Opinion
NOT TO BE PUBLISHED
Appeal from a judgment of the Superior Court of Orange County No. 30-2008-00110345, Derek W. Hunt, Judge.
Petersen Law Firm; Terrence A. Mazura, for Defendant and Appellant.
Law Offices of Ernest Mooney and W. Ernest Mooney, for Plaintiff and Respondent.
OPINION
BEDSWORTH, J.
Stephen Couig appeals from a summary judgment entered in an action by CPH 2, LLC, to enforce two promissory notes against him. Couig argues the summary judgment order was erroneous, but also that the case should never have proceeded to that point, since he had earlier moved to have the action stayed or abated on the ground CPH 2 is a foreign limited liability company which is transacting business within the state of California, but without having registered with the Secretary of State as required by law.
Couig contends the court refused to consider the abatement issue, either in the context of his demurrer and motion to strike, or later in the context of a regular evidentiary motion, and that as a consequence, he was denied due process. Couig consequently seeks a reversal of the judgment, and a remand of the case to the trial court with directions that it consider his abatement motion on the merits.
Couig’s contention is persuasive. The record reflects the trial court did explicitly refuse to consider the abatement issue at the demurrer and motion to strike stage, referring to it as appropriate for an “evidentiary” hearing. The court thus denied the abatement request “without prejudice to the defendant’s right to bring on an evidentiary hearing respecting the same matters.” However, when Couig later pursued that right, the court dismissed the issue, admonishing Couig that it had “already ruled” on the issue, and “don’t appreciate having been asked to do it again.” That was error. Moreover, we are not persuaded by CPH 2’s assertion the error was harmless in any event, because Couig’s request was unsupported by sufficient evidence that CPH 2 actually transacted intrastate business in California. CPH 2’s own complaint affirmatively alleges its status as “a limited liability company duly organized and existing under and by virtue of the laws of the State of Delaware, and qualified to do business and doing business in the State of California.” Thus, Couig had no burden to prove that admitted fact.
I
CPH 2’s complaint, filed in August of 2008, seeks damages for Couig’s alleged breach of two different promissory notes. The first was executed in 1998, and allegedly obligated Couig to pay $300,000 to CPH 2, with interest accruing on that principal amount. The $300,000 was then rolled over into a second interest-bearing promissory note in 2006. According to the complaint, Couig is in default on his obligation to pay interest which had accrued on the 1998 note, as well as on his obligation to pay both the principal amount and accrued interest on the 2006 note.
In its complaint, CPH 2 specifically alleges that it “is, and at all times herein mentioned was, a limited liability company duly organized and existing under and by virtue of the laws of the State of Delaware, and qualified to do business and doing business in the State of California.” CPH 2 also specifically alleges that both promissory notes it seeks to enforce, which are incorporated by reference into the complaint, were entered into “at Orange County, California, ” and that Couig was at all times a resident of California. The 2006 promissory note specifies that it is to be performed (i.e. payments made) in Newport Beach, California, and both notes provide they are “governed by the laws of the State of California.”
Couig demurred to the complaint, and moved to strike it, on the ground CPH 2 was precluded from maintaining this action due to the fact it was a foreign limited liability company which was transacting business within the state of California without having registered to do so as required by law. (Corp. Code, § 17456.) Couig offered evidence, in the form of his counsel’s declaration and documents printed from the Secretary of State’s website, to establish that CPH 2 was not registered to do business in California as a foreign limited liability company. However, rather than relying upon paragraph 1 of CPH 2’s complaint to support his contention that it was transacting intrastate business in California, Couig opted instead to rely upon the fact that its office was located in Newport Beach, California, as evidence of that fact.
All further statutory references are to the Corporations Code.
CPH 2 opposed both the demurrer and motion to strike. It did not deny or dispute the assertion it was not registered to do business as a foreign limited liability company in California; instead it merely asserted that nothing on the face of its complaint demonstrated that it transacted “intrastate business” as that term is used in section 17456. According to CPH 2, the complaint reflected only that it had made two promissory notes in the state (the two at issue in the case) and that those transactions were “obviously” not sufficient to meet the test of “repeated and successive transactions” set forth in the statute.
At the hearing, the court was openly skeptical about the utility of such an abatement request. The court expressed the view that even if the demurrer were granted, CPH 2 would be able to “walk over to Ross Street and start the case all over again” in federal court. The court suggested that CPH 2 could also sue in Delaware and, under that state’s long arm statute, force Couig to defend himself there. The court found it “hard to believe” that Couig really wanted such an outcome, and noted the abatement effort “[l]ooks like just a chance to run around the track in the state courthouse for a while.”
