Enforcement of Shareholder Inspection Rights—Procedural Guide

 by Eric Fryar

last update -- 10/24/2008

The article analyzes the mandamus remedy available under Texas law to enforce a shareholder's right to inspect corporate documents. The substantive law governing the rights of shareholders and directors to have access to corporate records is analyzed in a separate article. [Click here to read]

On Line Resources

You may download the full article in pdf format and other resources by joining the Shareholder Oppression Discussion Group and clicking on Files.

 I.    Introduction

Lack of information to shareholders is probably the most common violation of shareholder rights and almost always a component of a campaign of shareholder oppression.  In and of itself, the restriction of information is rarely enough to constitute a pattern of oppression sufficient to invoke more extreme equitable remedies, such as a forced buy-out or dissolution.  A shareholder faced with a cutoff of information and a refusal to allow inspection must first seek judicial remedies designed explicitly to enforce these rights.  Unfortunately, as will be demonstrated below, Texas law does not provide a procedural mechanism for expedited enforcement of these important rights.  An aggrieved shareholder must file a lawsuit seeking a writ of mandamus to compel production.  If the corporation is able to raise a fact issue as to whether the plaintiff has a proper purpose, then the corporation is entitled to a jury trial, and the shareholder is faced a long and expensive battle just to get information.  With most civil dockets in the state requiring years to move a case from Original Petition to jury trial, even an unsuccessful bid by a corporation to refuse inspection can effectively deny the shareholder’s rights for a long period of time.  However, the court may certainly take into consideration whether this type of gamesmanship by a corporation is motivated by bad faith on the part of the controlling shareholders, which may ultimately set the stage for a claim of oppression.

II.    Causes of Action for Refusal to Permit Inspection.

A shareholder seeking to enforce inspection rights must sue for a writ of mandamus to compel the inspection. See Uvalde Rock Asphalt Co. v. Loughridge, 425 S.W.2d 818, 820 (Tex. 1968); Moore v. Rock Creek Oil Corp., 59 S.W.2d 815, 817-18 (Tex. Comm’n App. 1933, jgmt adopted); In re Dyer Custom Installation, Inc., 133 S.W.3d 878, 881 (Tex. App.—Dallas 2004, orig. proceeding); Yelverton v. Brown, 412 S.W.2d 325, 330 (Tex. Civ. App.—Tyler 1967, no writ). The writ may be issued to enforce either the shareholder’s common-law or statutory rights of inspection—the difference being that the statutory rights are narrower, but provide the shareholder with the benefit of certain presumptions and allow for the recovery of attorneys fees.

A.    Elements of Common Law Cause of Action

1.    Common Law

To obtain a writ of mandamus enforcing a common-law right of inspection, the plaintiff shareholder must prove the following: (1) that he is a record or beneficial shareholder (regardless of number of shares or length of time held); (2) that he made a demand on the corporation for inspection of documents (not necessarily in writing); (3) that his purpose for inspecting the records is proper (need not have been stated in demand) and that he is acting in good faith; and (4) that the corporation refused. See TBCA art. 2.44(E); BOC §21.218(c); Moore v. Rock Creek Oil Corp., 59 S.W.2d 815, 818; Texas Infra-Red Radiant Co. v. Erwin, 397 S.W.2d 491, 493 (Tex. Civ. App.—Eastland 1965, writ ref’d n.r.e.).

When the corporation refuses to comply with the director's demand for inspection, the director need only show that (1) he is a director, (2) that he demanded to inspect the corporate books and records (need not be in writing or state a purpose), and (3) the right to inspection was refused by the corporation. Chavco Investment Company, Inc. v. Pybus, 613 S.W.2d 806, 810 (Tex. Civ. App.—Houston [14th Dist.] 1981, writ ref’d n.r.e.).   “The unqualified right of appellee as director to inspect the books of the corporation must be distinguished from the right of shareholders, which is not absolute.” Id.

2.    Statutory Cause of Action

To obtain mandamus relief under the statutory inspection rights, the plaintiff shareholder must prove the following: (1) that he is a shareholder or holder of a beneficial interest in a voting trust; (2) that he has owned his shares for at least six months or holds at least five percent of all the outstanding shares of the company; (3) that he has made a written demand for inspection; (4) that the demand stated a purpose; and (5) that the demand was refused.  TBCA arts. 2.44 (C), (D), (G); BOC §§ 3.153, 21.218, 21.222; Citizens Association for Sound Energy v. Boltz, 886 S.W.2d 283, 291 (Tex. App.—Amarillo 1994, writ denied), cert. denied 516 U.S. 1029 (1995); Texas Infra-Red Radiant Co., Inc. v. Erwin, 397 S.W.2d 491, 493 (Tex. Civ. App.—Eastland 1965, writ ref’d n.r.e.).  The TBCA required only the statement of a purpose (which the corporation might prove was not proper); the BOC now requires the statement of a “proper purpose.” This change would seem to place the burden on the shareholder to establish that the purpose stated is proper; however, the corporation retains the burden to prove that the shareholder is motivated by some other improper purpose.

A director may enforce his right of access to corporate records under the TBCA by showing the following: (1) that he is a director; (2) that he demanded to inspect the corporate books and records (need not be in writing); (3) that his purpose for inspecting the corporate books and records was reasonably related to his service as a director (need not have been stated in the demand);  and (4) that his right of access to the books and records was refused by the corporation. TBCA art. 2.44(B). The provisions of the Business Organizations Code are the same in substance, except that the Code adds the requirement that the demand for inspection have been made “in good faith.” BOC §3.152(b)(4).

3.    Other elements

The remedies of mandamus and injunction are governed by equitable principles and therefore the plaintiff must also plead and prove the absence of an adequate remedy at law. Salgo v. Matthews, 497 S.W.2d 620, 625 (Tex. Civ. App.—Dallas 1973, writ ref’d n.r.e.); see also Callahan v. Giles, 137 Tex. 571, 155 S.W.2d 793 (1941); Poten v. Lockhart, 131 Tex. 181, 114 S.W.2d 219 (1938).

4.    Attorneys Fees

A shareholder who prevails on the statutory claim is entitled to recover all costs and expenses, including attorney’s fees, incurred in enforcing his rights, in addition to any other damages or reedy afforded him by law. TBCA art. 2.44(D); BOC §21.222.  For a director, the court may also award him his attorneys’ fees and any other relief that the court deems just and proper.  TBCA art. 2.44(C); BOC §3.152. The trial court’s award of attorneys fees under the statute was affirmed in Chavco Investment Company, Inc. v. Pybus, 613 S.W.2d 806, 810 (Tex. Civ. App.—Houston [14th Dist.] 1981, ); and in Bayoud v. Bayoud, 797 S.W.2d 304, 315 (Tex. App.—Dallas 1990, writ denied). The shareholder or director must also establish that the attorneys’ fees were reasonable and necessary.  Arthur Anderson & Co. v. Perry Eqip. Corp., 945 S.W.2d 812,818-19 (Tex. 1997).

