60, 61 [48 P.2d 758].)

Plaintiffs and the Warmingtons own property situated diagonally across a street from each other on Lido Isle in Newport Beach. The property on Lido Isle is subject to a declaration of protective restrictions executed and recorded in 1928. Association is a nonprofit corporation which was also organized in 1928. The activities in which it is permitted to engage are set forth in the “Purposes Clause” of its articles of incorporation. One of the enumerated purposes is the enforcement of the declaration of protective restrictions.[862]

In November 1973, the Warmingtons submitted architectural plans to Association for approval. Association’s architectural committee reviewed the plans to determine whether there were any setback restrictions and in so doing relied on a booklet entitled “The Declaration of Restrictions” which contained the original restrictions and modifications thereto. The booklet indicated a four-foot setback requirement. Warmingtons’ plans complied. Association therefore approved the plans as submitted. The same plans were approved by the City of Newport Beach and a building permit was issued in December 1973.

Construction of the Warmingtons’ house commenced in January 1974. In February, plaintiffs contacted Mr. William Sprague, Association’s administrator, for the purpose of ascertaining whether the Warmingtons’ structure violated a setback provision in the declaration of restrictions. Mr. Sprague inspected the building site but could not determine whether the construction violated setback requirements. He requested the City of Newport Beach to inspect the premises; the city did so and found that the construction did not breach the restrictions.

On February 25, plaintiffs visited Association’s offices to review the declaration of restrictions and Association’s minute book. The declaration indicated only a four-foot setback requirement on the Warmingtons’ property. From the minute book, however, plaintiffs found copies of minutes from meetings held in 1953 and 1954 which indicated that Association’s board of directors adopted a resolution amending the setback requirement on the Warmingtons’ property and some surrounding property from four feet to six feet. A copy of the amendment had been recorded February 25, 1954. Plaintiffs informed Mr. Sprague of their discovery.

In a continuation of his investigation, Mr. Sprague reviewed the minutes and also reviewed the 1928 declaration of restrictions. This declaration specifies certain procedures that must be followed in order to adopt a valid modification of the restrictions. First, there must be a public hearing. After such hearing, written consent of Association must be given. Finally, written consent must be obtained from more than one-half of the owners of the property within 500 feet of the outer boundaries of the lot or lots on which the restrictions are to be changed.

Mr. Sprague reviewed the minutes and other records of Association to determine the validity of the 1953 modification. The March 11, 1953, minutes state that a public hearing was held on March 14, 1953, three[863]days after the minutes were dated and one month after approval was given by Association’s board of directors. Since the declaration required the public hearing to be held before Association’s approval, this procedure was in conflict with the modification requirements. Moreover, Mr. Sprague could find no evidence that written consent had been obtained from the necessary property owners. He therefore notified members of Association’s board of directors that his examination cast substantial doubt upon the validity of the 1953 amendment.

Prior to the next board meeting, Mr. Sprague photocopied minutes of the 1953 meetings, the resolution adopted at that time, minutes of the 1954 meeting that referred to the purported modification and copies of his memorandum detailing the lack of proof that such modification was validly adopted. He included these in an agenda packet which was distributed to all board members before the meeting. Several board members also visited the construction site before the meeting.

On March 13, the board, on the first of several occasions, considered the problem. Plaintiffs and their attorney appeared and made a presentation supporting their position that a six-foot setback was applicable. The Warmingtons also appeared and presented evidence supporting their contention that a four-foot setback was proper. The meeting was open to all members of Association. An attorney and former members of the board of directors, Mr. Mel Richly, after reviewing the adoption procedure of the alleged 1953 modification, expressed his opinion to the board that the modification was invalid and unenforceable.

A special meeting of the board of directors was held on March 16 for the sole purpose of reviewing the setback matter. In attendance were members of Association’s architectural committee, members of the board, plaintiffs, plaintiffs’ attorney, the Warmingtons and Mr. Sprague. Each side reiterated its respective position. Another discussion ensued regarding the validity and enforceability of the purported amendment. Nevertheless, the problem was not resolved.

On April 17, the next regularly scheduled board meeting was held. After an extensive discussion, the board decided to forgo seeking an injunction against the Warmingtons for violating the alleged 1953 modification of the declaration of restrictions. On April 18, Mr. Sprague informed plaintiffs’ attorney of Association’s decision not to proceed against the Warmingtons.[864]

Having filed suit on or about April 1, on May 7 plaintiffs obtained a preliminary injunction restraining the Warmingtons from proceeding further with the construction of their house. Association’s board of directors held a meeting the following day to again discuss this dispute. Both plaintiffs and the Warmingtons stated their respective positions. After a lengthy period of deliberation, the chairman of the board suggested a compromise whereby the setback on the Warmingtons’ property would be changed to five feet. This proposal was acceptable to the Warmingtons but not to plaintiffs.

Plaintiffs filed their first amended complaint on May 28, 1974. The first count was directed against the Warmingtons and sought a mandatory injunction requiring them to modify the home they were constructing to conform to the alleged six-foot setback requirement. The second count was directed against Association and sought reimbursement for plaintiffs’ fees and costs incurred in the action against the Warmingtons.

In March 1975, plaintiffs and Warmingtons entered into a stipulation for judgment whereby the Warmingtons agreed to modify their house so that it was set back six feet. Association was not a party to this stipulation. Plaintiffs then proceeded to trial against Association. [2a] The case was tried on the second count of plaintiffs’ first amended complaint only and the sole problem confronting the trial court was whether plaintiffs were entitled to reimbursement for costs [FN. 1] and attorneys’ fees incurred in obtaining judgment against the Warmingtons. [FN. 2]

Plaintiffs are vague as to their theory of recovery. Although they speak in terms of negligence and implied indemnity, these theories would not support an award of attorney fees and costs against Association. In the absence of an express or implied agreement (Code Civ. Proc., § 1021), the only theory of which we are aware under which plaintiffs might recover attorney fees and costs from Association is the substantial benefit rule, a variant of the common fund doctrine under which attorney fees are frequently allowed in shareholder derivative actions. (See Fletcher v. A. J. Industries, Inc., 266 Cal.App.2d 313, 320 [72 Cal.Rptr. 146], and authorities there cited.) Perhaps this was the theory plaintiffs had in mind, for they attempted to prove each of the conditions necessary to[865]recovery on that theory, to wit: (1) defendant Association is a corporation; (2) plaintiffs are shareholders or members; (3) Association refused to act after a proper demand upon it; (4) such refusal constituted an abuse of managerial discretion; (5) plaintiffs successfully proceeded with the suit; and (6) by doing so plaintiffs rendered a substantial benefit to Association. (Cf. Corp. Code, § 800; Fletcher v. A. J. Industries, Inc., supra, 266 Cal.App.2d at pp. 318-319.)

The trial court impliedly found that in refusing to take action against the Warmingtons, Association’s board of directors did not abuse their managerial discretion. fn. 3 This finding of the trial court is supported by substantial evidence and is, therefore, decisive. (Cf. Fletcher v. A. J. Industries, Inc., supra, 266 Cal.App.2d at p. 325.)

Preliminarily, Association asserts that it was under no obligation to take action against the Warmingtons. Plaintiffs point to the express enumeration in Association’s articles of incorporation that one of its purposes is the enforcement of the declaration of protective restrictions. Association asserts that the enumeration of purposes in its articles of incorporation empowers it to act but does not oblige it to do so. We need not resolve this question. For purposes of this decision we shall assume Association was obligated in appropriate circumstances to take action to enforce the declaration of restrictions.

[3] Nevertheless, neither a court nor minority shareholders can substitute their business judgment for that of a corporation where its board of directors has acted in good faith and with a view to the best interests of the corporation and all its shareholders. (Marsili v. Pacific Gas & Elec. Co., 51 Cal.App.3d 313, 324 [124 Cal.Rptr. 313]; Fairchild v. Bank of America, 192 Cal.App.2d 252, 256-257 [13 Cal.Rptr. 491]; Findley v. Garrett, 109 Cal.App.2d 166, 174-175 [240 P.2d 421].)”The power to manage the affairs of a corporation is vested in the board of directors. [Citation omitted.]Where a board of directors, in refusing to commence an action to redress an alleged wrong against a corporation, acts in good faith within the scope of its discretionary power and reasonably believes its refusal to commence the action is good business judgment in the best interest of the corporation, a stockholder is not authorized to interfere with such discretion by commencing the action….’Every presumption is in favor of the good faith of the directors. Interference with such discretion is not warranted in doubtful cases.'”[866](Findley v. Garrett, supra, 109 Cal.App.2d at p. 174; accord: Fornaseri v. Cosmosart Realty & Bldg. Corp., 96 Cal.App. 549, 557 [274 P. 597].)

[2b]The refusal of Association’s board of directors to seek injunctive relief against the Warmingtons must be judged in light of the facts at the time the board considered the matter. There would be difficulty in proving the 1953 setback amendment was validly enacted. The minutes indicated public hearing was held after Association’s approval rather than before, and it could not be established that written consent had been obtained from the required number of property owners. Eighteen of the twenty one homes in the area affected by the alleged 1953 amendment were in violation of the six-foot setback requirement, thus making it doubtful whether Association could prevail in an injunctive action against the Warmingtons. Association’s funds were committed, in large part, to pay for services which benefited the entire community, such as beach and clubhouse maintenance, lifeguards, gardeners and administrative staff. Apparently, the board believed that the utility of incurring substantial attorney fees in prosecuting a lawsuit of questionable merit was outweighed by the possible curtailment of normal services.

The fact that the board refused to bring suit even after a preliminary injunction was issued is not decisive. [4] It has been said that a court will deny a preliminary injunction unless there is a reasonable probability that the plaintiff will be successful on the merits, but the granting of a preliminary injunction does not amount to an adjudication of the merits. (Continental Baking Co. v. Katz, 68 Cal.2d 512, 528 [67 Cal.Rptr. 761, 439 P.2d 889].) The function of a preliminary injunction is the preservation of the status quo until a final determination of the merits. (Id.) [5] Moreover, “[t]he mere fact that a recovery for the corporation would probably result from litigation does not require that an action be commenced to enforce the claim. Even if it appeared to the directors … that at the end of protracted litigation substantial sums could be recovered from some or all of the defendants, that fact alone would not have made it the duty of the directors to authorize the commencement of an action.It would have made it their duty to weigh the advantages of a probable recovery against the cost in money, time and disruption of the business of the company which litigation would entail. … [6]A mistake of judgment on the part of a board of directors does not justify taking the control of corporate affairs from the board of directors and placing it with the stockholders. The board of directors may make incorrect decisions, as well as correct ones, so long as it is faithful to the[867]corporation and uses its best business judgment.”(Findley v. Garrett, supra, 109 Cal.App.2d at pp. 177-178.)

[2c] From the foregoing discussion, it is manifest that the court’s finding that Association’s board of directors did not abuse its managerial discretion is supported by substantial evidence. That determination makes unnecessary our consideration of Association’s further claim that plaintiffs’ suit conferred no substantial benefit on the Association.

