December 9, 2019

December 09, 2019

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Are Breach Of Fiduciary Duty And Breach Of Governing Documents “Non Bis In Idem”?

Last week, I discussed the Court of Appeal’s consideration of whether the business judgment rule protects a director from claims based on breach of the corporation’s governing documents.  See Does The Business Judgment Rule Protect Directors Who Violate Governing Documents?  In Palm Springs Villas II Homeowners Ass’n, Inc. v. Parth, 2016 Cal. App. LEXIS 485, the corporation sued a director for both breach of fiduciary duty and breach of its governing documents. The cause of action alleged that the director had breached her fiduciary duty by failing to comply with the corporation’s governing documents and causing harm to the corporation by taking various actions. The breach of governing documents cause of action identified specific provisions of the corporation’s bylaws and covenants, conditions, restrictions (CC&Rs) allegedly breached by the director (the corporation is a homeowners association).

The director demurred, arguing that the two causes of action were duplicative. The trial court sustained the demurrer. The Court of Appeal affirmed. Unfortunately for those interested in the question, the director won on default because the Court of Appeal found that the corporation did not address the director’s argument or explain how its two claims differed.  Thus, we don’t know how the court would have decided the issue.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
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Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...

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