HOLT v. COLLEGE OF OSTEOPATHIC PHYSICIANS AND SURGEONS

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District Court of Appeal, Second District, Division 3, California.

J. Frank HOLT, Ira P. Fulmor, and Walter H. Boyd, Plaintiffs and Appellants, v. COLLEGE OF OSTEOPATHIC PHYSICIANS AND SURGEONS, now known as California College of Medicine, a California corporation, et al., Defendants and Respondents.

Civ. 26759.

Decided: January 20, 1964

Mitchell, Silberberg & Knupp, Arthur Groman, Howard S. Smith, Los Angeles, for appellants. Belcher, Henzie & Fargo, Los Angeles, for respondents College of Osteopathic Physicians and Surgcons, now known as California College of Medicine, a California corporation and others. Stanley Mosk, Atty. Gen., Carl Boronkay, Deputy Atty. Gen., for respondent Attorney General of California.

This is an appeal from ajudgment entered after the sustaining of a demurrer to appellants' complaint without leave to amend. The plaintiffs are trustees of the College of Osteopathic Physicians and Surgeons (now known as California College of Medicine), a non-profit charitable corporation (hereinafter referred to as COPS), organized in 1914 under the provisions of sections 649–651 of the Civil Code. These sections have since been repealed and their subject matter is set forth in Chapter 1, Article 1, Volume 4, Division 21 of the Education Code. Its articles of incorporation state that the purposes for which the corporation was formed are as follows: ‘To establish, maintain, carry on and conduct an osteopathic medical and surgical college, in which all branches of learning, and instruction which now pertain or which may in the future pertain to the science and art of health maintenance; prevention, relief and recovery from disease, as well as any or all academic subjects desirable or necessary as a foundation for the teaching of such branches. (Emphasis added.)’ The defendants, other than COPS and the attorney general, are trustees of COPS. COPS has no mombers and its Board of Trustees is self-perpetuating. The complaint alleges in substance that since the date of the incorporation of COPS and until no or about May 24, 1961, the trustees of COPS continuously conducted an osteopathic medical school and held out to the puplic at large, to the members of the osteopathic profession, and to various agencies of the federal and state governments that COPS was an osteopathic medical school dedicated to the purpose of training young people in osteopathic medicine; that large sums of money had been donated to the trustees of COPS continuously since its incorporation to further the charitable purposes of COPS ‘to establish, maintain, carry on and conduct an osteopathic medical and surgical college’ and that COPS presently holds real and personal property of a value in excess of $1,500,000.00 which is held in trust for the uses and purposes hereinbefore specified; that osteopathic medicine is and has been a school and theory of medicine separate and distinct from allopathic medicine. (The complaint sets forth the differences in the teaching of the two schools.) That respondent trustee have adopted a resolution requiring COPS ot perform certain things contemplated to be done in an agreement between California Medical Association (an Association of Allopaths), and the California Osteopathic Association. That this agreement requires that COPS change its name so that the word ‘Osteopathic’ shall not be used in the name of COPS and that COPS use its best efforts to obtain approval by the Council on Medical Education and Hospitals of the American Medical Association and to obtain membership in the Association of American Medical Colleges. That COPS has pursuant to the direction of respondent trustees applied to the Association of American Medical Colleges for approval as a Medical College of the Allopathic School of Medicine. That it has amended its articles of incorporation to change the name of COPS to California College of Medicine and has entered into an agreement whereby, among other things, it undertakes to obtain membership in the Association of American Medical Colleges and to use its best efforts to maintain such accreditation and to cooperate in carrying out an agreement entered into between Caifornia Osteopathic Association and the California Medical Association in removing the distinction among persons practicing medicine in California holding unlimited physician's and surgeon's certificates. That the effect of these actions by respondent trustees is to repudiate the charitable purpose of COPS to conduct an osteopathic medical school, to convert COPS to an allopathic medical school, and to divert the assets of COPS from the charible uses authorized by its articles of incorporation (that of conducting an osteopathic medical school), to the unauthorized uses of conducting an allopathic school of medicine.

By the second cause of action plaintiffs seek a declaratory judgment as to the rights and duties of themselves and respondent trustees as to the change of charitable purposes alleged in the first cause of action to be threatened.

