Walter GREB et al., Plaintiffs and Appellants, v. DIAMOND INTERNATIONAL CORPORATION, Defendant and Respondent.
-- February 21, 2013
Law Office of Ted W. Pelletier, Ted W. Pelletier; Clapper, Patti, Schweizer & Mason, Jack K. Clapper, Steven J. Patti and Christine A. Renken, for Plaintiffs and Appellants.Murchison & Cumming, Edmund G. Farrell III, Scott L. Hengesbach and Maria A. Starn, for Defendant and Respondent.
We granted review to resolve a conflict in the Courts of Appeal concerning interpretation of Corporations Code section 2010,1 which governs the winding-up and survival of dissolved corporations. We consider whether the statute applies to foreign corporations—those formed in states other than California—and conclude, consistently with the appellate court below, that it does not.
I. Facts and procedure
In December 2008, plaintiffs Walter Greb (now deceased) and his wife Karen Greb filed a complaint for personal injuries and loss of consortium against defendant Diamond International Corporation (defendant) and several other entities. Plaintiffs' complaint alleged injuries from exposure to asbestos. Although defendant has been dissolved for many years, plaintiffs sought recovery from unexhausted liability insurance that covered defendant during the decades when it did business in California. (See § 2011, subd. (a)(1)(A) [permitting recovery against dissolved corporations from “undistributed assets, including ․ any insurance assets”].)
Defendant demurred to plaintiffs' complaint, alleging that more than three years earlier, in July 2005, it had obtained a corporate dissolution pursuant to the laws of Delaware, defendant's state of incorporation. Accordingly, defendant argued, pursuant to Delaware's three-year survival statute,2 when plaintiffs filed their complaint in December 2008, defendant lacked the capacity to be sued. Plaintiffs opposed the motion, arguing their action was permitted under California's own survival statute, section 2010, which they asserted takes precedence over Delaware law in this setting.
The trial court ruled that California's survival statute did not apply to foreign corporations, and hence that Delaware's corresponding statute applied to defendant. Accordingly, the trial court sustained the demurrer without leave to amend, and dismissed plaintiffs' complaint with prejudice. On review, the Court of Appeal affirmed. It followed the interpretation of section 2010 set out in dicta in two prior appellate court decisions—North American Asbestos Corp. v. Superior Court (1982) 128 Cal.App.3d 138, 179 Cal.Rptr. 889 (North American I ), and Riley v. Fitzgerald (1986) 178 Cal.App.3d 871, 223 Cal.Rptr. 889 (Riley )—and disagreed with the holding concerning that statute set out in a third appellate court decision, North American Asbestos Corp. v. Superior Court (1986) 180 Cal.App.3d 902, 225 Cal.Rptr. 877 (North American II ). As noted, we granted review to resolve the conflict.3
Section 2010 provides in relevant part: “(a) A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it and enabling it to collect and discharge obligations, dispose of and convey its property and collect and divide its assets, but not for the purpose of continuing business except so far as necessary for the winding up thereof.”4 Like the law in a few other states, the section sets no time limitation for suing a dissolved corporation for injuries arising from its predissolution conduct; the sole temporal limitation to such a suit is found in the applicable statute of limitations relating to each cause of action. As we explained in Penasquitos, Inc. v. Superior Court (1991) 53 Cal.3d 1180, 1190, 283 Cal.Rptr. 135, 812 P.2d 154 (Penasquitos ): “Under our statutory scheme, the effect of dissolution is not so much a change in the corporation's status as a change in its permitted scope of activity․ Thus, a corporation's dissolution is best understood not as its death, but merely as its retirement from active business.”
The parties agree that if section 2010 does not apply to a dissolved foreign corporation, defendant's capacity to be sued would be governed solely by Delaware's corresponding survival statute—and that law would bar plaintiffs' claims against defendant. (See, e.g., In re RegO Co. (Del.Ch.1992) 623 A.2d 92, 96 [Del.'s three-year survival law precludes suit against a dissolved corporation even when the plaintiff did not know of the injury during that period].) If, on the other hand, California's section 2010 applies to a dissolved foreign corporation, a court would then be required to perform a choice-of-law analysis in order to determine which state's law should apply and govern defendant's capacity to be sued. (See Kearney v. Salomon Smith Barney, Inc. (2006) 39 Cal.4th 95, 107–108, 45 Cal.Rptr.3d 730, 137 P.3d 914 (Kearney ) [describing the traditional three-step choice-of-law inquiry].)5
We proceed to describe the conflict in the appellate decisions concerning whether section 2010 applies to dissolved foreign corporations.
A. The conflicting appellate court decisions
1. North American I
In North American I, the plaintiffs, California residents, sued the defendant, an Illinois corporation, in California for asbestos-related personal injuries suffered in California. Under the corporate survival law of Illinois, a corporation can be sued for two years after it files for dissolution. The suit was filed more than two years after the defendant had dissolved. (North American I, supra, 128 Cal.App.3d at p. 141, 179 Cal.Rptr. 889.)
The defendant moved to quash service of process, arguing it lacked the capacity to be sued under Illinois law. The trial court denied the motion, and the Court of Appeal denied the defendant's writ petition, holding that service was proper and the appropriate method for the defendant to assert its lack of capacity to be sued was by demurrer or motion for judgment on the pleadings. In dicta, the court stated that should the case go forward (and a court be required to determine whether the defendant had the capacity to be sued) it was “clear that the California survival law does not apply to suits against dissolved foreign corporations.” (North American I, supra, 128 Cal.App.3d at p. 143, 179 Cal.Rptr. 889.) The court based this conclusion on section 102, subdivision (a) (hereafter section 102(a)). (North American I, supra, at p. 144, 179 Cal.Rptr. 889.)
