Judge: Loren G. Freestone, Case: 37-2022-00018753-CU-BC-CTL, Date: 2023-10-27 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - October 26, 2023

10/27/2023  10:30:00 AM  C-64 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Loren G. Freestone

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Civil - Unlimited  Breach of Contract/Warranty Motion Hearing (Civil) 37-2022-00018753-CU-BC-CTL ROOTS PROPERTIES INC VS MALAN [IMAGED] CAUSAL DOCUMENT/DATE FILED:

TENTATIVE RULING Plaintiff Roots Properties Inc.'s motion for reconsideration is DENIED.

Preliminary Matters Roots' motion cites and extensively quotes American Retail Management Inc. v. Bakersfield Food City Inc. (1988) 201 Cal.App.3d 1312). However, that opinion was depublished by the California Supreme Court. As such, the case may not be cited, lacks any precedential value, and will not be considered.

(Cal. Rules of Court, rule 8.1115(a).) Two days before the hearing on this motion, Roots filed a 'supplemental memorandum of points and authorities in support of motion for reconsideration,' as well as a 'supplemental declaration of Richard A.

Morse in support of motion for reconsideration.' These were in addition to its 10-page reply brief.

Attorney Morse declares that the brief contains a new argument and new cases that he did not identify until preparing for oral argument. One of those new cases that Roots cites and extensively quotes from is yet another unpublished opinion (Rode v. Front Range Motorcycles, Inc. (Cal.Ct.App., Jan. 12, 2009, B206562) 2009 WL 58901). The court declines to consider this additional briefing on the basis it is untimely without a sufficient excuse, exceeds the permissible page limits when combined with the previously filed reply, and impermissibly relies on unpublished authority. (Cal. Rules of Court, rules 3.1113(g), 1300(d); see, e.g., Jack v. Ring LLC (2023) 91 Cal.App.5th 1186, 1210; Mackey v. Board of Trustees of California State University (2019) 31 Cal.App.5th 640, 657; Bozzi v. Nordstrom Inc. (2010) 186 Cal.App.4th 755, 765.) Reconsideration v. New Trial Roots' motion is stylized as a motion for reconsideration. This is not a proper motion as this juncture.

Upon entry of judgment, courts lose 'jurisdiction to entertain or decide a motion for reconsideration.' (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 859, fn. 29.) Here, the motion was not filed until 11 days after judgment was entered.

However, 'several courts have tacitly approved the treatment of a motion for reconsideration as a motion for a new trial.' (Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal.App.4th 187, 192–193.) In light of the fact that the motion complies with the deadlines for a motion for new trial (Code Civ. Proc., §§ Calendar No.: Event ID:  TENTATIVE RULINGS

3011646  35 CASE NUMBER: CASE TITLE:  ROOTS PROPERTIES INC VS MALAN [IMAGED]  37-2022-00018753-CU-BC-CTL 659–660), and in the interests of justice, the motion will be construed accordingly.

Intrastate Business Roots argues that it was not required to register to do business in California because the loans did not constitute intrastate business, and therefore it should have been allowed to pursue its contract claim.

The basis for this aspect of the motion is apparently either an '[i]insufficiency of the evidence' to justify the decision, an 'error in law,' or that 'the decision is against law.' (See Code Civ. Proc., § 657(6), (7).) In undertaking this analysis, Roots cannot rely on declarations and must instead rely on the minutes and trial evidence. (See id. at §§ 658, 660.) 'A foreign corporation shall not transact intrastate business without having first obtained from the Secretary of State a certificate of qualification.' (Corp. Code § 2105, subd. (a).) 'Transact intrastate business' means 'entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.' (Id. at § 191, subd. (a).) If the corporation conducts such business without such certificate, it cannot 'maintain any action or proceeding upon any intrastate business so transacted in any court of this state' until it qualifies, pays fees, taxes, and a penalty, and filed a receipt with the court showing such payment. (Id. at § 2203, subd. (c).) Corporations Code section 2203, however, was not the basis for the court's decision.

