34 Cal.App.5th 361
Cal. Ct. App.2019Background
- Margaret Summers, a director of nonprofit Wildlife Waystation, sued the Waystation and fellow director Martine Colette alleging self-dealing, breaches of fiduciary duty, breach of charitable trust, unjust enrichment, conversion, and sought removal of Colette and related relief. Summers sued in her capacity as a director.
- After Summers filed suit and obtained a preliminary injunction protecting her board participation, the Waystation board voted again and removed Summers from the board; Summers then amended her complaint (dropping wrongful removal) but kept claims she brought as a director at the time of filing.
- Defendants demurred, arguing Summers lacked standing because she was no longer a director and that Summers had failed to notify and join the Attorney General as an indispensable party for certain claims (notably under Corp. Code §5233/charitable trust claims).
- The trial court sustained the demurrers without leave to amend, concluding Summers lost standing upon removal and that statutory notice/joining requirements could not be cured retroactively; judgment of dismissal with prejudice followed.
- The Court of Appeal reversed: it held Summers retained statutory standing despite later removal, the trial court erred in denying leave to amend to join the Attorney General, and the notice requirement did not require pre-filing notification that Summers could not cure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a director who files suit under statutes authorizing directors to sue loses standing if later removed from the board | Summers: statutes (Corp. Code §§5233, 5142, 5223) grant standing based on status when suit was filed; removal after filing cannot strip that statutory standing | Defendants: statutes require continuous directorship; removal after filing ends standing; thus complaint must be dismissed | Held: No continuous-directorship requirement read into these statutes; Summers retained standing she had when suit was filed |
| Whether failure to join and notify the Attorney General required dismissal without leave to amend | Summers: §5233 requires joining AG as indispensable party but defect is curable; she sought leave to amend and notified AG post-filing; pre-filing notice timing is not mandated | Defendants: AG must be joined and notified before filing; failure is fatal and not curable | Held: Trial court should have allowed amendment to join the Attorney General; notice timing under §5142 not rigidly pre-filing and the AG has since been notified |
| Whether demurrer dismissal with prejudice was appropriate | Summers: dismissal with prejudice was improper; leave to amend should be granted | Defendants: dismissal appropriate given lack of standing and AG not joined | Held: Dismissal with prejudice was erroneous; court must overrule standing ground and permit amendment to add AG |
| Whether precedent or statutory interpretation supports a continuous-status requirement | Summers: legislative scheme and policy (Holt) favor allowing suits to proceed despite later removal | Defendants: analogies to shareholder-continuity cases (Grosset) and policy favor continuous status to prevent harassment | Held: Differences in statutory language and purpose distinguish shareholder-continuity precedent; public policy and statutory scheme weigh against implying continuous-directorship requirement |
Key Cases Cited
- Grosset v. Wenaas, 42 Cal.4th 1100 (2008) (interpreting shareholder-derivative standing and continuous ownership issue)
- Holt v. College of Osteopathic Physicians and Surgeons, 61 Cal.2d 750 (1964) (trustees/directors have standing to enforce charitable trusts alongside AG; policy supports private enforcement)
- Tenney v. Rosenthal, 6 N.Y.2d 204 (1959) (court refused to read continuous-directorship requirement into director-suit statute)
- Workman v. Verde Wellness Center, Inc., 240 Ariz. 597 (Ariz. Ct. App. 2016) (refused to imply continuous-directorship requirement where statute silent)
- Wolf v. CDS Devco, 185 Cal.App.4th 903 (2010) (distinguishable: addressed director inspection rights under a statute-specific framework)
- Californians for Disability Rights v. Mervyn’s, LLC, 39 Cal.4th 223 (2006) (standing must exist throughout litigation, but does not answer statutory standing-scope question)