A former director’s derivative suit for breach of fiduciary duty against the CEO of a nonprofit corporation has been dismissed by a trial court and appellate court in California on the ground that the plaintiff was not actually a director at the time he filed the suit. The former director claimed that he was still on the board because the deciding vote to oust him was cast by a director who had been automatically dropped from the board by a bylaw terminating anyone who had missed three consecutive meetings.
Ned Lieba was a director of Westview Services, Inc., a public benefit corporation providing services to adults with intellectual and developmental disabilities. He had joined the board in 2000 for a two-year term, which had been most recently renewed in August 2018. Although the board had “lost confidence” in Lieba, he refused to resign.
On June 13, 2019, the board voted three to two to remove him from the board. He subsequently filed a derivative suit on behalf of the corporation against the CEO. Lieba claimed that he remained on the board because one of the three votes against him was cast by a woman who had missed three consecutive meetings of the board and was therefore not a director eligible to vote. With a tie vote, he argued, he had not been removed.
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The bylaw provided that “Board Members who miss three consecutive meetings will be automatically dropped from the Board. The Board may, however, reinstate them at the next regular Board meeting.” The board argued that the minutes showed that the director had been excused from attending the meetings because she was recovering from surgery and had agreed to be available by phone if her vote were needed on any matter.
The trial court held, and the Court of Appeal affirmed, that the director had not been dropped from the board because her absences had been excused. As a result, Lieba had been voted off the board and had no right to sue in the name of the corporation. (Lieba v. Gann, Ct. of App., Fourth Dist., Div. 3, No. G064036, 10/21/25.)
YOU NEED TO KNOW
This case shows the difficulty of arbitrary bylaw provisions that cause automatic removal for missing meetings. Some bylaws of this type say that the director will be removed unless excused, but this one had no such safety valve. The normal rule of construction of contracts provides that a court will enforce provisions that are clear and unambiguous. They won’t have to seek out the meaning if the words are clear.
Here, the words say that the director was “automatically” dropped off the board when she missed three consecutive meetings. And the minutes made clear that the board did not “reinstate” the director because they thought she hadn’t ever been dropped. The courts nevertheless interpreted what they thought the provision meant, not what it said. And it took more than six years for them to do it.
We have always argued that a board should set expectations for attendance and, if not satisfied with the effort, should have the power to remove the director, with or without legal cause, by a vote of a majority of the whole board. Then it will be clear whether the person has been removed or not. It won’t take six years to find out what the bylaws mean.
We have also argued that a director being removed from office should have the right to notice and an opportunity be heard before any action is taken. (See Ready Reference Page: “Bylaws Function as ‘Constitution’ of Nonprofit Corporations”). We don’t like having removal sprung on a director who isn’t there or one who has no way to prepare for the confrontation. Presumably, no such hearing provision existed in these bylaws or the removed director would have argued he had been improperly removed.
But a hearing provision might have given the board leadership the opportunity to go to the director to be removed and show him they had the votes to get rid of him. That visit might have convinced him he had no case and no likelihood of recovery. It, too, could have saved six years of strife.
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