Marin County Super. Ct. No. CIV060796 Ct.App. 1/2 A132136, A133177
The opinion of the court was delivered by: Chin, J.
If a corporation fails to pay its taxes, the state may suspend its corporate powers. The state may later revive those powers when the corporation pays its taxes. We must decide whether a corporation that files notices of appeal while its corporate powers are suspended may proceed with the appeals after those powers have been revived, even if the revival occurs after the time to appeal has expired. Two opinions from this court in the 1970's held that revival of corporate powers validates an earlier notice of appeal. (Rooney v. Vermont Investment Corp. (1973) 10 Cal.3d 351 (Rooney); Peacock Hill Assn. v. Peacock Lagoon Constr. Co. (1972) 8 Cal.3d 369 (Peacock Hill).) We adhere to those decisions due to principles of stare decisis. Accordingly, these appeals may proceed.
Danielle Bourhis and others, including Brown Eyed Girl, Inc. (Brown Eyed Girl), a California corporation, filed the underlying lawsuit for property damage against John Lord and others. Before trial, defendants learned that the state had suspended Brown Eyed Girl's corporate powers for nonpayment of taxes. They moved in the superior court to preclude it from offering any evidence at trial. The court denied the motion contingent on the corporation's reviving its corporate powers. After it granted a motion for a non-suit in favor of some defendants, and a jury returned a verdict in favor of another defendant, the court entered judgment in favor of all defendants on April 5, 2011. Notice of entry of judgment was served the next day. Plaintiffs, including Brown Eyed Girl, filed a notice of appeal from that judgment on May 26, 2011. On August 30, 2011, the court entered an order after judgment awarding costs and attorney fees, which was entered and served the same day. On September 13, 2011, plaintiffs, including Brown Eyed Girl, filed a notice of appeal from that order.
On December 1, 2011, defendants filed separate motions in the Court of Appeal to strike Brown Eyed Girl's notices of appeal and to dismiss those appeals because its corporate powers were still suspended. In opposition, Brown Eyed Girl presented documentation showing that its corporate powers had been revived on December 8, 2011. It argued that this revival validated its previous notices of appeal, thus making the appeal effective.
On December 29, 2011, the Court of Appeal filed orders denying both motions. Both orders included these citations: "(Rooney v. Vermont Investment Corp. (1973) 10 Cal.3d 351, 359; Peacock Hill Assn. v. Peacock Lagoon Constr. Co. (1972) 8 Cal.3d 369, 373-374; see ABA Recovery Services, Inc. v. Konold (1988) 198 Cal.App.3d 720, 725, fn. 2.)"
Defendants filed separate petitions for review of the orders denying the motions to dismiss the appeals. (See Cal. Rules of Court, rule 8.500(a)(1) [interlocutory order of the Ct. App. is subject to review].) We granted both petitions and subsequently consolidated the matters.
With exceptions not relevant here, "the corporate powers, rights and privileges of a domestic taxpayer may be suspended, and the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state may be forfeited," if a corporation fails to pay its taxes. (Rev. & Tax. Code, § 23301; see also id., § 23301.5 [similar provision regarding the failure to file a tax return].) (All further statutory references are to the Rev. & Tax. Code.) A corporation whose powers have been suspended may apply with the Franchise Tax Board for reinstatement after satisfying its obligations. (§ 23305.) If the statutory requirements are met, the Franchise Tax Board issues a "certificate of revivor." (§ 23305.) "Upon the issuance of the certificate [of revivor] by the Franchise Tax Board the taxpayer therein named shall become reinstated but the reinstatement shall be without prejudice to any action, defense or right which has accrued by reason of the original suspension or forfeiture . . . ." (§ 23305a.)
Brown Eyed Girl purported to file notices of appeal while its corporate powers were suspended. In general, a "corporation may not prosecute or defend an action, nor appeal from an adverse judgment in an action while its corporate rights are suspended for failure to pay taxes." (Reed v. Norman (1957) 48 Cal.2d 338, 343.) Thus, the notices of appeal were invalid when filed. However, Brown Eyed Girl later received a certificate of revivor. When that certificate is received, as one court put it, "[t]he legal rights of a suspended corporation are then revived, as an unconscious person is revived by artificial respiration." (Benton v. County of Napa (1991) 226 Cal.App.3d 1485, 1490.) "In a number of situations the revival of corporate powers by the payment of delinquent taxes has been held to validate otherwise invalid prior action." (Peacock Hill, supra, 8 Cal.3d at p. 371.) We must decide whether the revival of corporate powers in this case validated the earlier notices of appeal.