Section 102(a) specifies that the provisions of division 1 (the General Corporation Law) apply to (1) all “corporations organized under this division”; (2) specified “domestic corporations”; and (3) “other” corporations only to the extent the provisions of the code “expressly include[ ]” them.6
The court in North American I construed section 102(a) as providing that “with certain exceptions not applicable here the provisions of the Corporations Code apply only to domestic corporations and that application to other corporations is permitted only ‘to the extent expressly included in a particular provision of this division.’ “ (North American I, supra, 128 Cal.App.3d at p. 144, 179 Cal.Rptr. 889, italics added.) The court observed that the survival statute, section 2010, “is in chapter 20 of division 1, which is entitled ‘General Provisions Relating to Dissolution.’ Nowhere is there any mention that the provisions of that chapter or of section 2010 apply to foreign corporations. Foreign corporations are the subject of the entire next chapter, chapter 21.” (North American I, supra, at p. 144, 179 Cal.Rptr. 889.)
In addition, the court in North American I relied on a then decades-old law review note, Foreign Corporations: Continuance of Existence After Dissolution (1947) 35 Cal. L.Rev. 306. The note addressed the common law's treatment of dissolved corporations,7 and California's then relatively new survival statue, enacted in 1929—Civil Code former section 399, the direct predecessor of current Corporations Code section 2010. The note observed that “some courts, relying on the general policy of their corporation statutes, have held that the [survival] law of the forum applies to foreign as well as domestic corporations” and that in view of high court authority “[i]t is settled that such an extension is valid.” (35 Cal. L.Rev. at pp. 308–309, 179 Cal.Rptr. 889, fns. omitted.) After analyzing the existing California statutes—including Civil Code former section 278, which provided a narrow definition of the term “corporation” that expressly excluded foreign entities—the note author concluded that because California's survival statue did not expressly provide that foreign corporations were included within its scope, the statute “could hardly be applied to foreign corporations.” (35 Cal. L.Rev. at p. 309, 179 Cal.Rptr. 889; see id., fn. 23.) The author proposed that “for the protection of the corporation, the public, and creditors” the statute should be amended to apply as well to foreign corporations. (35 Cal. L.Rev. at p. 309, 179 Cal.Rptr. 889.) But, as the court in North American I observed, “[n]o such amendment has taken place.” (North American I, supra, 128 Cal.App.3d at p. 144, 179 Cal.Rptr. 889.)
The court in North American I reasoned that these statutory provisions and this history led to the conclusion that “the California survival law does not apply to suits against dissolved foreign corporations.” (North American I, supra, 128 Cal.App.3d at p. 143, 179 Cal.Rptr. 889.)
In Riley, supra, 178 Cal.App.3d 871, 223 Cal.Rptr. 889, the plaintiffs, who were the sole shareholders of a dissolved Texas corporation and assignees of its assets, sued on behalf of themselves and the dissolved corporation, seeking to recover damages sustained by the Texas corporation prior to its dissolution. The plaintiffs charged the defendants, California and Texas residents, with fraud and breach of fiduciary duty. Prior to the action, the parties had stipulated that the plaintiffs' capacity to sue would be the same as that of the Texas corporation under that state's corporate survival law. Texas law provides that a corporation continues to exist for three years after dissolution for the purpose of winding up its affairs, suing, and being sued. The suit was filed more than three years after the Texas corporation dissolved. (Id., at p. 874, 223 Cal.Rptr. 889.)
The defendants in Riley moved for judgment on the pleadings, asserting that the plaintiffs lacked capacity to sue under Texas law. The trial court granted the motion. The Court of Appeal affirmed, finding that the plaintiffs had agreed to be bound by Texas law, which applied and barred suit. (Riley, supra, 178 Cal.App.3d at pp. 877–883, 223 Cal.Rptr. 889.) And in any event, the court stated in dicta, California's survival statute, section 2010, did not apply to foreign corporations. (Riley, supra, at pp. 875–877, 223 Cal.Rptr. 889.)
Addressing that latter question, the court first cited case law from both California and Texas standing for the proposition that “the effect of corporate dissolution or expiration depends upon the law of [the corporation's] domicile.” (Riley, supra, 178 Cal.App.3d at p. 876, 223 Cal.Rptr. 889.)8 The court found that “[n]othing in the California Corporations Code indicates that this long-held principle has been overruled or superseded by statute.” (Riley, at p. 876, 223 Cal.Rptr. 889.) In reaching its conclusion the court relied substantially on section 2115, located in chapter 21 (foreign corporations) of division 1, the General Corporation Law.
Section 2115 was enacted as part of a comprehensive revision of the Corporations Code in the mid–1970s. The section addressed so-called pseudo-foreign corporations—entities incorporated outside California, but that meet two tests: (1) the corporation transacts more than half of its business (as measured by various objective criteria) in California, and (2) a majority of the voting securities are held by California residents. (See § 2115, subd. (a)(1) & (2).) Such foreign corporations must abide by numerous specified statutes within division 1, the General Corporation Law—provisions that govern corporate “internal affairs” and would not otherwise apply to foreign entities.9 This statute, which survived multiple challenges to its constitutionality in Wilson v. Louisiana–Pacific Resources, Inc. (1982) 138 Cal.App.3d 216, 187 Cal.Rptr. 852,10 further mandates adherence to these provisions “to the exclusion of the law of the jurisdiction in which it is incorporated.” (§ 2115, subd. (b).)
In concluding that the survival statute did not apply to foreign corporations, the appellate court in Riley observed that the statute is part of chapter 20, which concerns dissolution, and is not listed in section 2115 of chapter 21, setting out the statutes that apply to the foreign corporations that have the most extensive contacts with California. (Riley, supra, 178 Cal.App.3d at p. 876, 223 Cal.Rptr. 889.) Finally, the court in Riley also found support for its conclusion in North American I's analysis, described earlier. (Riley, supra, at pp. 876–877, 223 Cal.Rptr. 889.)
