IN RE: the Dissolution of MERCANTILE GUARANTY COMPANY, a corporation. STATE of California, Plaintiff in Intervention and Appellant, v. MERCANTILE GUARANTY COMPANY, a corporation, Defendant in intervention and Respondent.
State of California appeals from summary judgment dismissing its complaint in intervention in the voluntary dissolution proceedings of Mercantile Guaranty Company.1
Has State any Interest in the Liquidation Proceedings to Entitle it to Intervene?RECORD
Mercantile is a Delaware corporation organized in 1924 with its principal place of business in San Francisco. Since 1960 it has become inactive in the business of finance for which it was organized except for the holding of the stocks comprising its assets and the collection of dividends thereon.
Mercantile's capital structure consists of 4000 shares of issued and outstanding $25.00 par value 8% cumulative redeemable preferred stock, and 4000 shares of no par value common stock. Its bylaws provide that whenever the cumulative dividend is 18 months in arrears the preferred shares are entitled to voting rights. As no dividends have been paid on the preferred stock since 1929 all preferred shares are now entitled to vote. Mercantile's Articles provide that on dissolution its assets shall be distributed, first in retirement of the full par value of the preferred shares and all accumulated dividends thereon, and thereafter to the holders of the outstanding common stock.
Of the 4000 outstanding preferred shares, 2403 were owned by Western States Acceptance Corporation. Western was organized in Delaware in 1924 primarily for the purpose of automobile financing. Western conducted all its business and issued all its stock in California. September 11, 1929 Western's Board of Directors voted to dissolve the corporation and distribute its assets prorata to its preferred shareholders, the corporation then being seriously in arrears in the payment of the 8% cumulative dividend on its preferred shares. Apparently the necessary shareholder approval for this dissolution was never obtained.
Western thereafter remained qualified to do business in California until 1933 when it formally withdrew from California and retired to Delaware. Western continued to exist as a corporate entity in good standing in Delaware until 1935 when it was suspended for failure to pay Delaware franchise taxes. It has had no active existence since.
No officers or directors of Western can be found. Of Western shareholders, only 12 have been located. These hold 172 1/2 preferred shares and 40 common. Three of these stockholders exchanged their shares for Mercantile preferred shares. Thus only 90 preferred shares and 40 common shares of Western are located, and 97% of the shareholders cannot be located. It is the interest of these missing shareholders that is the subject matter of this litigation.
Mercantile petitioned the Superior Court for an order appointing a trustee to vote the shares registered in Western's name at a shareholders' meeting to be called for the purpose of approving a proposed plan of liquidation, and for an order approving the distribution as set forth in that plan. That plan in brief is that the court should provide that, on the liquidation of Mercantile, a reasonable time be given the preferred shareholders to offer their shares for retirement and for the pro rata distribution (par value plus dividend arrearages). Failure of any stockholder to make a timely offer of his shares would result in a loss of the distribution otherwise payable in respect to such shares. Any amounts unclaimed at the end of the prescribed time period would be used first to satisfy the remaining unpaid dividend arrearages of those shareholders who had timely presented their shares for redemption, any balance to be distributed among the holders of the common stock upon a pro rata basis.
State filed its complaint in intervention alleging that Mercantile' plan of dissolution was improper and that the assets of Mercantile to which Western is entitled should be turned over to State in accordance with the California Unclaimed Property Act (Code Civ.Proc. §§ 1500–1527). Mercantile's demurrer to the complaint was overruled and its motion to strike denied. Both parties moved for summary judgment. The court denied State's motion and granted summary judgment in favor of Mercantile and dismissed the complaint in intervention. State's motion to modify or vacate this judgment and to grant a new trial was denied.
Has State an Interest in Mercantile's Assets?
Section 387, Code Civil Procedure provides in pertinent part ‘At any time before trial, any person, who has an interest in the matter in litigation * * * may intervene in the action or proceeding. * * *’ [Emphasis added.]
‘But the condition of ‘interest’ is the criterion upon which the cases put the ‘right’ of intervention.' (In re Yokohama Specie Bank, 86 Cal.App.2d 545, 554, 195 P.2d 555, 560.) ‘The interest mentioned in the Code which entitled a person to intervene in a suit between other persons must be in the matter in litigation and of such a direct and immediate character that the intervenor will either gain or lose by the direct legal operation and effect of the judgment.’ (Elliott v. Superior Court, 168 Cal. 727, 734, 145 P. 101, 105.)