If revival of corporate powers occurs while a valid appeal can still be taken, the question appears easy; the revival would validate a prior notice of appeal and permit the appeal to proceed. The appeal would be timely, and little purpose would be served by requiring the corporation to file another, essentially identical, notice of appeal. But appeals are subject to jurisdictional time limits. A notice of appeal must be filed within 60 days after service of the notice of entry of judgment. (Cal. Rules of Court, rule 8.104(a).) "The time to file notice of appeal, both in civil and criminal cases, has always been held jurisdictional in California." (9 Witkin, Cal. Procedure (5th ed. 2008) Appeal, § 614, p. 689.) As to both appeals at issue here, this time had expired before Brown Eyed Girl's corporate powers were revived. Should the later revival validate the earlier invalid notice of appeal in this circumstance?
When it denied the motions to dismiss the appeals, the Court of Appeal cited Rooney, supra, 10 Cal.3d 351, and Peacock Hill, supra, 8 Cal.3d 369. In Peacock Hill, the Peacock Hill Association moved to dismiss the appeal of Peacock Lagoon Construction Co. (Construction) on the ground that Construction's corporate powers had been suspended. We refused to dismiss the appeal. Citing cases in which "it was held that the purpose of section 23301 of the Revenue and Taxation Code is to put pressure on the delinquent corporation to pay its taxes," we said that "that purpose is satisfied by a rule which views a corporation's tax delinquencies, after correction, as mere irregularities." (Peacock Hills, supra, 8 Cal.3d at p. 371.) We added that "[t]here is little purpose in imposing additional penalties after the taxes have been paid." (Ibid.)
Peacock Hill relied in part on Traub Co. v. Coffee Break Service, Inc. (1967) 66 Cal.2d 368, where a party had moved to set aside a final judgment in favor of a corporation whose corporate status had been suspended. The Traub court had "concluded that the trial court was correct in its view that a final judgment is immune from the collateral attack attempted." (Peacock Hill, supra, 8 Cal.3d at p. 372.) We explained that "[i]n Traub we cited with approval several Court of Appeal decisions in which the corporate plaintiff was allowed to maintain a lawsuit even though it had been suspended at the time it filed its complaint. In each case, the corporation had secured reinstatement prior to the date set for trial, but after the defendant had brought the suspension to the attention of the trial court. The appellate courts reasoned that the plea of lack of capacity of a corporation because of its suspension for failure to pay taxes, is a plea in abatement which is not favored in law and must be supported by the facts at the time of the plea. In each case it was held that revival of the corporate powers before trial was sufficient to permit the corporation to maintain its action." (Ibid.)
The Peacock Hill court concluded that "as to matters occurring prior to judgment the revival of corporate powers has the effect of validating the earlier acts and permitting the corporation to proceed with the action. We are satisfied that the same rule should ordinarily apply with respect to matters occurring subsequent to judgment. . . . [¶] In the instant case, the corporate powers of Construction have been revived by the payment of taxes, and it may proceed with its appeal." (Peacock Hill, supra, 8 Cal.3d at pp. 373-374.)
Justice Mosk dissented. He agreed with the majority that section 23301's purpose was to put pressure on a delinquent corporation to pay its taxes, but, he argued, "that purpose is frustrated by permitting a delinquent corporation, merely through tardy payment of taxes, to validate all of the actions taken during its period of suspension. Under that concept the stick becomes a carrot; all incentive to avoid punitive disabilities dissolves. Upon exposure of its delinquency the corporation suffers little more than fleeting embarrassment, and, indeed, it is then rewarded by authentication of all its previous illegal acts. [¶] In the present case, for example, Construction's powers had been suspended prior to trial and remained in that status until after judgment and the filing of the notice of appeal. It was not until plaintiff brought the suspension to the attention of the appellate court by its motion to dismiss the appeal that Construction at long last paid its delinquent taxes. Presumably, if plaintiff had not moved to dismiss Construction's appeal, the latter simply could have continued in its suspended status until the appeal had been decided and for an indefinite period thereafter, depending upon whether or not it was advantageous to obtain revival of its corporate powers. How the majority's holding validating the revival of all acts of this suspended corporation taken after judgment will in the future impose any significant 'pressure' upon a corporation to pay its franchise taxes is difficult to comprehend." (Peacock Hill, supra, 8 Cal.3d at p. 374 (dis. opn. of Mosk, J.).)
Justice Mosk also cited section 23305a's provision that "reinstatement shall be without prejudice to any action, defense or right which has accrued by reason of the original suspension or forfeiture . . . ." He argued that "no rights could have accrued to the suspended corporation during the period of original suspension -- it could not lawfully function for any purpose -- so that the clause necessarily refers to rights ...