Judge: Theresa M. Traber, Case: 21STCV44398, Date: 2025-05-21 Tentative Ruling

Case Number: 21STCV44398    Hearing Date: May 22, 2025    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     May 22, 2025             TRIAL DATE: June 10, 2025

CASE:                         3BTech Inc. v. Great Northern Ins. Co.

CASE NO.:                 22STCV39646           

MOTION TO ABATE

MOVING PARTY:               Defendant Great Northern Ins. Co.

RESPONDING PARTY(S): Plaintiff 3BTech, Inc.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is a breach of contract action that was filed on December 6, 2021. Plaintiff seeks coverage for the loss of inventory destroyed by a fire in a Los Angeles warehouse while in the care of the insured non-party Pro-Com Products, Inc.

Defendant Great Northern Ins. Co moves to abate this action pursuant to Corporations Code section 2203 subdivision (c).

TENTATIVE RULING:

            Defendant Great Northern Insurance Co.’s Motion to Abate is GRANTED as modified herein.

            This action is STAYED until Plaintiff files with the Court receipts showing the payment of all fees and penalties levied under Corporations Code section 2203 and all taxes which should have been paid between the execution of Plaintiff’s 2018 Consignment Agreement and its registration with the California Secretary of State on March 22, 2022.

            The Court sets a Hearing on an Order to Show Cause Re: Filing of Receipts of Tax Payments for Monday, July 21, 2025, at 8:30 AM.

            All other hearings are advanced to this date and VACATED.

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DISCUSSION:

            Defendant Great Northern Ins. Co moves for abatement of this action.

Requests for Judicial Notice

Defendant requests that the Court take judicial notice of (1) the Complaint in this action; (2) the California Secretary of State’s Statement and Designation by Foreign Corporation of 3BTech, Inc.; (3) the Declaration of Scott C. Glovsky in support of Plaintiff’s Opposition to a Motion to Dismiss in the unrelated action 3B-Tech, Inc. v. California Protection Insurance Agency, et al. LASC Case No. 21STCV19142; (4) the docket in that action; (5) the California Franchise Tax Board’s public webpage regarding C Corporations and (6) the same website as regarding Corporations generally. Defendant also requests that the Court take judicial notice of various facts which are purported to be presented by these documents. While the Court may take judicial notice of the existence of extrinsic documents, the truth of matters asserted in those materials are not subject to judicial notice. (See Copenbarger v. Morris Cerullo World Evangelism, Inc. (2018) 29 Cal.App.5th 1, 14-15.) Moreover, Requests Nos. 3 through 6 are not material to the Court’s ruling and therefore must be DENIED. (Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301.) As to requests Nos. 1 and 2, these requests are GRANTED as to the records themselves pursuant to Evidence Code section 452(d) (court records) and (c) (official acts) respectively.

That said, as Defendant’s motion is not bound to the four corners of the pleadings, Defendant may rely upon these materials to the extent they are competent and admissible evidence of the facts which they are offered to prove.

Analysis

            Defendant moves to abate this action on the grounds that Plaintiff is a foreign corporation which did not register in this State until after commencing this action and which has not filed proof of payment of its outstanding obligations.

            Corporations Code section 2105 states that a foreign corporation “shall not transact intrastate business without having first obtained from the Secretary of State a certificate of qualification.” (Corp. Code § 2105(a).) For the purpose of that provision, “‘transact intrastate business’ means entering into repeated and successive transactions of its business in this state, other than interstate or foreign commerce.” (Corp. Code § 191(a).) Critically, section 2203 subdivision (c) of the Corporations Code states:

A foreign corporation subject to the provisions of Chapter 21 (commencing with Section 2100) which transacts intrastate business without complying with Section 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state, commenced prior to compliance with Section 2105, until it has complied with the provisions thereof and has paid to the Secretary of State a penalty of two hundred fifty dollars ($250) in addition to the fees due for filing the statement and designation required by Section 2105 and has filed with the clerk of the court in which the action is pending receipts showing the payment of the fees and penalty and all franchise taxes and any other taxes on business or property in this state that should have been paid for the period during which it transacted intrastate business.

(Corp. Code § 2203(c) [emphasis added].) A party seeking relief under these provisions must prove that the action (1) arises out of the Plaintiff’s transaction of intrastate business and (2) was commenced before the Plaintiff qualified to transact intrastate business. (United Med. Mgmt. Ltd. v. Gatto (1996) 49 Cal.App.4th 1732, 1740.)

            Although Defendant characterizes its argument as asserting Plaintiff’s lack of standing to sue, Plaintiff correctly states that Defendant’s challenge is to Plaintiff’s capacity, not standing. “There is a difference between the capacity to sue, which is the right to come into court, and the standing to sue, which is the right to relief in court.” (Color-Vue Inc. v. Abrams (1996) 44 Cal.App.4th 1599, 1604 [quoting Friendly Village Community Assn v. Silva & Hill Construction Co. (1973) 31 Cal.App.3d 220, 224; emphasis in original].) Section 2203, which denies a delinquent corporation the right to maintain a proceeding, concerns the right to come into court, not the right to relief for a particular injury, and therefore affects the corporation’s capacity to sue, not standing. Moreover, as Plaintiff states, a plea in abatement “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.)

