Summers v. Colette ( 2019 )

Filed 4/15/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
MARGARET SUMMERS, B285488
Plaintiff and Appellant, (Los Angeles County
Super. Ct. No. BC645927)
v.
MARTINE COLETTE et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of
Los Angeles County, Barbara Ann Meiers, Judge. Reversed and
remanded with directions.
Norton Rose Fulbright US, Jeffrey B. Margulies and Andy
Guo for Plaintiff and Appellant.
Xavier Becerra, Attorney General, Tania M. Ibanez,
Senior Assistant Attorney General, and James M. Toma,
Deputy Attorney General, as Amicus Curiae on behalf of Plaintiff
and Appellant.
Borton Petrini, Rosemarie Lewis and Jeffrey Z. Liu for
Defendant and Respondent Martine Colette.
Freeman, Freeman & Smiley and Dawn B. Eyerly for
Defendant and Respondent Wildlife Waystation.
INTRODUCTION
While serving as a director of a nonprofit public benefit
corporation called Wildlife Waystation, Margaret Summers filed
this action against the Waystation and another director, Martine
Colette, alleging self-dealing and other misconduct by Colette.
Colette and the Waystation demurred to the complaint, arguing
Summers, who as a director had standing to bring this action
when she filed it, lost standing when the Waystation board of
directors later removed her as a director. The trial court
sustained the demurrers without leave to amend.
We conclude that Summers did not lose standing to
maintain this action when the Waystation removed her as a
director and that the trial court erred in not granting Summers
leave to amend to add the Attorney General as an indispensable
party. Therefore, we reverse and remand with directions to
overrule the demurrers based on lack of standing and allow
Summers to add the Attorney General as a party to this action.
FACTUAL AND PROCEDURAL BACKGROUND
A. After Summers Files This Action, the Waystation
Removes Her as a Director
Summers filed this action against Colette and the
Waystation to assert “claims . . . as a director on behalf of the . . .
Waystation.” Summers alleged that, while serving on the
Waystation’s board of directors, she learned Colette, a director
who “treated the Waystation as her own personal fiefdom,”1 had
1 According to the complaint, Colette founded the Waystation
in 1976 with a “mission . . . to rescue and provide sanctuary for
2
engaged in numerous acts of self-dealing and breaches of
fiduciary duty. Summers alleged that, after she confronted
Colette about this misconduct, Colette orchestrated a vote to
remove Summers from the board of directors, but that the vote
was unlawful.2 Summers alleged causes of action for “breach of
fiduciary duty (self-dealing),” “breach of fiduciary duty (due
care),” breach of charitable trust, wrongful removal, unjust
enrichment, declaratory relief, and conversion. She sought
damages on behalf of the Waystation caused by Colette’s
misconduct, removal of Colette as a director, a declaration
Summers was a director, and a temporary restraining order and
preliminary injunction enjoining the Waystation from removing
her as a director.
After issuing a temporary restraining order, the trial court
issued a preliminary injunction enjoining Colette and the
Waystation from conducting further board meetings without
providing notice to Summers and allowing her to participate as a
all kinds of wildlife and to educate and inform the public about
these animals. The Waystation receives no government funding,
and is instead supported by private donations, grants, bequests,
memberships and sponsorships, using the reputation it has built
worldwide in support of its charitable purposes.”
2 Summers alleged: “At this point, the Waystation board
consisted of four voting directors. During the vote, Colette and
another director voted for [Summers’s] removal, while [Summers]
voted against removal and a fourth director abstained. . . .
California law and the Waystation bylaws state that an
involuntary removal of a director without cause requires a
majority of directors then in office. Because only two of four
directors voted for removal, Colette’s attempt to remove
[Summers] from the Board was unsuccessful.”
3
director. At a subsequent Waystation board meeting of which
Summers had proper notice and at which she participated, the
board again voted to remove Summers as a director. Conceding
her cause of action for wrongful removal was “now[ ]
unnecessary,” Summers filed a first amended complaint without
that cause of action. She also added a cause of action for an
accounting and alleged she brought the “claims in this action as a
director at the time of the filing of [the] original complaint on
behalf of the . . . Waystation.”
