Turner v. Victoria ( 2023 )

IN THE SUPREME COURT OF
CALIFORNIA
DEBRA TURNER,
Plaintiff and Appellant,
v.
LAURIE VICTORIA et al.,
Defendants and Respondents.
S271054
Fourth Appellate District, Division One
D076318, D076337
San Diego County Superior Court
37-2017-00009873-PR-TR-CTL,
37-2018-00038613-CU-MC-CTL
August 3, 2023
Chief Justice Guerrero authored the opinion of the Court, in
which Justices Corrigan, Liu, Kruger, Groban, Jenkins, and
Evans concurred.
TURNER v. VICTORIA
S271504
Opinion of the Court by Guerrero, C. J.
Under Corporations Code sections 5142 and 5233,1 a
director of a nonprofit public benefit corporation may “bring an
action” to remedy a breach of the charitable trust or recover
damages for self-dealing transactions by other directors.
(§§ 5142, subd. (a), 5233, subd. (c).) Similarly, under
section 5223, the trial court may “at the suit of a director”
remove from office any director guilty of malfeasance. (§ 5223,
subd. (a).) We granted review to decide whether a director of a
charitable corporation who loses that position after instituting
a lawsuit against fellow directors under sections 5142, 5233,
and 5223 (hereinafter the director enforcement statutes) also
loses standing to maintain the lawsuit.
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
1
All further statutory references are to the Corporations
Code unless otherwise specified.
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Opinion of the Court by Guerrero, C. J.
for pursuing the lawsuit, and there is no indication that the
Legislature intended to impose such a condition.
In finding a requirement of continued service, the Court of
Appeal below analogized actions under the director enforcement
statutes to shareholder derivative lawsuits. (Turner v. Victoria
(2021) 67 Cal.App.5th 1099, 1128–1129 (Turner).) However, the
language of the governing statutes is significantly different in
the nonprofit and for-profit contexts. Furthermore, the 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. But, as we have long recognized, “the
need for adequate enforcement” of the law governing charities
cannot be “wholly fulfilled” by having the Attorney General act
as the exclusive entity empowered to institute litigation. (Holt
v. College of Osteopathic Physicians & Surgeons (1964) 61 Cal.2d
750, 755 (Holt).)
An interpretation of the statutes that does not require a
director-plaintiff to maintain a director position at a nonprofit
corporation throughout litigation is “ ‘ “the construction that
comports most closely with the apparent intent of the
lawmakers,” ’ ” and the one that we “ ‘ “[u]ltimately . . .
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Opinion of the Court by Guerrero, C. J.
choose.” ’ ” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1233 (Lee).)
We therefore reverse the judgment of the Court of Appeal.2
I. FACTUAL AND PROCEDURAL BACKGROUND
“Because this case comes to us at the demurrer stage, we
take as true all properly pleaded material facts — but not
conclusions of fact or law.” (Southern California Gas Leak Cases
(2019) 7 Cal.5th 391, 395.) The plaintiff in this case is Debra
Turner; the defendants are Laurie Anne Victoria, Joseph
Gronotte, Gregory Rogers, and Anthony Cortes.3 When plaintiff
initiated the litigation, she and all four defendants were
directors of the Conrad Prebys Foundation (the Foundation), a
nonprofit public benefit corporation named for its founder.
Conrad Prebys (Prebys) was a wealthy philanthropist. In
addition to the Foundation, Prebys created an inter vivos trust,
the Conrad Prebys Trust (the Trust). Prebys funded the Trust
and directed it to make distributions to specific beneficiaries
after his death. The assets remaining after the gift distributions
were to “go to the Foundation to be used for charitable
purposes.”
Under the Foundation’s bylaws, all its directors were also
members of the Foundation, and the Foundation had no other
members. Most of the directors had a personal relationship with
2
We do not decide whether the director-plaintiff in this case
also has standing under section 5710 (the member enforcement
statute), which allows members of a nonprofit public benefit
corporation to “institute[] or maintain[]” an action on behalf of
the corporation if certain conditions are met. (§ 5710, subd. (b).)
3
By law, plaintiff also sued as nominal defendants the
nonprofit public benefit corporation itself and the Attorney
General. (See §§ 5223, subd. (a); 5233, subd. (c).)
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Opinion of the Court by Guerrero, C. J.
Prebys. For instance, Victoria was the Chief Executive Officer
of a company Prebys owned, and plaintiff was Prebys’s “life
partner, living [with Prebys] as a couple for over 16 years until
his death” in 2016.
In addition to her role at the Foundation, Victoria was the
trustee of the Trust. At the initial meeting of the Board of
Directors (Board) after Prebys’s death, Victoria and an attorney
informed the directors that Prebys’s son, Eric Prebys, might
contest the Trust.4 Although Eric was originally a beneficiary
under the Trust, Prebys eliminated the gift to Eric two years
before he died. The Board was informed that Eric had hired
counsel with the intention of challenging his disinheritance on
the grounds that his father lacked mental competence and was
unduly influenced by plaintiff.
In her role as trustee, Victoria wanted to settle Eric’s
claims, and she discussed with the Board an appropriate
settlement amount. Plaintiff was the only director who opposed
such a settlement. The Board eventually voted to authorize a
maximum settlement of $12 million plus the payment of estate
taxes. In early 2017, Victoria, on behalf of the Trust, settled
with Eric for a total sum of $15 million, paying $9 million to Eric
directly and the remainder in taxes.
On May 15, 2017, while she was still a director, officer,
and member of the Foundation, plaintiff filed a petition in
probate court against her fellow board members. (Turner,
supra, 67 Cal.App.5th at pp. 1113–1114.) The suit included
claims for breach of charitable trust, breach of the Board
4
To avoid confusion, we refer to Eric Prebys by his first
name.
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Opinion of the Court by Guerrero, C. J.
members’ duty of care, self-dealing in violation of the Board
members’ duty of loyalty, and removal of members of the Board
for dishonest acts and gross abuse of authority. (Id. at p. 1114.)
All causes of action were based on the Board’s handling of the
settlement with Eric. (Ibid.)
The director-defendants were aware of the lawsuit prior to
a board meeting held in November 2017, at which the Board
conducted an election of Foundation directors and officers. The
four director-defendants nominated and seconded one another
for reelection as directors and appointment as officers. No one
nominated plaintiff for reelection as a director or an officer,
despite plaintiff having made “clear she wanted to remain on the
Foundation’s Board.” As a result, plaintiff lost her position as
director, officer, and, consequently, member of the Foundation.
Plaintiff alleges that her loss of position was an act of retaliation
by the director-defendants in response to her lawsuit.
Subsequent to the November 2017 board election, the
probate court ordered the four causes of action discussed above
severed and transferred for resolution in a separate civil
proceeding. (Turner, supra, 67 Cal.App.5th at p. 1115.) The
court made clear that the new proceeding “would relate back to
the date of the original petition,” when plaintiff was still a
director of the Foundation. (Ibid.) Plaintiff subsequently filed
a civil complaint in the superior court, alleging causes of action
under sections 5142, 5233, 5223, and 5710. (Turner, at p. 1116.)
Defendants demurred, arguing that plaintiff no longer had
standing to maintain the lawsuit because she was no longer a
director or member of the Foundation. (Ibid.) The trial court
agreed and dismissed the claims against defendants. (Ibid.)
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Opinion of the Court by Guerrero, C. J.
The Court of Appeal affirmed. Analogizing to the standing
rules that apply in shareholder derivative actions, the court
concluded plaintiff was required to maintain a “continuous
relationship” with the Foundation to proceed with her suit.
(Turner, supra, 67 Cal.App.5th at p. 1108; see id. at pp. 1137–
1138.) The court disagreed with Summers v. Colette (2019)
34 Cal.App.5th 361 (Summers), which held that a plaintiff who
had been removed as a director of a nonprofit corporation did
not lose standing to maintain this type of action. (Turner, at
p. 1129; Summers, at p. 364.)
We granted review to resolve the conflict in authority.
II. DISCUSSION
This case involves a question of statutory construction,
which we review de novo. (See, e.g., Lee, supra, 61 Cal.4th at
p. 1232.) Our specific task is to determine whether plaintiff
maintained standing under the statutory scheme. “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.) “When, as here, a cause of action is based on
statute, standing rests on the provision’s language, its
underlying purpose, and the legislative intent.” (Kim v. Reins
International California, Inc. (2020) 9 Cal.5th 73, 83 (Kim).)
Consistent with this approach, in part II.A., post, we provide an
overview of the director enforcement statutes. We subsequently
analyze the provisions’ text (part II.B.), context (part II.C.), and
purpose (part II.D.). After concluding that these indicia of
intent do not support a continuous directorship requirement, we
consider and reject defendants’ remaining arguments in favor of
such a requirement (part II.E.).
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Opinion of the Court by Guerrero, C. J.
