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Court Rules Unincorporated Association Aided Director's Breach Of Fiduciary Duty

Nearly four years ago, I devoted this post about California's Unincorporated Association Law.  Typically, an unincorporated association is a club, church, or other social organization.  A criminal street gang might also be an unincorporated association.  People ex rel. Totten v. Colonia Chiques, 156 Cal. App. 4th 31 (2007).  In a ruling handed down last week, U.S. District Court Judge Yvonne Gonzalez Rogers concluded that a proto-corporation also qualified as an unincorporated association under the General Corporation Law.

AngioScore, Inc. v. TriReme Med., Inc., 2015 U.S. Dist. LEXIS 86041 (N.D. Cal. July 1, 2015) involved a corporation's lawsuit against a former director for breach of fiduciary duty.  The alleged breach arose the director's development of a competing product while still a member of the plaintiff-corporation's board of directors.  The corporation also sued two corporations for aiding and abetting the breach.

Judge Rogers found that one of the defendant corporations, Quattro Vascular PTE Ltd., existed as an unincorporated association by the name of "Proteus" during the time that the competing product was being developed.  In support of her finding, Judge Rogers noted that the Proteus consisted of three members, was presented to third persons as a corporation and had been formed for the lawful purpose of raising money and investor interest in the competing product.  Thus, she concluded that it met the definition of an "unincorporated association" found in Corporations Code Section 18035(a): "an unincorporated group of two or more persons joined by mutual consent for a common lawful purpose, whether organized for profit or not."

Unintended Irony?

Judge Rogers noted that the name of the unincorporated association, Proteus, carried some etymological significance:

[T]he term "Proteus" carries a meaning that pointedly undermines defendants' position. Proteus was a Greek sea god capable of assuming different forms. MERRIAM-WEBSTER, New Collegiate Dictionary (9th ed. 1988).  An entity presenting "protean" qualities has the "ability to assume different forms." Id. The Court finds that Proteus lived up to its name by later assuming the name "Quattro" while retaining its original essence.

There is also some irony, mostly likely not intended, in the name.  In Shakespeare's The Two Gentlemen of Verona, Proteus is Valentine's supposed best friend.  However, he ends up trying to steal Valentine's love, Silvia - a situation not unlike a director who allegedly tries to steal the business of the corporation with a competing product.

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