Friday, February 22, 2013
State’s Dissolution Law Inapplicable to Foreign Corporations—S.C.
By KENNETH OFGANG, Staff Writer
California’s statutory procedures for winding down and dissolving corporations do not apply to those incorporated elsewhere, even if they do most of their business here, the state Supreme Court held yesterday.
Chief Justice Tani Cantil-Sakauye, writing for a unanimous court, said the Legislature did not intend to apply Corporations Code Sec. 2010, which makes dissolved corporations subject to suit to the same extent as active ones, to foreign corporations. California courts, the chief justice said, must apply the laws of the place of incorporation in those cases.
The law suit affirms rulings of the First District Court of Appeal and the San Francisco Superior Court in favor of Diamond International Corporation, a Delaware entity that formally dissolved in the summer of 2005. Judge Peter Busch sustained Diamond’s demurrer to a complaint for damages based on exposure to asbestos, holding the action barred by Delaware law because it was not brought within three years of Diamond’s dissolution.
(Delaware law provides that claims against a dissolved corporation only survive the dissolution if suit is brought within three years, or if the Chancery Court grants an extension.)
The First District’s Div. One affirmed, and the high court granted review to resolve a conflict within the Court of Appeal.
Walter and Karen Greb sued Diamond in September 2008 after Walter Greb was told he was suffering from asbestos-related illness. Although Diamond had ceased doing business in the 1980s, it had unexhausted liability insurance covering the years of the alleged exposure.
Corporations Code Sec. 2011 permits a creditor of a dissolved corporation to recover from “undistributed assets....including insurance assets.”
Walter Greb died in September 2009. His widow and Diamond’s insurer resolved their dispute after the case was fully briefed, filing a stipulation for dismissal, but the Court of Appeal concluded that the issue was of sufficient importance to require a published opinion.
Cantil-Sakauye, writing for the high court, agreed with the lower courts that the defendant prevails under the general rule that provisions of the Corporations Code apply only to California corporations. Because Sec. 2010 is not among those sections that are specifically made applicable to foreign corporations, the court cannot infer legislative intent that it apply.
The chief justice acknowledged that “pseudo-foreign corporations”—those that transact most of their business in the state and whose voting securities are held primarily by California residents—are subject to many provisions of the General Corporation Law, pursuant to Sec. 2115. But the Court of Appeal has previously held that Sec. 2110 isn’t one of those provisions, Cantil-Sakauye noted.
She concluded that North American Asbestos Corp. v. Superior Court (1986) 180 Cal.App.3d 902 was wrongly decided.
That case, also involving asbestos, was brought against a dissolved Illinois corporation beyond the two-year survival period under that state’s law. The Court of Appeal held that Sec. 2010 applied to foreign corporations, citing a provision of the state Constitution—in effect when Sec. 2010 was enacted but subsequently repealed—that said a foreign corporation cannot “be allowed to transact business within this State on more favorable conditions than are prescribed by law to” domestic corporations.
Since that provision was in effect at the time, the court reasoned, the Legislature must have intended for Sec. 2010 to apply to foreign corporations.
Intent Analysis Unnecessary
Cantil-Sakauye rejected that reasoning, saying the legislative intent analysis was unnecessary because the code is facially clear in not including Sec. 2010 among the list of sections applicable to foreign corporations.
The chief justice went on to reject the argument that as a foreign corporation doing intrastate business in California, and required to register with the state, appoint an agent for service of process, and file corporate documents and pay accompanying fees, Diamond was “organized under” the General Corporation Law. As such, the plaintiffs contended, claims against Diamond should be subject to a traditional choice-of-law analysis.
Cantil-Sakauye agreed with the defendant that the plaintiffs’ position would lead to a complex and “bizarre” regime in which every provision of the General Corporation Law would be potentially applicable to foreign corporations, a result lawmakers could not possibly have intended.
The case was argued in the Supreme Court by Ted W. Pelletier of San Anselmo for the plaintiffs and Edmund G. Farrell III of Murchison & Cumming in Los Angeles for the defendant.
The case is Grebs v. Diamond International Corporation, 13 S.O.S. 922.
Copyright 2013, Metropolitan News Company