Association contends that plaintiffs’ appeal is frivolous and that we should therefore impose sanctions against them. Although we have not found the appeal meritorious, we cannot say it was wholly insubstantial or not taken in good faith. Accordingly, we do not classify the appeal as frivolous.

The judgment is affirmed. In the interest of justice, neither party shall recover costs.

Tamura, Acting P. J., and Morris, J., concurred.


FN 1. Plaintiffs did not recover costs against the Warmingtons because the stipulation for judgment provided that the parties were to bear their own costs.

FN 2. The procedure followed by plaintiffs was not challenged. By recounting it, we do not express our approval of it.

Wolf v. CDS Devco

(2010) 185 Cal.App.4th 903

[Director Inspection Rights; Former Director] A director loses his/her broader record-inspection rights upon loss of status as a director.

OPINION

HUFFMAN, Acting P. J.—

Plaintiff and appellant Walter E. Wolf, who formerly served as a corporate director of San Elijo Ranch, Inc. (SERI), brought this action against SERI and related parties, to seek enforcement of the “absolute” rights of a director to inspect SERI’s corporate records. (Corp. Code, [FN 1] § 1602.) Wolf is also a 20 percent shareholder of CDS Devco (Devco; [907] a Cal. real estate development corporation), which is the parent corporation of SERI. Wolf does not own shares in SERI itself.

Although Wolf was not reelected to the SERI board of directors, in his first amended petition for writ of mandate (the FAP), he continues to assert the rights of a director as against three defendants and respondents: (1) SERI; (2) HomeFed Corporation, the parent corporation of Devco, owning 80 percent of its shares; and (3) Paul J. Borden, who is the president of both Devco and SERI, as well as an officer of HomeFed Corporation (sometimes collectively defendants). (Code Civ. Proc., § 1085.)[FN 2]

In his FAP, Wolf alleges that he has a right and SERI and its controlling shareholders and officers, HomeFed Corporation and Borden, have a mandatory duty to allow him to pursue a complete inspection of SERI financial records. He had continually been requesting such documents for a period of almost a year, before he received notification he would not be nominated for reelection to the SERI board. Wolf contends that his removal from the SERI board was unlawful, and such removal should not affect his inspection rights or deprive him of standing to pursue this action as a former director.

In opposition to the petition, defendants filed demurrers, pointing out that Wolf’s petition admits he is no longer a director of SERI. Based on fairly recent case law, defendants argue this statutory scheme does not permit a person who is not currently serving as a director any further entitlement to inspect its records. (§§ 1602, 1603; Chantiles v. Lake Forest II Master Homeowners Assn. (1995) 37 Cal.App.4th 914 (Chantiles).) Defendants also argued that Wolf had not pled any sufficient basis for a judicial extension of the statutory scheme, or any other qualified equitable right to inspect SERI records for any valid purpose, in the capacity of a director or former director.

The superior court ruled that the demurrers must be sustained without leave to amend, because Wolf had no statutory standing as a director to pursue his demands for inspection of SERI records, nor had he presented any sufficient basis to create any exceptions to the rule. Wolf appeals, contending the trial court erred and abused its discretion when it sustained the demurrers without leave to amend, because he sufficiently pled his entitlement to an exception to the standing requirements of section 1602. Wolf claims that he [908] was unlawfully removed as a director, such that his rights to sue in that capacity, to protect minority shareholders’ or his own interests, had become fixed at the time he filed the original complaint (one day before the annual meeting at which he was not reelected).

The issues before us are narrow, and we decide only that Wolf’s statutory arguments of ongoing entitlement to inspect corporate records in a director’s capacity are without merit. (§ 1602.) He lacks the required status and standing to assert inspection rights that are properly due to a corporate director. Nor can he allege any realistic possibility of amendment, on a nonstatutory or equitable basis, to allege successfully on these facts that he is entitled to such continued director’s inspection rights.

Other forms of action exist in which a corporation’s rights may be enforced and its injuries redressed, if the corporate board will not take appropriate action. (See, e.g., Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1108 [shareholder derivative suit].) Here, however, the trial court’s analysis of the relevant legal and policy considerations, as applied to the pleaded facts, was correct as a matter of law. We affirm the judgment of dismissal.

FACTUAL AND PROCEDURAL BACKGROUND

 A. Petition and Demurrer

For purposes of analyzing the demurrer ruling, we take the facts properly pleaded to assess whether they may state a cause of action as a matter of law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) Originally, Wolf brought not only a complaint but also two petitions for relief in mandamus in his capacity as a director of SERI who was entitled to inspection of corporate records, and also as a 20 percent shareholder of Devco, who was entitled to shareholder rights. Pursuant to the parties’ stipulation, the FAP amended and consolidated all prior pleadings in the action and effectively became the operative pleading in the action, superseding the complaint filed on September 9, 2008, and the two petitions filed on October 17, 2008. The parties further agreed that the FAP, as the operative pleading, would relate back to the date the initial complaint was filed on September 9, 2008.

In the FAP, Wolf pleads as general background that SERI is governed by a board of directors, four of whom are nominated by majority shareholder Devco (85 percent owner). (Art. III, §§ 2-4.) The other director is nominated by the minority shareholders (15 percent owner), and elections are held at annual meetings or by written consent. Wolf was nominated to the SERI [909] board by Devco and was elected for 13 terms of one year. During his latter term, he began to believe that corporate mismanagement had occurred between SERI and its parent corporations, and that his efforts to investigate them were being met with resistance by SERI and the parent corporations, Devco and HomeFed Corporation.

Beginning in October 2007, Wolf began to make document requests to SERI, Devco, and HomeFed Corporation. The various responses he received from SERI, Devco and Borden were in the nature of summaries that he considered to be inadequate. The parties also disagreed over the terms of a nondisclosure agreement that SERI was requesting. After about eight months, some records were provided but not enough to satisfy Wolf.

In August 2008, SERI management sent Wolf a written consent action form to call the annual meeting for September 10, 2008, listing Wolf as a candidate for director. Wolf signed and returned it. Unfortunately, Wolf also inadvertently transmitted to defendant Borden a copy of a draft complaint that Wolf was preparing in order to compel SERI, Devco and others to provide more complete responses to the October 2007 request for information.

Upon receiving the draft complaint, Borden inquired what was going on, and in a letter dated September 5, 2008, he advised Wolf that SERI and Devco management had decided to replace him on the SERI board of directors, and would not be renominating him for election at the September 10 meeting.

Wolf filed his original pleading on September 9, 2008, alleging, among other things, that he had been removed because of his disclosure requests, and that mandamus should issue to allow him, as a director of SERI, to assert his ongoing inspection rights. [FN 3] Wolf sought a temporary restraining order (TRO) to postpone the annual meeting, once he learned he would not be renominated. At that hearing, Judge Steven Denton discussed Wolf’s theory that the filing of his complaint served to fix his rights as of that time. The TRO was denied and the FAP was filed. (The record is unclear whether and when Wolf has been replaced as a director.)

In defendants’ demurrer, they chiefly argued the pleading was defective on its face, because a statutorily required element to establish standing to bring an inspection petition was lacking, in that Wolf admitted he was no longer a director, and he therefore had no current duties to perform in that capacity. (§§ 1602, 1603.) Defendants also argued that the only proper respondent was [910] the corporation whose conduct was sought to be compelled, SERI, so that HomeFed Corporation and Borden should be dismissed for lack of binding allegations against them.

Opposition and reply papers were filed, disputing whether adequate facts were pled and proper parties named.

 B. Ruling

After oral argument on December 19, 2008, the trial court sustained the demurrer without leave to amend on all of the allegations concerning a director’s right to inspect SERI records. The court first took judicial notice, as requested by Wolf, of the reporter’s transcript of the TRO request by Wolf to postpone the annual meeting, at which he was not being renominated to serve as a director. (Evid. Code, § 452.) The court also granted the request by SERI et al. to take judicial notice of Wolf’s verification in support of his original petition, which had originally been set for a November 14 hearing. That scheduled hearing apparently went off calendar when Wolf filed his FAP on November 10, 2008. The parties stipulated that the FAP was the operative pleading.[FN 4]

On the merits, the court expressed its view that the case presents a close call: “However, the court believes the better interpretation of Corp. Code section 1602 is that it required that petitioner plead and prove that he is a current director, both at the time the action is commenced and at the time of the activities proposed to be the subject of a writ of mandamus. Because it is undisputed that Wolf is no longer a director of SERI (Am. Pet. at paragraph 2), the demurrer must be sustained without leave to amend. And, because Wolf has no standing to demand inspection from SERI, it is appropriate to sustain the demurrer as to all defendants ….”

In explaining its reasoning that a “bright line” rule of entitlement to inspection rights should be adhered to, the superior court set forth these observations: “First, directors on both sides of similar disputes will know exactly where they stand. Far from `clogging the courts’ as supposed by petitioner [citation], this rule will insure that controversies over inspection rights are brought to the tribunal in a timely fashion. The court notes there was a delay of a year in this case, and the deferral has not been beneficial to either party ….”

[911] The superior court then explained its view that the issue of standing is critical in assessing a director’s statutory request to review corporate records. The court declined “to defer the standing issue while the parties litigate over whether Wolf was improperly denied re-election to the SERI board. [Citation.] This strikes the court as putting the cart before the horse. If, as respondents assert, it turns out that there was no impropriety in the decision not to re-elect Wolf, it will be clear he has no inspection rights—but in the meanwhile, both parties will be put to substantial time, energy, effort and expense. Given that it is petitioner’s obligation to establish standing [(Californians for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal.4th 223, 232-233; Connerly v. Schwarzenegger (2007) 146 Cal.App.4th 739, 749)], the court believes it is appropriate to address this threshold issue at the outset of the case.”

Further, the superior court found unpersuasive Wolf’s contention that in view of the denial of his ex parte application to postpone the September meeting and election, Wolf’s rights as a director were fixed or conclusively established, simply because he had filed suit before the board election. That TRO ruling was not binding or dispositive.

The superior court also declined to follow, on these facts, an out-of-state rule “allowing inspection rights to a former director where the director faces personal liability.” (See State of Tennessee ex rel. Oliver v. Society for Preservation of the Book of Common Prayer (Tenn. 1985) 693 S.W.2d 340, 343 (Oliver); Cohen v. Cocoline Products, Inc.(1955) 309 N.Y. 119, 124 [former director retains right to inspect records related to the period of service as a director, where access to the records is necessary to protect the director or shareholders].) Rather, the FAP contained no meaningful allegations to support Wolf’s contentions that he, as a former director, faced serious threats of personal liability exposure from his activities while a director, and instead, “[t]he court holds that a theoretical, inchoate exposure to personal liability is simply not enough.”

Accordingly, the demurrers were sustained without leave to amend and the court dismissed the action as to all defendants. Wolf timely filed his notice of appeal.

