Code Section

1260.  

(a)  Except as provided in subdivision (b), any member of the board of directors of a nonprofit corporation that is subject to Section 5914 of the Corporations Code, who negotiates the terms and conditions of a sale or transfer of assets, as described in Section 5914 of the Corporations Code, is prohibited from receiving, directly or indirectly, any salary, compensation, payment, or other form of remuneration from the for-profit corporation or entity or mutual benefit corporation following the close of the sale or other transfer of assets. This prohibition shall not apply to any reimbursement or payment made to a member of the board of directors, who is a physician or other health care provider, for direct patient care services provided to patients covered by a health insurer, health care service plan, employer, or other entity that provides health care coverage, and that is owned, operated, or affiliated with the purchasing for-profit corporation or entity, provided that the amounts payable for the services rendered are no greater than the amounts payable to other physicians or health care providers providing the same or similar services.

For the purpose of this section, “direct patient care services” mean health care services provided directly to a patient, and do not include services provided through an intermediary. Further, in order to qualify for the exemption in this subdivision, the direct patient care services must be health care services that are regularly provided by other physicians or other health care providers in the community who are also receiving reimbursements or payments from the same health insurer, health care service plan, employer, or other entity that is owned or operated by, or affiliated with, the purchasing for-profit corporation or entity.

(b)  After a period of two years following the close of the sale or other transfer of assets, a person who was a member of the board of directors of the nonprofit corporation who is prohibited from receiving any remuneration from the for-profit corporation or entity or mutual benefit corporation under subdivision (a) may enter into usual and customary business transactions with the for-profit corporation or entity or mutual benefit corporation so long as the following facts are established:

(1)  Prior to authorizing or approving the transaction, the representative of the for-profit corporation or entity or mutual benefit corporation considered and in good faith determined after reasonable investigation under the circumstances that the corporation could not have obtained a more advantageous arrangement with reasonable effort under the circumstances.

(2)  The for-profit corporation or entity or mutual benefit corporation, in fact could not have obtained a more advantageous arrangement with reasonable effort under the circumstances.

(c)  Any person who is a member of management of the nonprofit corporation and who presents information or opinions to the board regarding the sale or other transfer of assets as described in subdivision (a) that are relied upon, or considered by, any of the board members in making decisions regarding the sale or transfer, may make a written affirmative declaration that he or she will not work for, or receive any form of remuneration from, the for-profit corporation or entity or the mutual benefit corporation in the future.

(d)  In making any decision regarding the sale or other transfer of the nonprofit corporation’s assets, as described in Section 5914 of the Corporations Code, the board of the nonprofit corporation is prohibited from substantially relying on any information presented by any person to whom subdivision (c) applies who has not made a written affirmative declaration pursuant to subdivision (c). This subdivision shall not apply to any person whose only role in the sale or transfer is to provide to the nonprofit corporation exclusively factual information about the nonprofit corporation, community, financial status, or other similar data.

(e)  In performing those duties of a director set forth in subdivision (d), the board of directors may contract with independent counsel, accountants, financial analysts, or other professionals whom the board believes to be reliable and competent in the matters presented, to review and evaluate information and advice presented by an employee who has not signed an affirmative declaration pursuant to subdivision (c). Any director who substantially relies on information and advice presented by such an independent professional shall be deemed to have not violated subdivision (d).