CREDITORS ADJUSTMENT BUREAU, INC. VS SUN & STARS LIGHTING IN

Tentative Rulings

Case Number: EC065714    Hearing Date: March 13, 2020    Dept: NCD

tentative ruling

Calendar: 12

Date: 3/13/20

Case No: EC 065714 Trial Date: None Set

Case Name: Creditors Adjustment Bureau, Inc. v. Sun & Star Lighting, Inc.

MOTION TO STRIKE ANSWER

Moving Party: Plaintiff Creditors Adjustment Bureau, Inc.

Responding Party: Defendant Sun & Stars Lighting, Inc. (No Opposition)

RELIEF REQUESTED:

Strike answer of defendant

SUMMARY OF FACTS:

Plaintiff Creditor’s Adjustment Bureau, Inc. alleges that defendant Sun & Stars Lighting, Inc. became indebted to plaintiff’s assignor, Jiangsu Evertie Lighting Co. Ltd., in the amount of $2,660,020.74, due on February 25, 2016, which defendant has failed to repay. The complaint alleges causes of action for open book account, account stated, and reasonable value.

On October 26, 2016, defendant filed its answer to plaintiff’s unverified complaint.

On September 1, 2017, defendant filed a Notice of Stay of Proceedings, based on an automatic stay caused by the filing of defendant’s bankruptcy case.

The matter has been stayed. The opposition submits a docket showing that the subject bankruptcy case was closed on October 25, 2019. [Freed Decl. ¶ 2, Ex. 1].

The court will accordingly consider the motion to strike.

ANALYSIS:

Under CCP§ 436:

“The court may, upon a motion made pursuant to CCP § 435, or at any time in its discretion, and upon terms it deems proper:….

(b) Strike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.”

The motion is apparently brought as an appeal to the court in its discretion to strike the subject pleading, as a motion to strike by the party would be untimely, as the answer here was filed on October 26, 2017.

The motion argues that Sun & Star Lighting, Inc. is a suspended corporation. The motion submits evidence from the Secretary of State Business Search Entity Detail showing that this entity as of January 10, 2020, had the status of “SOS SUSPENDED.” [Freed Decl. ¶ 3, Ex. 2].

““Corporations Code section 2205, subdivision (c) makes clear that, 'except for the purpose of amending the articles of incorporation to set forth a new name,' the suspended corporation may transact no business of any kind.” (Palm Valley Homeowners Assn., Inc. v. Design MTC, supra, 85 Cal.App.4th at p. 560.) Since “[c]onducting litigation is not 'amending the articles of incorporation to set forth a new name[,]' ” (ibid.) corporations that have been suspended for failing to file the requisite information statement are “disabled from participating in litigation activities.” (Id. at p. 556.)

Leasequip, Inc. v. Dapeer (2002, 2^nd Dist.) 103 Cal.App.4th 394, 402.

However, it is recognized that the proper remedy for such an irregularity is not to strike the pleading or sustain a demurrer, but to stay the matter pending revival of the corporation. In Color-Vue v. Abrams (1996) 44 Cal.App. 4^th 1599, 1605-1606, the Second District held that the trial court should have granted a continuance to permit the corporation to pay back taxes primarily because defendant had failed to raise the issue of the corporation’s suspension until trial, and so had waived the objection. The court held that this lack of capacity should have been raised at the earliest time, by, for example, demurrer. Color-Vue, at 1604.

The Second District in Timberline, Inc. v. Jaisinghani (1997) 54 Cal.App.4th 1361, 1365-66 has stated that if a corporation’s suspended status only comes to light during litigation, “the normal practice is for the trial court to permit a short continuance to enable the suspended corporation to effect reinstatement (by paying back taxes, interest and penalties) to defend itself in court.” Timberline, at 1366, citation omitted. The Second District emphasized that the purpose of the Revenue and Tax Code suspension provisions is to put pressure on corporations to pay taxes, and that this purpose is satisfied where tax delinquencies, once corrected, are treated as irregularities, with no further penalties. Timberline, at 1366.

There is no opposition here, so no indication that defendant has any interest in pursuing reinstatement. Nevertheless, the court could either continue the hearing for a reasonable period to permit defendant the opportunity to effect reinstatement, or the Court could grant the motion with an extended period of leave to amend, to permit defendant that opportunity.

RULING:

[No Opposition].

UNOPPOSED Motion to Strike Answer of Suspended Corporation Sun & Stars Lighting, Inc. is CONTINUED 60 days to May 15, 2002 to permit the parties to meet and confer concerning the motion, and to permit defendant a reasonable time to effect reinstatement. If no reinstatement is achieved, or initiated by that date, the answer of suspended corporation Sun & Stars Lighting Inc., will be stricken automatically pursuant to this order.