B.    Issue of Proper Purpose

The inspection statute permits a corporation to assert the affirmative defense that the shareholder “was not acting in good faith or for a proper purpose in making his demand.” TBCA art. 2.44(D); BOC §21.222. The single issue in dispute in virtually every case is whether or not the plaintiff shareholder had a “proper purpose.”

1.    Burden of Proof

A shareholder enforcing his common-law rights must plead and prove that he has a proper purpose. See TBCA art. 2.44(E); BOC §21.218(c); Moore v. Rock Creek Oil Corp., 59 S.W.2d 815, 818; Texas Infra-Red Radiant Co. v. Erwin, 397 S.W.2d 491, 493 (Tex. Civ. App.—Eastland 1965, writ ref’d n.r.e.).  Under the statutory provision in the TBCA, however, a plaintiff shareholder need only prove that he has stated his purpose in his written demand. “Section B contains no requirement that such a shareholder of record must prove a ‘proper’ purpose, merely that he must ‘state’ his purpose.” Citizens Association for Sound Energy v. Boltz, 886 S.W.2d at 291. The BOC changes this element to require that the stated purpose is proper.  The corporation resisting inspection has the burden to prove the absence of a proper purpose. Burton v. Cravey, 759 S.W.2d 160, 162 (Tex. App.—Houston [1st Dist.] 1988, no writ).  The statute makes clear that absence of a proper purpose or bad faith on the part of the shareholder are affirmative defenses that must be pleaded and proved by the corporation.  TBCA art. 2.44(D); BOC §21.222.

The situation is somewhat different with respect to directors.  It seems that under the common law, the purpose of the inspection is either irrelevant. Chavco Investment Company, Inc. v. Pybus, 613 S.W.2d at 810.  However, the corporation must certainly be able to raise this issue in the affirmative defense of unclean hands.  Under the statute, on the other hand, the director has the burden of proving that his purpose is “reasonably related” to his service as a director (TBCA art. 2.44(B); BOC §3.152) and that the demand was made in good faith (BOC §3.152 only).  This issue of a purpose being “reasonably related” to service as a director would seem to be a lower standard than a “proper” purpose, and conceivably a director’s improper purpose might still be “reasonably related.”

2.    Mixed Motives

The issue of “proper purpose” raises some conceptual difficulties.  First, a shareholder’s purpose might not be “proper” in the sense that it is related to his status as a shareholder, but neither is it improper in the sense of harmful to the interests of the corporation.  For example, the shareholder might be seeking information that is useful to him only in another capacity, such as evidence in a dispute unrelated to the corporation.  Courts in other jurisdictions have generally held that a purpose that serves the personal interests of the shareholder, not related to his share ownership are not “proper,” even if they are not otherwise wrongful or harmful to the corporation.  For example, in Lynn v. Enviro Source, Inc., 1991 WL 80242 (Del. Ch. 1991), aff’d 608 A.2d 728 (Del. 1991), the court held that a shareholder did not have a proper purpose where his sole purpose was to gather evidence for use in an administrative appeal regarding his pension benefits.

Second, it may frequently be that a shareholder’s motives are mixed.  A shareholder may have a truly proper purpose, but also a secondary purpose that is improper.  For example, a shareholder might wish to obtain information for purposes that are proper, such as ascertaining the value of his shares, but also for purposes that are more questionable, such as harassment of management for purposes of attempting to force a settlement of private litigation.  In such a case, the question will be whether a finding of any proper purpose will be sufficient to uphold the right of inspection, or whether the finding of any improper purpose will defeat the right of inspection, or whether the Court must make a finding of what the true or principal purpose really is. In Citizens Association for Sound Energy v. Boltz, 886 S.W.2d 283, 289 (Tex. App.—Amarillo 1994, writ denied), cert. denied 516 U.S. 1029 (1995), the court termed the defendant’s burden as one of proving the “lack of a proper purpose.”  This language would seem to indicate that the existence of a proper purpose (“I want to know what my stock is worth”) would permit inspection despite the existence of other highly improper motives. Some Delaware decisions seem to indicate that this may be the standard.  See, e.g., CM&M Group, Inc. v. Carroll, 453 A.2d 788 (Del. 1982) (holding the desire to value ones shareholdings is a proper purpose, even though the shareholder might have a “secondary purpose” to get financial information that might be helpful to a third party); Skoglund v. Ormand Industries, Inc. 372 A.2d 204 (Del. Ch. 1976) (holding that, if a proper purpose is established, it is no defense that the shareholder ad a secondary purpose which might be improper, such as gaining control of the corporation).

While Texas courts have not squarely addressed this issue, the language of most of the cases seems to suggest that the court must determine what is the “real” or principal purpose—and whether that purpose is proper or improper. “But when the corporation pleads, and is able to establish by proof, a state of facts sufficient to convince the court that the stockholder is not seeking the information which might be revealed by the desired inspection for the protection of his interest as a stockholder, or that of the corporation, but that he is actuated by corrupt or unlawful motives, the court will not, by the issuance of its writ of mandamus, aid him to consummate such corrupt and unlawful purposes.”  Moore v. Rock Creek Oil Corp., 59 S.W.2d 815, 818 (Tex. Comm’n App. 1993, jmt adopted).  “Obviously, substantial and difficult factual issues may arise as to a shareholder’s true purpose.  The issue may come down to predominant motive and intent.” Hamilton, Miller & Ragazzo, 20A Texas Practice: Business Organizations §34.6, p. 35 (2004).

C.    Examples of Improper Purpose

In every case, the ultimate factual issue will come down to the corporation’s evidence that the shareholder’s true purpose is improper.  This is true even when the plaintiff has the burden of proving a proper purpose because it will always be relatively easy for the plaintiff to introduce proof of a proper purpose.  The plaintiff shareholder can always testify, “I want to ascertain the value of my shares.” Chavco Investment Company, Inc. v. Pybus, 613 S.W.2d 806, 808 (Tex. Civ. App.—Houston [14th Dist.] 1981, writ ref’d n.r.e.). (“ascertaining the value of his shares” is a “clearly proper and legitimate” purpose for inspection).  And the courts have made clear that the subjective testimony of the shareholder is sufficient.  Citizens Ass’n for Sound Energy v. Boltz, 886 S.W.2d at 291 (holding “the subjective nature of parts of the [shareholders’] affidavits does not make them incompetent to establish a proper purpose”).  Therefore, regardless of which party has the ultimate burden, the case will always turn on what proof the corporation is able to introduce evidencing that the plaintiff’s true purpose is improper.

