Asbestos Alert: Supreme Court Clarifies When Dissolved Corporations May Be Sued Greb v Diamond International Corp ___Cal.4th____(2/21/13)

by Low, Ball & Lynch

Dissolved corporations are frequently sued after their dissolution has taken place in an effort to reach insurance policy coverage for the claim being made.  California has a statute, Corporation Code §2010, which does not limit the time for bringing lawsuits against dissolved corporations.  Other states have statutes which do place a time limit on such suits.  For corporations that were formed in a state with a time limit on such suits but which are sued in California, the question arises: which state’s law is applicable? In the case of Greb v Diamond International Corp., decided February 21, 2013, the California Supreme Court held that California law will not apply in such situations and that the law of the corporation’s domicile will be applicable.

In Greb, the plaintiffs sued in California for personal injury and loss of consortium as a result of exposure to asbestos-containing products.  The defendant, a dissolved Delaware corporation, demurred to the complaint and alleged it had obtained a corporate dissolution in accordance with the laws of Delaware on July 1, 2005.  The defendant also asserted it lacked the capacity to be sued because Delaware law provides that a dissolved corporation shall continue to exist for purposes of winding up its affairs, including prosecuting and defending lawsuits, for a period of only three years from the date of dissolution.  Because plaintiffs’ complaint was filed more than three years after the dissolution, defendant claimed the lawsuit was barred.  Plaintiff argued the lawsuit was permitted under California Corporations Code § 2010, which they asserted took precedence over Delaware law.
The trial court sustained the defendant’s demurrer, without leave to amend, and dismissed the suit.  The Court of Appeal reviewed the matter and affirmed the trial court’s decision.  The Supreme Court, noting that there were diverging opinions among the Courts of Appeal, affirmed the opinion of the Court of Appeal.
Because conflicting laws of California and Delaware were involved, the Court invoked “choice of law” principles which require a three-step analysis: First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different.  Second, if there is a difference, the court examines each jurisdiction’s interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists.  Third, if the court finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law to determine which state’s interest would be more impaired if its policy were subordinated to the policy of the other state, and then ultimately applies the law of the state whose interest would be the more impaired if its law were not applied.
The Court first considered the plaintiffs’ argument that the California statutory scheme included corporations that transact business in California as corporations “organized” in California and, therefore, are subject to §2010’s unlimited time limit for suit.  The Court disagreed with plaintiffs’ assertion that foreign corporations that have qualified to undertake “repeated and successive transactions of its business in this state” are thereby rendered “organized under” California’s Corporation Law, and hence subject to its myriad provisions, including §2010.  Accordingly, the Court rejected plaintiffs’ interpretation of the California corporate statutes.
The Court next considered the plaintiffs’ argument that §2010 applied to foreign corporations under the compulsion of article XII, former section 15, of the California Constitution, which, although repealed by the electorate in 1972, provided that corporations “organized outside the limits of this State” — e.g., foreign corporations — “shall [not] be allowed to transact business” in this state “on more favorable conditions than” corporations “organized under the laws of this State.”  The Court noted that underlying plaintiffs’ argument in this respect are two premises:  (1) pursuant to article XII, former section 15, the “original meaning” of the survival statute in 1929 (and thereafter) was that it covered both domestic and foreign corporations (otherwise foreign corporations would “be allowed to transact business” in this state “on more favorable conditions than” domestic corporations); and (2) accordingly, the repeal of article XII, former section 15 in 1972 did not alter that asserted original reach of the survival statute; instead, the constitutional provision lives on, at least insofar as the survival statute is concerned.  After exhaustive analysis of the statutory and case history, the Court concluded that, based on that history, it disagreed with the implicit assumption of plaintiffs and a contrary Court of Appeal opinion that in 1929, when the survival statute was enacted, the general understanding was that article XII, former section 15, meant that all statutory burdens imposed on domestic corporations also would apply to foreign corporations — even if the particular statute did not specify that it would apply to foreign as well as domestic corporations, and instead concluded that the survival statute should properly be interpreted to apply to domestic corporations only.
Finally, the Court considered plaintiffs’ argument that as a matter of policy §2010 should apply because of defendant’s history of transacting business in California from the 1930s through the 1980s, when it surrendered its certificate of qualification.  They asserted that defendant, having been dormant for nearly two decades, strategically filed for dissolution in Delaware in 2005 in order to cut off its continuing liability (and recovery of damages through applicable undistributed insurance assets) to asbestos victims.  Plaintiffs argued that this course of conduct “directly contravenes California policy.  When foreign corporations seek and accept the benefits of transacting business here, California law should not allow them to use their home state’s corporate-friendly laws to deprive California citizens of their remedies.”  However, the Court rejected this argument, finding that the 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.  The Court found that the history and language of the statutes simply do not support the proposition that §2010, at its inception or today, governed or governs foreign in addition to domestic corporations.

In this clear, unequivocal, and unanimous opinion, the Court has laid to rest the claim that dissolved foreign corporations may be sued after the time provided by the laws under which they were incorporated.  It remains to be seen whether the plaintiffs’ bar will seek to change the statute in the Legislature to make it applicable to foreign corporations and, if that should happen, whether the change would be upheld by the Supreme Court.

For a copy of the complete decision, see:

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