Court Opinion

ID: 8406987
Source: CourtListenerOpinion
Date Created: 2022-10-31 22:01:38.707895+00
Date Added: 2024-06-11T16:47:22.795336
License: Public Domain

Filed 10/31/22 Spaulding Marine Center v. Auques Maritime Preservation CA1/4
        NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not
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been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                            FIRST APPELLATE DISTRICT

                                        DIVISION FOUR

 SPAULDING MARINE
 CENTER,
           Plaintiff, Cross-
           defendant, and                                     A163223
           Appellant,                                         A164070

 v.                                                           (Marin County
 ARQUES MARITIME                                              Super. Ct. No.
 PRESERVATION                                                 CIV1800843)
 FOUNDATION,
           Defendant,
           Cross-complainant, and
           Respondent.

          Spaulding Marine Center (Spaulding) appeals from the
trial court’s judgment denying relief on its complaint for
declaratory relief against Arques Maritime Preservation
Foundation (Arques) and granting relief on Arques’s cross-
complaint for declaratory judgment and breach of lease.
Spaulding also appeals from the trial court’s subsequent award of
prevailing party attorney’s fees to Arques. Spaulding argues the
trial court failed to address whether Arques was barred from
enforcing the lease because its execution of the lease was

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contrary to limitations in its articles of incorporation as a
nonprofit public benefit corporation. The trial court addressed
Spaulding’s argument that Arques’s signing of the lease was
ultra vires and correctly rejected it, so we will affirm the
judgment.
                          BACKGROUND
      The facts relevant to Spaulding’s arguments on appeal are
few and undisputed. Spaulding is a nonprofit corporation formed
to preserve a boatyard, restore ships, provide education in marine
skills, and operate as a community center. In 2007, Spaulding
leased a portion of its property to Arques. Arques is a nonprofit
public benefit corporation, and its articles of incorporation state
that its purpose is “to preserve the traditional maritime trades of
the San Francisco Bay and Delta areas and to provide historical
continuity for such trades by operating one or more non-profit
training schools, yards, sail training ships and other facilities
relating thereto.”
      A dispute arose between the parties, and Spaulding filed
suit to obtain a declaratory judgment that Arques had breached
the lease and was required to vacate the leased premises. Arques
filed a cross-complaint alleging one cause of action for breach of
the lease and a second cause of action seeking a declaratory
judgment that Arques had not breached the lease and was
entitled to remain in possession of the leased premises.
      After an eight-day bench trial, the trial court issued a
statement of decision finding against Spaulding and in favor of
Arques on the parties’ claims for declaratory relief. The court

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also found in Arques’s favor on some but not all of its breach of
lease allegations against Spaulding, but it awarded only nominal
damages. The trial court granted Arques’s request for prevailing
party attorney’s fees under Civil Code section 1717, but it
awarded Arques only about $275,000 of the approximately
$760,000 Arques had requested.
                           DISCUSSION
      Spaulding argues the trial court erred by failing to address
whether Arques’s limited purpose as a nonprofit public benefit
corporation prevented it from using its assets to pay rent to
Spaulding or to pay attorney’s fees to enforce the lease.
Spaulding further contends that Arques’s articles of incorporation
require it to operate a maritime vocational trade school, but that
it was and is leasing Spaulding’s property to operate a maritime
avocational (i.e., hobby) school. Spaulding therefore asserts that
the trial court should have denied relief on Arques’s cross-
complaint and denied its request for attorney’s fees.1 We review
these arguments de novo, as they turn on the meaning of writings
and statutes and involve the application of law to undisputed
facts. (State ex rel. Aetna Health of California, Inc. v. Pain
Management Specialist Medical Group (2020) 58 Cal.App.5th
1064, 1069; California National Bank v. Woodbridge Plaza LLC
(2008) 164 Cal.App.4th 137, 142–143.)

      1Spaulding does not contest the amount of fees awarded by
the court. Instead, it contends that Arques was not entitled to
recover any fees because its litigation efforts were “not in the
furtherance of any purpose authorized by its articles.”

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        Contrary to Spaulding’s contentions, the trial court
addressed Spaulding’s argument. With a half-page of
explanation, the trial court ruled that “when an ultra vires
contract has been fully performed on both sides, neither party
can maintain an action to set aside the transaction or to recover
what has been parted with.” Spaulding complains that the trial
court did not make a definitive ruling as to whether the lease was
or was not ultra vires. But the trial court’s evident conclusion in
its statement of decision on the declaratory judgment claims was
that it did not need to address the merits of the ultra vires
argument because the contract had been fully executed. In its fee
award, the trial court referred back to this rejection of the ultra
vires argument when it noted that Spaulding was “reargu[ing]”
that Arques had acted beyond its corporate authority and that
the court “[o]nce again” rejected the argument and found it
inapplicable to Arques’s request for attorney’s fees. Spaulding
may disagree with these conclusions, but that does not mean the
trial court failed to fulfill its judicial function or ignored the issue,
as Spaulding claims.
        The trial court also reached the correct result. As Arques
points out, Corporations Code2 sections 5141 and 5142 bar
Spaulding from challenging Arques’s authority to enter into the
lease or to spend attorney’s fees enforcing it. Both statutes are
within division 2 of title 1 of the Corporations Code, the
Nonprofit Corporation law (§§ 5000 et seq.). Section 5141,