Along with the respondents’ brief, defendants have filed a request for judicial notice of a different first amended complaint filed by Wolf against them, including some claims as a Devco shareholder. (Evid. Code, §§ 452, 459.) That request has been deferred to this merits panel.

[912]

DISCUSSION

 I. INTRODUCTION AND STANDARD OF REVIEW

(1) Mandamus is available in proper circumstances to compel the performance of duties of nongovernmental bodies or officers, such as a “corporation, board, or person,” or to compel performance of a duty resulting from “an office, trust, or station,” or to compel admission of a party to “the use and enjoyment of a right or office to which the party is entitled.” (Code Civ. Proc., § 1085, subd. (a); see Most v. First Nat. Bank of San Diego (1966) 246 Cal.App.2d 425 [corporation may be ordered to allow stockholder to inspect corporate books]; 8 Witkin, Cal. Procedure (5th ed. 2008) Extraordinary Writs, § 96, pp. 991-992.) Mandamus may be issued to require an appropriate exercise of discretion “under a proper interpretation of the applicable law.” (Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 442 (Common Cause).)

Wolf contends that since he filed his original pleading the day before his term as a director ended, he is entitled to mandamus to allow him inspection of corporate records, in the nature of “use and enjoyment of a right or office” to which he remains entitled. He places himself in the role of a fiduciary director who suspects corporate mismanagement and has an absolute right to inspect records, to protect the interests of minority shareholders or to protect himself from personal liability. He contends such rights were effectively denied when these corporations stalled in allowing him full inspection, until he was no longer a director.

To address these arguments, we set forth basic rules for review and statutory standards for evaluating such petitions, and apply them to these allegations. “A demurrer tests the legal sufficiency of the complaint. [Citation.] Therefore, we review the complaint de novo to determine whether it contains sufficient facts to state a cause of action. [Citation.] `We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law.’ [Citation.] The trial court exercises its discretion in declining to grant leave to amend. [Citation.] If it is reasonably possible the pleading can be cured by amendment, the trial court abuses its discretion by not granting leave to amend. [Citation.] The plaintiff has the burden of proving the possibility of cure by amendment. [Citation.]” (Grinzi v. San Diego Hospice Corp. (2004) 120 Cal.App.4th 72, 78 (Grinzi); see Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967.)

[913] (2) In ruling on this demurrer, the superior court was required to apply statutory standards to the pleaded facts. Determining the meaning of a statutory standard requires the resolution of a question of law. (People ex rel. Lockyer v. Shamrock Foods Co.(2000) 24 Cal.4th 415, 432.) “The soundness of the resolution of such a question is examined de novo.” (Ibid.) Remedial statutes such as section 1602 are liberally construed. (Havlicek v. Coast-to-Coast Analytical Services, Inc. (1995) 39 Cal.App.4th 1844, 1856 (Havlicek).)

In Saline v. Superior Court (2002) 100 Cal.App.4th 909, 913, the court interpreted section 1602 et seq. in the context of asserted free speech protections. The court treated the scope of a corporate director’s right to inspect corporate documents as a pure question of law that would be reviewed on a de novo basis, and we will do likewise.

 II. EXTENT OF ISSUES PRESENTED

 A. Identity of Defendants; Reinstatement Issues

Before turning to the pleading questions regarding the scope of protections afforded to Wolf under this statutory scheme, we first limit the issues that are actually presented for decision. Although the FAP makes generalized allegations against defendants other than SERI (i.e., parent corporation HomeFed Corporation and corporate official Borden; nothing is now claimed directly against Devco), the gist of the inspection right asserted only pertains to SERI itself, of which Wolf was formerly a director. Under Code of Civil Procedure section 1085, subdivision (a), both corporations and persons can be compelled to perform their official duties, but Wolf has made no specific arguments on appeal about the special role of HomeFed Corporation or Borden, beyond allegations of duties owed to him by SERI. Apparently, his only remaining theory is that SERI wrongfully denied him statutory or equitable director’s inspection rights, and we need not further consider any potential liability of those other two defendants and respondents. Any arguments about them have been waived on appeal.

Further, Wolf did not expressly argue until he filed his reply brief that the relief he sought might include a request for reinstatement to the SERI board of directors. In his opening brief, he only generally argued that he is somehow still entitled to director status, because he was “unlawfully” removed. However, the body and the prayer of the FAP only sought enforcement of SERI corporate obligations to provide him, as a director, with [914] inspection opportunities, regardless of his current official status, on the theory that the filing date of his complaint predated the annual meeting and election that did not retain him.

(3) Generally, we need not address arguments made for the first time in a reply brief (such as his reinstatement). (Shade Foods, Inc. v. Innovative Products Sales & Marketing, Inc. (2000) 78 Cal.App.4th 847, 894-895, fn. 10.) Normally, a party is not permitted “`to change [his] position and adopt a new and different theory on appeal’ because doing so would be unfair both to the court and to the opposing litigant. [Citation.]” (Grinzi, supra, 120 Cal.App.4th 72, 85.) The reinstatement request is such an unexpected change of position and need not be considered here.

No different result is required even if we look at appellant’s new reinstatement theory in light of the rule that, in considering an appeal from a dismissal after the sustaining of a demurrer without leave to amend, an appellate court will examine whether the allegations state a cause of action under any possible legal theory. (Grinzi, supra, 120 Cal.App.4th 72, 85 [“Under these circumstances, new theories may be advanced for the first time on appeal.”].) The gravamen of the FAP is found in the allegations of statutory and equitable director’s inspection rights, and not in any alleged right to official, ongoing director status (except as it might affect such inspection rights). We find no justification for expanding the issues beyond those actually pled in the mandamus request.

 B. Judicial Notice

As the merits panel, we are next obligated to address the deferred request by defendants that we take judicial notice of an unconformed copy of a different first amended complaint filed by Wolf, seeking alternative relief against the same set of corporate defendants here, in the nature of a shareholder derivative action pursued in Wolf’s capacity as a 20 percent shareholder of Devco stock. (Wolf v. Borden (Super. Ct. San Diego County, 2009, No. 37-2009-00093090-CU-BC-CTL).) Those claims evidently include both contract and tort theories, such as breach of fiduciary duty, to seek damages and declaratory relief. It is not clear from the submission whether discovery has been pursued regarding any shareholder requests to seek Devco corporate records, similar to the director’s request here regarding SERI.

(4) Judicial notice is proper under Evidence Code section 452, subdivision (d)(2), of the records of “any court of record of the United States or of any state of the United States.” However, such a court record would normally show a conformed file stamp or other evidence of reliability. (Ross v. Creel Printing & Publishing Co. (2002) 100 Cal.App.4th 736, 743 (Ross).)

[915] “‘ [W]hen a party desires the appellate court to take judicial notice of a document or record on file in the court below the parties should furnish the appellate court with a copy of such document or record certified by its custodian.’ [Citations.]” (Ross, supra, 100 Cal.App.4th 736, 743.) “It is the burden of the party seeking judicial notice to demonstrate a reason for the failure to furnish certified copies.” (Ibid.) Even though no opposition was filed to this judicial notice request, we decline the request because the document offered is not in proper form.

Even if the document were properly authenticated, we would take judicial notice only as to the existence of the pleading, not as to the truth of any of the allegations contained in it. (Ross, supra, 100 Cal.App.4th 736, 743; Day v. Sharp (1975) 50 Cal.App.3d 904, 914.) The fact that Wolf has apparently filed an alternative complaint against the same defendants does not assist us in our legal analysis of whether he can continue to pursue a director’s inspection rights, by statute or authorized extension of those rights. (§ 1602.) The judicial notice request is denied.

III.       STATUTORY SCHEME

 A. Purpose of Inspection Rights; Standing Issues

Wolf bases his claim of a lawful demand for inspection on several factors, including his status as a director when the request was made and the lawsuit filed, and his argument that he was unlawfully removed. In addition, he argues that he may be exposed to personal liability for his own or other directors’ activities that occurred before he left the board, such that he should be able to investigate on his own behalf, or on behalf of minority shareholders of SERI.

We begin with the normal rules of statutory interpretation, to ascertain the policies promoted by section 1602 and the criteria for pleading entitlement to relief under it. “First, we look to the words of the statute giving `”effect to the usual, ordinary import of the language, at the same time not rendering any language mere surplusage.”‘ [Citation.] We must give the statute `”`a reasonable and commonsense interpretation consistent with the apparent purpose and intention of the Legislature, practical rather than technical in nature, and which, when applied, will result in wise policy rather than mischief or absurdity. [Citations.]'”‘ [Citation.] `If the language of a statute is clear, we should not add to or alter it to accomplish a purpose which does not appear on the face of the statute or from its legislative history.’ [Citation.]” (Grinzi, supra, 120 Cal.App.4th 72, 85.)

[916] (5) Section 1602 grants to “[e]very director” an “absolute” right (albeit subject to appropriate legal qualifications), to inspect and copy corporate records and documents. (See Havlicek, supra, 39 Cal.App.4th 1844, 1855-1856; Tritek Telecom, Inc. v. Superior Court (2009) 169 Cal.App.4th 1385, 1390-1391 (Tritek) [“absolute” right is historically subject to exceptions].) This inspection right is subject to enforcement under section 1603, subdivision (a), which allows the superior court, “[u]pon refusal of a lawful demand for inspection,” to enforce the right of inspection under “just and proper conditions.”

(6) In Tritek, supra, 169 Cal.App.4th 1385, 1390-1391, this court discussed the scope of directors’ inspection rights, in terms of their intended function of promoting the directors’ proper exercise of fiduciary duties to the corporation and shareholders. (See § 309, subd. (a) [directors must serve “in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders”].) “Although it is generally presumed that the directors of a corporation are acting in good faith [citation], a court is required to defer to the business judgment only of disinterested directors. [Citation.] `”[A] director is independent when he is in a position to base his [or her] decision on the merits of the issue rather than being governed by extraneous considerations or influences.” [Citation.]'” (Tritek, supra, 169 Cal.App.4th 1385, 1390.)

(7) SERI challenges Wolf’s statutory standing as an independent director to conduct such a prospective inspection, because he lost status as a director immediately after filing suit. “Standing” is an aspect of justiciability, which is decided upon the intertwined criteria of standing and ripeness. (3 Witkin, Cal. Procedure, supra, Actions, § 21, pp. 84-85.) “`One who invokes the judicial process does not have “standing” if he, or those whom he properly represents, does not have a real interest in the ultimate adjudication because the actor has neither suffered nor is about to suffer any injury of sufficient magnitude reasonably to assure that all of the relevant facts and issues will be adequately presented.'” (Id. at p. 84.) A plaintiff must “possess standing to have the underlying controversy adjudicated and the desired relief granted after a trial on the merits ….” (Common Cause, supra, 49 Cal.3d 432, 439-440.)