A. The Relevant Statutes
The provisions at issue — sections 5142, 5233, and
5223 — are part of the Nonprofit Corporation Law (§ 5000 et
seq.). Enacted in 1978 and effective in 1980 (Stats. 1978,
ch. 567), the legislation was the result of years-long study and
collaboration between the Assembly Select Committee on the
Revision of the Nonprofit Corporations Code and the State Bar’s
Committee on Nonprofit Corporations. (See Assemblyman John
T. Knox, letter to Governor Edmund G. Brown, Jr. (1977–1978
Reg. Sess.) Aug. 29, 1978, Governor’s chaptered bill files,
ch. 567.) When signed into law, the Nonprofit Corporation Law
provided “a new, comprehensive,” standalone set of statutes to
guide the conduct of charities that had been regulated in a
piecemeal fashion under the General Corporation Law (GCL)
(§ 100 et seq.). (Legis. Counsel’s Dig., Assem. Bill No. 2180
(1977–78 Reg. Sess.) Stats. 1978, ch. 567, Summary Dig., p. 141
(Summary Digest).)
One type of charity covered by the Nonprofit Corporation
Law is the nonprofit public benefit corporation, an entity formed
for “any public or charitable purposes.” (§ 5111.) Such a
corporation is subject to rules designed to ensure that the entity
serves the public or charitable purpose for which it was created.
For example, unlike a for-profit company that may regularly
distribute dividends to its shareholders, a nonprofit public
benefit corporation is prohibited from making distributions.
(§ 5410.) Similarly, the majority of persons serving on the board
of a nonprofit public benefit corporation may not be “interested
persons,” in other words, individuals receiving compensation
from the corporation, or relatives of such individuals (except
that a director may be paid “reasonable compensation . . . as
director”). (§ 5227, subds. (a) & (b)(1).) Directors and officers of
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Opinion of the Court by Guerrero, C. J.
a nonprofit public benefit corporation also are charged with a
duty of care and must refrain from self-dealing transactions.
(See §§ 5231, subd. (a), 5233.)
As relevant here, the Nonprofit Corporation Law specifies
who may sue to enforce its provisions. Section 5142 addresses
breaches of a charitable trust and declares that “any of the
following may bring an action to enjoin, correct, obtain damages
for or to otherwise remedy a breach of a charitable trust: [¶]
(1) The corporation, or a member in the name of the corporation
pursuant to Section 5710.[5] [¶] (2) An officer of the corporation.
[¶] (3) A director of the corporation. [¶] (4) A person with a
reversionary, contractual, or property interest in the assets
subject to such charitable trust. [¶] (5) The Attorney General,
or any person granted relator status by the Attorney General.”
(§ 5142, subd. (a).)
Section 5233 similarly specifies four categories of persons,
in addition to the Attorney General, who are authorized to
“bring an action” in the face of self-dealing transactions by
interested directors. (§ 5233, subd. (c).) This provision states,
“The Attorney General or, if the Attorney General is joined as
an indispensable party, any of the following may bring an action
in the superior court of the proper county for the remedies
specified in subdivision (h) [governing self-dealing
transactions]: [¶] (1) The corporation, or a member asserting
the right in the name of the corporation pursuant to
5
Although a nonprofit public benefit corporation may
“admit persons to membership,” it may also have no members.
(§ 5310, subd. (a).) The rights and obligations of members, as
well as other guidelines for this class of persons, are specified in
sections 5310 et seq.
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Opinion of the Court by Guerrero, C. J.
Section 5710. [¶] (2) A director of the corporation. [¶] (3) An
officer of the corporation. [¶] (4) Any person granted relator
status by the Attorney General.” (Ibid.)6
Section 5223, meanwhile, delineates circumstances in
which a court may remove a director of a nonprofit public benefit
corporation. It reads, “The superior court of the proper county
may, at the suit of a director, or twice the authorized number
(Section 5036) of members or 20 members, whichever is less,
remove from office any director in case of fraudulent or
dishonest acts or gross abuse of authority or discretion with
reference to the corporation or breach of any duty arising under
Article 3 (commencing with Section 5230) of this chapter, and
may bar from reelection any director so removed for a period
prescribed by the court.” (§ 5223, subd. (a).) Section 5223 also
permits the Attorney General to “bring an action” or “intervene
in such an action brought by any other party.” (Id., subd. (b).)
Plaintiff asserts standing under all the above provisions,
as well as section 5710. Like the director enforcement statutes,
section 5710 was enacted as part of the Nonprofit Corporation
Law in 1978. (Stats. 1978, ch. 567, § 5, pp. 1787–1788.) Unlike
the director enforcement statutes, section 5710 focuses
exclusively on the ability of members of a nonprofit public
benefit corporation to bring derivative actions, or actions
asserting a right belonging to the corporation. (See Grosset v.
Wenaas (2008) 42 Cal.4th 1100, 1108 (Grosset) [“An action is
6
Although section 5233 has been amended since it was
initially enacted in 1978, “[t]he relevant portions of the statute
involving who may bring an action for self-dealing” remain
unchanged. (Turner, supra, 67 Cal.App.5th at p. 1123, fn. 9.)
We therefore do not distinguish between section 5233 as it was
enacted and the provision in its present form.
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Opinion of the Court by Guerrero, C. J.
deemed derivative ‘ “if the gravamen of the complaint is injury
to the corporation, or to the whole body of its stock and property
without any severance or distribution among individual holders,
or it seeks to recover assets for the corporation or to prevent the
dissipation of its assets” ’ ”]; Black’s Law Dict. (11th ed. 2019)
p. 558, col. 1 [defining “derivative action” as “[a] lawsuit arising
from an injury to another person” and within the context of
corporations, as “[a] suit by a beneficiary of a fiduciary to enforce
a right belonging to the fiduciary; esp., a suit asserted by a
shareholder on the corporation’s behalf against a third party
(usu. a corporate officer) because of the corporation’s failure to
take some action against the third party”].) Phrased in
prohibitory terms, the provision states, “No action may be
instituted or maintained in the right of any corporation by any
member of such corporation” unless two conditions are met, one
of which is that “[t]he plaintiff alleges in the complaint that
plaintiff was a member at the time of the transaction or any part
thereof of which plaintiff complains.” (§ 5710, subd. (b).) The
other condition requires that the plaintiff allege having made a
demand on the corporation’s board or state reasons for not
having made such a demand. (See id., subd. (b)(2).)
B. Text
We begin our analysis by reviewing the statutory
language, read in context. (See, e.g., Lee, supra, 61 Cal.4th at
p. 1232.) We recognize that, particularly when viewed against
the backdrop of our case law (discussed post), the language of
the director enforcement statutes is susceptible to more than
one interpretation. At the same time, the statutes read in their
broader statutory context “seem[] to point” to an absence of a
continuous directorship requirement. (Grosset, supra,42 Cal.4th at p. 1113.)
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Opinion of the Court by Guerrero, C. J.
Sections 5142 and 5233 employ the same wording,
allowing a director of a nonprofit public benefit corporation to
“bring an action.” (§§ 5142, subd. (a), 5233, subd. (c).) Merriam-
Webster defines to “bring” as “to cause to exist or occur in any of
a number of ways,” including to “institute” “legal action” or
“complaint.” (Webster’s 3d New Internat. Dict. (1981) p. 278,
col. 3, capitalization omitted; accord, Lee, supra, 61 Cal.4th at
pp. 1232–1233 [in interpreting the words of a statute, we give
them their “usual and ordinary meaning”].) Black’s Law
Dictionary likewise equates the phrase “bring an action” with
“[t]o sue” or to “institute legal proceedings.” (Black’s Law Dict.
(8th ed. 2004) p. 205, col. 1; see also Webster’s 3d New Internat.
Dict., at p. 1171 [defining “to institute” as “to originate and get
established”]; Black’s Law Dict. (5th ed. 1979) p. 174, col. 1 [in
defining “bring suit,” stating, “To ‘bring’ an action or suit has a
settled customary meaning at law, and refers to the initiation of
legal proceedings in a suit. [Citation.] A suit is ‘brought’ at the
time it is commenced”].)
Here, plaintiff “sue[d],” “institute[d] [a] legal
proceeding[],” and “cause[d]” an action “to exist” by filing a
petition in the probate court (and a subsequent civil complaint
that relates back to the probate filing date). (Accord, Code Civ.
Proc., § 350 [“An action is commenced, within the meaning of
this title, when the complaint is filed”].) Plaintiff was a director
when she did so. As such, plaintiff appears to have fulfilled the
requirements of Corporations Code sections 5142 and 5233 that
a person must be a director in order to “bring an action.” (Corp.
Code, §§ 5142, subd. (a), 5233, subd. (c).)
Similarly, section 5223 describes remedies obtainable “at
the suit of a director.” (§ 5223, subd. (a).) No party argues we
should interpret this statute differently from sections 5142 and
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Opinion of the Court by Guerrero, C. J.
5233. Indeed, the three provisions appear to be in accord: “the
suit of a director” existed when plaintiff, as a director,
commenced her action by filing the petition. (§ 5223, subd. (a).)
The director enforcement statutes clearly indicate they require
an individual who brings a lawsuit to be a director when that
person institutes the action. They do not, however, contain any
express requirement of continuous directorship.
