Riley v. Fitzgerald, B-008127

CourtCalifornia Court of Appeals
Citation178 Cal.App.3d 871,223 Cal.Rptr. 889
Docket NumberB-008127
PartiesJames C. RILEY, Jr., et al., Plaintiffs and Appellants, v. Ben M. FITZGERALD, et al., Defendants and Respondents. Civ.
Decision Date13 March 1986

Page 889

223 Cal.Rptr. 889
178 Cal.App.3d 871
James C. RILEY, Jr., et al., Plaintiffs and Appellants,
Ben M. FITZGERALD, et al., Defendants and Respondents.
Civ. B-008127.
Court of Appeal, Second District, Division 6, California.
March 13, 1986.
Review Denied July 10, 1986.

[178 Cal.App.3d 873]

Page 890

Bushkin, Gaims, Gaines & Jonas and Perry D. Mocciaro, Los Angeles, Ernst & Mattison and Don Ernst, San Luis Obispo, Lascher & Lascher and Edward L. Lascher, Ventura, for plaintiffs and appellants.

Finley, Kumble, Wagner, Heine, Underberg, Manley & Casey and Richard G. Osborn, P.C., Gary E. Shoffner and David W. Grace, Beverly Hills, for defendants and respondents Ben M. Fitzgerald, Chaparral Petroleum, Inc., and Monterey Minerals & Land Co.,

Conkle & Olesten and Christina Olesten, Los Angeles, for defendant and respondent Augusta Land Co.

Bright & Brown and Gregory C. Brown, Maureen J. Bright and John Quirk, Los Angeles, for defendant and respondent McFarland Energy, Inc.

No appearance for defendant and respondent Columbine Minerals, Inc.

STONE, Presiding Justice.

Here we are asked to decide whether appellants, as sole shareholders of a dissolved Texas corporation and assignees of its assets, may prosecute an action asserting injuries to and fraud upon the corporation after the three-year post-dissolution survival period provided by Texas law. We hold they may not and affirm the judgment.

[178 Cal.App.3d 874] James C. Riley, Jr., and James C. Riley III (Rileys), Texas residents, appeal from judgment on the pleadings based upon the trial court's holding that Rileys' causes of action are barred because, pursuant to Texas common law and Article 7.12 of the Texas Business Corporations Act, claims for damages to dissolved Texas corporations must be brought within three years of dissolution.


April 20, 1978, a day prior to voluntary dissolution, Mindevco, Inc., a Texas corporation,

Page 891

assigned to Rileys, Mindevco's sole shareholders, all its tangible and intangible assets in exchange for cancellation or redemption of all outstanding capital stock pursuant to provisions of a Plan of Complete Liquidation. December 19, 1983, Rileys filed a complaint in the San Luis Obispo County Superior Court for fraud, breach of fiduciary duty, restraint of sale or transfer of royalty rights, constructive trust and accounting against various defendants based upon a joint venture between Mindevco and defendants involving oil leases on certain San Luis Obispo property. 1

In essence, Rileys' complaint charged that defendants had created, in California, secret assignments of overriding interests on oil and gas produced from the leases, thus diminishing the price received, and yielding to defendants substantial unlawful profits. The verified complaint alleged that Rileys were proper parties to bring the claims because they were successors in interests of Mindevco, as distributees of its assets and property. The First Amended Complaint alleged they were successors in interest by virtue of a written assignment to them of all of Mindevco's rights and property and as distributees by operation of law.

Because Rileys were suing to recover tort damages allegedly incurred by Mindevco, defendants filed motions for judgment on the pleadings, contending that the right of shareholders to sue for damages to a dissolved Texas corporation depended on Texas law, and, pursuant to Texas common law and Article 7.12 of the Texas Business Corporation Act, these claims should have been brought within three years of dissolution. In the trial court, Rileys agreed that Texas law controlled and, as did defendants, asked the court to take judicial notice of decisional and statutory laws of Texas [178 Cal.App.3d 875] and courts of the United States. Rileys argued that, under Texas law, the applicable Texas statute should be tolled by the doctrine of equitable estoppel because they alleged fraudulent concealment.

The trial court held that Texas law applied and that Rileys' action had not been brought within the statutory three-year survival "grace" period following dissolution of their corporation. The court further held that because Article 7.12 is a survival statute and not a statute of limitations, the Texas law of equitable estoppel is not applicable.

Rileys contend that: (1) California law, which permits corporate claims within the time involved here, should have controlled; (2) rules involving suits by and against dissolved corporations were irrelevant to whether individual plaintiffs were barred; and (3) current Texas law similarly precludes the trial court's result.


