Legal Question in Business Law in California

Suspended Corporation

I am suing a Corporation because the equipment that I lease from them was not in good functional condition and caused me to loose more money than what I made.

I returned the equipment and they gave me a replacement.

I later found out they are countersuing me for money owe to them on the replacement (equipment) that they gave me.

However, there was no contract or anything that stated payments.

I just found out that they have been suspended since 2001 and are still doing business with the same company name. Can They legally sue me? or wha's my advantage in this case?

Thank you,

Asked on 10/08/07, 5:56 pm

6 Answers from Attorneys

Larry Rothman Larry Rothman & Associates

Re: Suspended Corporation

They still can revive the corporation if it is suspeneded prior to trial. We may be able to help you but would have to review the paperwork you have. Please contact me if you have any questions or need help.

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Answered on 10/17/07, 7:59 am

Edward Hoffman Law Offices of Edward A. Hoffman

Re: Suspended Corporation

A corporation that has been suspended may not sue -- or defend itself against suit -- in a California court. It can regain these rights by curing the reasons for its suspension. You should be able to demur to its cross-complaint and move to strike its various filings on the ground that it has been suspended.

Feel free to contact me directly if you want to discuss your options further.

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Answered on 10/08/07, 6:13 pm

Re: Suspended Corporation

If a corporation is suspended, it cannot sue or defend in a civil action in California. You can raise this issue by various means. However, the corporation can regain the right to sue (or to defend itself) by reinstating its good standing and paying any back taxes it may owe. Also, if the corporation has been suspended for 6 years, it may owe enough in back taxes that you can use it as leverage to negotiate a settlement.

With respect to the underlying merits of your claim and the corporation's counter-suit, we cannot tell you what to do without being retained and reviewing your documents. Among the questions we would have are: Is the leasing company the same company as the vendor of the equipment or is it just a financial leasing company? What correspondence was there between you and the vendor/leasing company with respect to the replacement equipment? What does the original lease say (if anything) about equivalent replacement equipment? Is the replacement equipment the same make and model as the original equipment?

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Answered on 10/08/07, 6:57 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Re: Suspended Corporation

You cannot demur successfully to the cross-complaint as suggested, because the defect or defense does not appear on the face of the cross-complaint.

You did not say whether the litigation is in the California state court system or a Federal court. A suspended California corporation cannot sue or defend in state court, and probably would also be precluded from suit or defense in Federal court, although that is less certain.

During the period of suspension, a corporation cannot exercise any right, power or privilege, with a few narrow exceptions not applicable here.

Indeed, any person who attempts or purports to exercise the powers, rights or privileges of a suspended corporation may be punished criminally by a $250 to $1,000 fine and/or up to one year in jail (see Revenue & Taxation Code section 19719(a) and (b). (This does not apply to an insurer or counsel retained by the insurer to defend the corporation in a civil action.)

Suspension of a corporation that's trying to sue you by complaint or cross-complaint is an affirmative defense that should be raised in your answer, and will prevent the corporation from maintaining the action. See Cadle Co. vs. Wold Wide Hospitality Furniture, Inc. (2006) 144 Cal.App.4th 504 at 511. Failure to assert the defense of suspension will waive the defense! Color-Vue, Inc. vs. Abrams (1996) 44 Cal.App.4th 1599, 1603-06.

An attorney who discovers that his or her corporate client is suspended has a duty to notify the court.

Contracts made by a corporation while suspended can be voided at the option of the other party - but not by the corporation.

Whether the fact of suspension will work to your long-term advantage or not may ultimately depend upon (1) whether your agreement was made while the corporation was suspended, and (2) whether it is worthwhile for someone to revive the corporation, which can be a bit expensive.

This is a lengthy subject and much more would have to be written to give you a full picture of the consequences of corporate suspension, but these are some of the highlights.

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Answered on 10/08/07, 7:00 pm
Edward Hoffman Law Offices of Edward A. Hoffman

Re: Suspended Corporation

I'm not sure Mr. Whipple is correct that a demurrer would fail because the corporation's suspension "does not appear on the face of the cross-complaint". Evidence that is subject to judicial notice can be used to support a demurrer, and there must be a judicially noticeable record of the suspension that you can obtain.

Even if Mr. Whipple is correct and a demurrer could not succeed you could still move to strike the complaint and other filings as I initially suggested -- assuming you act quickly enough. Other options will remain available if too much time has passed for a motion to strike.

Feel free to contact me directly if you want to discuss the matter further.

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Answered on 10/09/07, 11:23 pm

Re: Suspended Corporation

A suspended corporation cannot maintain or defend a lawsuit. Contact me directly.

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Answered on 10/08/07, 7:53 pm

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