The court's decision was premised on Revenue and Taxation Code section 23304.1, subdivision (b), which states: 'If a foreign taxpayer that neither is qualified to do business nor has an account number from the Franchise Tax Board, fails to file a tax return required under this part, any contract made in this state by that taxpayer during the applicable period [i.e., from the first day of the taxable year for which a return was not filed until the earlier of when the taxpayer qualifies to do business or obtains an account number] shall, subject to Section 23304.5, be voidable at the request of any party to the contract other than the taxpayer.' In other words, the issue was that Roots failed to pay state taxes. It was obligated to pay a state franchise tax as long as it was 'doing business' in California. (See Rev. & Tax Code, § 23151, subd.

(a); see also White Dragon Productions, Inc. v. Performance Guarantees, Inc. (1987) 196 Cal.App.3d 163, 169–170 & fn. 8.) If it had not paid the tax when it entered into the contracts, then the contracts are voidable. (See Rev. & Tax. Code, § 23304.1, subd. (b); White Dragon, supra, 196 Cal.App.3d at pp.

169–172.) Here, although Roots is a Canadian corporation, there is substantial evidence that it was 'doing business' in California. For example, the complaint contains a judicial admission that 'all parties [which includes Roots] do business in San Diego County.' Roots also subsequently registered to do business in California shortly after entering the loan agreement and amendments. As such, there is substantial evidence that it was obligated to pay a state franchise tax.

Nor does Roots dispute that it did not pay the required state franchise taxes. Indeed, the fact that Roots had not qualified to conduct business in California is itself substantial evidence that it failed to pay the tax. (See White Dragon, supra, 196 Cal.App.3d at pp. 171–172.) As Roots was 'doing business' in California and did not pay the state franchise tax, Section 23304.1, subdivision (b), applies.

White Dragon v. Ogden Martin Roots argues that the White Dragon case, cited above, 'is no longer authoritative' in light of the Ninth Circuit's holding in Ogden Martin Systems, Inc. v. San Bernardino County (9th Cir. 1991) 932 F.2d 1284.

The basis for this aspect of the motion is apparently either an '[e]rror in law' or that that 'the decision is Calendar No.: Event ID:  TENTATIVE RULINGS

3011646  35 CASE NUMBER: CASE TITLE:  ROOTS PROPERTIES INC VS MALAN [IMAGED]  37-2022-00018753-CU-BC-CTL against law.' (See Code Civ. Proc., § 657(6), (7).) To the extent Roots argues that Ogden is binding, it is incorrect. 'Federal decisional authority is neither binding nor controlling in matters involving state law.' (Gregg v. Uber Technologies, Inc. (2023) 89 Cal.App.5th 786, 801–802.) On the contrary, a superior court is bound to follow an opinion from the California Court of Appeal, even if it conflicts with a federal opinion. (See O'Neil-Rosales v. Citibank (South Dakota) N.A. (2017) 11 Cal.App.5th Supp. 1, 6, fn. 3.) Moreover, Ogden it itself no longer authoritative.

White Dragon and Ogden both involved former Revenue and Taxation Code section 23304, which stated: 'Every contract made in violation of this article is hereby declared to be voidable, at the instance of any party other than the taxpayer.' The 'article' referenced is Article 7, entitled 'Suspension and Revivor.' That article includes provisions that allow 'the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state' to be forfeited if it fails to file a tax return or pay all taxes, penalties, and interests due. (See Rev. & Tax. Code, §§ 23301, 23301.5.) White Dragon and Ogden disagreed as to the interplay between these statutes when dealing with an unregistered foreign corporation.