(8) In Californians for Disability Rights v. Mervyn’s, LLC, supra, 39 Cal.4th 223, 232-233,the Supreme Court applied principles of standing: “For a lawsuit properly to be allowed to continue, standing must exist at all times until judgment is entered and not just on the date the complaint is filed. `[C]ontentions based on a lack of standing involve jurisdictional challenges and may be raised at any time in the proceeding.’ [Citations.]” Arguably, the FAP fails to state its cause of action, because the requested relief, to a “director,” cannot now be granted personally to Wolf. A plaintiff may lose [917] standing even where an actual controversy originally existed “but, by the passage of time or a change in circumstances, ceased to exist.” (3 Witkin, Cal. Procedure, supra, Actions, § 21, pp. 84-86; see Wilson v. L. A. County Civil Service Com. (1952) 112 Cal.App.2d 450, 453 [246 P.2d 688].)

 B. Authorities and Analysis

This court and other courts have strictly applied standing rules in this statutory context. In Chantiles, supra, 37 Cal.App.4th 914, 920-926, the court had before it an individual who was no longer on the board of a homeowners association, but who sought to assert a director’s inspection rights, in the context of challenging election results (under § 8334, creating association directors’ inspection rights that are parallel to those of § 1602). The Court of Appeal discussed the justification for considering the action not to be moot, in light of the director’s leaving office during the appeal. The court ruled that the inspection demand represented an issue of recurring interest that should be decided. (Chantiles, supra, at pp. 920-926.)

Next, on the merits of the inspection request by the former director, the court in Chantiles considered out-of-state authority, such as Oliver, supra, 693 S.W.2d 340, 343,in which it was held, “`the right of a director [of a nonprofit corporation] to inspect the books and records of the corporation ceases on his removal as a director, by whatever lawful means[.]'” (Chantiles, supra, 37 Cal.App.4th 914, 920.)

Although the former director, Chantiles, conceded he no longer had any director’s inspection rights, he continued to pursue his inspection request because he believed the election that removed him had not been fairly conducted. The corporation objected, raising privacy concerns about homeowner ballots that had been cast. The superior court created a limited ballot inspection procedure to be conducted by the former director’s own attorney, with certain privacy protections. However, the former director refused this proposed solution, “which strongly suggests his motive was not simply to check the math, but to find out how his neighbors actually voted. He cannot now complain that he was denied such an opportunity. The trial court’s order was appropriate.” (Chantiles, supra, 37 Cal.App.4th 914, 926.) The appellate court majority additionally based its holding upon the statement that “since Chantiles is no longer a director, he has no current inspection rights. Nor do we perceive any legitimate corporate interest he would have in the future, if reelected, for inspecting the [same] ballots.” (Chantiles, supra, 37 Cal.App.4th 914, 926, fn. 6.)

In a concurring opinion, Justice Crosby disagreed with the majority that there were any reasonably enforceable expectations of privacy by those [918] voters, but he concurred in the result because “Chantiles was a member of the homeowners association’s board of directors when he filed this action. He lost that seat in an election after the trial court entered judgment. As he is no longer a director, he enjoys no inspection rights under Corporations Code section 8334 [(parallel section to § 1602)]; and for that reason alone I concur in the decision not to award him any relief.” (Chantiles, supra, 37 Cal.App.4th 914, 927 (conc. opn. of Crosby, J.).) Further, the concurring opinion reasoned that the fiduciary duties of the former director were strong enough to override any privacy expectations of the homeowner/voters. “[A] director . . . is potentially liable for failure to exercise appropriate oversight, [so] an unconditional right to inspect is essential.” (Id. at p. 929 (conc. opn. of Crosby, J.).)

In Hartman v. Hollingsworth (1967) 255 Cal.App.2d 579 (Hartman), the petitioner was a director of a dissolved corporation, who sought inspection of corporate books.[FN 5] He claimed an ongoing need to inspect, based on “`various legal obligations'” flowing from his directorship and an “`absolute right'” to examine the corporate records to protect himself “accordingly.” (255 Cal.App.2d at pp. 581-582.)

In Hartman, supra, 255 Cal.App.2d 579, 582, the appellate court interpreted the statute (a former version of § 1602) with a view toward enforcement of its evident purposes. The unqualified statutory right of inspection allowed to a director was created only to aid the performance of his or her fiduciary duties to the corporation and its stockholders, such as in the winding-up process. When a “dead” corporation was no longer being wound up, the director had no further protected need to inspect corporate documents related to his former status. (255 Cal.App.2d at pp. 581-582.) Thus, the scope of the statute granting the right to inspect records was restricted to current, not former directors of corporations, when they retained responsibilities for winding up the corporation. That particular request for records was not properly made in pursuit of that legitimate purpose, so the petitioner (essentially a former director) did not qualify under the inspection statute. (Id. at pp. 581-582.)

In Tritek, supra, 169 Cal.App.4th 1385, 1390-1391, this court interpreted section 1602 to hold that a corporate director could lose the “absolute” right to inspect corporate documents. That director had filed his own shareholder action that was adversary to the corporation, and this served to remove any statutory basis for his right to access to all corporate documents: “In this situation, a court may properly limit a director’s inspection rights because the [919] 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.” (169 Cal.App.4th at p. 1391.) In light of his newly acquired adversary status, the director could not properly continue to seek a director’s access to documents that would be covered by the attorney-client privilege. (Id. at pp. 1391-1392.)

(9) To be entitled to inspect corporate records, directors must remain disinterested and independent in the performance of their fiduciary duties. (Tritek, supra, 169 Cal.App.4th at p. 1391.) In our case, the pleadings and judicially noticeable materials from the original complaint and petition proceedings demonstrated to the trial court that before Wolf received notification he would not be renominated, Wolf had inadvertently transmitted to corporate official Borden a copy of the draft complaint in which he planned to sue SERI and Devco, to compel them to provide more complete responses to his October 2007 request for information. Even though Wolf remained a director when he filed suit, his director’s entitlement to inspection of corporate records was severely undermined by those admissions of his potential adversary status to SERI.

(10) Chantiles, supra, 37 Cal.App.4th 914, the leading case in this area, was decided in 1995, and has not been overruled or limited in its holding or reasoning that currentdirector status is required to pursue current inspection rights. This line of cases will not allow enforcement of any absolute director’s right of inspection to a former corporate director, when the reason for the inspection right (holding office and performing fiduciary duties as a director) no longer exists. These authorities strictly interpret standing rules in applying the language of section 1602. Under the law as we understand it, Wolf has lost the status and standing that are required to justify pursuit of his asserted director’s inspection rights. The trial court correctly applied standing principles and interpreted the statute to find that Wolf was no longer under such fiduciary obligations, as a former director, to justify his claim to an ongoing and enforceable right to inspect corporate records. (Common Cause, supra, 49 Cal.3d at pp. 439-440.)

However, Wolf makes alternative arguments to justify recognition of ongoing inspection rights, as we next discuss.

 IV. IMPLIED STATUTORY OR EQUITABLE EXCEPTIONS

Wolf contends that his inspection rights as a corporate director became fixed when he filed his original pleading, and he therefore falls within some [920] implied statutory or equitable exception to the standing requirements of section 1602. He relies on out-of-state law that designates, for a discharged director, a “qualified right … covering a period of his directorship, whenever in the discretion of the trial court he can make a proper showing by appropriate evidence that such inspection is necessary to protect his personal responsibility interest as well as the interest of the stockholders.” (Cohen v. Cocoline Products, Inc., supra, 127 N.E.2d 906, 908, italics omitted; see also Oliver, supra, 693 S.W.2d 340 [Tenn. law].)

A. Nature of Removal from Office

Wolf first relies on language in Chantiles, supra, 37 Cal.App.4th 914, 920, to argue that “`the right of a director [of a nonprofit corporation] to inspect the books and records of the corporation ceases on his removal as a director, by whatever lawful means.‘” (Italics added.) According to Wolf, he was not “lawfully” removed, and he therefore retains inspection rights. In support, he argues that even if a valid notice were originally given for the September 10 annual meeting, when he received the letter from Borden that privately removed him from the notice of listed candidates, the meeting was no longer completely lawfully noticed, such that he was unlawfully not reelected. He relies on section 301, subdivision (b), generally holding that a director holds office “until the expiration of the term for which elected and until a successor has been elected and qualified,” to argue that he must retain directorship status for inspection purposes.

(11) Wolf’s argument about his status should be viewed in light of the purpose of the rules requiring adequate notice to shareholders about the agenda for an annual meeting. Section 601, subdivisions (a) and (f), set forth the requirements for notice of annual meetings, including their place, time and manner of shareholder participation. Section 601, subdivision (a) states: “The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the board for election.” (Italics added.) Section 601, subdivision (f) provides that shareholder approval of proposals is not valid unless the “general nature” of the proposal presented was stated in the notice of the meeting or in the written waiver of notice document. Those statutory requirements are reflected in the corporate articles for SERI, regarding notice of meetings.

The authors of 9 Witkin, Summary of California Law (10th ed. 2005) Corporations, section 86, page 859, explain that directors must properly call meetings, and obtain a quorum, for exercise of their powers as a board. This requirement of notice “is primarily for the protection of shareholders and may be relaxed where the shareholders have waived it or have otherwise consented to informal action.” (Ibid.)

[921] Under these standards, Wolf, as a director or former director, cannot show that the letter that notified him he would not be renominated amounted to a change in the notice given, that somehow invalidated the results of the election at the annual meeting. The notice was accurate when given, containing the names of nominees “intended at the time of the notice to be presented by the board for election,” including Wolf. (§ 601, subd. (a).) The general nature of the business of the meeting did not change. (§ 601, subd. (f).)

(12) Moreover, Wolf cannot successfully plead, as a matter of law, that it was wrongful for the board to decline to renominate him as a director. In the first place, not being renominated is not exactly the same as being removed, and Wolf’s term expired. His allegations that he was removed for the sole purpose of avoidance of corporate disclosure obligations amount only to contentions or conclusions of law that do not withstand demurrer. Under section 303, subdivision (a), a director may be removed without cause if the removal is approved by the shareholders, subject to certain protections. For example, section 303, subdivision (c) allows directors to be “removed” prior to the expiration of the director’s term of office, only under certain circumstances (for cause or incompetence as confirmed by court order; §§ 302, 304). This record does not reflect whether Wolf has been replaced, but in any case, he has not pled the corporation is unable to function due to an inadequate number of directors. (See § 301, subd. (b), providing that a director holds office until the expiration of his or her term and until a successor is in place.)

(13) Wolf has no authority to support his argument that his inspection rights continue simply because he was still in office when he made the inspection requests and when he filed suit. Despite his public policy arguments promoting corporate accountability, he has not been transformed into an ombudsman or freelance investigator, for purposes of inspecting corporate records. When he lost his seat on the board, he lost standing to assert recognized inspection rights, since they are intended to promote the appropriate exercise of a director’s fiduciary duties. (Common Cause, supra, 49 Cal.3d 432, 439-440.) The current record does not support a claim that he was unlawfully removed, and he has not shown how he can plead around the fact that his term expired, in order to plead an equitable right to inspection.

