U.S. v. 2.61 Acres of Land, More or Less, Situated in County of Mariposa, State of California

• Decision Date: 08 November 1985
• Docket Number: No. 84-2155,84-2155
• Citation: 775 F.2d 1375
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. 2.61 ACRES OF LAND, MORE OR LESS, SITUATED IN the COUNTY OF MARIPOSA, STATE OF CALIFORNIA; Wawona Village, a California corporation, et al., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1375

775 F.2d 1375

UNITED STATES of America, Plaintiff-Appellee, v. 2.61 ACRES OF LAND, MORE OR LESS, SITUATED IN the COUNTY OF MARIPOSA, STATE OF CALIFORNIA; Wawona Village, a California corporation, et al Defendant-Appellant.

No. 84-2155.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 14, 1985.

Decided Nov. 8, 1985.

Donald B. Ayer, U.S. Atty., Andrew M. Wolfe, Asst. U.S. Atty., Sacramento, Cal., Maria A. Iizuka, Dept. of Justice, Washington, D.C., Martin W. Matzen, San Francisco, Cal., for plaintiff-appellee.

Joseph M. Gughemetti, San Mateo, Cal., for defendant-appellant.

Appeal from the United States District Court for the Eastern District of California; M.D. Crocker, District Judge, Presiding.

Before POOLE and NELSON, Circuit Judges, and KELLEHER, ^* District Judge.

PER CURIAM:

Appellant Wawona Village, a corporate landowner, appeals from a judgment entered by the district court which determined the amount of just compensation for the taking by eminent domain of certain real property it owned. Because we find the district court abused its discretion by denying appellant's request for a continuance of the trial to allow time for appellant to revive itself through payment of back taxes to the State Franchise Tax Board of California, we reverse and remand.

The United States filed a condemnation by declaration of taking ¹ in 1977 against 2.61 acres of land in Mariposa County, California, owned by Wawona Village ("Wawona"), a California corporation. The government sought to acquire this land, located in Yosemite National Park, because the proposed development by Wawona was incompatible with public land use policies ² and because a faulty sewage disposal system created serious environmental problems. The government deposited $82,000, the estimated fair market value of the land, in the Registry of the District Court on December 13, 1977. On January 18, 1980, the government increased the amount to $118,450 to reflect a subsequent government appraisal.

Prior to the scheduled jury trial of the just compensation issue, the government discovered that the State of California had suspended Wawona's corporate privileges because Wawona had failed to pay back taxes. ³ On March 12, 1984, the eve of trial Thereafter, a court trial commenced, with the district court affording the government a one day continuance to accommodate one of its witnesses. On March 14, the Court found the fair market value of the land to be $85,000, despite the earlier government estimate of $118,450. On March 23, Wawona, now conditionally revived, filed a motion for relief from the judgment of March 14th. The court denied Wawona's motion on May 7, even though the motion was not ripe because the district court had not yet signed the judgment. On May 29 the court entered judgment, from which Wawona filed a timely appeal.

                the government moved for an order to show cause why Wawona should not be barred from presenting evidence at trial.  Immediately thereafter, Wawona moved for a short continuance in order to pay its delinquent tax assessments and to revive itself as a corporation. 4   The district court elected to "deny the corporation [the right] to appear in [the] lawsuit," determining that "under the law [the court] was lacking discretion to do anything [else]."  Additionally, the Court reminded Wawona that the March 13 trial date had been set for Wawona's convenience
                

"The capacity of a corporation to sue or be sued shall be determined by the law under which it was organized." F.R.Civ.P. 17(b). See Chicago Title and Trust Co. v. Forty-One Thirty-Six Wilcox Bldg. Corp., 302 U.S. 120, 125-26, 58 S.Ct. 125, 127-28, 82 L.Ed. 147 (1937). Wawona is a California corporation, which mandates the application of California law. The relevant California law, Cal.Rev. and Tax Code Sec. 23301, provides that the rights, powers and privileges of a corporation may be suspended for nonpayment of taxes. It is well-settled that a delinquent corporation may not bring suit and may not defend a legal action. Reed v. Norman, 48 Cal.2d 338, 343, 309 P.2d 809, 812 (1957). Nor may the delinquent corporation appeal an adverse ruling. Boyle v. Lakeview Creamery Co., 9 Cal.2d 16, 19, 68 P.2d 968, 970 (1937). However, once the corporate powers are reinstated, the corporation may defend an action. Traub Co. v. Coffee Break Service, Inc., 66 Cal.2d 368, 371, 57 Cal.Rptr. 846, 848, 425 P.2d 790, 792 (1967).

