gno.law

Smith v. Superior Court

California Court of Appeal · D011000 · 1990-01-31 · Published · 217 Cal. App. 3d 950 · 266 Cal. Rptr. 253 · 1990 Cal. App. LEXIS 83

DON SMITH, Petitioner, v. THE SUPERIOR COURT OF SAN DIEGO COUNTY, Respondent; BONITA PARK HOMEOWNERS ASSOCIATION, Real Party in Interest

Area
civil
Panel
Kathryn Todd (author)

Analysis

A model's reading — qwen3.8-27b, prompt v1, 2026-10-13T07:37Z · confidence high

The trial court denied a motion for summary adjudication, ruling that the three-year statute of limitations for liabilities created by law did not apply to the Association's claims against its directors. The Court of Appeal reversed, issuing a peremptory writ of mandate to grant the motion, holding that the directors' liability was statutory under Corporations Code section 309 and thus subject to the three-year limit, which was not tolled.

Ruling reviewedStandardThe courtThe model
Denial of motion for summary adjudication regarding the statute of limitations for claims against directors.
“The court denied the motion finding section 359 does not apply to actions for breach of a duty or negligence against directors of a corporation.”
de novoerroragree with court
The appellate court determined that the trial court erred by failing to recognize that the liability of the directors was 'created by law' through the statutory standard of care in Corporations Code section 309, thereby making the three-year statute of limitations in Code of Civil Procedure section 359 applicable.

Authorities

  • relied: Coombes v. Getz (1933) 217 Cal. 320 — A 'liability created by law' exists by virtue of an express statute but does not extend to actions arising under the common law.
  • relied: Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490 — The potential liability of directors is governed by statute (Corp. Code, §§ 309, 7231) rather than common law, and Corp. Code § 7231 incorporates the standard of care from § 309 for nonprofit mutual benefit corporations.
  • relied: San Leandro Canning Co., Inc. v. Perillo (1931) 211 Cal. 482 — A statute of limitations tolls when a claim arises from a director’s defalcation and the wrongdoers’ control makes discovery impossible.
  • relied: Admiralty Fund v. Peerless Ins. Co. (1983) 143 Cal.App.3d 379 — Supports the principle of tolling statutes of limitations in cases involving director control and impossibility of discovery.
  • relied: Reed v. Norman (1957) 152 Cal.App.2d 892 — A demand is necessary to toll the statute of limitations unless conspiracy, fraud, or criminal conduct is charged.
  • relied: United Nuclear Corp. v. Superior Court (1980) 113 Cal.App.3d 359 — A peremptory writ is proper when an alternative writ would add nothing to the presentation.
  • relied: Goodenough v. Superior Court (1971) 18 Cal.App.3d 692 — A peremptory writ is proper when an alternative writ would add nothing to the presentation.

The appellate opinion: sound — The opinion correctly applies the statutory framework to determine that the directors' liability is statutory rather than common law, triggering the shorter limitations period. It adequately addresses the tolling argument by finding insufficient evidence of adverse domination or fraud to justify equitable tolling.

How this analysis was made · dispute it

A model's reading — claude-fable-5-1, prompt v1, 2026-10-13T04:32Z · confidence medium

The superior court denied former director Don Smith's motion for summary adjudication, ruling that the three-year limitations period of Code of Civil Procedure section 359 for liabilities 'created by law' does not apply to the homeowners association's negligence and breach of fiduciary duty claims against its directors for letting the construction-defect limitations period lapse. The Court of Appeal issued a peremptory writ of mandate directing the trial court to grant the motion, holding that a director's breach of the standard of care codified in Corporations Code section 309 (incorporated for nonprofit mutual benefit corporations by section 7231) is a liability created by law governed by section 359, and that the record showed no basis for tolling under an adverse domination theory.