The attorney general filed an answer in which he admitted that he was the attorney general, that COPS was formed for the purposes set forth in the complaint and that it had until May 24, 1961, continuously and actively carried on and conducted an osteopathic medical and surgical college in which it trained men and women in ostepathic medicine in accordance with and pursuant to its articles of incorporation; that osteopathic physicians and surgeons constitute a separate and distinct profession practicing the diagnosis of all human ailments but in which he denied for want of information and belief all the remainder of the material allegations of the complaint. As affirmative defenses he alleged, first, that as attorney general he was charged with the enforcement on behalf of the People of all charitable trusts, that in this capacity he had been presented with information regarding the proposed conversion of the College of Osteopathic Physicians and Surgeons to an accredited school of medicine. That he had considered the information submitted to him and had concluded that the changes to be made in the operation of COPS ‘would not be detrimental to the public interest and do not warrant legal action by this office to prevent such changes.’ That he had not granted ‘relator status' to the plaintiffs or consented to the bringing of the action. Second, that the complaint did not state facts sufficient to constitute a cause of action.

The respondent trustees demurred generally and specifically. Among the grounds of special demurrer were that plaintiffs did not have legal capacity to sue and that there was a defect or misjoinder of parties defendant. The trial court sustained the respondent trustees' demurrers without leave to amend and entered judgment dismissing the action. By memorandum it stated the grounds for its action in sustaining the demurrers as follows: That under the authority of Geo. Pepperdine Foundation v. Pepperdine, 126 Cal.App.2d 154, 271 P.2d 600, the plaintiffs did not have capacity to sue; that the attorney general had such capacity but declines to sue; that the California Osteopathic Association is an indispensable party and that no action threatened violates the trust. We have concluded that the trial court was in error in dismissing the action.

Have the plaintiffs capacity and standing to sue? A. Yes.

It is respondents' contention that only the attorney general may prosecute an action to enforce a charitable trust. We do not agree. The true rule is that the attorney general or any person having a special interest in the enforcement of the trust may sue but that the attorney general must be made a party to the action. (O'Hara v. Grand Lodge I.O.G.T., 213 Cal. 131, 140, 2 P.2d 21; St. James Church v. Superior Court, 135 Cal.App.2d 352, 287 P.2d 387; Restatement, Trusts 2d, §§ 348, 391–392; Scott on Trusts, Vol. IV, p. 2727; 73 Harvard Law Review, pp. 443–444; 64 Harvard Law Review, pp. 1177–1178; 62 Anno. A.L.R. 91.) The plaintiffs as trustees of COPS have a special interest in preventing its assets from being diverted to other than that specified in its charter. COPS has no members, its trustees are self-perpetuating and as fiduciaries are charged with carrying out the charitable purposes set forth in its articles of incorporation. (St. James Church v. Superior Court, supra, 135 Cal.App.2d 352–361, 287 P.2d 387.) As to ordinary matters of administration the decision of the majority of the trustees is final but neither a majority of the Board nor the entire Board can, by vote, change the charitable purposes declared by the articles of incorporation. (In re L. A. County Pioneer Society, 40 Cal.2d 852 at 862, 257 P.2d 1; Brown v. Memorial Nat. Home Foundation, 162 Cal.App.2d 513, 524–531, 329 P.2d 118.) Each trustee has a duty to see that the funds of the corporation are not diverted to purposes other than those set forth in its articles of incorporation and in the event the attorney general fails to act, any trustee may to so.

The respondents rely on section 9505 and 10207 of the Corporations Code for their contention that only the attorney general may prosecute an action such as this. These sections give the attorney general the right and make it his duty to prosecute but contain no language which prohibits a person who has a special interest in the trust and upon whom is imposed the duty of protecting the trust from acting in the performance of his duty if the attorney general, as here, refuses of do so.

The soundness of the rule which permits a trustee to sue is illustrated by the answer filed by the attorney general here. He first denies for want of information or belief the facts alleged in the complaint showing the threatened diversion of the corporate assets to purposes other than those set forth in the corporation's charter, the facts as to which he must be informed in order to discharge his duty and then by affirmative defense alleges that he has considered the facts and finds that the changes in corporate purposes are not such as to be ‘detrimental to the public interest.’ In other words, the attorney general alleges that the has no information to enable him to determine whether there is a threatened change in the charitable purposes of COPS or he has determined that if such a change is threatened he has formed the opinion that public interest will be as well served by the new purpose as the old. That is not the test, for while the public might benefit equally well from any number of charitable uses of the funds held by COPS, these funds may only be used for the purposes set forth in the charter and if the plaintiffs may not sue, the purpose of changing the charitable uses for which the funds may be used will be accomplished because the attorney general concurs with the majority of the Board of Trustees that such change is desirable.