B. Potential Personal Liability of Former Director

Wolf alternatively asserts that he should be allowed to inspect SERI corporate records, even though he has left its board, because he might come under some personal exposure to liability, stemming from the time that he served upon the board. He again relies on the authority that a discharged director seeking to inspect corporate records may have a “qualified right . . . covering a period of his directorship, whenever in the discretion of the trial [922] court he can make a proper showing by appropriate evidence that such inspection is necessary to protect his personal responsibility interest as well as the interest of the stockholders.” (Cohen v. Cocoline Products, Inc., supra, 127 N.E.2d 906, 908, italics added & omitted.)

Wolf fears that he may be subject to claims (by minority shareholders) that, while he was in office, he did not do enough to combat corporate mismanagement, so he should be able to defend himself by inspecting records of SERI transactions. He cites to several sections that might have been violated by others, such as those prohibiting corporate officers or directors from making false reports or altering records, which might lead to some imposition of penalties for defrauding shareholders or misusing corporate assets. (§§ 1507, 2201, 2251, 2254, 2255.)

(14) At the pleading stage, to support allegations of continued inspection rights of a director, Wolf would have to set forth facts supporting his potential exposure to personal liability for his own acts as a director or acts of other corporate officers, such as if he “(1) participated in the acts, (2) was negligent in supervising the business, or (3) was negligent in the appointment of the wrongdoer. The director cannot be held liable for wrongs of officers that take place after the director has ceased to be a director.” (9 Witkin, Summary of Cal. Law, supra, Corporations, § 105, pp. 881-882.) Thus, Wolf would have to show facts supporting allegations that the business judgment rule would not likely protect him from personal liability, for any ultimately adjudicated failure on his watch as a director, such as failing to remedy corporate misconduct by wrongdoers. (See ibid.) Wolf has not shown facts to support assertions of continued inspection rights of a director, on the basis that personal liability is a realistic threat to him.

We emphasize that our analysis is restricted to Wolf’s claims for statutory or equitable relief due him, in his capacity as a director or former director, and we do not discuss any alternative remedies to which he may theoretically be entitled, on some other legal theory or in some other pleading. He may be able to pursue other avenues to redress alleged corporate mismanagement to promote his corporate accountability position. We decide only that Wolf has not shown any error or abuse of discretion in the superior court’s well-reasoned ruling that dismissed the FAP, for failure to state a claim upon which relief can be granted.

[923]

DISPOSITION

The judgment of dismissal is affirmed. Costs are awarded to respondents.

Nares, J., and McIntyre, J., concurred.

FN1 – All further statutory references are to the Corporations Code unless noted. Section 1602 in relevant part provides: “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.”

FN 2 – Originally, Wolf also sought relief in mandamus in another respect, as a 20 percent shareholder of Devco, but he has dismissed those shareholder claims from this action. A judicial notice request has been brought by defendants regarding another such related shareholder action, as we will discuss in part IIB., post.

FN 3 – Section 1603, subdivision (a) in relevant part provides: “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 ….”

FN 4 – It must be emphasized that the subject ruling did not sustain the demurrers without leave to amend as to Wolf’s shareholder petition with respect to Devco, but as noted, Wolf has voluntarily dismissed that portion of his claims in order to obtain this immediate appellate review of his inspection theory as a SERI director.

FN 5 – Hartman, supra, 255 Cal.App.2d 579, was disapproved on another point in Penasquitos, Inc. v. Superior Court (1991) 53 Cal.3d 1180, 1184, for its adherence to common law rules about the lack of any surviving actions against a dissolved corporation; now, causes of action are not entirely lost by reason of such dissolution.

Havlicek v. Coast-to-Coast Analytic Services, Inc.

(1995) 39 Cal.App.4th 1844

[Director Inspection Rights; Breach of Duties] A director’s rights to inspect corporate records may be denied where the corporation believes such rights will be used to commit a tort against the corporation.

McCutchen, Doyle, Brown & Enersen, Susan L. Hoffman, James G. Snell and Neil A. Rubin for Plaintiffs and Appellants.

Richards, Watson & Gershon, Timothy L. Neufield and Alison E. Maker for Defendants and Respondents.

OPINION
YEGAN, J.

Appellants Mary Havlicek and Stephen C. Havlicek, directors of respondent Coast-to-Coast Analytical Services, Inc. (CCAS), sought an[1849]order from the superior court allowing them to inspect the books and records of CCAS. In addition, appellants unsuccessfully sought to enjoin a pending merger by CCAS until they had completed their inspection. Appellants contend they have an “absolute right” to review all CCAS documents and are not required to explain or justify their inspection demands. (Corp. Code, § 1602.) fn. 1

CCAS objected to the inspection on the theory that Delaware law applied because CCAS is a Delaware corporation. Pursuant to the Delaware statute, a director may review corporate documents only for “a purpose reasonably related to his position as a director[,]” and the Delaware Court of Chancery has exclusive jurisdiction to enforce inspection rights. (Del. Code Ann. tit. 8, § 220, subd. (d) (1995).) The trial court agreed with CCAS and denied appellants’ request, stating that it lacked “jurisdiction” to order an inspection.

We conclude that the trial court erred in applying Delaware law and in refusing to grant appellants, at the very least, an “inspection with just and proper conditions.” (§ 1603, subd. (a).) fn. 2

Facts

CCAS is a Delaware corporation. When appellants filed their request in the superior court, CCAS maintained its principal executive office in Camarillo, California. Appellants are two of the five directors of CCAS and control 40 percent of its stock. They reside in California. The three remaining directors of CCAS are employees of respondent ISS International Service System, Inc. (ISS), which owns 60 percent of CCAS stock.

Appellants allege that, on April 24, 1994, they were constructively terminated from their positions as officers and employees of CCAS. In early May,[1850]CCAS announced plans to merge its assets with those of two other corporations to form Pace Incorporated. Appellants opposed the merger and demanded broad access to CCAS documents. Although CCAS allowed appellants to review certain documents, other documents were withheld because CCAS became suspicious that appellants would use them to establish a competing business.

A majority of the CCAS directors approved the merger on June 6, 1994. Appellants voted against it and continued, unsuccessfully, to demand access to company documents. They filed this action on July 27, 1994, five days before the merger was scheduled to close. At the hearing on July 28, the trial court denied relief. On August 1, 1994, we also denied appellants’ petition for writ of mandate.

On August 3, 1994, CCAS merged with Pace. CCAS no longer maintains an office in California. Although it continues to exist as a corporation, its only assets are shares of stock in Pace. Pace, located in New York, now owns the documents appellants wish to inspect but CCAS has represented that they continue to exist and can be made available for inspection. The controversy is not over. Litigation between the parties is extant.

The Relocation of CCAS’s Principal Office and Removal of the Documents From California Does Not Render This Action Moot.

[1] CCAS argues this appeal is moot because CCAS has transferred its documents and assets to Pace and no longer maintains an executive office in California. An action becomes moot when ” ‘pending an appeal from the judgment of a lower court, and without any fault of the defendant, an event occurs which renders it impossible for this court, if it should decide the case in favor of plaintiff, to grant him any effectual relief whatever ….’ ” (Finnie v. Town of Tiburon (1988) 199 Cal.App.3d 1, 10 [244 Cal.Rptr. 581].)

The fact that CCAS has relocated and removed the documents from California is insufficient to render the action moot. Changed circumstances render a matter moot only when they occur ” ‘without any fault of the defendant ….’ ” (199 Cal.App.3d at p. 10.)

CCAS is, of course, responsible for closing the California office and its moving of the documents out of state. We need not decide whether section 1603, subdivision (a) limits the right of a director to inspect “… books and records kept in this state …” or whether the “in the state” aspect of the statute applies only to court-appointed inspectors or accountants. Where, as[1851]here, the books and records are moved, section 1603 cannot be used as a shield to defeat inspection. This rule is but a variation of the equitable maxim, “[n]o one can take advantage of his own wrong.” (Civ. Code, § 3517.) Moreover, an “… appeal reviews the correctness of the judgment or order as of the time of its rendition ….” (Karrin v. Ocean-Air Mobile Home Estates (1991) 1 Cal.App.4th 1066, 1070 [2 Cal.Rptr.2d 581]; see also In re Elise K. (1982) 33 Cal.3d 138, 149 [187 Cal.Rptr. 483, 654 P.2d 253].)

Choice of Law

[2a] Appellants insist that California law governs the inspection issue. CCAS argues that Delaware law applies because CCAS is a Delaware corporation. [3] To determine the correct choice of law, we apply a three-step analysis. First, we determine whether the two concerned states have different laws. Second, we consider whether each state has an interest in having its law applied to this case. Finally, if the laws are different and each state has an interest in having its own law applied, we apply the law of the state whose “interests would be more impaired if its policy were subordinated to the policy of the other state.” (North American Asbestos Corp. v. Superior Court (1986) 180 Cal.App.3d 902, 905 [225 Cal.Rptr. 877]. See also Bernhard v. Harrah’s Club (1976) 16 Cal.3d 313, 320 [128 Cal.Rptr. 215, 546 P.2d 719].)

[2b] The California statute provides: “Every director [has] the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind ….” (§ 1602.) Under the analogous Delaware statute, a director has “the right to examine the corporation’s … books and records for a purpose reasonably related to his position as a director.” (Del. Code Ann. tit. 8, § 220, subd. (d) (1995).) In addition, the Delaware statute grants its Court of Chancery exclusive jurisdiction to resolve disputes concerning inspections by corporate directors. (Ibid.)

If Delaware law applies, the Delaware Court of Chancery has exclusive jurisdiction and appellants must prove that they have a proper purpose for their request. The California statutory scheme does not impose a “proper purpose” requirement (Valtz v. Penta Investment Corp. (1983) 139 Cal.App.3d 803, 810 [188 Cal.Rptr. 922]), and appellants have never articulated the purpose for their inspection demand. Thus, while the California[1852]statutory scheme would grant appellants an inspection, the same would not necessarily be true under the more restrictive Delaware statute. fn. 3

The directors of a corporation owe a fiduciary duty to the corporation and its shareholders. (Hartman v. Hollingsworth (1967) 255 Cal.App.2d 579, 581-582 [63 Cal.Rptr. 563].) Section 1602 represents a legislative judgment that directors are better able to discharge those duties if they have free access to information concerning the corporation. Thus, California has a public policy favoring broad inspection rights for the directors. The Legislature has also declared that it is the public policy of California to apply the same standards to foreign corporations whose principal executive offices are located in California. We may not ignore that declaration of public policy. (California Casualty Indemnity Exchange v. Pettis (1987) 193 Cal.App.3d 1597, 1605 [239 Cal.Rptr. 205].)

Delaware also has important interests at stake. Because CCAS is a creation of Delaware law, Delaware has an interest in prescribing the powers of CCAS, imposing uniform regulations on its internal affairs, and controlling its rights and liabilities. (Riley v. Fitzgerald (1986) 178 Cal.App.3d 871, 877 [223 Cal.Rptr. 889].) The Delaware statute expresses a public policy which attempts to protect corporations against unreasonable or burdensome inspections by directors.

