Patrick v. Alacer Corp.

Facts

Plaintiff Ymelda Patrick and her late husband founded Alacer Corporation in the mid-1970s to manufacture vitamin supplements. They created the formulas, served as corporate officers, and financially supported the company during their marriage. The company became successful, particularly due to its Emergen-C vitamin C supplement, reaching a market value of $70 million or more. In 2000, plaintiff’s husband transferred all Alacer shares to the James W. Patrick Revocable Trust, which became Alacer’s sole shareholder of record. The Trust directed the trustees to distribute up to 46 percent of the Trust’s Alacer stock to plaintiff upon her husband’s death to satisfy any community property interest she might have.

In February 2003, while plaintiff’s husband was gravely ill, three of the five trustees (Ronald Patrick, James Turner, and Thaddeus Smith—the “Director defendants”) sought to place themselves on Alacer’s board. They allegedly represented to plaintiff that they would serve only as interim directors and accept minimal compensation. Relying on these representations, plaintiff voted for them. Shortly after plaintiff’s husband died, the Director defendants removed plaintiff as an officer, terminated her salary and benefits, and allegedly began misappropriating corporate assets.

Plaintiff filed suit asserting both direct and derivative claims. Alacer demurred to the complaint, arguing that plaintiff lacked standing to bring derivative claims and that her causes of action were insufficiently pleaded. The trial court sustained the demurrer without leave to amend.