3. North American II
North American II involved the same defendant as North American I. And as in that earlier case, the plaintiff, a California resident, filed a personal injury action against the dissolved Illinois corporation, seeking compensation for asbestos-related injuries. Again, suit was filed more than two years after the defendant had dissolved. The defendant moved for summary judgment, asserting it lacked the capacity to be sued under the Illinois two-year survival law. The trial court denied the motion, ruling that California's survival statute, section 2010, applied to the defendant. (North American II, supra, 180 Cal.App.3d at p. 905, 225 Cal.Rptr. 877.)
The Court of Appeal, First Appellate District, Division Three—the same division that had decided North American I—affirmed in a two-to-one decision, with Justice Scott, the author of North American I, in dissent.
In concluding that section 2010 applied to foreign corporations, the majority in North American II did not address Riley, supra, 178 Cal.App.3d 871, 223 Cal.Rptr. 889, which had been filed almost two months earlier. It acknowledged that its new conclusion “deviates from the dicta in [North American I ], where this court said that Corporations Code section 2010 applied only to domestic corporations .” (North American II, supra, 180 Cal.App.3d at p. 908, 225 Cal.Rptr. 877.) The court explained that “[o]n further reflection and examination of some of the history behind Corporations Code section 2010 and related provisions of corporation law, we have concluded that section 2010 should not be so read under the circumstances of the case at bench, but should be read to protect the interests of California.” (Ibid.)
The majority in North American II observed that in 1929, when the predecessor to section 2010 was enacted, the state Constitution contained a since-repealed clause—included in the California Constitution of 1879—providing that “[n]o corporation organized outside the limits of this State shall be allowed to transact business within this State on more favorable conditions than are prescribed by law to similar corporations organized under the laws of this State.” (Cal. Const., art. XII, former § 15 [repealed in 1972], italics added.) The majority stated that pursuant to this former constitutional provision “a statute placing an obligation on a domestic corporation, such as one permitting suit against it long after its dissolution, would be read as placing a similar burden on a foreign corporation licensed to transact intrastate business in California․” (North American II, supra, 180 Cal.App.3d at p. 908, 225 Cal.Rptr. 877.)
The majority in North American II reasoned, “Article XII, section 15, was in effect when the original version of Corporations Code section 2010, applying survival law to ‘[all ] corporations,’ was adopted ․ [A]t that time Civil Code section 283 ․ stated that the provisos of its title were applicable to ‘every private corporation,’ “ and “[m]any other sections [of the statutory scheme as originally adopted in 1929] specified ‘domestic corporation’ or ‘foreign corporation’ when such a limitation was intended [citations]. Thus, in 1929 it was clear that California's survival law applied to both foreign and domestic corporations.” (North American II, supra, 180 Cal.App.3d at p. 908, 225 Cal.Rptr. 877, italics added.)
The appellate court majority acknowledged that very soon after enactment of the survival statute in 1929, the Legislature in 1931 narrowly defined the term “corporation” as meaning—unless expressly provided otherwise—“only a domestic corporation.” (North American II, supra, 180 Cal.App.3d at p. 908, 225 Cal.Rptr. 877 [referring to Civ.Code, former § 278, as added by Stats.1931, ch. 862, § 2, p. 1764, & amended by Stats.1933, ch. 533, § 1, p. 1358].) This definition continued in force until 1977, when the existing Corporations Code was repealed and replaced with the current code, which included corresponding new sections 102(a) (quoted ante, fn. 6) and 16211 —each of which similarly limits the applicability of the various statutes set out in division 1 of the new Corporations Code, and the term “corporation” as used in that new code. The majority in North American II conceded that in light of these various provisions, “the term ‘corporation’ used in [the survival statute,] ․ section 2010 could arguably have come to mean only a domestic corporation.” (North American II, supra, 180 Cal.App.3d at p. 908, 225 Cal.Rptr. 877, italics added.) The appellate court found, however, that the “circumstances of the repeal of article XII, section 15, show that no such change in the law was intended and that ‘corporation’ as used in section 2010 [and its predecessors] still has its original meaning, covering both domestic and foreign corporations to the extent that foreign corporations will not receive more favorable treatment than domestic corporations .” (Id., at pp. 908–909, 225 Cal.Rptr. 877, italics added.)12
The majority in North American II continued: “Because the electorate did not intend to change the law by repeal of article XII, section 15, we read the term ‘corporation’ in Corporations Code section 2010 to have its original meaning when we are dealing with the question of whether a foreign corporation will receive more favorable treatment than a domestic corporation, that is, to include both domestic and foreign corporations. Though the Legislature added definitional sections in 1931 [citation] and took other steps to tighten up the language of the corporation laws, it never took deliberate action to abrogate the original policy of treating foreign corporations no more favorably than domestic corporations with respect to their capacity to be sued. Nor did the electorate take action intended to exempt foreign corporations from the California survival law. We read section 2010 in accordance with the intentions of both the Legislature and the electorate.” (North American II, supra, 180 Cal.App.3d at p. 909, 225 Cal.Rptr. 877, italics added.)
