California Supreme Court Decision Closes the Door to California Lawsuits Against Dissolved Foreign Corporations

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In a decision of considerable importance to insurers, the California Supreme Court in Greb v. Diamond International Corporation, Case No. S18365 (February 21, 2013), unanimously held that California’s corporate survival statute, Corporations Code § 2010, has no application to a corporation formed under the laws of another state.

 

A corporate survival statute defines the capacity of a corporation to sue or be sued after it has dissolved and ceased transacting business. Under the laws of many other states, a corporation’s capacity to sue or be sued expires after a prescribed period of time. See, e.g., Delaware - 8 Del. C. § 278 (three years); Illinois - 805 ILCS § 5/12.80 (five years); Michigan - Mich. Comp. Laws §§ 450.1841a, 450.1842a (one year). A lawsuit filed outside of the survival period may be subject to dismissal. See, e.g., Eiche v. Blankenau, 570 N.W. 2d 190 (Neb. 1997); Kradel v. Piper Indus., Inc., 60 S.W. 3d 744 (Tenn. 2001). In contrast with other states, California’s survival statute allows a dissolved corporation to be sued indefinitely. Cal. Corp. Code §2010, subd. (a) (“A corporation which is dissolved nevertheless continues to exist for the purpose of . . . defending actions by or against it and enabling it to. . . discharge obligations ...”)

 

Earlier California decisions had held that foreign corporations, which once transacted business in California, are subject to California’s survival statute to the same extent as domestic corporations. North American Asbestos Corp. v. Superior Court, 180 Cal. App. 3d 902 (1986); see also Penasquitos, Inc. v. Superior Court, 53 Cal. 3d 1180, 1188 (1991). Thus, for instance, a dissolved Delaware corporation, whose capacity to be sued in its home state may have expired three years post-dissolution, was subject to suit in California even 20 or 30 years later.

 

Though such suits are nominally against the dissolved corporation, it is generally true that the only remaining corporate asset to which a plaintiff can look to satisfy a claimed liability is an insurance policy issued years before. Thus, it is the insurance company that commonly bears the entire obligation of defending the lawsuit and paying any adverse judgment.

 

This issue has commonly arisen in the context of asbestos litigation, where many potential corporate defendants have elected to wind up and dissolve in the face of insurmountable liability. Greb’s unanimous holding means that lawsuits in California against dissolved foreign corporations may be subject to dismissal, if filed after the corporation’s capacity to be sued has expired under the survival statute of the state where the corporation was formed.

Topics:  Corporate Dissolution, Foreign Corporations

Published In: Business Organization Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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