B. The Trial Court Sustains Demurrers by the
Waystation and Colette
The Waystation demurred to all causes of action in the first
amended complaint on the ground Summers “is not the real party
in interest and therefore lacks standing to sue.” The Waystation
also demurred to the cause of action for breach of fiduciary duty
by self-dealing on the grounds Summers had failed to join the
Attorney General as an indispensable party and to allege she
notified the Attorney General of the action before filing it. The
Waystation similarly demurred to the cause of action for breach
of charitable trust on the ground Summers did not give the
Attorney General notice of the action. Colette demurred to the
entire complaint on the ground Summers had “no standing to
bring this action” because she was not a director or a member of
the Waystation.
In opposing the demurrers, Summers argued three statutes
gave her standing to bring this action: Corporations Code section
5233, subdivision (c),3 which provides that a director of a
3 Undesignated statutory references are to the Corporations
Code.
4
nonprofit corporation may “bring an action” to address self-
dealing by another director; section 5142, subdivision (a), which
provides that a director of a nonprofit corporation may “bring an
action to . . . remedy a breach of a charitable trust”; and section
5223, subdivision (a), which authorizes the superior court, “at the
suit of a director” of a nonprofit corporation, to remove another
director for, among other things, fraud, dishonesty, or gross
abuse of authority. Summers contended that, because she was a
director when she filed the action, she continued to have standing
under these statutes. She argued that allowing the Waystation
and Colette to deprive her of standing by removing her after she
filed this action would “render[ ] the statute[s] meaningless” and
would be “contrary to public policy.”
Regarding the Waystation’s arguments about her failure to
notify the Attorney General, Summers contended she did not
have to allege such notification or notify the Attorney General
before filing the complaint. She also submitted evidence she
notified the Attorney General of the action in writing shortly
after filing the complaint. Summers conceded her cause of action
for self-dealing required her to join the Attorney General as an
indispensable party, and she requested leave to amend to do so.4
She also requested that, in the event the trial court sustained the
demurrer for failure to notify or join the Attorney General, the
court grant her leave to amend to cure those defects.
The trial court sustained the demurrers without leave to
amend. The court ruled “Code of Civil Procedure Section 367
provides that cases must be prosecuted by real parties in interest.
4 Summers had proposed a stipulation to amend her
complaint to join the Attorney General, but Colette refused to
agree.
5
[Summers], whatever her standing or interest at the outset of
this case, no longer has any standing or interest, and the current
Board of Directors and officers, the present ‘real parties in
interest,’ have no interest in pursuing the action.” The court also
ruled section 5233, subdivision (c), required the Attorney General
“to be joined and notified . . . before the Complaint was filed,
something that could not be cured retroactively.” The court
denied Summer’s request for leave to amend to cure defects
regarding joining or notifying the Attorney General on the
ground Summers no longer had “the status required to file
anything.” The court entered judgment dismissing the action
with prejudice, and Summers timely appealed.
DISCUSSION
Summers argues the trial court erred in sustaining the
demurrers. She contends that she continues to have standing
under the statutes that authorized her to bring the action and
that the trial court misapplied the statutory requirements for
notifying the Attorney General of the action. She also contends
the trial court abused its discretion in denying her leave to
amend to join the Attorney General as an indispensable party.
All three contentions have merit.
A. Standards of Review
“‘“‘On appeal from an order of dismissal after an order
sustaining a demurrer, our standard of review is de novo, i.e., we
exercise our independent judgment about whether the complaint
states a cause of action as a matter of law.’” [Citation.] In
reviewing the complaint, “we must assume the truth of all facts
6
properly pleaded by the plaintiffs, as well as those that are
judicially noticeable.” [Citation.] We may affirm on any basis
stated in the demurrer, regardless of the ground on which the
trial court based its ruling.’” (Ward v. Tilly’s, Inc. (2019) 31
Cal.App.5th 1167, 1174; see Krolikowski v. San Diego City
Employees’ Retirement System (2018) 24 Cal.App.5th 537, 549.)
“When a trial court sustains a demurrer without leave to
amend, ‘we must decide whether there is a reasonable possibility
the plaintiff could cure the defect with an amendment. If we find
that an amendment could cure the defect, we conclude that the
trial court abused its discretion and we reverse; if not, no abuse
of discretion has occurred. The plaintiff has the burden of
proving that an amendment would cure the defect.’” (Modisette v.
