Arizona Court of Appeals Division One Holds That a Corporation Must Pay a Shareholder’s Attorneys’ Fees if the Court Grants the Shareholder’s Request for an Order to Permit Inspection and Copying of Corporate Records.

Anjackco Inc. (the “Company”) is an Arizona Corporation with two shareholders, Patrick Hurley and Plaintiff Margaret Clark.  In early 2012, Clark made a formal demand to inspect and copy Company records under its bylaws and Arizona law.  When she did not receive all of the documents she had requested, she filed suit against the Company and Hurley for a court-ordered inspection of documents.  At an order to show cause hearing, the parties agreed on the record that within 10 days, the Company would produce certain documents.  After the hearing, the Court entered a minute entry order stating:  “On the parties’ agreement . . . IT IS ORDERED Defendants will produce, within 10 business days, [certain documents].”  Eventually, after further proceedings, the Company produced the documents.  Clark then filed an application for attorneys’ fees and costs under A.R.S. § 10-1604, which the Court granted in part.  The Company timely appealed that award.

The ArizonaAppeals Court affirmed.  Under A.R.S. §§ 10-1602 & -1604, a shareholder is entitled to recover her attorneys’ fees and costs if (a) she makes a demand to inspect corporate records in good faith and for a proper purpose, (b) she describes with reasonable particularity her purpose and the records she desires to inspect, (c) the records are directly connected with her purpose, (d) a court orders inspection and copying of the records demanded after the corporation has not allowed inspection within a reasonable time, and (e) the corporation did not refuse the inspection in good faith.  The Court held that all five requirements existed in this case. 

Citing the plain language of the superior court’s minute entry, and distinguishing cases from other jurisdictions, the Court rejected the Company’s argument that the superior court did not order inspection of Company records and that the Company had instead produced them pursuant to the parties’ agreement.  The Court also rejected the Company’s arguments that it did not refuse to grant access to the records and acted in good faith, noting that the Company failed to make the records available within a reasonable time.

The Court also held that the fee award’s inclusion of fees incurred by Clark to demand access to the records before she filed suit was appropriate because those preliminary demands were required under A.R.S. § 10-1604.  The Court also awarded Clark reasonable attorneys’ fees and costs on appeal.

Presiding Judge Howe authored the opinion; Judge Brown and Thompson concurred.