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Suspended Corporation suing in CA small claims court

Business 3 views 1 answers
We are being sued in a California small claims court by a corporation. The small claims suit was filed in mid-August of this year and has not yet been heard in court. We recently discovered that this corporation, which is suing us for breach of contract, was suspended by the California Secretary of State in May of this year. Since this company’s corporation status was suspended 3 months prior to their small claims filing against us, can we ask the case to be dismissed on the grounds that their corporation status has been suspended by the California Secretary of State’s office? If so, what is the exact law which states that so we can quote it in small claims court? Also, since at this point we only have a copy off of our computer of the California Secretary of State Business Portal page showing that this corporation is currently suspended (but not showing the suspension date which we found out from a phone call to the Secretary of State’s office), would this be sufficient as proof in the more informal atmosphere of a small claims court? Unfortunately, getting an “official” certified copy of this information from the Secretary of State’s office could possibly take 4-6 weeks and there may not be enough time to obtain it prior to trial. Thank you.

Attorney Answer

1
Douglas Anthony DubeLitigation LawyerJamul, CA ·
A suspended corporation lacks capacity to sue. If suspension is for failure to pay the corporate franchise tax, Cal. Revenue and Tax Code section 23301 applies. If suspension is for failure to file the biennial statement, Cal. Corporations Code section 1502 applies. Anyone who purports to exercise the rights and powers of a suspended corporation is guilty of a misdemeanor under Cal. Revenue and Tax Code section 19719. However, proving that it has capacity to sue is not an element of a cause of action, so the burden to show lack of capacity is on the party challenging capacity (you). The corporation's lack of capacity must be raised by a defendant at the earliest opportunity or it is waived. The proper time to raise the issue is in the original answer to the complaint or by demurrer at the time of the answer. (See the case Color-Vue, Inc. v. Abrams (1996) 44 Cal. App. 4th 1599, 1604.) If you raise the issue at the trial and the Court thinks you should have raised it sooner, if the corporation represents that it plans to pay its taxes then the Court can allow it to proceed (on the basis that you waived the defense - see Color-Vue at p. 1605). It's impossible to say what will happen with this issue in small claims court. As a practical matter, if the statute of limitations (on whatever claim the suspended corporation is making against you) has not run, then even if your defense prevailed now, the corporation could revive itself and then sue you again. DISCLAIMER: The information in and this communication are not intended to create an attorney-client relationship between you and me or my law firm. The information in this communication is intended for general informational purposes only and should be used only as a starting point for addressing your legal issues. It is not a substitute for an in-person or telephone consultation with an attorney licensed to practice in your jurisdiction about your specific legal issue, and you should not rely upon the information in this communication. You understand that this communication is not confidential and is not subject to attorney-client privilege.
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