DEBRA TURNER, Plaintiff and Appellant, v. LAURIE ANNE VICTORIA et al., Defendants and Respondents.
D076318, D076337
COURT OF APPEAL, FOURTH APPELLATE DISTRICT DIVISION ONE STATE OF CALIFORNIA
Filed 8/17/21
CERTIFIED FOR PUBLICATION; (Super. Ct. Nos. 37-2017-00009873-PR-TR-CTL; 37-2018-00038613-CU-MC-CTL)
Cooley, Steven M. Strauss and Erin C. Trenda for Plaintiff and Appellant.
Gibson Dunn & Crutcher, Scott Alan Edelman, Alexander Kosta Mircheff, Megan Marie Cooney, and Jillian Nicole London for Defendant and Respondent Laurie Anne Victoria.
Henderson, Caverly, Pum & Trytten, Kristen E. Caverly and Lisa B. Roper for Defendant and Respondent Joseph Gronotte.
Seltzer Caplan McMahon Vitek, Reginal Vitek and Scott Walter Perlin for Defendant and Respondent Anthony Cortes.
Brownlie Hansen, Robert W. Brownlie; DLA Piper, S. Andrew Pharies for Defendant and Respondent The Conrad Prebys Foundation.
Xavier Becerra, Attorney General, Tania M. Ibanez, Assistant Attorney General, Caroline Hughes and James M. Toma, Deputy Attorneys General for Amicus Curiae on behalf of the State of California.
I
INTRODUCTION
In this appeal, we consider whether a director of a nonprofit public benefit corporation who brings an action on behalf of the nonprofit public benefit corporation can lose standing to pursue its claims if the director is not reelected during the litigation.
Debra Turner, formerly a director and president of the Conrad Prebys Foundation (Foundation), appeals judgments of dismissal in favor of the Foundation and its directors, following orders sustaining demurrers to her probate and civil actions.1 In those actions, Turner alleged the other Foundation directors breached their fiduciary duties in preapproving a settlement range for Laurie Anne Victoria, who served both as a Foundation
Turner contends she has standing under
Because Turner lost standing to pursue her causes of action, we affirm the judgments of dismissal as to Turner acting in her capacity as a former
II
BACKGROUND3
A. Factual Background
1. Establishment of the Trust and Foundation
Conrad Prebys was known in San Diego for his successful construction and real estate ventures and for his generous philanthropy. He donated hundreds of millions of dollars to local medical, educational, and arts institutions during his lifetime.
Prebys established the Trust in 1982 and created the Foundation in 2005 as a nonprofit public benefit corporation. The Trust provided that, after making specified distributions to identified beneficiaries, the trustee must distribute the remainder of the estate to the Foundation so it could continue to make grants and distributions for charitable purposes after Prebys‘s death. The Foundation‘s articles of incorporation provided that the “property of this corporation is irrevocably dedicated to charitable purposes and no part of the
The operative bylaws of the Foundation state the Foundation‘s “assets and income shall be held in charitable trust, to be administered and distributed as provided herein for the qualified charitable, religious, scientific, literary or educational purposes of the supported organization.”
2. Turner‘s Relationship to Prebys and the Foundation
Turner, who lived with Prebys over the last 16 years of his life and describes herself as his life partner, was a beneficiary of a gift trust and sat on a two-member real estate committee for the Trust. She was also a member of the Foundation‘s board of directors and served as an officer.
3. Prebys Creates and Withdraws His Son‘s Gift Trust
Prebys created a gift trust for his son in 2007. He allegedly had a falling out with the son in 2014. Prebys amended the gift trust in July 2014 to reduce the son‘s gift to $20 million, to be held in trust during the son‘s lifetime with taxes paid from the bequest. After another alleged falling out, Prebys revoked the son‘s gift trust completely in October 2014.
4. Prebys Amends the Trust
Prebys underwent treatment for cancer from 2014 through 2015, but allegedly remained in good mental health. He named Victoria chief executive officer of his company in 2015 and recommended another individual employed by his company to serve on the Foundation‘s board.
Prebys amended and restated the Trust in February 2016, naming Victoria as his successor trustee for the Trust as well as for the gift trusts. The restated Trust defined amounts to pour over into previously identified gift trusts. The remainder of the Trust estate was to be held as a separate trust pursuant to the terms of the Foundation and applied by the Foundation
The 2016 restated Trust noted the son‘s gift trust was “previously revoked in its entirety.” It stated Prebys expressly made no provision for Prebys‘s son and no distribution would be made to the son‘s formerly designated gift trust.
