Sunday, October 20, 2013

Brothers Are Indispensable Parties in Family Showdown

Morrical v. Rogers, A137011 (D1d5 Oct. 10, 2013)

This case is a fight over the control of a very valuable family insurance business. The opinion features more characters than a Pynchon novel, and its plot is only slightly less confusing. To oversimplify (a little), the sister sued to invalidate a board election that resulted in the election of the defendants—some money managers that had dealings with her brothers. The grounds were that the brothers—who were the other shareholders in the company—had engaged in self-dealing in transactions related to the election, which rendered the election invalid under some provisions of the Corporations Code. But even though it was the brothers whose alleged fiduciary breaches formed the basis of the attempt to invalidate the election, only the money managers and their company were named as defendants. The brothers were not joined. After the court decided some issues under the Corporations Code, it went on to say that the brothers should have been joined as indispensable parties under Code of Civil Procedure § 389. Because the brothers’ breaches of their fiduciary duties as directors and majority shareholders formed the very basis of the election challenge, they were potentially prejudiced by the sister’s failure to join them. Indeed, their rights were necessarily affected by the judgment. Further, the fact that the brothers had litigation interests that were in line with the named defendants did not mean that the defendants adequately represented their interests in the case. 

Reversed with orders to join the brothers on remand or dismiss.

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