1.    Improper Purposes Generally

Generally, a proper purpose is one that is reasonably related to the protection of stockholder’s interest as a shareholder (including protection of the corporation’s interests that affect the shareholder indirectly); conversely an improper purpose is one that seeks to injure to the corporation or the shareholders. See Guaranty Old Line Life Co. v. McCallum, 97 S.W.2d 966, 967 (Tex. Civ. App.—Dallas 1936, no writ). “Improper purposes are those which are inimical to the corporation, for example, to discover business secrets to aid a competitor of the corporation, to secure prospects for personal business, to find technical defects in corporate transactions to institute ‘strike suits,’ and to locate information to pursue one's own social or political goals.” Tatko v. Tako Bros. Slate Co., Inc., 569 N.Y.S.2d 783, 917-18 (N.Y.A.D. 1991) see also Keenland Ass’n. v. Pessin, 484 S.W.2d 849, 852 (Ky. App. 1972) (examples of improper purpose include intent to destroy a corporation, to bring vexatious suits, or to take unfair advantage for competition reasons).

2.    Bad Faith

The inspection statute explicitly states that proof of the failure of the plaintiff to make the request in good faith is a defense.  TBCA 2.44(D); BOC §21.222.  Several courts have noted the absence of good faith on the part of the plaintiff as one reason for denial of inspection rights.  See In re Dyer Custom Installation, Inc., 133 S.W.3d 878, 881-82 (Tex. App.—Dallas 2004, orig. proceeding); Guaranty Old Line Life Co. v. McCallum, 97 S.W.2d 966, 967 (Tex. Civ. App.—Dallas 1936, no writ).  

3.    Fishing Expedition

A frequent claim is that the shareholder’s purposes are entirely speculative, that he is on a “fishing expedition” to “dig up dirt.” In Citizens Association for Sound Energy v. Boltz, 886 S.W.2d 283, 289 (Tex. App.—Amarillo 1994, writ denied), cert. denied 516 U.S. 1029 (1995), the Court rejected the argument that inspection should not be allowed for a speculative purpose.  Johnson Ranch Royalty Co. v. Hickey, 31 S.W.2d 150, 153 (Tex. App.—Amarillo 1930, writ ref’d), held: “It is not necessary that the stock holder should first show that there is mismanagement where he wishes to make the examination in good faith for the purpose of seeing whether the affairs of the corporation are properly managed.”  However, the court in Grayburg Oil Co. v. Jarratt, 16 S.W.2d 319, 320 (Tex. Civ. App.—El Paso 1929, no writ), noted the correctness of the following “abstract propositions of law”: “A stockholder under the guise of a statutory right should not be permitted to examine the books of a corporation for speculative purposes, or to gratify curiosity, or for the purpose of obtaining a list of stockholders with their addresses so that he might communicate with such stockholders making false and untrue charges against the officers of the company, or relative to the management of the affairs of the company, based upon rumors, without any investigation whatsoever on the part of such stockholder as to the truth and correctness of such rumors, thereby injuring the business and being detrimental to the interests of other stockholders, and the extraordinary remedy of mandamus should be denied.”

4.    Information Is Not Needed

The corporation will frequently assert that the shareholder has no legitimate need for the information sought.  Typically, the shareholder will have a different perspective, especially where the information sought will help shed light on the financial condition of the company and the competence of its management.  In Fownes v. Hubbard Broadcasting Inc. 225 N.W.2d 534 (Minn. 1975), the court held refusal could not be justified on the ground that the information was available form other sources or was not needed.

5.     Obtaining Competitive Advantage

Courts have been extremely sensitive to risk that shareholders, who own competing business, will use their inspection rights to conduct industrial espionage.  In Uvalde Rock Asphalt Co. v. Loughridge, 425 S.W.2d 818, 819-20 (Tex. 1968), the Texas Supreme Court held that the corporation’s allegation that the shareholder was a competitor of the corporation and sought by its inspection to obtain a competitive advantage in the area in which the shareholder and the corporation competed raised an issue as to whether the shareholder acted with an improper purpose. Accord In re Dyer Custom Installation, Inc., 133 S.W.3d 878, 881 (Tex. App.—Dallas 2004, orig. proceeding).

However, proof of this improper purpose requires more than merely establishing that the information sought is confidential or that the shareholder is affiliated with a competitor.  There is no blanket trade secrets or confidentiality privilege to shareholder inspection.  The Fort Worth court of appeals upheld a discovery order requiring production of customer and supplier lists and pricing and discount information to a plaintiff who was employed by the corporation’s chief competitor on the grounds that the plaintiff was a shareholder and would be entitled to inspect those documents under the TBCA. Professional Microfilming, Inc. v. Houston, 661 S.W.2d 767, 769-770 (Tex. App.—Fort Worth 1983, orig. proceeding). In State ex rel. G.M. Gustafson Co. v. Crookston Trust Co., 22 N.W.2d 911, 916-17 (Minn. 1946), the Minnesota Supreme Court held that the shareholders of a bank had the common law right of inspection of the banks records, notwithstanding the bank’s objection that the shareholder would have access to information regarding depositors’ business that the bank had an obligation to keep confidential. “Furthermore, the mere fact that a shareholder is a competitor, without more, does not defeat the shareholder’s right of inspection.” Id.; see BBC Acquisition Corp. v. Durr-Fillauer Medical, Inc., 623 A.2d 85, 90 (Del. Ch. 1992); E.L. Bruce Co. v. State, Del.Supr., 144 A.2d 533, 534 (1958).  See also Kortum v. Webaso Sunroofs, Inc., 769 A.2d 113, 124 (Del. Ch. 2000) (“stockholder's status as a competitor may limit the scope of, or require imposing conditions upon, inspection relief, but that status does not defeat the shareholder's legal entitlement to relief”); Uldrich v. Datasport, Inc. 349 N.W.2d 286, 288-89 (Minn. App. 1984) (court ordered inspection of what corporation contended was “confidential business information” even though shareholders owned a competing business, although court also enjoined competitive use of information); Nationwide Corp. v. Northwestern Nat’l Life Ins. Co., 87 N.W.2d 671, 679 (Minn. 1958) (“The fact that the stockholder is interested as a stockholder or otherwise in rival corporations is not of itself enough to deny the right of inspection. … It ordinarily is not enough to deny the right that the information sought is of a confidential nature.”).