State's claim of interest in this proceeding is based upon the theory that the Uniform Disposition of Unclaimed Property Act (Code Civ.Proc. § 1500 et seq., particularly section 15042 ) applies for three reasons: 1) the assets of Mercantile may be considered to be abandoned distributions of Western within the meaning of sections 1504(a) and 1504(a)(2); 2) the assets may also be considered to be liquidation distributions of Mercantile within the meaning of the last mentioned sections; 3) that section 1504(b) should apply to undeclared dividends as well as to declared dividends.
We consider these theories:
(1) State contends that when Western's directors voted to dissolve Western, its assets consisted of stock in Mercantile and since no subsequent steps were taken by Western, the 2238 shares of Mercantile now in Western's name are held as assets here, and are ‘held or owing by a business association doing business in this State’ (sec. 1504(a)(2)). However, sec. 1504 does not deal with ‘assets'. It applies only to dividends or ‘distributions' etc. which have been ordered distributed and which have not been claimed. As yet there have been neither. Moreover, there is no evidence that the assets of Western (its stock in Mercantile) have been distributed among the Western stockholders. At the present time the shares of stock in Mercantile with which we are concerned stand of record in Western and not in Western's stockholders. There has been no abandonment by Western of dividends or distributions for the reason that none have been declared by Mercantile. Until the particular type of property described in the Unclaimed Property Act (namely dividends and distributions) has remained unclaimed as therein provided, the Act does not apply and unless the Act does apply, State can claim no interest in the property. In the case at bench the contingencies provided in the Act have not occurred. If Mercantile dissolves, the proportion of its assets represented by the shares of stock held by Western, will have to be distributed to Western and not to Western's individual stockholders. It is to be presumed that if the court appoints a trustee for Western, he will work assiduously to protect the interests of Western.
As stated, there is no evidence that the assets of Western have been distributed among its stockholders and as the ownership of its stock in Mercantile has never been changed on the latter's books, it must be presumed that Western is still the owner. The fact that Western had its charter suspended for failure to pay Delaware's corporate franchise tax does not affect this situation. Until dissolution has been completed under Delaware law, Western continues to subsist as a legal entity subject to reinstatement at any time and remains the legal owner of its assets which are presumably located in Delaware. Such suspension does not ipso facto dissolve the corporation. (Fletcher, 16A Cyclopedia Corporations (Per. Ed.) sec. 8052; see also Wax v. Riverview Cemetery Co. (Del.), 2 Terry 424, 24 A.2d 431; McKee v. Standard Minerals Corporation, 18 Del.Ch. 97, 156 A. 193; Ross v. Venezuelan-American Independent Oil Pro. Ass'n, Inc., (U.S.D.C.Del.) 230 F.Supp. 701 (1964).)
Further, State contends that Western's stock in Mercantile is held for a person entitled whose ‘last known address' was in this State (sec. 1504(a)(2)) regardless of whether Western or its shareholders are regarded as ‘the person entitled.’
However, there is no evidence that Western's last known address was in California. On the contrary, the Declaration by William J. Cameron in support of Mercantile's Motion for Summary Judgment, the facts of which were not disputed by State's Motion for Summary Judgment, sets forth that Western's last known address was in the State of Delaware (Western formally withdrew from California on May 25, 1933). There is a letter dated May 20, 1963, from Western's former resident agent in Delaware (who discontinued Western from its books in 1933) stating that ‘the last known address of anyone who could be contacted regarding the company would be Arnold Lackenbach, Alexander Building, San Francisco, California’, at one time shown as corporate counsel for Western.
The fact that at the time Western had legal counsel in San Francisco is no indication that the corporation's address was there, nor a repudiation of the statement in Cameron's declaration. Without an affirmative showing of last known address in California of the persons entitled, the State may make no successful claim under any provision of section 1504 where the holder as here (Western) is not organized in this State nor doing business here. (State of Texas v. State of New Jursey, 379 U.S. 674, 13 L.Ed.2d 596.)
State further contends that Western's shareholders must be regarded as the persons entitled to the assets of Mercantile because it can be presumed that proper approval of Western's directors vote to dissolve Western was obtained from its stockholders because of the presumption that the ordinary course of business has been followed (Code Civ.Proc. section 1963, subd. 20).