Apple Inc. (2018) 30 Cal.App.5th 136, 155; see Schifando v. City
of Los Angeles (2003) 31 Cal. 4th 1074, 1081.)
B. Summers Has Standing To Pursue This Action
“Only a real party in interest has standing to prosecute an
action, except as otherwise provided by statute.” (City of
Industry v. City of Fillmore (2011) 198 Cal. App. 4th 191, 208; see
Code Civ. Proc., § 367 [“[e]very action must be prosecuted in the
name of the real party in interest, except as otherwise provided
by statute”]; Turner v. Seterus, Inc. (2018) 27 Cal.App.5th 516,
525 (Turner) [same].) Summers concedes she is not a real party
in interest. (See Turner, at p. 525 [a real party in interest has
“‘“‘an actual and substantial interest in the subject matter of the
action,’ and stands to be ‘benefited or injured’ by a judgment in
the action”’”].) As in the trial court, however, she cites three
statutes she contends give her standing.
7
First, section 5233, subdivisions (c) and (h), provides that
the Attorney General or, if the Attorney General is joined as an
indispensable party, a director of a nonprofit corporation “may
bring an action” to remedy impermissible self-dealing by another
director. Second, section 5142, subdivision (a)(3), provides that a
director of a nonprofit corporation “may bring an action to enjoin,
correct, obtain damages for or to otherwise remedy a breach of a
charitable trust.” Finally, section 5223, subdivision (a),
authorizes the superior court, “at the suit of a director” of a
nonprofit corporation, to remove another director for, among
other things, fraudulent or dishonest acts, gross abuse of
authority, or breach of duty.
The parties do not dispute that these statutes give a
director standing to institute an action such as this one. They
dispute whether, under these statutes, removing a director who
has instituted the action deprives the director of standing to
continue to pursue it. The parties refer to this as a question
whether these statutes impose a “continuous directorship”
requirement. Colette and the Waystation interpret the statutes
as containing that requirement, Summers interprets them
otherwise, and no California case appears to have addressed the
issue. Summers, however, has the better argument.
“‘“When we interpret a statute, ‘[o]ur fundamental
task . . . is to determine the Legislature’s intent so as to
effectuate the law’s purpose. We first examine the statutory
language, giving it a plain and commonsense meaning. We do
not examine that language in isolation, but in the context of the
statutory framework as a whole in order to determine its scope
and purpose and to harmonize the various parts of the
enactment. If the language is clear, courts must generally follow
8
its plain meaning unless a literal interpretation would result in
absurd consequences the Legislature did not intend. If the
statutory language permits more than one reasonable
interpretation, courts may consider other aids, such as the
statute’s purpose, legislative history, and public policy.’
[Citation.] ‘Furthermore, we consider portions of a statute in the
context of the entire statute and the statutory scheme of which it
is a part, giving significance to every word, phrase, sentence, and
part of an act in pursuance of the legislative purpose.’”’” (Hassell
v. Bird (2018) 5 Cal.5th 522, 540; accord, City of San Jose v.
Superior Court (2017) 2 Cal.5th 608, 616-617.)
1. The Statutory Language
Considered in isolation, the plain language of the three
statutes is inconclusive. The statutes provide a director “may
bring” the action, but they do not say whether, having brought
the action, the plaintiff must continue to be a director to continue
to have standing. The Legislature, however, enacted section
5223, section 5142, and former section 5233 (which is identical in
all relevant respects to the current version of section 5233) in
1978 as part of a new statutory scheme governing nonprofit
corporations. (Stats. 1978, ch. 567, § 5, pp. 1755, 1762, 1764-
1766; see Assem. Select Com. on the Revision of the Nonprofit
Corp. Code, Summary of AB 2180 and AB 2181, July 27, 1978, at
p. 1.) And considered in the context of that statutory framework,
the statutory language at issue suggests there is no continuous
directorship requirement.
