Facts

The nine individual defendants made up the former board of directors for the Wesley United Methodist Housing Corporation, a non-profit charitable religious corporation. Defendants served as volunteer directors for no compensation between 1998 and May 2006 and had been members of the church for between 26 to 54 years respectively.

The head of the church asked all nine directors to resign, which they did in May 2006. This head of the church then appointed himself and four of his associates to act as the new board (the plaintiff in this case). This new board filed the instant lawsuit on Aug. 25, 2006, against the nine former board members, claiming negligence on their collective parts, which amounted to two loans that the board unanimously voted to accept in order to make mortgage payments and repairs to the corporation's only asset, a 40 unit apartment building that was donated to the church in 1970.

Between January 2004 and May 2006, 38 of the 40 units were rented. There was a $541,000 first trust deed to the city of Los Angeles and a $250,000 second trust deed to Val-Cris Investment Corporation. Val-Cris foreclosed for non-payment of installments. In 2005, defendants Wesley Smith Jr. and Rochelle Haynes loaned their personal funds to the corporation in amounts of $72,500 and $38,500 at three percent interest to reinstate the Val-Cris loan.

The court denied a temporary restraining order and preliminary injunction.

PLAINTIFF'S CONTENTIONS:
The complaint labeled the former board of directors negligent for voting to accept the two loans from board members Smith and Haynes, claiming that the three percent interest was too much for a third and fourth trust deed. The plaintiff claimed violations of Corporations Code sections 5233 and 9243.as well as contending that defendants should be prohibited from engaging in self-dealing.

DEFENDANTS' CONTENTIONS:
Defendants contended that plaintiff ignored their statutory obligation under Code of Civil Procedure section 425.15 to seek leave of court before filing a complaint against volunteer directors of a non-profit corporation working for no compensation. Defendants sought to dismiss the case. They further claimed that they were immune from personal liability for money damages within the meaning of California Corporation Code section 5047.5, entitled Volunteer Officer or Director of Non-Profit Corporation-Nonliability; that the case should be dismissed on this ground as well.

The defendants also contended that voting to accept or abstain from voting to accept $110,000 in the form of two personal loans from two fellow directors could not comprise a negligent act as there were no actual damages plead or proven by the plaintiff at the time of trial. Lastly, defendants alleged that the case was manufactured and contrived.

Damages

No actual damages plead.

Result

Defense verdict. After plaintiff completed his case, defendants moved for judgment pursuant to Code of Civil Procedure section 631.8. The judge awarded judgment to each of the defendants, finding that there was no self-dealing; that each of the defendants acted in good faith; that there were no damages to plaintiff. The defense presented no evidence at trial. The trial court awarded defendants more than $97,000 in attorneys' fees and costs, which plaintiff has paid in full. Judgment was entered June 13, 2008 for all defendants.

Length

10 days