5. Events After Prebys‘s Death
When Prebys died in July 2016, Victoria assumed the duties as trustee of the Trust and engaged the attorney who prepared the Trust amendments to represent the Trust. Days after Prebys died, Victoria allegedly began discussing with the attorney how to address a potential challenge to the 2014 and 2016 documents revoking the son‘s gift trust. They discussed a dollar amount for a potential settlement shortly after the funeral in August 2016.
After Prebys‘s funeral, the son told Turner he did not want his father‘s money, but asked if he had been written out of the will. Turner confirmed the son would not receive anything from the estate unless Prebys had changed his mind after the February 2016 amendments.
Thereafter, the son hired an attorney to challenge the trust amendments that disinherited the son. The son alleged the amendments were invalid because Prebys lacked mental competence due to his illness and Turner unduly influenced Prebys.
In September 2016, at the first board meeting after Prebys‘s death, the board elected Turner as president of the Foundation and chairperson of the board. The Trust‘s attorney attended the meeting and discussed the details of establishing the Foundation since he had prepared the Trust documentation.4 He discussed the issue of a possible trust contest by the son, explaining Prebys reduced the son‘s gift in 2014 and later revoked it entirely. Victoria, as trustee, wanted to settle the son‘s claim. The board discussed a dollar amount Victoria could use to negotiate with the son‘s attorney.
Turner told the other board members that Prebys revoked the son‘s gift for a reason and documented his intention not to provide a gift to his son in the Trust as well as in the gift trusts. Turner expressed her view that the claims of lack of capacity and undue influence were false and could not be supported by evidence. She alleged the attorney and the other board members did not think the son could establish that Prebys was not competent in 2014 to make his own decisions.
The attorney cautioned the board members that the son could ” ‘get it all,’ ” which could deprive the Foundation of its funding. He also warned that if the son could establish incompetence, Prebys‘s decisions “could be undone like ‘peeling the layers of an onion.’ ”
The other board members expressed a desire to settle rather than fight a lawsuit by the son, which could involve a lengthy trial. Turner commented that Prebys settled “small business-related suits” involving slip-and-fall
After the meeting, Turner told the trust attorney it seemed like a conflict of interests to have Victoria and the other person who was employed by Prebys‘s company on the board.
At a November 2016 board meeting, Turner asked the other board members to sign an acknowledgement affirming they received, read, understood, and agreed to a copy of a conflict of interest policy and IRS regulations regarding self-dealing. Turner never received signed acknowledgements from the other directors. Turner alleges the other directors became dismissive of Prebys‘s wishes and said they were going to do things their way now that Prebys was dead.
The son‘s attorney sent a letter to the trustee‘s attorney in December 2016 alleging that Prebys lacked capacity to revoke the son‘s gift trust and that Prebys was the victim of undue influence by Turner. The son alleged Turner limited the son‘s contact with Prebys and controlled their communication from 2013 to 2016, particularly after Prebys was diagnosed with cancer in 2014. He further alleged Prebys became “increasingly confused” in phone calls with the son between 2014 and 2016. Turner attributed any confusion to Prebys‘s chemotherapy treatment. The son offered to waive and release any claims in exchange for payment of the gift trust Prebys initially established for him.
Victoria asked Turner to set up a board meeting to discuss the letter from the son‘s attorney. Victoria wanted to settle the son‘s claim to avoid the ordeal of depositions and a trial. Turner said the claims were meritless and Prebys would not want to settle.
According to Turner, the board members did not investigate the merits of the son‘s claims and there was no discussion of how the son‘s claims personally and financially impacted the board members or the Foundation‘s bylaws regarding conflict of interest.
Turner said three of the board members had conflicts and should not vote. The Trust‘s attorney allegedly stated, ” ’ [T]his is where you decide that there isn‘t a conflict.’ ” The other board members did not respond to the comment and the attorney called for a vote regarding how much to offer the son for settlement.
Victoria and the other board members suggested approving various settlement amounts. In a vote of four to one, the board ultimately approved
7. The Trust‘s Settlement with the Son
Thereafter, the Trust‘s attorney negotiated a settlement with the son for $9 million, tax-free, which was paid in January 2017. With taxes, the value of the settlement was approximately $15 million. Turner alleges the settlement diverted $15 million away from the Foundation‘s charitable purposes.