The government contends that the legislature enacted Sec. 23301 with a punitive intent. That is, once a corporation fails to pay its taxes, the entity should be forever barred from appearing in a lawsuit. The various penalties detailed in Cal.Rev. and Tax Code Sec. 25962.1, however, belie the government's contention. Moreover, the California Supreme Court has held that Sec. 23301 is intended merely to pressure delinquent corporations to pay their taxes. Boyle, 9 Cal.2d at 19, 68 P.2d 968. See also Peacock Hill Ass'n. v. Peacock Lagoon Constr. Co., 8 Cal.3d 369, 371, 105 Cal.Rptr. 29, 30, 503 P.2d 285, 286 (1972).

A corporation may move for a continuance in order to enable the corporation to revive itself pursuant to Cal.Rev. and Tax Code Sec. 23305. Schwartz v. Magyar House, Inc., 168 Cal.App.2d 182, 188, 335 P.2d 487, 490-91 (1959); Traub, 66 Cal.2d at 370 n. 3, 57 Cal.Rptr. 846, 425 P.2d 790; Reed, 48 Cal.2d at 344, 309 P.2d 809; A.E. Cook Company v. K S Racing Enterprises In Schwartz, the appellate court found no abuse of discretion when the trial court granted the defendant companies' motion for a continuance in order to obtain a certificate of revivor so that the defendants could present a defense. Although Sec. 23301 forbids a delinquent corporation from defending an action, the court found that "[r]ecognizing the corporation for the limited purpose of permitting it to inform the court of facts which ... would warrant the court in continuing the action for a limited period, is neither violative of the letter nor spirit of section 23301." 168 Cal.App.2d at 188, 335 P.2d 487. Plaintiff in Schwartz had first raised the issue of corporate capacity to defend two years after filing the complaint. Counsel for the defendant corporations claimed to be surprised that their corporate powers had been suspended, and alleged insufficient notice of plaintiff's motion to bar them from trial. The corporations immediately instituted proceedings to become reinstated and presented evidence of such efforts during the hearing on the motion to continue. Corporate revivals were in fact accomplished before trial. Id. at 186, 335 P.2d 487.

                74 Cal.App.2d 499, 500, 79 Cal.Rptr. 123, 124 (1969) ("[e]ven at the time of the hearing, the court may grant a continuance in order to allow the delinquent corporation to secure a revivor.").   Accord, Duncan v. Sunset Agricultural Minerals, 273 Cal.App.2d 489, 493, 78 Cal.Rptr. 339, 342 (1969). 5
                

Here, as in Schwartz, the government raised the issue of corporate capacity on the eve of trial, long after the complaint was filed. Counsel claimed surprise at Wawona's suspension, and alleged insufficient notice of the government's challenge to the corporation's capacity to defend. Unlike Schwartz, Wawona was not in the process of reinstatement when it moved for a continuance. Yet, the district court's denial of an extension of time did not permit such action. The delayed ruling in Schwartz, by contrast, did allow the corporations to revive themselves prior to the commencement of the trial. Further, Wawona acted promptly, securing a complete corporate revivor within two weeks of the district court's denial of the motion for a continuance.

Another case concerning the propriety of a continuance to permit reinstatement is Duncan v. Sunset Agricultural Minerals, 273 Cal.App.2d 489, 78 Cal.Rptr. 339 (1969). In that case, plaintiff filed an action to quiet title to a mining claim owned by defendant corporation. At trial, plaintiff presented evidence of defendant's failure to pay taxes and of the suspension of its corporate powers. Defendant did not move for a continuance, but informed the court that it was in the process of obtaining reinstatement. The court took the matter under submission and allowed the trial to proceed. Months later, defendant sought leave to amend its answer pursuant to an attached certificate of revivor. Thereafter, the court granted judgment for the plaintiff on the ground that defendant lacked the capacity to defend due to its suspension. The court also denied defendant's motion for leave to amend. Defendant's subsequent motion to vacate was denied and an appeal was taken. Id. at 490-91, 78 Cal.Rptr. 339.

The appellate court reversed the trial court's denial of defendant's motion to reopen and to file a certificate of revivor. The court determined that Section 23301 was intended to persuade corporations to pay back taxes and not to preclude meritorious defenses on technical grounds. Since the trial court had taken all the necessary testimony, no retrial was necessary. Thus, because the corporation had presented its certificate of revivor before the entry of judgment, the trial court should have decided Wawona, like the corporate defendant in Duncan, filed its notice of corporate revivor before entry of judgment. In fact, Wawona filed the notice on March 29, 1984, two months prior to the entry of judgment on May 29, 1984. Based on the cases discussed above, we are persuaded that the district court erred in concluding that it lacked discretion to grant a continuance.

                the action on the merits, and should have disregarded the suspension.   Id. at 493-94, 78 Cal.Rptr. 339.
                

The government argues that although payment of back franchise taxes after suit was commenced revives a suspended corporation, the revived corporation still may not defend itself in the action. This is patently false. In Peacock, 8 Cal.3d at 373, 105 Cal.Rptr. 29, 503 P.2d 285, the court, relying upon Diverco Constructors,...