United Medical Management Ltd. v. Gatto

Decision Date16 October 1996
Docket NumberNo. B099882,B099882
Citation57 Cal.Rptr.2d 600,49 Cal.App.4th 1732
CourtCalifornia Court of Appeals Court of Appeals
Parties, 96 Cal. Daily Op. Serv. 7692, 96 Daily Journal D.A.R. 12,609 UNITED MEDICAL MANAGEMENT LIMITED, Plaintiff and Appellant, v. Luciano R. GATTO et al., Defendants and Respondents.

Robert Poyourow, Los Angeles, for Defendants and Respondents.

GRIGNON, Acting Presiding Judge.

Without qualifying to transact intrastate business pursuant to Corporations Code section 2105, 1 a foreign corporation enters into a contract with a California corporation to transact intrastate business. The California corporation breaches the contract. The foreign corporation thereafter qualifies to transact intrastate business and brings an action for breach of contract. The question presented is whether the foreign corporation may maintain the breach of contract action without complying with section 2203, subdivision (c), which requires the foreign corporation to provide proof of payment of state taxes. We conclude that a foreign corporation which qualifies to transact intrastate business after transacting, but prior to commencing an action on, intrastate business may maintain the action without complying with section 2203, subdivision (c). Accordingly, we reverse the judgment of dismissal entered on the ground of noncompliance with section 2203, subdivision (c).

STATUTORY BACKGROUND

Because the statutory background is necessary for an understanding of the facts and procedure in this case, we begin with the If a foreign corporation transacts intrastate business without qualifying, it is subject to a number of penalties. It is subject to a penalty of $20 for each day it transacts unauthorized intrastate business. (§ 2203, subd. (a).) 2 It is deemed to have consented to California's jurisdiction. (Ibid.) The foreign corporation and its agents may also be guilty of misdemeanors. (§§ 2258; 2259.)

relevant statutes. A foreign corporation is prohibited from transacting intrastate business without first obtaining from the Secretary of State a certificate of qualification. (§ 2105, subd. (a).) In order to obtain the certificate, the foreign corporation [49 Cal.App.4th 1737] must file a statement including its name, state of incorporation, address of its principal executive office, address of its principal office within the state, agent for service of process in the state and consent to service of process. (Ibid.) It must also file a statement from its state of incorporation that it is an existing corporation in good standing. (Id. at subd. (b).)

In addition, "[a] foreign corporation ... which transacts intrastate business without complying with [s]ection 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state, commenced prior to compliance with [s]ection 2105, until it has complied with the provisions thereof and has paid to the Secretary of State a penalty of two hundred fifty dollars ($250) in addition to the fees due for filing the statement and designation required by [s]ection 2105 and has filed with the clerk of the court in which the action is pending receipts showing the payment of the fees and penalty and all franchise taxes and any other taxes on business or property in this state that should have been paid for the period during which it transacted intrastate business." (§ 2203, subd. (c).)

A foreign corporation which qualifies to transact intrastate business may also be subject to penalties for failure to pay state taxes. The corporate powers, rights and privileges of a foreign corporation may be forfeited for failure to pay state taxes. (Rev. & Tax.Code, § 23301.) A foreign corporation whose rights have been forfeited for failure to pay state taxes may not prosecute or defend an action, nor appeal from an adverse judgment. (Reed v. Norman (1957) 48 Cal.2d 338, 343, 309 P.2d 809.) A foreign corporation whose rights have been forfeited for failure to pay state taxes may be reinstated upon application to the Franchise Tax Board and payment of outstanding taxes, penalties and interest. (Rev. & Tax.Code, § 23305.) Upon payment, the Franchise Tax Board issues a certificate of revivor reinstating the corporation. (Rev. & Tax.Code, § 23305a.) The reinstatement of the corporation is without prejudice to any action, defense or right which accrued by reason of the forfeiture. (Ibid.) "If it pays its taxes and obtains a certificate of revivor during the pendency of an action, the corporation may be allowed to carry on litigation, even to the extent of validating otherwise invalid prior proceedings." (Benton v. County of Napa (1991) 226 Cal.App.3d 1485, 1490, 277 Cal.Rptr. 541.) The revival of corporate powers validates any procedural act 3 taken on behalf of the corporation while its rights were forfeited. (Ibid.) Substantive defenses, such as the statute of

limitations, are not revived. (Id. at p. 1491, 277 Cal.Rptr. 541.)