Notably, the language of the director enforcement statutes
differs from the language of section 800, the provision governing
derivative shareholder suits in the context of for-profit
organizations. In contrast to sections 5142, subdivision (a)’s and
5233, subdivision (c)’s use of the phrase “may bring an action,”
section 800, subdivision (b) refers to an action that “may be
instituted or maintained” (italics added). (See, e.g., People ex
rel. Lockyer v. R.J. Reynolds Tobacco Co. (2005) 37 Cal.4th 707,
717 [“ ‘When the 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’ ”].)
We addressed the meaning of this latter phrase — “may
be instituted or maintained” (§ 800, subd. (b)) — in Grosset.
There, we confronted the question of whether a shareholder-
plaintiff “lacks standing to continue litigating [a] derivative
action” brought on behalf of a for-profit corporation “because he
no longer owns stock in [the corporation].” (Grosset, supra,42 Cal.4th at p. 1104.) We were required to construe
section 800, which states, “No action may be instituted or
maintained in right of any domestic or foreign corporation by
any holder of shares or of voting trust certificates of the
corporation” unless certain conditions exist. (§ 800, subd. (b).)
We reasoned that “[t]he phrase ‘instituted or maintained’ (italics
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Opinion of the Court by Guerrero, C. J.
added) appears on its face to be more restrictive than the sole
term ‘instituted’ . . . [citation], and it seems to imply that only a
shareholder may initiate or maintain a derivative action.”
(Grosset, at p. 1111.) In other words, section 800 appears to
contain a continuous ownership requirement, such that a
shareholder who no longer owns shares in a corporation may not
maintain a suit brought pursuant to the provision. (See Grosset,
at pp. 1113–1114 [stating that although “the ‘instituted or
maintained’ language does not clearly impose it,” the language
“seems to point to a continuous ownership requirement”].)
The statutes before us lack language similar to
section 800. As the Summers court observed, “[T]he 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 phrase’s
presence in section 800 ‘point[s] to’ (Grosset, supra, 42 Cal.4th
at p. 1113) a continuous stock ownership requirement.”
(Summers, supra, 34 Cal.App.5th at p. 370.)
Construing the statutory language as requiring director
status only at the time an action is brought is also consistent
with other instances outside of the Corporations Code in which
the concept of bringing an action is equated with litigation being
commenced — not maintained. For example, various statutes
of limitations specify that no action may “be brought” beyond a
prescribed timeframe. (See, e.g., Code Civ. Proc., § 337,
subd. (a) [the time in which certain mortgage-related action
“may be brought shall not extend beyond three months after the
time of sale under such deed of trust or mortgage”]; id., § 337.1,
subd. (a) [“no action shall be brought to recover damages from
any person performing . . . construction of an improvement to
real property more than four years after the substantial
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Opinion of the Court by Guerrero, C. J.
completion of such improvement”]; id. § 337.15, subd. (a) [“No
action may be brought to recover damages from any
person . . . who develops real property . . . more than 10 years
after the substantial completion of the development”]; id.,
§ 337.2 [“Where a lease of real property is in writing, no action
shall be brought under Section 1951.2 of the Civil Code more
than four years after the breach of the lease”]; id., § 339.5
[“Where a lease of real property is not in writing, no action shall
be brought under Section 1951.2 of the Civil Code more than two
years after the breach of the lease”]; id., § 340.7, subd. (a) [“a
civil action brought by, or on behalf of, a Dalkon Shield [a brand
of contraceptive] victim against the Dalkon Shield Claimants’
Trust . . . shall be brought within 15 years of the date on which
the victim’s injury occurred”]; id., § 349.1 [changes to the
borders of cities, counties, and the like “shall not be contested in
any action unless such action shall have been brought within six
months” of the change]; id., § 349.2, subds. (1)–(3) [various suits
relating to the offerings of public bonds must be “brought within
six months”]; see also, e.g., Straley v. Gamble (2013)
217 Cal.App.4th 533, 537, 538 [in interpreting a limitations
period which specifies that “ ‘[n]o person . . . may bring an action
to contest the trust more than 120 days from the date [on which
the person is served],’ ” stating “we believe that the statutory
phrase ‘bring an action’ is clear: Appellant brought the action
when he filed his petition”].) These limitations provisions
indicate that bringing an action is, at least in certain contexts,
naturally understood as instituting or commencing it.
We draw further support from federal law. In construing
a federal statute penalizing insider trading, the United States
Supreme Court relied on the dictionary meaning of the term
“institute,” explaining that “the word ‘institute’ is commonly
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Opinion of the Court by Guerrero, C. J.
understood to mean ‘inaugurate or commence; as to institute an
action.’ ” (Gollust v. Mendell (1991) 501 U.S. 115, 124 (Gollust).)
Thus, a provision’s language declaring that actions targeting
insider trading “may be instituted at law or in equity . . . by the
issuer, or by the owner of any security of the issuer” (15 U.S.C.
§ 78p(b)) on its face prescribed only “conditions existing at the
time an action is begun.” (Gollust, at p. 124; but cf. id. at
pp. 125, 126 [concluding that a plaintiff must “have some
continuing financial interest in the outcome of the litigation . . .
for the sake of furthering the statute’s remedial purposes . . .
and to avoid the serious constitutional question” raised by
Article III’s imposition of a “case-or-controversy limitation on
federal court jurisdiction”].) The high court’s reading of this text
supports our reading of the director enforcement statutes as
requiring that a plaintiff be a director only “at the time an action
is begun.” (Id. at p. 124.)
In sum, nothing in the wording of the statutes indicates
that they impose a continuous directorship requirement. We
acknowledge, however, that the phrase “bring an action” can
mean different things in different circumstances. We therefore
proceed to consider the statutes’ historical context and purpose.
(See, e.g., Kim, supra, 9 Cal.5th at p. 83; Lee, supra, 61 Cal.4th
at p. 1233.) We find that these additional indicia of legislative
intent reinforce our understanding that the director
enforcement statutes do not require continuity in service as a
condition for maintaining standing.7
7
We have no occasion to determine how the words “bring
an action” (or similar phrasing) may operate in different
statutory contexts not here considered.
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Opinion of the Court by Guerrero, C. J.
C. Historical Context
As mentioned, the statutes at issue here were enacted as
part of the Nonprofit Corporation Law. That legislation was
itself a substantial undertaking that yielded “a new,
comprehensive” set of regulations to “govern [charitable
corporations] to the exclusion of the General Corporation Law,”
which had previously guided the conduct of such organizations.
(Summary Digest, supra, at p. 141.) Perhaps because the
director enforcement statutes (and specifically the subdivisions
concerning standing) were only a small part of the
“comprehensive” Nonprofit Corporation Law, they did not
receive much attention in the available legislative history
materials. (Ibid.) Nonetheless, we can draw insight from the
history of the director enforcement statutes by comparing them
with provisions that were superseded by the new Nonprofit
Corporation Law.
Comparing section 5142 to provisions which preceded it
reveals the Legislature’s intent to afford standing to a wider
group of individuals. Section 5142 is traceable to Corporations
Code former section 9505 (added by Stats. 1947, ch. 1038) and
Civil Code former section 605c (added by Stats. 1931, ch. 871,
§ 1). (Derivation Notes, Deering’s Ann. Corp. Code (2021 ed.)
foll. § 5142.) Both provisions restricted the ability to bring suit
to just one entity: the Attorney General.8 In contrast, as
8
Former section 9505 of the Corporations Code specified
that “[a] nonprofit corporation which holds property subject to
any public or charitable trust is subject at all times to
examination by the Attorney General, on behalf of the State, to
ascertain the condition of its affairs and to what extent, if at all,
it may fail to comply with trusts which it has assumed or may
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Opinion of the Court by Guerrero, C. J.
previously explained, section 5142 authorizes five categories of
persons to seek redress in addition to the Attorney General: the
corporation, or a member of the corporation suing derivatively;
“[a] person with a reversionary, contractual, or property interest
in the assets subject to such charitable trust”; “any person
granted relator status by the Attorney General”; and an officer
or director of the corporation. (§ 5142, subd. (a).)
The same expansion of standing appears in section 5223.9
The court below described section 5223 as being “similar to the
language of section 304 [of the GCL] involving an action to
remove a director” of a for-profit corporation. (Turner, supra,
67 Cal.App.5th at p. 1121.) We view the statutes differently.
Although sections 5223 and 304 share certain drafting
similarities, they are different in substance. Section 304
specifies that “[t]he superior court of the proper county may, at
the suit of shareholders holding at least 10 percent of the
depart from the general purposes for which it is formed. In case
of any such failure or departure the Attorney General shall
institute, in the name of the State, the proceedings necessary to
correct the noncompliance or departure.” Former section 605c
of the Civil Code likewise provided that “[a] nonprofit
corporation which holds property subject to any public or
charitable trust shall be subject at all times to examination on
behalf of the state . . . . Such right of examination shall pertain
ex officio to the attorney general. In case of any such failure or
departure the attorney general shall institute, in the name of
the state, the proceedings necessary to correct the same.”