In particular, Summers cites section 5710, which the
Legislature enacted as part of that same framework (Stats. 1978,
ch. 567, § 5, p. 1787) and which concerns actions brought on
9
behalf of nonprofit corporations by members, as opposed to
directors. Section 5710 provides that “[n]o action may be
instituted or maintained in the right of any corporation by any
member” unless the plaintiff alleges, among other things, he or
she “was a member at the time of the transaction or any part
thereof of which plaintiff complains.” (§ 5710, subd. (b), italics
added.) Summers notes this language is identical to the
language in section 800 concerning the standing of a shareholder
to bring an action on behalf of a private corporation, which the
Supreme Court in Grosset v. Wenaas (2008) 42 Cal. 4th 1100
(Grosset) interpreted as imposing a “continuous stock ownership”
requirement for standing to pursue a shareholder derivative
action. (Id. at pp. 1107, 1113-1114.)
In Grosset, supra, 42 Cal. 4th 1100 the Supreme Court
considered whether section 800, which “imposes stock ownership
requirements for standing to pursue a shareholder’s derivative
suit,” requires “a plaintiff to maintain continuous stock
ownership throughout the litigation.” (Grosset, at pp. 1107,
1110.) Section 800, subdivision (b), provides: “No action may be
instituted or maintained in right of any . . . corporation by any
holder of shares” unless, among things, the plaintiff alleges he or
she was a shareholder at the time of the transaction of which he
or she complains. The Supreme Court observed that “[t]he
phrase ‘instituted or maintained’ [italics in original] . . . seems to
imply that only a shareholder may initiate or maintain a
derivative action.”5 (Grosset, at p. 1111.) After further reviewing
5 The Supreme Court in Grosset rejected the interpretation of
section 800, subdivision (b), adopted by the court in Gaillard v.
Natomas Co. (1985) 173 Cal. App. 3d 410, which held that the
statute required “only contemporaneous ownership and
10
the language and history of the statute, the Supreme Court
concluded that, “while section 800(b) seems to point to a
continuous ownership requirement, the ‘instituted or maintained’
language does not clearly impose it. Nonetheless, other
considerations ultimately support this interpretation of the
statute.” (Grosset, at pp. 1113-1114.) Those “other
considerations” included that a continuous ownership
requirement furthered “the statutory purpose to minimize abuse
of the derivative suit” and that a “majority of other jurisdictions
that have considered the issue require continuous stock
ownership for standing to maintain a derivative lawsuit.” (Id. at
p. 1114.)
Significantly, the “instituted or maintained” language that
the Supreme Court concluded suggested a continuous stock
ownership requirement in section 800, and which appears in the
provision concerning a member’s standing to bring an action on
behalf of a nonprofit corporation in section 5710, does not appear
in the provision governing a director’s standing to bring an action
on behalf of a nonprofit in sections 5233 and 5142. That
difference in language suggests a difference in legislative intent.
(See American Coatings Assn. v. South Coast Air Quality
Management Dist. (2012) 54 Cal. 4th 446, 463 [“‘“[w]hen the
ownership at the time the action is filed” and that “the term
‘maintained’ was intended to ‘allow one who, by operation of law,
becomes an owner of shares which already are the basis of a
derivative action, to continue that litigation.’” (Grosset, supra, 42
Cal.4th at pp. 1112-1113.) Regarding the latter interpretation,
the Supreme Court stated that “nothing in the statutory
language or history purports to limit . . . application [of the
‘instituted or maintained’ language] to that singular
circumstance.” (Id. at p. 1113.)
11
Legislature uses materially different language in statutory
provisions addressing the same subject or related subjects, the
normal inference is that the Legislature intended a difference in
meaning”’”]; Kleffman v. Vonage Holdings Corp. (2010) 49 Cal. 4th
334, 342 [same]; CPF Agency Corp. v. Sevel’s 24 Hour Towing
Service (2005) 132 Cal. App. 4th 1034, 1049 [“‘[c]ourts should
generally “assume that the Legislature knew what it was saying
and meant what it said,”’” and “‘this is particularly true where
the Legislature has omitted a provision which it has employed in
other circumstances where the asserted effect is intended’”].)6 In
particular, the absence of something comparable to the phrase “or
maintained” in sections 5233 and 5142 points away from a
continuous directorship requirement in the same way that
6 Indeed, summarizing the format of the new proposed law
governing nonprofit corporations, the Chair of the Assembly
Select Committee that helped draft it reported that (a) the
proposed legislation followed the format and language of the
General Corporation Law (GCL) (which included the “instituted
or maintained” language of section 800), “except where
substantive differences require a different format or language”;
(b) “individual sections employ the GCL language whenever the
same substantive results are intended”; and (c) “[k]eeping the
language the same allows those using the proposed law to benefit
from judicial interpretations of the GCL.” (Assem. Select Com.
on the Revision of the Nonprofit Corp. Code, Summary of AB
2180 and AB 2181, July 27, 1978, at pp. 1-2; see Stats. 1975, Ch.