6.    Destroy the Company

A corporation will not be required to assist a disaffected shareholder whose true purpose is to destroy the company.  The Dallas court of appeals dealt with a dispute in which a shareholder, who had served as president, resigned in the course of a heated dispute with the other shareholders.  The corporation later refused the former president’s inspection demand, in part, on the grounds that his true intent was to destroy the company.  The court held that testimony of specific instances of the plaintiff’s improper cash payments to himself and others, of his failure to maintain financial records, of conduct detrimental to the company, and of threats to put the company out of business were sufficient to raise a fact issue as to plaintiff’s proper purpose. In re Dyer Custom Installation, Inc., 133 S.W.3d 878, 882-83 (Tex. App.—Dallas 2004, orig. proceeding).

7.    Campaign of Harassment or Extortion

Those in control of corporations tend to view every request for information from shareholders as “harassment.”  However, the courts have recognized that inspection rights can be misused to harass, particularly when the shareholder’s inspection demands are combined with an effort to force the purchase of his shares at a grossly inflated price.  In Uvalde Rock Asphalt Co. v. Loughridge, 425 S.W.2d 819-20, the Texas Supreme Court held that evidence that the shareholder’s demand for inspection was a means to continue a program of studied harassment of the corporation in order to force the corporation to purchase the shareholder’s stock at a grossly inflated price or to sell to the shareholder significant assets of the corporation at a grossly inadequate price raised a fact issue as to whether the shareholder acted with an improper purpose.  Accord In re Dyer Custom Installation, Inc., 133 S.W.3d at 882.

In Perry v. Perry Bros., Inc., 753 S.W.2d 773, 775 (Tex. App.—Dallas 1988, no writ), the court held the following facts were sufficient to support the jury finding of an improper purpose: that plaintiff had previously filed, and then dismissed, a lawsuit to prevent the company from destroying records based on an employee's conversation which he overheard; that he had made repetitious and disruptive inspections—eleven separate requests over a period of nine months; that he formed a group of  “concerned stockholders” that made additional requests during the same period; that he gave about seventy-five people one share of stock apiece, which cost the corporation additional money and labor transferring, preparing and mailing four quarterly dividend payments; that he sent out false and misleading information to many shareholders that indicated the company was overdrawn by one and one-half million dollars; and that he offered to sell his stock (8 to 8 1/2 % of the total outstanding stock) to the company for $30.00 per share as a way “to put an end to all these problems,” even though he believed the book value of the stock was around $20.00 and had acquired much of it six months earlier for  $7.70 per share.  

a)    Evidence of Animosity Is Not Sufficient

In Citizens Association for Sound Energy v. Boltz, 886 S.W.2d 283, 289 (Tex. App.—Amarillo 1994, writ denied), cert. denied 516 U.S. 1029 (1995), the court held that a demonstration of hostility between the officers of a non-profit corporation and certain members requesting inspection of documents was not “indicative of an improper purpose.”  The Court relied on Texas Commission of Appeals case, Moore v. Rock Creek Oil Corp., 59 S.W.2d 815 (Tex. Comm'n App.1933, jgmt adopted), which had upheld the inspection rights of a shareholder in a for profit corporation, and which had rejected a corporation's argument that the animosity between the corporation and the stockholders seeking the right of inspection was a ground for denying an examination of the corporate books. Id. at 818. In Johnson Ranch Royalty Co. v. Hickey, 31 S.W.2d 150, 154 (Tex. App.—Amarillo 1930, writ ref’d), the court held it irrelevant to the right of inspection that there was a “great deal of evidence in the record which shows a want of harmony and in some cases open hostility and antagonism” among the parties and noted the fact that the controlling shareholder “bitterly opposes a thorough examination and inspection of the books would naturally tend to increase the suspicions which plaintiffs assert they already have.”

b)     Repeated Requests

While an excessive number of prior inspection requests was a factor in Perry, repeated requests are not necessarily evidence of improper motive.  The statute does not limit or specify the number of times a shareholder may inspect corporate records. “In the absence of a showing that the right of inspection has been used by a member for harassment or to impede the management of the corporation, the right of inspection is not limited in number and certainly not to only one inspection.”  Citizens Association for Sound Energy v. Boltz, 886 S.W.2d 283, 290 (Tex. App.—Amarillo 1994, writ denied), cert. denied 516 U.S. 1029 (1995). “The right of inspection, however, is not limited to one occasion; it may be exercised at any reasonable time so long as the relation of the stockholder exists.”  Smith v. Trumbull Farmers Gin Co., 89 S.W.2d 829, 830 (Tex. Civ. App.—Waco 1936, no writ).  “The mere fact that appellant had, about twenty days prior to the demand here under consideration, made some sort of inspection of the books, and that opportunity to continue the same was at that time afforded and not used, does not of itself show that this demand was, as to time, unreasonable. Id. at 830-31.

8.    Improper Communications With Shareholders

Corporations are frequently especially concerned about shareholders obtaining access to shareholder records for the purpose of communicating with other shareholders.  However, communications regarding the corporation, particularly truthful communications critical of management, are far from improper  “Nor is it any reason for denying such examination that plaintiffs in error hope to find something alarming in the affairs of the company, which they intend to communicate to other stockholders. If in truth and in fact no alarming condition exists, presumably it will not be found through any examination made by plaintiffs in error. If there is existent anything in the financial affairs of the company which would be reasonably calculated to alarm the stockholders in general, we see no reason why plaintiffs in error could not properly communicate such fact to other stockholders. The stockholders of a corporation are the beneficial owners of the corporate property, and are therefore vitally interested in knowing the true condition of its affairs. If a condition exists which is calculated to alarm the stockholders, they are legitimately entitled to know such fact, and there would be nothing improper should plaintiffs in error communicate the information thus obtained to other stockholders.  Moore v. Rock Creek Oil Corp., 59 S.W.2d at 818-19.

But communications with shareholders for other purposes tend to be found to be improper purposes. In State ex re. Pilsbury v. Honeywell, Inc., 191 N.W.2d 406 (Minn. 1971), the Minnesota Supreme Court held the plaintiff’s purpose in inspecting the share ledger to be improper where shareholder motivated by political, social interests rather than financial interests and was seeking to communicate with other shareholders to promote his political views that management should stop producing napalm used in Vietnam war. In Retail Property Investors, Inc. v. Skeens, 471 S.E.2d 181, 183 (Va. 1996), the court held that a request for shareholders list is not allowed for purpose of contacting other shareholders regarding possible lawsuit against corporation. In Shabshelowitz v. Fall River Gas Co., 588 N.E.2d 630, 632-33 (Mass. 1992), the Massachusetts Supreme Court held that a shareholder’s request to inspect and copy the stock ledger for the purpose of contacting other shareholders and soliciting the purchase of their shares was improper. The same result was reached by the Supreme Court of Maine in Chas. A. Day & Co. v. Booth, 123 A. 557, 558-59 (Me. 1942). However, in Madison Liquidity Investors 103 LLC v. Carey, 739 N.Y.S.2d 18 (N.Y. App. 2002), a New York appellate court permitted inspection of stockholder list where avowed purpose was to solicit purchases and where there was no evidence of wrongful intent or that anything other than market would dictate price.