9
Section 5233 was a “new provision[] that did not have a
direct correlation to the GCL.” (Turner, supra, 67 Cal.App.5th
at p. 1122.) Nonetheless, section 5233 is like section 5142 in
that it, too, allows various persons other than the Attorney
General to bring suit. (Compare § 5142, subd. (a), with § 5233,
subd. (c).)
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Opinion of the Court by Guerrero, C. J.
number of outstanding shares of any class, remove from office
any director in case of fraudulent or dishonest acts.” In contrast,
section 5223 allows the court to remove any director “at the suit
of a director, or twice the authorized number (Section 5036) of
members or 20 members, whichever is less.” (§ 5223, subd. (a).)
Accordingly, section 5223 of the Nonprofit Corporation Law
enables one more class of persons — directors — to bring suit to
remove a board member than does section 304 of the GCL.10
In enacting the Nonprofit Corporation Law, the
Legislature thus broadened standing, allowing more persons to
bring suit than was previously possible. Although nothing in
the legislative history speaks directly to the issue, declining to
read a continuity requirement into sections 5142, 5233, and
5223 is consistent with the Legislature’s intent to expand
standing as a means to remedy abuses committed against a
charitable corporation.
In advancing a different interpretation of the statutes
involved here, the Court of Appeal pointed to language from the
legislative history of the Nonprofit Corporation Law suggesting
the Legislature intended for the new law to mirror the old GCL.
(See Turner, supra, 67 Cal.App.5th at p. 1121.) The court
acknowledged that the Nonprofit Corporation Law did include
some innovations as compared to the old GCL. (See Turner,
supra, 67 Cal.App.5th at p. 1122.) The court nevertheless
concluded that “[t]he legislative history for this statutory
10
The “authorized number . . . of members” referred to in
section 5223 also does not correspond strictly to the 10 percent
required under section 304. (See § 5036 [specifying the
“ ‘authorized number’ ” as 5, 2.5, or 1/20 percent “of the voting
power” depending on the “total number of votes entitled to be
cast for a director”].)
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Opinion of the Court by Guerrero, C. J.
scheme indicates . . . a clear intention to hew as closely to the
law used for general corporations as possible.” (Id. at p. 1123.)
The inference from the court’s logic is that we should construe
sections 5142, 5233, and 5223 of the Nonprofit Corporation Law
to contain a continuous directorship requirement, just as we
construed section 800 of the GCL to require continuous
ownership of shares.
The drafters of the Nonprofit Corporation Law indeed
conveyed that the legislation “follows GCL format and language
except where substantive differences otherwise require.”
(Assem. Select Com. on Revision of the Nonprofit Corp. Code,
Summary of Assem. Bill Nos. 2180 and 2181 (1977–1978 Reg.
Sess.) Apr. 21, 1978, p. 2.) “This means,” said the drafters, “not
only that the proposed law follows the GCL in general
organization, but further, individual sections employ the GCL
language whenever the same substantive results are intended.”
(Ibid.; see also Recommendation Relating to Nonprofit
Corporation Law (Nov. 1976) 13 Cal. Law Revision Com. Rep.
(1976) pp. 2227–2228.)
As discussed previously, however, the individual sections
at issue here employ language different from that found in the
GCL. The provisions of the Nonprofit Corporation Law
broadened standing, extending it to directors of nonprofit public
benefit corporations. In light of the material changes made and,
as discussed below, the purpose underlying the director
enforcement statutes, we are not persuaded that the Legislature
intended “the same substantive results” to obtain between
section 800 and the director enforcement statutes. (Assem.
Select Com. on Revision of the Nonprofit Corp. Code, Summary
of Assem. Bill Nos. 2180 and 2181 (1977–1978 Reg. Sess.)
Apr. 21, 1978, p. 2.)
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Opinion of the Court by Guerrero, C. J.
D. Purpose
“Standing rules for statutes must be viewed in light of the
intent of the Legislature and the purpose of the enactment.”
(White v. Square, Inc. (2019) 7 Cal.5th 1019, 1024; see also, e.g.,
Kim, supra, 9 Cal.5th at p. 83.) In enacting the director
enforcement statutes, the Legislature intended to provide
safeguards against “breach[es] of a charitable trust” (§ 5142,
subd. (a)), self-dealing by interested directors (see § 5233),
“fraudulent” or “dishonest acts,” and “gross abuse of authority”
by directors of a charitable corporation (§ 5223, subd. (a)).
Moreover, it is undisputed that the Legislature intended
directors of a charity to have standing to sue to enforce these
provisions. In light of that intent, we ask whether construing
the statutes to include a continuous directorship requirement
would “ ‘ “promot[e]” ’ ” or “ ‘ “defeat[]” ’ ” the law’s purpose.
(Lee, supra, 61 Cal.4th at p. 1233.)
A continuous directorship requirement would necessarily
mean that when director-plaintiffs lose their positions at
nonprofit public benefit corporations, they also lose the ability
to continue litigating the lawsuits they had instituted. Knowing
this, directors who are accused of wrongdoing could make it
difficult for director-plaintiffs to retain their positions —
whether by calling elections to remove them (see, e.g., Summers,
supra, 34 Cal.App.5th at pp. 364–365; Workman v. Verde
Wellness Ctr., Inc. (Ariz.Ct.App. 2016) 382 P.3d 812, 815
(Workman)); refusing to reelect directors when their terms
expire; or otherwise erecting barriers to the directors’ reelection
(see, e.g., Tenney v. Rosenthal (N.Y. 1959) 160 N.E.2d 463, 467
(Tenney) [“reduc[ing] the membership of the board” so as to
“ma[k]e it mathematically more difficult for the plaintiff to be
re-elected”]). If successful, these types of actions would
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Opinion of the Court by Guerrero, C. J.
effectively quash the litigation initiated by the director-
plaintiffs. A continuous directorship requirement would
therefore give directors, “themselves charged with fraud,
misconduct or neglect,” the incentive — and power — “to
terminate the suit by effecting the ouster of the director-
plaintiff.” (Id. at p. 466.)
Conversely, a director-plaintiff would have little incentive
to initiate a lawsuit, knowing it could lead to the loss of the
plaintiff’s directorship, and then end the lawsuit itself.
Construing the director enforcement statutes in such a way
would “ ‘ “defeat[]” ’ ” rather than “ ‘ “promote[]” ’ ” the purpose
of the statutes: to empower charitable corporate insiders to seek
judicial redress. (Lee, supra, 61 Cal.4th at p. 1233.)
Long ago, we explained the need for corporate insiders to
“supplement[] the Attorney General’s power of enforcement.”
(Holt, supra, 61 Cal.2d at p. 755.) In Holt, a case decided before
the enactment of the director enforcement statutes, we
confronted the question of whether “minority trustees of a
charitable corporation[] can sue the majority trustees to enjoin
their allegedly wrongful diversion of corporate assets.” (Id. at
p. 752.) The Attorney General there had not granted relator
status to the plaintiffs or otherwise consented to their bringing
the action, and he had also decided not to bring his own
enforcement action. (Id. at p. 752.) Before us, the defendants
asserted that only the Attorney General can bring such a suit.
(Id. at p. 753.) We rejected the argument, reasoning that
exclusive standing by the Attorney General cannot “wholly”
solve the problem of “providing adequate supervision and
enforcement of charitable trusts.” (Id. at pp. 754, fn. omitted, &
755.) “The Attorney General,” we said, “may not be in a position
to become aware of wrongful conduct or to be sufficiently
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Opinion of the Court by Guerrero, C. J.
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.” (Id. at p. 755.) Although
we recognized that charities should be protected “from
harassing litigation,” this consideration did not dissuade us
from allowing trustees to sue because they “ ‘are both few in
number and charged with the duty of managing the charity’s
affairs.’ ” (Ibid.) Furthermore, we emphasized the
informational advantages held by insiders like a trustee. A
trustee, we declared, is “ ‘in the best position to learn about
breaches of trust and to bring the relevant facts to a court’s
attention.’ ” (Id. at p. 756.) Balancing the various policy
considerations, we held that trustees of a charitable corporation
have standing to sue their fellow trustees. (Id. at p. 757.)
Although we were not interpreting the same statutory
scheme in Holt that is now before us, some of the same
considerations apply. As the Attorney General, appearing here
as amicus curiae, acknowledges, he cannot “work alone” to
enforce the law governing charities. Currently, there are more
than 110,000 charitable organizations registered in California,
holding assets of over $850 billion. (Charitable Trusts Section,
Cal. Dept. of Justice, Attorney General’s Guide for Charities
(June 2021) p. 1, at
[as of Aug. 3, 2023] (Attorney General’s Guide).)11
The Attorney General stresses that he “cannot have the kind of
11
All Internet citations in this opinion are archived by year,
docket number, and case name at
.
