Mediterranean Exports, Inc. v. Superior Court

• Decision Date: 28 May 1981
• Citation: 174 Cal.Rptr. 169,119 Cal.App.3d 605
• Court: California Court of Appeals Court of Appeals
• Parties: MEDITERRANEAN EXPORTS, INC., Petitioner, v. The SUPERIOR COURT OF SAN MATEO COUNTY, Respondent; HARVARD INVESTMENT COMPANY, Real Party in Interest. Civ. 50860.

Page 169

174 Cal.Rptr. 169

119 Cal.App.3d 605

MEDITERRANEAN EXPORTS, INC., Petitioner, v. The SUPERIOR COURT OF SAN MATEO COUNTY, Respondent HARVARD INVESTMENT COMPANY, Real Party in Interest.

Civ. 50860.

Court of Appeal, First District, Division 4, California.

May 28, 1981.

Frederick E. Kearns, Torrance, for petitioner.

Pillsbury, Madison & Sutro, Harlan M. Richter, Michael H. Salinsky, Sarah G. Flanagan, San Francisco, for real party in interest.

RATTIGAN, Associate Justice.

Petitioner Mediterranean Exports, Inc., a Florida corporation ("Mediterranean"), is the defendant in an action pending in respondent court. Real party in interest Harvard Investment Company, a California corporation ("Harvard Investment"), is the plaintiff. Mediterranean filed an answer and a cross-complaint in the action. Harvard Investment moved for an order striking both pleadings on the grounds that Mediterranean lacked capacity to defend the action, and to sue on its cross-complaint, because (1) it was a foreign corporation transacting intrastate business in California and had not qualified to do so, and (2) it had failed to pay corporate franchise taxes owed to the State of California. Respondent court granted the motion. Mediterranean now seeks a writ of mandate commanding the court to set aside its order granting the motion and to "reinstate" the answer and cross-complaint. As will appear, other matters are pending on an appeal taken by Mediterranean from the same order.

PROCEDURAL SEQUENCE

The Action And The Motion

Harvard Investment commenced the action by filing a "Complaint For Breach Of Lease" in respondent court. In a single cause of action stated in the complaint, Harvard Investment alleges that it is a California corporation; that Mediterranean is a Florida corporation transacting business in California; and that Harvard Investment is entitled to recover damages for Mediterranean's alleged breach of a written lease executed by the parties in 1978. A copy of the lease is attached to the complaint as an exhibit. It shows that Harvard Investment thereby leased to Mediterranean an office suite in a building located at 875 Mahler Road, in Burlingame, for a term of three years. Harvard Investment also alleged in its complaint that it was entitled to recover attorneys' fees in the action pursuant to paragraph 21 of the lease. ¹

Mediterranean filed an answer to the complaint and a cross-complaint in which it stated one or more causes of action for damages against Harvard Investment and two other named cross-defendants. Harvard Investment noticed a motion for an order striking both pleadings on the grounds mentioned above. ²

Extensive declarations and other documents were initially filed on the motion by both parties. At a hearing on it, respondent court ordered the parties to file additional documents and that the motion would thereupon stand submitted. After additional documents had been filed, the court made an order (in the form of a memorandum "Decision") reading as follows:

"The Court finds that Defendant and Cross-Complainant, Mediterranean ... was doing business intrastate in California and failed to comply with the appropriate provisions of the Corporation (sic) and Revenue and Taxation Codes.

"Plaintiff's (Harvard Investment's) motion is granted and the Court orders the Answer and Cross-Complaint of Mediterranean ... stricken."

Mediterranean's Appeal And The Present Proceeding

Mediterranean filed a timely notice of appeal from the order striking its pleadings. The ensuing appeal is No. 1 Civil 50520 in this court. Harvard Investment moved to dismiss the appeal on the grounds that the order is nonappealable and that an appealable judgment has not been entered in the action. Mediterranean subsequently filed an "Application For Leave To Produce Additional Evidence" and an "Application For Findings of Fact" on the appeal, and commenced the present proceeding by petitioning this court for a writ of mandate. We issued an alternative writ of mandate, to which Harvard Investment has filed a return as real party in interest. The matters pending on Mediterranean's related appeal (1 Civil 50520) have been held in abeyance pending the disposition of its petition in this proceeding.