State contends that the last known address of Western's stockholders was California because the stock was issued in California. This is a non-sequitur. The mere fact that corporate stock of a foreign corporation is issued in this State is no indication that the persons to whom it is issued reside in California. However, we are not concerned with the residences of Western's individual stockholders. It is Western which owns the stock in Mercantile and Western's residence is Delaware, it being a Delaware corporation.
(2) The contention that the assets may be considered to be liquidation distributions of Mercantile.
State admits its claim is premature since Mercantile has not yet dissolved. It contends that it should be allowed to intervene to protect its ‘future rights.’ It does not disclose how sections 1504(a) and 1504(a)(2) apply, as those subsections apply only where dividends or distributions have been declared and not claimed. That is not the situation in this case.
(3) The contention that section 1504(b) applies to Western's interest in Mercantile.
That subsection applies only to a stockholder who has not claimed a dividend presumed abandoned under paragraph (a) of section 1504 and who has not corresponded in writing with the corporation concerning his interest for 15 years following the time such dividend was presumed abandoned. State would have this subsection interpreted to apply to undeclared dividends. How it is possible to abandon undeclared dividends does not appear.
Another reason for the non-application of section 1504 is that it applies only to ‘a business association organized under the laws of or created in this State’ (subsection (a)(1)) or to a ‘business association doing business in this State’ (subsection (a)(2)). Western does not come within either category. It was organized under the laws of Delaware and created therein and though it did business in California it has long since ceased doing so.
Section 1505 provides a further indication that the Unclaimed Property Act could not apply to Western. That section explicitly covers distributions of intangible personal property ‘in the course of a voluntary dissolution’, raising the presumption of abandonment where the owner fails to claim such distributed property within two years of final distributed property within however, applies only to business associations, etc. ‘organized under the laws of or created in this State.’ Western is not such a corporation. As Western is still the stockholder and a resident of Delaware, if there is, or is to be, an escheat, that escheat would take place at its residence, and hence it would be the concern of the State of Delaware and not of the State of California.
It should be pointed out that on this appeal we are not concerned with the validity of the proposed scheme of dissolution of Mercantile. The only question before us is whether State has a right to intervene in this proceeding. That right is not dependent upon the validity or invalidity, propriety or impropriety, of the proposed dissolution. It depends wholly and solely upon whether or not State has any interest in the stock in Mercantile held by Western. As we have shown, State has no interest therein and therefore no right to intervene in this proceeding. Hence, the summary judgment denying such right was proper.
FOOTNOTE. FN* Retired Presiding Justice of the District Court of Appeal sitting under assignment by the Chairman of the Judicial Council.
1. State of California will hereinafter be referred to as ‘State’; Mercantile Guaranty Company as ‘Mercantile’; and Western States Acceptance Corporation as ‘Western’.
2. § 1504. Undistributed dividends and distributions of business associations. (a) Any dividend, profit, distribution, interest, payment on principal, or other sum held or owing by a business association for or to its shareholder, certificate holder, member, bondholder, or other security holder, or a participating patron of a cooperative, who has not claimed it, or corresponded in writing with the business association concerning it, within seven years after the date prescribed for payment or delivery, is presumed abandoned if: (1) It is held or owing by a business association organized under the laws of or created in this State; or (2) It is held or owing by a business association doing business in this State, including a national banking association, but not organized under the laws of or created in this State, and the records of the business association indicate that the last known address of the person entitled thereto is in this State. (b) Any intangible interest in a business association, as evidenced by the stock records or membership records of the association, owned by a person who has not claimed a dividend presumed abandoned under paragraph (a) of this section, and who has not corresponded in writing with the business association concerning such interest for 15 years following the time such dividend was presumed abandoned, is presumed abandoned if: (1) The business association was organized under the laws of or created in this State; or (2) The business association is doing business in this State, including a national banking association, but was not organized under the laws of or created in this State, and the records of the business association indicate that the last known address of the person entitled to such interest is in this State. For the purposes of this chapter the business association with respect to such interest shall be deemed a holder. (c) Any dividends or other distributions held for or owing to a person at the time the stock or other security to which they attach became presumptively abandoned are also presumed abandoned as of the same time.
SALSMAN, Acting P. J., and DEVINE, J., concur.