Federal Court Finds No Diversity When California Plaintiff Sues Dissolved California Corporation

Yesterday’s post covered a recent California Court of Appeal decision holding that a corporation mooted its appeal when it filed a certificate of dissolution with the California Secretary of State stating that it was devoid of any assets, debts or liabilities.  Today’s post also concerns the effect of dissolution for purposes of establishing diversity jurisdiction in federal court.

In Carter v. Pacific Union Real Estate Group, Ltd., 2012 U.S. Dist. LEXIS 107358 (July 31, 2012), Chief Magistrate Judge Maria-Elena James ruled that the court lacked diversity jurisdiction when a California plaintiff named a dissolved corporation as a defendant.  The court reasoned as follows:

First, there is no evidence before the Court that Pacific Union does not have assets, the ability to pay the judgment, or insurance, and — at this stage of the proceedings — the Court must accept all of Plaintiffs’ allegations against Pacific Union as true (including that it is a viable corporation).  Moreover, case law supports that actions against dissolved corporations may proceed under certain circumstances. In Penasquitos, Inc. v. Superior Court, the plaintiffs brought a construction defect action against two dissolved corporations.  53 Cal. 3d 1180, 1183 (1991).  The Penasquitos court allowed the action to move forward, concluding that California Corporations Code § 2010 permits parties to sue such dissolved corporations.  Id. at 1190.