• Key point. Members of churches that are incorporated under state nonprofit corporation law often are given a limited right to inspect corporate records. This right is subject to a number of important requirements and limitations.
The Pennsylvania Supreme Court ruled that a state nonprofit corporation law giving members the right to inspect corporate records only applied to certain records. While the case involved a state bar association, it will be relevant to church leaders because many churches are incorporated under similar laws giving members a right to inspect corporate records. The facts of the case are simple. Two attorneys asked their state bar association to release 30 different categories of documents pertaining to evaluations of statewide judicial candidates. The bar association is a nonprofit corporation incorporated under state law. The nonprofit corporation law contains the following provision pertaining to members’ right to inspect corporate records:
Every member shall, upon written demand under oath stating the purpose thereof, have a right to examine, in person or by agent or attorney, during the usual hours for business for any proper purpose, the membership register, books and records of account, and records of the proceedings of the members, directors and such other body, and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to the interest of such person as a member. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the member. The demand under oath shall be directed to the corporation at its registered office in this Commonwealth or at its principal place of business wherever situated. 15 Pa. C.S. section 5508(b).
The bar association maintained that the nonprofit corporation law only required the production of: (1) the corporation’s membership register; (2) the corporation’s books and records of account; and (3) the records of proceedings of the corporation’s members and directors. The bar association noted that it already had published a list of bar members and offered to make available a computerized listing of its members. It also released the estimated budget and the account of expenditures relating to the judicial evaluation committee as well as minutes of its official “house of delegates and board of governors.” The two attorneys were not satisfied. They sued the bar association, claiming that it had violated the “inspection of records” law by not giving them all the records they demanded. The bar association countered by asserting that it had turned over every document “to which a member of the [bar], acting for a proper purpose, would be entitled.”
The state supreme court ruled that the bar association did not have to turn over any additional records. It noted that a member of a nonprofit corporation has a right to inspect three categories of documents: (1) the membership register; (2) books and records of account; and (3) records of the proceedings of the members and directors. The court noted that the bar association had turned over documents of the first two categories. The remaining question was the meaning of the third category-records of the proceedings of the members and directors. The court acknowledged that this term was not defined by the statute itself, and that the “plain meaning of the phrase … could permit a member’s access to duly authorized minutes of official action of the board of directors of a nonprofit corporation but could, for example, exclude access to a variety of documents, such as correspondence and draft documents.” The court continued by making the following important observation:
The scope of records to which a member has access is further limited by considerations of privacy, privilege and confidentiality. Some accessible documents, or portions thereof, may be protected from disclosure by legitimate considerations of: privacy, such as references to an individual employee’s health records; privilege, such as communications protected by the attorney—client privilege or work product doctrine; or confidentiality, where both the corporation’s purpose and the public’s interest are served by keeping information confidential.
The court concluded that the bar association had released enough records to comply with the statute. It pointed out that releasing other information, including confidential references pertaining to the qualifications of judicial candidates, would infringe upon the legitimate expectations of confidentiality of those who submitted the references. Further, releasing such references would ensure that very few persons in the future would ever respond to requests for references. The court observed that the bar association “has an interest in keeping its records confidential because it had promised confidentiality to those interviewed before they were interviewed. The public has a compelling interest in having an informed electorate which is promoted by the free flow of information about judicial candidates. That flow would slow to a halt were documents respecting interviews or [committee] deliberations made available to members.”
Application. This case provides church leaders with some useful insights into the meaning of state nonprofit corporation laws that give members a limited right to inspect corporate records. Consider the following: (1) The right of inspection is not absolute. It only exists if a church is incorporated under a state nonprofit corporation law that gives members such a right. (2) The right of inspection only extends to members. (3) The right of inspection only extends to those records specified in the statute creating the right. (4) Most such laws provide that the member may inspect documents “for a proper purpose” at a “reasonable time.” (5) The court in this case noted that the right of inspection is further limited by “considerations of privacy, privilege and confidentiality.” It pointed out that some documents may be protected from disclosure by legitimate considerations of privacy (such as an employee’s health records); privilege (such as communications protected by the attorney—client privilege); or confidentiality (where both the corporation’s purpose and the public’s interest are served by keeping information confidential). In this case, the interests of confidentiality dictated that the bar association not turn over confidential references and interview transcripts obtained in the course of determining the qualifications of judicial candidates. Obviously, most churches maintain confidential records, and church leaders who are unwilling to turn over such records in response to a member’s request may refer to this case as support for their position. While a decision by the Pennsylvania Supreme Court will not be binding in other states, it will be persuasive-especially since so few courts have addressed this issue. Of course, any decision to withhold documents from a member should be made with the advice of an attorney. Lewis v. Pennsylvania Bar Association, 701 A.2d 551 (Pa. 1997). [Church Records]
© Copyright 1998 by Church Law & Tax Report. All rights reserved. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Church Law & Tax Report, PO Box 1098, Matthews, NC 28106. Reference Code: m12 c0398