Judge: Deborah C. Servino, Case: 30-2022-01248043, Date: 2023-06-16 Tentative Ruling

Plaintiff Craig Ziegler's motion to strike Defendant Truclear Global, Inc.'s Answer to the First Amended Complaint filed on January 5, 2023 is granted.

Plaintiff argues that Truclear Global's corporate status has been suspended for nonpayment of taxes.  A corporation whose powers have been suspended for nonpayment of the corporate franchise tax lacks capacity to sue in California courts; and, if sued, it lacks capacity to defend. (Rev. & Tax Code, § 23301; Reed v. Norman (1957) 48 Cal.2d 338, 342; see Bourhis v. Lord (2013) 56 Cal.4th 320, 324; Color-Vue, Inc. v. Abrams (1996) 44 Cal.App.4th 1599, 1603-1604 [“suspension of corporate powers results in a lack of capacity to sue, not a lack of standing to sue”].)  During the period that a corporation is suspended for failure to pay taxes, it may not prosecute or defend an action, appeal from an adverse judgment, or seek a writ of mandate. (Grell v. Laci Le Beau Corp. (1999) 73 Cal.App.4th 1300, 1306.)  A suspended corporation has no right to defend or participate in a lawsuit.  (Cadle Co. v. World Wide Hospitality Furniture, Inc. (2006) 144 Cal.App.4th 504, 513.) 

Once the delinquent taxes (plus interest and penalties) are paid, the corporation's powers are restored, thus “reviving” its capacity to sue or defend. But such revivor is “without prejudice to any action, defense or right which has accrued by reason of the original suspension . . . .” (Rev. & Tax Code, §§ 23305, 23305a; Electronic Equip. Express, Inc. v. Donald H. Seiler & Co. (1981) 122 Cal.App.3d 834, 843; see Friends of Shingle Springs Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th 1470, 1484 [dismissal proper where suspended corporation did not have standing to sue when it filed mandate petition and did not satisfy revivor requirements until after statute of limitations expired].)  Revivor of a corporation's powers validates any procedural step taken on its behalf while it was under suspension: “Procedural acts . . . are validated retroactively by corporate revival.” (Benton v. County of Napa (1991) 226 Cal.App.3d 1485, 1489-1490; Moofly Productions, LLC v. Favila (2018) 24 Cal.App.5th 993, 1000.)  Most litigation activity is characterized as “procedural” for purposes of corporate revival. (Benton v. County of Napa, supra, 226 Cal.App.3d at p. 1490.)  The purpose of the suspension is to put pressure on the corporation to pay its taxes. “There is little purpose in imposing additional penalties after the taxes have been paid.” (Peacock Hill Assn. v. Peacock Lagoon Const. Co., (1972) 8 Cal.3d 369, 371.)

Even before official revivor, a corporation may sue or defend after substantial compliance with the revival statute. But this requires payment of all taxes, interest and penalties due. (Sade Shoe Co., Inc. v. Oschin & Snyder (1990) 217 Cal.App.3d 1509, 1513; Friends of Shingle Springs Interchange, Inc. v. County of El Dorado, supra, 200 Cal.App.4th at p. 1492 [substantial compliance doctrine inapplicable where result would frustrate legislative purpose underlying shortened statutes of limitations in land use actions].)

According to the printout from the California Secretary of State's website, it appears that Truclear Global, Inc. had a forfeited status and not in good standing with the Franchise Tax Board, at least as of March 8, 2023.  (Buha Decl., Exh. B.) Truclear Global, Inc. must be in good standing with the Secretary of State and the Franchise Tax Board before it may defend and participate in this action. (See Cadle Co. v. World Wide Hospitality Furniture, Inc., supra, 144 Cal.App.4th at p. 513.) Truclear Global, Inc., appears to concede that it lacks the capacity to defend at this time.  (See Not. of Withdrawal of Answer [ROA 109].)  Accordingly, the Answer (ROA 81) is hereby ordered stricken.

Plaintiff shall give notice of the ruling.