ICANN limits director's access to its financial records

Karl Auerbach has filed suit in the Superior Court of California in Los Angeles to compel the Internet Corporation for Assigned Names and Numbers (ICANN) to disclose its financial records to him. While actions to compel corporate disclosure are not usually noteworthy, this case has two unusual features: (i) the plaintiff is an elected director of the defendant and as such has a statutorily assured right to the corporation's books and records, and (ii) as a public benefit non-profit organization, the defendant would seem obligated to make its financial records publicly available.

The case will be of interest to intellectual property practitioners because (i) any decision may have implications for trade-secret practice, and (ii) ICANN is the entity delegated by the US Commerce Department to analyze and evaluate the feasibility of proposals for new top-level domain names.

The complaint is available at the Electronic Frontier Foundation's website. As the basis for his action, Auerbach cites California Corporations Code Section 6334, which "governs the conduct of California non-profit public benefit corporations such as ICANN", providing in particular:

"Every director shall have the absolute right at any reasonable time to inspect and copy all books, records and documents of every kind and to inspect the physical properties of the corporation of which such person is a director."

Understanding the point of Auerbach's suit requires a perspective of the law of fiduciary duty as applied to corporate officers and directors. Roughly speaking, one assumes fiduciary duties upon agreeing to hold and manage something for the benefit of another. One such duty is that of confidentiality, to the extent that disclosure would be harmful to or devalue the corporation.
Therefore, since a director's disclosure which improperly harms the corporation is by law already actionable, the separate nondisclosure agreement imposed on Auerbach as a condition of disclosing corporate information to him serves no purpose.

Directors also have an affirmative obligation to make decisions based on solid information. For this reason, a director has an absolute right to corporate information. While a few California cases may be exceptions and modify this statutory right, they involve unique facts. It would be most surprising to find one sealing up financial records of a tax-exempt public benefit corporation.

In the case of ICANN, as a non-profit entity, what information could possibly be so secret that to let a director see it would pose a serious threat to the corporate entity? In its answer to the complaint ICANN has defended its actions on several grounds, disputing Auerbach's claim that it has in fact denied him access and arguing that any limitations on access are reasonable.

In light of the limited information that conceivably is truly confidential (eg, medical insurance processing records of ICANN personnel), ICANN's behavior suggests that of an entity whose principals have committed financial excesses and simply do not want to be scrutinized.

If Karl Auerbach gains access to the records, let us hope it does not prove the rule that no good deed goes unpunished!

Michael M Krieger, Krieger & Nunziato, Los Angeles