The majority in North American II next addressed and rejected the suggestion that section 2115—which, as observed earlier, had been relied upon by the court in Riley—should lead to a different conclusion. (North American II, supra, 180 Cal.App.3d at pp. 909–910, 225 Cal.Rptr. 877.)13 In closing, the majority observed that there is no constitutional impediment to a state's subjecting foreign corporations to the burdens of its own survival statue. (North American II, at p. 910.)14
Justice Scott, who authored the unanimous opinion in North American I, dissented, maintaining that section 2010 did not apply to dissolved foreign corporations. Justice Scott relied on the reasoning set out in North American I, supra, 128 Cal.App.3d 138, 179 Cal.Rptr. 889, and he rejected the majority's analysis concerning the pseudo-foreign corporation statute, section 2115. (North American II, supra, 180 Cal.App.3d at pp. 911–913, 225 Cal.Rptr. 877 (dis. opn. of Scott, J.).)
Specifically disagreeing with the majority's analysis regarding the repealed constitutional provision (Cal. Const., art. XII, former § 15), Justice Scott wrote: “The only significant change since the decision in North American I is the majority's discovery of reports showing that the Constitution Revision Commission and the electorate may not have realized the full impact of the decision to repeal article XII, section 15 of the California Constitution. But no amount of electoral error in repealing article XII, section 15, can supply a missing word to Corporations Code section 2110. Whether the electorate realized it or not, repeal of article XII, section 15, removed the only bar to treating foreign corporations more favorably than domestic corporations with regard to corporate survival as the Legislature most clearly has done.” (North American II, supra, 180 Cal.App.3d at p. 913, 225 Cal.Rptr. 877 (dis. opn. of Scott, J.).)
B. The decision below
The Court of Appeal below agreed generally with North American I, supra, 128 Cal.App.3d 138, 179 Cal.Rptr. 889, and Riley, supra, 178 Cal.App.3d 871, 223 Cal.Rptr. 889—and disagreed with North American II, supra, 180 Cal.App.3d 902, 225 Cal.Rptr. 877—concluding that section 2010 does not apply to a dissolved foreign corporation. In reaching that determination, the appellate court relied on three provisions of the Corporations Code described earlier: section 102(a), which, the court found, limits the application of the provisions of the code solely to certain domestic corporations, unless a provision expressly provides otherwise; section 162, which, considered with section 102(a), the court found, evinces “a clear intent to limit the Corporations Code's general application to domestic corporations”; and section 2115, which, the court noted, “identifies all of the chapters and sections of the Corporations Code that apply to foreign corporations meeting certain threshold requirements, [but] does not mention section 2010.”
Having found the statutory scheme sufficiently clear on its face, the appellate court below dismissed as “somewhat convoluted”—and in any event irrelevant—the constitutional analysis that influenced the majority in North American II. The court viewed plaintiffs' argument in this regard as a facet of the statutory construction issue, and wrote: “Repeating the reasoning of North American II, plaintiffs here contend the 1972 repeal of article XII, section 15, of the California Constitution shows a legislative intent that California Corporations Code section 2010 apply to foreign corporations. It is well established, however, that legislative intent should not be resorted to where a statute is clear on its face. ‘In determining legislative intent, courts look first to the words of the statute itself: if those words have a well-established meaning, as we hold they do here, there is no need for construction and courts should not indulge in it.’ [Citation.]” The appellate court below did not otherwise address the constitutional arguments raised by the majority in North American II, or by plaintiffs in this case.
C. Contentions and analysis
Plaintiffs advance alternative arguments in support of their assertion that the survival statute, section 2010, applies to dissolved foreign corporations. First, they assert that the Corporations Code, properly construed, renders foreign corporations like defendant subject to the statute—and they also argue that such an interpretation would promote sound policy objectives. Second, plaintiffs assert that even if the code does not make foreign corporations subject to California's survival statute, California's Constitution mandates that same result. We address these arguments in turn.
1. Do section 102(a) and related provisions render foreign corporations like defendant subject to section 2010, the survival statute?
As alluded to earlier, the statutes governing the formation, conduct, and existence of business (for profit) corporations in California are found in the many chapters and scores of sections of title 1, division 1, the General Corporation Law, sections 1–2319.15 Plaintiffs rely primarily on section 102(a) (quoted in full ante, fn. 6), which as noted earlier defines the application of the General Corporation Law, and its numerous statutory provisions, including section 2010. Reduced to its essence as relevant here, section 102(a) specifies that the General Corporation Law, division 1, applies to (1) “corporations organized under this division,” to (2) certain “domestic corporations ” and to (3) “any other corporation only to the extent expressly included in a particular provision of this division .” (Italics added.)16
Plaintiffs assert that section 102(a) and related provisions disclose legislative intent to apply the survival statute, section 2010, to foreign corporations like defendant that transact business in California. As explained below, we disagree.
The parties concur that the second and third categories of corporations subject to the General Corporation Law under section 102(a) are not implicated in the present case. The second category was adopted to make it clear that the comprehensive mid–1970s amendments to the General Corporation Law applied not only to future entities “organized under” it, but also to the many existing domestic corporations organized under prior California laws.17 But defendant is not a domestic corporation, and hence does not fall within that category. And unlike some other sections within division 1 that expressly apply to “other” (including foreign) corporations,18 section 2010, the survival statute, does not.
This leaves the first category set out in section 102(a)—“corporations organized under this division.” Based on this language, it would appear to be doubtful that defendant is a corporation within that category. The phrase “organized under,” given its ordinary usage, would seem to relate to the fundamental creation and structuring of a corporation—matters governed by division 1, chapter 2 (organization and bylaws), sections 200–213. Defendant, incorporated in Delaware, clearly was not formed or created under division 1, the General Corporation Law.
Plaintiffs nevertheless insist that defendant was indeed “organized under division 1.” They reason as follows: (i) The code defines the term “domestic corporation” as “a corporation formed under the laws of this state ” (§ 167, italics added); (ii) by using the different phrase “organized under this division ” in section 102(a), the Legislature must have intended to draw a distinction between “domestic” corporations and those “organized under” division 1—and hence to include within the category of corporations subject to division 1, the General Corporation Law, those foreign corporations that transact business in the this state; (iii) defendant qualifies as being “organized under this division” because under division 1, chapter 21 (foreign corporations) defendant was subject to various requirements, which plaintiffs characterize as “organizational mandates for transacting intrastate business” in California.