8. Turner‘s Actions to Challenge the Settlement Approval
In March 2017, Turner delivered a demand letter and a draft petition challenging the board members’ agreement to settle with the son as improperly diverting Foundation funds while obtaining personal benefit from the settlement of the son‘s claims. Turner stated she intended to discuss the matter with the Attorney General to take action against the board for improperly diverting charitable funds.
Turner alleged the board took no steps to consider the demand or to address the harm to the Foundation. The other board members retained defense counsel and inquired about insurance and indemnification from the Foundation. According to Turner, the other board members were dismissive of the demand letter, calling it a ” ‘distraction.’ ” The other directors would not speak to her and the meeting was quickly adjourned.
Turner alleged the other directors displayed hostility toward her and she became concerned the other directors would try to remove her from the Foundation. When she raised this concern, some directors assured her they
A couple of months later, in May 2017, Turner filed her probate petition. When she was absent from a board meeting a few days thereafter, the other board members retained counsel to represent the Foundation and the Trust.
9. Board Election
At a board meeting on November 7, 2017, the other four directors nominated one another for reelection as directors. The board voted to renew their terms, with Turner casting the sole dissenting vote. The board then elected officers, with the other directors nominating and electing one another for positions. None of the other board members nominated Turner for reelection as a director or as an officer. As a result of the election, Turner‘s term expired and she was asked to leave the meeting. She alleges the other directors appeared gleeful about the election results.
Turner alleged she did not know she could nominate herself. Although the minutes from the meeting reflect that the Foundation‘s executive director suggested a process of self-nomination, Turner understood the proposal only pertained to the election of officers. She claimed it would have been futile for her to nominate herself for reelection as a director or an officer.
Thereafter, Turner sent a letter to the board of directors formally nominating herself for reelection as a director for the Foundation. She received no response. She further alleged her board seat was not filled or eliminated and remains vacant.
Turner alleged the defendant directors became “openly hostile” toward her after she “refused to approve the diversion of Trust funds to a noncharitable purpose.” She alleged the hostility increased after she brought
B. Procedural History
1. Probate Action
Turner‘s probate petition alleged “causes of action” styled as: (1) breach of fiduciary duty of care, (2) breach of fiduciary duty of loyalty and self-dealing, (3) removal of directors, (4) breach of trustee‘s fiduciary duties, (5) demand for accounting, (6) surcharge, (7) denial of trustee fees, and (8) double damages. Turner alleged the first three causes of action on behalf of the Foundation against the other directors. Turner alleged the remaining causes of action derivatively on behalf of the Foundation against Victoria in her role as trustee of the Trust.
Turner brought the action in her role as a director and president of the Foundation pursuant to sections
Turner amended the probate petition in July 2017 to name the Attorney General as a nominal respondent. The Attorney General entered a general appearance acknowledging the joinder in the action, but indicated he would not participate in conferences or trial unless ordered by the court.
After the November 7, 2017 election, Victoria obtained a stay of discovery pending resolution of the defendants’ demurrers, including the
Turner filed a second amended petition, again derivatively on behalf of the Foundation and in her role as director and president of the Foundation, alleging she continued to have standing to assert the causes of action on behalf of the Foundation because she had standing when she filed the petition, notwithstanding the results of the November 2017 election. She alleged the efforts to remove her from the Foundation were in retaliation for her refusal to approve the diversion of Trust funds to a noncharitable purpose and were motivated by the desire to cut off litigation.6
The defendant directors and the Foundation again filed demurrers contending, in part, that Turner lacked standing to bring any of the claims. Turner opposed the motions asserting, as she does on appeal, that she has standing because she was a member, director, and officer at the time she filed the action and the other directors should not be able to cut off litigation by refusing to reelect her.
The probate court determined Turner‘s causes of action against her former fellow board members were “ill-suited to the probate arena” and were “best decided in a civil suit pertaining to the inner-workings of the Foundation‘s corporate governance.” On its own motion, the probate court ordered the first through fourth causes of action severed pursuant to
The court determined the fifth through ninth causes of action against the trustee were based on Turner‘s standing to act derivatively on behalf of the Foundation under section
2. Civil Action and Judgment
Turner filed a civil complaint realleging the same first four causes of action from the probate petition. She included allegations that she held a fiduciary role on the Trust‘s two-member real estate committee, which had authority to decide how its holdings are handled, which she alleged impacts the Foundation‘s funding. She named the Attorney General as a nominal defendant in this action as well. The Attorney General made a general appearance, but indicated the intention not to participate unless ordered by the court. The court sustained the defendants’ demurrers to the complaint
In an amended complaint, Turner realleged the causes of action for breach of charitable trust and breach of fiduciary duties of care against the other four board members in her capacity as a director or officer of the Foundation pursuant to sections
The court sustained the defendants’ demurrers to the operative amended complaint without leave to amend concluding Turner, as a former director and member, no longer had standing to bring derivative claims on behalf of the Foundation and, likewise, did not have standing under the director statutes. The court entered a judgment of dismissal of the civil complaint.
