GRELL v. LACI LE BEAU CORPORATION

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Docket Number

A083685 (San Francisco County Super. Ct. No. JCC 3185, 965787) (Fresno County Super. Ct. No. JCC 3185, 532185-6)

Attorney(S)

Christopher E. Grell, Esq. for Plaintiffs and Appellants. Long Levit, Donald W. Carlson, Esq., John H. Quinn, Esq., and Marsha L. Morrow, Esq. for Defendant and Respondent.

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Smart Summary

Factual and Procedural Background

This appeal arises from two of five coordinated wrongful death and survival actions related to ingestion of the defendant's product, "Super Dieter's Tea." The defendant, Laci Le Beau Corporation, was incorporated in California in 1987 and had its corporate status suspended from April 1, 1992, to January 29, 1996, due to failure to pay taxes under Revenue and Taxation Code section 23302.

The plaintiffs/appellants, Christopher E. Grell (individually and as executor of the Estate of June Grell) and David Helphrey (individually and as executor of the Estates of Debbie, Betty, and Robert Helphrey), filed their actions beyond the statute of limitations period but argued that the limitations period was tolled during the corporation’s suspension.

The Grell action was filed during the suspension period. After reinstatement, the defendant moved for summary judgment on statute of limitations grounds, which was granted and upheld on appeal.

In the Helphrey action, the defendant filed a demurrer on statute of limitations grounds while suspended; the demurrer was sustained without leave to amend on some claims. The Helphrey appellants then filed a fourth amended complaint alleging fraud. The defendant demurred again on statute of limitations grounds, with the demurrer served during suspension but heard after reinstatement. The demurrer was overruled as to the estate’s claim. Subsequent summary judgment was granted to the defendant on statute of limitations grounds.

The appellants moved to vacate the judgment, arguing the statute of limitations should have been tolled during the suspension and that the defendant improperly used the courts while suspended. The trial court denied this motion, ruling that the statute of limitations continued to run during suspension. This appeal followed.

Legal Issues Presented

Whether the statute of limitations was tolled during the period when the defendant corporation’s corporate powers were suspended for failure to pay taxes under Revenue and Taxation Code section 23301.
Whether the trial court erred in denying the motion to vacate judgment based on the tolling argument and the defendant’s alleged wrongful use of the courts during suspension.
Whether the order denying the motion to vacate judgment is appealable.

Arguments of the Parties

Appellants' Arguments

The statute of limitations period should be tolled during the time the defendant corporation’s status was suspended.
The defendant wrongfully used the courts to assert statute of limitations defenses while its corporate powers were suspended, in violation of Revenue and Taxation Code section 23301.

Respondent's Arguments

The order denying the motion to vacate judgment is not appealable.
The statute of limitations was not tolled during the suspension period.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Grell v. Laci Le Beau Corporation (Dec. 11, 1997) A077153 [nonpub. opn.]	Upheld summary judgment dismissal on statute of limitations grounds.	Referenced to confirm prior ruling on statute of limitations in Grell action.
Utah Property Casualty Ins. etc. Assn. v. United Services Auto Assn. (1991) 230 Cal.App.3d 1010, 1025	Definition and legislative nature of statutes of limitations.	Used to explain the legislative policy behind statutes of limitations.
Duty v. Abex Corp. (1989) 214 Cal.App.3d 742, 752	Statutes of limitations are legislative grace and subject to legislative control.	Supported the discussion of legislative intent and policy on statutes of limitations.
Jolly v. Eli Lilly Co. (1988) 44 Cal.3d 1103, 1112	Major purposes of statutes of limitations: protecting defendants and requiring plaintiff diligence.	Provided context for the rationale behind statutes of limitations.
Bigelow v. Smik (1970) 6 Cal.App.3d 10, 12	General rule that statute of limitations continues to run as long as defendant can be sued.	Foundation for the court’s conclusion that tolling did not apply.
Cuadra v. Millan (1998) 17 Cal.4th 855, 864-865	Explanation of tolling statutes of limitations during certain conditions.	Clarified that tolling suspends the statute temporarily but resumes once condition ends.
Lewis v. Superior Court (1985) 175 Cal.App.3d 366, 372	Judicial tolling of statutes of limitations under equitable circumstances.	Referenced to illustrate judicial tolling principles.
Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 411	Court-created tolling exceptions.	Supported the possibility of tolling beyond statutory provisions.
Kleinecke v. Montecito Water Dist. (1983) 147 Cal.App.3d 240, 247	Judicial tolling principles.	Used to explain judicial discretion in tolling statutes of limitations.
Revenue and Taxation Code section 23301	Suspension of corporate powers for failure to pay taxes.	Central statutory provision governing corporate suspension and its effects.
Timberline, Inc. v. Jaisinghani (1997) 54 Cal.App.4th 1361, 1365-1367	Suspended corporations are disqualified from exercising corporate powers and may not prosecute or defend actions.	Confirmed that suspension prohibits corporate acts but does not dissolve the corporation.
Reed v. Norman (1957) 48 Cal.2d 338, 343	Suspended corporations may not prosecute or defend actions.	Supported the limitation on corporate acts during suspension.
Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 20-21	Suspended corporations cannot appeal judgments or exercise corporate powers.	Demonstrated the purpose of suspension to pressure tax payment.
Brown v. Superior Court (1966) 242 Cal.App.2d 519, 522	Suspended corporations may not seek writs of mandate.	Further illustrated the limitations on suspended corporations.
Peacock Hill Assn. v. Peacock Lagoon Constr. Co. (1972) 8 Cal.3d 369, 371	Purpose of corporate suspension is to compel payment of taxes.	Explained legislative intent behind suspension provisions.
Graceland v. Peebler (1942) 50 Cal.App.2d 545, 547	Suspension suspends corporate powers but does not dissolve the corporation.	Clarified the legal status of suspended corporations.
Gibble v. Car-Lene Research, Inc. (1998) 67 Cal.App.4th 295, 301-313	Service of process on suspended corporations is effected as with active corporations.	Confirmed that suspended corporations remain subject to suit.
Meyer v. State Board of Equalization (1954) 42 Cal.2d 376, 384	Superseding amended complaints render prior complaints void.	Supported that no appeal lies from rulings on superseded complaints.
Lee v. Bank of America (1994) 27 Cal.App.4th 197, 215	No appeal lies from rulings on superseded complaints.	Applied to bar appeals from rulings on the third amended complaint.

