Supreme Court Decides California Law Does Not Apply to Dissolved Out-of-State Corporation That Did Business in California

In Greb v. Diamond International Corporation (Feb. 21, 2013), the Supreme Court of California held that Delaware law governs the time for bringing an action in California against a dissolved Delaware corporation.

In December 2008, plaintiffs Walter Greb (now deceased) and his wife Karen Greb filed a complaint for personal injury and loss of consortium against defendant Diamond International Corporation and several other defendants, alleging injury from exposure to asbestos.  Although Diamond International had been dissolved for many years, plaintiffs sought recovery from unexhausted liability insurance that covered it during the decades when it did business in California. (California’s  statute allows recovery against dissolved corporations from “undistributed assets, including… any insurance assets”.)

Diamond International Corporation was a Delaware corporation that had dissolved in accordance with Delaware law in July 2005.  Delaware General Corporation Law section 278 provides that a dissolved corporation continues to exist for purposes of winding up its affairs, including prosecuting and defending lawsuits, for a period of only three years from the date of dissolution. After the expiration of the three-year period following dissolution, under Delaware law, the corporation ceases to exist and therefore lacks capacity to be sued. Because the plaintiffs’ complaint was filed more than three years after the dissolution, Diamond International argued it had no capacity to be sued and that the lawsuit was barred.

The corresponding dissolution provision in California law, Corporations Code section 2010, sets no time limitation for suing a dissolved corporation for injuries arising from its pre-dissolution conduct; the sole time limitation to such a suit is found in the applicable statute of limitations relating to each cause of action that a party might have against the corporation. Thus, if section 2010 applied to a dissolved foreign corporation, Diamond International’s capacity to be sued would be governed by California law. The plaintiffs argued that because Diamond International did business in California, California law should apply, which would mean that the corporation would have capacity to be sued and plaintiffs’ claims against it would not be barred.

The trial court agreed with Diamond International and dismissed the complaint. The court of appeal affirmed. The Supreme Court took the case because it wished to resolve the conflict in courts of appeal decisions concerning the interpretation of Corporations Code section 2010.

The Supreme Court concluded that California’s survival statute, section 2010, does not apply to foreign corporations, and it disapproved an earlier court of appeal decision to the extent it held otherwise. Because under Delaware law the corporation ceased to exist three years after dissolution, it could not be sued.

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