Thursday, July 20, 2017
Minority Shareholder Can’t Gain Access to Attorney Bills—Court of Appeal
Says Right Is Coextensive With That of Members of the Public Seeking Records Of Government’s Litigation Expenses Pursuant to PRA Request
By a MetNews Staff Writer
A minority shareholder in a corporation has no right to information as to expenditures on ongoing litigation, the Court of Appeal for this district held yesterday.
It equated the right of a shareholder who suspects misuse of corporate funds on personal litigation with the right of the public to garner information about the government’s litigation expenses through a Public Records Act request.
Writing for Div. Two, Justice Victoria Chavez pinned the result in the case before her panel to the California Supreme Court’s decision last year in Los Angeles County Board of Supervisors v. Superior Court. There, the high court dealt with requests by the American Civil Liberties Union for information on the county’s expense in paying lawyers to defend it in connection with lawsuits stemming from conditions in the jails.
Supreme Court Decision
Justice Mariano-Florentino Cuéllar wrote, for the majority, that bottom-line billings relating to resolved litigation is, with some exceptions, disclosable, but “[w]hen a legal matter remains pending and active,” the litigation privilege “encompasses everything in an invoice, including the amount of aggregate fees.” He explained that “even though the amount of money paid for legal services is generally not privileged, an invoice that shows a sudden uptick in spending” might disclose strategy and the results of investigations.
“Midlitigation swings in spending, for example, could reveal an impending filing or outsized concern about a recent event.”
Chavez applied the reasoning in that decision to the case of plaintiff Pamela Worman, who sought information on litigation expenses of three Nevada corporations. She owns a 25 percent share of one of them, and has a 20 percent interest in the other two.
Worman suspected that corporate funds were financing personal litigation of Robert Thompson, who has a 50 percent interest in the companies, and his son. Worman invoked a right under a April 1, 2015 stipulated judgment to inspect “books of account and all financial records” of the companies, but was denied access, and brought suit.
Los Angeles Superior Court Judge Mary H. Strobel on June 10, 2016 (prior to the high court’s decision in Board of Supervisors) granted the right to inspect five categories of records, with some limitations. With respect to litigation records, she declared:
“To the extent Respondents have received any bills from the attorneys which state only the amount due, and include no descriptive or back up information, Respondents have not shown that the communication is privileged. In that case, the bill would appear to serve an independent and ancillary financial purpose of establishing the amount of compensation an attorney is seeking for work done in representing a client Petitioner’s request to view those documents, if any exist, is granted.
“To the extent Respondents have received bills from the attorneys that contain attorney-client or work product information, they are compelled to make those bills available for inspection with the privileged information redacted….”
Appeals Court Opinion
“The Supreme Court’s holding in Board of Supervisors applies to the attorney billing records and financial documents that are at issue here, which disclose the Companies’ litigation expenses for pending and active legal matters. The trial court’s order compelling such disclosure must therefore be reversed.”
The disposition was:
“The order granting the motion to enforce the inspection demand for corporate records is reversed to the extent that it requires disclosure of (1) attorney billing records and invoices for pending and active legal matters, whether or not such records and invoices have been redacted; and (2) other documents, such as checks, ledgers, and accounting and financial documents, to the extent that they disclose the Companies’ litigation expenses for pending and active legal matters.”
Div. Two decided the case, in an opinion that was not certified for publication, despite apparent mootness. A footnote implies that Worman would be content to look at the attorney bills after the litigation to which they relate is concluded.
“Worman filed no opposition to appellants’ appeal, but instead withdrew “her demand to inspect redacted attorneys’ bills, without prejudice to [her] right to seek such inspection at a later time in any manner consistent with” Board of Supervisors. On that basis, she opposes “any request for attorneys’ fees and/or costs incurred by Appellants as a result of this unnecessary appeal.” As appellants point out, Worman’s withdrawal does not include her demand for other financial documents such as checks, ledgers, and accounting documents that disclose the Companies’ litigation expenses for pending and active legal matters, nor does it invalidate the trial court’s order requiring disclosure of such documents.
The case is Worman v. Investment Co. of Santa Monica, B276710.
The Nevada corporations were represented by Phillip Tangalakis and Christopher G. Hook of Tangalakis & Tangalakis and by Jacob M. Harper and Everett W. Jack Jr. of Davis Wright Tremaine. The lawyers for Worman were Paul S. Malingagio and Paul L. Seeley of Sheppard Mullin Richter & Hampton.
Copyright 2017, Metropolitan News Company