Judge: Layne H. Melzer, Case: 01CC01440, Date: 2022-09-08 Tentative Ruling

Motion to vacate Debtor Exam

Judgment Debtor Mark Ferry’s motion for order vacating his debtor’s exam is denied.

When the assignor of a cause of action is a suspended corporation, California courts generally have recognized that the assignee is subject to the same defenses that could have been asserted against the assignor. Casiopea Bovet, LLC v Chiang (2017) 12 Cal.App.5th 656, 664; Cal-Western Business Servs., Inc. v Corning Capital Group (2013) 221 Cal.App.4th 304, 311. Thus, for example, a judge properly found that the assignee of a judgment in a corporation's favor lacked the legal capacity to sue to enforce that judgment, because the corporation was suspended at the time of the assignment and remained suspended at the time of the suit. 221 Cal.App4th at 312–314. Because a defense of lack of capacity to sue existed at the time of the notice of the assignment and could have been asserted against the corporation if it had brought the action itself, its assignee was subject to the same defense in suing to enforce the judgment. 221 Cal.App.4th at 312.

We further conclude that the trial court did not abuse its discretion in deciding to relieve Corning Capital of its failure to timely raise the defense. A defense based on a suspended corporation's lack of capacity to sue “ ‘is a plea in abatement which is not favored in law, is to be strictly construed and must be supported by facts warranting the abatement’ at the time of the plea.’ ” (Traub Co. v. Coffee Break Service, Inc. (1967) 66 Cal.2d 368, 370, 57 Cal.Rptr. 846, 425 P.2d 790.) In addition, “a plea in abatement such as lack of capacity to sue ‘must be raised by defendant at the earliest opportunity or it is waived,’ ” (Color–Vue, Inc. v. Abrams (1996) 44 Cal.App.4th 1599, 1604, 52 Cal.Rptr.2d 443). However, “[i]n the unusual circumstance where a corporation announces that it does not intend to pay its delinquent taxes, the trial court may properly relieve a defendant from his waiver and permit him to assert the corporation's lack of capacity to sue. [Citation.]” (Id. at p. 1605, 52 Cal.Rptr.2d 443; see also Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc., supra, 136 Cal.App.4th at p. 226, 39 Cal.Rptr.3d 33.) Although Corning Capital did not timely raise the lack of capacity to sue as a defense in any of its responsive pleadings,⁴ the trial court observed that Pacific West One had been suspended for over a decade and its corporate status had never been reinstated. Cal-Western also had represented to the trial court that it had no intention of reviving the corporate powers of Pacific West One by paying its delinquent taxes. Based on these facts, the trial court reasonably could find that Corning Capital's failure to assert Cal-Western's lack of capacity to sue earlier in the litigation did not bar the defense.

Cal-Western Business Services, Inc. v. Corning Capital Group (2013) 221 Cal.App.4th 304, 312–313.

If Kenvys Enterprises were the assignor of the judgment, Cal Western would apply here.

But the question is whether Kenvys Enterprises was the judgment creditor and assigned to Judgment Recovery Assistance, or whether Kenneth Meyers was. 

The initial acknowledgements of assignment and re-assignment refer to Judgment Creditor “Kenvys Enterprises c/o Kenneth Meyers, Agent for Service.”  [ROA ##3, 12.]  These acknowledgments are ambiguous.

Prior to those acknowledgments being filed, Kenvys Enterprises had been wound up and its assets and obligations distributed to Kenneth Meyers.  [Meyers Decl., ¶ 9 and Ex. 1.]  And Kenneth Meyers filed the notice of renewal of the judgment [ROA #15].  He then assigned it to Judgment Recovery Assistance.  [ROA #23.]

On the entirety of the record now before the court, the court finds that Kenneth Meyers became the owner of the judgment prior to Kenvys Enterprises being suspended and it was Kenneth Meyers who made each of the subsequent assignments, including the assignment to Judgment Recovery Assistance.

Under these facts, Cal-Western Business Servs., Inc. v Corning Capital Group, has no application here. 

Though court also notes, however, that even if Kenvys Enterprises were the assignor, and Judgment Debtor were otherwise entitled to assert defenses such as Kenvys Enterprises’ suspension as a defense against Judgment Creditor’s action, there would remain the question of waiver.  The court may relieve a judgment debtor of such waiver, but it is not required to.  In Cal-Western, the assignor had been suspended for years and there was no intention to pay the back taxes to revive its corporate status.  221 Cal.App.4th at 313.

In contrast here, while Kenvys Enterprises has been suspended for decades, Kenneth Meyer’s understanding has been that it does not matter because he is the judgment creditor and if the court determines Meyer’s understanding is wrong, Meyer is prepared to revive Kenvys Enterprises.  [Meyers Decl., ¶ 20.]

Accordingly, the court further finds that to the extent Kenvys Enterprises’ corporate status is relevant here, Judgment Debtor has waived his lack of standing defense by failing to raise it after collection efforts began. 

Accordingly, Judgment Debtor’s motion to vacate debtor’s examination is denied.