In White Dragon, the court held that the failure to file a return/pay taxes was itself sufficient to render the corporation's contracts voidable, and that it was not necessary for there to have been an actual forfeiture. (White Dragon, supra, 196 Cal.App.3d at pp. 170–171.) The court explained why this result made practical sense in the context of an unregistered foreign corporation: '[W]hat concerns us is that Franchise Tax Board can only submit names of tax-delinquent foreign corporations to the Secretary of State for suspension purposes if it is aware of their existence. When the state has no record of their existence, suspension or forfeiture is impossible.' (Id. at p. 171.) In Ogden, the Ninth Circuit held that White Dragon was 'wrongly decided' and 'declined to adopt the result' because it 'would conflict with California's statutory scheme for enforcing its franchise tax laws' and 'nothing in the statute provides that a court may abridge the suspension procedures when a foreign corporation is involved.' (Ogden, supra, 932 F.2d at pp. 1288–1290.) The Ninth Circuit explained its more literal approach as follows: 'Unless the powers of a corporation are suspended by the Franchise Tax Board, the corporation does not violate Article 7 by forming contracts. Hence, the contracts of a corporation whose powers have not been suspended are not voidable under section 23304. Contracts are voidable under this section only if the contract is in violation of Article 7, not for any violation of the franchise tax laws.' (Id. at p. 1290, emphasis in original.) Roots, however, overlooks a critical footnote in Ogden, which states: 'Since the decision in White Dragon and the district court's decision in this case, the California legislature has modified the applicable sections of the Revenue and Taxation Code ('Code'). Section 23304 has been repealed and replaced with section 23304.1, which partially adopts the reasoning of White Dragon but mitigates its harsh result. Section 23304.1 provides that if a foreign corporation violates certain sections of the Code, any contract entered into by the foreign corporation is voidable by any other contracting party, in accordance with White Dragon. However, the harsh penalty of White Dragon is eliminated by the cure provision of section 23305.1, which provides that a foreign corporation can enforce its otherwise voidable contracts if it files the necessary documents and pay taxes and penalties.' (Ogden, supra, 932 F.2d at p. 1289, fn. 6.) The reason this was in a footnote is because the new legislation, section 23304.1, did not apply to pending cases and therefore had no application in Ogden.

(Ibid.) Here, however, the legislative codification of White Dragon does apply and was an appropriate basis for the court's decision.

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3011646  35 CASE NUMBER: CASE TITLE:  ROOTS PROPERTIES INC VS MALAN [IMAGED]  37-2022-00018753-CU-BC-CTL Cure Roots argues that the contracts are not voidable because it registered to do business in California before filing this lawsuit. The basis for this aspect of the motion is apparently either an '[i]insufficiency of the evidence' to justify the decision, an 'error in law,' or that 'the decision is against law.' (See Code Civ.

Proc., § 657(6), (7).) As noted above, the legislature tempered the harsh result of White Dragon by including a cure provision.

Specifically, contracts are voidable 'subject to Section 23304.5.' (Rev. & Tax Code, § 23304.1, subd.

(b).) Section 23304.5 states that judgment ordering the contract to be rescinded 'shall not be issued unless the taxpayer is allowed a reasonable opportunity to cure the voidability under section 23305.1.' Section 23305.1, in turn, requires the taxpayer to 'make application to the Franchise Tax Board for relief from the voidability provisions of Section 23304.1.' The taxpayer must (1) provide the FTB with an application for relief from contract voidability, (2) include the period for which relief is requested, (3) file all tax returns required, including for the period for which relief is requested, (4) pay any tax, additions to tax, penalties, interests, and other amounts owning to the FTB, including for the period for which relief is requested, (5) pay any penalty imposed for the period for which relief is requested. (Rev. & Tax. Code, § 23305.1, subd. (a)(1)–(5).) If relief is granted, the FTB provides the taxpayer with a certificate of relief from voidability indicating the period for which relief is granted. (Id. at subd. (c)(2).) The certificate is prima facie evidence of the relief from voidability for contracts entered into during the period of relief stated. (Id. at subd. (d).) Upon being granted relief, all contracts that have not already been rescinded by a final court order may be enforced as if it had never been voidable. (Id. at subd. (c)(1)(A); see also id. at § 23305.2 [setting forth alternative method of obtaining a certificate of relief from voidability].) Roots does not contend that it ever applied to the FTB under section 23305.1 and obtained relief. Nor was any evidence of such application and relief presented trial (e.g., a certificate of relief from the FTB).