D.    Other Defenses

1.    Prior Misuse of Corporate Records

The inspection statute provides that a shareholder's right to inspection is subject to the defense that the shareholder has, within the past two years, sold or offered for sale a list of shareholders or of holders of voting trust certificates in consideration for shares of the corporation or any other corporation, has aided or abetted a person in procuring a list of shareholders or of holders of voting trust certificates for selling it, or has improperly used information obtained through a prior examination of the books and account records, minutes, or share transfer records of the corporation or any other corporation.) TBCA art. 2.44C; BOC§ 21.222(b.  It is important to note that the shareholder’s current purposes are immaterial to this defense, and further that the plaintiff’s prior misuse of records could be based on his conduct with regard to a different corporation.

2.    Unclean hands

Independent of the inquiry into improper purpose, a corporation may assert that the plaintiff is not entitled to equitable relief because he has unclean hands.  “A court acting in equity will refuse to grant relief to a plaintiff who has been guilty of unlawful or inequitable conduct with regard to the issue in dispute.” Wynne v. Fischer, 809 S.W.2d 264, 267 (Tex. App.—Dallas 1991, writ denied).

a)    Application

The clean hands doctrine requires that one who seeks equity, does equity. In re Francis, 186 S.W.3d 534, 551 (Tex. 2006). Equitable relief is not warranted when the plaintiff has engaged in unconscionable, unjust, or inequitable conduct with regard to the issue in dispute. Id.; Crown Const. Co., Inc. v. Huddleston, 961 S.W.2d 552, 559 (Tex. App.—San Antonio 1997, no pet.). The determination of whether a party has come to court with unclean hands is left to the discretion of the trial court. Francis, 186 S.W.3d at 551.  “In the exercise of this right, the stockholders must come into court with clean hands, and, if a state of facts exist sufficient to convince the court or jury that the stockholder is not seeking the information which might be revealed by the desired inspection, for the protection of his interest as a stockholder or that of the corporation, but that he is actuated by corrupt or unlawful motives, the court will not aid him by writ of mandamus in such purpose. A mandamus is always a remedy to right a wrong, not to promote one. The right of inspection granted to a stockholder of a corporation, by statute, is clearly for the benefit of a corporation and the stockholders, and, when the exercise of that right is for the purpose of injuring the corporation or stockholders generally, the right will be denied.”  Guaranty Old Line Life Co. v. McCallum, 97 S.W.2d 966, 967 (Tex. Civ. App.—Dallas 1936, no writ).

b)    Must Be Related

However, the defense is not absolute. Omohundro v. Matthews, 161 Tex. 367, 384, 341 S.W.2d 401, 410 (Tex.1960). The conduct on which unclean hands defense is based must involve the same transaction out of which the litigation arose, and the party asserting the doctrine must himself have been injured by the conduct. Id.; see also Sharma v. Vinmar Int’l, Ltd., 231 S.W.3d 405, 423  (Tex. App.—Houston [14th Dist.] 2007, no pet.). The clean hands doctrine should not be applied unless the party asserting the doctrine has been seriously harmed and the wrong complained of cannot be corrected without the application of the doctrine. City of Fredericksburg v. Bopp, 126 S.W.3d 218, 221 (Tex. App.-San Antonio 2003, no pet.).  Thus, prior misconduct by the shareholder when an employee or officer of the corporation cannot be the basis for denying his right to inspect corporate documents as a shareholder.  In Dunnagan v. Watson, 204 S.W.3d 30, 41 (Tex. App.—Fort Worth 2006, pet. denied), the Court held that the unclean hands doctrine did not bar a partner who had been found liable for breach of his fiduciary duties from seeking judicial dissolution of the partnership.  The Court held that the unconscionable, unjust, or inequitable conduct forming the basis of the defense must relate specifically to the cause of action asserted and that equitable relief is not limited by conduct that is derived from a cause of action independent from the plaintiff’s specific claim and is merely collateral thereto.  Id.

E.    Waiver by Corporation

In the event that the corporation allows inspection or otherwise provides documents to the shareholder, then the corporation waives any defense it may have had as to those documents, and the issue of whether plaintiff had a proper purpose becomes moot.  See In re Dyer Custom Installation, Inc., 133 S.W.3d 878, 882 (Tex. App.—Dallas 2004, orig. proceeding).

III.    Mandamus Procedure

A.    Rules of Civil Procedure Apply

“A mandamus action is a civil suit and is generally regulated by the same rules of procedure as other civil actions. “ Uvalde Rock Asphalt Co. v. Loughridge, 425 S.W.2d 818, 820 (Tex. 1968); see also Stocking v. Biery, 677 S.W.2d 792, 794 (Tex. App.—San Antonio 1984, no writ) (rules of civil procedure apply in a mandamus proceeding).

B.    Petition

Most attorneys are unfamiliar with filing a petition for mandamus, outside the appellate context governed by TRAP 52.  For the most part the Rules of Civil Procedure governing other petitions will apply, but pleading for mandamus has certain eccentricities that should be carefully observed.

1.    Parties

The party bringing the mandamus action is called the “Relator.”  The party against whom the mandamus is ordered is called the “Respondent.” Because the right of inspection is a right that the shareholder has as to the corporation, rather than the corporate officers and directors or controlling shareholders, the corporation will be the Respondent.  See TRCP art. 2.44(D); BOC § 21.222.

2.    Venue

Venue is governed by the general venue statute.  CPRC § 15.002.  Therefore, venue will lie in the county where corporation has its principal office in this state.  § 15.002(a)(3).  If the documents being sought were located, and inspection would have taken place, at a location other than the defendant’s principal office, the venue might be proper in the county where the documents are located, as this would be the county in with the event or omission giving rise to the claim occurred.  § 15.002(a)(1).  If neither the documents are out of state and the corporation does not maintain an office in Texas, then venue would lie in the county of the shareholder’s residence.  §15.002(a)(4).

3.    Factual Pleadings

In drafting the mandamus petition, care should be taken to avoid the “notice pleading” that would normally be acceptable. “It is the burden of the relator to file a petition for writ of mandamus that shows he is entitled to the relief he requests.”  Ohnson v. West, 880 S.W.2d 794, 794 (Tex. App.—Houston [1st Dist.] 1994, orig. proceeding).  The petition should be written as if it were a motion for summary judgment.  All the elements and all the facts need to be pleaded in detail.  The petition should state how and when the demand was made and attach a copy of the demand letter.  The petition should state exactly the nature and circumstances of the refusal.  The petition should also state the shareholder’s purpose for the inspection, explain why the purpose is proper, and give facts to support these allegations.

