American Center for Education, Inc. v. Cavnar

• Decision Date: 27 April 1978
• Court: California Court of Appeals Court of Appeals
• Parties: AMERICAN CENTER FOR EDUCATION, INC., a non-profit corporation, and Hurst B. Amyx, Plaintiffs, Respondents and Cross-Appellant, v. Samuel M. CAVNAR et al., Defendants, Appellants and Cross-Respondents. Civ. 49655.

Page 736

145 Cal.Rptr. 736

80 Cal.App.3d 476

AMERICAN CENTER FOR EDUCATION, INC., a non-profit corporation, and Hurst B. Amyx, Plaintiffs, Respondents and Cross-Appellant, v. Samuel M. CAVNAR et al., Defendants, Appellants and Cross-Respondents.

Civ. 49655.

Court of Appeal, Second District, Division 3, California.

April 27, 1978.

Hearing Denied June 29, 1978.

Clifford Douglas, Los Angeles, for defendants, appellants and cross-respondents George Todt and Robert Davies

Samuel M. Cavnar in pro. per.

Donnelly, Clark, Chase & Johnson and William M. Smiland, Los Angeles, for defendant, appellant and cross-respondent United California Bank.

Al Schallau, Los Angeles, for plaintiff, respondent and cross-appellant American Center for Ed., Inc., and for plaintiff and respondent Hurst B. Amyx.

COBEY, Acting Presiding Justice.

Defendants, United California Bank (hereafter UCB), Samuel M. Cavnar, George Todt, and Robert Davies, each appeal from a judgment that (1) each of the named individuals be removed from any position each claims to hold with plaintiff, American Center for Education, Inc. (hereafter ACE), whether as director, member of executive committee, officer or employee, and (2) ACE have damages against each of the just-named defendants (except Davies) in the principal amount of $80,000 together with 7% Annual simple interest thereon from May 15, 1970. ACE has cross-appealed from an order denying its motion for judgment notwithstanding the verdict against UCB alone in the principal sum of $137,793.22. The appeals and the cross-appeal lie. (Code Civ.Proc., § 904.1, subds. (a), (d).)

FACTS ¹

ACE is a non-membership, non-profit, conservative and patriotic tax-exempt corporation which was organized under the laws of the District of Columbia on January 17, 1969, but which has always had its principal place of business in Los Angeles. Plaintiff, Hurst B. Amyx, was the founding president of ACE. From January 21, 1969 until May 15, 1970 Amyx was president, Cavnar vice president and treasurer, and Todt vice president and secretary of ACE. From January 21, 1969 until April 20, 1970 the board of directors and the executive committee of ACE consisted of these three individuals and another individual (Cartlidge), who resigned on the last-mentioned date and was not replaced.

Strong differences over the program being pursued by ACE arose between Amyx, on the one hand, and Cavnar and Todt on At this time, ACE had a checking account with a balance of $149,536.58 at this branch. The agreement between UCB and ACE required that all checks on this account be signed by Amyx and either Cavnar or Todt.

the other. Acting on the advice of a District of Columbia attorney (Manuel), the attorney who had incorporated ACE, Cavnar and Todt went to Amyx's office on May 15, 1970 to convene a meeting of ACE's executive committee. The purpose of this meeting was to oust Amyx as an officer, director and member of the executive committee. Under the articles of incorporation of ACE the minimum number of directors was three and under the bylaws of ACE three members of the board of directors and three members of the executive committee likewise constituted quorums of these bodies. As soon as Cavnar pronounced the word "meeting", Amyx left the room. Thereupon, while in Amyx's office, while going from there to a Hollywood branch of UCB (where ACE's funds were located), and at this branch (where they again encountered Amyx) Cavnar and Todt attempted to function as the executive committee of ACE. In so doing they purportedly ousted Amyx from all of his offices, replaced him as president with Cavnar and elected Davies a director.

Amyx, Cavnar and Todt had a confrontation at the bank in the presence of the branch manager (Benecke). ² Cavnar and Todt told Benecke that Amyx was being removed from his various offices with ACE. Amyx informed the manager that this purported removal was invalid and that he would hold UCB liable for any funds of ACE that the bank dispensed without his signature.

Later that afternoon Benecke, without examining the bylaws of ACE, which Amyx offered to him, and without consulting with UCB's legal department, transferred by means of a memorandum charge $137,793.22 of ACE's funds from its checking account to a savings account which had been opened in ACE's name by Cavnar and Todt. Subsequently, these funds were transferred to a checking account bearing ACE's name, but on which the only authorized signers were Cavnar and Todt.

At 6:00 p. m. on the same day, May 15, 1970, the purported new board of directors of ACE, namely Cavnar, Todt and Davies, met. Cavnar resigned as president and Todt as secretary. Todt was then elected president, Cavnar treasurer, and Davies secretary. Following this, Todt, Cavnar and Davies noticed a board meeting for May 25, 1970 for ratification of the purported actions of the executive committee and the board of directors on May 15, 1970, and for the election of new officers and directors.