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Opinion of the Court by Guerrero, C. J.
intimate knowledge about the use (or misuse) of charitable
assets that directors of charities enjoy,” and he cannot police
such a large and diverse group of charitable organizations by
himself. Notably, the Legislature did not intend that the
Attorney General do so. Instead, the Legislature intended for
directors of charitable organizations to sue to enforce the law
governing such organizations. We best “ ‘ “promot[e]” ’ ” that
intent by not reading the director enforcement statutes as
operating to strip director-plaintiffs of their standing as soon as
they lose their position at the charity. (Lee, supra, 61 Cal.4th at
p. 1233.)
The cases cited by defendants do not support a continuous
directorship requirement. Defendants rely on Cal. S. R. R. Co.
v. S. P. R. R. Co. (1884) 65 Cal. 394 to support their claim that
bringing an action refers to more than just filing a complaint.
The corporate defendant in that eminent domain case sought to
change the place of trial from San Diego, the situs of the
condemned land, to San Francisco, its corporate residence. (Id.
at p. 394.) The trial court refused, and we affirmed. (Id. at
pp. 394–395.) In rejecting the defendant’s argument, we
concluded that language within former section 1243 of the Code
of Civil Procedure providing “all proceedings under the title in
regard to eminent domain, [are] to be brought in the Superior
Court of the county in which the property is situated” indicated
that the trial should not be transferred from the Superior Court
of San Diego. (Cal. S. R. R. Co., at p. 395, italics added.) We
reasoned that “[t]his language means something more than that
the proceeding must be commenced in such Superior Court.”
(Ibid.) Practical considerations specific to the eminent domain
context led us to read “something more” into that provision.
(Ibid.) Specifically, we were concerned about witness
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Opinion of the Court by Guerrero, C. J.
availability. We said: “There are strong reasons why such
proceeding [relating to eminent domain] should be had in the
county where the land sought to be condemned is situated. The
compensation for the land sought to be taken is to be determined
upon testimony, and the witnesses most competent to speak
upon this subject will usually be found in the county referred
to.” (Ibid.) Absent similar policy considerations, our holding in
this nearly 140-year-old precedent provides little reason to
conclude that, in this particular case, “to be brought” should
mean “something more than . . . commenced.” (Ibid.)
More recently, we declined to “adopt a technical reading of
the word ‘brought,’ ” appearing in an agreement, “as referring
only to the initiation of a lawsuit.” (Mountain Air Enterprises,
LLC v. Sundowner Towers, LLC (2017) 3 Cal.5th 744, 755.) The
relevant contractual provision in that case stated, “ ‘If any legal
action or any other proceeding, including arbitration or an
action for declaratory relief[,] is brought for the enforcement of
this Agreement . . . , the prevailing party shall be entitled to
recover reasonable attorney fees . . . .’ ” (Id. at p. 752, italics
omitted.) We determined that an assertion of the agreement as
an affirmative defense in a breach of contract action did not
trigger the attorney fees provision. (Id. at pp. 747, 752–754.) In
rejecting the defendants’ argument that our interpretation
conveyed that the contractual term “brought” referred only to
the initiation of a lawsuit, we explained we refused to adopt such
a “technical reading” of the term because, as used in the
contract, the word “ ‘brought’ simply supplies further context to
the relevant phrase ‘brought for the enforcement of this
Agreement or because of an alleged dispute.’ ” (Id. at p. 755.)
Because a provision that reads, “If any legal action . . . is
brought for the enforcement of this Agreement” is not
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Opinion of the Court by Guerrero, C. J.
substantively different from one reading “If any legal
action . . . is for the enforcement of this Agreement,” we did not
adopt a cabined view of the word “brought.”
The interpretive issue before us is materially different
from the situation in Mountain Air Enterprises. Whereas the
context surrounding the word “brought” in that case counseled
against a narrow interpretation of that term, here there is no
comparable contextual clue that justifies a similarly broad
construction of the relevant “bring an action” phrasing within
sections 5142 and 5233. To the contrary, the language within
these sections declaring that a person must be a director to
“bring an action” may reasonably be interpreted as requiring
only that a director initiate a lawsuit, and the purpose
underlying the statutes strongly supports that more limited
reading.
Curtis v. County of Los Angeles (1985) 172 Cal.App.3d
1243 is similarly distinguishable. The court in that case
examined Code of Civil Procedure section 1038, subdivision (a),
which requires the fact finder to “determine whether or not the
plaintiff . . . brought the proceeding with reasonable cause.” In
evaluating an argument that this provision allows an award of
costs only when an action was brought in bad faith, not when it
was maintained in bad faith, the court cited an analysis
prepared for the Senate Committee on the Judiciary that
expressly stated the purpose of the statute: “ ‘[T]o allow public
entities to recover the cost of defending frivolous lawsuits
brought against them.’ ” (Curtis, at p. 1250.) The court
reasoned that “[i]f a frivolous lawsuit was only filed or
commenced but not maintained or prosecuted, clearly there
would be little or no cost involved in defending against it.”
(Ibid.) The court therefore concluded that “the Legislature
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Opinion of the Court by Guerrero, C. J.
intended the word ‘brought’ to include continuing the action in
bad faith.” (Ibid.) But there is no comparable legislative history
or statutory purpose that favors the same conclusion in this
case.
The authorities cited by defendants simply reveal that
phrases like “bring an action” may take on different meanings
in different contexts. That is unsurprising. Here, the text of the
statutes, read in light of their background and especially their
purpose, conveys that the Legislature did not intend to
incorporate a continuous directorship requirement when it
enacted sections 5142, 5233, and 5223.
E. Other Counterarguments
We also reject as unpersuasive other reasons the Court of
Appeal and defendants have provided for adopting a continuous
directorship requirement.
1. “Ordinary” Standing Requirement
The Court of Appeal viewed the continuous directorship
requirement as a “generally applicable standing principle[]” and
concluded that “nothing suggests the Legislature intended to
depart” from that principle. (Turner, supra, 67 Cal.App.5th at
p. 1123; see also id. at pp. 1108, 1130, 1134.) To support its
position that a continuous directorship requirement operates as
an “ordinary standing requirement” (id. at p. 1130), the court
cited Californians for Disability Rights v. Mervyn’s, LLC (2006)
39 Cal.4th 223, 232–233 (Mervyn’s), which states, “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.” We agree with the Attorney General,
however, that Mervyn’s simply affirms that “the requirements
of any standing statute must be met throughout the litigation.”
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Opinion of the Court by Guerrero, C. J.
It does not necessarily shed light on the specific requirements of
any particular standing statute, including the statutes we
interpret here.
In Mervyn’s, we were confronted with a unique situation
in which the applicable statutory standing requirements were
amended during the pendency of the litigation. Although the
plaintiff in the case satisfied the initially applicable standing
requirements, the plaintiff did not meet the standing
requirements as amended. (Mervyn’s, supra, 39 Cal.4th at
pp. 227–228.) It made sense in that context to explain that
“standing must exist at all times” in order for a lawsuit “to be
allowed to continue.” (Id. at pp. 232–233.) No comparable
circumstances exist here, where the standing requirement has
been the same throughout the litigation: the plaintiff must have
been a director of the charitable organization at the time the
lawsuit commenced. Since plaintiff has satisfied this
requirement “at all times” during the litigation, she has
standing to pursue her claims, consistent with Mervyn’s. (Id. at
p. 233.)
We recently employed a similar approach to ascertain
standing — in which we considered the statutory language and
other indicia of legislative intent — in Kim. There, we
addressed the issue of whether “employees lose standing to
pursue a claim under the Labor Code Private Attorneys General
Act . . . if they settle and dismiss their individual claims.” (Kim,
supra, 9 Cal.5th at p. 80, fn. omitted.) To answer that question,
we examined the statutory language, purpose, context, and
history of the relevant standing statute (id. at pp. 83–91) and
concluded that the employees did not lose standing to pursue
Private Attorneys General Act claims when “they settle[d] and
dismiss[ed] their individual claims” (Kim, at p. 80). Applying a
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Opinion of the Court by Guerrero, C. J.
comparable analysis here, we conclude that the statutes before
us do not impose a continuous directorship requirement.
2. Reliance on Grosset
The Court of Appeal relied heavily on the reasoning of
Grosset. (See Turner, supra, 67 Cal.App.5th at pp. 1125–1129.)
It is true that in Grosset we held that section 800 — the for-
profit counterpart to section 5710 — contains a continuous
ownership requirement. (Grosset, supra, 42 Cal.4th at p. 1119.)
But we find the circumstances here to be distinguishable.
Consistent with our ordinary principles of statutory
interpretation, we began our analysis in Grosset with the text of
the relevant statute. (Grosset, supra, 42 Cal.4th at pp. 1111–
1113.) Section 800 speaks in terms of actions that “ ‘may be
instituted or maintained.’ ” (Grosset, at p. 1111.) As previously
discussed, that language is absent from the director
enforcement statutes governing nonprofit corporations, and its
absence “points away from a continuous directorship
requirement.” (Summers, supra, 34 Cal.App.5th at p. 370.)
