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

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.

 

Topics:  Corporate Dissolution, Foreign Corporations, Greb v Diamond International Corp, Post-Dissolution Suits, Statute of Limitations, Survival Statute

Published In: Business Organization Updates, Civil Procedure Updates, Personal Injury 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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