In a mandamus proceeding, courts require greater certainty of pleadings than is required in most other civil actions. Fisher v. Harris county Republican Executive Comm., 744 S.W.2d 339, 340 (Tex. App.—Houston [1st Dist.] 1988, orig. proceeding); Bush v. Vela, 535 S.W.2d 803 (Tex. Civ. App.—Corpus Christi 1976, orig. proceeding); McGuire v. City of Dallas, 151 S.W.2d 617, 618 (Tex. Civ. App.—Waco 1941, writ dism’d, jgmt correct). The relator's petition must clearly and directly set out the facts that entitle him to relief. Fisher v. Harris County Republican Executive Comm., 744 S.W.2d at 340. The facts on which the mandamus is sought should be pleaded with particularity, “clearly, fully, and unreservedly, by direct and positive allegations. “ Narro Warehouse, Inc. v. Kelly, 530 S.W.2d 146, 149 (Tex. Civ. App.—Corpus Christi 1975, writ ref’d n.r.e.). Conclusions and opinion allegations must be avoided. Anderson v. Polk 297 S.W.219, 224 (Tex. 1927); McGuire v. City of Dallas, 151 S.W.2d at 618. This “stringent test of exactness” is necessary, because mandamus is an extraordinary remedy that should not issue “without careful, individual scrutiny of the facts alleged.” Bush v. Vela, 535 S.W.2d at 805; see also Johnson v. Hughes, 663 S.W.2d 11, 12 (Tex. App.—Houston [1st Dist.] 1983, orig. proceeding). Therefore, the writ is not available unless the petition is “specific and positive in its averments” showing a clear and unqualified right to the writ. McGuire v. City of Dallas, 151 S.W.2d at 618; see also Narro Warehouse, Inc. v. Kelly, 530 S.W.2d at 149.

Furthermore, the positions of the corporation should be anticipated, met and negated.  See  Sartin v. Hudson, 143 S.W.2d 817, 821 (Tex. Civ. App.—Fort Worth 1940, no writ).  The petition should counter as many of the objections that the corporation might raise as possible.  If the shareholder is affiliated with a competitor, and the corporation is objecting to allowing inspection on trade secrets grounds, the petition should establish factually why this objection is not valid—not really a competitor, documents sought will not give a competitive advantage, shareholder has offered to execute a nondisclosure agreement, etc.  If the shareholder has inspected documents in the past, and the corporation is claiming a campaign of harassment, then the petition should be forthright about how many inspections there have been and demonstrate why further inspection is needed and will not disrupt or harass the business.

4.    Specific Prayer

The petition must specifically request Mandamus in prayer for relief.  Faherty v. Knize, 764 S.W.2d 922, 924 (Tex. App.—Waco 1989, no writ)

5.    Verified

The petition for mandamus must be verified by affidavit. The verification must constitute such a positive statement of knowledge of the facts as would constitute a basis for a charge of perjury if such facts were found to be untrue. Cantrell v. Carlson, 313 S.W.2d 624, 626 (Tex. Civ. App.—Dallas 1958, orig. proceeding).

6.    Joining Other Claims

If the dispute gets to the point that an actual lawsuit is necessary to obtain inspection of records, then there will often be other claims that the shareholder has against the corporation or against the officers and directors.  These claims can be joined in the petition, and this frequently happens.

C.    Answer

The answer in a mandamus proceeding is far different from that in an ordinary lawsuit. An unverified general denial has “absolutely no effect” in a mandamus suit. Burgemeister v. Anderson, 259 S.W. 1078, 1078 (Tex. 1924).  When the answer is an unverified general denial in a mandamus proceeding, all allegations in a verified petition are considered to be true. Doeppenschmidt v. City of New Braunfels, 289 S.W. 425, 426 (Tex. Civ. App.—Austin 1927, writ ref’d).

1.    No General Denial

In a mandamus proceeding, a general denial, even when made under oath, is insufficient.  Donna Irrigation Dist. V. West Coast Life Ins. Co., 103 S.W.2d 1091, 1092 (Tex. Civ. App.—San Antonio 1937, no writ).  “In mandamus suits, a general denial does not join issues upon the facts alleged in plaintiffs' petition. Plaintiffs were not put to the necessity of proving the facts alleged by them; but, in effect, such facts were admitted.” Marr v. Reynolds, 151 S.W.2d 263, 265 (Tex. Civ. App.—Eastland 1941, writ dism’d jmt correct).

2.    Factual Pleadings

The same pleadings requirements apply to the answer as to the petition.  The answer needs to specifically respond to each allegation in the petition. Welch v. Overton, 416 S.W.2d 879, 885 (Tex. Civ. App.—Texarkana 1967, writ ref’d n.r.e.) (“Many of the facts alleged by the plaintiffs in their sworn petition for mandamus were not specially denied by the defendants. A general denial is not sufficient and such facts are admitted.”).

Furthermore, the answers must be factual, not conclusory. In Chavco Investment Company, Inc. v. Pybus, 613 S.W.2d 806, 809 (Tex. Civ. App.—Houston [14th Dist.] 1981, writ ref’d n.r.e.), the defendant corporation pleaded that the shareholder brought the suit to compel inspection of the books in bad faith and for an improper purpose, that the shareholder’s sole purpose was “the culmination of a long but disagreeable relationship between the parties,” and that the shareholder “sought to force appellant either to purchase appellee's stock at a grossly inflated price or to sell to appellee at a grossly inadequate price.” The court held that “to raise a fact issue on proper purpose, specific facts must be alleged in the pleadings. If this were not required, a corporation that desired to defeat the right of its stockholders to inspect the books, could do so by alleging the ‘magic words’ that the stockholder had ‘improper purposes for wanting to inspect the books.’ Thus a corporation could obtain a jury trial on proper purpose, resulting in lengthy delays in the determination of the stockholder's rights to the inspection. Mandamus would be effectively destroyed under such circumstances.” Id. at 809-810. “The right of a stockholder as conferred by statute to examine the corporate records, although not absolute, is a valuable right. It cannot be circumvented by the mere conclusion that no proper purpose exists. Facts must be alleged which show an improper motive. Conclusionary statements such as the existence of bad faith, improper purpose, or a disagreeable relationship, are not sufficient to raise a fact issue.” Id. at 810; see also  Citizens Association for Sound Energy v. Boltz, 886 S.W.2d 283, 290 (Tex. App.—Amarillo 1994, writ denied), cert. denied 516 U.S. 1029 (1995) (corporation has the burden to allege specific facts showing a lack of proper purpose); Moore v. Rock Creek Oil Corp., 59 S.W.2d 815, 819 (Tex. Comm’n App. 1993, jmt adopted) (holding that answer largely made up of legal conclusions as to the motives actuating shareholders is not sufficient to show corrupt or unlawful motives).