Court's Reasoning and Analysis

The court began by recognizing that the appellants conceded their complaints were filed after the statute of limitations had expired. The central issue was whether the statute of limitations was tolled during the defendant corporation’s suspension. The court explained that statutes of limitations are legislative enactments designed to protect defendants from stale claims and to encourage plaintiffs to pursue claims diligently.

The court noted the general rule that the limitations period continues to run as long as the defendant can be sued and a personal judgment obtained. Tolling is an exception applied only when circumstances make timely commencement impossible or impracticable.

The court reviewed various statutory tolling provisions related to disabilities of plaintiffs or other equitable conditions but found no statute or judicial decision tolling the statute of limitations during a corporation’s suspension for failure to pay taxes.

The court examined Revenue and Taxation Code section 23301 and related cases, concluding that suspension of corporate powers prohibits the corporation from exercising rights and privileges, including prosecuting or defending actions, but does not dissolve the corporation or protect it from being sued. Service of process and judgments remain effective during suspension.

The court found no evidence that the suspension or the defendant’s conduct prevented the appellants from filing their complaints timely or moving their cases forward. Therefore, the statute of limitations was not tolled.

Regarding procedural irregularities, the court held that demurrers filed while the defendant was suspended were unauthorized acts but were harmless because the relevant complaints were superseded or the hearings occurred after reinstatement, and the statute of limitations defense would have prevailed regardless.

Accordingly, the trial court properly denied the motion to vacate the judgment.

Holding and Implications

The Court of Appeal affirmed the order denying the motion to vacate judgment.

The direct effect of this decision is to uphold the dismissal of the wrongful death and survival actions on statute of limitations grounds, confirming that the statute of limitations is not tolled during a corporation’s suspension under Revenue and Taxation Code section 23301. The court did not establish new precedent beyond applying existing statutory and case law principles to the facts of this case.

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CHRISTOPHER E. GRELL, Indi v. dually and as Executor, etc., Plaintiffs and Appellants,

HANING, J.

Plaintiffs/appellants Christopher E. Grell, individually and as executor of the Estate of June Grell (Grell), and David Helphrey, individually and as executor of the Estate of Debbie Helphrey, Betty Helphrey and Robert Helphrey (collectively Helphrey), appeal an order denying their motion to vacate judgment in their coordinated wrongful death and survival actions. They contend the trial court erroneously ruled the statute of limitations was not tolled during the period of time respondent's corporate status was suspended. Respondent contends the order denying the motion to vacate is not appealable, and that the statute of limitations was not tolled. We affirm.

Respondent's previous motion to dismiss the appeal on these grounds was denied without prejudice to raising the issue on appeal.

