Turner v. Victoria

• Decision Date: 17 August 2021
• Docket Number: D076318, D076337
• Citation: 283 Cal.Rptr.3d 136,67 Cal.App.5th 1099
• Court: California Court of Appeals Court of Appeals
• Parties: Debra TURNER, Plaintiff and Appellant, v. Laurie Anne VICTORIA et al., Defendants and Respondents.

67 Cal.App.5th 1099

283 Cal.Rptr.3d 136

Debra TURNER, Plaintiff and Appellant,

v.Laurie Anne VICTORIA et al., Defendants and Respondents.

D076318, D076337

Court of Appeal, Fourth District, Division 1, California.

Filed August 17, 2021

Cooley, Steven M. Strauss and Erin C. Trenda, San Diego, for Plaintiff and Appellant.

Gibson Dunn & Crutcher, Scott Alan Edelman, Alexander Kosta Mircheff, Los Angeles, Megan Marie Cooney, Irvine, and Jillian Nicole London, Los Angeles, for Defendant and Respondent Laurie Anne Victoria.

Henderson, Caverly, Pum & Trytten, Kristen E. Caverly and Lisa B. Roper, San Diego, for Defendant and Respondent Joseph Gronotte.

Procopio, Cory, Hargreaves & Savitch, Richard A. Heller, J. Christopher Jaczko, San Diego, and Sean Michael for Defendant and Respondent Gregory Rogers.

Seltzer Caplan McMahon Vitek, Reginal Vitek and Scott Walter Perlin, San Diego, for Defendant and Respondent Anthony Cortes.

Brownlie Hansen, Robert W. Brownlie ; DLA Piper, S. Andrew Pharies, San Diego, for Defendant and Respondent The Conrad Prebys Foundation.

Xavier Becerra, Attorney General, Tania M. Ibanez, Assistant Attorney General, Caroline Hughes and James M. Toma, Deputy Attorneys General for Amicus Curiae on behalf of the State of California.

IRION, J.

IINTRODUCTION

In this appeal, we consider whether a director of a nonprofit public benefit corporation who brings an action on behalf of the nonprofit public benefit corporation can lose standing to pursue its claims if the director is not reelected during the litigation.

Debra Turner, formerly a director and president of the Conrad Prebys Foundation (Foundation), appeals judgments of dismissal in favor of the Foundation and its directors, following orders sustaining demurrers to her probate and civil actions.¹ In those actions, Turner alleged the other Foundation directors breached their fiduciary duties in preapproving a settlement range for Laurie Anne Victoria, who served both as a Foundation director and as the trustee of the Conrad Prebys Trust (Trust), to negotiate a settlement of a trust challenge by a disinherited heir. Turner also challenged Victoria's actions as trustee. Several months after commencing her action, Turner's term as a Foundation director and officer expired when she was not reelected to her positions during the annual election process. The civil and probate courts determined that Turner lost standing to maintain her causes of action.

Turner contends she has standing under Corporations Code ² sections 5142, 5233, 5223, and/or 5710 to pursue the claims on behalf of the Foundation because she was a director and officer when she commenced the action and the statutory scheme for nonprofit benefit corporations does not require continuous directorship status to maintain standing since the claims belong to the corporation. Neither the text nor the legislative history of these statutes suggests an intention to depart from the ordinary principles requiring a plaintiff to maintain standing throughout litigation. We conclude the statutory scheme and public policy considerations require a continuous relationship with the public benefit corporation that is special and definite to ensure the litigation is pursued in good faith for the benefit of the corporation. If a plaintiff does not maintain such a relationship, the statutory scheme provides the nonprofit public benefit corporation with protection through the Attorney General, who may pursue any necessary action either directly or by granting an individual relator status.

Because Turner lost standing to pursue her causes of action, we affirm the judgments of dismissal as to Turner acting in her capacity as a former director and officer. We remand, however, with directions for the civil and probate courts to grant 60 days leave to amend, limited to the issue of whether a proper plaintiff may be substituted to pursue the existing claims. The Attorney General may consider during that 60-day period whether granting relator status to Turner, or another individual, for these claims is appropriate.

II BACKGROUND³

A. Factual Background

1. Establishment of the Trust and Foundation

Conrad Prebys was known in San Diego for his successful construction and real estate ventures and for his generous philanthropy. He donated hundreds of millions of dollars to local medical, educational, and arts institutions during his lifetime.