3. Probate Judgment
The probate court and counsel discussed what to do with the remaining causes of action pending in the probate court after the civil court‘s ruling, which Turner intended to appeal. The court concluded Turner had not
III
DISCUSSION
Turner contends the civil and probate courts erred in sustaining the defendants’ demurrers to her claims based on lack of standing because she had standing at the time she filed her action and she did not lose standing when she was not reelected as a board member and officer of the Foundation. We begin with an overview of the general principles and proceed to analyze the statutes and authorities upon which she relies before applying them to the facts alleged in this case.
A. Standard of Review and General Standing Principles
In reviewing orders sustaining demurrers without leave to amend, we independently examine the operative complaint “to determine whether it alleges facts sufficient to state a cause of action under any legal theory.” (T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162 (Novartis).) We ” ‘treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation reading it as a whole and its parts in their context.’ ” (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034 quoting Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) “Where the demurrer was sustained without leave to amend, we consider whether the plaintiff could cure the defect by an amendment. The plaintiff
” ’ “The question of standing to sue is one of the right to relief and goes to the existence of a cause of action against the defendant.” ’ ” (Pillsbury v. Karmgard (1994) 22 Cal.App.4th 743, 758.) “At its core, standing concerns a specific party‘s interest in the outcome of a lawsuit.” (Weatherford v. City of San Rafael (2017) 2 Cal.5th 1241, 1247 (Weatherford);
“For a lawsuit properly to be allowed to continue, standing must exist at all times until judgment is entered and not just on the date the complaint is filed. ‘[C]ontentions based on a lack of standing involve jurisdictional challenges and may be raised at any time in the proceeding.’ ” (Californians for Disability Rights v. Mervyn‘s, LLC (2006) 39 Cal.4th 223, 232–233.) “A plaintiff may lose standing even where an actual controversy originally existed ‘but, by the passage of time or a change in circumstances, ceased to exist.’ ” (Wolf v. CDS Devco (2010) 185 Cal.App.4th 903, 916–917 (Wolf).)
B. Analysis
Turner alleges she has standing to maintain her causes of action “both directly under the statutes that permit a director or officer to file an action against a director for misconduct under the California laws governing nonprofit public benefit corporations (§§
To consider Turner‘s claim that these statutes require standing at the time an action is commenced rather than continuous standing, “we must begin by considering the statute‘s language and structure, bearing in mind that our fundamental task in statutory interpretation is to ascertain and effectuate the law‘s intended purpose. [Citation.] We examine the ordinary meaning of the statutory language, the text of related provisions, and the overarching structure of the statutory scheme.” (Weatherford, supra, 2 Cal.5th at p. 1246.)
“If, however, the statutory language is ambiguous, ‘we may resort to extrinsic sources, including the ostensible objects to be achieved and the legislative history.’ . . . Ultimately we choose the construction that comports most closely with the apparent intent of the lawmakers, with a view to promoting rather than defeating the general purpose of the statute.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1233.)
1. Pertinent Statutes
Section
Section
Section
Finally, section
Turner contends the language in sections
The plain language of these statutes “is inconclusive” when considered alone and does not help us determine whether an individual who was qualified to commence an action must continue to have standing throughout the litigation. (Summers v. Colette (2019) 34 Cal.App.5th 361, 368.) Therefore, we look to the legislative history.
2. Legislative History
These statutes were enacted in 1978 as part of a comprehensive revision of the law governing nonprofit corporations to modernize and set forth in one division of the
In earlier committee comments, the drafters acknowledged the natural inclination to “ ‘improve’ upon the work of others” particularly when one sees “blemishes or ambiguities that were invisible to the original draftsmen.” However, for the most part, they “adhered steadfastly” to the intention to follow the form of the GCL. (Assem. Com. on Judiciary, Bill Analysis Work Sheet of Assem. Bill No. 2180 with Comments on Proposed Nonprofit and Nonstock Corp Law by Assem. Select Com. on Revision of the Nonprofit Corp. Code, p. 3.)
