Judge: Douglas W. Stern, Case: 19STCV20539, Date: 2022-09-14 Tentative Ruling

Please contact Department 52 at SMCDEPT52@lacourt.org and send a copy of the email to all parties, to advise the courtroom staff if parties are submitting on the court’s tentative ruling.
Please provide the Case Name, Case Number, and party.

Case Number: 19STCV20539    Hearing Date: September 14, 2022    Dept: 52

Tentative Ruling:  

Defendant R&H Automotive Group, Inc.’s Motion for Leave to File Cross-Complaint

Defendant R&H Automotive Group, Inc. (R&H) moves for leave to file a cross-complaint against plaintiff American Honda Finance Corporation and non-party American Honda Motor Corporation.

R&H cannot file a cross-complaint unless it has been revived or has substantially complied with the revivor statutes.  A corporation suspended by the Franchise Tax Board may not prosecute or defend an action.  (Cal-Western Business Services, Inc. v. Corning Capital Group (2013) 221 Cal.App.4th 304, 310.) 

Suspension

R&H is currently suspended.  R&H’s counsel states the company “regained good standing with the California Secretary of State in late July 2022” (McCreary Decl., ¶ 4) and “was informed that it was back in good standing” on July 16, 2022 (Id., ¶ 5). 

Plaintiff rebuts those assertions.  The Secretary of State’s “website indicates that R&H has not obtained a revivor and remains FTB suspended as of August 31, 2022.”  (Darbinyan Decl., ¶ 3, Ex. A.) 

Substantial Compliance

Though it has not yet been revived, R&H has substantially complied with the revivor statute.  When a corporation is suspended under Business and Professions Code sections 23301 (for failing to timely pay taxes, penalties, or interest) or 23301.5 (for failing to file a tax return), it “may nonetheless prosecute or defend an action prior to its official revivor provided there has been substantial compliance with the revival statute.”  (Sade Shoe Co. v. Oschin & Snyder (1990) 217 Cal.App.3d 1509, 1515.)  Substantial compliance requires “satisfying the policy of the statute” under which the corporation was suspended.  (Ibid.)  “[T]he legislative intent underlying section 23301 is to pressure a corporation to pay its delinquent taxes.”  (Ibid.)  “[W]hen a corporation continues to owe money to the state, either for taxes, interest or penalties, there can be no substantial compliance.”  (Id. at p. 1516.)

R&H has substantially complied.  It paid the money it owed to the Franchise Tax Board (FTB).  R&H’s president, Hooman Nissani, states the corporation paid the FTB “to satisfy all outstanding tax liability.”  (Nissani Decl., ¶ 8.)  Nissani submitted copies of two checks to the FTB: one on May 9, 2022 for $810 and one on May 11 for $947.  (Id., Ex. A.)  

Leave to File a Cross-Complaint

The standard for granting leave to file an untimely cross-complaint depends on whether the proposed crossclaims are compulsory or permissive.  The proposed cross-complaint includes both types of claims.

Permissive Crossclaims

The proposed cross-complaint alleges its first three cause of action against non-party American Honda Motor Corporation, Inc.  Only claims against the plaintiff are compulsory crossclaims.  (CCP § 426.30(a).)  Claim against a non-party are never compulsory.  The claims against American Honda Motor Corporation, Inc. are permissive. 

For permissive crossclaims, “[l]eave may be granted in the interest of justice at any time during the course of the action.”  (CCP § 428.50(c).)  Granting leave “is solely within the trial court’s discretion.”  (Crocker Nat. Bank v. Emerald (1990) 221 Cal.App.3d 852, 864.)

R&H delayed too long before bringing this motion.  The trial is less than three months away.  Permitting R&H to insert a new party into the action at this late stage is not in the interest of justice.  The court exercises its discretion to deny leave to file permissive crossclaims against non-party American Honda Motor Corporation, Inc. 

Compulsory Crossclaims Against Plaintiff

R&H’s causes of action against plaintiff American Honda Financing Corporation are compulsory.  Crossclaims for a “related cause of action” against the plaintiff are compulsory.  (CCP § 426.30(a) [prohibiting other actions against plaintiff for related cause of action].)  A cause of action is “related” if it “arises out of the same transaction, occurrence, or series of transactions or occurrences as the cause of action which the plaintiff alleges in his complaint.”  (CCP § 426.10(c).)  To avoid “a multiplicity of actions,” this statute “must be liberally construed to effectuate its purpose.”  (Align Technology, Inc. v. Tran (2009) 179 Cal.App.4th 949, 959.) 

R&H’s proposed cross-complaint alleges related causes of action that arise out of the same transactions or occurrences as plaintiff’s causes of action: a contractual business relationship in which plaintiff lent money to R&H to operate as an Acura dealer.    

When a party fails to timely bring compulsory crossclaims, “whether through oversight, inadvertence, mistake, neglect, or other cause,” the court may grant leave to file a cross-complaint “at any time during the course of the action” so long as the moving party “acted in good faith.”  (CCP § 426.50.)  This provision is “liberally construed to avoid forfeiture of causes of action.”  (Ibid.) 

Denying leave to file a compulsory cross-complaint requires “bad faith of the moving party.”  (Silver Organizations Ltd. v. Frank (1990) 217 Cal.App.3d 94, 99; accord CCP § 426.50.)  “Bad faith” implies “ ‘actual or constructive fraud, or a design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake ..., but by some interested or sinister motive[,] ... not simply bad judgment or negligence, but rather ... the conscious doing of a wrong because of dishonest purpose or moral obliquity; ... it contemplates a state of mind affirmatively operating with furtive design or ill will.’ ”  (Id. at p. 100.)  Finding bad faith requires “substantial evidence.”  (Ibid.)

R&H filed its answer on June 26, 2020.  Though R&H delayed over two years before filing this motion, the court finds insufficient evidence of bad faith.  Plaintiff’s opposition shows a concerning pattern of delay by R&H Automotive and its former president and co-defendant, Hooman Nissani in this and other cases.  The evidence, however, falls short of showing R&H has engaged in “unusually reprehensible” efforts to delay the litigation.  (Foot’s Transfer & Storage Co. v. Superior Court (1980) 114 Cal.App.3d 897, 903.)  Much of the delay can be attributed to R&H’s suspension by the Franchise Tax Board.  It was suspended no later than September 2021.  (McCreary Decl., ¶ 5.)  R&H “promptly” worked to cure the suspension.  (Nissani Decl., ¶ 3.) 

Disposition

          The motion is granted in part as to defendant R&H Automotive Group, Inc.’s causes of action against plaintiff American Honda Finance Corporation. 

The motion is denied as to defendant R&H Automotive Group, Inc.’s causes of action against non-party American Honda Motor Corporation, Inc. 

          Defendant R&H Automotive Group, Inc. is ordered to file its cross-complaint forthwith.  Under CCP § 436, the court hereby strikes all references to “American Honda Motor Corporation, Inc.” and “AHMC” from R&H’s cross-complaint.