Background

This appeal involves two of five coordinated wrongful death and survival actions arising from ingestion of respondent's "Super Dieter's Tea."

Respondent was incorporated in California on August 6, 1987. Its corporate status was suspended on April 1, 1992, pursuant to Revenue and Taxation Code section 23302, and revived on January 29, 1996.

Because appellants concede that both actions were filed beyond the period permitted by the statute of limitations, and argue only that the statute of limitations was tolled during the period of respondent's corporate suspension, a detailed procedural history is unnecessary.

The Grell action was filed while respondent was suspended. After its corporate status was reinstated, respondent successfully moved for summary judgment on all causes of action on statute of limitations grounds, and we upheld the dismissal. ( Grell v. Laci Le Beau Corporation (Dec. 11, 1997) A077153 [nonpub. opn.] ( Grell).)

The Helphrey action was filed, and respondent's demurrer on statute of limitations grounds to the Helphrey third amended complaint was sustained without leave to amend on several causes of action, while respondent was suspended. Thereafter, the Helphrey appellants filed a fourth amended complaint alleging a single cause of action for fraud, to which respondent demurred on statute of limitations grounds. The demurrer was served while respondent was suspended. However, the hearing and the order thereon sustaining the demurrer without leave to amend as to the wrongful death plaintiffs' claim occurred after respondent's corporate status was reinstated. The demurrer was overruled as to the estate's claim.

Respondent then moved for summary judgment in the Helphrey estate's action. At the hearing on the motion, Helphrey's attorney announced that it had "recently been brought to [his] attention" that respondent's corporate status had been suspended for some period of time, and argued that the statute of limitations should have been tolled during the corporate suspension period. The court rejected the tolling argument and ruled the action was barred by the statute of limitations.

Thereafter, the Grell and Helphrey appellants moved to vacate the judgment on the ground that while respondent's corporate status was suspended, it wrongfully used the courts to assert the statute of limitations in contravention of Revenue and Taxation Code section 23301 The trial court denied the motion on the merits, ruling that the statute of limitations continues to run against a corporation suspended for nonpayment of taxes.

Discussion

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As we noted previously, appellants concede their complaints were filed beyond the period permitted by the statute of limitations. Appellants contend, however, that the statute of limitations was tolled during the period in which respondent's corporate powers were suspended pursuant to Revenue and Taxation Code section 23301

The term "statute of limitations" applies to a number of acts which prescribe the periods beyond which an action may not be brought. ( Utah Property Casualty Ins. etc. Assn. v. United Services Auto Assn. (1991) 230 Cal.App.3d 1010, 1025.) "`[Statutes of limitations] have come into the law not through the judicial process but through legislation. They represent a public policy about the privilege to litigate . . . . [T]he history of pleas of limitation shows them to be good only by legislative grace and to be subject to a relatively large degree of legislative control. . . .' [Citations.]" ( Duty v. Abex Corp. (1989) 214 Cal.App.3d 742, 752.) Two major purposes underlie statutes of limitations — protecting defendants from having to defend stale claims by providing notice in time to prepare a fair defense on the merits, and requiring plaintiffs to diligently pursue their claims. ( Jolly v. Eli Lilly Co. (1988) 44 Cal.3d 1103, 1112.)

"The general rule governing statutes of limitation[s] is that the time for commencing an action continues to tick away so long as the proposed defendant can be sued and a personal judgment obtained against him. [Citation.]" ( Bigelow v. Smik (1970) 6 Cal.App.3d 10, 12.) However, in an attempt to avoid unjust application of statutes of limitations where circumstances effectively render timely commencement of an action impossible or virtually impossible, a statute of limitations may be "tolled," i.e., its operation temporarily suspended during the pendency of a particular condition specified by statute or judicial decision. ( Cuadra v. Millan (1998) 17 Cal.4th 855, 864-865; Lewis v. Superior Court (1985) 175 Cal.App.3d 366, 372 ( Lewis).) Once the condition is lifted, the statute of limitations will continue to run. ( Cuadra at p. 864.)

The Legislature has established various provisions tolling the statute of limitations where a person entitled to sue is under a "disability" at the time the cause of action accrues, making the commencement of an action impossible or impracticable. (3 Witkin, Cal. Procedure (4th ed. 1996) Actions, § 633, pp. 812-813.) Such statutes include, for example, tolling due to plaintiff's minority or insanity (§ 352), plaintiff's incarceration (§ 352.1), and a state of war (§ 354). Other statutes provide for tolling due to the disability of plaintiff's attorney whose practice has been taken over by the court because of the attorney's incapacity to perform (§ 353.1), the defendant's subjection to an independent order of restitution for injury as a condition of probation (§ 352.5), and commencement of action stayed by injunction or statutory prohibition (§ 356). In addition, to effect the legislative purpose behind statutory tolling exceptions, courts may create tolling exceptions not prescribed by statute. ( Bollinger v. National Fire Ins. Co. (1944) 25 Cal.2d 399, 411; Lewis, supra, 175 Cal.App.3d at p. 372; Kleinecke v. Montecito Water Dist. (1983) 147 Cal.App.3d 240, 247.)