Grosset is distinguishable in other respects as well. We
noted in Grosset that section 800 “identif[ies] what a plaintiff
must allege in a complaint to establish standing in a
shareholder’s derivative action.” (Grosset, supra, 42 Cal.4th at
p. 1113.)12 “Given this circumstance,” we said, “the failure to
12
Section 800, subdivision (b) provides: “No action may be
instituted or maintained in right of any domestic or foreign
corporation by any holder of shares or of voting trust certificates
of the corporation unless both of the following conditions exist:
[¶] (1) The plaintiff alleges in the complaint that plaintiff was
a shareholder, of record or beneficially, or the holder of voting
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Opinion of the Court by Guerrero, C. J.
explicitly address an issue that might later arise during the
pendency of an action, such as the loss of the plaintiff’s stock, is
hardly surprising.” (Grosset, at p. 1113.) Again, this
circumstance does not exist in the present case. The director
enforcement statutes do not merely specify “what a plaintiff
must allege in a complaint to establish standing.” (Ibid.) The
statutes here are distinguishable on their face from the
provision examined in Grosset. And indeed the statutory text,
historical context, and legislative purpose underlying the
statutes all suggest that the Legislature, by specifying who may
“bring an action” (§§ 5142, subd. (a), 5233, subd. (c)) and
referring to “the suit of” such persons (§ 5223, subd. (a)), did
intend to permit former directors to continue litigating cases
that they commenced when they held their board seats.
Beyond the statutory text, in Grosset we cited two
considerations that led us to hold that section 800 incorporates
a continuous ownership requirement. We first focused on the
fact that any lawsuit brought by a shareholder on a corporation’s
behalf is necessarily derivative. (See Grosset, supra, 42 Cal.4th
at p. 1114.) As we observed, “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.” (Ibid.) A stockholder who stops
owning shares in the corporation “ ‘no longer has a financial
trust certificates at the time of the transaction . . . . [¶] (2) The
plaintiff alleges in the complaint with particularity plaintiff’s
efforts to secure from the board such action as plaintiff desires,
or the reasons for not making such effort.”
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Opinion of the Court by Guerrero, C. J.
interest in any recovery pursued for the benefit of the
corporation.’ ” (Ibid.) The loss of this interest divests the
stockholder of standing. (Ibid.) In other words, we determined
that a shareholder could not “retain standing despite the loss of
stock ownership [because that] would produce ‘the anomalous
result that a plaintiff with absolutely no “dog in the hunt” is
permitted to pursue a right of action that belongs solely to the
corporation.’ ” (Ibid.)
This analysis does not carry over to the nonprofit context
because a director of a charitable organization is materially
different than a shareholder of a for-profit corporation. Unlike
shareholders who stand to benefit financially from pursuing
derivative actions on behalf of a for-profit corporation (most
obviously, through an increase in the value of their shares),13
directors have little to no financial interest in the charitable
corporations. Although the law permits directors of a nonprofit
public benefit corporation to be paid “reasonable compensation”
(§ 5227, subd. (b)(1)), in reality, “[m]ost directors serve as
volunteers and are not paid for their service as directors.”
(Attorney General’s Guide, supra, at p. 52.) They likely join the
board of a charitable corporation because they have a personal
connection to the individual responsible for the creation of the
13
See, e.g., Workman, supra, 382 P.3d at p. 819 (“the
derivative plaintiff essentially stands in the shoes of the
corporation to enforce the rights of the corporation, and the
primary interest the shareholder has in doing so is by virtue of
the related interest in protecting his or her shares”).
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Opinion of the Court by Guerrero, C. J.
charity,14 affinity with the causes the charity serves,15 or both.
As such, their connection to the charity and interest in its well-
being are not solely tied to their formal status as directors.
When directors lose their position at the charitable corporation,
it cannot be said that they become “ ‘plaintiff[s] with absolutely
no “dog in the hunt,” ’ ” who therefore should be stripped of
standing to maintain an action they instituted when they were
directors. (Grosset, supra, 42 Cal.4th at p. 1114.)
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. In
short, as we previously recognized, “The differences between
private and charitable corporations make the consideration of
such an analogy [between the two settings] valueless.” (Holt,
14
In this case, plaintiff was Prebys’s “life partner.” (Turner,
supra, 67 Cal.App.5th at p. 1109.) Other directors were close
enough to Prebys to have received gifts from his trust.
15
A survey of over 900 directors of nonprofit organizations
found that the vast majority (86 percent) of directors joined the
boards out of a desire to “serve the organization and contribute
to its success.” (See Larcker et al., 2015 Survey on Board of
Directors of Nonprofit Organizations (Apr. 2016) pp. 1, 7,
Stanford Graduate School of Business and the Rock Center for
Corporate Governance in collaboration with BoardSource and
GuideStar, at
[as of
Aug. 3, 2023].)
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Opinion of the Court by Guerrero, C. J.
supra, 61 Cal.2d at p. 755, fn. 4; see also Tenney, supra,
160 N.E.2d at p. 466 [although “there may be many similarities
between the derivative action brought by a shareholder and one
brought by a director — in both cases the action is prosecuted in
the right and for the benefit of the corporation — there are
important reasons why the rule of automatic disqualification
upon loss of status should not be extended to the director’s
action”].)
We were also persuaded in Grosset by the fact that “the
vast majority of other jurisdictions that have considered the
issue require continuous stock ownership for standing to
maintain a derivative lawsuit.” (Grosset, supra, 42 Cal.4th at
p. 1114, fn. omitted.) We see no comparable consensus among
our sister courts concerning a continuous directorship
requirement, in part because it seems few other jurisdictions
“have considered the issue.” (Ibid.) Decisions from New York
and Arizona, the only two states that have directly addressed
the question of whether there is a continuous directorship
requirement, have held that a director of a charitable
corporation may continue to prosecute an action even after
losing reelection for office. (See Tenney, supra, 160 N.E.2d at
p. 465; Workman, supra, 382 P.3d at pp. 819–820.) At the same
time, decisions from Tennessee and another New York court
hold that members (not directors) of a charitable corporation
must “retain membership for the duration of the lawsuit.”
(United Supreme Council AASR SJ v. McWilliams
(Tenn.Ct.App. 2019) 586 S.W.3d 373, 385 (United Supreme
Council); see also Pall v McKenzie Homeowners’ Assn.,
Inc. (App.Div. 2014) 995 N.Y.S.2d 400, 401–402 (Pall).)
These out-of-state authorities are not uniformly helpful to
our analysis here, as they interpret statutory language different
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Opinion of the Court by Guerrero, C. J.
from that contained in sections 5142, 5233, and 5223. And,
unsurprisingly, our sister courts were often persuaded by the
specific text, legislative history material, or surrounding context
in reaching their conclusions. (See, e.g., Pall, supra,
995 N.Y.S.2d at p. 402 [“Because the N-PCL specifically
eliminated the ability of less than five percent of shareholders
to continue an action by posting security for expenses, we
conclude that the ownership requirement of N-PCL 623(a) must
continue throughout the action in order to maintain standing”];
Workman, supra, 382 P.3d at p. 819.)16
Insofar as an expert consensus exists, it is to be found in
the Model Nonprofit Corporation Act and the Restatement of the
Law, Charitable Nonprofit Organizations (Restatement). The
Model Nonprofit Corporation Act, drafted by the American Bar
Association, has consistently taken the view that a director-
plaintiff in a derivative proceeding must hold the position “at
the time of bringing the proceeding.” (1987 Revised Model
Nonprofit Corporation Act, § 6.30 (ABA 1987) [specifying that
“[a] proceeding may be brought in the right of a domestic or
foreign corporation” by “any director” and that “[i]n any such
proceeding, each complainant shall be a . . . director at the time
of bringing the proceeding”]; Model Nonprofit Corporation Act,
3d ed. § 13.02 (ABA 2008) [likewise specifying that “[t]he
plaintiff in a derivative proceeding must be a . . . director . . . at
the time of bringing the proceeding”]; Model Nonprofit
16
The case most helpful to defendants — because it offers an
extensive treatment of the issue and comes out in favor of a
continuous membership requirement — relies heavily on
Grosset. (See United Supreme Council, supra, 586 S.W.3d at
pp. 384–385.) As discussed, however, Grosset is distinguishable
from the present case.
33
TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
Corporation Act, 4th ed. § 502 (ABA 2022) [“the plaintiff in a
derivative proceeding must be a . . . director . . . at the time of
bringing the proceeding”].) A reasonable inference is that the
plaintiff does not need to maintain the position beyond the
commencement of the action.
The Restatement likewise adopts an expansive approach
to director standing in this context. Under the Restatement,
among those that have standing “to bring a derivative action on
behalf of a charity” are “a current member of the board of the
charity” as well as “a former member of the board of the charity
who is no longer a member for reasons related to that member’s
attempt to address the alleged harm to the charity.” (Rest.,
§ 6.02(b).) The amicus curiae brief submitted by the Reporter
for the Restatement offers contextual details supporting this
rule, noting that “[c]haritable-nonprofit boards are typically
self-perpetuating” and “quite limited in size.” Given the
insularity of these boards and the fact that “some portion of the
board will be defendants” in cases alleging breach of charitable
trusts or fiduciary duties, “it is typical for a member of the board
who brings a derivative suit to lose her position on the board.”