Following the events of May 15, 1970, Todt and Cavnar caused Amyx to be locked out of his offices at ACE by means of barriers and armed guards, and discharged those staff members of ACE whom he had employed.

Amyx was served with a copy of the notice of the May 25 meeting, but he did not attend. The meeting took place, and the purported actions of May 15 were ratified by Cavnar and Todt with Davies abstaining. Another division of this court, however, in the already cited prior appeal in this litigation, indicated that on the record in that appeal, the special board meeting of May 25, 1970 may not have been called in accordance with ACE's bylaws. (American Center for Education, Inc. v. Cavnar, supra, 26 Cal.App.3d at p. 35, 102 Cal.Rptr. 575.) The trial court herein went further. It concluded that the board of directors meeting of May 25, 1970 was invalid for want of a quorum.

On June 24, 1970, Amyx filed the instant action on behalf of himself and ACE. In it he challenged the legality of his purported ouster and the obtaining of control by Cavnar and Todt of ACE's funds on deposit with UCB.

The trial court found that in the attempted ouster of Amyx and in the transfer of the control of the funds of ACE on deposit at UCB, Cavnar and Todt abused their authority and discretion as directors and officers

of ACE and apparently also acted negligently and wrongfully. The trial court and the advisory jury found as well that UCB negligently and wrongfully paid out ACE's monies on deposit with UCB upon instruments not signed by Amyx and that the sum of $80,000 represented the damages ACE suffered by reason of misconduct on the part of UCB, Cavnar and Todt in connection with the takeover and subsequent thereto.

SYNOPSIS OF DECISION

For reasons hereinafter stated, we will hold that (1) the executive committee of ACE validly met at the bank on May 15, 1970; (2) at this meeting Davies was validly elected a director; and (3) Amyx was validly removed as president and member of the executive committee. We further hold that a valid meeting of the board of directors was held on May 25, 1970, at which meeting Amyx was validly removed as director. Consequently, Amyx lacked standing thereafter to bring suit on behalf of the corporation, and therefore the judgment must be reversed.

DISCUSSION

I. PRELIMINARY QUESTIONS

A. Law of the Case

We must first deal with the question of the extent to which this decision is controlled by the aforementioned earlier decision in this case of another division of this court. (American Center for Education, Inc. v. Cavnar, supra, 26 Cal.App.3d 26, 102 Cal.Rptr. 575.) That decision, among other things, reversed a partial summary judgment that had been granted against Amyx. Therein it was held that: (1) since the initial quorum of the executive committee was apparently involuntary, a triable issue of fact ³ existed as to whether the committee had validly met on May 15, 1970 (Id. at pp. 30-31, 102 Cal.Rptr. 575); (2) under the bylaws of ACE the one power which was not delegable to the executive committee by the board of directors was the power to remove directors (Id. at pp. 31-33, 102 Cal.Rptr. 575); and (3) the record then before the court could not support a finding that the May 25, 1970 meeting was validly called presumably because such validity would have to rest upon the answer to the then unresolved question regarding whether Davies had been validly elected a director on May 15 (Id. at p. 34, fn. 6, 102 Cal.Rptr. 575).

B. Choice of Law

Another threshold question is what law should govern our decision in this case. The election and removal of officers are matters involving the internal affairs of a corporation, and California courts generally apply the laws of the place of incorporation in such instances. (E. g., McDermott v. Bear Film Co. (1963) 219 Cal.App.2d 607, 608, 33 Cal.Rptr. 486.)

Other considerations, however, bear on this choice of law question. As a non-profit corporation with no stockholders and no members, organized for educational purposes and supporting itself through charitable contributions, ACE may properly be considered a private charitable corporation. (See Gov.Code, § 12582.1; Karst, The Efficiency of the Charitable Dollar: An Unfulfilled State Responsibility (1960) 73 Harv.L.Rev. 433, 433 fn. 2; 4 Scott on Trusts (1967) § 348.1, p. 2770.) Moreover, gifts to charitable corporations are deemed given in trust to carry out the objects of the corporation, and the assets of charitable corporations are deemed to be impressed with a charitable trust by virtue of the declaration of corporate purposes. (Brown v. Memorial Nat. Home Foundation (1958) 162 Cal.App.2d 513, 521, 329 P.2d 118; Lynch v. John M. Redfield Foundation (1970) 9 Cal.App.3d 293, 298, 88 Cal.Rptr. 86.) Accordingly, charitable corporations are generally governed by the same rules as those applicable to charitable trusts. (Holt v. College of Osteopathic Physicians & Surgeons (1964) 61 Cal.2d 750, 756-757, ...