The trial court relied and great reliance is placed by all respondents on Geo. Pepperdine Foundation v. Pepperdine, supra, 126 Cal.App.2d 154, 271, p.2d 600. The statements in the opinion in that case that only the attorney general can sue to recover assets of a charitable corporation or damages for a breach of duty by its trustees is not only against the great weight of authority (see cases cited, supra, and, in particular, 73 Harvard Law Review, p. 444), but was purely obiter dictum. In that case the attorney general was named as a party defendant but did not appear. The question of plaintiff Foundation's capacity to sue was not raised by demurrer and was therefore waived. (Klopstock v. Superior Court, 17 Cal.2d 13, 17, 108 P.2d 906, 135 A.L.R. 318.)1 The question was not before the trial court or the appellate court nor was it argued in either.

Does the first count of the complaint state a cause of action? A. Yes. The complaint alleges in substance that COPS was founded to ‘establish, maintain, carry on and conduct an osteopathic medical and surgical college * * *.’ That large sums have been contributed to the college for the purpose and that through the nearly 50 years of its existence it has been operated and maintained as a College of Osteopathy. It alleges the difference between the two theories of medicine, i. e., between the osteopathic school and the allopathic school and that the majority of the trustees of COPS now propose to change the primary purpose of the college to that of teaching allopathic medicine and surgery and to ‘abandon, renounce, and repudiate’ the primary purpose of conducting an Osteopathic Medical and Surgical College. A threatened change in the charitable purposes set forth in COPS' articles of incorporation as interpreted by its trustees for nearly 50 years is thus clearly alleged and a cause of action for equitable relief stated. We are not impressed with the argument that even though COPS becomes an accredited College of Allopathic Medicine it may still teach osteopathy. The primary charitable purpose of COPS, if the allegations of the complaint are true, is the teaching of osteopathy, not the teaching of that art of healing as a subject secondary and subject to a primary purpose of teaching allopathic medicine. Further the complaint alleges that the majority of the Board intend to abandon the teaching of osteopathy. The fact that COPS may and does teach subjects other than osteopathy does not alter the fact that its primary purpose must be the teaching of the art of healing through the theory of osteopathy. All other teaching it may give is in furtherance of those primary purposes.

THE SECOND CAUSE OF ACTION.

In our opinion the second count of the complaint states a cause of action for declaratory relief. It seeks an interpretation by the court of the meaning of the statement of purposes set forth in the articles of incorporation of COPS and a declaration of the duties of the trustees to carry out the charitable purposes set forth in its articles as those purposes are declared by the court. It is the articles of incorporation which state the trust which is imposed upon the assets of COPS (Pacific Home v. County of Los Angeles, 41 Cal.2d 844 at 847, 264 P.2d 539), and it is the duty of the Board of Trustees to carry out the charitable purpose with which the corporation's assets are impressed. Plaintiffs properly seek a declaration of what those charitable purposes are and what their duties are in relation thereto. The second cause of action may also be viewed as a petition by the trustees for instruction. (Restatement of the Law, Trusts 2d, § 394; Scott on Trusts, Second Edition, § 394 and § 259.)

Is the California Osteopathic Association an indispensable party? A. Yes. It appears from the face of the complaint that COPS has entered into a contract with the California Osteopathic Association, hereinafter designated as C.O.A. whereby COPS undertakes to secure membership in the Association of American Medical Colleges and to maintain accreditation as such. The performance of this contract is one of the things which the complaint specifically seeks to enjoin. The contract between COPS and C.O.A. requires COPS to do that which the plaintiffs, by this action, seek to prevent COPS from doing. The effect of a decree such as that sought by plaintiffs here would be not only to enjoin COPS from performing the contract but to enjoin C.O.A. as well. C.O.A. was therefore an indispensable party. (Miracle Adhesives v. Peninsula Tile Assn., 157 Cal.App.2d 591, 321 P.2d 482.)

The trial court, however, was obligated to give plaintiffs the opportunity to bring in C.O.A. as a party defendant and could not refuse it leave to amend for that purpose. (Code Civ.Proc. § 389.)

The judgment is reversed with instructions to the trial court to order the plaintiffs to bring in as a party defendant to this action the California Osteopathic Association, a California non-profit corporation.

FOOTNOTES

1.  The question was one of capacity to sue, not of standing to sue, for the complaint if it stated a cause of action in anyone stated one that was for the benefit of the plaintiff Foundation. (cf. Parker v. Bowron, 40 Cal.2d 344 at 351, 254 P.2d 6.)

NOURSE, Justice pro tem.

SHINN, P. J., and FILES, J., concur.