Cal-Western Bus. Servs., Inc. v. Corning Capital Grp.

• Decision Date: 15 January 2014
• Docket Number: B241714
• Citation: 221 Cal.App.4th 304,163 Cal.Rptr.3d 911
• Parties: CAL–WESTERN BUSINESS SERVICES, INC., Plaintiff and Appellant, v. CORNING CAPITAL GROUP et al., Defendants and Respondents.
• Court: California Court of Appeals Court of Appeals

221 Cal.App.4th 304

163 Cal.Rptr.3d 911

CAL–WESTERN BUSINESS SERVICES, INC., Plaintiff and Appellant,

v.CORNING CAPITAL GROUP et al., Defendants and Respondents.

B241714

Court of Appeal, Second District, Division 7, California.

Filed November 6, 2013

Review Denied January 15, 2014

See 9 Witkin, Summary of Cal. Law (10th ed. 2005) Corporations, § 223.

APPEAL from a judgment of the Superior Court of Los Angeles County, Rex Heeseman, Judge. Affirmed. (Super. Ct. No. BC331294)

Roger A.S. Manlin, Los Angeles, for Plaintiff and Appellant.

Law Offices of Robert S. Altagen, Robert S. Altagen, Monterey Park, and Jason J. Allison, Duarte, for Defendants and Respondents.

ZELON, J.

Appellant Cal–Western Business Services, Inc. appeals from the trial court's judgment dismissing its action against respondents Corning Capital Group, Kathryn Smitham, Thomas Smitham, and Elaine Smitham.¹ Following the entry of a judgment in its favor in an underlying lawsuit, Part Properties, Inc. assigned its rights and interest in the judgment to Pacific West One Corp. At a time when its corporate powers were suspended for the failure to pay taxes, Pacific West One assigned its rights and interest in the judgment to Cal–Western. Without Pacific West One's corporate powers ever being revived, Cal–Western filed this action to enforce the judgment against Corning Capital. On its own motion, the trial court ordered that Cal–Western's complaint be stricken and the action be dismissed in its entirety because Cal–Western lacked the capacity to sue to enforce the judgment as the assignee of a suspended corporation. We affirm.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

On January 31, 1995, a judgment in the amount of $317,882 was entered in favor of Part Properties and against Corning Capital in an action filed in Los Angeles County Superior Court (the “Judgment”). On July 14, 1995, Part Properties assigned all of its rights, title, and interest in the Judgment to Pacific West One. On July 3, 2000, the Franchise Tax Board suspended Pacific West One's corporate powers, rights, and privileges for the failure to pay taxes pursuant to Revenue and Taxation Code section 23301. On August 25, 2001, while still suspended, Pacific West One assigned all of its rights, title, and interest in the Judgment to Cal–Western.

Four years later, on April 4, 2005, Cal–Western filed the instant action against Corning Capital to enforce the Judgment. As of the date the action was filed, Pacific West One's corporate status had not been reinstated and its suspension remained in effect. On February 11, 2008, following several rounds of pleadings, Cal–Western filed a fifth amended complaint alleging causes of action for fraud, deceit, fraudulent concealment, fraudulent conveyance, abuse of process, conspiracy, constructive trust, cancellation of instrument, and declaratory relief. The gravamen of Cal–Western's complaint was that Corning Capital had not paid any portion of the Judgment, but nevertheless had caused to be filed a false and fraudulent full satisfaction of judgment for the purpose of avoiding collection of the Judgment. Cal–Western also alleged that Corning Capital had sought to conceal real property assets that could be used to satisfy the Judgment by engaging in a series of fraudulent conveyances. As the assignee of the Judgment, Cal–Western sought to recover the principal amount of $317,882 and accrued interest of $327,857.

In January 2011, the trial court held a bifurcated jury trial on whether any of the Smithams had caused, or was part of a conspiracy to cause, the full satisfaction of judgment to be filed with the court or recorded with the county recorder. The jury returned a special verdict finding that Kathryn Smitham was liable for causing the satisfaction of judgment to be both filed and recorded, but that Thomas and Elaine Smitham were not liable. Following the verdict, the trial court set a status conference and ordered further briefing to determine the remaining issues to be tried and whether Thomas and Elaine Smitham should be dismissed from the action in light of the jury's verdict.

On June 26, 2011, Corning Capital submitted a status conference brief in which it raised, for the first time, the issue of whether Cal–Western had a right to sue on the Judgment as the assignee of a suspended corporation. In support of its argument that Cal–Western was precluded from suing, Corning Capital presented evidence that Cal–Western's assignor, Pacific West One, was suspended at the time of its assignment, that its corporate powers had never been revived, and that it remained a suspended corporation. The evidence showed that Pacific West One's assignor, Part Properties, also was a suspended corporation, although it was unclear whether it was suspended at the time of its assignment to Pacific West One.² On August 31, 2011, the trial court set the matter for a further status conference and ordered the parties to submit supplemental briefing on the issue.