Appellants have not cited, nor have we independently uncovered any statute or judicial decision tolling the statute of limitations while a corporation is suspended for failure to pay taxes.

Revenue and Taxation Code section 23301 states: "Except for the purposes of filing an application for exempt status or amending the articles of incorporation as necessary either to perfect that application or to set forth a new name, the corporate powers, rights and privileges of a domestic taxpayer may be suspended . . ." if the corporation fails to pay its taxes or any penalty and interest which may be owing. Thus, except for filing an application for tax-exempt status or amending the articles of incorporation to perfect that application or establish a new corporate name, a suspended corporation is "disqualified" from exercising any right, power or privilege. (Rev. Tax Code, § 23301; Timberline, Inc. v. Jaisinghani (1997) 54 Cal.App.4th 1361, 1365 ( Timberline).)

During the period that a corporation is suspended for failure to pay taxes, it may not prosecute or defend an action ( Reed v. Norman (1957) 48 Cal.2d 338, 343), appeal from an adverse judgment ( Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 20-21), seek a writ of mandate ( Brown v. Superior Court (1966) 242 Cal.App.2d 519, 522), or renew a judgment obtained prior to suspension ( Timberline, supra, 54 Cal.App.4th at p. 1367). The purpose of Revenue and Taxation Code section 23301 is to "prohibit the delinquent corporation from enjoying the ordinary privileges of a going concern" ( Boyle at p. 19), and to pressure it to pay its taxes ( Peacock Hill Assn. v. Peacock Lagoon Constr. Co. (1972) 8 Cal.3d 369, 371).

Under Revenue and Taxation Code section 23301, the powers of a domestic corporation are "suspended," not dissolved, due to its failure to pay taxes. ( Graceland v. Peebler (1942) 50 Cal.App.2d 545, 547.) A suspended corporation may be sued, and service of process upon a suspended corporation is effected in the same manner as service upon a corporation that is not suspended. (§§ 416.10, 416.20; Boyle, supra, 9 Cal.2d at p. 19; Gibble v. Car-Lene Research, Inc. (1998) 67 Cal.App.4th 295, 301-313; 4 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 77, p. 133.) In addition, a suspended corporation is not protected against a judgment by default upon its failure to answer within the time allowed. (See 6 Witkin, Cal. Procedure (4th ed. 1997) Proceedings Without Trial, § 112, pp. 521-522.)

Here, neither respondent's suspended corporate status nor any conduct by respondent prevented appellants from filing their complaints timely and moving their actions forward. Appellants have failed to demonstrate the existence of circumstances which effectively rendered timely commencement of their actions impossible or impracticable.

As to Helphrey, respondent's demurrer to the third amended complaint while it was suspended constituted an unauthorized act by a suspended corporation in violation of Revenue and Taxation Code section 23301 Presumably, the court was unaware of respondent's suspended status when it ruled on the demurrer. However, the third amended complaint was superseded by the fourth amended complaint, and all prior complaints ceased to perform any function as pleadings. ( Meyer v. State Board of Equalization (1954) 42 Cal.2d 376, 384.) To the extent appellants attempt to appeal from any rulings involving the third amended complaint, it was superseded and no appeal lies therefrom. ( Lee v. Bank of America (1994) 27 Cal.App.4th 197, 215.)

Although respondent's demurrer to the Helphrey fourth amended complaint was improperly filed while it was suspended, the hearing thereon and the order sustaining the demurrer against the wrongful death plaintiffs occurred after respondent's corporate status was reinstated. Thereafter, respondent obtained summary judgment against the estate on statute of limitations grounds. As previously noted, appellants concede the action was initially filed beyond the permissible statute of limitations period, and the only issue is whether the statute of limitations was tolled during the suspension period. We have concluded there was no tolling. Therefore, had respondent asserted its statute of limitations defense against the wrongful death plaintiffs as it did against the estate's action once its corporate status was reinstated, it would have prevailed. Consequently, its premature filing of the demurrer to the fourth amended complaint was harmless.

Disposition

The order is affirmed. Costs to respondent.

We concur.

JONES, P.J. STEVENS, J.