Weekly Law Resume - March 8, 2013: Appeals: Revival of Corporate Powers Retroactively Validates Notice of Appeal

by Low, Ball & Lynch
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Danielle Bourhis et al. v. John Lord et al.
Supreme Court of California (March 4, 2013)

Under the Revenue and Tax Code, a suspended corporation forfeits its corporate powers, rights and privileges by failing to pay taxes. A corporation generally may not prosecute, defend or appeal while its rights are suspended for failure to pay taxes. This case considered whether a suspended corporation that failed to pay taxes could nevertheless file a notice of appeal, and then revive its corporate status to retroactively validate the notice of appeal.

Plaintiffs Danielle Bourhis, Brown Eyed Girl, Inc. (“Brown Eyed Girl”), a California corporation, and others filed a lawsuit for property damage against John Lord and others. Before trial, the defendants learned that Brown Eyed Girl’s corporate powers were suspended for nonpayment of taxes. The defendants moved the trial court to preclude the plaintiffs from offering any evidence at trial because of the corporation’s suspended status. The trial court denied the motion contingent on the corporation’s revival of its corporate powers.

At trial, the court granted a motion for a nonsuit in favor of some defendants. A jury returned a verdict in favor of the remaining defendant. Accordingly, the trial court entered judgment in favor of all defendants on April 5, 2011, and served a notice of entry of judgment. Plaintiffs filed a timely notice of appeal from that judgment. After a subsequent order awarding costs and attorney fees, plaintiffs filed another timely notice of appeal from that order.

On December 1, 2011, defendants filed separate motions in the Court of Appeal to strike Brown Eyed Girl’s notices of appeal and to dismiss those appeals because Brown Eyed Girl’s corporate powers remained suspended. In opposition, Brown Eyed Girl presented documentation showing that its corporate powers were revived on December 8, 2011. Brown Eyed Girl argued that its revival validated its previous notices of appeal, thus making the appeal effective. The Court of Appeal denied the motions. Defendants filed separate petitions for review of the orders denying the motions to dismiss the appeals.

The Supreme Court granted the petitions and consolidated the matters. It affirmed, and held that the Court of Appeal properly denied the motions to strike the notices of appeal and to dismiss those appeals. The Supreme Court cited the principles of stare decisis and its adherence to the decisions in Rooney v. Vermont Investment Corp. (1973) 10 Cal.3d 351 (“Rooney”) and Peacock Hill Assn. v. Peacock Lagoon Constr. Co. (1972) 8 Cal.3d 369 (“Peacock Hill”). The Court’s analysis found direct applicability to the Rooney and Peacock Hill decisions cited in the Court of Appeal’s order. Rooney and Peacock Hill held that revival of corporate powers retroactively validates an earlier notice of appeal. If a corporation fails to pay its taxes, the state may suspend its corporate powers. In addition, the state may later revive those powers when the corporation pays its taxes.

Brown Eyed Girl filed notices of appeal while its corporate powers were suspended. The Court found that these notices were therefore invalid at the time of filing. Notwithstanding, the scope of Peacock Hill and Rooney applied to these circumstances and appeared to the Court as intending a rule favoring revival with no qualifications or prejudice to the “action, defense or right” of the revived corporation.

The Court cited a line of cases following Peacock Hill and Rooney, often holding that revival of corporate powers validated prior actions. The Court further noted that, over forty years, the standing rule of unqualified revival had not proven unworkable or unduly hampered the state’s ability to collect taxes. The Court therefore found no reason to overturn the rule of Peacock Hill and Rooney.

COMMENT

The Supreme Court’s decision affirmed the longstanding rule that suspended corporations filing a notice of appeal can later validate the notice by reviving its corporate powers. Although dissenting opinions were issued in both this and the Peacock Hill cases, the Court found no reason to overturn the rule.

For a copy of the complete decision see:

http://www.courts.ca.gov/opinions/documents/S199887.PDF

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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