The court went on to say that “registering for business is really little more than a revenue-raising device anyway, ” and that “California is just trying to raise a little bit of money”. But it advised Couig that “if you’re going to get into this question, that’s an evidentiary matter. This is not an evidentiary hearing. This is a hearing called a demurrer. It’s on the quality of the pleadings alone. So I have to overrule the motion, and I will deny the motion to strike. I’m going to do it without prejudice to the defendant’s right to bring on an evidentiary hearing respecting the same matters.”
Following the hearing, Couig filed his answer to the complaint, and in December of 2008, he filed his new motion to stay or abate the proceedings. In this motion, Couig not only relied upon the ground that CPH 2 was not properly registered to conduct intrastate business in California, but also argued that the pendency of a separate action in Riverside Superior Court warranted a stay of this action, because its outcome “will have a direct effect on this case.”
CPH 2 again opposed the motion, on the sole basis that “Couig has again failed to present any evidence that CPH 2 transacts intrastate business, such that registration might be required.”
At the hearing on the motion for a stay, the court addressed the merits of Couig’s assertion that a stay was proper based upon the pendency of the Riverside action, and rejected the contention. However, the court expressly refused to consider the contention that the case should be abated on the ground CPH 2 was an unregistered foreign limited liability company doing business in California, noting “that was the subject of a motion to strike back on October 29th. We went through that in some detail, and I ruled against that motion for a lot of reasons that I put on the record at that time. So I don’t appreciate having been asked to do it again. I’ve already ruled.”
Shortly after the court denied the motion to stay or abate the proceeding, CPH 2 moved for summary judgment. That motion was granted in June of 2008, and a monetary judgment in the amount of $345,349.18, was entered in favor of CPH 2.
II
Couig’s request to stay or abate this case was based upon section 17456, which provides in pertinent part that “(a) A foreign limited liability company transacting intrastate business in this state shall not maintain any action, suit, or proceeding in any court of this state until it has registered in this state. [¶] (b) Any foreign limited liability company that transacts intrastate business in this state without registration is subject to a penalty of twenty dollars ($20) for each day that unauthorized intrastate business is transacted, up to a maximum of ten thousand dollars ($10,000). An action to recover this penalty may be brought, and any recovery shall be paid, as provided in Section 2258.”
Despite the reservations expressed by the trial court below as to the utility of the statute – or the motivation which may have inspired the legislature to enact it – the court was required to enforce it according to its terms. And as explained in United Medical Mgmt. v. Gatto (1996) 49 Cal.App.4th 1732, 1740, a case applying section 2203 (a similar statute applicable to foreign corporations), there are significant consequences if a foreign corporate entity does business within California without complying with the registration requirement. “Once a non-qualified foreign corporation commences an action regarding intrastate business, the defendant may assert by demurrer or as an affirmative defense in the answer the lack of capacity to maintain an action arising out of intrastate business. [Citation.]... If the defendant establishes the bar of the statute, then the foreign corporation plaintiff must comply with [the statute]. Ordinarily, the matter should be stayed to permit the foreign corporation to comply. If the foreign corporation plaintiff complies with [the statute] by qualifying and paying fees, penalties and taxes, it may maintain the action. If the foreign corporation fails to comply, the matter should be dismissed without prejudice.” (Ibid.)
Section 2203, subdivision (c), provides: “A foreign corporation subject to the provisions of Chapter 21 (commencing with Section 2100) which transacts intrastate business without complying with Section 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any court of this state, commenced prior to compliance with Section 2105, until it has complied with the provisions thereof and has paid to the Secretary of State a penalty of two hundred fifty dollars ($250) in addition to the fees due for filing the statement and designation required by Section 2105 and has filed with the clerk of the court in which the action is pending receipts showing the payment of the fees and penalty and all franchise taxes and any other taxes on business or property in this state that should have been paid for the period during which it transacted intrastate business.”
The registration statute “imposes a penalty upon the foreign corporation which does not qualify to transact intrastate business as required by [law] and merely provides that until it does so, it shall not maintain any suit or action in any court of this state; it simply forbids the exercise of a small part of the corporate powers, except on the specified conditions.... [¶] The purpose of the certificate of qualification is to facilitate service of process and to protect against state tax evasion. (Neogard Corp. v. Malott & Peterson-Grundy (1980) 106 Cal.App.3d 213, 219....) The qualification statute assures responsible and fair dealing by foreign corporations and equalizes the regulation of foreign and domestic corporations. (Id. at p. 223.) The qualification statute is enforced, in part, by temporarily halting lawsuits. The objective of the lawsuit suspension enforcement mechanism is to encourage qualification, rather than to penalize the failure to qualify earlier.” (United Medical Mgmt. v. Gatto, supra, 49 Cal.App.4th at p. 1741.)
