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DD Hair Lounge, LLC v. State Farm General Insurance Co.

California Court of Appeals, Second District, Eighth Division

March 2, 2018

DD HAIR LOUNGE, LLC, Plaintiff and Appellant,
v.
STATE FARM GENERAL INSURANCE COMPANY et al., Defendants and Respondents.

         APPEAL from a judgment of the Superior Court of Los Angeles County No. BC532889, Richard Fruin, Judge. Affirmed.

          Bendel Law Group and Jason R. Bendel for Plaintiff and Appellant.

          Robie & Matthai and Kyle Kveton for Defendants and Respondents.

          HALL, J. [*]

         This case involves the retroactive effect of a 2016 amendment to Corporations Code section 17707.06, [1] part of the California Revised Uniform Limited Liability Company Act (the Revised Act), which substantially revised the law of limited liability companies (LLC's) in California effective January 1, 2014. (Stats. 2012, ch. 419, § 20; § 17701.01 et seq.) The Revised Act provides that upon filing a certificate of cancellation, an LLC's “powers, rights, and privileges shall cease.” (Stats. 2012, ch. 419, § 20; § 17707.08, subd. (c).) Effective January 1, 2016, however, section 17707.06 was amended to provide that an LLC could file a certificate of cancellation, yet retain its powers of “prosecuting and defending actions by or against it in order to collect and discharge obligations.” (Stats. 2015, ch. 775, § 15; § 17707.06, subd. (a).)

         The question we face is whether the 2016 amendment to section 17707.06 applied to a certificate of cancellation filed by plaintiff DD Hair Lounge, LLC (DD Hair), in 2014. As purely a question of statutory construction, we think it does. However, DD Hair concealed the certificate of cancellation and then unsuccessfully challenged its authenticity, prolonging the proceedings into 2016 when the changes to section 17707.06 took effect. Had DD Hair been forthcoming, the case would have been dismissed under the prior law. It would now be unfair to reward DD Hair's delay by allowing it to take advantage of the 2016 law, so we affirm the judgment dismissing DD Hair's complaint.

         BACKGROUND

         DD Hair was formed as an LLC on August 21, 2013, by principal Uche Umeagukwu. Umeagukwu was familiar with the LLC process because she had previously formed another LLC on May 31, 2012, under the name DE Hair Lounge, LLC, which she cancelled on September 26, 2013, approximately one month after DD Hair was formed. She also formed another LLC called Uche, LLC, on October 24, 2014, while this case was pending.

         DD Hair filed a complaint against defendant State Farm General Insurance Company, its insurer, and State Farm agent Leo Gilling (together State Farm) on January 10, 2014, after State Farm did not pay a burglary loss. Almost 10 months later on November 5, 2014, a certificate of cancellation was filed for DD Hair. Umeagukwu purportedly signed it as “president.” Consistent with the law at the time, the form stated: “Upon the effective date of this Certificate of Cancellation, this LLC's Articles of Organization (CA LLCs) or Certificate of Registration (registered foreign LLCs) will be cancelled and its powers, rights and privileges will cease in California.”

         DD Hair did not inform State Farm or the court that the certificate of cancellation was filed. State Farm discovered it in late September 2015, 10 months later. State Farm filed a motion for judgment on the pleadings, arguing the law in effect at the time deprived DD Hair of the power to pursue its case against State Farm after its LLC status was cancelled. In opposition, DD Hair argued Umeagukwu's signature on the certificate of cancellation was forged, and it sought reinstatement from the Secretary of State. DD Hair also filed an ex parte request with the court to reinstate its LLC status. The court denied both the motion and the ex parte application because both procedures required resolution of the disputed authenticity of Umeagukwu's signature on the certificate of cancellation.

         The court held an evidentiary hearing on January 8 and 15, 2016, to determine whether the certificate of cancellation was authentic. The court took documentary evidence and heard testimony from Umeagukwu and competing forensic document examiners. On January 25, 2016, the court ruled Umeagukwu's signature was genuine, the certificate of cancellation was validly filed, and DD Hair could not maintain the action against State Farm. The court dismissed the action with prejudice and entered judgment on April 4, 2016.

         DISCUSSION

         Forfeiture

         DD Hair's sole contention on appeal is that the 2016 amendment to section 17707.06 gave it authority to continue to prosecute its case, despite filing the certificate of cancellation in 2014. DD Hair failed to raise this argument below, even though doing so could have obviated the need to hold the two-day evidentiary hearing in January 2016. Though we are troubled by DD Hair's ...


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