California Supreme Court offer...

California Supreme Court offers pass to foreign dissolved corporations

By Bret A. Stone, John R. Till, and Michael W. Kisgen
The California Supreme Court recently handed down a decision that could make it difficult for plaintiffs, including public agencies, to pursue environmental contamination claims against foreign corporations.  In Greb v. Diamond Intl. Corp. (Feb. 21, 2013) S183365, the California Supreme Court ruled that California’s corporate survival statute (California Corporation Code § 2010) does not apply to foreign corporations.  According to Greb, the capacity to sue a dissolved foreign company is determined according to the applicable law of its incorporation state.  The Court reached this decision after California plaintiffs sued a Delaware corporation that voluntarily dissolved many years earlier.  Delaware law prevents lawsuits against voluntarily dissolved corporations filed more than three years after dissolution provided certain statutory guidelines (i.e., publishing the notice of dissolution) are met. The 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.” Corp. Code § 2010.  Additionally, the Corporation Code states, “Causes of action … may be enforced against the dissolved corporation … including, without limitation, insurance assets held by the corporation.” Corp. Code, § 2011(a)(1)(A). After reviewing the back-and-forth treatment in the lower courts, the Greb court held that California’s survival statute applies only to corporations organized under California law.  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.  The Court further dismissed plaintiffs’ position on the survival statute because the court cannot “pluck out particular sections, such as [California’s survival statute],” but find that the rest of California’s general corporate laws do not apply.  The Court 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.” It is no secret that insurance companies have fought extremely hard for this ruling as, at the end of the day, it is insurance company assets that are protected by this decision.  Indeed, there are very few instances where personal assets of shareholders that received distributions from dissolved foreign corporations are at stake.  This is no doubt a proud victory for the insurance industry.  But will it hold up?  Will the California Legislature, accept the invitation by the California Supreme Court to amend or clarify the law to avoid treating foreign corporation more favorably than California companies?  Will the California Legislature allow such as windfall for insurance carriers?  This boon to the insurance industry places a heavy burden on California taxpayers who will have to address such long tail injuries as the asbestos exposure in Greb or pollution of the environment.  It remains to be seen how all of this will be played out. For now, if you have a dispute that involves a foreign corporation, the dissolution law in the state of incorporation should be analyzed immediately in order to avoid losing those claims like the plaintiff in Greb.