We must decide which state’s interests would be more impaired if its policy were subordinated to the policy of the other state. (Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 166 [148 Cal.Rptr. 867, 583 P.2d 721].) Delaware’s interest in regulating the activities of its domestic corporations is less substantial where, as here, its only contact with the corporation is in issuing a certificate of incorporation. CCAS has no Delaware shareholders or directors. It does not have an office or store its documents in Delaware. The record does not reflect whether CCAS ever conducted business in Delaware. By contrast, California has strong contacts with CCAS. CCAS maintained its principal office and most of the documents at issue in this state until the merger occurred. CCAS also conducted business in California and employed California residents. Forty percent of its stock and two of the five seats on its board of directors are controlled by California residents.[1853]

California’s interests would be impaired by the application of Delaware law because Delaware cannot at the same time honor a director’s “absolute” inspection right and limit inspections to a “purpose reasonably related to his position as a director.” However, as we shall explain, the trial court can protect Delaware’s interest in avoiding a burdensome inspection by imposing reasonable conditions. We conclude, therefore, that California’s interest would be more impaired by the application of Delaware law than Delaware’s interest would be impaired by the opposite result. California law applies to the inspection issue. fn. 4

Section 2115 Does Not Render Section 1602 Inapplicable.

[4] CCAS argues that it need not comply with section 1602 because it does not meet the test provided in section 2115 for the application of California law to a foreign corporation. Section 2115 provides that portions of the Corporations Code, including section 1602, apply to a foreign corporation if, among other things, “more than one-half of its outstanding voting securities are held of record by persons having addresses in this state.” (§ 2115, subd. (a).) ISS owns 60 percent of the CCAS voting securities and does not have an address in California.

CCAS fails the test under section 2115, but that does not settle the question because section 1602 contains a separate and distinct test; i.e., a “long arm” provision. The statute provides that it “applies to a director of any foreign corporation having its principal executive office in this state ….” (§ 1602.) CCAS meets this test but argues that section 1602 applies only where the corporation also meets the test established in section 2115.

Section 1602 was amended to apply to foreign corporations after section 2115 was enacted. We assume that the Legislature was aware of section 2115 when it amended section 1602 and that it intended to maintain a consistent body of statutes. (Schmidt v. Southern Cal. Rapid Transit Dist. (1993) 14 Cal.App.4th 23, 27 [17 Cal.Rptr.2d 340].) We must also avoid an interpretation of section 2115 which requires that section 1602 be ignored unless ” ‘the two acts are so inconsistent that there is no possibility of concurrent operation ….’ ” (Hays v. Wood (1979) 25 Cal.3d 772, 784 [160 Cal.Rptr. 102, 603 P.2d 19].)[1854]

Here, although the two sections contain different tests, they are capable of concurrent operation. Each section may be given effect because each establishes a separate and distinct test for determining whether a foreign corporation must comply with section 1602. CCAS met one such test and is therefore required to comply with section 1602, regardless of whether it also meets the other available test.

The Internal Affairs Doctrine Does Not Require Application of Delaware Law.

[5] CCAS argues that Delaware law must be applied because the appellants’ claim involves the internal affairs of a Delaware corporation, a matter traditionally controlled by the state of incorporation. (Valtz v. Penta Investment Corp., supra, 139 Cal.App.3d at p. 807.) “The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs … because otherwise a corporation could be faced with conflicting demands.” (Edgar v. MITE Corp. (1988) 457 U.S. 624, 645 [73 L.Ed.2d 269, 285, 102 S.Ct. 2629].) Here, complying with California law will not require CCAS to violate Delaware law. The Delaware statute allows, but does not require, that a corporation restrict the inspection rights of its directors. CCAS will not violate Delaware law by granting appellants greater access to its documents. The internal affairs doctrine does not apply.

Section 1602 Does Not Violate the Commerce Clause.

[6] CCAS also argues that application of California law in this case would violate the commerce clause of the United States Constitution. (U.S. Const., art. I, § 8, cl. 3.) We disagree. The commerce clause prohibits states from discriminating against interstate commerce. (Fort Gratiot Sanitary Landfill, Inc. v. Michigan Dept. of Natural Resources (1992) 504 U.S. 353 [119 L.Ed.2d 139, 147, 112 S.Ct. 2019].) It also “precludes the application of a state statute to commerce that takes place wholly outside of the State’s borders … ,” (Edgar v. MITE Corp., supra, 457 U.S. at pp. 642-643 [73 L.Ed.2d at p. 283]) and invalidates regulations that “adversely … affect interstate commerce by subjecting activities to inconsistent regulations.” (CTS Corp. v. Dynamics Corp. of America (1987) 481 U.S. 69, 88 [95 L.Ed.2d 67, 84, 107 S.Ct. 1637].)

Section 1602 does not suffer from these defects. It does not discriminate against foreign corporations because it imposes on those corporations the same burdens imposed upon domestic corporations. It does not apply to[1855]activities occurring wholly outside the borders of California because, until the merger, most CCAS documents were located in California. The same would probably be true for any foreign corporation maintaining its principal office in this state. Finally, section 1602 does not subject CCAS to conflicting regulatory demands. Application of section 1602 to CCAS does not, therefore, violate the commerce clause.

Section 1602 Does Not Violate the Full Faith and Credit Clause.

[7] Similarly, section 1602 does not violate the full faith and credit clause. (U.S. Const., art. IV, § 1 [“Full Faith and Credit … be given in each State to the public Acts, Records and Judicial Proceedings of every other State ….”].) A state’s choice of law decision does not violate the full faith and credit clause if the state has significant contacts with the dispute ” ‘such that choice of its law is neither arbitrary nor fundamentally unfair.’ ” (Wilson v. Louisiana-Pacific Resources, Inc. (1982) 138 Cal.App.3d 216, 222-223 [187 Cal.Rptr. 852].) For purposes of the full faith and credit clause, the location of a corporation’s principal executive office within a state is a “significant contact.” (Valtz v. Penta Investment Corp., supra, 139 Cal.App.3d at p. 807.)

CCAS located its principal executive office in this state and has more substantial contacts with California than it does with Delaware. Accordingly, the choice of California law as opposed to Delaware law is neither arbitrary nor fundamentally unfair. Application of section 1602 does not violate the full faith and credit clause.

The Trial Court May Impose Limitations on Appellants’ Inspection Rights Under Sections 1602 and 1603.

[8] The trial court must apply California law but is not obligated to grant appellants unfettered access to every document ever created by CCAS. Instead, the trial court may impose “just and proper conditions” upon appellant’s otherwise “absolute” inspection rights. We admit that the Legislature’s choice of the word, “absolute,” in section 1602 does give us pause. But one hypothetical illustrates that “absolute” cannot mean “absolute.” 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[1856]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. fn. 5 ” ‘ “The literal meaning of the words of a statute may be disregarded to avoid absurd results ….” ‘ [Citation.]” (Unzueta v. Ocean View School Dist. (1992) 6 Cal.App.4th 1689, 1698 [8 Cal.Rptr.2d 614].)

The “absolute right” to inspect documents is the general rule in California. However, section 1602 must be read in pari materia with section 1603. (Unzueta v. Ocean View School Dist., supra, 6 Cal.App.4th at p. 1695.) The language of section 1603, subdivision (a) is expansive. It is not expressly limited to an inspection request by a shareholder. Being a remedial statute, it must be liberally construed. (Ford Dealers Assn. v. Department of Motor Vehicles (1982) 32 Cal.3d 347, 356 [185 Cal.Rptr. 453, 650 P.2d 328].)Where the corporation determines that an unfettered inspection will result in a tort against the corporation, it may decline the request for inspection.In this situation, “… directors can enforce their inspection rights by court action…. [§ 1603].” (Friedman, Cal. Practice Guide: Corporations 2 (The Rutter Group 1995) ¶ 6:502, pp. 6-98; see also 15 Cal.Jur.3d, Corporations, § 263, p. 367 )

Upon a director’s request for inspection pursuant to section 1603 in the superior court, the corporation must demonstrate, by evidentiary showing, that a protective order is necessary to prevent a tort against the corporation. Whether there are other situations where a director’s inspection rights may be curtailed is not before us and we offer no opinion thereon. The superior court may then exercise its broad discretion under section 1603, subdivision (a) to fashion a protective order imposing just and proper conditions on the inspection. Precisely what “just and proper conditions” are necessary in this case, if any, is a question we leave to the superior court.

Conclusion

The trial court erred in applying Delaware law and denying appellants any inspection rights. We reverse and remand the matter to allow the trial court[1857]to enter an order granting appellants an appropriate inspection. Each party shall bear its own costs. Stone (S. J.), P. J., and Gilbert, J., concurred.

FN *. Retired judge of the Ventura Municipal Court sitting under assignment by the Chairperson of the Judicial Council.

FN 1. All statutory references are to the Corporations Code unless otherwise stated.

Section 1602 provides: “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. Such inspection by a director may be made in person or by agent or attorney and the right of inspection includes the right to copy and make extracts. This section applies to a director of any foreign corporation having its principal executive office in this state or customarily holding meetings of its board in this state.”

FN 2. Section 1603, subdivision (a) provides: “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 case 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 of any subsidiary corporation thereof, domestic or foreign, keeping records in this state and to report thereon in such manner as the court may direct.”

FN 3. Appellants place great reliance on Valtz v. Penta Investment Corp., supra, 139 Cal.App.3d 803. There, owners of over 5 percent of the shares sought to enforce their “absolute right” to inspect and copy the shareholders list. The corporation refused, alleging that the information would be used in a competing business. (Id., at p. 806.) The opinion does observe that the “unclean hands” defense was tantamount to the “proper purpose” rule and therefore inapplicable. (Id., at p. 810.) The opinion, however, is silent with respect to section 1603 subdivision (a) and its provision for a protective order.

FN 4. Our construction of section 1603, subdivision (a) (see post, at pp. 1855-1856) does not render the conflict of laws issue moot. The California and Delaware rules for director inspection remain different.

Were we to rule that Delaware law applied to this inspection controversy, a director’s right to inspect would not only be chilled, it might be frozen. Whether appellants would suffer the burden of litigating the inspection issue in the Delaware chancery court is unknown.

FN 5. We also note the recent case of Chantiles v. Lake Forest II Master Homeowners Assn. (1995) 37 Cal.App.4th 914 [45 Cal.Rptr.2d 1]. There, an analogous provision in section 8334, provided for an “absolute right” of inspection for a homeowners association director. Notwithstanding the use of the word “absolute,” a majority of the court were of the opinion that the right to privacy could, and there did, outweigh the “absolute” right of inspection. (37 Cal.App.4th at pp. 925-926.)

