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Capital Gold Group, Inc. v. Nortier

August 19, 2009

THE CAPITAL GOLD GROUP, INC., PLAINTIFF, CROSS-DEFENDANT AND APPELLANT,
v.
STEPHEN T. NORTIER ET AL., DEFENDANTS, CROSS COMPLAINANTS AND RESPONDENTS.



APPEAL from a judgment of the Superior Court of Los Angeles County, William Highberger, Judge. Reversed and remanded with directions. (Los Angeles County Super. Ct. No. BC365195).

The opinion of the court was delivered by: Kriegler, J.

CERTIFIED FOR PUBLICATION

Plaintiff was a Nevada corporation duly qualified to transact intrastate business in California when it filed this action in California. Defendants cross-complained against plaintiff. While the action was pending, plaintiff converted to a Delaware corporation, changed its name, and obtained a new certificate of qualification to transact intrastate business in California. The trial court granted defendants‟ motion to strike the complaint and all responsive pleadings filed after the date of conversion on the ground that plaintiff failed to comply with the conversion requirements set forth in Corporations Code section 1157*fn1 or notify the court and California‟s Secretary of State of the corporate changes. The court entered judgment in favor of defendants on the cross-complaint.

On appeal, plaintiff contends the trial court abused its discretion in striking plaintiff‟s pleadings because it was a corporation in good standing in its home state, as well as in full compliance with California laws regulating the transaction of business by foreign corporations. We conclude that plaintiff had the capacity to maintain pending actions under Nevada and Delaware laws, plaintiff was duly qualified to transact intrastate business in California, and section 1157 does not apply to the conversion of a foreign corporation to another foreign business entity. Therefore, we reverse.

FACTS AND PROCEDURAL BACKGROUND

Plaintiff, cross-defendant, and appellant The Capital Gold Group, Inc. (TCGG) was incorporated in Nevada on October 23, 2003. In January 2006, TCGG filed a statement and designation with California‟s Secretary of State, providing information required for service of process and stating that it was a corporation existing under the laws of Nevada. The Secretary of State issued a certificate of qualification to TCCG allowing the corporation to transact intrastate business (number C2850275).

On January 23, 2007, TCGG filed a complaint against defendants, cross-complainants, and respondents Stephen T. Nortier, Michael Thomas Media Group, L.L.C., and Michael Thomas Promotions, L.L.C. (collectively MTM) for conversion, fraud, negligent misrepresentation, and declaratory relief concerning media advertisements that MTM had arranged.

On May 3, 2007, TCGG filed a certificate of conversion with Delaware‟s Secretary of State to convert the Nevada corporation named TCGG to a Delaware corporation named Capital Gold Group, Inc. (CGG). On May 11, 2007, the State of Delaware certified the conversion of the corporation and the name change. On May 14, 2007, articles of conversion were filed with Nevada‟s Secretary of State converting "The Capital Gold Group, Inc., a Nevada corporation," into "Capital Gold Group, Inc., a Delaware corporation."

On May 15, 2007, MTM filed a cross-complaint against TCGG and its president, Jonathan Rose, for various causes of action, including breach of contract, accounting, and misrepresentation. On June 15, 2007, TCGG filed an answer to the cross-complaint.

On September 5, 2007, CGG filed a statement and declaration with California‟s Secretary of State stating that it is a corporation organized and existing under the laws of Delaware. The Secretary of State issued a certificate of qualification authorizing CGG to transact business in the State of California (number C3045276).

Forbes Media L.L.C. filed a complaint in intervention against MTM, TCCG, and Rose. MTM‟s counsel discovered that multiple corporations with similar names were qualified to do business in California and investigated TCGG‟s corporate status. On January 10, 2008, MTM filed a motion to strike the complaint and activities of TCGG on the ground that it had not been a corporation in good standing in Nevada since May 15, 2007, had not filed a notice of name change with California‟s Secretary of State, had not filed a notice of conversion under section 1157, and had not provided a name change or substituted parties to the trial court or opposing counsel in the pending action. MTM also filed a motion requesting leave to amend the cross-complaint to add CGG and Capital Gold Group Holdings, Inc., a Delaware corporation, as cross-defendants. MTM attached a proposed amended cross-complaint.

On January 16, 2008, TCGG opposed the motion to strike on the ground that it was a corporation in good standing authorized to transact business in California. In support of the opposition, TCGG submitted a certification from the Secretary of State of Delaware that CGG was in good standing and had a legal existence.

A hearing was held on January 22, 2008. The trial court noted that TCGG had done nothing to inform the court or opposing counsel of the change in the state of incorporation and the successor status of CGG. TCGG had not complied with section 1157. TCGG had not informed California‟s Secretary of State that it changed its state of incorporation and changed its name, but that the Delaware corporation was the legal successor burdened with the rights and responsibilities of the former Nevada corporation and with a slightly different name. Instead, the newly named entity filed with California‟s Secretary of State to qualify to do business as a new company, not a successor. As a result, the court found TCGG had lost its status to litigate before the court on May 3, 2007, and not yet taken steps to restore itself, even in the face of the pending motion.

The trial court granted MTM‟s motion for leave to amend its cross-complaint and deemed the amended cross-complaint served and filed as of January 22, 2008. The court dismissed the complaint without prejudice "nunc pro tunc back to May 3, 2007." The court struck all pleadings filed by TCGG after May 3, 2007, based on the court‟s conclusion that the entity lacked legal capacity to litigate. Sanctions awards in favor of TCGG made after May 3, 2007, were voided and ordered to be reimbursed to the paying parties. The court issued an order to show cause regarding entry of default of TCGG set for hearing on March 3, 2008.

On January 29, 2008, TCGG filed a certificate surrendering its authority to transact interstate business in California. On February 8, 2008, TCGG filed a motion for reconsideration pursuant to Code of Civil Procedure section 1008 and an order pursuant to Code of Civil Procedure section 473, subdivision (a), to correct the party name to read "Capital Gold Group, Inc., a Delaware corporation" in all pleadings where the name "The Capital Gold Group, Inc., a Nevada corporation" formerly appeared. TCGG argued that the complaint should not have been dismissed because the corporation was qualified to do business in California and had obtained a certificate of qualification prior to commencing the ...


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