Specifically, as plaintiffs observe, pursuant to chapter 21 of division 1 all “foreign corporations transacting intrastate business” in California (§ 2100)19 must not only obtain a certificate of qualification to do so (§ 2105, subd. (a)) but must also set up and consent to a California agent for service of process, pay state fees, select a permissible corporate name for use in California, and continually update and amend their filings here. (§§ 2105, subd. (a)(4) & (5)(A) [accepting service of process], 2106, subds. (a) [paying “fees required by law”] & (b) [using a corporate name that does not conflict with a Cal. business], 2107 [duty to update and amend all required filings].) These requirements of chapter 21, plaintiffs assert, constitute “organizational mandates” that, in turn, render each foreign corporation that complies with them “organized under” division 1.
Defendant observes in its answer brief that nothing in these statutes governing qualification to transact business in California refers to such requirements as “organization,” or as plaintiffs characterize them, “organizational mandates.” Nor, defendant asserts, does the code contemplate that a foreign corporation is “ ‘organized’ under California law simply by virtue of qualifying to transact interstate business.” Neither, defendant argues, did the Legislature contemplate that a corporation could be “organized” under the laws of more than one state.20 And yet, defendant asserts, under plaintiffs' theory a corporation would be “organized” under the laws of every state where it qualifies to conduct business—with profound consequences.
As defendant observes, under plaintiffs' reading of section 102(a), “every foreign corporation that qualified to do business in California would be governed by all of division 1”21 —including all of California's myriad provisions in division 1 relating to organization and bylaws (ch. 2, §§ 200–213), directors and management (ch. 3, §§ 300–318), shares and share certificates (ch. 4, §§ 400–423), dividends and reacquisitions of shares (ch. 5, §§ 500–508), shareholders' meetings and consents (ch. 6, §§ 600–605), voting of shares (ch. 7, §§ 700–711), shareholder derivative actions (ch. 8, § 800), amendment of articles (ch. 9, §§ 900–911), sale of assets (ch. 10, §§ 1000–1002), merger (ch. 11, §§ 1100–1113), dissenters' rights (ch. 13, §§ 1300–1313), records and reports (ch. 15, §§ 1500–1511), rights of inspection (ch. 16, §§ 1600–1605), dissolution (chs.18–20, §§ 1800–1809, 1900–1907, 2000–2011), and crimes and penalties (ch. 22, §§ 2200–2260). Defendant asserts that plaintiffs “provide no basis to pluck out particular sections, such as [the survival provision, section] 2010, and hold that the particular section applies but the rest of division 1 does not.”
Under plaintiffs' view, if a foreign corporation were to challenge the application of any such California provision, a choice-of-law inquiry (see ante, fn. 5) would be triggered concerning each of the various ways in which California corporate law differs from that of other jurisdictions. Defendant contends that such a system would be unworkable,22 and asserts that the Legislature could not have intended such a “radical change” and “bizarre regime.”
Additionally, defendant asserts, plaintiffs' interpretation of this key language “would render almost completely irrelevant the other provisions of chapters 1 through 20 that expressly apply to foreign corporations. (See [statutes cited ante, fn. 18].) For example, [section] 1501[, subdivision] (g), which pertains to annual reports to shareholders, states that the requirements apply to a certain subset of foreign corporations—those with their principal executive office in this state or that customarily hold board meetings in the state. The intended scope of [section] 1501 would be significantly altered by plaintiffs' interpretation of the code, again because all foreign corporations qualified to do business in California would fall within the ambit of division 1, including chapter 15, not just those foreign corporations with their principal office in this state or that customarily hold board meetings in this state.” (Italics added.)
Finally, defendant argues that “[b]y making all of division 1 applicable to any foreign corporation qualified to do business in California, plaintiffs' proposal would render [section] 2115 [imposing certain California requirements, described ante, fn. 9, on pseudo-foreign corporations] largely superfluous.” Defendant asserts: “[U]nder plaintiffs' interpretation ․ all the sections [covered by section 2115] would already apply to these foreign corporations because all such corporations would be considered ‘organized under’ division 1.”
Plaintiffs respond to these various points—and specifically, to defendant's overarching argument that the scheme envisioned by plaintiffs would subject every foreign corporation that qualified to do business in California to governance by all of division 1 and hence would be unworkable and could not have been contemplated by the Legislature—by contending that the code can be harmonized in a way that diminishes the problems identified by defendants. According to plaintiffs, the Legislature has created “three classes of foreign corporations that do business in California”: (1) Corporations that engage in only occasional business in California, and hence are not subject to the “qualification” requirements of division 1, chapter 21 (§§ 2105–2107); (2) corporations that engage in successive and repeated business in California, and hence are subject to these statutory qualification requirements; and (3) so-called pseudo-foreign corporations that conduct the majority of their business, etc., in California, and are hence subject not only to these statutory qualification requirements, but also to the additional requirements imposed by section 2115. Plaintiffs assert: Corporations that fall into category (1) do not qualify as being “organized under” division 1, and hence they are not subject to its requirements. On the other hand, plaintiffs argue, corporations falling into categories (2) and (3) are indeed “organized under” division 1, and they are hence subject to the requirements of division 1, albeit in different ways. Plaintiffs postulate that corporations falling within category (2)—like defendant here—are governed by all of the requirements of division 1 (including the survival provision, § 2010), subject to the outcome of a choice-of-law analysis with regard to each California statutory provision that conflicts with a provision governing the corporation in its state of incorporation. By contrast, plaintiffs maintain, with regard to category (3), because section 2115's enumerated requirements apply “to the exclusion of the law of the jurisdiction in which it is incorporated” (id., subd. (b)), the various California requirements listed in that section (described ante, fn. 9) apply automatically, without being subjected to any choice-of-law analysis.23
As defendant observes, plaintiffs' expansive interpretation of section 102(a) would appear to render largely superfluous the various statutory provisions within division 1 that, pursuant to the third clause of section 102(a), specifically subject foreign corporations to their requirements. (See, e.g., statutes cited ante, fn. 18.) Under plaintiffs' interpretation, no “category (1)” corporation would ever be subject to such specifically extended requirements—thus nullifying the statutory extensions as to those corporations. And also under plaintiffs' interpretation, all “category (2)” corporations would already be automatically governed by those statutes—subject, of course, to choice-of-law analysis—thus rendering such specifically extended requirements essentially superfluous as applied to those corporations. And with regard to “category (3)” corporations—pseudo-foreign entities that are subject to the additional enumerated statutory requirements of section 2115—they too would already be automatically governed by many of those statutes; moreover, as observed, ante, footnote 23, with regard to division 1 statutes not specifically enumerated in section 2115, pseudo-foreign corporations also would be governed by those additional statutes, subject to choice-of-law analysis.
