67 Cal.App.5th 1099
Cal. Ct. App.2021Background
- Conrad Prebys created a trust (pouring over remainder to the Conrad Prebys Foundation) and the Foundation (a nonprofit public benefit corporation); Prebys later named Laurie Anne Victoria as trustee.
- Prebys’s son contested trust amendments that disinherited him; the Foundation board (with Victoria as trustee present) preapproved a settlement range and the Trust ultimately settled the son’s claim for a tax‑free $9 million (≈ $15M after taxes), which Turner alleges diverted funds from the Foundation.
- Debra Turner, a Foundation director and president who objected to the settlement, filed probate and civil derivative claims alleging breach of fiduciary duty, self‑dealing, removal, and related remedies on behalf of the Foundation; she notified the Attorney General.
- While litigation was pending, Turner was not re‑nominated/reelected at the Foundation’s annual meeting and thereby lost her director/officer/membership status under the bylaws; defendants demurred for lack of standing and courts dismissed Turner’s claims.
- The Court of Appeal held Turner lost standing to pursue claims as a former director/officer/member because derivative and similar corporate claims require a continuous, special relationship; the judgments of dismissal were affirmed as modified but remanded with 60 days’ leave to amend limited to substituting a proper plaintiff (including possible relator status by the Attorney General).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a director/officer who had standing when suit was filed can continue the suit after losing reelection under §§ 5142, 5233, 5223 | Turner: standing exists if she qualified when suit was commenced; statutes allow officers/directors to "bring an action" so continuous status is unnecessary | Defendants: derivative relief belongs to the corporation; standing must exist throughout litigation; statutes should be read with GCL precedent requiring continuity | Held: No; continuous status is required. Turner lost standing when not reelected and cannot continue as former director/officer. |
| Whether a member derivative action under § 5710 requires continuous membership | Turner: having been a member when the transaction occurred and when suit filed is sufficient | Defendants: § 5710 mirrors § 800/derivative law; continuity is required to prevent a plaintiff with no stake from litigating | Held: § 5710 requires continuous membership; Turner lost derivative standing when her board term expired. |
| Whether Turner’s advisory role on the Trust’s Real Estate Committee created a "special interest" that preserves standing | Turner: committee role gives a concrete financial tie to Foundation funding and thus special‑interest standing | Defendants: the role is advisory/attenuated and not one of the statutorily defined categories with standing | Held: No; as pled the committee role is too attenuated and does not supply the special, definite interest needed to litigate on the Foundation’s behalf. |
| Appropriate remedial response when a plaintiff loses standing mid‑litigation; role of Attorney General/relator | Turner/AG: equity/public policy support allowing her to continue or the AG to step in; preventing directors from cutting off litigation | Defendants: Ordinary standing rules apply; AG has oversight and may intervene or grant relator status if warranted | Held: Court affirmed dismissal as to Turner, but vacated denial of leave to amend and remanded with direction to allow 60 days to seek substitution of a proper plaintiff; AG may consider granting relator status. |
Key Cases Cited
- Holt v. College of Osteopathic Physicians & Surgeons, 61 Cal.2d 750 (Cal. 1964) (trustees/minority directors may sue to enforce charitable trust; Attorney General retains supervisory role)
- Grosset v. Wenaas, 42 Cal.4th 1100 (Cal. 2008) (derivative plaintiffs must generally maintain continuous ownership throughout litigation)
- Wolf v. CDS Devco, 185 Cal.App.4th 903 (Cal. Ct. App. 2010) (director lost statutory inspection rights and standing after not being reelected)
- Tritek Telecom, Inc. v. Superior Court, 169 Cal.App.4th 1385 (Cal. Ct. App. 2009) (director inspection rights serve fiduciary functions and may be limited when loyalties are divided)
- San Diego Etc. Boy Scouts of America v. City of Escondido, 14 Cal.App.3d 189 (Cal. Ct. App. 1971) (private parties with a special interest permitted to enforce charitable trusts alongside the Attorney General)
- Hardman v. Feinstein, 195 Cal.App.3d 157 (Cal. Ct. App. 1987) (only persons with a special and definite interest may enforce charitable trust interests)
- Summers v. Colette, 34 Cal.App.5th 361 (Cal. Ct. App. 2019) (contrasting view: held a director who was removed could continue suit; court of appeal here distinguishes Summers on facts and statutory interpretation)
- Californians for Disability Rights v. Mervyn's, LLC, 39 Cal.4th 223 (Cal. 2006) (standing is jurisdictional and must exist throughout proceedings)