Prebys established the Trust in 1982 and created the Foundation in 2005 as a nonprofit public benefit corporation. The Trust provided that, after making specified distributions to identified beneficiaries, the trustee must distribute the remainder of the estate to the Foundation so it could continue to make grants and distributions for charitable purposes after Prebys's death. The Foundation's articles of incorporation provided that the "property of this corporation is irrevocably dedicated to charitable purposes and no part of the net income or assets of this corporation shall ever inure to the benefit of any director, officer or member thereof or to the benefit of any private person."

The operative bylaws of the Foundation state the Foundation's "assets and income shall be held in charitable trust, to be administered and distributed as provided herein for the qualified charitable, religious, scientific, literary or educational purposes of the supported organization."

2. Turner's Relationship to Prebys and the Foundation

Turner, who lived with Prebys over the last 16 years of his life and describes herself as his life partner, was a beneficiary of a gift trust and sat on a two-member real estate committee for the Trust. She was also a member of the Foundation's board of directors and served as an officer.

3. Prebys Creates and Withdraws His Son's Gift Trust

Prebys created a gift trust for his son in 2007. He allegedly had a falling out with the son in 2014. Prebys amended the gift trust in July 2014 to reduce the son's gift to $20 million, to be held in trust during the son's lifetime with taxes paid from the bequest. After another alleged falling out, Prebys revoked the son's gift trust completely in October 2014.

4. Prebys Amends the Trust

Prebys underwent treatment for cancer from 2014 through 2015, but allegedly remained in good mental health. He named Victoria chief executive officer of his company in 2015 and recommended another individual employed by his company to serve on the Foundation's board.

Prebys amended and restated the Trust in February 2016, naming Victoria as his successor trustee for the Trust as well as for the gift trusts. The restated Trust defined amounts to pour over into previously identified gift trusts. The remainder of the Trust estate was to be held as a separate trust pursuant to the terms of the Foundation and applied by the Foundation "to support performing arts, medical research and treatment, visual arts, and other charitable purposes consistent with the trustor's history of philanthropy during his lifetime, with an emphasis on such philanthropy in the San Diego area." Prebys amended several of the gift trusts and instructed the trustee to pay any estate taxes on the gifts so that all gifts were tax-free.

The 2016 restated Trust noted the son's gift trust was "previously revoked in its entirety." It stated Prebys expressly made no provision for Prebys's son and no distribution would be made to the son's formerly designated gift trust.

5. Events After Prebys's Death

When Prebys died in July 2016, Victoria assumed the duties as trustee of the Trust and engaged the attorney who prepared the Trust amendments to represent the Trust. Days after Prebys died, Victoria allegedly began discussing with the attorney how to address a potential challenge to the 2014 and 2016 documents revoking the son's gift trust. They discussed a dollar amount for a potential settlement shortly after the funeral in August 2016.

After Prebys's funeral, the son told Turner he did not want his father's money, but asked if he had been written out of the will. Turner confirmed the son would not receive anything from the estate unless Prebys had changed his mind after the February 2016 amendments.

Thereafter, the son hired an attorney to challenge the trust amendments that disinherited the son. The son alleged the amendments were invalid because Prebys lacked mental competence due to his illness and Turner unduly influenced Prebys.

6. Foundation Board Meetings in 2016

In September 2016, at the first board meeting after Prebys's death, the board elected Turner as president of the Foundation and chairperson of the board. The Trust's attorney attended the meeting and discussed the details of establishing the Foundation since he had prepared the Trust documentation.⁴ He discussed the issue of a possible trust contest by the son, explaining Prebys reduced the son's gift in 2014 and later revoked it entirely. Victoria, as trustee, wanted to settle the son's claim. The board discussed a dollar amount Victoria could use to negotiate with the son's attorney.

Turner told the other board members that Prebys revoked the son's gift for a reason and documented his intention not to provide a gift to his son in the Trust as well as in the gift trusts. Turner expressed her view that the claims of lack of capacity and undue influence were false and could not be supported by evidence. She alleged the attorney and the other board members did not think the son could establish that Prebys was not competent in 2014 to make his own decisions.

The attorney cautioned the board members that the son could " ‘get it all,’ " which could deprive the Foundation of its funding. He also warned that if the son could establish incompetence, Prebys's decisions "could be undone like ‘peeling the layers of an onion.’ "

The other board members expressed a desire to settle rather than fight a lawsuit by the son, which could involve a lengthy trial. Turner commented that Prebys settled "small business-related suits" involving slip-and-fall allegations or...