California Supreme Court Holds Survival Statute Does Not Apply to Out-Of-State Corporations

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The California Supreme Court recently held that the state’s statute governing wind-up and survival of dissolved corporations does not apply to out-of-state corporations.  (Greb v. Diamond Int’l Corp., S183365, 2013 WL 628328 (Cal. Feb. 21, 2013).)

 

In Greb, the plaintiffs filed a complaint in California against a dissolved Delaware corporation for personal injuries and loss of consortium resulting from alleged exposure to asbestos.  The defendant demurred to the plaintiffs’ complaint, asserting that, under the three-year survival statute in Delaware, the defendant’s state of incorporation, the defendant lacked the capacity to be sued.  The plaintiffs opposed the motion, arguing that their action was permissible under California’s survival statute, Corporations Code section 2010, which allows for the continuation of an otherwise dissolved corporation for the purpose of prosecuting and defending actions by or against the corporation.

 

Relying on dicta in two prior appellate court decisions – North American Asbestos Corp. v. Superior Court, 128 Cal.App.3d 138 (1982), and Riley v. Fitzgerald, 178 Cal.App.3d 871 (1986) – the court determined that California’s survival statute does not extend to suits against dissolved out-of-state corporations.  Rejecting the plaintiffs’ assertions that the defendant’s regular business activity in California should subject it to the survival statute, the court held that the separate sections and distinctions within the Corporations Code for foreign corporations evidence clear legislative intent to limit the survival statute to domestic corporations.  The court recognized and affirmed the defendant’s policy arguments in concluding that the extension of the survival statute to out-of-state corporations would unfairly burden them with the difficult choice-of-law analysis for each California statutory provision that conflicts with a provision governing the corporation in its state of formation.  The court further insisted that the extended application of California’s survival statute would “require foreign corporations to follow a litany of requirements regarding various corporate activities that their home state already regulates, creating innumerable, treacherous conflicts of law that the corporation[s] would find impossible to navigate.”  The court affirmed the dismissal of the plaintiffs’ claim with prejudice, finding that the effect of corporate dissolution and related survival statutes must depend upon the law of the corporation’s domicile.

 

The Greb case sets an important California precedent in ensuring that dissolved out-of-state corporations are only subject to liability imposed by their own states’ wind-up and survival laws.