The California Court of Appeal recently ruled that an inspection demand under California Corporations Code section 1601 requires a corporation to make its books and records available for inspection at an office where they normally are kept, rather than at an office in California. Innes v. Diablo Controls, Inc.. Section 1601, likely familiar to most California corporations, permits inspection by shareholders of a corporation’s accounting books and records and shareholder and board proceeding minutes, and provides that the relevant records be open to inspection “at any reasonable time during usual business hours.” Diablo Controls is a California corporation that maintained certain of its records at a corporate office in Illinois. The appellant shareholders sought an order compelling the corporation to make its books and records available for inspection at a Diablo Controls office in California.
The Court of Appeal affirmed the lower court’s denial of appellant’s request. The Diablo Controls court stated that “[a]s in any case involving statutory interpretation,” it would begin by examining the words of the statute to give effect to legislative intent; give the words of the statute their ordinary and usual meaning; and if the statute had an unmistakable plain meaning, the court would go no further. Relying on these tenets, the court observed that although section 1601 does not specify where a corporation’s records shall be made open to inspection, the language permitting inspection at any reasonable time during usual business hours, “clearly implies that they may be inspected at the office where the records are kept.” (italics in original) (quoting Jara v. Suprema Meats, Inc.). In Jara, the Court of Appeal concluded that section 1601 requires no more than that records be available for inspection at the corporate offices where they are maintained, and does not require that records be sent to a shareholder upon demand.
Appellants argued Jara did not control where a corporation’s records are maintained out of state, and that under such circumstances, inspection must take place in California. The Diablo Controls court disagreed, explaining that there is no basis in the statutory language to impose such a requirement, even though the statute itself contemplates that some records subject to inspection are kept out of state. Inspection demands under section 1601 also apply to foreign corporations that either maintain their records in California or that have their principal executive office in California (Cal. Corp. Code § 1601(a)), yet no provision is made for out of state records to be brought in state.
Augmenting the court’s conclusion was the fact that other sections of the Corporations Code provide that certain records be kept in state for inspection. Section 213, for example, requires corporations to keep their current bylaws at their principal executive office in state, or if its principal executive office is not in state, at its principal business office in California, and to make the bylaws open to inspection by shareholders at such location. If a corporation has no principal business office in the state, it shall provide a copy of the bylaws to any shareholder upon written request. Diablo Controls recognized that under rules of statutory interpretation, the omission of a provision from one statute, where it exists in a similar statute, concerning a related subject, is significant to show that a different intention existed. Because no similar provision is made in section 1601, section 213 confirmed the court’s interpretation.
The court acknowledged, as had the Jara court, that under its interpretation, a corporation could intentionally avoid section 1601 inspection by sending corporate records to remote out of state locations. While an intentional act to impede inspection could ostensibly be actionable, the court found no evidence of obstruction by the defendant, and plaintiff’s request to compel inspection was denied.