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Director of Charitable Corporation Who Loses Post May Continue As Plaintiff—S.C.
Guerrero Says Standing Persists to Maintain Suit to Remove Directors for Dereliction
By a MetNews Staff Writer
The California Supreme Court declared yesterday that the director of a charitable corporation who brought suit against the other directors, accusing them of breaching a charitable trust and self-dealing and seeking their court-ordered ouster, did not lose standing to maintain the action after her term expired and the defendants reelected themselves but not her.
Suits for breaches of duty by such directors are authorized by Corporations Code §5142 and §5233 and an action to oust a director is provided for in §5223.
Yesterday’s opinion reverses an Aug. 1, 2021 holding by Div. One of the Fourth District Court of Appeal that a former director may not maintain an action under those sections. Justice Joan K. Irion said in that opinion:
“Neither the text nor the legislative history of these statutes suggests an intention to depart from the ordinary principles requiring a plaintiff to maintain standing throughout litigation. We conclude the statutory scheme and public policy considerations require a continuous relationship with the public benefit corporation that is special and definite to ensure the litigation is pursued in good faith for the benefit of the corporation.”
Guerrero’s Opinion
Chief Justice Patricia Guerrero wrote for a unanimous court in saying:
“An examination of the statutory text, its surrounding context, the legislative history, and the overarching purpose of the director enforcement statutes reveals that the statutes do not impose a continuous directorship requirement that would require dismissal of a lawsuit brought under these statutes if the director-plaintiff fails to retain a director position. Each statute grants a director standing to bring a lawsuit. None expressly requires continued service as a director as a condition for pursuing the lawsuit, and there is no indication that the Legislature intended to impose such a condition.”
She added:
“[T]he position adopted by the Court of Appeal would permit gamesmanship by directors accused of wrongdoing. Directors who are sued would be able to terminate the litigation by removing the plaintiffs from office, refusing to reelect the individuals, or otherwise making it more difficult for the plaintiffs to retain their positions. Because potential plaintiffs would likely be discouraged from filing complaints, this framework would shift to the Attorney General the burden of initiating lawsuits aimed at ensuring that nonprofit public benefit corporations serve their charitable purpose.”
Attorney General’s Position
Guerrero noted that the Office of Attorney General filed an amicus curiae brief on behalf of plaintiff/appellant Debra Turner saying that the attorney general “cannot have the kind of intimate knowledge about the use (or misuse) of charitable assets that directors of charities enjoy” and cannot “work alone” in policing the may charitable corporations.
The chief justice commented:
“Furthermore, unlike for-profit corporations, charitable organizations do not have shareholders with ownership interests in the charity. This means that, as pointed out by the Attorney General, the responsibility of directors ‘to assure the integrity of the charity’s activities’ is heightened. This heightened responsibility would be impeded if we adopted a rule that prohibited directors from pursuing actions aimed at protecting the charities after losing their directorship status.”
The case is Turner v. Victoria, 2023 S.O.S. 2812.
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