        2   Undesignated statutory references are to the Corporations
Code.

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subdivision (a) states in pertinent part, “Subject to Section 5142:
[¶] (a) No limitation upon the activities, purposes, or powers of
the corporation or upon the powers of the members, officers, or
directors, or the manner of exercise of such powers, contained in
or implied by the articles . . . shall be asserted as between the
corporation or member, officer or director and any third person,
except in a proceeding: (1) by a member or the state to enjoin the
doing or continuation of unauthorized activities by the
corporation or its officers, or both, in cases where third parties
have not acquired rights thereby, (2) to dissolve the corporation,
or (3) by the corporation or by a member suing in a
representative suit against the officers or directors of the
corporation for violation of their authority.”
      Section 5141, subdivision (b) provides in full, “Any contract
or conveyance made in the name of a corporation which is
authorized or ratified by the board or is done within the scope of
authority, actual or apparent, conferred by the board or within
the agency power of the officer executing it, except as the board’s
authority is limited by law other than this part, binds the
corporation, and the corporation acquires rights thereunder
whether the contract is executed or wholly or in part executory.”
      Section 5142, in turn, creates an exception to the rule in
section 5141. Section 5142, subdivision (a) states,
“Notwithstanding Section 5141, any of the following may bring
an action to enjoin, correct, obtain damages for or to otherwise
remedy a breach of a charitable trust: [¶] (1) The corporation, or a
member in the name of the corporation pursuant to Section 5710.

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[¶] (2) An officer of the corporation. [¶] (3) A director of the
corporation. [¶] (4) A person with a reversionary, contractual, or
property interest in the assets subject to such charitable trust.
[¶] (5) The Attorney General, or any person granted relator
status by the Attorney General.” A nonprofit corporation’s assets
are deemed to be subject to a charitable trust because of the
statement of charitable purposes in the corporation’s articles.
(Pacific Home v. Los Angeles County (1953) 41 Cal.2d 844, 853.)
      Application of these statutes to this case is straightforward.
Spaulding is a third party as to Arques but is attempting to
assert a limitation in Arques’s articles of incorporation to obtain
a declaration voiding the lease and to defeat Spaulding’s
obligation to reimburse Arques for the attorney’s fees Arques
incurred. This is precisely what section 5141, subdivision (a)
forbids. The exceptions in section 5141, subdivision (a) do not
apply, as Spaulding is not the state or a member of Arques,
Arques is not dissolving, and Spaulding’s claims are not part of a
suit by Arques or its members against Arques’s board for breach
of fiduciary duty.
      Furthermore, Spaulding does not contend that the Arques
official who signed the lease lacked authority from the board to
do so, merely that Arques lacked authority under the articles of
incorporation. As a result, section 5141, subdivision (b) makes
the lease binding against Arques and entitles Arques to its rights

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under the lease, regardless of whether the parties had partially
executed it.3
      Finally, none of the exceptions in section 5142, subdivision
(a) authorizes Spaulding to remedy Arques’s alleged breach of its
charitable trust, since Spaulding is not Arques, an Arques
member, an Arques officer, an Arques director, or the Attorney
General, and Spaulding does not claim to have any “reversionary,
contractual, or property interest” in Arques’s assets.
      Reported decisions applying these statutes are admittedly
few, but they do exist. (E.g., Turner v. Victoria (2021)
67 Cal.App.5th 1099, 1118–1123, review granted, Nov. 10, 2021,
S271054.) These statutes are also explained in the Witkin
treatise, and Arques raised them in the trial court. (9 Witkin
Summary of Cal. Law (11th ed. 2022) Corporations, § 271.)
Spaulding can hardly claim to have been unaware of these laws,
yet it nonetheless ignored them in its opening brief.
      Instead, Spaulding quotes the statement in Pacific Home v.
Los Angeles County, supra, 41 Cal.2d at page 852 that a nonprofit

      3 As noted, the trial court ruled that Spaulding lacked
standing to raise an ultra vires argument because the lease had
been fully performed. The lease had not been fully performed as
to the renewal term. In addition, section 5141, subdivision (b)
makes clear that the extent of the parties’ performance under the
lease is irrelevant to Spaulding’s standing to raise an ultra vires
argument. The trial court nevertheless reached the correct
result, so any error in its reasoning is immaterial. (Hoover v.
American Income Life Ins. Co. (2012) 206 Cal.App.4th 1193, 1201
[“Even if the record demonstrates that the trial court
misunderstood or misapplied the law, the ruling must be
affirmed if it is supported by any legal theory”].)

