Holt v. College of Osteopathic Physicians and Surgeons

• Citation: 394 P.2d 932,40 Cal.Rptr. 244,61 Cal.2d 750
• Court: California Supreme Court
• Decision Date: 31 August 1964
• Parties: , 394 P.2d 932 J. Frank HOLT et al., Plaintiffs and Appellants, v. COLLEGE OF OSTEOPATHIC PHYSICIANS AND SURGEONS et al., Defendants andRespondents. L. A. 26995.

Page 244

40 Cal.Rptr. 244

61 Cal.2d 750, 394 P.2d 932

J. Frank HOLT et al., Plaintiffs and Appellants, v. COLLEGE OF OSTEOPATHIC PHYSICIANS AND SURGEONS et al., Defendants andRespondents.

L. A. 26995.

Supreme Court of California, In Bank.

Aug. 31, 1964.

Rehearing Denied Sept. 24, 1964.

Mitchell, Silberberg & Knupp, Arthur Groman and Howard S. Smith, Los Angeles, for plaintiffs and appellants.

Stanley Mosk, Atty. Gen., Carl Boronkay, Deputy Atty. Gen., Belcher, Henzie & Biegenzahn, Belcher, Henzie & Fargo, George M. Henzie and Seth M. Hufstedler Los Angeles, for defendants and respondents.

TRAYNOR, Justice.

Plaintiffs appeal from a judgment of dismissal entered after the sustaining of a demurrer to their complaint without leave to amend in an action to enjoin the breach of a charitable trust and for declaratory relief.

Plaintiffs are three trustees of defendant College of Osteopathic Physicians and Surgeons (hereinafter COPS), a California charitable corporation. The other defendants are the twenty-three remaining trustees on the COPS board of trustees and the Attorney General. The complaint alleges in substance that COPS holds assets in excess of $1,500,000 in trust for charitable purposes, and that defendant trustees have acted contrary to these purposes and threaten other such acts. By their first cause of action plaintiffs seek to enjoin these acts, and by their second cause of action they seek a declaration of their and defendants' rights and duties with regard to the operation of COPS.

The Attorney General filed an answer to the complaint denying for want of information and belief the allegations that defendant trustees were diverting the assets of COPS from its charitable purposes. As an affirmative defense the Attorney General stated that 'The matter of proposed changes in the operation of said College was reviewed by the Attorney General to determine whether such changes would constitute a violation of a charitable trust warranting institution of a suit by this office to remedy the situation. It has been concluded that the changes to be made in the operation of said College would not be detrimental to the public interest and do not warrant legal action by this office to prevent such changes.' The Attorney General also stated that he had not granted 'relator status' to plaintiffs and had not consented to their bringing this action. Defendant trustees demurred to the complaint and the trial court sustained the demurrer on the grounds that plaintiffs have no capacity to bring this action and that the complaint does not state facts showing a threatened breach of a charitable trust.

The first issue is whether plaintiffs, as minority trustees of a charitable corporation, can sue the majority trustees to enjoin their allegedly wrongful diversion of corporate assets in breach of a trust for charitable purposes. Defendants contend that only the Attorney General can bring such an action.

The prevailing view of other jurisdictions is that the Attorney General does not have exclusive power to enforce a charitable trust and that a trustee or other person having a sufficient special interest may also bring an action for this purpose. ¹ This position is adopted by the American Law Institute (Rest.2d Trusts, § 391) and is supported by many legal scholars. (Karst, The Efficiency of the Charitable Dollar: An Unfulfilled State Responsibility, 73 Harv.L.Rev. 433, 443-449; 4 Scott, Trusts (2d ed.) § 391; 4 Pomeroy, Equity (5th ed.) 287, n 13; see also Note 62 A.L.R. 881; 4 Witkin, Summary of California Law (7th ed.) 2918-2919.)

In accord with the majority view, this court has stated that '* * * the only person who can object to the disposition of the trust property is one having some definite interest in the property he must be a trustee, or a cestui, or have some reversionary interest in the trust property.' (O'Hara v. Grand Lodge I.O.G.T., 213 Cal. 131, 140, 2 P.2d 21, 24; see also People ex rel. Ellert v. Cogswell, 113 Cal. 129, 136, 45 P. 270, 35 L.R.A. 269; Pratt v. Security Trust & Sav. Bank, 15 Cal.App.2d 630, 640-641, 59 P.2d 862; cf. St. James Church v. Superior Court, 135 Cal.App.2d 352, 360, 287 P.2d 387.)