Section 17456, the provision applicable in this case, is actually broader than section 2203, subdivision (c), as it prohibits the unregistered foreign limited liability company which transacts intrastate business from pursuing any actions in California – not just those based upon interstate business. Otherwise, both statutes apply the same “transact[ing] intrastate business” standard as the basis for abating the foreign entity’s lawsuit.
III
In the proceedings below, Couig twice sought to have the case abated on the ground CPH 2 had not registered to do business in California. The record reflects that the court explicitly refused to consider the issue on either occasion. As CPH 2 implicitly concedes, that was error. (See In re Marriage of Campos (2003) 108 Cal.App.4th 839, 842 [trial court “erred as a matter of law” in depriving husband of opportunity to prove detriment to children if mother was allowed to move them away]; DRG/Beverly Hills, Ltd. v. Chopstix Dim Sum Cafe & Takeout III, Ltd. (1994) 30 Cal.App.4th 54, 62 [“It was, however, the duty of the trial court to rule on the estoppel issue. It was error to refuse to do so.”].)
However, CPH 2 does dispute Couig’s contention that the error was reversible per se. According to CPH 2, the court’s refusal to consider the abatement issue should be subjected to a harmless error analysis, and found to be harmless on the ground that the evidence supplied by Couig to the trial court was insufficient as a matter of law to establish that CPH 2 was actually conducting intrastate business.
We need not resolve the parties’ dispute as to the standard of reversibility applicable to this situation, as we conclude CPH 2 is simply incorrect in its assertion that there was insufficient evidence in the record below to establish it was actually conducting “intrastate business.” In fact, CPH 2 explicitly alleged that fact in the very first paragraph of its complaint, thus relieving Couig of any burden to prove it.
In any event, we are skeptical about CPH 2’s contention the evidence is insufficient as a matter of law to demonstrate it is conducting “intrastate business.” As Couig points out, CPH 2 maintains its office in Newport Beach, and while the maintenance of an office in the state “for the transfer, exchange, and registration of its securities or depositaries with relation to its securities” (§ 191, subd. (c)(4)) is not sufficient to demonstrate a corporation is conducting “intrastate business, ” there is no indication that CPH 2’s Newport Beach office serves such a limited purpose. Additionally, the two promissory notes at issue in this case were both entered into in California, with a California resident – with the second one explicitly requiring performance within California. Those facts alone may be sufficient to satisfy Couig’s burden of proof on the issue.
Specifically, CPH 2 alleged that it “is, and at all times herein mentioned was, a limited liability company duly organized and existing under and by virtue of the laws of the State of Delaware, and qualified to do business and doing business in the State of California.” That allegation is binding on CPH 2 in this case.
“[U]nder the doctrine of conclusiveness of pleadings evidence may not be received to contradict an admission on the pleadings and... findings contrary to such admissions must be disregarded.” (Electronic Equipment Express, Inc. v. Donald H. Seiler & Co. (1981) 122 Cal.App.3d 834, 850.) “Facts established by pleadings as judicial admissions ‘“are conclusive concessions of the truth of those matters, are effectively removed as issues from the litigation, and may not be contradicted, by the party whose pleadings are used against him or her.” [Citations.] ‘“[A] pleader cannot blow hot and cold as to the facts positively stated.”‘ (St. Paul Mercury Ins. Co. v. Frontier Pacific Ins. Co. (2003) 111 Cal.App.4th 1234, 1248, italics omitted.)” (Myers v. Trendwest Resorts, Inc. (2009) 178 Cal.App.4th 735, 746.)
Because CPH 2 affirmatively alleged it was doing business in California, and because it affirmatively alleged at least two intrastate transactions, we conclude it was not harmless error for the court to refuse consideration of a motion to stay or abate this action on the basis that CPH 2 was not registered to conduct such business.
The judgment is reversed, and the case is remanded to the superior court with directions to rule upon Couig’s motion to stay or abate the action in accordance with section 17456. Couig is to recover his costs on appeal.
WE CONCUR: RYLAARSDAM, ACTING P. J., FYBEL, J.