Back from the Dead – Suing d...

Back from the Dead – Suing dissolved corporations and deceased individuals

By Bret A. Stone and John R. Till

Did you know that companies that have dissolved or gone bankrupt can still have claims brought against them?  What about actions against the dearly departed?  While it may seem counter-intuitive to sue a dissolved corporation or a deceased individual (hearken back to the proverbial phrase “you can’t squeeze blood from a turnip”), claims against such entities are viable under California law.

Section 2011 of the California Corporations Code provides that causes of action against dissolved corporations may be enforced “to the extent of its undistributed assets, including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims.”  If any of the assets of the dissolved corporation have been distributed to shareholders, then an action can be brought against shareholders of the dissolved corporation to the extent of their pro rata share of the claim or to the extent of the corporate assets distributed to them upon dissolution of the corporation, whichever is less.  A shareholder’s total liability, however, may not exceed the total amount of assets of the dissolved corporation distributed to the shareholder upon dissolution of the corporation.

All causes of action against a shareholder of a dissolved corporation are extinguished unless the claimant commences a proceeding to enforce the cause of action against that shareholder of a dissolved corporation prior the expiration of the statute of limitations applicable to the cause of action, but no later than four years after the effective date of the dissolution of the corporation.  However, this four year statute of limitations only applies when you are seeking assets that have been distributed to shareholders.

Quite possibly the most important and untapped feature in Section 2011 is the ability to pursue the insurance assets of dissolved corporations.  Indeed, the California Supreme Court concluded that the dissolution of a corporation “provides no reason to excuse the insurer from defending the action and indemnifying those injured by the predissolution activities of its insured, just as a corporation’s insolvency or bankruptcy does not release its insurer from payment for damages the corporation has caused.”  See Penasquitos, Inc. v. Superior Court (1991) 53 Cal. 3d 1180, 1192.  This may be true even where the injured party did not make its claim until after the dissolution.  Id.

Similarly, the California Probate Code provides for actions against the estates of deceased individuals.   Section 550 of the Probate Code provides that “an action to establish the decedent’s liability for which the decedent was protected by insurance may be  commenced or continued against the decedent’s estate without the need to join as a party the decedent’s personal representative or successor in interest.”

The named defendant in the action is “Estate of (name of decedent), Deceased” and summons can be served on the insurer without joining the personal representative of the decedent.  Cal. Prob. Code § 552.  While the insurer may deny or otherwise contest its liability, unless the personal representative is joined as a party, a judgment in the action under this chapter or in the independent action does not adjudicate rights by or against the estate and the recovery of damages is limited to the insurance coverage.  Cal. Prob. Code §§ 553-554.

The ability to pursue dissolved corporations and deceased individuals is particularly important when dealing with long tail claims such as environmental contamination, toxic exposure, products liability, and asbestos.  If too much time has passed to pursue the assets of the dissolved corporation, its shareholders, or the estate of a deceased individual, the historical insurance assets may be the only viable source of recovery.  Identifying those insurance assets may be difficult.  The key is knowing where to look or retaining someone with experience in insurance archaeology.