682, § 7, at pp. 1516, 1570; see Mt. Hawley Ins. Co. v. Lopez
(2013) 215 Cal. App. 4th 1385, 1401 [“[i]n construing a statute,
legislative committee reports, bill reports, and other legislative
records are appropriate sources from which legislative intent may
be ascertained”].)
12
phrase’s presence in section 800 “point[s] to” (Grosset, supra, 42
Cal.4th at p. 1113) a continuous stock ownership requirement.
2. Statutory Purpose and Public Policy
Considerations of statutory purpose and public policy also
favor Summers’s interpretation. Holt v. College of Osteopathic
Physicians and Surgeons (1964) 61 Cal. 2d 750 (Holt) is
instructive. That case concerned whether trustees of a charitable
corporation (i.e., the members of its governing board) had
standing to bring an action against other trustees for breach of
charitable trust.7 (Holt, at pp. 752-753, 756.) The applicable
sections of the Corporations Code stated “‘the Attorney General
shall institute . . . the proceedings necessary to correct’” any
failure to comply with a charitable trust, which the defendants
contended meant only the Attorney General could bring such an
action. (Holt, at pp. 753-754.) Observing “[n]othing in these
sections suggests that trustees are precluded from bringing an
action to enforce the trust,” however, the Supreme Court held the
trustees had standing to bring the action. (Id. at pp. 754, 757.)
Central to the Supreme Court’s holding in Holt were the
statutory purpose and public policy served by permitting trustees
to sue. The Supreme Court stated that the statutes authorizing
the Attorney General to sue “were enacted in recognition of the
problem of providing adequate supervision and enforcement of
charitable trusts. Beneficiaries of a charitable trust, unlike
beneficiaries of a private trust, are ordinarily indefinite and
7 The Legislature has since redesignated charitable
corporations as either nonprofit public benefit corporations or
nonprofit religious corporations, depending on their purpose.
(See § 10200.)
13
therefore unable to enforce the trust in their own behalf.
[Citations.] Since there is usually no one willing to assume the
burdens of a legal action, or who could properly represent the
interests of the trust or the public, the Attorney General has been
empowered to oversee charities as the representative of the
public.” (Holt, supra, 61 Cal.2d at p. 754, fn. omitted; see
Gov. Code, § 12598, subd. (a) [the Attorney General has the
“primary responsibility for supervising charitable trusts in
California [and] . . . for protection of assets held by charitable
trusts and public benefit corporations”].) Allowing trustees to sue
furthered this end because “[t]he Attorney General may not be in
a position to become aware of wrongful conduct or to be
sufficiently familiar with the situation to appreciate its impact,
and the various responsibilities of his office may also tend to
make it burdensome for him to institute legal actions except in
situations of serious public detriment.” (Holt, at p. 755.) The
Supreme Court stated: “Although the Attorney General has
primary responsibility for the enforcement of charitable trusts,
the need for adequate enforcement is not wholly fulfilled by the
authority given him. . . . There is no rule or policy against
supplementing the Attorney General’s power of enforcement by
allowing other responsible individuals to sue in behalf of the
charity. The administration of charitable trusts stands only to
benefit if in addition to the Attorney General other suitable
means of enforcement are available.” (Id. at pp. 755-756,
fn. omitted.)
The same principles weigh against reading into the
statutes at issue here a continuous directorship requirement that
would unnecessarily deprive the Attorney General and the public
of the assistance of “responsible individuals” wishing to pursue
14
an action under those statutes. (Holt, supra, 61 Cal.2d at p. 755.)