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corporation cannot “legally divert its assets to any purpose other
than [the] charitable purposes” described in its articles.
Spaulding also cites Queen of Angels Hospital v. Younger (1977)
66 Cal.App.3d 359, 363, in which a nonprofit corporation sued the
Attorney General for declaratory relief to determine the validity
of its lease with a tenant and another agreement. However,
these cases did not discuss the predecessors to section 5141 in the
general corporation law, former section 803 and current section
208, both of which “den[y] to the corporation and to the other
party to any contract with the corporation the defense of ultra
vires when an action is brought on the contract.” (Marsh’s
Cal. Corp. Law (5th ed. 2022) § 5.12, see also § 23.01; Turner v.
Victoria, supra, 67 Cal.App.5th at pp. 1120–1121 [nonprofit
corporation law borrowed language from the general corporation
law to achieve the same substantive results]; 9 Witkin, Summary
of Cal. Law (11th ed. 2022) Corporations § 132 [ultra vires
doctrine for corporations abolished by statute in 1929 as to third
parties].) The cases on which Arques relies are thus inapposite,
as “[i]t is axiomatic that cases are not authority for propositions
not considered.” (People v. Ault (2004) 33 Cal.4th 1250, 1268,
fn. 10.)
       Spaulding’s only other response to these statutes is the
assertion in its reply brief that no authority or case prevents it
from requesting a declaratory judgment on the extent of Arques’s
authority under its articles of incorporation. It contends that
Code of Civil Procedure section 1060, the statute authorizing
declaratory judgment actions, gives it the right to obtain a ruling

                                  8
on this issue. Spaulding thus appears to argue that section
5141’s limitation on standing to raise ultra vires arguments does
not apply to declaratory judgment actions.
      This argument has no bearing on Spaulding’s challenge to
the attorney’s fee award, and it also fails as to its declaratory
judgment claim because the law is to the contrary. Division Two
of this court considered and rejected a similar argument in
D. Cummins Corp. v. United States Fidelity & Guaranty Co.
(2016) 246 Cal.App.4th 1484 (Cummins). There, a parent
company, together with its subsidiary, sought a declaratory
judgment regarding the applicability and interpretation of
insurance policies owned by a subsidiary. (Id. at pp. 1486–1487.)
The Court of Appeal held the trial court properly sustained the
insurers’ demurrer to the parent’s claims because the parent
lacked standing.4 (Id. at pp. 1493–1494.)
      Cummins explained, “While [Code of Civil Procedure]
section 1060’s language ‘appears to allow for an extremely broad
scope of an action for declaratory relief’ [citation], ‘an actual
controversy that is currently active is required for such relief to
be issued, and both standing and ripeness are appropriate
criteria in that determination. [Citation.]’ [Citation.] ‘One
cannot analyze requested declaratory relief without evaluating
the nature of the rights and duties that plaintiff is asserting,
which must follow some recognized or cognizable legal theories

      4 The insurer apparently sought to defeat the parent’s
claims, even though the subsidiary’s claim would remain, so that
the insurer could remove the action to federal court. (See
Cummins, supra, 246 Cal.App.4th at p. 1487, fn. 5.)

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that are related to subjects and requests for relief that are
properly before the court.’ ” (Cummins, supra, 246 Cal.App.4th
at p. 1489.) Cummins also noted at page 1490 that Code of Civil
Procedure section 1061 authorizes a trial court to decline to issue
a declaratory judgment where “ ‘its declaration or determination
is not necessary or proper at the time under all the
circumstances.’ ” The court applied these rules and concluded
that while the parent company might have had a practical
interest in its subsidiary’s rights under the insurance policies, it
had “not shown how that indirect interest—no matter how
enthusiastic it may be [citation]—translates into ‘a legally
cognizable theory of declaratory relief.’ ” (Id. at p. 1491.)
      As Cummins demonstrates, Spaulding’s standing to assert
its claim for declaratory relief concerning the parties’ rights
under the lease flows directly from its standing to assert its
rights under the lease. Because section 5141 bars Spaulding
from raising the limitation in Arques’s articles of incorporation as
a basis to rescind or terminate the lease, Spaulding also cannot
raise that limitation to obtain a declaration that it was entitled to
rescind or terminate the lease. This rule is sensible. Were the
law as Spaulding contends and a party could obtain a declaratory
judgment concerning rights that the party could not directly
enforce, limitations on standing like section 5141 would be
effectively nullified.
                          DISPOSITION
      The judgment and the fee award order are affirmed.

                                             BROWN, J.

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WE CONCUR:

POLLAK, P. J.
GOLDMAN, J.

Spaulding Marine Center v. Arques Maritime Preservation Foundation (A163223,
A164070)

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