Judge Michael P. Linfield, Case 22STCV16148 2022-09-22 Tentative Ruling

Judge: Michael P. Linfield, Case: 22STCV16148, Date: 2022-09-22 Tentative Ruling

Case Number: 22STCV16148 Hearing Date: September 22, 2022 Dept: 34

SUBJECT: Demurrer

Moving Party: Plaintiff Morillo Construction, Inc.

Resp. Party: Unopposed

Plaintiff Morillo Construction, Inc.’s Demurrer is SUSTAINED. Defendant Royal Construction & Architectural Corporation is stricken from the Answer of Defendants Royal and Eva Neumann to Plaintiff’s Complaint.

BACKGROUND:

On May 13, 2022, Plaintiff Morillo Construction, Inc. filed its Complaint against Defendants Royal Construction & Architectural Corporation (“Royal”); Eva Neumann; Wells Fargo Bank, National Association; Western Surety Company; East West Bank; and Does 1 through 100, inclusive. The Complaint lists causes of action regarding the alleged improper depositing of checks.

On June 10, 2022, Defendant Western Surety Company filed its General Denial. Defendant Western Surety Company concurrently filed its Verified Cross-Complaint.

On July 13, 2022, Plaintiff filed its Verified Answer to the Cross-Complaint.

On August 3, 2022, Defendant East West Bank filed its Answer to the Complaint. Defendant East West Bank concurrently filed its Cross-Complaint for Damages.

On August 11, 2022, upon request of Plaintiff, the Clerk’s Office entered the dismissal of Defendant Wells Fargo Bank, National Association.

On August 12, 2022, Defendants Royal and Eva Neumann filed their Answer to the Complaint.

On August 23, 2022, Plaintiff filed its Demurrer to Answer to the Complaint by Defendant Royal (“Demurrer”). Plaintiff demurs as to Defendant Royal’s Answer and requests that it be stricken pursuant to Revenue and Tax Code § 23301.

Defendant Royal has not responded to Plaintiff’s Demurrer.

ANALYSIS:

I. Legal Standard

A. Demurrer

A demurrer is a pleading used to test the legal sufficiency of other pleadings. It raises issues of law, not fact, regarding the form or content of the opposing party’s pleading. It is not the function of the demurrer to challenge the truthfulness of the complaint; and for purpose of the ruling on the demurrer, all facts pleaded in the complaint are assumed to be true, however improbable they may be. (Code Civ. Proc., §§ 422.10, 589.)

A demurrer can be used only to challenge defects that appear on the face of the pleading under attack; or from matters outside the pleading that are judicially noticeable. (Blank v. Kirwan (1985) 39 Cal.3d 311.) No other extrinsic evidence can be considered (i.e., no “speaking demurrers”). A demurrer is brought under Code of Civil Procedure section 430.10 (grounds), section 430.30 (as to any matter on its face or from which judicial notice may be taken), and section 430.50(a) (can be taken to the entire complaint or any cause of action within).

A demurrer may be brought under Code of Civil Procedure section 430.10, subdivision (e) if insufficient facts are stated to support the cause of action asserted. A demurrer for uncertainty (Code of Civil Procedure section 430.10, subdivision (f)), is disfavored and will only be sustained where the pleading is so bad that defendant cannot reasonably respond—i.e., cannot reasonably determine what issues must be admitted or denied, or what counts or claims are directed against him/her. (Khoury v. Maly's of Calif., Inc. (1993) 14 Cal.App.4th 612, 616.) Moreover, even if the pleading is somewhat vague, “ambiguities can be clarified under modern discovery procedures.” (Id.)

Where a demurrer is sustained, leave to amend must be allowed where there is a reasonable possibility of successful amendment. (Goodman v. Kennedy (1976) 18 Cal.3d 335, 348.) The burden is on the plaintiff to show the court that a pleading can be amended successfully. (Id.; Lewis v. YouTube, LLC (2015) 244 Cal.App.4th 118, 226.) However, “[i]f there is any reasonable possibility that the plaintiff can state a good cause of action, it is error to sustain a demurrer without leave to amend.” (Youngman v. Nevada Irrigation Dist. (1969) 70 Cal.2d 240, 245).

B. Suspended Corporations

“Except for the purposes of filing an application for exempt status or amending the articles of incorporation as necessary either to perfect that application or to set forth a new name, the corporate powers, rights and privileges of a domestic taxpayer may be suspended, and the exercise of the corporate powers, rights and privileges of a foreign taxpayer in this state may be forfeited, if any of the following conditions occur:

(a) “If any tax, penalty, or interest, or any portion thereof, that is due and payable under Chapter 4 (commencing with Section 19001) of Part 10.2, or under this part, either at the time the return is required to be filed or on or before the 15th day of the ninth month following the close of the taxable year, is not paid on or before 6 p.m. on the last day of the 12th month after the close of the taxable year.

(b) “If any tax, penalty, or interest, or any portion thereof, due and payable under Chapter 4 (commencing with Section 19001) of Part 10.2, or under this part, upon notice and demand from the Franchise Tax Board, is not paid on or before 6 p.m. on the last day of the 11th month following the due date of the tax.

(c) “If any liability, or any portion thereof, which is due and payable under Article 7 (commencing with Section 19131) of Chapter 4 of Part 10.2, is not paid on or before 6 p.m. on the last day of the 11th month following the date that the tax liability is due and payable.”

(Rev. & Tax Code, § 23301, subds. (a–c).)

“Thus, except for filing an application for tax-exempt status or amending the articles of incorporation to change the corporate name, a suspended corporation is disqualified from exercising any right, power or privilege. This means a suspended corporation may not prosecute or defend an action in a California court.” (Timberline, Inc. v. Jaisinghani (1997) 54 Cal.App.4th 1361, 1365.)

“The purpose of Revenue and Taxation Code section 23301 is to ‘prohibit the delinquent corporation from enjoying the ordinary privileges of a going concern’, and to pressure it to pay its taxes.” (Grell v. Laci Le Beau Corp. (1999) 73 Cal.App.4th 1300, 1306 (quoting Boyle v. Lakeview Creamery Co. (1937) 9 Cal.2d 16, 19).)

II. Discussion

Plaintiff argues that Defendant Royal’s Answer should be stricken from Defendants’ Answer because: (1) according to the California Secretary of State website, Defendant Royal has been suspended by the Franchise Tax Board since February 1, 2021; and (2) under California law, a suspended corporation is disqualified from exercising any right, power, or privilege –– including the ability to prosecute or defend an action. (Dem., p. 2:4–6; Dem., p. 1:27–28.)

In support of its argument, Plaintiff attaches a business search with the California Secretary of State that lists Defendant Royal as having been suspended with the Franchise Tax Board and inactive since February 1, 2021. (Dem., Ex. A.) Plaintiff also attaches a declaration from its attorney, averring that he sent a meet and confer email on August 17, 2022 to Defendant Royal’s counsel regarding this issue, to which Plaintiff’s counsel received a response. (Dem., Decl. Cosico, ¶¶ 3–5.)

Defendant Royal has not filed a response to the Demurrer.

The Court finds that Defendant Royal has been suspended by the Franchise Tax Board. The Court thus concludes as a matter of law that Defendant Royal may not defend itself in this action at this time.

The Court strikes Defendant Royal (but not Defendant Neumann) from the Answer of Defendants Royal and Neumann to Plaintiff’s Complaint.

III. Conclusion