Greb v. Diamond Int'l Corp., S183365.

• Decision Date: 21 February 2013
• Docket Number: No. S183365.,S183365.
• Citation: 295 P.3d 353,56 Cal.4th 243,153 Cal.Rptr.3d 198
• Court: California Supreme Court
• Parties: Walter GREB et al., Plaintiffs and Appellants, v. DIAMOND INTERNATIONAL CORPORATION, Defendant and Respondent.

56 Cal.4th 243

295 P.3d 353

153 Cal.Rptr.3d 198

Walter GREB et al., Plaintiffs and Appellants,

v.DIAMOND INTERNATIONAL CORPORATION, Defendant and Respondent.

No. S183365.

Supreme Court of California

Feb. 21, 2013.

See 9 Witkin, Summary of Cal. Law (10th ed. 2005) Corporations, § 212.

Law Office of Ted W. Pelletier, San Anselmo, Ted W. Pelletier; Clapper, Patti, Schweizer & Mason, Sausalito, Jack K. Clapper, Steven J. Patti and Christine A. Renken, for Plaintiffs and Appellants.

Murchison & Cumming, Los Angeles, Edmund G. Farrell III, Scott L. Hengesbach and Maria A. Starn, for Defendant and Respondent.

CANTIL–SAKAUYE, C.J.

We granted review to resolve a conflict in the Courts of Appeal concerning interpretation of Corporations Code section 2010,¹ which governs the winding-up and survival of dissolved corporations. We consider whether the statute applies to foreign corporations—those formed in states other than California—and conclude, consistently with the appellate court below, that it does not.

I. Facts and procedure

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 (defendant) and several other entities. Plaintiffs' complaint alleged injuries from exposure to asbestos. Although defendant has been dissolved for many years, plaintiffs sought recovery from unexhausted liability insurance that covered defendant during the decades when it did business in California. (See § 2011, subd. (a)(1)(A) [permitting recovery against dissolved corporations from “undistributed assets, including ... any insurance assets”].)

Defendant 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, defendant's state of incorporation. Accordingly, defendant argued, pursuant to Delaware's three-year survival statute,² when plaintiffs filed their complaintin December 2008, defendant lacked the capacity to be sued. Plaintiffs opposed the motion, arguing their action was permitted under California's own survival statute, section 2010, which they asserted takes precedence over Delaware law in this setting.

The trial court ruled that California's survival statute did not apply to foreign corporations, and hence that Delaware's corresponding statute applied to defendant. Accordingly, the trial court sustained the demurrer without leave to amend, and dismissed plaintiffs' complaint with prejudice. On review, the Court of Appeal affirmed. It followed the interpretation of section 2010 set out in dicta in two prior appellate court decisions—North American Asbestos Corp. v. Superior Court (1982) 128 Cal.App.3d 138, 179 Cal.Rptr. 889( North American I ), and Riley v. Fitzgerald (1986) 178 Cal.App.3d 871, 223 Cal.Rptr. 889( Riley )—and disagreed with the holding concerning that statute set out in a third appellate court decision, North American Asbestos Corp. v. Superior Court (1986) 180 Cal.App.3d 902, 225 Cal.Rptr. 877( North American II ). As noted, we granted review to resolve the conflict.³

II. Discussion

Section 2010 provides in relevant part: “(a) 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.” ⁴ Like the law in a few other states, the section sets no time limitation for suing a dissolved corporation for injuries arising from its predissolution conduct; the sole temporal limitation to such a suit is found in the applicable statute of limitations relating to each cause of action. As we explained in Penasquitos, Inc. v. Superior Court (1991) 53 Cal.3d 1180, 1190, 283 Cal.Rptr. 135, 812 P.2d 154( Penasquitos ): “Under our statutory scheme, the effect of dissolution is not so much a change in the corporation's status as a change in its permitted scope of activity.... Thus, a corporation's dissolution is best understood not as its death, but merely as its retirement from active business.”

The parties agree that if section 2010 does not apply to a dissolved foreign corporation, defendant's capacity to be sued would be governed solely by Delaware's corresponding survival statute—and that law would bar plaintiffs' claims against defendant. (See, e.g., In re RegO Co. (Del.Ch.1992) 623 A.2d 92, 96 [Del.'s three-year survival law precludes suit against a dissolved corporation even when the plaintiff did not know of the injury during that period].) If, on the other hand, California's section 2010 applies 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 defendant's capacity to be sued. (See Kearney v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 107–108, 45 Cal.Rptr.3d 730, 137 P.3d 914( Kearney ) [describing the traditional three-step choice-of-law inquiry].) ⁵

We proceed to describe the conflict in the appellate decisions concerning whether section 2010 applies to dissolved foreign corporations.

