North American Asbestos Corp. v. Superior Court

• Decision Date: 09 May 1986
• Citation: 225 Cal.Rptr. 877,180 Cal.App.3d 902
• Court: California Court of Appeals Court of Appeals
• Parties: NORTH AMERICAN ASBESTOS CORPORATION, a dissolved Illinois corporation, Petitioner, v. The SUPERIOR COURT of the City and County of San Francisco, Respondent; William S. YOUNG, Fibreboard Corporation, Real Parties in Interest. A030737.

Page 877

225 Cal.Rptr. 877

180 Cal.App.3d 902

NORTH AMERICAN ASBESTOS CORPORATION, a dissolved Illinois corporation, Petitioner, v. The SUPERIOR COURT of the City and County of San Francisco, Respondent William S. YOUNG, Fibreboard Corporation, Real Parties in Interest.

A030737.

Court of Appeal, First District, Division 3, California.

May 9, 1986.

David A. Gifford, Ericksen, Arbuthnot, Walsh, Paynter & Brown, Inc., Oakland, for petitioner.

No appearance for respondent.

Karen Kahn, Steven Kazan, A Law Corp., Oakland, Bryce C. Anderson, Concord, Weltin & Van Dam, San Francisco, for real party in interest William S. Young.

Robert S. Daggett, L. Christopher Vejnoska, Brobeck, Phleger & Harrison, San Francisco, Mark G. Bonito, Dorothy McArthur Landro, Ropers, Majeski, Kohn, Bentley & Wagner, Redwood City, for real party in interest Fibreboard Corp.

MERRILL, Associate Justice.

Petitioner, North American Asbestos Corporation, a dissolved Illinois corporation defending an action alleging injury from asbestos, challenges a ruling denying its motion for summary judgment. Petitioner had sought a determination that suit was barred because it was filed more than two years after dissolution of the corporation. Applying choice of law principles, we conclude that under California Corporations Code section 2010 the suit may be maintained.

California Corporations Code section 2010 provides that "[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...." It also provides that "[n]o action or proceeding to which a corporation is a party abates by the dissolution of the corporation or by reason of proceedings for winding up and dissolution thereof." Under that section there is no time limitation for suing a dissolved corporation for injuries arising out of its predissolution activities (North American Asbestos Corp. v. Superior Court (1982) 128 Cal.App.3d 138, 143, 179 Cal.Rptr. 889), other than the time prescribed by the applicable statute of limitations.

Petitioner North American Asbestos Corporation (North American), the same defendant involved in North American Asbestos Corp. v. Superior Court, supra, filed its articles of dissolution, and on May 19, 1978, received a certificate of dissolution from the Secretary of State of Illinois. The underlying lawsuit was filed December 18, 1980, and on November 13, 1983, North American was served as a Doe defendant. North American moved for summary judgment on the ground that the suit was barred by Illinois' two-year survival statute, which provided, at the time of suit, that the dissolution of a corporation shall not impair any remedy for a liability incurred prior to dissolution "if action or other proceeding thereon is commenced within two years after the date of such dissolution." (Ill.Rev.Stats.1977, ch. 32, § 157.94.) The court applied California law and denied the motion. This petition followed.

Real parties in interest, William S. Young, (the plaintiff below) and Fibreboard Corporation, (one of petitioner's codefendants) contend that under choice of law principles, the trial court was correct in applying California law instead of Illinois law. We agree. Analysis of a choice of law question proceeds in three steps: (1) determination of whether the potentially concerned states have different laws, (2) consideration of whether each of the states has an interest in having its law applied to the case, and (3) if the laws are different and each has an interest in having its law applied (a "true" conflict), selection of which state's law to apply by determining which state's interests would be more impaired if its policy were subordinated to the policy of the other state. (See Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 320, 128 Cal.Rptr. 215, 546 P.2d 719; Hurtado v. Superior Court (1974) 11 Cal.3d 574, 580-581, 114 Cal.Rptr. 106, 522 P.2d 666.)

(1) Do California and Illinois have different laws?