Belatedly registering to do business is not, in and of itself, sufficient to cure the voidability.

Surprise Roots argues that the voidability issue was not raised until the first day of trial and it did not have a chance to research/brief the issue before the court rendered its decision. The basis for this aspect of the motion is apparently a '[s]urprise, which ordinary prudence could not have guarded against.' (Code Civ.

Proc., § 657(3).) Here, in the parties' joint trial readiness report, the very first legal issue that is identified as being in dispute is whether the loan agreement and amendments 'are valid and enforceable agreements.' Moreover, when granting leave to amend the answer to allow an affirmative defense under section 23304.1, the court found that 'notice of rescission was given before litigation commenced.' And there is no indication Roots was unaware of its own tax delinquencies. As such, Roots has not established surprise, much less any that it could not have guarded against.

Moreover, Defendants presented their pocket brief on this issue at 9:15am on the second day of trial.

The minute order then states: 'Court and counsel discuss the facts presented. Parties to meet and confer regarding legal issues and the briefing submitted. There is no objection by plaintiff.' The court then recessed until 1:30pm. Thus, Roots received several hours to address the discrete legal issue raised in the pocket brief. The minutes do not indicate a request for any time beyond that which was provided. (See Subriar v. City of Bakersfield (1976) 59 Cal.App.3d 175, 212–213 [motion for new trial based on surprise properly denied because even though issue was not raised by petitioner until after the trial was over, the new issue simply involved 'a legal conclusion from the facts already established' and the respondent 'had an opportunity to answer respondent's contention'].) Finally, a new trial can only be granted if surprise 'materially affect[ed] the substantial rights' of the moving party. (Code Civ. Proc., § 657; see also Cal. Const., art. 6, § 13.) As set forth throughout this order, Roots' arguments on the merits of the voidability issue are not persuasive. Had Roots been given Calendar No.: Event ID:  TENTATIVE RULINGS

3011646  35 CASE NUMBER: CASE TITLE:  ROOTS PROPERTIES INC VS MALAN [IMAGED]  37-2022-00018753-CU-BC-CTL additional notice and time to brief the issue before the court rendered its decision, the end result would have been the same.

Amount of Restitution Roots argues that the amount of restitution should be $1,197,052 instead of $1,062,351. The basis for this aspect of the motion is apparently 'inadequate damages.' (Code Civ. Proc., § 657(5).) A motion for new trial on this basis 'must be made on the minutes of the court.' (Code Civ. Proc., § 658.) This includes 'any depositions or documentary evidence offered at the trial and to the report of the proceedings on the trial taken by the phonographic reporter, or to any certified transcript of the report or if there be no such report or certified transcript, to the proceedings occurring at the trial that are within the recollection of the judgment.' (Id. at § 660.) Here, Roots simply asserts that it 'appears the court failed to take into account all negatively transactional expenses for the Harrison property as to the requisite attorney's fees/costs to finalize all of the multifaceted elements with numerous parties.' Roots does not cite to any minutes of the court supporting its position. Nor did Roots submit copies of any exhibits from trial that support this argument (the only document bearing on this issue in the court file is an unverified 'damages summary'). The matter was not reported, so there is no testimony to cite. And as far as the court recalls, substantial evidence supported the amount of restitution awarded and nothing more.

For the reasons set forth above, Roots has failed to meet its burden to show it is entitled to a new trial on this issue.

Judgment Debtors Finally, Roots argues that judgment should have been entered against all three defendants rather than only Ninus Malan. The court will hear from the parties on this issue.

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