A. The conflicting appellate court decisions

1. North American I

In North American I, the plaintiffs, California residents, sued the defendant, an Illinois corporation, in California for asbestos-related personal injuries suffered in California. Under the corporate survival law of Illinois, a corporation can be sued for two years after it files for dissolution. The suit was filed more than two years after the defendant had dissolved. ( North American I, supra, 128 Cal.App.3d at p. 141, 179 Cal.Rptr. 889.)

The defendant moved to quash service of process, arguing it lacked the capacity to be sued under Illinois law. The trial court denied the motion, and the Court of Appeal denied the defendant's writ petition, holding that service was proper and the appropriate method for the defendant to assert its lack of capacity to be sued was by demurrer or motion for judgment on the pleadings. In dicta, the court stated that should the case go forward (and a court be required to determine whether the defendant had the capacity to be sued) it was “clear that the California survival law does not apply to suits against dissolved foreign corporations.” ( North American I, supra, 128 Cal.App.3d at p. 143, 179 Cal.Rptr. 889.) The court based this conclusion on section 102, subdivision (a) (hereafter section 102(a)). ( North American I, supra, at p. 144, 179 Cal.Rptr. 889.)

Section 102(a) specifies that the provisions of division 1 (the General Corporation Law) apply to (1) all “corporations organized under this division”; (2) specified “domestic corporations”; and (3) “other” corporations only to the extent the provisions of the code “expressly include [ ]” them.⁶

The court in North American I construed section 102(a) as providing that “with certain exceptions not applicable here the provisions of the Corporations Code apply only to domestic corporations and that application to other corporations is permitted only ‘to the extent expressly included in a particular provision of this division.’ ” ( North American I, supra, 128 Cal.App.3d at p. 144, 179 Cal.Rptr. 889, italics added.) The court observed that the survival statute, section 2010, “is in chapter 20 of division 1, which is entitled ‘General Provisions Relating to Dissolution.’ Nowhere is there any mention that the provisions of that chapter or of section 2010 apply to foreign corporations. Foreign corporations are the subject of the entire next chapter, chapter 21.” ( North American I, supra, at p. 144, 179 Cal.Rptr. 889.)

In addition, the court in North American I relied on a then decades-old law review note, Foreign Corporations: Continuance of Existence After Dissolution (1947) 35 Cal. L.Rev. 306. The note addressed the common law's treatment of dissolved corporations,⁷ and California's then relatively new survival statute, enacted in 1929—Civil Code former section 399, the direct predecessor of current Corporations Code section 2010. The note observed that “some courts, relying on the general policy of their corporation statutes, have held that the [survival] law of the forum applies to foreign as well as domestic corporations” and that in view of high court authority “[i]t is settled that such an extension is valid.” (35 Cal. L.Rev. at pp. 308–309, fns. omitted.) After analyzing the existing California statutes—including Civil Code former section 278, which provided a narrow definition of the term “corporation” that expressly excluded foreign entities—the note author concluded that because California's survival statute did not expressly provide that foreign corporations were included within its scope, the statute “could hardly be applied to foreign corporations.” (35 Cal. L.Rev. at p. 309; see id., fn. 23.) The author proposed that “for the protection of the corporation, the public, and creditors” the statute should be amended to apply as well to foreign corporations. (35 Cal. L.Rev. at p. 309.) But, as the court in North American I observed, “[n]o such amendment has taken place.” ( North American I, supra, 128 Cal.App.3d at p. 144, 179 Cal.Rptr. 889.)

The court in North American I reasoned that these statutory provisions and this history led to the conclusion that “the California survival law does not apply to suits against dissolved foreign corporations.” ( North American I, supra, 128 Cal.App.3d at p. 143, 179 Cal.Rptr. 889.)

2. Riley

In Riley, supra, 178 Cal.App.3d 871, 223 Cal.Rptr. 889, the plaintiffs, who were the sole shareholders of a dissolved Texas corporation and assignees of its assets, sued on behalf of themselves and the dissolved corporation, seeking to recover damages sustained by...