FACTS AND PROCEDURAL BACKGROUND

Plaintiff and appellant United Medical Management Limited (UMML), a Nevada corporation, is in the business of providing management and other health care related services to physicians. It did not qualify to transact intrastate business in California. On March 17, 1992, UMML entered into a contract with defendants and respondents Luciano R. Gatto and Long Beach Trauma and Physio Therapy, Inc., a California corporation (collectively, Long Beach Trauma). UMML agreed to provide $200,000 in capital to Long Beach Trauma to open a medical facility in Long Beach. Long Beach Trauma defaulted on the payments due from November 1992 through April 1994.

UMML filed a complaint for breach of contract on April 22, 1994. On June 23, 1994, Long Beach Trauma moved to dismiss the complaint on the ground that UMML was a foreign corporation transacting intrastate business and had failed to qualify to do business. Long Beach Trauma supported its motion with a certificate from the Secretary of State stating that as of May 23, 1994, UMML had not qualified to transact intrastate business. On June 29, 1994, UMML qualified to transact intrastate business and was so certified by the Secretary of State on July 11, 1994. UMML did not provide to the trial court receipts for payment of fees, penalties or taxes. On September 22, 1994, the trial court dismissed the complaint without prejudice for failure to comply with section 2203, subdivision (c).

UMML filed the instant complaint for breach of contract against Long Beach Trauma on November 30, 1994. On March 3, 1995, Long Beach Trauma moved to dismiss the complaint for failure to comply with section 2203, subdivision (c) in that UMML had failed to provide receipts for payment of fees, penalties and taxes. UMML filed the certificate of qualification with the trial court but did not submit receipts for payment of fees, penalties and taxes. On March 29, 1995, the trial court granted the motion to dismiss. A judgment of dismissal was entered and sanctions in the amount of $378 were awarded against UMML and its attorney. UMML appeals.

DISCUSSION
Statutory Interpretation

The purpose of statutory interpretation is to ascertain and effectuate legislative intent. (Burden v. Snowden (1992) 2 Cal.4th 556, 562, 7 Cal.Rptr.2d 531, 828 P.2d 672.) Statutory interpretation is guided by the so-called "plain-meaning" rule. "Words used in a statute ... should be given the meaning they bear in ordinary use. [Citations.] If the language is clear and unambiguous there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature (in the case of a statute).... [Citation.] [p] But the 'plain meaning' rule does not prohibit a court from determining whether the literal meaning of a statute comports with its purpose or whether such a construction of one provision is consistent with other provisions of the statute. The meaning of a statute may not be determined from a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible. [Citation.]." (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735, 248 Cal.Rptr. 115, 755 P.2d 299.)

Sections 2105 and 2203

A foreign corporation transacting intrastate business which has failed to qualify with the Secretary of State may nevertheless defend an action brought against it in state court. (American etc. Wireless v. Superior Court (1908) 153 Cal. 533, 536, 96 P. 15; Mediterranean Exports, Inc. v. Superior Court (1981) 119 Cal.App.3d 605, 614, 174 Cal.Rptr. 169.) A foreign corporation transacting intrastate business which has failed to qualify with the Secretary of State may also commence an action in state court. (Ward Land etc. Co. v. Mapes (1905) 147 Cal. 747, 753, 82 P. 426.) A foreign corporation transacting intrastate business which has failed to qualify may not, however, maintain an action The failure of a foreign corporation to qualify to transact business prior to commencing an action is a matter of abatement of the action. (O'Connell Gold Mines, Ltd. v. Baker (1944) 63 Cal.App.2d 384, 389-390, 146 P.2d 967.) Once a nonqualified foreign corporation commences an action regarding intrastate business, the defendant may assert by demurrer or as an affirmative defense in the answer the lack of capacity to maintain an action arising out of intrastate business. (Id. at p. 390, 146 P.2d 967.) This abatement procedure enables the foreign corporation to obtain a judicial determination as to whether it is in fact transacting intrastate business. The defendant bears the burden of proving: (1) the action arises out of the transaction of intrastate business by a foreign corporation; and (2) the action was commenced by the foreign corporation prior to qualifying to transact intrastate...

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