3.    Must Be Sworn

In the absence of a verified denial of that fact, it is admitted as true.  Walker v. Harrison, 597 S.W.2d 913, 916 (Tex. 1980); Narro Warehouse, Inc. v. Kelly, 530 S.W.2d 146, 148 (Tex. Civ. App.—Corpus Christi 1975, writ ref’d n.r.e.). “[W]hen no sworn denial of facts alleged in a petition for mandamus is filed, all factual allegations in the petition must be accepted as true.”  Hays v. Kessler, 564 S.W.2d 496, 497 (Tex. Civ. App.—Dallas 1978, no writ).  However, a defendant who fails to file a verified denial may still controvert facts in a petition for mandamus by filing supporting affidavits. Id.

D.    Discovery

1.    Permissible Discovery

In a mandamus proceeding, discovery is available.  Both parties will want to take depositions and other discovery regarding the positions and proof relating to the shareholder’s purpose and other relevant matters.  However, having initiated the mandamus lawsuit to force the corporation to permit his inspection of corporate records, the shareholder may not obtain those same records by means of a request for production of documents because production of the documents in discovery would effectively grant the shareholder the ultimate relief he is seeking in the action and would render the lawsuit moot.  This situation was presented to the Dallas court of appeals in In re Kimberley-Clark Corp., 228 S.W.3d 480 (Tex. App.—Dallas 2007, orig. proceeding).  The court held that a trial court abuses its discretion if it grants an order compelling discovery that allows a party to receive through discovery the relief sought in the main suit. Id. at 490; see also Uvalde Rock Asphalt Co. v. Loughridge, 425 S.W.2d 818, 820-21 (Tex. 1968) (trial judge abused discretion in denying company's request for jury trial on issue of proper purpose for inspection of corporate records and granting shareholders' motion for discovery; company was entitled to mandamus relief because shareholders would receive, through trial court's order, discovery of all relief sought in main suit); In re Dyer Custom Installation, Inc., 133 S.W.3d 878, 883 (Tex. App.—Dallas 2004, orig. proceeding) (trial judge abused discretion in ordering production of requested documents without holding jury trial on issue of proper purpose for inspection of corporate records and corporation had no adequate remedy at law because all issue for trial would be moot).

2.    Discovery on Other Claims

The problem comes when a shareholder has joined other claims with the mandamus, such as shareholder oppression.  Corporate documents are relevant and discoverable in an oppression case, and are vitally necessary in order to prove the case. One court has noted that a shareholder in litigation against a corporation is in no way restricted in civil discovery by the procedural or substantive requirements of article 2.44; the two procedures are totally independent. San Antonio Models, Inc. v. Peeples, 686 S.W.2d 666, 670 (Tex. App.–San Antonio 1985, no writ); see also Burton v. Cravey, 759 S.W.2d 160, 162 (Tex. App.—Houston [1st Dist.] 1988, no writ) (“Rights to obtain information through discovery in litigation are completely independent from rights to inspect books and records.”).  Courts frequently note that shareholders in litigation with corporation are entitled to receive in discovery production of documents that might have otherwise been sought through a demand for inspection.  See Professional Microfilming, Inc. v. Houston, 661 S.W.2d 767, 769-70 (Tex. App.–Fort Worth 1983, no writ) (court does not abuse discretion in ordering corporation to open books to record shareholder during discovery); Export Worldwise, Ltd. v. Knight, 241 F.R.D. 259, 265-66 (W.D. Tex. 2006) (granting motion to compel production of corporate records that plaintiff would have been entitled to under article 2.44 of the TBCA).

How then is should an attorney deal with a situation in which the existence of his client’s mandamus claim may interfere with his discovery on the other claims?  Several options are available.  The shareholder’s attorney should send a document request regardless.  If the corporation produces the documents voluntarily, then it waives its defenses in the mandamus action. In re Dyer Custom Installation, Inc., 133 S.W.3d 878, 882 (Tex. App.—Dallas 2004, orig. proceeding).  A shareholder may elect to forego the attorneys’ fees awardable under the inspection statute and sue only on the fiduciary duty and oppression claims, alleging the fact of the violation of inspection rights as a basis for a claim of oppression but not seeking the mandamus remedy.  In this situation, the shareholder is almost certainly going to be entitled to production of the same documents originally sought through inspection.  Finally, the shareholder can attempt to have the mandamus claim resolved first, either by summary judgment, or a bifurcated trial if the court will permit it on an expedited basis.

E.    Summary Judgment

1.    Judgment on the pleadings

If the corporation has not followed the pleading requirements for the answer to file verified, specific, non-conclusory denials of all the material facts that were properly pleaded in the verified petition, then the shareholder should be able to move for summary judgment that is essentially a judgment on the pleadings.   Verified allegations in a petition for mandamus are taken as true if not specifically and factually controverted by a verified denial.  Myers v. Zoning and Planning Comm’n, 521 S.W.2d 322, 324 (Tex. Civ. App.—Houston [1st Dist.] 1975, writ ref’d n.r.e.); Whitehead v. Julian, 476 S.W.2d 844 (Tex.1972); Patton v. Terrell, 105 S.W. 1115 (Tex. 1907).  “Under the rules of pleading and practice in mandamus actions where defendants stand solely on an unverified general denial, plaintiff is entitled to summary judgment if his pleadings state facts entitling him to the relief sued for.” City of Houston v. Freedman, 293 S.W.2d 515, 516 (Tex. Civ. App.—Galveston 1956, writ ref’d n.r.e.).

2.    Traditional Summary Judgment

If the corporation’s do properly raise the issue of a defense, then the shareholder may still be able to get a traditional summary judgment.  Particularly if the sole issue is the shareholder’s subjective motives, then the shareholder will be entitled to move for summary judgment on his own affidavit as to his actual motives. Citizens Association for Sound Energy v. Boltz, 886 S.W.2d 283, 291 (Tex. App.—Amarillo 1994, writ denied), cert. denied 516 U.S. 1029 (1995), considered such a summary judgment and held that the shareholders’ affidavit as to his proper purpose was competent evidence.  That court of appeals affirmed the summary judgment ordering inspection, holding that the defendant had not met its burden to support allegations of improper purpose with summary judgment evidence.  Id. at 290-91.