Accordingly,
Sections
Based on our examination of the legislative history, nothing suggests the Legislature intended to depart from the generally applicable standing principles for actions involving nonprofit public benefit corporations. Although courts may infer the Legislature intended a different meaning if materially different language is used in statutory provisions addressing the same or related subjects (see American Coatings Assn. v. South Coast Air Quality Management Dist. (2012) 54 Cal.4th 446, 463), we cannot draw such an inference here. The legislative history for this statutory scheme indicates only a clear intention to hew as closely to the law used for general corporations as possible—despite any ambiguities or inconsistencies in the language of the GCL statues—while providing for the unique circumstances of internal governance of nonprofit public benefit corporations.
3. Judicial Interpretations
We look, then, to judicial interpretations of similar provisions in GCL to interpret the statutes before us because there are few authorities directly addressing the provisions regarding nonprofit public benefit corporations. (Rep. of the Assem. Select Com. on Revision of the Nonprofit Corp. Code, 5 Assem. J. (1979–1980 Reg. Sess.) Aug. 27, 1979, p. 9004; 4 Sen.J. (1979–1980 Reg. Sess.) p. 7007; see also People ex rel. Lockyer v. R.J. Reynolds Tobacco Co. (2005) 37 Cal.4th 707, 716 [“When the Legislature has expressly declared its intent, we must accept the declaration.”].)
We begin, however, with Holt v. College of Osteopathic Physicians & Surgeons (1964) 61 Cal.2d 750 (Holt) in which the Supreme Court concluded that minority directors or trustees of a charitable corporation could maintain
The Supreme Court determined that “responsible individuals” could sue on behalf of the charitable corporation. (Holt, supra, 61 Cal.2d at p. 755.) “ ‘The charity’s own representative has at least as much interest in preserving the charitable funds as does the Attorney General who represents the general public. The cotrustee is also in the best position to learn about breaches of trust and to bring the relevant facts to a court’s attention.’ [Citation.] Moreover, permitting suits by trustees does not usurp the responsibility of the Attorney General, since he would be a necessary party to such litigation and would represent the public interest.” (Id. at p. 756.) In reaching this conclusion, the Supreme Court relied on the special interest the trustees had as fiduciaries to the charitable corporation commenting that the trustees “are the ones solely responsible for administering the trust assets” and “they are fiduciaries in performing their trust duties.” (Ibid.) The court noted the majority view of other jurisdictions was that “a trustee or other person having a special interest” may enforce a charitable trust in addition to the Attorney General. But “ ‘the only person who can object to the disposition of the trust property is one having some definite interest in the property—he must be a trustee, or a cestui, or have some reversionary interest in the trust property.’ ” (Id. at p. 753.)10
Thereafter, as we have seen, after careful consideration and after receiving input from stakeholders, including a representative of the Attorney General, the Legislature enacted
Turning to the question of whether a continuous relationship is necessary, we look to Grosset v. Wenaas (2008) 42 Cal.4th 1100 where the Supreme Court held that California law “generally requires a plaintiff in a shareholder’s derivative suit to maintain continuous stock ownership throughout the pendency of the litigation.” (Id. at p. 1119.) The plaintiff in that case lost standing to continue a derivative action when he was required to sell his stock as part of a merger. (Id. at p. 1104.) The court observed the authority to manage the business and affairs of a corporation, including commencing, defending, and controlling actions on behalf of the corporation, is vested in the board of directors. (Id. at p. 1108 citing A. Paladini, Inc. v. Superior Court of San Francisco (1933) 218 Cal. 114, 121; see also
Shareholders are permitted under
The Grosset court examined
The Grosset court commented that the “instituted or maintained” language “seems to point to a continuous ownership requirement,” but this language “does not clearly impose it.” (Grosset, supra, 42 Cal.4th at pp. 1113–1114.) However, the court concluded that “other considerations ultimately support” a continuous ownership requirement. Continuous ownership not only furthers the statutory purpose of minimizing abuse of derivative suits, “but the basic legal principles pertaining to corporations and shareholder litigation all but compel it.” (Id. at p. 1114)
“Because a derivative claim does not belong to the stockholder asserting it, standing to maintain such a claim is justified only by the stockholder relationship and the indirect benefits made possible thereby, which furnish the stockholder with an interest and incentive to seek redress for injury to the corporation. [Citations.] Once this relationship ceases to exist, the derivative plaintiff lacks standing because he or she ‘no longer has a financial interest in any recovery pursued for the benefit of the
The Grosset court rejected an argument that involuntary loss of stock should not result in lack of standing. The court stated, “ ‘[p]laintiffs who lose their shares involuntarily have no greater interest in the continued well-being of a corporation than plaintiffs who willingly sell their shares.’ ” (Grosset, supra, 42 Cal.4th at pp. 1115–1116.) The Supreme Court commented in dicta that equitable considerations might warrant an exception to a continuous ownership requirement if a merger was fraudulent or used to “wrongfully deprive” a plaintiff of standing, but those issues were not before it. (Id. at pp. 1118–1119.)