We discern in the statutes no evidence that the Legislature intended by section 102(a) to accomplish the dramatic result ascribed to it by plaintiffs—essentially, imposing on all “category (2)” foreign corporations that are qualified to undertake repeated and successive business in California, the burden of complying with all provisions of division 1, subject to what would often be a difficult choice-of-law analysis with regard to each California statutory provision that conflicts with a provision governing the corporation in its state of formation. As defendant suggests, such a scheme would require foreign corporations to “follow a litany of requirements regarding various corporate activities that their home state already regulates, creating innumerable, treacherous conflicts of law that the corporation would find impossible to navigate.” (See ante, fn. 22.) We would expect the Legislature to have made its intentions clear had it intended to adopt such an elaborate and litigation-intensive scheme.
For these reasons we disagree with plaintiffs' assertion that foreign corporations like defendant, that have qualified under sections 2105–2107 to undertake “repeated and successive transactions of its business in this state” are thereby rendered “organized under” division 1, the General Corporation Law, and hence subject to its myriad provisions, including section 2010. Accordingly, we are disposed to reject plaintiffs' interpretation of section 102(a) and related statutes.
2. The construction of the code by the majority in North American II
As observed earlier, the majority in North American II, supra, 180 Cal.App.3d 902, 225 Cal.Rptr. 877, reached a contrary conclusion based in part on its view of the proper interpretation of the statutory predecessor to the survival statute, section 2010—Civil Code former section 399,24 which was enacted in 1929 as part of a corporation law modernization project spanning 1929–1933.25 Like section 2010, former section 399 of the Civil Code did not explicitly state whether it applied solely to domestic corporations or to both domestic and foreign corporations, and there is no indication that the Legislature specifically addressed that issue—even though an example for such an expansive approach then existed in New Jersey, the state upon which California's survival statute was primarily modeled.26
In concluding that the former version of the survival statute should be interpreted to apply to both domestic and foreign corporations, the court in North American II relied in part on the fact that in 1929, when the section was enacted, former section 283 of the Civil Code provided that the provisions within its title applied to “every private corporation.” (North American II, supra, 180 Cal.App.3d at p. 908, 225 Cal.Rptr. 877, italics added.)
In order to understand what was meant by the phrase “every private corporation” in 1929 when the Legislature enacted former definitional section 283, along with former section 399, the predecessor to the survival statute, both as part of the Civil Code, that language must be read in the context of the definitions then existing. Former section 284 of the Civil Code remained unchanged by the 1929 legislation and specified that corporations were either “public” or “private”: “Public corporations are formed or organized for the government of a portion of the State; all other corporations are private.” (As amended by 1873–1874 Code Amdts., p. 197.) Significantly, Civil Code former section 285—also amended in 1929 as part of that year's reform legislation package—had provided: “Private corporations may be formed by the voluntary association of any three or more persons in the manner prescribed in this title [that is, the General Corporation Law, Civil Code former section 283 et seq., setting out the conditions of and mechanisms for forming a corporation in California]. A majority of such persons must be residents of this state.” (Civ.Code, former § 285, as amended by Stats.1905, ch. 392, § 1, p. 502, italics added.)
From these provisions, all of which derived from substantively identical predecessor statutes dating from the early 1870s,27 it appears that the phrase “every private corporation,” as employed through 1929 and beyond, referred only to a domestic corporation—one formed under California statutes. Legislation passed in 1931, in the second phase of the coordinated modernization reforms, confirmed that definition.28 Indeed, a different and broader reading of the phrase “every private corporation” would have been inconsistent with the interpretation of similar language in other jurisdictions,29 and with this court's application of the internal affairs doctrine, under which our state refrained from regulating the inner workings of foreign corporations (see, e.g., post, fn. 35).
Accordingly, contrary to the majority opinion in North American II, supra, 180 Cal.App.3d 902, 908, 225 Cal.Rptr. 877, we do not infer that by specifying that the provisions of the General Corporation Law were applicable to “ ‘every private corporation,’ “ the Legislature in 1929 must have intended all of the various sections within that title to apply generally to both domestic and foreign business corporations. The inference we draw is the opposite—that the Legislature intended its general statutes governing domestic corporations should apply to foreign corporations only as specifically provided in those statutes.30 It would have been unprecedented for the Legislature in 1929 to have intended otherwise.
