34 Cal. App. 5th 361
Cal. Ct. App. 5th2019Background
- Margaret Summers, a director of nonprofit Wildlife Waystation, sued the Waystation and fellow director Martine Colette alleging director self‑dealing, breaches of fiduciary duty, breach of charitable trust, conversion, unjust enrichment, and sought damages and removal of Colette. Summers brought the suit in her capacity as a director.
- The trial court initially issued temporary restraining order and preliminary injunction protecting Summers' participation in board meetings. At a later board meeting she attended, the board again voted to remove her as a director; Summers then amended her complaint and dropped the wrongful‑removal claim.
- The Waystation and Colette demurred, arguing Summers lacked standing because she was no longer a director and that Summers failed to notify and join the California Attorney General as an indispensable party for claims involving charitable trusts/self‑dealing.
- Summers argued she had statutory standing under Corporations Code sections authorizing a director to bring actions for self‑dealing (§ 5233), breaches of charitable trust (§ 5142), and removal of directors (§ 5223) because she was a director when she filed; she also sought leave to amend to join the Attorney General.
- The trial court sustained the demurrers without leave to amend, concluding Summers lost standing after removal and that joinder/notice to the Attorney General could not be cured retroactively; it dismissed with prejudice. Summers appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a director who files suit retains statutory standing after removal | Summers: statutes (§§ 5233, 5142, 5223) give a director standing when suit is filed and removal afterward should not defeat standing | Waystation/Colette: statutes impose a continuous‑directorship requirement; removal after filing deprives standing | Court held no continuous‑directorship requirement; Summers retained standing she had when suit was filed |
| Whether failure to join/notify the Attorney General was fatal without leave to amend | Summers: she can and should be allowed to join the AG as indispensable party and she notified AG after filing; leave to amend should be granted | Waystation: AG joinder/notice was required before filing and cannot be cured retroactively; dismissal proper | Court held AG is an indispensable party under § 5233, but failure to join/notify is curable; court must allow Summers to amend to join AG |
| Whether sustaining demurrer without leave to amend was proper | Summers: trial court abused discretion by dismissing with prejudice instead of allowing amendment to join AG | Defendants: dismissal proper because Summers lacked ongoing status to amend | Court held trial court abused discretion; must permit amendment to add AG |
| Applicability of cases requiring continuous standing (e.g., shareholder continuous ownership) | Summers: different statutory language and policy support allowing suit to continue despite later removal | Defendants: analogous doctrines (continuous ownership/standing) require continuity until judgment | Court distinguished shareholder/inspection cases and adopted Summers' approach based on statutory text, purpose, and precedent from other jurisdictions |
Key Cases Cited
- Grosset v. Wenaas, 42 Cal.4th 1100 (Sup. Ct.) (interpreting shareholder continuous‑ownership requirement and statutory language "instituted or maintained")
- Holt v. College of Osteopathic Physicians and Surgeons, 61 Cal.2d 750 (Cal. 1964) (trustees/directors may enforce charitable trusts; AG enforcement supplemented by private fiduciaries)
- Workman v. Verde Wellness Center, Inc., 240 Ariz. 597 (Ariz. Ct. App.) (director retains standing after removal; rejects continuous‑directorship requirement)
- Tenney v. Rosenthal, 6 N.Y.2d 204 (N.Y. 1959) (once a director properly initiates derivative litigation he should be permitted to see it through despite later ouster)
- Wolf v. CDS Devco, 185 Cal.App.4th 903 (Cal. Ct. App.) (distinguishable: addressed statutory inspection rights under § 1602 and concluded removal ended inspection standing)
- Californians for Disability Rights v. Mervyn's, LLC, 39 Cal.4th 223 (Cal. 2006) (standing must exist throughout litigation; considered but did not determine standing here)