Tritek Telecom, Inc. v. Superior Court

(2009) 169 Cal.App.4th 1385

[Director Inspection Rights; Attorney-Client Privilege] A director’s right to inspect corporate records does not include the right to access attorney-client privileged information that was generated in defense of a suit filed by the director against the corporation.

The Gomez Law Group and Alvin M. Gomez for Petitioner.
No appearance for Respondent.

The Law Offices of Shawn A. McMillan, Shawn A. McMillan; and Kathryn E. Karcher for Real Party in Interest.

OPINION
MCINTYRE, J.-

Although corporate directors have an “absolute right” to “inspect and copy all [corporate] books, records and documents of every kind” (Corp. Code, § 1602), including documents protected by the attorney-client privilege, we conclude that a corporate director does not have the right to access documents covered by the attorney-client privilege that were generated in defense of a suit for damages that the director filed against the corporation.(All undesignated statutory references are to the Corporations Code unless otherwise specified.) As such, we grant the petition and direct the trial court to conduct further proceedings to determine whether: (1) the requested documents are covered by the attorney-client privilege and (2) if the requested documents are privileged, whether an exception exists or there was an express or implied waiver of the privilege.

FACTUAL AND PROCEDURAL BACKGROUND

Tritek Telecom, Inc. (Tritek) is a California corporation with two equal shareholders, Andre Rerolle and Prospect Development Inc. (Prospect), a[1388]company solely owned by Chik-Lun Mak. Tritek initially had three members on its board of directors, Alvin Ly, Rerolle and Mak. In May 2007, Rerolle and Mak hired L. Michael Wilson of the Apollo Law Group to act as Tritek’s corporate counsel in relation to Ly’s resignation from the board, leaving Rerolle and Mak as the sole members of Tritek’s board of directors.

The following month, conflicts arose between Rerolle and Mak regarding the operation of Tritek and management responsibilities. Mak claimed, among other things, that Rerolle improperly locked him out of Tritek facilities, stopped paying his salary and misappropriated Tritek assets. In turn, Rerolle claimed that Mak engaged in numerous corporate improprieties.

Mak and Prospect sued Tritek, Rerolle and others, alleging various causes of action and seeking return of their $410,000 investment and damages against all defendants. (Prospect Development, Inc. v. Tritek Telecom, Inc., (Super. Ct. San Diego County, 2007, No. 37-2007-00072571-CU-MC-CTL (the shareholder action).) The shareholder action was assigned to the Honorable Ronald S. Prager. Tritek later filed a cross-complaint against Mak, Prospect, Ly and others alleging, among other things, that Mak breached his fiduciary duties to and defrauded the corporation. Wilson initially represented Tritek and Rerolle in the shareholder action, but Judge Prager granted a motion to disqualify him as counsel, noting that Wilson removed himself as counsel for Tritek and finding that Wilson had previously given advice to both Mak and Rerolle and was now precluded from representing one against the other.

Mak and Prospect later filed a complaint against Tritek and Rerolle, seeking the removal of Rerolle as a director for Tritek (which is pending before Judge Prager) and a separate petition for the appointment of a provisional director which was assigned to the Honorable Joan M. Lewis. Judge Lewis has since entered a judgment appointing Richard M. Kipperman as a provisional director of Tritek.

Mak filed the instant petition under section 1603 against Tritek, Rerolle and Wilson, seeking to enforce his right as a director of Tritek to inspect Tritek’s books and records and the matter was assigned to the Honorable Yuri Hofmann. Tritek, Rerolle and Wilson answered, asserting the petition sought attorney-client privileged documents generated by Tritek and Rerolle in defense of Mak’s related actions. Tritek also raised the attorney work product doctrine. After Mak dismissed Wilson and Rerolle, the trial court tentatively granted the petition, stating that Tritek’s evidentiary showing was insufficient to justify withholding the documents and noting that Tritek had previously given Mak access to the requested documents and this “seemingly render[ed] the privilege objections moot.”[1389]

At a hearing on the ruling, the trial court denied Tritek’s requests for an evidentiary hearing and for judicial notice of additional documents. The trial court concluded that Tritek failed to meet its burden to show cause why the records should not be produced and adopted its tentative ruling.

After Mak filed a proposed judgment and proposed peremptory writ of mandate, Tritek objected to them on the ground they ordered disclosure of confidential attorney-client communications generated by Tritek in defense of litigation brought by Mak in other related actions. Wilson substituted out as Rerolle’s attorney and objected to the proposed judgment and writ because they ordered disclosure of confidential attorney-client communications between himself and Rerolle. Rerolle also objected to the proposed judgment and writ on the same grounds and suggested submitting a privilege log. The trial court took no action on the objections, entered the proposed judgment and issued the peremptory writ of mandate.

Among other things, the judgment ordered Tritek to produce: (1) the entire content of the Apollo Law Group case files relating to the shareholder action and any other matters for which Apollo Law Group has been consulted or employed by Tritek; (2) all communications between Apollo Law Group and any officer, director or employee of Tritek; and (3) any case files evidencing Tritek’s involvement in any litigation.

Tritek sought writ review of the judgment, arguing the trial court abused its discretion by failing to continue the evidentiary hearing and ordering disclosure of documents covered by the attorney-client privilege and attorney work product doctrine. We stayed production of the documents and the subsequent judgment and issued an order to show cause why the relief sought should not be granted. During the pendency of this proceeding, the parties settled the underlying case; however, they requested a decision on the unresolved legal issue presented in this writ proceeding.

(Mak’s requests for judicial notice of various documents in the related actions are granted. (Evid. Code, § 452, subd. (d).) Tritek’s request to strike portions of Shawn A. McMillan’s declaration is denied.)

DISCUSSION

1. General Legal Principles

[1] A client has a privilege to refuse to disclose, and to prevent another from disclosing, a confidential communication between the client and his or her lawyer unless the privilege is waived. (Evid. Code, § 954.) A corporation is a “client” protected by the attorney-client privilege[1390](Evid. Code, §§ 175, 951;D.I. Chadbourne, Inc. v. Superior Court(1964) 60 Cal.2d 723, 736) and a “confidential communication” includes “a legal opinion formed and the advice given by the lawyer in the course of that [attorney-client] relationship.” (Evid. Code, § 952.) [2] Once a party establishes that a privilege applies, the burden shifts to the party opposing the privilege to demonstrate that the privilege did not apply, that an exception existed, or that there was an express or implied waiver. (Evid. Code, §§ 405, 917, subd. (a);Titmas v. Superior Court(2001) 87 Cal.App.4th 738, 745.)

[3] Corporate directors owe a fiduciary duty of care to the corporation and its shareholders and must serve “in good faith, in a manner such director believes to be in the best interests of the corporation and its shareholders[.]” (§ 309, subd. (a).) Although it is generally presumed that the directors of a corporation are acting in good faith (Katz v. Chevron Corp.(1994) 22 Cal.App.4th 1352, 1366), a court is required to defer to the business judgment only of disinterested directors. (See, e.g., Gaillard v. Natomas Co.(1989) 208 Cal.App.3d 1250, 1265-1266.) “[A] director is independent when he is in a position to base his [or her] decision on the merits of the issue rather than being governed by extraneous considerations or influences. [Citation.]” (Katz v. Chevron Corp., supra, 22 Cal.App.4th at p. 1367.)

[4] Corporate directors also have the “absolute right” at any reasonable time to inspect and copy all corporate books, records, and documents of every kind (§ 1602) and a court may enforce this right “with just and proper conditions.” (§ 1603.) 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.” (Havlicek v. Coast-to-Coast Analytical Services, Inc.(1995) 39 Cal.App.4th 1844, 1852.)The absolute right, however, 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, such as using inspection rights to learn trade secrets to compete with the corporation. (Id. at pp. 1855-1856.)

2. Analysis

Initially, we note that four separate but related matters were assigned to three different judges and there is a possibility of conflicting rulings on discovery matters. There are rules to prevent this. (Cal. Rules of Court, rule 3.300.) Accordingly, the presiding judge of the superior court is directed to send this petition and any pending related matters to one judge.[1391]

On the merits, Tritek does not dispute Mak’s right to inspect general corporate documents; rather, it contends that the trial court’s ruling was overbroad because it encompassed documents protected by the attorney-client privilege. We agree.

Mak filed this action to enforce his inspection rights as a director after he filed the shareholder action against Tritek and Rerolle in his individual capacity as a shareholder to vindicate his personal rights. Accordingly, Mak is not a disinterested director and the presumption of good faith does not apply. Additionally, enforcing Mak’s “absolute” inspection rights in this case is problematic because it gives him access to documents he could not obtain via discovery in the shareholder action.

[5] Although Mak is still a Tritek director, his filing of the shareholder action makes him Tritek’s adversary. 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. 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 interest in obtaining damages against the corporation.(La Jolla Cove Motel and Hotel Apartments, Inc. v. Superior Court(2004) 121 Cal.App.4th 773, 787-788 [corporate counsel has no duty to disclose privileged information to dissident director with which the corporation has a dispute].)

[6]Accordingly, we conclude that a corporate director does not have the right to access documents that are covered by the attorney-client privilege and were generated in defense of a suit for damages that the director filed against the corporation. Although the trial court noted that Tritek had given Mak access to corporate documents and this production “seemingly” rendered the privilege objections moot, Mak presented no evidence showing Tritek had produced attorney-client privileged documents in response to his earlier request. Thus, the trial court had no factual basis on which to conclude Tritek had waived its right to assert the attorney-client privilege.

Furthermore, Wilson and the Apollo Law Group jointly represented Rerolle in the shareholder action for a period of time and Rerolle properly asserted his individual attorney-client privilege. Mak is not entitled to any documents covered by Rerolle’s individual attorney-client privilege. Finally, while it is unlikely that Tritek has documents covered by the attorney work product doctrine that would not also be covered by the attorney-client privilege, the trial court should allow the parties to address the application of this doctrine.

Under these circumstances, the trial court is directed to conduct further proceedings to determine whether: (1) any of the requested documents are[1392]covered by the attorney-client privilege or attorney work product doctrine, and (2) if the requested documents are privileged, whether an exception exists or there was an express or implied waiver of the privilege.

DISPOSITION

Let a writ of mandate issue directing the superior court to vacate its May 12, 2008, judgment and peremptory writ of mandate and to conduct further proceedings in accordance with the views expressed in this opinion. The presiding judge of the superior court is further directed to transfer this matter to one judge. Tritek is entitled to its costs in this writ proceeding. The stay issued on May 12, 2008, will be vacated when the opinion is final as to this court.

Huffman, Acting P. J., and Aaron, J., concurred.

Code of Civil Procedure Section 116.220. Small Claims Court.

(a) The small claims court has jurisdiction in the following actions:

(1) Except as provided in subdivisions (c), (e), and (f), for recovery of money, if the amount of the demand does not exceed six thousand two hundred fifty dollars ($6,250).

(2) Except as provided in subdivisions (c), (e), and (f), to enforce payment of delinquent unsecured personal property taxes in an amount not to exceed six thousand two hundred fifty dollars ($6,250), if the legality of the tax is not contested by the defendant.

