2016-00196785-CU-PO

Michelle Minno vs. Cyrus Aram

Nature of Proceeding: Hearing on Demurrer to Pakwel Services’ Cross-Complaint

Filed By: Bangle, Raymond, III

Cross-Defendants Cyrus and Tanya Aram’s demurrer to Cross-Complainant Pakwel Services’ cross-complaint is overruled.

Cross-Defendants’ request for judicial notice is granted.

Plaintiffs Michelle Minno and Kurt Colgan filed their complaint against Cross-Defendants and Pakwel Services and Pakwel’s shareholders Tariq and Shelia Abbasi in connection with a real property lease Plaintiffs entered into. Plaintiffs allege that the property contained mold which was not disclosed to them. Pakwell and its shareholders are being sued for claims arising from property management services provided to the subject property pursuant to a management contract between Pakwel and Plaintiffs/Cross-Defendants. Pakwel cross-complained against Cross-Defendants for indemnity.

Cross-Defendants demur to the cross-complaint on the basis that Pakwel does not have the legal capacity to bring a cross-complaint because it is a dissolved corporation.

It is, of course, important to recognize the distinction between a dissolved corporation, and one no longer in existence. If the corporation is dissolved, it continues to exist for the limited purposes of winding up. Reilly v. Greenwald & Hoffman, LLP (2011) 196 Cal.App.4th 891, 901. Indeed, “[a] California corporation may dissolve by following the procedure set forth in the Corporations Code. After it has dissolved, a corporation, although no longer permitted to do business as a going concern, continues to exist for purposes of winding up its affairs and, in particular, for discharging obligations and defending lawsuits.” (Pensaquitos, Inc. Superior Court (1991) 53 Cal.3d 1180, 1183.)

Corporations Code § 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 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.” [emphasis added]

Cross-Defendants acknowledge that a dissolved corporation may maintain a lawsuit if it is still winding up its affairs or if it has any assets to distribute. They argue that neither circumstance is present here. Cross-Defendants point to the Certificate of Dissolution Pakwel filed with the Secretary of State in December 2015 which states that all known assets were distributed. Cross-Defendants point to Corporations Code

§ 1905 which provides that once the certificate of dissolution has been filed, “the corporate powers, rights, and privileges of the corporation shall cease.” (Corp. Code § 1905(b).) According to Cross-Defendants the filing of the certificate indicates Pakwel has completed the winding up process and it did not plead in the cross-complaint that it was still winding up or that it had any assets to distribute.

The Court rejects Cross-Defendants’ argument that Pakwel lacks the capacity to sue [or defend]. Their reliance on Corporations Code § 1905 is misplaced. That section has no bearing on the ability of a dissolved corporation to wind up its affairs, prosecute and defend actions against it, collect and discharge obligations or dispose and convey property, etc. These are all expressly authorized by Corporations Code § 2010. Indeed, Corporations Code § 2010 explicitly recognizes that despite the fact that a corporation may have dissolved, because for example, it filed a Certificate of Dissolution pursuant to § 1905, the corporation nevertheless continues to exist for the purposes set forth in § 2010. Cross-Defendants’ reliance on §§ 2009 and 2011 have no bearing on Pakwel’s standing to bring a cross-complaint as those sections deal with recovery of amounts improperly distributed in the winding up process and causes of action against a dissolved corporation.

Here, the instant cross-complaint for indemnity alleges that Pakwel entered into a written contract with Cross-Defendants pursuant to which Cross-Defendants agreed to indemnify Pakwel against any claims asserted against Pakwel by occupants of the subject property, including Plaintiffs, arising out of the lease and the management of the property. (Cross-Comp. ¶ 4.) This action is expressly permitted by Corporations Code § 2010. Pakwel, a dissolved corporation, is seeking to enforce an express contractual indemnity obligation in its favor which is properly viewed as collecting an obligation. Moreover, as pointed out by Pakwel, its officers/shareholders have also been sued in this action and under Labor Code § 2802(a), Pakwel has a statutory duty to indemnify its employees for losses incurred in discharge of their duties or following the employer’s directions. Indemnifying employees is properly considered discharging an obligation which is also expressly authorized by Corporations Code § 2010. Thus, enforcing the contractual right of indemnity in the contract with Cross-Defendants will enable Pakwel, if successful, to collect and discharge obligations.

Cross-Defendants’ repeated assertions that there are no allegations that Pakwel is continuing to wind up the corporation or that it has assets left to distribute does not change the above analysis. First, Cross-Defendants do not identify any legal authority imposing such a pleading requirement. And, at their core, these assertions present uniquely factual assertions improperly addressed on demurrer. In any event,

Corporations Code § 2010 does not restrict a dissolved corporation from bringing an action only when there are assets left to distribute and expressly authorized a dissolved corporation to bring and defend actions enabling it to collect and discharge obligations. The cross-complaint is such an action.

Cross-Defendants’ demurrer on the basis that Pakwel lacks legal capacity to bring the cross-complaint is overruled. The cross-complaint is expressly authorized by Corporations Code § 2010.

In addition, the Court rejects the additional argument that there can be no implied contractual or equitable indemnity cause of action against Cross-Defendants. Cross-Defendants argue that a prerequisite to implied contractual or equitable indemnity is a joint legal obligation between Cross-Defendants and Pakwel. (Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559.) In making this argument, Cross-Defendants rely upon Corporations Code § 2011(a)(1)(A) which provides that causes of action against a dissolved corporation may be enforced to the extent of its undistributed assets including any insurance assets. Cross-Defendants argue that Pakwel cannot be liable on Plaintiffs’ complaint because the Certificate filed with the Secretary of State indicates that all assets have been distributed and again there is no allegation that any assets have not been distributed. They reason that there can be no equitable obligation for them to indemnify Pakwel because Pakwel could have no liability to Plaintiffs. Cross-Defendants’ argument is misplaced and premised on the assumption that Pakwel’s cross-complaint seeks equitable indemnity. It does not. As set out above, Pakwel seeks indemnity pursuant to an express contractual indemnity provision in a written contract. (Cross-Comp. ¶ 4.) The very authority cited by Cross-Defendants is inapplicable. “Traditional equitable indemnity and implied contractual indemnity share a key feature that distinguishes them from express indemnity: unlike express indemnity, neither traditional equitable indemnity nor implied contractual indemnity is available ‘in the absence of a joint legal obligation to the injured party.’” ( Id. at 573 [emphasis added].) No joint legal obligation between Pakwel and Cross-Defendants to Plaintiffs is required for an express indemnity claim.

The demurrer is overruled.

No later than April 19, 2018, Cross-Defendants shall file and serve their answer to the cross-complaint.