May 26, 2020

May 26, 2020

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Court Interprets Bylaw Qualification Requirement For Directors

The California Corporations Code authorizes the bylaws to include a provision specifying the qualifications of directors.  Cal. Corp. Code § 212(b)(4).  A similar provision can be found in the Nonprofit Corporation Law.  Cal. Corp. Code § 5151(c)(3).  Neither statute goes so far as to specify what qualifications may or may not be imposed.  However, vague or uncertain qualification requirements may result in a court fight as was the case in Brown v. Pacifica Foundation, Inc., Cal. Ct. App. Case No. A152824 (April 29, 2019).

The Bylaw at issue in Brown provided that "no person who holds any elected or appointed public office at any level of government—federal, state, or local—or is a candidate for such office, shall be eligible for election to the position of Director".  This might be more accurately described as a negative qualification or disqualification requirement.

When the plaintiff was elected to the Board of Directors of the Pacifica, she was serving as a member of the Los Angeles Small Business Commission.  The Commission itself serves an advisory role and its members are appointed by a member of the Los Angeles Board of Supervisors.  The question, therefore, was whether the plaintiff held an appointed "public office".  The trial court thought not, but the Court of Appeal concluded otherwise.  The takeaway is that when there is a dispute about qualifications, the question may not be whether the person meets the requirement but what is the requirement.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

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...