Workman v. Verde Wellness Center – 10/18/2016

November 2, 2016

Arizona Court of Appeals Division Two holds that an action brought by a member of a non-profit corporation’s board to dissolve the corporation may not be mooted by the board voting to remove the member from the board.

A board member of a non-profit medical marijuana corporation brought suit against the corporation seeking a receiver and judicial dissolution.  Shortly after she filed suit, the board met and voted to remove her from the board.  The board then filed a motion to dismiss, alleging that, since the plaintiff was no longer a board member she did not have standing.  The trial court granted the motion to dismiss.  This appeal followed.

As an initial matter, the Court of Appeals ruled that it had jurisdiction because the trial court had converted the motion to dismiss to a motion for summary judgment by considering material outside the pleadings, and that its order dismissing the case was actually an order granting summary judgment.  Reaching the merits, the Court held that a board of directors could not moot a case seeking judicial dissolution by removing the plaintiff from the board because of the general rule that a party cannot moot a case and deprive the court of jurisdiction by his own voluntary action.  The Court likened the current case to a shareholder derivative suit, which can also not be mooted by corporate action to which the shareholder plaintiff does not acquiesce.  The order granting summary judgment was reversed and the case was remanded to the trial court for further proceedings.

Judge Vásquez delivered the unanimous opinion; Judges Eckerstrom and Espinosa concurred.