Contact us with your California corporate & securities law questions (949) 353-6347 or Contact us here

Court Holds No "Continuous Director" Status Required Under Nonprofit Law

The California Supreme Court has imposed a continuous ownership requirement for shareholder derivative suits under California Corporations Code Section 800.  Grosset v. Wenaas, 42 Cal. 4th 1100 (2008).  Thus, a shareholder must maintain continuous share ownership throughout the litigation of a derivative action.  The Nonprofit Public Benefit Corporation Law includes several provisions authorizing suits by a director (Cal. Corp. Code §§ 5223, 5233 & 5142).  If a director files a lawsuit under one of these statutes and then leaves the board, does that director lose "standing"?  In other words, do these statutes impose an analogous "continuous directorship" requirement?

According to the Second District Court of Appeal, the answer is "no".   Summers v. Colette, 2019 Cal. App. LEXIS 347.  In reaching this conclusion, the Court noted that Section 800 includes the phrase "instituted or maintained" while Sections 5233 and 5142 do not.  The Court further noted that eschewing a continuous directorship requirement was consistent with the purposes of the statutes because a former director continues to be in the best position to bring breaches of trust to a court's attention.  In addition, the risk of harassment  is not high because potential plaintiffs under the statute are "few in number".  

The Court of Appeal's opinion concludes that the erstwhile director continued to have "standing" under Sections 5223, 5233 & 5142 after being removed from office.  The reference to "standing" should not be confused with federal constitutional standing.  Article III of the federal Constitution imposes a "case-or-controversy" limitation on federal court jurisdiction.  The California Constitution has no similar limitation.  

Share on:

nonprofit corporation law

ANY QUESTIONS REGARDING CALIFORNIA CORPORATE AND SECURITIES LAW? CONTACT US DIRECTLY

We offer expert advice with the intricacies of California law.

Our years of experience and expertise allow us to help clients navigate the business laws in California.

CONTACT US

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

ABOUT OUR AUTHOR

30172DBAB0084D3A8F39D7AF0A8E79BC.ashx Keith Paul Bishop
Partner at Allen Matkins
(949) 353-6328
 Contact me
Learn More About Keith

RECOGNITION

NationalLawReview

badge-author-large

nominee-badge

Get the latest news and analysis about California Corporate & Securities law. Subscribe to our newsletter today!

We respect your email privacy

CATEGORIES

see all

YOUTUBE

FACEBOOK