Moreover, unlike in matters involving for-profit companies
where if a shareholder loses standing to bring a derivative suit,
“another one of the many otherwise similarly situated people
who own shares can easily step in to fill the role,” charities
cannot rely on such easy availability of directors to substitute in
as a plaintiff. In light of these considerations, the Restatement
does not prohibit board members “from maintaining a derivative
claim they had standing to file” if they subsequently failed to be
reelected. Indeed, the Restatement “goes further,” allowing
some former board members to bring a claim. (See Rest.,
§ 6.02(b)(2)(B).)
34
TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
In sum, defendants’ reliance on Grosset is misplaced, and
there is no consensus supporting a continuous directorship
requirement. If anything, the prevailing view appears to be that
a director of a nonprofit public benefit corporation has standing
even if the director-plaintiff fails to retain a director position at
the nonprofit. The Court of Appeal’s decision runs counter to
this view.
3. The Relator Process
The Court of Appeal reasoned that the relator process —
under which lawsuits may be brought in the name of the people
of California or the Attorney General — addresses any
shortcomings of a continuous directorship requirement. The
court explained that the relator process “provide[s] 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.” (Turner, supra,
67 Cal.App.5th at p. 1132.) According to the Court of Appeal,
because a charitable organization “may continue to seek relief
for claims of misconduct against its directors through the
Attorney General, or through an individual to whom the
Attorney General grants relator status under sections 5142,
subdivision (a)(5) and 5233, subdivision (c)(4), even if a qualified
individual who initiated suit on behalf of the corporation loses
standing during the litigation,” the organization is “adequately
protect[ed] . . . from gamesmanship or improper attempts by the
accused directors to terminate litigation.” (Id. at pp. 1132,
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TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
1134.) We are not persuaded that the relator process answers
the question before us.17
A relator is “[a]ny person desiring ‘leave to sue’ in the
name of the people of the State of California under any law
requiring the prior permission therefor of the Attorney
General.” (Cal. Code Regs., tit. 11, § 1; see also Blasko et al.,
Standing to Sue in the Charitable Sector (1993) 28 U.S.F. L.Rev.
37, 49 [“A relator is a party who is allowed to proceed in the
name of the people or the attorney general when the power to
sue otherwise resides wholly in that official”], fn. omitted.) A
person wishing to proceed as a relator must file an application
with the Attorney General and serve the application “upon the
proposed defendant.” (Cal. Code Regs., tit. 11, § 1.) The relator
must show “why the proposed proceeding should be brought in
the name of the people, and support[] the contention . . . that a
public office or franchise is usurped, intruded into or unlawfully
held or exercised by the proposed defendant.” (Id., § 2,
subd. (b).) The proposed defendant may object and has 15 days
“to appear and show cause” “why ‘leave to sue’ should not be
granted.” (Id., §§ 3, 2, subd. (c).) If the Attorney General grants
leave to sue, “the relator must . . . present to the Attorney
General an undertaking executed to the State of California in
the sum of $500, to the effect that the relator will pay any
17
Although our decision in Holt predated enactment of the
Nonprofit Corporation Law, it is instructive insofar as we
recognized the benefits of allowing lawsuits to proceed even
when the Attorney General concludes the suit lacks merit. (See
Holt, supra, 61 Cal.2d at pp. 752, 757.) Similarly, here, we
recognize there are instances when a lawsuit may proceed under
the director enforcement statutes — without a continuous
directorship requirement — even when the relator mechanism
overseen by the Attorney General is not invoked.
36
TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
judgment for costs or damages that may be recovered against
the plaintiff.” (Id., § 6.) The relator must also supply sureties
warranting that it “will pay . . . all costs and expenses incurred
in the prosecution of the proceeding in which such ‘leave to sue’
is granted.” (Ibid.)
In addition, a relator remains subject to the Attorney
General’s control throughout the litigation. A relator’s
complaint may be “changed or amended as the Attorney General
shall suggest or direct” and, after filing, may not be “change[d],
amend[ed] or alter[ed] . . . without the approval of the Attorney
General.” (Cal. Code Regs., tit. 11, § 7.) During proceedings, the
relator must “notify the Attorney General, without delay, of
every proceeding had, motion made, paper filed, or thing done
in the proceeding, or in relation thereto, and must send to the
Attorney General promptly a copy of every paper or document
filed by any of the parties to the proceeding.” (Id., § 9.) The
Attorney General retains ultimate control and “may at all times,
at any and every stage of the said proceeding [involving a
relator], withdraw, discontinue or dismiss the same, as the
Attorney General may seem fit and proper; or may, at the
Attorney General’s option, assume the management of said
proceeding at any stage thereof.” (Id., § 8.)
The Court of Appeal recognized that when “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” because of the imposition of a
continuous directorship requirement, only two entities remain
“to seek relief for claims of misconduct against . . . directors” of
the nonprofit corporation: the Attorney General and individuals
“to whom the Attorney General grants relator status.” (Turner,
supra, 67 Cal.App.5th at p. 1132.) The Court of Appeal was also
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TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
aware of “limitations on the resources of the Attorney General”
to supervise the numerous charitable organizations in the state.
(Ibid.) It acknowledged that in addition to “[s]taffing and
funding limitations,” “political concerns may discourage [the
Attorney General from] ‘investigation of charges against
respectable trustees and corporate officers.’ ” (Ibid.) In light of
these constraints associated with enforcement by the Attorney
General, the court below relied on the availability and
willingness of relators themselves to litigate on behalf of
charities, and concluded that “[u]nder [its] interpretation,”
nonprofit public benefit corporations would still receive
“adequate[]” protection against misconduct by its fiduciaries.
(Id. at p. 1134.)
Yet, even when relators are entitled to litigate on behalf of
a nonprofit public benefit corporation, their mere ability to do so
does not alleviate the strain on the Attorney General’s
resources.18 As the Attorney General notes, the relevant
regulations “contemplate the Attorney General’s active
involvement, or at the very least active monitoring, in all relator
18
Furthermore, relators do not appear to be a class of
individuals permitted to bring suit under section 5223. That
provision allows directors, members (of sufficient numerosity),
and the Attorney General to bring suit. (§ 5223.) It also
authorizes the Attorney General to “intervene in such an action
brought by any other party.” (Id., subd. (b).) Absent from the
provision is any indication that persons granted relator status
by the Attorney General may also prosecute actions to remove
from office directors accused of “fraudulent or dishonest acts or
gross abuse of authority or discretion with reference to the
corporation or breach of any duty.” (Id., subd. (a).)
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TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
suits.”19 We agree with the Attorney General that “[s]hifting
director-led suits into the relator process would place an
additional burden on” that office.
The Court of Appeal was unsympathetic to the Attorney
General’s argument, declaring that “[t]he Attorney General
should not be able to avoid its ongoing obligations to supervise
charitable organizations simply because a director begins a
lawsuit.” (Turner, supra, 67 Cal.App.5th at p. 1134.) But given
the very real resource constraints the Attorney General faces,
adding to that office’s “ongoing obligations” may also inure to
the detriment of charitable corporations. (Ibid.; see also, e.g.,
Karst, The Efficiency of the Charitable Dollar: An Unfulfilled
State Responsibility (1960) 73 Harv. L.Rev. 433, 437 [“if the
public’s interest is to be protected, someone must be assigned
the job of supervising charitable fiduciaries. Ordinarily, this
task has fallen to the attorney general, and — just as
ordinarily — supervision and enforcement have been irregular
and infrequent”], fn. omitted.)
In addition, even supposing that the Attorney General
would always grant relator status when it is in the interests of
justice to do so, there may be a dearth of willing relators. As
19
When a relator applies for leave to sue, the Attorney
General must decide whether to grant leave. (See Cal. Code
Regs., tit. 11, § 1.) Doing so may require him to wade through
conflicting materials if the proposed defendant objects to relator
status being granted. (See id., § 2, subd. (c)(3), (4).) Should the
Attorney General choose to grant the application, he must
approve of the complaint and give permission for any
subsequent alterations to that pleading. (Id., § 7.) The Attorney
General retains absolute control over the proceeding and,
presumably, bears the responsibility to exercise that control
with care. (Id., § 8.)
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TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
noted, a relator must agree to pay “all costs and expenses
incurred in the prosecution of the proceeding in which such
‘leave to sue’ is granted.” (Cal. Code Regs., tit. 11, § 6.) Because
of this requirement, there is some uncertainty regarding
whether a relator can recover attorney fees, even upon obtaining
relief for the nonprofit corporation. (See Fremont-Smith,
Governing Nonprofit Organizations: Federal and State Law and
Regulation (2004) p. 325.) As Professor Karst observed in his
article, “[t]o deny the payment of these fees . . . radically
decrease[s] the incentive for bringing a suit on behalf of the
charity; for even if the plaintiff should succeed, the suit would
be costly to him.” (Karst, supra, 73 Harv. L.Rev. at p. 448.)