(3) To issue the writ of possession authorized by Sections 1861.5 and 1861.10 of the Civil Code if the amount of the demand does not exceed six thousand two hundred fifty dollars ($6,250).

(4) To confirm, correct, or vacate a fee arbitration award not exceeding six thousand two hundred fifty dollars ($6,250) between an attorney and client that is binding or has become binding, or to conduct a hearing de novo between an attorney and client after nonbinding arbitration of a fee dispute involving no more than six thousand two hundred fifty dollars ($6,250) in controversy, pursuant to Article 13 (commencing with Section 6200) of Chapter 4 of Division 3 of the Business and Professions Code.

(5) For an injunction or other equitable relief only when a statute expressly authorizes a small claims court to award that relief.

(b) In any action seeking relief authorized by paragraphs (1) to (4), inclusive, of subdivision (a), the court may grant equitable relief in the form of rescission, restitution, reformation, and specific performance, in lieu of, or in addition to, money damages. The court may issue a conditional judgment. The court shall retain jurisdiction until full payment and performance of any judgment or order.

(c) Notwithstanding subdivision (a), the small claims court has jurisdiction over a defendant guarantor as follows:

(1) For any action brought by a natural person against the Registrar of the Contractors State License Board as the defendant guarantor, the small claims jurisdictional limit stated in Section 116.221 shall apply.

(2) For any action against a defendant guarantor that does not charge a fee for its guarantor or surety services, if the amount of the demand does not exceed three thousand one hundred twenty-five dollars ($3,125).

(3) For any action brought by a natural person against a defendant guarantor that charges a fee for its guarantor or surety services, if the amount of the demand does not exceed eight thousand one hundred twenty-five dollars ($8,125).

(4) For any action brought by an entity other than a natural person against a defendant guarantor that charges a fee for its guarantor or surety services or against the Registrar of the Contractors State License Board as the defendant guarantor, if the amount of the demand does not exceed five thousand dollars ($5,000).

(d) In any case in which the lack of jurisdiction is due solely to an excess in the amount of the demand, the excess may be waived, but any waiver is not operative until judgment.

(e) Notwithstanding subdivision (a), in any action filed by a plaintiff incarcerated in a Department of Corrections and Rehabilitation facility, the small claims court has jurisdiction over a defendant only if the plaintiff has alleged in the complaint that the plaintiff has exhausted the plaintiff’s administrative remedies against that department, including compliance with Sections 905.2 and 905.4 of the Government Code. The final administrative adjudication or determination of the plaintiff’s administrative claim by the department may be attached to the complaint at the time of filing in lieu of that allegation.

(f) In any action governed by subdivision (e), if the plaintiff fails to provide proof of compliance with the requirements of subdivision (e) at the time of trial, the judicial officer shall, at the plaintiff’s discretion, either dismiss the action or continue the action to give the plaintiff an opportunity to provide that proof.

(g) For purposes of this section, “department” includes an employee of a department against whom a claim has been filed under this chapter arising out of an employee’s duties as an employee of that department.

(Amended by Stats. 2023, Ch. 861, Sec. 5. (SB 71) Effective January 1, 2024.)

Code of Civil Procedure Section 726. One Action for Recovery of Debt.

(a) There can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein, which action shall be in accordance with the provisions of this chapter. In the action the court may, by its judgment, direct the sale of the encumbered real property or estate for years therein (or so much of the real property or estate for years as may be necessary), and the application of the proceeds of the sale to the payment of the costs of court, the expenses of levy and sale, and the amount due plaintiff, including, where the mortgage provides for the payment of attorney’s fees, the sum for attorney’s fees as the court shall find reasonable, not exceeding the amount named in the mortgage.

(b) The decree for the foreclosure of a mortgage or deed of trust secured by real property or estate for years therein shall declare the amount of the indebtedness or right so secured and, unless judgment for any deficiency there may be between the sale price and the amount due with costs is waived by the judgment creditor or a deficiency judgment is prohibited by Section 580b, shall determine the personal liability of any defendant for the payment of the debt secured by the mortgage or deed of trust and shall name the defendants against whom a deficiency judgment may be ordered following the proceedings prescribed in this section. In the event of waiver, or if the prohibition of Section 580b is applicable, the decree shall so declare and there shall be no judgment for a deficiency. In the event that a deficiency is not waived or prohibited and it is decreed that any defendant is personally liable for the debt, then upon application of the plaintiff filed at any time within three months of the date of the foreclosure sale and after a hearing thereon at which the court shall take evidence and at which hearing either party may present evidence as to the fair value of the real property or estate for years therein sold as of the date of sale, the court shall render a money judgment against the defendant or defendants for the amount by which the amount of the indebtedness with interest and costs of levy and sale and of action exceeds the fair value of the real property or estate for years therein sold as of the date of sale. In no event shall the amount of the judgment, exclusive of interest from the date of sale and of costs exceed the difference between the amount for which the real property or estate for years therein was sold and the entire amount of the indebtedness secured by the mortgage or deed of trust. Notice of the hearing shall be served upon all defendants who have appeared in the action and against whom a deficiency judgment is sought, or upon their attorneys of record, at least 15 days before the date set for the hearing. Upon application of any party made at least 10 days before the date set for the hearing the court shall, and upon its own motion the court at any time may, appoint one of the probate referees provided for by law to appraise the real property or estate for years therein sold as of the time of sale. The probate referee shall file the appraisal with the clerk and the appraisal is admissible in evidence. The probate referee shall take and subscribe an oath to be attached to the appraisal that the referee has truly, honestly and impartially appraised the real property or estate for years therein to the best of the referee’s knowledge and ability. Any probate referee so appointed may be called and examined as a witness by any party or by the court itself. The court shall fix the compensation, in an amount as determined by the court to be reasonable, but the fees shall not exceed similar fees for similar services in the community where the services are rendered, which may be taxed and allowed in like manner as other costs.

(c) No person holding a conveyance from or under the mortgagor of real property or estate for years therein, or having a lien thereon, which conveyance or lien does not appear of record in the proper office at the time of the commencement of the action need be made a party to the action, and the judgment therein rendered, and the proceedings therein had, are as conclusive against the person holding the unrecorded conveyance or lien as if the person had been a party to the action. Notwithstanding Section 701.630, the sale of the encumbered real property or estate for years therein does not affect the interest of a person who holds a conveyance from or under the mortgagor of the real property or estate for years therein mortgaged, or has a lien thereon, if the conveyance or lien appears of record in the proper office at the time of the commencement of the action and the person holding the recorded conveyance or lien is not made a party to the action.

(d) If the real property or estate for years therein mortgaged consists of a single parcel, or two or more parcels, situated in two or more counties, the court may, in its judgment, direct the whole thereof to be sold in one of the counties, and upon these proceedings, and with like effect, as if the whole of the property were situated in that county.

(e) If a deficiency judgment is waived or prohibited, the real property or estate for years therein shall be sold as provided in Section 716.020. If a deficiency judgment is not waived or prohibited, the real property or estate for years therein shall be sold subject to the right of redemption as provided in Sections 729.010 to 729.090, inclusive.

(f) Notwithstanding this section or any other provision of law to the contrary, any person authorized by this state to make or arrange loans secured by real property or any successor in interest thereto, that originates, acquires, or purchases, in whole or in part, any loan secured directly or collaterally, in whole or in part, by a mortgage or deed of trust on real property or an estate for years therein, may bring an action for recovery of damages, including exemplary damages not to exceed 50 percent of the actual damages, against a borrower where the action is based on fraud under Section 1572 of the Civil Code and the fraudulent conduct by the borrower induced the original lender to make that loan.

(g) Subdivision (f) does not apply to loans secured by single-family, owner-occupied residential real property, when the property is actually occupied by the borrower as represented to the lender in order to obtain the loan and the loan is for an amount of one hundred fifty thousand dollars ($150,000) or less, as adjusted annually, commencing on January 1, 1987, to the Consumer Price Index as published by the United States Department of Labor.

(h) Any action maintained pursuant to subdivision (f) for damages shall not constitute a money judgment for deficiency, or a deficiency judgment within the meaning of Section 580a, 580b, or 580d of the Code of Civil Procedure.

Davis-stirling Act

Civil Code Section 6150. Notice of Civil Action Against Declarant.

(a) Not later than 30 days before filing of any civil action by the association against the declarant or other developer of a common interest development for alleged damage to the common areas, alleged damage to the separate interests that the association is obligated to maintain or repair, or alleged damage to the separate interests that arises out of, or is integrally related to, damage to the common areas or separate interests that the association is obligated to maintain or repair, the board shall provide a written notice to each member of the association who appears on the records of the association when the notice is provided. This notice shall specify all of the following:

(1) That a meeting will take place to discuss problems that may lead to the filing of a civil action, in addition to the potential impacts thereof to the association and its members, including any financial impacts.

(2) The options, including civil actions, that are available to address the problems.

(3) The time and place of the meeting.

(b) Notwithstanding subdivision (a), if the association has reason to believe that the applicable statute of limitations will expire before the association files the civil action, the association may give the notice, as described above, within 30 days after the filing of the action.

Related Links

SB 326 Signed! Balconies, Branches, and Builder Defect Actions – Published on HOA Lawyer Blog (October 2019)

Davis-stirling Act

Civil Code Section 6100. Notice of Settlement Agreement.

(a) As soon as is reasonably practicable after the association and the builder have entered into a settlement agreement or the matter has otherwise been resolved regarding alleged defects in the common areas, alleged defects in the separate interests that the association is obligated to maintain or repair, or alleged defects in the separate interests that arise out of, or are integrally related to, defects in the common areas or separate interests that the association is obligated to maintain or repair, where the defects giving rise to the dispute have not been corrected, the association shall, in writing, inform only the members of the association whose names appear on the records of the association that the matter has been resolved, by settlement agreement or other means, and disclose all of the following:

(1) A general description of the defects that the association reasonably believes, as of the date of the disclosure, will be corrected or replaced.

(2) A good faith estimate, as of the date of the disclosure, of when the association believes that the defects identified in paragraph (1) will be corrected or replaced. The association may state that the estimate may be modified.

(3) The status of the claims for defects in the design or construction of the common interest development that were not identified in paragraph (1) whether expressed in a preliminary list of defects sent to each member of the association or otherwise claimed and disclosed to the members of the association.

(b) Nothing in this section shall preclude an association from amending the disclosures required pursuant to subdivision (a), and any amendments shall supersede any prior conflicting information disclosed to the members of the association and shall retain any privilege attached to the original disclosures.

(c) Disclosure of the information required pursuant to subdivision (a) or authorized by subdivision (b) shall not waive any privilege attached to the information.

(d) For the purposes of the disclosures required pursuant to this section, the term “defects”shall be defined to include any damage resulting from defects.

(Added by Stats. 2012, Ch. 180, Sec. 2. Effective January 1, 2013. Operative January 1, 2014, by Sec. 3 of Ch. 180.)