(1) Petitioners’ Motion for Writ of Mandate is granted in part and denied in part.

Petitioners’ evidentiary objections 1, 2 and 5 are sustained; objections 3, 4, 6, and 7 are overruled.

Respondent’s evidentiary objection to Paragraph 19 of the Sung declaration is sustained; objections to Paragraphs 2, 3 and Exhibit A, and 4 and Exhibit B are overruled.

The California Supreme Court has established the scope of the shareholder’s right of inspection: “‘a stockholder has an interest in the assets and business of the corporation and … inspection [of the books of the corporation] may be necessary or proper for the protection of his interest or for his information as to the condition of the corporation and the value of his interests therein.’”Schnabel v. Superior Court (1993) 5 Cal.4th 705, 715-716 (inner citation omitted).

However, the shareholder’s right of inspection is not without limit. Schnabel, supra, 5 Cal.4th at 716 (Although “shareholders have some rights to corporate information not available to the general public, shareholder status does not in and of itself entitle an individual to unfettered access to corporate confidences and secrets.”) The “right of inspection does not extend to records not reasonably related to the proper purpose for which it is sought, and a trial court acts within its discretion in limiting such discovery.” Id. at 717.

 

The petitioning shareholder bears the burden of establishing that the corporation had improperly denied its inspection request. Id. at 716.

Petitioners claim they need 11 categories of documents to: (1) determine the value of their stock; (2) determine Respondent’s financial condition; (3) assess an enterprise value of Respondent; and (4) to investigate credible evidence of mismanagement, self-dealing and corporate waste. Petitioners’ evidence of mismanagement are primarily based on (hearsay) statements from a former Board member to Kubiak, re: whether the Board capped Shapiro’s CEO salary. And, statements allegedly made by Respondent’s CFO to Kubiak re: an audit by Sotheby’s. However, both the former Board member and the CFO have provided declarations denying that they made these statements. Petitioners have presented no “credible” evidence that there has been mismanagement and appear to be engaged in a fishing expedition to support their unsubstantiated allegations of corporate wrongdoing.

 

With respect to Petitioners’ claim that they need broad categories of documents to assess Respondent’s financial condition and assess its enterprise value, and to determine the value of their stock, HOM has provided an expert declaration attesting that these documents are not necessary. The fact that Petitioners no longer work for Respondent, and now work for Respondent’s competitor, cannot be ignored because the information contained in some of the requested items would undoubtedly contain information that would give Respondent’s competitor an unfair competitive advantage. For example, Quickbooks may contain information regarding customers names, addresses, billing information, payment times, etc. that could be discovered by its competitor, the new employer of some of the plaintiffs. However, Respondent’s expert does concede that certain line items need to be reviewed to perform a valuation of the corporation. Additionally, because the balance sheets and income statement have not been audited, more detail is necessary to confirm the accuracy of the information.

 

Petitioners’ attempted to submit their own expert declaration with their Reply. However, the court will not consider the untimely declaration which should have been submitted with their Motion. Petitioners have provided no reason for their delay in obtaining this evidence, and it would be prejudicial to Respondent.

 

Accordingly, Respondent is ordered to make the following available for inspection within 30 days:

 

Demand No. 7: General Ledger with appropriate redactions, e.g., broker and agent compensation.

 

Demand Nos. 10 and 11: Corporate State and Federal Tax Returns (from 2008 to the present).

 

Demand No. 12: Debt Obligations or Liabilities, including but not limited to past due or delinquent obligations (from 1/1/2008 to the present).

 

The remainder of the Demands are denied.

 

Demand No. 1: All accounting records, including Quickbooks (from 1/1/2008 to the present).

Deny. Shareholders have not met their burden of showing they need access to Quickbooks. The software would undoubtedly contain information that would give Shareholders an unfair competitive advantage.

 

Demand No. 13: Bank Statements (from 1/1/2008 to the present)

Deny. Shareholders have not met their burden of showing these items are necessary, in light of the order that they receive the general ledger (with appropriate redactions) and tax returns.

 

Demand No. 14: Records reflecting compensations and benefits to the Directors and Officers

Deny. Shareholders have not submitted credible evidence of mismanagement. All their evidence is hearsay and based on statements purportedly made by Bonanno and Weinberg to Kubiak. But both Bonanno and Kubiak have provided declarations attesting that they never made those statements.

 

Demand No. 15: Records of all loans made to the Directors or Officers including distributions and payments

Deny. Shareholders have not submitted credible evidence of mismanagement. All their evidence is hearsay and based on statements purportedly made by Bonanno and Weinberg to Kubiak. But both Bonanno and Kubiak have provided declarations attesting that they never made those statements.

 

Demand No. 16: Copies of any pending or prior offers to purchase Versal Settlement Services

Deny. Shareholders claim these documents would help them evaluate what potential dividends they may receive from a sale. This is completely speculative because no such sale has occurred and no offers have been accepted.

 

Additionally, this does not sound like an “accounting book” or “record of minutes and proceedings” in any sense of the words.

 

Demand No. 18: Claims or lawsuits against HOM (past 3-5 years)

Deny. Shareholders have not submitted credible evidence of mismanagement. All their evidence is hearsay and based on statements purportedly made by Bonanno and Weinberg to Kubiak. But both Bonanno and Kubiak have provided declarations attesting that they never made those statements.

 

Additionally, this does not sound like an “accounting book” or “record of minutes and proceedings” in any sense of the words.

 

Lastly, this information would not assist them in valuating HOM or Petitioners’ shares. It would only be relevant if judgments were entered against HOM. And that information would be found in the other financial documents.

 

Demand Nos. 19 and 20: Internal and Sotheby’s International Realty’s Audit Reports (past 3-5 years)

Deny. Shareholders have not submitted credible evidence of mismanagement. All their evidence is hearsay and based on statements purportedly made by Bonanno and Weinberg to Kubiak. But both Bonanno and Kubiak have provided declarations attesting that they never made those statements.

 

(2) Respondent’s Motion to Seal the documents attached as Exhibit 1 to the Declaration of Shane P. Criqui is granted.

 

Moving parties to give notice.