F.    Trial

If the corporation raises a fact issue as to any of the elements of the mandamus cause of action, typically the proper purpose element, then the parties are entitled to a jury trial of that issue.  “Although the right to a jury trial does not exist in all situations where mandamus is applicable, it does exist in the situation where a corporation, in resisting a stockholder's attempt to inspect the books and records, raises by its pleadings a fact issue over whether the stockholder has a proper purpose for wanting to see the books.” Uvalde Rock Asphalt Co. v. Loughridge, 425 S.W.2d 818, 820 (Tex. 1968).  The parties also have the right to a jury trial on the issues of reasonableness and necessity of costs and fees incurred in the mandamus action.  Accounting Search Consultants, Inc. v. Christensen, 678 S.W.2d 593, 595 (Tex. App.—Houston [14th Dist.] 1984, no writ).

IV.    Foreign Corporations

Can a Texas resident who is a shareholder of a foreign corporation doing business in Texas sue that foreign corporation in Texas courts to enforce inspection rights?  TBCA art. 8.02 provides that foreign corporations authorized to do business in Texas “enjoy the same, but no greater, rights and privileges as a domestic corporation organized for the purposes set forth in the application pursuant to which such certificate of authority is issued;  and, as to all matters affecting the transaction of intrastate business in this State, it and its officers and directors shall be subject to the same duties, restrictions, penalties, and liabilities now or hereafter imposed upon a domestic corporation of like character and its officers and directors; provided, however, that only the laws of the jurisdiction of incorporation of a foreign corporation shall govern (1) the internal affairs of the foreign corporation, including but not limited to the rights, powers, and duties of its board of directors and shareholders and matters relating to its shares, and (2) the liability, if any, of shareholders of the foreign corporation for the debts, liabilities, and obligations of the foreign corporation for which they are not otherwise liable by statute or agreement.” The Business Organizations Code is the same in substance.  See BOC §§1.102-05, 9.202-03. It would seem that any Texas court having jurisdiction over a foreign corporation would have the authority to order a shareholder or director inspection under the laws of the state of incorporation.  See Fleisher Development Corp. v. Home Owners Warranty Corp., 670 F.Supp. 27, 33 (D.D.C. 1987) (D.C. federal court ordering Delaware corporation to permit inspection pursuant to §220 of the Delaware General Corporations Law, notwithstanding the fact that the Delaware law provides exclusive jurisdiction to the Delaware chancery court to enforce the statute). However, a foreign corporation with its principal place of business and its corporate records in Texas, being sued in Texas for refusal to allow inspection, might very well be subject to the Texas inspection laws.

In Williams v. Freeport Sulphur Co., 50 S.W.2d 817 (Tex. Civ. App.—Galveston 1930, no writ), the court enforced the rights of shareholders of a Delaware corporation, headquartered in New York, to inspect the corporate records of the Delaware corporation’s Texas subsidiary.  The court held that the denial by the Delaware parent corporation of the right of “right of its stockholders to an inspection of its books and records is a violation of its duty to plaintiffs enjoined both by the common law and the statutes of this state.”  Id. at 825.  The court further held that the plaintiffs were entitled to bring the suit in Texas, as opposed to New York or Delaware.  Id.  Significantly, the court imposed the inspection rights under the Texas statute.  This statute clearly provided inspection rights to the Delaware parent corporation with respect to its Texas subsidiary; however, the application to Delaware shareholders of the Delaware parent is not so clear.   The case was not brought as a derivative suit to enforce the rights of parent over the subsidiary; rather it was brought to prevent the Delaware parent corporation from withholding documents in its wholly-owned subsidiary from its Delaware shareholders; yet the court applied the Texas statute.

While the Texas decision did not expressly consider the point, numerous courts have held that domestic inspection rights apply to foreign corporations, at least where the documents are located in the state.  In Valtz v. Penta Inv. Corp. 188 Cal.Rptr. 922, 925 (Cal. App. 1983), the court held that a Delaware corporation, with its principal place of business in California, was subject to the shareholder inspection rights under California, rather than Delaware law. The court held that shareholder inspection rights does not “address an internal affair; the inspection of shareholder lists is a right incidental to the ownership of stock, affects the relationship between the corporation and shareholder, and is thus subject to regulation by statute where the corporation does business.”  Id. at 924.  McCormick v. Statler Hotels Delaware Corp., 203 N.E.2d 697,703 (Ill. App. 1964), upholds that the enforcement of inspection rights of a shareholder in a Delaware corporation pursuant to the terms of the Illinois corporations statute, holds that where the foreign corporation’s records are in the state, enforcement of inspection rights does not interfere with the internal affairs of the corporation.

In Hollander v. Rosen, 555 So.2d 384, 385 (Fla. App. 1989), the Florida Court of Appeals held that a Georgia Corporation was subject to an order under the Florida statute to permit inspection of its books and records by a shareholder, including the statutory penalty for failure to comply.  The court based its analysis on the fact that corporations authorized to do business in Florida were subject to the same “rights and privileges … duties, restrictions, penalties and liabilities” as domestic corporations.  Id. (citing Fla. St § 607.307).  The court went on to hold that the defendant corporation was subject to the same shareholder rights, notwithstanding the fact that it had not applied to do business in Florida, because it was doing business in Florida and was thus required to apply for authority.  Id. at 386. In Havlicek v. Coast-to-Coast Analytical Serv., Inc., 46 Cal.Rptr.2d 696, 701 (Cal. App. 1995), the court held that directors of a Delaware corporation headquartered in California were subject to the California law requiring that directors be permitted inspection of corporate records.  Interestingly, the court of appeals held that the relocation of the corporation and its documents to outside the state during the pendency of the appeal did not render the order to permit inspection moot.  Id. at 700.  In Jefferson Indus. Bank v. First Golden Bancorporation, 762 P. 2d 768, 769 (Colo. App. 1988), the court held that Colorado shareholder inspection rights applied equally to domestic and foreign corporations. See also Genetti v. Victory Markets, Inc. 462 F.Supp. 124, 126 (M.D. Pa. 1973) (holding that it is well settled that an action to compel the inspection of a foreign corporations books and records does not offend the internal affairs doctrine, at least where such books are within the jurisdiction of the court.); Stoopack v. George A. Fuller Co., 190 N.Y.S.2d 596, 598 (N.Y. Sup. 1959) (New Jersey corporation licensed to do business in New York and maintaining documents in New York was subject to New York law entitling shareholder to inspect records); Toklan Royalty Corp. v. Tiffany, 141 P.2d 571, 574 (Okla. 1943) (holding that a foreign corporation, having its principal place of business in state under its charter, is subject to provisions of state statutes requiring corporations to keep records open to inspection of their stockholders).