The California Supreme Court has ruled that whether a dissolved corporation may be sued in California depends on the law of the state of incorporation, which is often more protective than California law. The decision could help stem plaintiff forum-shopping and allow insurers to “close the books” on liabilities of such corporations.
In Greb v. Diamond Intl. Corp. (Feb. 21, 2013, S183365), California plaintiffs sued a Delaware corporation that had voluntarily dissolved many years earlier. Delaware corporation law bars suit against a voluntarily dissolved corporation more than three years after dissolution. (Del. Code Ann. tit. 8, § 278.) Plaintiffs argued that their suit was permitted under California’s corporate survival statute, which sets no time limit on when a dissolved corporation may be sued: A dissolved corporation “nevertheless continues to exist for the purpose of … defending actions … against it and … to … discharge obligations.” (Cal. Corp. Code, § 2010.) The practical effect of the California statute is often to drag insurers into latent injury suits on behalf of long-gone insureds. “Causes of action … may be enforced against the dissolved corporation … including, without limitation, insurance assets held by the corporation.” (Cal. Corp. Code, § 2011(a)(1)(A); see also Cal. Ins. Code, § 11580 [“insolvency or bankruptcy of the insured will not release the insurer”].)
The California Supreme Court held that California’s survival statute, section 2010, applies only to corporations “organized under” California law, and does not apply to foreign corporations – those incorporated under the laws of another state. In so ruling, the court rejected plaintiffs’ argument that a foreign corporation is “organized” under California law “simply by virtue of qualifying to transact interstate business” in California. If that were the case, then “every foreign corporation that qualified to do business in California would be governed by all of” California’s general corporate laws, rather than the laws of the state of incorporation. Greb held that plaintiffs “provide no basis to pluck out particular sections, such as [the survival provision, section] 2010, and hold that the particular section applies but the rest of” California’s general corporate laws do not.
Greb concluded that “…the history and language of [California’s corporate statutes] simply do not support the proposition that section 2010 … governs foreign in addition to domestic corporations.”
Gordon & Rees recently won an appeal on a nearly identical issue. That case, Robinson v. SSW, Inc. (S206347), is before the California Supreme Court, expressly pending the outcome of Greb. Given the decision in Greb, we expect the ruling in our case will be upheld.
To view the Robinson opinion and a report about that decision, please click here and here.