Morrical

Siblings Michael (Mike) McGraw, John McGraw and Ann M. Morrical are coequal shareholders of a group of family corporations. Disputes between the siblings over the management of these corporations led to conflicts and litigation. Mike and John (collectively the Brothers) then entered into a series of transactions with an outside management company and, over the objection of their sister, voted to restructure the corporate boards of directors, granting effective corporate control to the management company. Ann filed suit to challenge the election of new directors pursuant to Corporations Code section 709, arguing that the Brothers had a material financial interest in the transactions between the corporations and management company and that the transactions were unfair to the family corporations and to her as a minority shareholder. The trial court agreed, setting aside the election of new directors and invalidating several of the underlying corporate transactions.

The primary issue presented in this appeal is whether an action brought under section 709, which allows the court to determine the validity of an election of corporate directors, may be based on an alleged breach…