In Wolf, we determined a director who was not reelected to serve on the board of directors lost standing to assert a statutory right to inspect corporate documents. (Wolf, supra, 185 Cal.App.4th at p. 919.) We rejected an argument that a director’s inspection rights continue if he or she was in office when the inspection demand was made and when a lawsuit was filed. “When [the director] lost his seat on the board, he lost standing to assert recognized inspection rights, since they are intended to promote the appropriate exercise of a director’s fiduciary duties.” (Id. at p. 921.)
4. Application
Using similar prohibitory language as
Likewise, we conclude Turner cannot maintain her causes of action under sections
Just as a corporation manages its business and affairs through a board of directors (Grosset, supra, 42 Cal.4th at p. 1108;
As in Wolf, when Turner was not reelected as an officer or director, she no longer had fiduciary obligations to the Foundation and she lost her status and standing to justify continued pursuit of the causes of action on behalf of the Foundation. (Wolf, supra, 185 Cal.App.4th at p. 919.) Again, she no longer has a “ ‘ “dog in the hunt” ’ ” to pursue remedies on behalf of the Foundation. (Grosset, supra, 42 Cal.4th at p. 1114.)11
We recognize that our colleagues in the Second District reached a different conclusion in Summers v. Colette (2019) 34 Cal.App.5th 361, 364
We disagree with the Summers court’s interpretation of the statutory language and legislative history as pointing away from a continuous directorship requirement for standing, for the reasons we have explained. (Summers, supra, 34 Cal.App.5th at pp. 369–370.) However, we note the Summers court was concerned with equitable considerations surrounding the removal of a director and the absence of notice to the Attorney General. These considerations are not before us.
The plaintiff in Summers was one of four directors for a nonprofit public benefit corporation. Summers filed an action against the corporation and another director “ ‘as a director on behalf of’ ” the corporation for self-dealing and misconduct by the other director. She alleged the other director treated the public benefit corporation “ ‘as her own personal fiefdom’ ” and engaged in acts of self-dealing and breaches of fiduciary duty. After Summers confronted the other director about her claims, the other director orchestrated a vote to remove Summers from the board. (Summers, supra, 34 Cal.App.5th at p. 364, including fns. 1 & 2.) However, the vote was not valid because it did not meet the requirements of the bylaws for a majority vote for involuntary removal. The trial court granted a temporary restraining order enjoining the corporation from conducting board meetings without notice to plaintiff. The board subsequently voted to remove Summers from the board at a properly noticed meeting in which she participated. (Id. at p. 365.)
Turner’s allegations that the other directors appeared hostile to her, tried to freeze her out, and did not nominate her because she initiated this litigation, are speculative contentions or conclusions of law that do not amount to a material factual pleading that her removal was wrongful. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [we treat a demurrer “as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law”].) “[N]ot being renominated is not exactly the same as being removed, and [the director’s] term expired. [A former director’s] allegations that [she] was removed for the sole purpose of avoidance of corporate . . . obligations amount only to contentions or conclusions of law that do not withstand demurrer.” (Wolfe, supra, 185 Cal.App.4th at p. 921.)12
We are also not persuaded by the Summers’s court’s analysis of the statutory purpose and public policy. The Summers’s court concluded that “a continuous directorship requirement would unnecessarily deprive the
5. Policy Considerations
We are mindful of the important contributions nonprofit organizations make to nearly every aspect of American life “whether they are provided by religious institutions, schools and colleges, human and social resource agencies, cultural and arts organizations, medical and scientific research facilities, or humanitarian organizations. In addition to the specific contributions, the sector serves as a counterbalance to government and to the private realm, supplementing their public and private activities, filling in the gaps in services that neither meet, while using its unique position to innovate in delivering services and providing facilities for the general good.” (Freemont-Smith, Governing Nonprofit Organizations: Federal and State Law and Regulation (2004) (hereafter Governing Nonprofit Organizations) p. 1; Blasko, Standing to Sue in the Charitable Sector (1993) 28 U.S.F. L.Rev. 37 (hereafter Standing to Sue) [“Charities have a profound and positive role in American society”].)
