Background
David Salamon, a California resident who owned more than 11 percent of Orchid Global’s voting shares, sought corporate records under California Corporations Code sections 1600 and 1601. Those provisions give qualifying shareholders inspection rights and state that the rights may not be limited by corporate articles or bylaws. Salamon said he wanted to value a proposed share buyback, communicate with other shareholders, and investigate possible mismanagement.
Orchid is incorporated in Delaware but has its principal place of business in San Francisco. It rejected the demand and relied on a bylaw requiring claims governed by the internal affairs doctrine to be litigated exclusively in Delaware. The San Francisco Superior Court stayed Salamon’s mandate proceeding so the dispute could go forward there, and Salamon appealed.
The Court’s Holding
The First District agreed that the inspection dispute fell within the clause: a shareholder’s demand for corporate books and records concerns internal corporate affairs. But it reversed because enforcing the clause would conflict with California’s fundamental policy protecting the statutory inspection rights of shareholders in corporations with the required California connection.
Once an unwaivable California right is at stake, the party seeking to enforce a foreign forum clause must show that litigation in the chosen forum will not diminish the substantive California right. Orchid did not show that Delaware would apply California law or provide the same or greater inspection rights. Delaware’s proper-purpose requirement and potentially narrower scope of available records left at least a material risk that Salamon would receive less than California law guarantees.
The possibility that the California court might later lift its stay did not cure the problem. Full-faith-and-credit and forum-non-conveniens principles make it uncertain that a California action can simply resume after an adverse foreign judgment. The appellate court directed the trial court to deny Orchid’s stay motion.
Key Takeaways
- A shareholder books-and-records action can fall within a bylaw’s internal-affairs forum clause even when the inspection demand rests on California statutes.
- A forum clause is nevertheless unenforceable when its use would risk diminishing inspection rights that California law expressly makes nonwaivable.
- The corporation seeking the foreign forum bears the burden to show that the other forum offers the same or greater rights or will apply California law.
- It is not enough to argue that the shareholder will retain some inspection remedy; differences in the scope and conditions of access matter.
- A stay with the theoretical possibility of returning to California does not reliably preserve the statutory rights.
Why It Matters
California-based corporations organized elsewhere cannot assume an exclusive-forum bylaw will move every internal corporate dispute to the state of incorporation. When California grants a shareholder an expressly nonwaivable remedy, the company must address the actual substantive protections available in the selected forum, not merely point to a broadly similar cause of action.
Corporate counsel should review forum provisions alongside California’s inspection statutes before rejecting a demand or seeking a stay. Shareholder counsel should identify concrete differences in burden, permissible purpose, and record scope, because those differences may establish that enforcing the clause would impermissibly reduce the client’s California rights. The analysis should be supported with the selected state’s statutes and decisional law at the outset; generalized assurances that some inspection remedy exists will not carry the enforcing party’s burden.
Read the full opinion (PDF) · Court docket