THE EVIDENCE RECEIVED ON THE MOTION TO STRIKE

The documents initially filed by Harvard Investment in support of its motion included a "Certificate Of Nonfiling Corporation" in which the Secretary of State certified that there was no record in her office that Mediterranean had filed documents required "in order to qualify a foreign corporation to transact intrastate business in this State" pursuant to "the Corporations Code ..."; ³ and a letter written by the Franchise Tax Board to Harvard Investment's attorneys, stating that the Board had "no current information" on Mediterranean and was "unable to identify any corporation" using that name "as being currently registered in or paying franchise or income taxes to the State of California as a corporate entity."

The supporting documents initially filed by Harvard Investment also included declarations or affidavits showing that a telephone was listed in Mediterranean's name at 875 Mahler Road in Burlingame; that Mediterranean was "registered" with the Employment Development Department "as an employer in California"; and that it "has reported California employees on its payroll."

Opposition documents filed by Mediterranean before the hearing included an affidavit by Stephen Musolino, the president of Mediterranean; a declaration by Milton C. Standifer; and an affidavit by Frederick E. Kearns, Mediterranean's attorney. Musolino stated in his affidavit as follows:

"That Mediterranean ... has never transacted business in the State of California. That independent contractors have solicited orders for ceramic tile on behalf of Mediterranean ... from September, 1978, through the present and all such orders require acceptance by me at the home office in Miami, Florida, before becoming binding contracts. That said ceramic tile is shipped directly from the manufacturer in Italy to the purchaser in the State of California. That all payments by the purchaser are made either directly to the manufacturer in Italy or to Mediterranean ... in Miami, Florida. That the office suite leased from Harvard Investment Company was leased by me for the convenience of the independent contractors in lieu of reimbursing them for their expenses therefor."

Standifer stated in his declaration that he was an "independent contractor residing in the State of California, and soliciting orders for ceramic tile in California ... on behalf of Mediterranean ... of Miami, Florida"; that orders taken by him are transmitted to Miami for approval by Mediterranean; that he has "no authority to enter into binding contracts on behalf of Mediterranean ...," that he makes "no collections" for Mediterranean, and that he works on a commission basis only; and that "the office space at 875 Mahler Road, Burlingame, ... was provided and a clerical position was filled by Mediterranean... in lieu of reimbursing" him for his "expenses."

Attorney Kearns alleged in his affidavit that the office of the Secretary of State had "advised" him by telephone that Mediterranean "was not required to file pursuant to Section 2105 of the Corporations Code since ... (its) ... business activities were, in their (sic) opinion, solely interstate in nature"; and that the Franchise Tax Board had "advised" him by telephone that Mediterranean "was not required to pay franchise tax to the State of California" for the same reason.

At the hearing on the motion, respondent court stated that attorney Kearns' "hearsay declaration doesn't help me very much, and I was hoping maybe you could get a certificate or letter or something from the Secretary of State saying you don't have to qualify." Mr. Kearns replied that the office of the Secretary of State does not issue "that thing"; that "they do issue ... a notice, what's called a certificate of forfeiture," if a corporation's rights have been forfeited; and that "they haven't issued such a thing" and "(i)n fact, they have no record of it." After further discussion, the court stated that it would "need additional declarations" and ordered them filed as described above.

The additional documents subsequently filed by Mediterranean included further declarations by Musolino and Standifer describing the nature and details of the business it transacted in California. The documents also included another declaration by attorney Kearns in which he authenticated and presented copies of letters exchanged between him and personnel of the Franchise Tax Board after the first hearing on the motion. ⁴

In further support of the motion, Harvard Investment filed a declaration showing in effect that Mediterranean had maintained a checking account at a Burlingame bank, in its (Mediterranean's) name but from an address in Miami, Florida; and a declaration authenticating and quoting deposition testimony in which an employee of Mediterranean had described the leased premises in Burlingame and the activities conducted there.

REVIEW

Respondent Court Erred In Striking The Answer And The Cross-Complaint

As previously indicated, Corporations Code section 2105 provides that a foreign corporation shall not "transact intrastate business" in California "without having first obtained from the Secretary of State a certificate of qualification." (See fn. 3, ante.) Section 2105 appears in chapter 21 ("Foreign Corporations," commencing with § 2100) of division 1 ("General Corporation Law") of title 1 ("Corporations") of the Corporations Code. Section 191 of that code defines the term "transact intrastate business" for purposes of CHAPTER 21. CORPORATIONS CODE SECTION 2203⁵, subdivision (c), provides that "(a) foreign corporation subject to the provisions of Chapter 21 ... which transacts intrastate business without complying with Section 2105 shall...