Based on these limitations associated with the relator
process, we conclude that “[t]he mere existence of relator
status . . . cannot eliminate all the ills” associated with a
continuous directorship requirement. (Blasko, supra, 28 U.S.F.
L.Rev. at p. 50.)
4. Availability of Equitable Exceptions and Risk of
Harassment
We are not persuaded that other considerations invoked
by defendants dictate an interpretation of the relevant statutes
different from the one we have arrived at.
Recognizing that a continuous directorship requirement
empowers accused directors to unilaterally terminate litigation
against them, some defendants in this case suggest that
equitable exceptions from the requirement may be created when
a plaintiff “alleges with particularity facts showing [the director]
was ousted in bad faith to block the litigation.” (Accord, Grosset,
supra, 42 Cal.4th at p. 1119 [noting, regarding shareholders’
derivative actions in the context of for-profit corporations, that
40
TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
“equitable considerations may warrant an exception to the
continuous ownership requirement if the merger itself is used to
wrongfully deprive the plaintiff of standing” but declining to
“address such matters definitively in this case”]; Turner, supra,
67 Cal.App.5th at p. 1129 [attempting to distinguish Summers,
supra, 34 Cal.App.5th 361, on the ground that “the Summers
court was concerned with equitable considerations surrounding
the removal of a director”].)
We decline to adopt defendants’ proposed approach.
Plaintiffs are rarely in a position to offer direct evidence that
their removal as directors was retaliatory. An ousted director
cannot readily establish fellow board members’ motivations. An
ousted director might observe the behavior of fellow director-
defendants, but that behavior is inevitably subject to varying
interpretations, and, as such, it might often be difficult to plead
“with particularity” facts showing that one “was ousted in bad
faith.” This might in turn frequently add to the burden of
litigation by requiring a hearing to determine the motive for the
plaintiff’s removal.
Defendants further contend that standing should cease
when directors fail to retain their positions at the charities
because, once separated from the organizations, the directors no
longer owe fiduciary duties to the charities. Defendants suggest
that allowing former directors to continue litigating would
expose the nonprofit public benefit corporations to vexatious
litigation, draining their resources from their charitable
purposes. We have long been mindful of the need to
“protect[] . . . charities from harassing litigation.” (Holt, supra,
61 Cal.2d at p. 755; see also, e.g., Blasko, supra, 28 U.S.F. L.Rev.
at pp. 41–42 [explaining that a rationale for “the exclusivity of
attorney general enforcement” is the concern that “charities
41
TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
would be embroiled in ‘vexatious’ litigation, constantly harassed
by suits brought by parties with no stake in the charity” if “ ‘a
third party were permitted to sue’ ”], fn. omitted.) Several
considerations, however, lead us to conclude that allowing
individuals such as plaintiff to maintain standing would not
result in a significant increase in unmeritorious suits.
For one, “ ‘few in number’ ” are individuals who are former
directors of nonprofit public benefit corporations who have
ongoing lawsuits initiated while they sat on the board. (Holt,
supra, 61 Cal.2d at p. 755.) For another, these individuals filed
their complaints when they were directors “ ‘charged with the
duty of managing the [nonprofit’s] affairs’ ” and operating as
fiduciaries of the organization. (Ibid.) There is no reason to
believe that suits filed by fiduciaries become meritless as soon
as the plaintiffs lose their affiliations with the nonprofit
organizations, or that they are maintained thereafter purely out
of improper motives. For yet another, the derivative nature of
the enforcement actions means that any eventual recovery “will
accrue to the direct benefit of the corporation and not to the
[director] who litigated” the claims. (Grosset, supra, 42 Cal.4th
at p. 1114; see also Blasko, supra, 28 U.S.F. L.Rev. at p. 53 [“Any
damages recovered as a function of [a derivative] suit go to the
corporation, never to those who brought the suit”], fn. omitted.)
Even when, as here, a plaintiff prays for attorney fees, the
plaintiff cannot obtain such fees without prevailing.20
Accordingly, we conclude that charities are adequately
protected from harassing litigation even without the
20
We are not endorsing any specific theory for fees that
plaintiff has alleged in her complaint. Nor are we expressing an
opinion on the eligibility for fees should plaintiff prevail.
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TURNER v. VICTORIA
Opinion of the Court by Guerrero, C. J.
requirement that only current directors are allowed to maintain
legal actions brought on their behalf. (See Holt, at p. 755.)
Finally, defendants raise the specter that without a
continuous directorship requirement, a director who “just quit,”
or voluntarily disassociates from a nonprofit public benefit
corporation, can continue harassing the organization through
litigation. But of course, the director-plaintiff in this case did
not simply quit. According to her allegations, which we must
treat as true (see, e.g., Southern California Gas Leak Cases,
supra, 7 Cal.5th at p. 395), plaintiff “wanted to remain on the
Foundation’s Board” and communicated as much to her fellow
board members. But because none of the directors nominated
or seconded her reelection, plaintiff lost her position.
In any event, the possibility that some directors may quit
does not persuade us that a continuous directorship
requirement should be the default rule. There appears to be no
basis in the statutes to distinguish between former directors
who were retaliated against and those who simply chose to quit.
The statutes themselves do not carve out an exception for when
a director or officer has been ousted or otherwise removed.
(Accord, Grosset, supra, 42 Cal.4th at pp. 1115–1116 [the
circumstances by which a stockholder loses his shares — and
specifically whether that loss is voluntary — does not matter
when determining whether a continuous stock ownership
requirement is appropriate].) Director-defendants can find
creative ways to affect ouster of a director-plaintiff. We decline
to adopt a rule that would incentivize director-defendants to
erect barriers to their fellow board members’ retention of their
position as a means to terminate litigation against them.
43
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Opinion of the Court by Guerrero, C. J.
III. CONCLUSION
We hold that a director of a nonprofit public benefit
corporation who brings a lawsuit pursuant to Corporations Code
sections 5142, 5233, and 5223 does not lose standing to continue
litigating the suit if the director subsequently loses that
position. Because the Court of Appeal reached a contrary
conclusion, we reverse the judgment below.
GUERRERO, C. J.
We Concur:
CORRIGAN, J.
LIU, J.
KRUGER, J.
GROBAN, J.
JENKINS, J.
EVANS, J.
44
See next page for addresses and telephone numbers for counsel who
argued in Supreme Court.
Name of Opinion Turner v. Victoria
__________________________________________________________
Procedural Posture (see XX below)
Original Appeal
Original Proceeding
Review Granted (published) XX 67 Cal.App.5th 1099Review Granted (unpublished)
Rehearing Granted
__________________________________________________________
Opinion No. S271054
Date Filed: August 3, 2023
__________________________________________________________
Court: Superior
County: San Diego
Judges: Julia Craig Kelety and Kenneth J. Medel
__________________________________________________________
Counsel:
Cooley, Steven M. Strauss, Erin C. Trenda and Matt K. Nguyen for
Plaintiff and Appellant.
Xavier Becerra and Rob Bonta, Attorneys General, Tania M. Ibanez,
Assistant Attorney General, Caroline Hughes, Joseph N. Zimring,
James M. Toma and Sandra I. Barrientos, Deputy Attorneys General,
for the Attorney General of California as Amicus Curiae on behalf of
Plaintiff and Appellant.
Norton Rose Fulbright US, Jeffrey B. Margulies and Kelly Doyle
Dahan for Jill R. Horwitz, Nancy A. McLaughlin and the California
Association of Nonprofits as Amici Curiae on behalf of Plaintiff and
Appellant.
Gibson Dunn & Crutcher, Scott A. Edelman, Alexander K. Mircheff,
Megan Cooney, Jillian Nicole London and Brian Yang for Defendant
and Respondent Laurie Anne Victoria.
Henderson, Caverly, Pum & Trytten, Kristen E. Caverly, Lisa B. Roper
and Stephen D. Blea for Defendant and Respondent Joseph Gronotte.
Procopio, Cory, Hargreaves & Savitch, Richard A. Heller, J.
Christopher Jaczko and Sean Michael for Defendant and Respondent
Gregory Rogers.
Seltzer Caplan McMahon Vitek, Reginal Vitek and Scott Walter Perlin
for Defendant and Respondent Anthony Cortes.
Brownlie Hansen, Robert W. Brownlie; DLA Piper and S. Andrew
Pharies for Defendant and Respondent The Conrad Prebys
Foundation.
Counsel who argued in Supreme Court (not intended for
publication with opinion):
Steven M. Strauss
Cooley LLP
10265 Science Center Drive
San Diego, CA 92121
(858) 550-6006
Robert W. Brownlie
Brownlie Hansen LLP
10920 Via Frontera, Suite 550
San Diego, CA 92127
(858) 357-8001
Scott A. Edelman
Gibson Dunn & Crutcher LLP
2029 Century Park East, Suite 4000
Los Angeles, CA 90067
(310) 552-8500