On November 14, 2011, following the status conference and briefing, the trial court issued an order finding that Cal–Western lacked the capacity to sue to enforce the Judgment as the assignee of a suspended corporation. The court reasoned that “[t]he fact that [Cal–Western] is a corporation in good standing does not confer upon it the right to enforce the Judgment and maintain an action based on the same. Because Pacific West (and, perhaps, Part Properties too) was a suspended corporation at the time of the Assignment and remains a suspended corporation, [Cal–Western] is, in essence, a suspended corporation as it relates to the Judgment.” The court acknowledged that a defense based on lack of capacity to sue had not been timely raised by Corning Capital, but found that the defense could still be asserted given that one or both of the assignors had been suspended for over a decade and did not appear to intend to pay the delinquent taxes owed. The court concluded that “unless and until [Cal–Western] can bring to this court proof of reviver it remains ‘incapacitated’ and thus ... has no right to further pursue this lawsuit.” ³

On March 2, 2012, the trial court, on its own motion, issued an order striking Cal–Western's fifth amended complaint and dismissing the action in its entirety pursuant to Code of Civil Procedure section 436, subdivision (b). In its written order, the court stated: “As previously discussed in detail by this court, [Cal–Western] obtained the Judgment by means of an assignment from a suspended corporation. Therefore, in relation to the judgment, [Cal–Western] ‘stands in the shoes' of a suspended corporation. [Citation.] A suspended corporation lacks capacity to enforce a judgment and/or maintain a lawsuit. [Citation.]” The court further noted that Cal–Western had “represented to this court that it has no intention of reviving the corporate powers of the assignor suspended corporation,” and “[a]s a result, this court sees no reason why this action should be further entertained.” The court also rejected Cal–Western's argument that public policy favored allowing an assignee in good standing to sue to enforce a judgment, reasoning that it would frustrate the purpose of Revenue and Taxation Code section 23301 if “a suspended corporation could evade its tax obligations but still retain the right to ‘profit from’ or ‘enforce’ its judgment by means of an assignment.” On June 6, 2012, following the trial court's entry of a judgment of dismissal, Cal–Western filed a timely notice of appeal.

DISCUSSION

Among other arguments, Cal–Western contends that the trial court erred in striking its complaint and dismissing the action in its entirety on the basis that Cal–Western lacked the capacity to sue to enforce the Judgment. Cal–Western asserts that, as a matter of statutory construction and public policy, Revenue and Taxation Code section 23301 only applies to suspended corporations, and thus, Pacific West One's lack of capacity to sue as a suspended corporation did not preclude Cal–Western from suing as an assignee in good standing. Cal–Western also argues that, even if an incapacity defense could be applied to assignees of suspended corporations, the defense was waived here by Corning Capital's failure to timely assert it. Based on the facts presented in this case, we conclude that Cal–Western lacked the legal capacity to bring an action to enforce the Judgment as an assignee, and accordingly, its action against Corning Capital was properly dismissed.

I. Standard of Review

Under Code of Civil Procedure section 436, the court “may ... at any time in its discretion, and upon terms it deems proper: ... [¶] (b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.” (Code Civ. Proc., § 436, subd. (b).) The trial court's ruling on a motion to strike a pleading under Code of Civil Procedure section 436 generally is reviewed for abuse of discretion. (Pacific Gas and Electric Co. v. Superior Court (2006) 144 Cal.App.4th 19, 23, 50 Cal.Rptr.3d 199; Leader v. Health Industries of America, Inc. (2001) 89 Cal.App.4th 603, 612, 107 Cal.Rptr.2d 489.) However, the proper interpretation of a statute, and its application to undisputed facts, presents a question of law subject to de novo review. (People ex rel. Lockyer v. Shamrock Foods Co. 2000) 24 Cal.4th 415, 432, 101 Cal.Rptr.2d 200, 11 P.3d 956; California Veterinary Medical Assn. v. City of West Hollywood (2007) 152 Cal.App.4th 536, 546, 61 Cal.Rptr.3d 318.)

II. Relevant Law

Revenue and Taxation Code section 23301 provides that “the corporate powers, rights and privileges of a domestic taxpayer may be suspended” if it fails to pay “any tax, penalty, or interest ... that is due and payable” to the Franchise Tax Board. Except for filing an application for tax-exempt status or amending the articles of incorporation to establish a new corporate name, “a suspended...