TRANSNATIONAL MANAGEMENT, ET AL VS PEGASUS ELITE AVIATION

Tentative Rulings

Case Number: LC100724    Hearing Date: August 05, 2020    Dept: W

Amended Ruling on Defendants’ Motion to Dismiss the Second Amended Complaint

The court previously denied Defendants’ Motion to Dismiss the Second Amended Complaint, finding that a triable issue of fact existed as to whether plaintiffs were required to register with the Secretary of State given the extent of its intrastate activities. The court further found that if plaintiffs were required to register, their claims would be barred under the statute of limitations because all claims had expired during the period that they were not registered. It is undisputed that plaintiff did not register with the Secretary of State until January 22, 2020. (See Ruling on Submitted Matter dated April 15, 2020.)

Subsequently, the court conducted further research and found two cases which stood for the proposition that the filing of the cross-complaint by Pegasus tolled the statute of limitations on plaintiffs’ complaint, allowing its late registration on January 22 to revive the complaint it filed while unregistered. The court directed the parties to submit supplemental briefing on the two cases: American Alternative Energy Partners II v. Windridge, Inc. (1996) 42 Cal.App.4^th 551, and Electronic Equipment Express, Inc. v. Donald H. Seiler & Co. (1981) 122 Cal.App.3d 834. The parties submitted supplemental briefing, which the court has now considered.

The court has the inherent ability to reconsider its own interim orders to correct any errors it has made. (Le Francois v. Goel (2005) 35 Cal.4^th 1094, 1096.) In the instant case, the court provided notice to counsel that it was reconsidering its orders as they related to the statute of limitations and the consequences of the lack of registration in this case and allowed them to fully brief the issue. The court concludes that it erred in failing to address the rulings of American Alternative Energy Partners and Electronic Equipment; when those cases are considered, it is evident that the statute of limitations was tolled with the filing of the cross-complaint on July 18, 2014. It remained tolled until January 22, 2020, when registration revived the complaint. Because plaintiffs’ causes of action (all of which had a four year statute of limitations) had not expired prior to July 18, 2014, those causes have now been revived with the registration.

Electronic Equipment holds that the filing of a cross-complaint tolls the statute of limitations for the plaintiff’s claims. In that case, the court considered a plaintiff corporation which was suspended at the time it filed its complaint for accounting malpractice. The statute of limitations expired on its claims during the time that it was still suspended. However, because the accounting firm had filed a cross-complaint against the corporation prior to the running of the statute of limitations on the accounting malpractice claim, the court held that the statute of limitation was tolled and posed no bar to revival of the plaintiff’s claims when its corporate status was reinstated. Although Electronic Equipment dealt with the suspension of a corporation and here we face an unregistered corporation, the court sees no reason to distinguish between the two situations. The filing of the cross-complaint tolled the statute of limitations in Electronic Equipment, and it does so here was well.

Defendant dismisses Electronic Equipment as wrongly decided, “flawed,” “sloppy,” and “illogical.” Nonetheless, it is binding precedent and was followed by American Alternative Energy Partners. (42 Cal.App.4^th 551, 564.) Defendant also argues that the two cases are inapplicable because they dealt with voluntarily filed cross-complaints, and theirs was a compulsory cross-complaint. While it is true that the Electronic Equipment decision concluded that the cross-complaint before it was voluntarily filed before the statute of limitations had run, the cross-complaint was technically a compulsory cross complaint as it arose out of the same transaction as the malpractice case brought against it. Indeed, it was an action for unpaid accounting fees. Thus, the decision in Electronic Equipment would cover compulsory counterclaims, as presented here. Electronic Equipment merely noted that the cross-complainant could have waited to file its counter-claim until after the statute of limitations had expired. Here too, Pegasus could have waited until January 2017 to file its cross complaint, by which time the statute of limitations would have expired on all of plaintiffs’ claims. The court also does not find sufficient evidence of unclean hands on the part of the Transnational plaintiffs with respect to a single discovery response in which they stated they “believed” they were qualified to do business in every state. The plaintiffs did not state that they were registered with the Secretary of State in California. Defendant could easily have checked with the Secretary of State on this basic fact, rather than raising it after seven years of litigation. This central and easily discoverable fact seems to have been overlooked in the heated battle that has raged between the parties for nearly a decade.

Because the statute of limitations no longer poses a bar to plaintiffs’ claims, there is no need for the court to bifurcate this case to address whether or not plaintiffs were involved in intra or interstate commerce. The statute scheme is clear that all that is required is registration, which plaintiff has now done. If plaintiff owes back taxes or faces some other penalty due to its late registration, that is not for this court or this proceeding to decide. Once “registered” a foreign corporation can defend and prosecute an action. (Corp. Code § 17708.07(a).) There is also no need for any further discovery on the issue of plaintiff’s intrastate business, taxation records or other issues raised by the registration issue.