Because the nonprofit sector “is a vital component of our democratic society” it must be “allowed the greatest degree of freedom to operate,
Since the beneficiaries of charities and nonprofit public benefit corporations are the public at large, the attorney general has historically been “the protector, supervisor, and enforcer” of these organizations. (Bogert’s, The Law of Trusts and Trustees (2021) Power to Enforce—Rights on Failure or Breach, § 411. The attorney general as the protector, supervisor, and enforcer of charitable trusts, Governing Nonprofit Organizations, at pp. 54, 301.) The attorney general may pursue cases for breach of duty “as representative of the sovereign, rooted in the common law power of parens patriae. It has been traditionally recognized that the suit may be either on the [a]ttorney [g]eneral’s own initiative, or on the relation of (ex relatione) an interested citizen who has brought the alleged breach to the attention of the [a]ttorney [g]eneral and demanded action.” (Bogert’s, § 411, pp. 11-12.) Enforcement primarily by an attorney general addresses pragmatic concerns that “charities would be embroiled in ‘vexatious’ litigation, constantly harassed by suits brought by parties with no stake in the charity. Trustees who administer a public charity should not be called upon to answer to
California law is consistent and gives the Attorney General “primary responsibility for supervising charitable trusts . . . and for protection of assets held by charitable trusts and public benefit corporations.” (
We recognize, however, that there are practical limitations on the resources of the Attorney General to provide investigative oversight of the nearly 114,000 registered charitable organization and additional unregistered organizations holding charitable assets in California. Staffing and funding limitations may prevent the Attorney General from prosecuting all of the complaints it receives. (Standing to Sue, at p. 48.) Additionally, political concerns may discourage “investigation of charges against respectable trustees and corporate officers.” (Ibid.)
The California statutory scheme addresses these practical concerns by allowing litigation on behalf of a public benefit corporation by a defined class of individuals in addition to the Attorney General. The statutes also provide a mechanism for continued protection of the public benefit corporation if someone who was once within the defined class of individuals entitled to litigate on its behalf loses his or her status with the corporation and, thereby, standing.
A public benefit corporation, such as the Foundation, may continue to seek relief for claims of misconduct against its directors through the Attorney
“ ‘ “A relator is a party in interest who is permitted to institute a proceeding in the name of the People or the attorney general when the right to sue resides solely in that official. . . .” ’ ” (Arman v. Bank of America, N.T. & S.A. (1999) 74 Cal.App.4th 697, 705, fn. 12; see
Moreover, the Attorney General is charged with oversight of the relator proceedings, which serves as an additional check against any retaliatory or harassing litigation tactics by a person who no longer holds a distinct and special relationship with the corporation. (
The Attorney General filed an amicus brief in support of Turner’s position on appeal, relying primarily on Summers, but without acknowledging the different factual posture presented here. The Attorney General cites practical limitations on the Attorney General’s enforcement powers such as lack of resources to investigate every complaint and the ability to become aware of wrongful conduct or be sufficiently familiar with the situation to appreciate its impact. The Attorney General states there is no meaningful distinction between a director who sues on behalf of a nonprofit public benefit corporation and one who sues but is not reelected in terms of their ability to represent the nonprofit public benefit corporation. We are not persuaded by the Attorney General’s appellate position.
Unlike in Summers or Holt, there is no concern here that the Attorney General “ ‘may not be in the position to become aware of wrongful conduct or to be sufficiently familiar with the situation to appreciate its impact . . . .’ ” (Summers, supra, 34 Cal.App.5th 371 quoting Holt, supra, 61 Cal.2d at p. 755.) Turner informed the Attorney General of her concerns even before she commenced the probate action. As required by statute, the Attorney General had notice of both the probate and civil actions, has been involved in these cases since the beginning, and is well aware of the issues.
Where, as here, an individual with statutory standing initiates an action on behalf of a nonprofit public benefit corporation and provides the Attorney General with adequate notice of the matter, we see no public policy concerns with imposing ordinary standing principles if that person loses standing during the litigation. The Attorney General, or someone to whom the Attorney General grants relator status, may step into an existing action or initiate a separate action, if warranted.14 The Attorney General should not be able to avoid its ongoing obligations to supervise charitable organizations simply because a director begins a lawsuit.
