California Supreme Court Resolves Court of Appeal Split, Holding that Section 2010 of the California Corporations Code -- California's "Survival Statute" -- Does Not Apply to Foreign Corporations

by Sheppard Mullin Richter & Hampton LLP
Contact

In Greb v. Diamond Int’l Corp., 2013 WL 628328 (Cal. Feb. 21, 2013), the California Supreme Court unequivocally and unanimously laid to rest the assertion that dissolved foreign corporations may be sued in California after the time of the statute of limitations provided by the laws under which the foreign corporations were incorporated. In so holding, the California Supreme Court affirmed the California Court of Appeal for the First District’s dismissal of a personal injury claim against a dissolved Delaware corporation, holding that the claim was filed more than three years after dissolution of the corporation in violation of Delaware General Corporation Law Section 278 [blog article here]. In deciding that the California survival statute did not apply to foreign corporations, the Supreme Court resolved a split among California appellate courts on the interpretation of California Corporations Code Section 2010 (“Section 2010”), which governs the winding-up and survival of dissolved corporations.

In December 2008, plaintiffs Walter Greb (now deceased) and his wife Karen Greb filed a complaint for personal injuries and loss of consortium against defendant Diamond International Corporation (“Diamond”) and several other entities. Plaintiffs’ complaint alleged injuries from exposure to asbestos. Although Diamond had been dissolved for many years, plaintiffs sought recovery from unexhausted liability insurance that covered defendant during the decades when it did business in California. Diamond demurred to plaintiffs’ complaint, alleging that more than three years earlier, in July 2005, it had obtained a corporate dissolution pursuant to the laws of Delaware, Diamond’s state of incorporation. Accordingly, Diamond argued, pursuant to Delaware’s three-year survival statute, when plaintiffs filed their complaint in December 2008 Diamond lacked the capacity to be sued. Plaintiffs opposed the motion, arguing that they were entitled to file a lawsuit in California under Section 2010, which permits lawsuits to be filed against a dissolved corporation irrespective of the date of dissolution, which they asserted took precedence over Delaware law in this setting.

The California Superior Court for the County of San Francisco held Section 2010 did not apply to foreign corporations, and hence that Delaware’s corresponding statute applied to Diamond. Accordingly, the trial court sustained the demurrer without leave to amend, and dismissed plaintiffs’ complaint with prejudice. On appeal, the Court of Appeal affirmed. It followed the interpretation of Section 2010 set out in dicta in two prior Court of Appeal decisions — North American Asbestos Corp. v. Superior Court, 128 Cal. App. 3d 138 (1982) (“North American I”), and Riley v. Fitzgerald, 178 Cal. App. 3d 871 (1986) — and disagreed with the holding concerning the statute set out in a third Court of Appeal decision, North American Asbestos Corp. v. Superior Court, 180 Cal. App. 3d 902 (1986) (“North American II”). The Supreme Court granted review to resolve the conflict.

Section 2010 provides:

A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets, but not for the purpose of continuing business except so far as necessary for the winding up thereof.

The parties in Greb agreed that if Section 2010 did not apply to a dissolved foreign corporation, Diamond’s capacity to be sued would be governed solely by Delaware’s corresponding survival statute (8 Del. Code § 278), which would bar plaintiffs’ claims against Diamond. If, on the other hand, Section 2010 applied to a dissolved foreign corporation, a court would then be required to perform a choice-of-law analysis in order to determine which state’s law should apply and govern Diamond’s capacity to be sued.

The Supreme Court analyzed the conflict in the appellate decisions to determine whether Section 2010 applied to dissolved foreign corporations. The Supreme Court noted that the courts in both North American I and Riley reasoned that statutory provisions and history lead to the conclusion that Section 2010 does not apply to suits against dissolved foreign corporations. The court in North American II, however, reached a different conclusion. The majority in North American II held that “some of the history behind [Section 2010] and related provisions of corporation law” led to the conclusion “that section 2010 should not be so read under the circumstances of the case at bench, but should be read to protect the interests of California.” The majority in North American II also believed that the Legislature intended all of the various sections within the applicable code section to apply generally to both domestic and foreign business corporations.

The Supreme Court agreed with North American I and Riley, and disagreed with North American II. As the Supreme Court observed, the majority in North American II did not address Riley, which had been decided less than two months earlier. The Supreme Court also noted that the leading treatises and the majority of out-of-state decisions during the era when the code sections were enacted had held that a state’s survival statute typically does not apply to foreign corporations. “[I]n light of the national scope of the comprehensive review that preceded the legislation,” the Supreme Court reasoned, “if our Legislature had contemplated such a dramatic change from the majority approach, we would expect it to have been clear in doing so.” Thus, the Supreme Court concluded that Section 2010 did not apply to foreign corporations, and disapproved of North American II to the extent it held otherwise. Having reached that decision, the Supreme Court did not perform a choice-of-law comparative-impairment analysis in order to determine which state’s law should apply.

In deciding that the survival statute did not apply to foreign corporations, the court resolved a split among California appellate courts on the matter. The Supreme Court noted, “[t]he policy question concerning whether the provisions of California’s survival statute should apply to foreign as well as domestic corporations is properly a matter to be determined by the Legislature, not this court.” It remains to be seen whether the Legislature will enact legislation that might undo Greb.

For further information, please contact John Stigi at (310) 228-3717 or Taraneh Fard at (213) 617-5492.

 

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.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

Written by:

Sheppard Mullin Richter & Hampton LLP
Contact
more
less

Sheppard Mullin Richter & Hampton LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!