Ruling reviewedStandardThe courtThe model
Denial of summary adjudication on the ground that Code of Civil Procedure section 359 does not apply to negligence/breach of fiduciary duty actions against corporate directors
“We conclude a breach of the statutory standard is a “liability created by law” and thus is governed by the three-year time limitation of section 359.”
de novoerror (statutory interpretation)unsure
The court correctly states the Coombes v. Getz rule that a liability created by law is one existing by express statute and not common law, but its step from 'section 309 codifies the standard of care' to 'any action against a director necessarily flows from the statute' is contestable because directors' fiduciary duties predate section 309 and the complaint pleaded common law negligence and breach of fiduciary duty. The court's principal support on this point is Justice Mosk's concurring and dissenting opinion in Frances T., which is not binding, and the court does not address when the Association discovered the facts even though section 359 runs from discovery. The result is defensible but the reasoning is thin, so I cannot say with confidence that it is either right or wrong.
Rejection of the Association's argument that the limitations period was equitably tolled during Smith's alleged adverse domination and control of the board
“In the record before us the only evidence offered in support of tolling is that Smith remained on the board until December 31, 1985. There is no showing Smith dominated the board, or any control he asserted was “adverse” or fraudulent.”
de novocorrectagree with court
The adverse domination doctrine as stated in San Leandro Canning and Admiralty Fund requires that wrongdoers' control make discovery impossible; the only evidence was Smith's board membership through 1985, with no showing of domination, fraud, demand, or futility, and Smith left the board more than 15 months before the three-year period ran. On this record the conclusion that tolling was unavailable follows from the cited authorities.

Authorities

  • relied: Coombes v. Getz (1933) 217 Cal. 320 — A 'liability created by law' is one existing by virtue of an express statute and does not extend to actions arising under the common law.
  • relied: Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490 — Distinguishes directors' fiduciary duty to the corporation from their common law duty to third parties; Corporations Code section 7231 incorporates the section 309 standard of care for nonprofit mutual benefit corporations; Mosk, J., concurring and dissenting, viewed director liability as governed by statute.
  • relied: San Leandro Canning Co., Inc. v. Perillo (1931) 211 Cal. 482 — A statute of limitations is tolled where the claim arises from a director's or employee's defalcation and the wrongdoers' control makes discovery impossible.
  • relied: Admiralty Fund v. Peerless Ins. Co. (1983) 143 Cal.App.3d 379 — Adverse domination tolling requires that the wrongdoers' control of the corporation prevent discovery of the claim.
  • relied: Reed v. Norman (1957) 152 Cal.App.2d 892 — A demand on the corporation is necessary before suit unless conspiracy, fraud, or criminal conduct is charged.
  • relied: United Nuclear Corp. v. Superior Court (1980) 113 Cal.App.3d 359 — A peremptory writ in the first instance is proper where an alternative writ would add nothing to the presentation.
  • relied: Goodenough v. Superior Court (1971) 18 Cal.App.3d 692 — Peremptory writ may issue without an alternative writ where further briefing would add nothing.

The appellate opinion: sound with gaps — The opinion reaches a defensible result and correctly disposes of the tolling argument, but its core holding that a director's breach of fiduciary duty is a statutory 'liability created by law' rests heavily on a non-binding concurring and dissenting opinion and an inference of legislative intent from section 309's safe-harbor language. It also does not analyze when the Association discovered the facts giving rise to liability, even though section 359 expressly runs from discovery, and it treats the complaint's admission of the expiration date as settling that question.

How this analysis was made · dispute it

Opinion — Todd

Opinion

TODD, J.

Bonita Park Homeowners Association (Association), a nonprofit corporation, filed an action on January 21, 1986, against Bonita Park developer McMillin Construction Company. The Association sought damages for latent construction defects in the condominium homes. Upon a motion for summary adjudication the court found the Association failed to timely file suit before 10 years after recordation of valid notices of completion, as required by Code of Civil Procedure section 337.15, subdivision (g) (2). 1 All causes of action except the fraud cause of action were time-barred. McMillin recorded the notices of completion on February 25, 1974, for buildings one through eight and on April 4, 1974, for buildings nine through twelve.

*953 On April 27, 1987, the Association then filed an action for breach of fiduciary duty and negligence against its board of directors and individual directors, including former board president Don Smith (Smith). The Association alleged the board allowed the statute of limitations to run, barring recovery for damages to the common areas. Smith moved to adjudicate the issue “[the Association’s] action for damage to buildings 1-12 of the Bonita Park Condominium Project is conclusively barred by the controlling three-year statute of limitations provided in the Code of Civil Procedure section 359.[ 2 ] ” Smith argued the Association admitted in the complaint the 10-year statutory limitations period expired on April 4, 1984, thus the liability was “created” on that date, and any action against him must have been brought by April 4, 1987. The court denied the motion finding section 359 does not apply to actions for breach of a duty or negligence against directors of a corporation.

