15 N.Y.2d 317 (1965)

A director of a corporation, including a hospital, has the right to inspect the corporation’s records to investigate potential wrongdoing, even concerning patient data, subject to reasonable safeguards to protect patient confidentiality.

Summary

William Hyman, a director of Jewish Chronic Disease Hospital, sought to inspect hospital records related to alleged improper experimentation on patients. The hospital resisted, arguing patient confidentiality and lack of director liability. The Court of Appeals held that Hyman, as a director, had a right to inspect the records to fulfill his duties, even if patient data was involved. The court emphasized the director’s responsibility to oversee the corporation’s activities and the ability of the court to protect patient privacy through appropriate orders. This case establishes a director’s broad inspection rights to ensure corporate accountability.

Facts

William Hyman, a director of the Jewish Chronic Disease Hospital, alleged that the hospital was conducting illegal and improper experiments on patients without their informed consent.
Hyman sought to inspect the hospital’s records to investigate these allegations.
The hospital denied Hyman access to the records, citing patient confidentiality and arguing that Hyman, as a director, would not be personally liable for the hospital’s wrongdoing.

Procedural History

Hyman petitioned the court for an order compelling the hospital to allow him to inspect the records.
Special Term initially ruled in favor of Hyman, granting him the right to inspection.
The Appellate Division reversed the Special Term’s decision.
Hyman appealed to the Court of Appeals.

Issue(s)

Whether a director of a hospital corporation has the right to inspect the hospital’s records, including patient data, to investigate alleged illegal and improper experimentation on patients.

Holding

Yes, because a director has a right and obligation to keep informed about the corporation’s policies and activities to fulfill their duties and responsibilities, and the court can implement safeguards to protect patient confidentiality.

Court’s Reasoning

The Court of Appeals reasoned that directors have a fundamental right and obligation to stay informed about a corporation’s activities to properly discharge their duties. This right extends to inspecting corporate records, even those containing sensitive information like patient data, especially when investigating potential wrongdoing.
The court rejected the hospital’s argument that patient confidentiality should bar Hyman’s inspection, noting that any confidentiality concerns could be addressed by the court through appropriate orders, such as concealing patient names. The court stated, “Any such confidentiality could be amply protected by inserting in the court’s order a direction that the names of the particular patients be kept confidential.”
The court also dismissed the argument that Hyman’s lack of personal liability negated the need for inspection, emphasizing that the potential liability of the corporation itself warranted the director’s inquiry. The court noted, “However, the possibility of liability of the corporation of which he is a director entitles him to learn the truth about the situation on which such alleged liability may be predicated.” The court further emphasized that Hyman was acting in his capacity as a director, fulfilling his duty to oversee the corporation’s affairs, not as a representative of the patients. The fact that the hospital had implemented new rules requiring informed consent was not a barrier to Hyman’s investigation of past actions. The dissenting opinion argued that inspection was unnecessary given ongoing investigations by the State Department of Education and the District Attorney, the petitioner’s existing knowledge of the facts, and the hospital’s new informed consent policy.