            Defendant’s framing of the argument notwithstanding, Defendant persuasively argues that this action arises out of Plaintiff’s transaction of intrastate business on its face. Plaintiff’s Complaint expressly alleges that this action arises out of a 2018 contract with Pro-Com Products, Inc. to consign inventory to Pro-Com for storage in a warehouse in the City of Industry, California. (Complaint ¶ 6.) Plaintiff’s goods were destroyed in a warehouse fire on December 4, 2020, causing the loss of some $14 million in inventory. (Complaint ¶¶ 7-8.) Defendant has also furnished the Court with a copy of the 2018 Consignment Agreement produced in discovery, under which Plaintiff would invoice Pro-Com for products shipped to Pro-Com, which would endeavor to sell the products and pay Plaintiff the invoiced price plus taxes. (Declaration of Travis Wall ISO Mot. Exh. 1.) This activity plainly falls within the definition of “intrastate business” set forth in Corporations Code section 191(a). Moreover, the California Secretary of State’s Statement and Designation by Foreign Corporation shows that Plaintiff registered with the State of California on March 22, 2022, more than three months after commencement of this action.

            In opposition, Plaintiff argues that Defendant waived this defense by not presenting it earlier in the action. As Plaintiff states, the general rule is that a plea in abatement must be raised at the earliest opportunity—i.e. by answer or demurrer, or else it is waived. (Color-Vue, supra, 44 Cal.App.4th at 1604.) However, close examination of that opinion undermines Plaintiff’s position. In Color-Vue, the Court of Appeal found that the trial court had abused its discretion in summarily dismissing an action for the plaintiff’s failure to pay taxes where the defendant waited until the eve of trial to assert that defense without any explanation. (Color-Vue, supra, 44 Cal.App.4th at 1605.) The Court of Appeal distinguished that matter from Gar-Lo Inc. v. Prudential Savings and Loan Association (1974) 41 Cal.App.3d 242, on which Defendant in this action relies, noting that the delinquent corporation in Gar-Lo manifested no intention to pay its delinquent taxes. (Id. citing Gar-Lo Inc. v. Prudential Savings and Loan Association (1974) 41 Cal.App.3d 242, 244.) Where, as in Color-Vue, the corporation openly stated its intention to pay taxes, the Court of Appeal found that the proper remedy was to grant a continuance to enable the corporation to bring itself into compliance and thereafter resume the action. (Id. at 1606.)

            Defendant first argues that it did not waive this defense because it did not become aware of the issue until recently reviewing pleadings in a separate action involving Plaintiff and its insurance broker, to which Defendant is not a party. (See Supplemental Declaration of Travis Wall ISO Reply ¶ 6.) The Court does not find this assertion persuasive where the Complaint, filed in December 2021, plainly alleged that Plaintiff is an Indiana corporation. (Complaint ¶ 1.) Moreover, Plaintiff’s registration is a publicly available record, and the Court fails to see how this defense only became apparent to Defendant in March 2025, on the eve of trial.

In the alternative, Defendant, relying on Gar-Lo, argues that Plaintiff is defying its tax obligations by refusing to engage with the requirements set forth in Corporations Code section 2203, which should therefore relieve Defendant from any waiver. Plaintiff’s principal opposition to the merits of the motion is that it has a “certificate of good standing” from the Secretary of State which, Plaintiff asserts, it could not have received without having paid its tax obligations. Plaintiff cites no authority supporting that position, and, moreover, section 2203 subdivision (c) specifically requires the filing of receipts showing payment. (Corp. Code § 2203(c).) A certificate of good standing is not a receipt. Notwithstanding these weaknesses in Plaintiff’s argument, the gravamen of Plaintiff’s opposition is that it has complied with its tax obligations, which cannot be fairly construed as defiance of those obligations. The Court therefore finds that Defendant has not demonstrated circumstances which warrant relief from waiver of a plea in abatement leading to summary disposition of the action.

That said, the Court of Appeal’s guidance in Color-Vue is instructive regarding the disposition of Defendant’s motion. Although Defendant brought this motion under Code of Civil Procedure section 597, Defendant specifically sought a stay of 60 days pending submission of proof by Plaintiff that it has complied with its tax obligations, with a dismissal of the action without prejudice if Plaintiff fails to comply within that time. While summary dismissal would be an abuse of discretion given Defendant’s failure to establish relief from waiver, a stay of proceedings until Plaintiff demonstrates compliance is in line with Color-Vue’s instruction. (Color-Vue, supra, 44 Cal.App.4th at 1606.) The Court will therefore order a stay of the action and set a Hearing on an Order to Show Cause regarding Plaintiff’s compliance with section 2203(c) for 60 days from this hearing.

CONCLUSION:

            Accordingly, Defendant Great Northern Insurance Co.’s Motion to Abate is GRANTED as modified herein.

            This action is STAYED until Plaintiff files with the Court receipts showing the payment of all fees and penalties set forth by Corporations Code section 2203 and all taxes which should have been paid between the execution of Plaintiff’s 2018 Consignment Agreement and its registration with the California Secretary of State on March 22, 2022.

            The Court sets a Hearing on an Order to Show Cause Re: Filing of Receipts of Tax Payments for Monday, July 21, 2025, at 8:30 AM.

            All other hearings are advanced to this date and VACATED.

            Moving Party to give notice.

IT IS SO ORDERED.

Dated: May 22, 2025                              ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

            Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept47@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.