It is apparent that the laws of California and Illinois differ in their treatment of suits against dissolved corporations. California Corporations Code section 2010 provides that a corporation which is dissolved continues to exist for purposes of defending actions against it for injuries arising out of its predissolution activities (North American Asbestos Corp. v. Superior Court, supra, 128 Cal.App.3d 138, 143, 179 Cal.Rptr. 889). Illinois law provides for such litigation only if the action or proceeding thereon is commenced within two years after the date of corporate dissolution (Ill.Rev.Stats.1977, ch. 32, § 157.94) unless one of several recognized exceptions to the two-year requirement is found. (See, e.g., Moore v. Nick's Finer Foods, Inc. (1984) 121 Ill.App.3d 923, 77 Ill.Dec. 364, 460 N.E.2d 420; Edwards v. Chicago and Northwestern Railway Co. (1967) 79 Ill.App.2d 48, 223 N.E.2d 163; People v. Parker (1964) 30 Ill.2d 486, 197 N.E.2d 30.) Here, where the lawsuit was filed over two years after corporate dissolution, the differences between California and Illinois law assume great importance.

(2) Does each state have an interest in having its law applied?

Even where "the two potentially concerned states have different laws, there is still no problem in choosing the applicable rule of law where only one of the states has an interest in having its law applied." (Hurtado v. Superior Court, supra, 11 Cal.3d 574, 580, 114 Cal.Rptr. 106, 522 P.2d 666; see also Currie, Selected Essays on Conflicts of Laws (1963) p. 189.) Here, unlike the situation in Hurtado, each state has an interest in having its law applied. Illinois has an interest in protecting its corporations from extended litigation after dissolution because such litigation impairs the ability of the corporation to wind up its affairs and leaves doubt about the value of outstanding shares. But California has an interest in allowing injured residents to recover for injuries incurred within the state prior to dissolution which, in some cases, have not manifested themselves before dissolution. California also has an interest in assuring that codefendants jointly liable for the damages are not required to pay the share of damages attributable to dissolved corporations. In today's complex litigation involving multiple parties, one or more of the codefendants may well be a California corporation. The interests of California and Illinois cannot both be satisfied.

(3) Which state's interest would be more impaired if its policy were subordinated to the policy of the other state?

Illinois' interests would not be greatly impaired by applying California law to permit suit against North American over two years after its dissolution. Even without suits by California plaintiffs brought over two years after dissolution, North American's winding up of its affairs would likely be impeded by pending lawsuits. North American may have been and may still be sued by plaintiffs in other states which permit suits against dissolved foreign corporations. Suits may still be pending by plaintiffs from any state who filed their actions before expiration of the two-year period after dissolution. Still other plaintiffs may come within exceptions to the two-year period of the Illinois statute itself, such as the tolling for minors (Moore v. Nick's Finer Foods, Inc., supra, 121 Ill.App.3d 923, 77 Ill.Dec. 364, 460 N.E.2d 420) or because of failure to notify known creditors of the intent to dissolve (see People v. Parker, supra, 30 Ill.2d 486, 197 N.E.2d 30), or because of inducement to delay in filing claims (see Edwards v. Chicago and Northwestern Railway Co., supra ). North American's ability to wind up does not hinge on whether real party Young and other California plaintiffs are permitted to sue North American over two years after dissolution. In addition when we are considering a large national corporation doing business throughout the United States the singular interest of the state of incorporation is diminished. Being the state of incorporation does not establish it as the state in which the corporation conducts most of its business or has a majority of its shareholders. A state of incorporation is often selected on a basis of certain tax advantages or a liberal securities act.

By contrast, California's interests would be greatly impaired by a decision to apply Illinois law. Unless an exception to the two-year period could be found, plaintiff would be unable to recover damages if only North American were found liable. This would be true despite the fact that the conduct giving rise to the cause of action and the injuries that were incurred, took place within the state of California. Similarly, California codefendants would be barred from seeking appropriate contribution from North American in the event of joint liability. California has a strong interest in permitting its residents to seek compensation for injuries caused by hazardous substances and in ensuring that damages are appropriately shared by codefendants.

A further fact to be considered is that North American was licensed for the transaction of intrastate business in California under a certificate of qualification from March 1, 1957, to October 3, 1974. Although this in itself is not a basis for maintaining the present action against North American, it is a factor in determining California's interest in applying its laws. When a person suffers injury in California as a result of business conducted by a foreign corporation then qualified to do business within the state, California has a legitimate interest that the foreign corporation not be permitted to avoid responsibility for its wrongful act by withdrawing from the state.

It is clear that California's interests would be more impaired by application of Illinois law than would Illinois' interests by application of California law. Under choice of law principles, California law should be applied.

The above...