1. The Trial Court Made the Correct Choice of Law

Rileys claim, made for the first time on this appeal, that California law should apply, contending they may change their theory because only a question of law is raised. (Ward v. Taggart (1959) 51 Cal.2d 736, 742, 336 P.2d 534; ABI, Inc. v. City of Los Angeles (1984) 153 Cal.App.3d 669, 687, fn. 16, 200 Cal.Rptr. 563.) Here, there was more than acquiescence or inadvertence in raising an issue. Rileys actively agreed on the choice of law. Generally, a party must abide by the consequence of his own acts and cannot seek reversal for errors which he committed or invited. (Sommer

Page 892

v. Martin (1921) 55 Cal.App. 603, 609-610, 204 P. 33; Abbott v. Cavalli (1931) 114 Cal.App. 379, 382, 300 P. 67.) However, even if Rileys did not waive the issue, Texas law would still apply.

Rileys contend that choice of law in California is determined by "governmental interest analysis" rather than the application of law of incorporation. We disagree. "Governmental interest analysis" applies only when there is true conflict of laws. That two states are involved does not in itself evidence a "conflict of laws" or "choice of laws" question. Certainly, there is no conflict where the laws of two states are identical. (Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 161-162, 148 Cal.Rptr. 867, 583 P.2d 721; Hurtado v. Superior Court (1974) 11 Cal.3d 574, 580, 114 Cal.Rptr. 106, 522 P.2d 666.)

Nonetheless, Rileys argue that, since California Corporations Code section 2010 contains no limitations on actions by or against dissolved corporations[178 Cal.App.3d 876] other than the general statute of limitations for fraud, i.e., three years from discovery, and Article 7.12 of the Texas Business Corporations Act contains a three-year limitation of actions by or against a dissolved corporation, there is conflict which necessitates resolution by "allocating respective spheres of lawmaking influence." (Offshore Rental Co. v. Continental Oil Co., supra, 22 Cal.3d 157, 165, 148 Cal.Rptr. 867, 583 P.2d 721.)

We believe the decisive question is which law each state applies to dissolved corporations. The answers in both California and Texas decisions are in agreement. It is settled law in California that the effect of corporate dissolution or expiration depends upon the law of its domicile, and a defunct foreign corporation has no greater capacity or higher standing to initiate or maintain an action in the forum state than it would have in its domiciliary state. (Fidelity Metals Corp. v. Risley (1946) 77 Cal.App.2d 377, 381, 175 P.2d 592; J.C. Peacock, Inc. v. Hasko (1960) 184 Cal.App.2d 142, 150, 7 Cal.Rptr. 490; Lewis v. LeBaron (1967) 254 Cal.App.2d 270, 278-279, 61 Cal.Rptr. 903. See also Anderson v. Derrick (1934) 220 Cal. 770, 775, 32 P.2d 1078; Crossman v. Vivienda Water Co. (1907) 150 Cal. 575, 580, 89 P. 335.) Under Texas law, whether a foreign dissolved corporation still exists for any executory purposes is also determined by laws of the state of creation. (County Cupboard, Inc. v. Texstar Corp. (Tex.Civ.App.1978) 570 S.W.2d 70, 72 citing Ferguson-Mckinney Dry Goods Co. v. Garrett (Tex.Comm.App.1923) 252 S.W. 738.)

Nothing in the California Corporations Code indicates that this long-held principle has been overruled or superseded by statute. Section 2010 provides in pertinent 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. [p] (b) No 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."

Section 2115 specifies chapters and sections which apply to foreign corporations to the exclusion of the law of the jurisdiction in which they are incorporated. Conspicuous by its absence is section 2010. The only other pertinent published California appellate opinion confirms this observation. The reviewing court in North American Asbestos Corp. v. Superior Court (1982) 128 Cal.App.3d 138, 179 Cal.Rptr. 889, determining the validity of service by mail upon a dissolved Illinois corporation for an action commenced after its survival "grace" period terminated, held that the court had jurisdiction over the trustee and stockholders through Code of Civil Procedure[178 Cal.App.3d 877] section 416.20. It noted, however,

Page 893

that the proper challenge was by demurrer, motion for summary judgment or other procedures because California survival law does not apply to suits against dissolved foreign corporations. (Id., at 143, 179 Cal.Rptr. 889.) "From a reading of the Corporations Code generally, we conclude that it does not apply to foreign corporations which have dissolved. Corporations Code section 102 provides 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...

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