As the Supreme Court observed in Holt, a “‘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.’” (Id. at p. 756.) Such an individual “‘is also in
the best position to learn about breaches of trust and to bring the
relevant facts to a court’s attention.’” (Ibid.) A director who files
an action such as this one will continue to provide the advantages
identified in Holt even if later removed from office.
Nor does Summers’s interpretation offend the purpose of
having a standing requirement. The purpose of the requirement
“is to ‘protect a defendant from harassment from other claimants
on the same demand.’” (The Rossdale Group, LLC v. Walton
(2017) 12 Cal.App.5th 936, 944; accord, Doe v. Lincoln Unified
School Dist. (2010) 188 Cal. App. 4th 758, 765.) As the Supreme
Court observed in Holt: “The protection of charities from
harassing litigation does not require that only the Attorney
General be permitted to bring legal actions in their behalf. This
consideration ‘. . . is quite inapplicable to enforcement by the
fiduciaries who are both few in number and charged with the
duty of managing the charity’s affairs.’” (Holt, supra, 61 Cal.2d
at p. 755.) Similarly, directors authorized to bring an action on
behalf of a nonprofit corporation have been charged with
managing the corporation’s affairs, and those permitted to
maintain an action in the absence of a continuous directorship
requirement are sufficiently “few in number.” (Ibid; accord, L.B.
Research & Education Foundation v. UCLA Foundation (2005)
130 Cal. App. 4th 171, 181.)
15
3. Other Jurisdictions
Cases from other jurisdictions have decided against reading
a continuous directorship requirement into statutes authorizing
directors to bring actions on behalf of corporations. (See Grosset,
supra, 42 Cal.4th at pp. 1114-1115 [citing “other jurisdictions
that have considered the issue” whether standing to maintain a
derivative action requires continuous stock ownership in
determining section 800, subdivision (b), “is properly construed as
containing” that requirement]; Rappaport v. Gelfand (2011) 197
Cal. App. 4th 1213, 1227 [“[r]eview of section 16701, subdivision
(b), and the interpretation of the term ‘liquidation value’ are
issues of first impression in this state,” and “[a]s there are no
California cases interpreting section 16701, subdivision (b), we
may look to other jurisdictions for guidance”].)
Workman v. Verde Wellness Center, Inc. (Ariz. Ct. App.
2016) 240 Ariz. 597 (Workman) and Tenney v. Rosenthal (1959) 6
N.Y.2d 204 (Tenney) both concerned whether, under a statute
authorizing a director to bring an action on behalf of a
corporation to remedy malfeasance by another director, the
plaintiff lost standing to pursue the action if, after filing it, he or
she was removed as a director. (Workman, at pp. 603-605;
Tenney, at pp. 207-213.) In each case the court, faced with a
statute’s silence on the continuous directorship requirement,
refused to read one into it. (Workman, at p. 604; Tenney, at pp.
209-210.) Both courts cited policy considerations (Workman, at p.
604; Tenney, at p. 210), with the court in Tenney explaining:
“Strong reasons of policy dictate that, once he properly initiates
an action on behalf of the corporation to vindicate its rights, a
director should be privileged to see it through to conclusion.
Other directors, themselves charged with fraud, misconduct or
16
neglect, should not have the power to terminate the suit by
effecting the ouster of the director-plaintiff. It is no answer to
say that, if wrongs were committed, others are available to
commence a new and appropriate action.” (Tenney, at p. 210; see
Workman, at pp. 604-605 [“it is reasonable to infer that the board
removed [the plaintiff] in response to her claims, particularly in
light of the allegations of wrongdoing she made against the other
directors”].)
The Waystation attempts to distinguish these cases on the
ground that the standing requirement in Arizona and New York
is a waivable rule of judicial restraint, whereas in California
standing is “jurisdictional and non-waivable.” (Italics omitted.)
But neither Workman, supra, 240 Ariz. 597 nor Tenney, supra, 6
N.Y.2d 204 relied on waiver of its jurisdiction’s standing
requirement. Rather, in each case the court considered the
relevant statutory language and public policy to determine what
the standing requirement was. The reasoning in those decisions
is persuasive and applicable here. (Cf. Grosset, supra, 42 Cal.4th
at pp. 1114-1115 [that other jurisdictions “require continuous
ownership, despite having legislation that fails to expressly
provide for it, confirms our view that the requirement is sound”].)
