(a) As used in this section:
(1) “Social purpose corporation” includes an unincorporated association.
(2) “Board” includes the managing body of an unincorporated association.
(3) “Shareholder” includes a member of an unincorporated association.
(4) “Shares” includes memberships in an unincorporated association.
(b) Shareholders of a social purpose corporation may maintain a derivative lawsuit to enforce the requirements set forth in subdivision (c) of Section 2700.
(c) No action may be instituted or maintained in right of any domestic or foreign social purpose corporation under this section by any party other than a shareholder of the social purpose corporation.
(d) No action may be instituted or maintained in right of any domestic or foreign social purpose corporation by any holder of shares or of voting trust certificates of the social purpose corporation unless both of the following conditions exist:
(1) The plaintiff alleges in the complaint that plaintiff was a shareholder, of record or beneficially, or the holder of voting trust certificates at the time of the transaction or any part thereof of which plaintiff complains or that plaintiff’s shares or voting trust certificates thereafter devolved upon plaintiff by operation of law from a holder who was a holder at the time of the transaction or any part thereof complained of. Any shareholder who does not meet these requirements may nevertheless be allowed, in the discretion of the court, to maintain the action on a preliminary showing to and determination by the court, by motion and after a hearing, at which the court shall consider the evidence by affidavit or testimony, as it deems material, of all of the following:
(A) There is a strong prima facie case in favor of the claim asserted on behalf of the social purpose corporation.
(B) No other similar action has been or is likely to be instituted.
(C) The plaintiff acquired the shares before there was disclosure to the public or to the plaintiff of the wrongdoing of which plaintiff complains.
(D) Unless the action can be maintained the defendant may retain a gain derived from defendant’s willful breach of a fiduciary duty.
(E) The requested relief will not result in unjust enrichment of the social purpose corporation or any shareholder of the social purpose corporation.
(2) The plaintiff alleges in the complaint with particularity plaintiff’s efforts to secure from the board the action as plaintiff desires, or the reasons for not making that effort, and alleges further that plaintiff has either informed the social purpose corporation or the board in writing of the ultimate facts of each cause of action against each defendant or delivered to the social purpose corporation or the board a true copy of the complaint which plaintiff proposes to file.
(e) In any action referred to in subdivision (c), at any time within 30 days after service of summons upon the social purpose corporation or upon any defendant who is an officer or director of the social purpose corporation, or held that office at the time of the acts complained of, the social purpose corporation or the defendant may move the court for an order, upon notice and hearing, requiring the plaintiff to furnish a bond as hereinafter provided. The motion shall be based upon one or both of the following grounds:
(1) There is no reasonable possibility that the prosecution of the cause of action alleged in the complaint against the moving party will benefit the social purpose corporation or its shareholders.
(2) The moving party, if other than the social purpose corporation, did not participate in the transaction complained of in any capacity.
The court on application of the social purpose corporation or any defendant may, for good cause shown, extend the 30-day period for an additional period or periods not exceeding 60 days.
(f) At the hearing upon any motion pursuant to subdivision (d), the court shall consider the evidence, written or oral, by witnesses or affidavit, as may be material to the ground or grounds upon which the motion is based, or to a determination of the probable reasonable expenses, including attorney’s fees, of the social purpose corporation and the moving party that will be incurred in the defense of the action. If the court determines, after hearing the evidence adduced by the parties, that the moving party has established a probability in support of any of the grounds upon which the motion is based, the court shall fix the amount of the bond, not to exceed fifty thousand dollars ($50,000), to be furnished by the plaintiff for reasonable expenses, including attorney’s fees, which may be incurred by the moving party and the social purpose corporation in connection with the action, including expenses for which the social purpose corporation may become liable pursuant to Section 2702. A ruling by the court on the motion shall not be a determination of any issue in the action or of the merits thereof. If the court, upon the motion, makes a determination that a bond shall be furnished by the plaintiff as to any one or more defendants, the action shall be dismissed as to the defendant or defendants, unless the bond required by the court has been furnished within such reasonable time as may be fixed by the court.
(g) If the plaintiff, either before or after a motion is made pursuant to subdivision (d), or any order or determination pursuant to the motion, furnishes a bond in the aggregate amount of fifty thousand dollars ($50,000) to secure the reasonable expenses of the parties entitled to make the motion, the plaintiff shall be deemed to have complied with the requirements of this section and with any order for a bond theretofore made, and any motion then pending shall be dismissed and no further or additional bond shall be required.
(h) If a motion is filed pursuant to subdivision (d), no pleadings need be filed by the social purpose corporation or any other defendant and the prosecution of the action shall be stayed until 10 days after the motion has been disposed of.
(Amended by Stats. 2014, Ch. 694, Sec. 46. (SB 1301) Effective January 1, 2015.)
Last modified: October 25, 2018