Defendants invoke Corporations Code, sections 9505 and 10207 for the proposition that only the Attorney General can bring an action for the enforcement of a charitable trust administered by either a nonprofit or charitable corporation. These sections provide that if there is a failure to comply with a charitable trust '* * * the Attorney General shall institute, in the name of the State, the proceedings necessary to correct the noncompliance or departure.' Nothing in these sections suggests that trustees are precluded from bringing an action to enforce the trust. The Uniform Supervision of Trustees for Charitable Purposes Act (Gov.Code, §§ 12580-12595) similarly authorizes the Attorney General to supervise charitable trusts, and likewise fails to preclude suits by trustees.

The foregoing statutes were enacted in recognition of the problem of providing adequate supervision and enforcement of charitable trusts. ² Beneficiaries of a charitable trust, unlike beneficiaries of a private trust, are ordinarily indefinite and therefore unable to enforce the trust in their own behalf. (E. g., People ex rel. Ellert v. Cogswell, 113 Cal. 129, 136-137, 45 P. 270, 35 L.R.A. 269; Pratt v. Security Trust & Sav. Bank, 15 Cal.App.2d 630, 639-641, 59 P.2d 862.) Since there is usually no one willing to assume the burdens of a legal action, or who could properly represent the interests of the trust or the public, the Attorney General has been empowered to oversee charities as the representative of the public, a practice having its origin in the early common law. (See generally Scott, supra, § 391, pp. 2753-2756.)

In addition to the general public interest, however, there is the interest of donors who have directed that their contributions be used for certain charitable purposes. Although the public in general may benefit from any number of charitable purposes, charitable contributions must be used only for the purposes for which they were received in trust. (O'Hara v. Grand Lodge I.O.G.T., supra, 213 Cal. at pp. 140-141, 2 P.2d 21; Pacific Home v. County of L. A., 41 Cal.2d 844, 854, 264 P.2d 539; see also Estate of Faulkner, 128 Cal.App.2d 575, 578, 275 P.2d 818.) Moreover, part of the problem of enforcement is to bring to light conduct detrimental to a charitable trust so that remedial action may be taken. The Attorney General may not be in a position to become aware of wrongful conduct or to be sufficiently familiar with the situation to appreciate its impact, and the various responsibilities of his office may also tend to make it burdensome for him to institute legal actions except in situations of serious public detriment. (See Karst, supra, 73 Harv.L.Rev. at pp. 478-479; Bogert, Proposed Legislation Regarding State Supervision of Charities, 52 Mich.L.Rev. 633, 634-636; Scott, supra, § 391, pp. 2754-2756.)

The present case illustrates these difficulties. The pleading filed by the Attorney General stated that he had no information or belief as to the plaintiffs' allegations that trust assets were being diverted from their charitable purpose. Yet the pleading also stated that the Attorney General determined that legal action by his office was not warranted because the changes in the operation COPS 'would not be detrimental to the public interest. * * *' The test applied by the Attorney General in deciding not to take legal action is clearly incorrect, for the assets of COPS as a charitable institution can be used only for the purposes for which they were received in trust. The trust is not fulfilled merely by applying the assets in the public interest. ³

Although the Attorney General has primary responsibility for the enforcement of charitable trusts, the need for adequate enforcement is not wholly fulfilled by the authority given him. The protection of charities from harassing litigation does not require that only the Attorney General be permitted to bring legal actions in their behalf. This consideration '* * * is quite inapplicable to enforcement by the fiduciaries who are both few in number and charged with the duty of managing the charity's affairs.' (Karst, supra, 73 Harv.L.Rev. at pp. 444-445.) There is no rule or policy against supplementing the Attorney General's power of enforcement by allowing other responsible individuals to sue in behalf of the charity. ⁴ The administration of charitable trusts stands only to benefit if in addition to the Attorney General other suitable means of enforcement are available. 'The charity's own representative has at least as much interest in preserving the charitable funds as does the Attorney General who represents the general public. The cotrustee is also in the best position to learn about breaches of trust and to bring the relevant facts to a court's attention.' (Karst, supra, 73 Harv.L.Rev. at p. 444.) Moreover, permitting suits by trustees does not usurp the responsibility of the Attorney General, since he would be a necessary party to such litigation and would represent the public interest. (See In re L. A. County Pioneer Society, 40 Cal.2d 852, 861, 257 P.2d 1.)

Defendant trustees urge that a distinction should be made between trustees of a charitable trust and the governing board of a charitable corporation. They apparently concede that a minority trustee of a charitable trust has the capacity to sue, but contend that members of a governing board of a charitable corporation are not truly trustees and that a different rule applies to them. The Attorney General takes the position that he is the only one empowered to bring suit in either situation. Corporations Code, section 10205 states that the powers of a charitable corporation shall be vested in a 'board of trustees.' Defendant trustees contend, however, that this title does not disclose...