Finally, regarding the survival statute in particular, we note that the leading treatises stated, and the majority of out-of-state decisions of that era held, that a state's survival statute did not apply to foreign corporations.31 A statute covering foreign as well as domestic corporations would have placed California outside the clear majority rule. In light of the national scope of the comprehensive review that preceded the legislation (see ante, fn. 25), if our Legislature had contemplated such a dramatic change from the majority approach, we would expect it to have been clear in doing so.32
3. Even if the statutes do not make foreign corporations subject to California's survival statute, does California's Constitution mandate that same result?
Plaintiffs insist that if, as above, we reject their statutory construction argument that defendant was “organized under” division 1 and for that reason is subject to section 2010, that statute “still applies to [defendant]” under the compulsion of article XII, former section 15 of the California Constitution. As noted earlier, that constitutional provision, which was repealed by the electorate in 1972, provided that corporations “organized outside the limits of this State”—e.g., foreign corporations—“shall [not] be allowed to transact business” in this state “on more favorable conditions than” corporations “organized under the laws of this State.” (Cal. Const., art. XII, former § 15; hereafter article XII, former section 15.) Plaintiffs concede that their constitutional argument, which they present as an “alternative” to their statutory contention, is somewhat in tension with it—in that each depends on a different understanding of the term “organized”—but they insist that it stands as an independent reason for this court to reverse the decision below.
Underlying plaintiffs' argument are two premises: (1) pursuant to article XII, former section 15, the “original meaning” of the survival statute in 1929 (and thereafter) was that it covered both domestic and foreign corporations (otherwise foreign corporations would “be allowed to transact business” in this state “on more favorable conditions than” domestic corporations); and (2) accordingly, the repeal of article XII, former section 15 in 1972 did not alter that asserted original reach of the survival statute; instead, the constitutional provision lives on, at least insofar as the survival statute is concerned. In advancing these arguments plaintiffs endorse the position of the appellate court majority in North American II, supra, 180 Cal.App.3d 902, 225 Cal.Rptr. 877, and fault the decision of the appellate court below, and defendant's brief, for failing to “analyze, let alone refute, North American II's constitutional analysis.”
It is true that the decision below failed to grapple with the North American II majority's constitutional analysis, and indeed defendant's brief addresses that issue only cursorily. But having examined that matter ourselves, we conclude that plaintiffs, and the majority in North American II, have not properly construed the former constitutional provision. As we will explain, North American II misinterpreted article XII, former section 15, when it read that section as intending to provide that every statutory restriction or requirement that the Legislature imposes upon a domestic corporation also must be imposed upon a foreign corporation. Instead, the former constitutional provision, properly interpreted, simply prohibited the Legislature from explicitly granting a privilege or benefit to a foreign corporation that was withheld from domestic corporations—for example by permitting only a foreign corporation, and not domestic corporations, to engage in a particular business or in a particular location.
Article XII, former section 15, was drafted and adopted by the delegates to the constitutional convention of 1878–187933 and endorsed by the voters later that year when they approved the new Constitution. As noted, the provision read: “No corporation organized outside the limits of this State shall be allowed to transact business within this State on more favorable conditions than are prescribed by law to similar corporations organized under the laws of this State.”34
From an early time our cases construing and applying article XII, former section 15, concluded that the provision had no application to state statutes that regulated the “internal affairs” of corporations. As to those matters, the cases held that, under the internal affairs doctrine, a foreign corporation was subject to only the law of its state of incorporation.35 In other contexts, cases of that era cited article XII, former section 15 most often in discussing and applying California statutes that, by their terms, applied similar restrictions on both domestic and foreign corporations. For example, a series of cases discussed the former constitutional provision when applying a statute imposing a “stockholder liability” burden on stockholders of both domestic and foreign corporations.36 The court concluded in each case that the statutory burden properly applied to stockholders of both types of corporations.37 None of these decisions suggested that article XII, former section 15, would by itself render stockholders of foreign corporations subject to such a liability burden.
In Conference Free Baptists v. Berkey (1909) 156 Cal. 466, 105 P. 411 (Berkey ), this court held that the constitutional provision did not apply in the case of a one-time business transaction. In the course of our analysis we discussed whether article XII, former section 15, in addition to barring the Legislature from enacting statutes that granted foreign corporations benefits or privileges not afforded to domestic corporations, also was “ ‘self-executing’ “ in the sense that it automatically imposed on foreign corporations general statutory burdens that were imposed on domestic corporations.38 We stated in dictum that whether the provision was self-executing in this sense was “a question which may be open to doubt.” (Berkey, supra, at p. 468, 105 P. 411.) In this regard we cited cases strongly supporting such doubt by finding the corresponding provision of the Montana Constitution did not automatically impose on foreign corporations the same burdens imposed by statute on domestic corporations.39 This prompted a leading commentator to say that our decision in Berkey “intimated, but [did] not decide[ ], ․ that this provision of the constitution is not self-executing․” (Clarke, Cal. Corporation Law (1916) ch. XXXIV, pp. 608–609.)
Based on this history, we disagree with the implicit assumption of the majority in North American II that in 1929, when the survival statute was enacted, the general understanding was that article XII, former section 15, meant that all statutory burdens imposed on domestic corporations also would apply to foreign corporations—even if the particular statute did not specify that it would apply to foreign as well as domestic corporations. Berkey, supra, 156 Cal. 466, 105 P. 411, decided in 1909, demonstrates that it was not at all clear in 1929 that the former constitutional provision had the effect attributed to it in 1986 by the appellate court in North American II. Accordingly, even if we apply the doctrine that ambiguous statutory provisions should be interpreted to avoid constitutional problems, we cannot endorse the implicit conclusion of the court in North American II that such an interpretation of the 1929 survival statute was or is required.40 In view of the language of the current statutory provisions and the deliberate changes made to them throughout the years, as well as the legislative and constitutional background against which the predecessor of section 2010 was enacted, we conclude that the survival statute should properly be interpreted to apply to domestic corporations only.
