## Facts

- Sinai Temple was incorporated in 1908 as a nonprofit religious corporation organized without pecuniary profit to members.
- In 1961, its articles were amended to prohibit any earnings or property from inuring to private members or individuals and to require assets upon dissolution to pass to nonprofit entities with religious or charitable purposes.
- In 1964–1965, Sinai Temple amended its articles to include operating cemeteries for Jewish burials among its corporate purposes.
- In 1963, Sinai Temple purchased cemetery and mortuary facilities, funding acquisition and payments in substantial part from revenues generated by those cemetery operations.
- The Attorney General, on relation of private complainants, filed a quo warranto action alleging Sinai Temple was operating its cemetery as a profit-making business that competed with other cemeteries and used profits to pay the cemetery purchase price.
- Sinai Temple did not distribute profits to members, but members could receive discounted prices on cemetery plots; earnings were used to support the corporation’s stated purposes.

## Issues

1. Whether a nonprofit religious corporation organized under California Corporations Code § 9200 unlawfully exercises its corporate franchise by operating a cemetery and mortuary business that competes in the market and generates substantial profits.
2. Whether using profits to retire acquisition costs and support corporate purposes, while not distributing profits to members, states an unlawful exercise of corporate powers in a quo warranto action.
3. Whether allegations of member discounts on burial plots constitute impermissible inurement of profits to members.

## Decision

- The Court of Appeal affirmed the judgment sustaining a general demurrer to the first amended complaint without leave to amend and dismissing the action.
- The court held that operating a cemetery and mortuary business that generates profits does not violate § 9200 if profits are not distributed to members and are devoted to corporate purposes.
- The court concluded the pleaded facts did not show an unlawful exercise of corporate franchise because the challenged activities fell within Sinai Temple’s stated religious and cemetery purposes and lacked prohibited distribution of earnings.

## Legal Principles

- Under California Corporations Code § 9200, “nonprofit” limits the distribution of earnings to private persons; it does not bar earning profits while conducting authorized activities.
- A nonprofit corporation may engage in revenue-producing, market-competitive operations if the activities are within its chartered purposes and earnings do not inure to members, directors, or other individuals.
- Incidental benefits to members consistent with the organization’s purposes (such as discounted burial plots) do not, without more, constitute unlawful distribution of profits.
- A quo warranto complaint fails to state a claim where the alleged conduct shows profit generation within corporate purposes and no unlawful inurement; sustaining a demurrer without leave to amend is proper when no curative amendment is apparent.

## Conclusion

The court held that a nonprofit religious corporation does not misuse its corporate franchise merely by operating profitable, competitive cemetery and mortuary services, so long as those activities are authorized by its articles and profits are devoted to nonprofit purposes rather than distributed to private persons.


People ex rel. Groman v. Sinai Temple, 99 Cal. Rptr. 603 (Ct. App. 1971)