A.R.S. § 10-1604(C), Which Permits a Shareholder to Sue a Corporation if the Corporation Refuses Access to Certain Corporate Records, Does Not Prohibit a Corporation from Suing for a Declaratory Judgment Regarding the Shareholder’s Right to Inspect Records.

A.R.S. § 10-1602 allows qualifying shareholders to inspect certain corporate records, financial statements, and other records.  To qualify, a shareholder must meet certain requirements.  A.R.S. § 10-1602(B)-(C).  If the corporation refuses, the shareholder can apply to the superior court for an order to allow inspection.  A.R.S. § 10-1604.

Navidi is the President and CEO of an entity that is both a competitor and a very small shareholder of Café Valley.  Navidi made a written demand to inspect Café Valley’s records; Café Valley refused.  Café Valley then filed an action seeking a declaratory judgment regarding the parties’ rights under A.R.S. § 10-1602.  Navidi moved to dismiss, arguing that § 10-1604 did not allow Café Valley to sue to prevent inspection of records.  The superior court dismissed the action and Café Valley appealed.

The Court of Appeals reversed, holding that A.R.S. § 10-1604 did not bar Café Valley’s lawsuit.  Navidi argued that § 10-1604 provided a right of action to the shareholder, not the corporation, and to allow Café Valley to sue for declaratory relief would “circumvent” the statutory scheme.  In Navidi’s view, § 10-1604 was the exclusive means of resolving a dispute over inspection of records.

The Court disagreed.  Although the statute allows a shareholder to sue if a corporation refuses inspection, nothing in the statutes prevents a corporation from “preemptively challenging a shareholder’s demand to inspect corporate records.”  The Court reasoned that had the legislature intended to prohibit a corporation from bringing its own action, it would have done so expressly, not implicitly. 

Furthermore, the Court held that the superior court should have considered Café Valley’s claim for declaratory relief.  The lower court dismissed in part because it believed that a declaratory judgment would not resolve “possible future disputes” between the parties.  The superior court looked to A.R.S. § 12-1836, which permits a superior court to decline jurisdiction if a declaratory judgment “would not terminate the uncertainty or controversy giving rise to the proceeding.”  The Court reversed, however, because a declaratory judgment would resolve the parties’ then-existing dispute regarding access to certain records.  Any future dispute would be a different controversy under different facts.