Why Politicians Should Read The Corporations Code (Or At Least This Blog)

Last September, I wrote about California’s unincorporated associations law.  In ”Thinking About Joining A Club? You May Want To Consider These Corporations Code Provisions First“, I noted that Title 3 of the California Corporations Code addresses a number of issues, including whether a member may be held liable for the obligations of an unincorporated club.  A recent, albeit unpublished, decision of the Court of Appeal now provides a “real world” example.

Bernard Parks is currently a member of the Los Angeles City Council.  In 2008, Mr. Parks ran unsuccessfully for the Los Angeles County Board of Supervisors.  The following year, a firm providing robocall services sued both Mr. Parks and Bernard Parks For Supervisor, an unincorporated entity, for breach of contract.  After a bench trial, Judge John A. Kronstadt (now a U.S. District Court Judge in the Central District of California) ruled that Mr. Park’s personal liability was governed by Corporations Code Section 18610.  That statute provides that a member of a nonprofit association is not liable for a contractual obligation of the association unless one five circumstances exist.  One of these is when with notice of the contract, the member receives a benefit under the contract.

Judge Kronstadt found that the parties did not genuinely dispute that either a contract existed or that Mr. Parks received a benefit.  Thus, the only issue of fact was whether Mr. Parks had notice of the contract.  On this issue, Judge Kronstadt concluded that “by a preponderance of the evidence, that . . . Parks knew or should have known of the contractual agreement with the Plaintiff arranged by senior members of his campaign staff pursuant to which calls were made to potential voters to seek their support. Indeed, there is substantial evidence that shows by a preponderance [of the evidence] that . . . Parks approved of these arrangements and was aware of them while the services were being provided.”   The Court of Appeal in Call Ctr. Servs. v. Parks, 2012 Cal. App. Unpub. LEXIS 6087 (Aug. 20, 2012) affirmed Judge Kronstadt’s judgment.

Note that the statute refers to the member being “with notice”.  A strict interpretation would require that the member have actual notice of the contract.  Judge Kronstadt’s and the Court of Appeal, however, appear to interpret the concept of notice more broadly to include constructive notice (“Parks knew or should have known . . .”).

The courts also seem to have assumed that Mr. Parks was a member, a term defined in Corporations Code Section 18015.  Yet, there isn’t any discussion or analysis of the statutory definition.  It seems possible that an unincorporated association is formed for the benefit of someone or something (such as the election of a candidate) without the benefited person(s) meeting the definition of “member”.

Judge Kronstadt appears to have awarded the amount owed to the plaintiff ($49,924.76) plus interest.  However, this is not the measure of liability under Section 18610.  The statute limits liability to “the value of the benefit received”.  It seems to me that this may or may not be the same as the amount charged.  Assume, for example, that you are a member of a nonprofit association that signs a catering contract for a large event that you attend at no cost.  The benefit to you may well be far less (the price of admission?) than the contract price for the event.  Since Mr. Parks lost the election, perhaps it could be argued that the plaintiff’s robocalls were of no value to him.

Finally, it should be noted that Section 18610 imposes liability on members of nonprofit associations, a term defined in Corporations Code Section 18020.  Not all unincorporated associations (defined in Section 18035) are nonprofit associations.  The Court of Appeal refers to “Bernard Parks For Supervisor” only as an “unincorporated entity” and seems to assume that it is a nonprofit association.

 

Published In: Business Organization Updates, Civil Procedure Updates, General Business Updates, Elections & Politics Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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