## Facts

- A nonprofit charitable corporation sued its former directors, including its founder, seeking damages for alleged dissipation of assets and mismanagement over roughly eleven years.
- The corporation alleged losses of about $3,000,000 and unlawful indebtedness of about $525,000.
- The pleading advanced two main theories: (1) issuance of roughly $551,300 in promissory notes to the public allegedly without required permits and allegedly for inadequate consideration; and (2) mismanagement through speculative transactions and gifts of assets after alleged insolvency.
- The complaint was pleaded in 16 counts, repeatedly attributing conduct to one director with “consent and approval” of others, or alternatively alleging nonparticipating directors negligently failed to discover and stop the conduct.
- Multiple counts added conclusory allegations of “constructive fraud,” concealment of insolvency, and estoppel to defeat statute-of-limitations defenses.
- Defendants filed general and special demurrers asserting failure to state a cause of action, uncertainty/ambiguity, improper joinder, and statute-of-limitations bars.
- The trial court sustained the demurrers and dismissed the action after the corporation declined to further amend; the corporation appealed.

## Issues

1. Whether the second amended complaint stated facts sufficient to impose personal liability on former directors of a nonprofit charitable corporation for alleged illegal transactions and mismanagement.
2. Whether conclusory allegations of “constructive fraud,” concealment, and negligence satisfied California pleading requirements for fraud and breach of duty claims against directors.
3. Whether defects in clarity, attribution of acts to individual defendants, and time-bar allegations justified sustaining general and special demurrers without further leave to amend.
4. Whether enforcement of obligations concerning charitable assets is primarily vested in the attorney general, limiting the corporation’s ability to seek certain recoveries framed as public-trust relief.

## Decision

- The Court of Appeal affirmed the judgment of dismissal.
- The court held the complaint failed to plead sufficient, nonconclusory facts to state viable claims against the individual directors.
- Allegations of fraud and “constructive fraud” were inadequately particularized and largely amounted to legal conclusions.
- Negligence and mismanagement allegations were too general and failed to identify specific actionable misconduct attributable to each director.
- The court indicated that, because charitable assets are treated as held for the public, enforcement authority primarily lies with the attorney general, which undercut aspects of the corporation’s asserted recovery theory.
- The sustained demurrers and resulting dismissal were upheld.

## Legal Principles

- Directors of a nonprofit charitable corporation are not personally liable for losses from mere errors in business judgment; personal liability generally requires well-pleaded facts showing bad faith, corrupt motive, intentional wrongdoing, or a specific legal-duty violation.
- Fraud must be pleaded with specificity, including the particular misrepresentations or concealment, who made them, when, and how they caused harm; labels such as “constructive fraud” do not suffice without supporting facts.
- A complaint seeking to hold multiple directors liable must clearly connect specific acts or omissions to specific defendants and avoid uncertainty and improper aggregation of distinct theories.
- Where charitable assets are regarded as held for the public, the attorney general is the primary enforcer of duties relating to such assets, which can limit private or corporate attempts to obtain public-trust-type remedies.

## Conclusion

The court affirmed dismissal because the corporation’s multi-count pleading did not state specific facts establishing fraud or actionable breach of duty sufficient to impose personal liability on former directors, and because charitable-asset enforcement was treated as principally the attorney general’s function.


George Pepperdine Found. v. Pepperdine, 271 P.2d 600 (Cal. Ct. App. 1954)