A “liability created by law” is one which exists by virtue of an express statute but does not extend to actions arising under the common law. (Coombes v. Getz (1933) 217 Cal. 320, 333 [18 P.2d 939].) By its plain language, the three-year statute of limitations in section 359 applies where there is a statutory basis for actions against directors, shareholders, or members of a corporation.

In 1975 the Legislature enacted section 309 of the Corporations Code which codified the standard of care for corporate directors. Subdivision (c) of Corporations Code section 309 3 precludes liability if the standard is met: “A person who performs the duties of a director in accordance with subdivisions (a) [the standard] and (b) [information relied upon] shall have no liability based upon any alleged failure to discharge the person’s obligations as a director.” “The purpose ... is to relieve a person from any liability by reason of being or having been a director of a corporation, if that person has exercised his duties in the manner contemplated by this section.” (Legis. committee com., 24 West’s Ann. Corp. Code (1990 pocket supp.) p. 34.) By codifying the standard of care and precluding further liability, the statute conveys the Legislature’s intent that any action by a beneficiary of the fiduciary relationship must necessarily flow from the statute. The *954 fiduciary duty is distinguished from common law duty to third parties. (See Frances T. v. Village Green Owners Assn., supra, 42 Cal.3d 490, 506.) As Mosk, J., in his concurring and dissenting opinion in Frances T. observes, “the potential liability of the directors here - which is created by the duty imposed on them and the standard of care to which they are held - is governed not by the common law but rather by statute. [Citations, including Corp. Code, §§ 309, 7231.]” (42 Cal.3d at p. 525.)

Here the Association alleges Smith failed to “reasonably inquire and properly investigate the cause of the distress and damage to the common area” and timely file suit. The Association stands as a corporate beneficiary to Smith, and his alleged failure to act was in his capacity as a voting director. Even though Corporations Code section 309 is not specifically mentioned in the complaint, the action is based on the statutory standard. We conclude a breach of the statutory standard is a “liability created by law” and thus is governed by the three-year time limitation of section 359.

The Association argues the statute of limitations was tolled during Smith’s “adverse domination and control” of the board. A statute of limitations tolls when a claim arises from a director’s or employee’s defalcation and the wrongdoers’ control makes discovery impossible. (San Leandro Canning Co., Inc. v. Perillo (1931) 211 Cal. 482, 487 [295 P.2d 1126]; Admiralty Fund v. Peerless Ins. Co. (1983) 143 Cal.App.3d 379, 387 [191 Cal.Rptr. 753].) In the record before us the only evidence offered in support of tolling is that Smith remained on the board until December 31, 1985. There is no showing Smith dominated the board, or any control he asserted was “adverse” or fraudulent. Nor is there evidence the Association or any member made a demand Smith institute an action against McMillin, or evidence a demand would have been futile. A demand is necessary unless conspiracy, fraud, or criminal conduct is charged. (See Reed v. Norman (1957) 152 Cal.App.2d 892, 898 [314 P.2d 204].) Furthermore, by the Association’s evidence, Smith was off the board for over 15 months before the statute of limitations expired. We find no basis for equitable tolling of the statute.

An alternative writ or order to show cause would add nothing to the presentation. A peremptory writ is proper. (Code Civ. Proc., § 1088; United Nuclear Corp. v. Superior Court (1980) 113 Cal.App.3d 359 [169 Cal.Rptr. 827]; Goodenough v. Superior Court (1971) 18 Cal.App.3d 692, 697 [96 Cal.Rptr. 165].)

*955 Let a peremptory writ of mandate issue directing the superior court to vacate its order denying the motion for summary adjudication of issue and enter a new order granting the motion.

Work, Acting P. J., and Nares, J., concurred.

A petition for a rehearing was denied February 27, 1990, and the petition of real party in interest for review by the Supreme Court was denied April 26, 1990.

1

All statutory references are to the Code of Civil Procedure unless otherwise specified.

2

Section 359 provides “This title does not affect actions against directors, shareholders, or members of a corporation, to recover a penalty or forfeiture imposed, or to enforce a liability created by law; but such actions must be brought within three years after the discovery by the aggrieved party of the facts upon which the penalty or forfeiture attached, or the liability was created.”

3

Corporations Code section 7231, applicable to nonprofit mutual benefit corporations, incorporates the standard of care defined in Corporations Code section 309. (See Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 506, fn. 13 [229 Cal.Rptr. 456, 723 S.Ct. 573, 59 A.L.R.4th 447].)

Cites, in this corpus

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