4. Inapplicable Cases Cited by Colette and the
Waystation
The cases Colette and the Waystation cite to support their
argument for a continuous directorship requirement are
distinguishable. For example, they cite Wolf v. CDS Devco (2010)
185 Cal. App. 4th 903 (Wolf), which held that a director who sued
to inspect corporate records lost standing to continue to assert
the right to inspect the records when, after filing the action, he
17
was removed as a director. (Id. at pp. 907-908.) But the court in
Wolf emphasized that the “narrow” issue before it involved the
proper application of section 1602, which provides “[e]very
director shall have the absolute right . . . to inspect” a
corporation’s records. Because the court’s decision turned on its
analysis of a director’s right of inspection (Wolf, at pp. 908, 915-
919), the decision offers little assistance in interpreting the
statutes at issue here.
The Waystation also quotes the statement in Californians
for Disability Rights v. Mervyn’s, LLC (2006) 39 Cal. 4th 223 that,
“[f]or 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.” (Id. at pp. 232-233.) This correctly
states the law, but it does not help answer the question whether,
in fact, Summers continues to have standing.
In sum, Summers had standing under sections 5233, 5142,
and 5223 at the time she instituted this action, and her
subsequent removal as director did not deprive her of standing.
In the absence of contrary legislative direction, we decline to read
into these statutes a continuous directorship requirement.
Therefore, we reverse the trial court’s order sustaining the
demurrers to Summers’s first amended complaint based on lack
of standing.
C. The Trial Court Erred in Sustaining the Demurrer
Without Leave To Amend for Failing To Join the
Attorney General as an Indispensable Party and
Notify the Attorney General of the Action
Summers concedes section 5233 required her to join the
Attorney General as an indispensable party, but contends the
18
trial court erred in sustaining the Waystation’s demurrer without
leave to amend and dismissing her action with prejudice on that
ground. She is correct. (See Code Civ. Proc., § 389, subds. (a), (b)
[if an indispensable party has not been joined, “the court shall
order that he be made a party” or, if that person “cannot be made
a party, the court shall determine whether in equity and good
conscience the action should proceed among the parties before it,
or should be dismissed without prejudice”]; Holt, supra, 61 Cal.2d
at pp. 760-761 [plaintiffs were entitled to leave to amend to join
an indispensable party]; Irwin v. City of Manhattan Beach (1964)
227 Cal. App. 2d 634, 638 [“[a]n action may not be dismissed
summarily whenever it appears there are parties whose presence
is indispensable, without affording the plaintiff an opportunity to
bring them in”].) On remand, the trial court must give Summers
an opportunity to amend to join the Attorney General as an
indispensable party.
Summers also argues the trial court erred in sustaining the
Waystation’s demurrer for failure to notify the Attorney General
of the action prior to filing it. Summers is correct again. The
only relevant statute that requires notice of the action to the
Attorney General, section 5142, does not state when the plaintiff
must give that notice. (See § 5142, subd. (a) [“[t]he Attorney
General shall be given notice of any action brought by [a director]
and may intervene”]; Cal. Code Regs., tit. 11, § 999.2(e) [notice to
the Attorney General pursuant to section 5142 must include,
among other things, “the time, date and place at which the action
or proceeding will occur, or has occurred,” italics added]; cf.
§ 5233, subd. (e) [an action by a director must be filed within two
years of written notice to the Attorney General or, “if no such
notice is filed,” within three years of the transaction at issue].)
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There is no question the Attorney General, having filed an
amicus brief in support of Summers on appeal, has now received
notice of the action.
DISPOSITION
The judgment is reversed and the matter remanded with
directions for the trial court to vacate its order sustaining the
demurrers without leave to amend and to enter a new order
(1) overruling the demurrers on the grounds of lack of standing
and failure to give the Attorney General notice of the action and
(2) sustaining the demurrer by the Waystation with leave to
amend to add the Attorney General as an indispensable party.
The Attorney General’s motion for judicial notice is denied as
unnecessary to our decision. (City of Grass Valley v. Cohen (2017)
17 Cal.App.5th 567, 594, fn. 13.) Summers is to recover her costs
on appeal.
SEGAL, J.
We concur:
PERLUSS, P. J. STONE, J.*
*Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
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