People v. Zimbelman

• Decision Date: 19 December 1977
• Docket Number: No. 27599,27599
• Citation: 572 P.2d 830,194 Colo. 384
• Parties: The PEOPLE of the State of Colorado, Plaintiff-Appellant, v. Henry George ZIMBELMAN, Defendant-Appellee.
• Court: Colorado Supreme Court

Page 830

572 P.2d 830

194 Colo. 384

The PEOPLE of the State of Colorado, Plaintiff-Appellant, v. Henry George ZIMBELMAN, Defendant-Appellee.

No. 27599.

Supreme Court of Colorado, En Banc.

Dec. 19, 1977.

J. D. MacFarlane, Atty. Gen., Jean E. Dubofsky, Dep. Atty. Gen., Edward G. Donovan, Sol. Gen., Denver, Paul Q. Beacom, Dist. Atty., 17th J. D., Gregory J. Fasing, Marc P. Mishkin, Deputy Dist. Attys., Brighton, for plaintiff-appellant.

John F. Cook, Aurora, for defendant-appellee.

CARRIGAN, Justice.

The appellee was charged with twenty counts of felony theft from Balto Industries, Inc. After a pre-trial hearing, the district court dismissed the charges, holding that the People had failed to establish the corporate status of Balto Industries. We reverse.

Most of the relevant facts are undisputed. Balto Industries was incorporated in Colorado in 1969. The appellee and Floyd Knox formed the corporation, and owned half of the corporate stock. Although the corporation was declared defunct by the secretary of state in 1972 for failure to pay annual taxes and file annual reports, ¹ the two owners continued to operate the business under its corporate name.

Late in 1975, Knox became ill and offered to sell his shares to the appellee. During negotiations, the appellee prepared a balance sheet to show the company's value. Knox's belief that the balance sheet failed to reveal the actual value of the business prompted him and his wife to examine the company's books. They discovered evidence indicating that the appellee had diverted to his personal account checks made out to Balto Industries.

Knox died in January, 1976. His widow sued to enjoin payment of certain life insurance proceeds to Balto Industries and to determine the respective rights of the appellee and the Knox estate under a stock purchase agreement entered into at the time of incorporation. Pursuant to a stipulation by the parties, the court ordered an audit by a court-appointed certified public accountant, Irving Hook. Hook was selected by Mrs. Knox who suggested him to the appellee and the court. However, Hook was to be paid by Balto Industries. The appellee voluntarily gave Hook ledgers, checks and other records to assist in the audit.

Hook and Mrs. Knox subsequently gave police authorities information upon which the felony charges in this case were based. This information included papers the appellee gave Hook for the audit. The appellee moved to dismiss the criminal charges for lack of a corporate victim. He also moved to suppress the evidence obtained from Hook on the ground that the information was protected by the accountant-client privilege. ² The trial court granted both motions.

I. Corporate Existence.

A co-owner of property cannot ordinarily be guilty of theft of that property. People v. McCain, Colo., 552 P.2d 20 (1976). Here, therefore, the People were required to establish the existence of a corporate entity. Otherwise the appellee simply would have been a co-owner of his company's funds, and the funds would not have been susceptible to theft by him. The trial court ruled that, because the corporation had been legally defunct since 1972, the appellee and Knox were doing business as co-owners, and there was no basis for criminal theft charges. We disagree.

The People correctly assert that in criminal cases the prosecution is required to prove only the de facto corporate existence of an alleged corporate victim. Hunter v. People, 172 Colo. 480, 474 P.2d 207 (1970); People v. Lamb, 165 Colo. 332, 438 P.2d 699 (1968); Goodfellow v. People, 75 Colo. 243, 224 P. 1051 (1924).

For an enterprise to constitute a de facto corporation, three elements must coincide: (1) a law under which a corporation may lawfully be formed; (2) a bona fide attempt to form the corporation according to that law; and (3) an exercise of, or attempt to exercise, corporate powers. People v. South Platte Water Conservancy District, 146 Colo. 318, 364 P.2d 215 (1961); Bonfils v. Hayes, 70 Colo. 336, 201 P. 677 (1921); Fisher v. Pioneer Construction Co., 62 Colo. 538, 163 P. 851 (1917); Jones v. Aspen Hardware Co., 21 Colo. 263, 40 P. 457 (1895). The record clearly indicates that these three requirements were met in this case.

It is clear beyond dispute that Balto Industries, Inc. was validly incorporated under Colorado law. Several witnesses testified that business operations continued under the corporate name even after the corporation was declared defunct in 1972. All business records and books, bank accounts, and the sign on the company headquarters bore the name "Balto Industries, Inc.," clearly evincing an intent to carry on the business as a corporation. Ordinarily, evidence of this nature is sufficient to establish de facto corporate status in a criminal case. See, e. g., Hunter v. People, supra; People v. Lamb, supra.

The trial court distinguished this case, however, on the basis of the fact that at the time of the alleged thefts the company had been declared defunct. Thus the ultimate question is whether that defunct status prevented Balto Industries from operating even as a de facto corporation. We conclude that it did not.

Generally a corporation which has been dissolved by judicial decree or statutory forfeiture cannot exist thereafter as a de facto corporation. Bonfils v. Hays, supra. See also 8 Fletcher Cyclopedia of Corporations § 3844 (Rev.Ed.1966), and cases cited therein. The statute under which Balto Industries was declared defunct, section 7-10-109, C.R.S.1973, penalizes a corporation for failing to pay franchise taxes or file annual reports by prohibiting its transacting business as a corporation while it is defunct. However, the statute also provides that upon filing the necessary reports and paying the delinquent taxes, plus a penalty, the corporation is "revived" and reinstated to full corporate status. Section 7-10-109(4), C.R.S.1973.

Thus, the statute does not authorize involuntary dissolution of the corporation, but merely allows the secretary of state to suspend its operations while it is in default. Dominion Oil Co. v. Lamb, 119 Colo. 62, 201 P.2d 372 (1948); Bokel v. Zitnik, 93 Colo. 565, 27 P.2d 753 (1933); Ruth v. Devaney, 84 Colo. 476, 271 P. 623 (1928); Smith v. Highland Mary Mining, Milling & Power Co., 82 Colo. 288, 259 P. 1025 (1927). The corporation's shareholders retain the power to hold annual meetings and elect corporate officers and directors, and the corporation may still hold, mortgage, and convey real estate. Section 7-10-109(2) and (3), C.R.S.1973. A "revived" corporation is regarded as having had continuous existence throughout the period of suspension. Dominion Oil Co. v. Lamb, supra; Smith v. Highland Mary Mining, Milling & Power Co., supra.

In other words, despite its technically defunct status, Balto Industries, Inc. still retained very real...