Judge: Richard Y. Lee, Case: 30-2019-01101750, Date: 2022-11-17 Tentative Ruling

Defendants/Cross-Complainants, Dev Bakery, LLC (“Dev Bakery”) and Devin Colvin (“Colvin”) move for an order striking the Complaint, and Answer to Cross-Complaint of Plaintiff/Cross-Defendant, Wonderland Brands, California, LLC (“Wonderland”).

On October 30, 2022, Dev Bakery and Colvin filed an Ex Parte Application to Strike Wonderland’s Complaint and Answer to Cross-Complaint, or in the Alternative, Grant a Short Continuance. (ROA 399.) The Court scheduled the Motion to Strike Complaint and Motion to Strike Answer to Cross-Complaint for November 17, 2022. (ROA 410.) The Ex Parte Application serves as the moving papers for the motions. (Ibid.)

Dev Bakery and Colvin bring the motions pursuant to Code of Civil Procedure sections 435 and 436 on the ground that the Complaint and Answer to Cross-Complaint filed by Wonderland are not drawn in conformity with the laws of this state as Wonderland’s corporate status is “FTB FORFEITED,” and a forfeited entity loses all legal rights and privileges including the ability to sue or defend. They also provide that counsel attempted to met and confer with Wonderland’s counsel to resolve this issue but received no response. They additionally assert that monetary sanctions in the amount of $5,000 is warranted as anyone who purports to exercise the rights and powers of a suspended corporation is guilty of a misdemeanor under Revenue & Tax Code section 19719(a).

Wonderland filed two oppositions which are substantially similar. (ROA 441, 443.) Wonderland contends that the motions are moot as they have obtained a Certificate of Revivor from the Franchise Tax Board (“FTB”). Wonderland also contends that Revenue & Tax Code section 19719 does not support monetary sanctions for a party in civil litigation, that Dev Bakery and Colvin never made a demand on Wonderland to cure its FTB suspension 21 days prior to filing their Ex Parte Application under Code of Civil Procedure section 128.5, and that there is no basis in law or fact that justifies the imposition of sanctions against Wonderland or its counsel. As to the Motion to Strike Complaint, Wonderland argues that a motion to strike is not the proper procedural mechanism and that the appropriate procedural remedy is to challenge Wonderland’s lack of capacity to sue through a motion for leave to amend the Answer to include an affirmative defense based on a plea of abatement.

Pursuant to California Revenue and Taxation Code section 23301, “the corporate powers, rights and privileges of a domestic taxpayer may be suspended” if it does not pay its taxes. “The suspension of the corporate powers, rights, and privileges means a suspended corporation cannot sue or defend a lawsuit while its taxers remain unpaid. [Citation.] Once a suspended corporation pays its taxes and obtains a certificate of revivor, however, the corporation may be allowed to carry on the litigation. [Citation.] Its revivor will validate most otherwise invalid prior proceedings in the case. [Citation.]” (Kaufman & Broad Communities, Inc. v. Performance Plastering, Inc. (2006) 136 Cal.App.4th 212, 217-218.)

Initially, the Court notes that while the moving papers refer to Wonderland’s Complaint, the current operative complaint is the Second Amended Complaint filed on May 17, 2021 (ROA 352).

Nevertheless, here, Wonderland obtained a Certificate of Revivor from the FTB on September 1, 2022. (Declaration of Jeffrey R. Krinsk, ¶ 4; Ex. A; ROA 445.) Therefore, the motions to strike are DENIED as MOOT.

As to monetary sanctions, Revenue & Tax Code section 19719 states, in relevant part:

(a)      Any person who attempts or purports to exercise the powers, rights, and privileges of a corporation that has been suspended pursuant to Section 23301 or who transacts or attempts to transact intrastate business in this state on behalf of a foreign corporation, the rights and privileges of which have been forfeited pursuant to the section, is punishable by a fine of not less than two hundred fifty dollars ($250) and not exceeding one thousand dollars ($1,000), or by imprisonment not exceeding one year, or both fine and imprisonment.

(Rev. & Tax. Code, § 19719(a).)

The statute upon which Dev Baker and Colvin relies does not support an award of monetary sanctions under the circumstances of the instant motions. Dev Bakery and Colvin’s request for monetary sanctions is DENIED.

Wonderland to give notice.