Under our interpretation, the statutory scheme adequately protects the nonprofit public benefit corporation and its beneficiaries from gamesmanship or improper attempts by the accused directors to terminate litigation brought under the statutory scheme. It gives the Attorney General primary
We in no way imply that Turner is a disgruntled or disaffected person who continued this litigation in bad faith after she lost her position as a
C. Special Interest Standing
Finally, Turner contends she has special interest standing to proceed against the trustee based on her role on the Trust’s real estate committee. In her operative civil complaint, Turner alleged she “holds a fiduciary role on the Trust’s two-member Real Estate Committee” and on this committee she “has authority to decide how the real estate assets comprising the bulk of the residual trust estate are handled, and thus how the Foundation is funded.”15
At the final hearing before the probate court, Turner’s counsel raised the issue of whether Turner’s role as a member of the Trust’s real estate committee provided her with standing. The court commented that a separate
We do not believe she has developed this argument on appeal either and we are not persuaded she has any special interest to pursue this matter, as currently pled. Turner relies upon the Restatement Third of Trusts, section 94(2), which states, “A suit for the enforcement of a charitable trust may be maintained only by the Attorney General or other appropriate public officer or by a co-trustee or successor trustee, by a settlor, or by another person who has a special interest in the enforcement of the trust.” She also cites Restatement Third of Trusts, section 94(2), comment g(2), stating the terms of a charitable trust may confer upon individuals other than the beneficiaries the power to enforce a trust or the power to control or advise the trustee and such powers may give the person holding those powers special interest standing to enforce the trust. Finally, Turner cites Crocker-Citizens National Bank v. Younger (1971) 4 Cal.3d 202, which involved a trust advisory committee to designate charitable institutions to receive distributions at intervals stated by the trust. (Id. at pp. 206–207.) In that case, the court commented that “rules pertaining to the rights and duties of trustees generally would be broadly applicable to trust advisors or other persons holding trust powers, such as the members of the committee herein. ‘Trust advisers with powers of direction must be considered fiduciaries.’ ” (Id. at p. 211.) However, it also stated that “trustees are bound by the terms of the trust and possess only that authority conferred upon them by the trust.”
This smattering of authorities is not helpful. Whether these authorities potentially support an argument that Turner has an advisory role or fiduciary duty to the Trust that would enable her to raise concerns with respect to the administration of the trust, is not an issue before us.
The issue before us is whether Turner has a special and definite interest in the Foundation to pursue a derivative claim on its behalf. (Hardman, supra, 195 Cal.App.3d at pp. 161–162.) Turner’s role on the Trust’s real estate committee simply does not fall within the statutorily defined categories of individuals with a special or definite connection to the Foundation who may pursue an action on its behalf under sections
The statutes themselves codify and define the categories individuals who have a sufficiently special interest in a nonprofit public benefit corporation to allow them to litigate an action on behalf of the corporation: an officer of the corporation, a director of the corporation, the corporation itself or a member of the corporation, or a person with a reversionary, contractual, or property interest in the assets subject to such charitable trust. (
Bogert’s The Law of Trusts and Trustees, section 414, an authority Turner cites for the special interest doctrine, comments that “courts have permitted private individuals, whose positions with regard to the charitable trust were more or less fixed, to sue for its enforcement.” The supporting note cites our decision in Boy Scouts, saying “plaintiff had standing to bring
Turner has not alleged her role on the Trust’s real estate committee makes her a fiduciary of the Foundation or a beneficiary of its assets. She also does not explain how she could amend her pleadings to allege that her advisory role on the real estate committee gives her any corporate or fiduciary powers with the Foundation or any other special connection to the Foundation’s assets that would allow her to litigate a derivative action on its behalf.16 Even if the Trust’s real estate committee makes financial decisions
The judgments are modified to indicate that the dismissals are entered against Turner in her capacity as a former director and officer of the Foundation and, as modified, are affirmed. However, the portions of the judgments denying leave to amend are vacated. The matter is remanded with directions for the probate and civil courts to enter new orders sustaining the demurrers, but granting 60 days leave to amend, limited to the issue of whether a proper plaintiff may be substituted to continue this action consistent with the holdings of this decision. Respondents shall recover their costs on appeal.
IRION, J.
WE CONCUR:
McCONNELL, P. J.
HALLER, J.