D. Dicta in our cases
Against this conclusion plaintiffs highlight dicta in two of our decisions—Penasquitos, supra, 53 Cal.3d 1180, 283 Cal.Rptr. 135, 812 P.2d 154, and McCann v. Foster Wheeler LLC (2010) 48 Cal.4th 68, 105 Cal.Rptr.3d 378, 225 P.3d 516 (McCann )—in which we cited and described the conclusion of North American II, supra, 180 Cal.App.3d 902, 225 Cal.Rptr. 877, that the survival statute, section 2010, applies to foreign corporations. Plaintiffs assert that in doing so we tacitly approved the reasoning of North American II.
In Penasquitos, supra, 53 Cal.3d 1180, 283 Cal.Rptr. 135, 812 P.2d 154, we held that section 2010 permitted not only the continuation of suits against dissolved domestic corporations, but also the initiation of suits against dissolved domestic corporations. In support we cited out-of-state-cases so construing similar statutes, and we also quoted both prior North American decisions for the proposition that under section 2010, “ ‘there is no time limitation for suing a dissolved corporation for injuries arising out of its predisposition activities.’ “ (Penasquitos, supra, at pp. 1187–1188, 283 Cal.Rptr. 135, 812 P.2d 154, quoting North American I, supra, 128 Cal.App.3d at p. 143, 179 Cal.Rptr. 889, and North American II, supra, 180 Cal.App.3d at p. 904, 225 Cal.Rptr. 877.) In the course of reciting the history of the North American II litigation, we mentioned in passing that the appellate court in that latter case had reconsidered its earlier determination that foreign corporations were not covered by section 2010, and had concluded instead that they are covered by that survival statute. (Penasquitos, supra, at p. 1188, 283 Cal.Rptr. 135, 812 P.2d 154.) Because, as noted, Penasquitos did not concern a foreign corporation, we did not consider, much less resolve, whether section 2010 applies to such corporations, and thus the decision does not assist plaintiffs.
McCann, supra, 48 Cal.4th 68, 105 Cal.Rptr.3d 378, 225 P.3d 516, which concerned a suit for asbestos-related injuries against an existing (not dissolved) foreign corporation, is similarly unhelpful to plaintiffs. In that decision we applied traditional choice-of-law principles; the case had nothing to do with, and did not even mention, section 2010, the survival statute. Applying the “comparative impairment” prong of the three-part governmental interest choice-of-law test (see ante, fn. 5) on the facts presented in McCann—involving conduct occurring outside California, and a foreign law that limited liability for such conduct engaged in by the defendant within the foreign state's territory—we concluded that the interest of the foreign jurisdiction in enforcing its own liability-limiting law was paramount, and the interest of California in enforcing its own law was properly subordinated. (McCann, supra, at p. 101, 105 Cal.Rptr.3d 378, 225 P.3d 516.) In reaching this determination, we stressed that on different facts—as when a defendant “is responsible for exposing persons to the risks associated with asbestos or another toxic substance through its conduct in California,” the conclusion under the comparative impairment inquiry would likely be different, and “would allocate to California the predominant interest in regulating the conduct .” (Ibid.) In support, we cited, as an example, North American II, supra, 180 Cal.App.3d at pages 907–908, 225 Cal.Rptr. 877, and described that decision in a parenthetical as “holding California law applicable when the plaintiff was exposed to asbestos in California by a company incorporated in another state, where plaintiff's action against the company would have been barred as untimely under the other state's law.” (McCann, supra, at p. 101, 105 Cal.Rptr.3d 378, 225 P.3d 516.) Clearly, the import of our citation to North American II was to its choice-of-law analysis, which we implicitly approved on its own terms; but we did not consider the issue we face today, whether a foreign corporation is subject to our state's survival statute. Again, this dictum—especially when viewed in light of the extensive history discussed ante, part II.C.3.—does not assist plaintiffs.
E. Policy considerations
Plaintiffs highlight defendant's history of transacting business in California from the 1930s through the 1980s, when it surrendered its certificate of qualification. They assert that defendant, having been dormant for nearly two decades, strategically filed for dissolution in Delaware in 2005 in order to cut off its continuing liability (and recovery of damages through applicable “undistributed ․ insurance assets”—see § 2011, subd. (a)(1)(A)) to asbestos victims. Plaintiffs argue that this course of conduct “directly contravenes California policy. When foreign corporations seek and accept the benefits of transacting business here, California law should not allow them to use their home state's corporate-friendly laws to deprive California citizens of their remedies.” (Italics added.)
The policy question concerning whether the provisions of California's survival statute should apply to foreign as well as domestic corporations is properly a matter to be determined by the Legislature, not this court. Because the Legislature has left the holding of North American II, supra, 180 Cal.App.3d 902, 225 Cal.Rptr. 877, untouched since 1986, it might be argued that section 2010 reflects the Legislature's acquiescence concerning what California law should provide. But as explained above, the history and language of the statutes simply do not support the proposition that section 2010, at its inception or today, governed or governs foreign in addition to domestic corporations.
We conclude that California's survival statute, section 2010, does not apply to foreign corporations, and we disapprove North American II, supra, 180 Cal.App.3d 902, 225 Cal.Rptr. 877, to the extent it held otherwise. Having reached this decision, we need not perform a choice-of-law comparative-impairment analysis in order to determine which state's law should apply. (See ante, fn. 5.)
The judgment of the Court of Appeal is affirmed.
WE CONCUR: KENNARD, BAXTER, WERDEGAR, CHIN, CORRIGAN, and LIU, JJ.