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In a decision published on Wednesday, the California Court of
Appeal held that a defendant’s due process rights do not
protect the sole shareholder of a corporation from an alter ego
action. Lopez v. Escamilla, Cal. Ct.
Appeal Case No. B316800 (June 7, 2022). The basic factual and
procedural background of the case are straightforward:
The creditor of a corporation obtains a default judgment against
the corporation for $157,370. The corporation has no funds or
assets and has been suspended by the Department of
Corporations. The creditor then sues the sole shareholder of
the corporation for $157,370.
It is important to note that this case did not involve a
proceeding in which a judgment creditor moved to summarily add
someone to a previously entered default judgment. The
creditor in this case filed a complaint against the alleged alter
ego in which he will have the opportunity to answer, engage in
discovery and file pre-trial motions.
There is one rather glaring error in the Court’s opinion (at
least to my eye). The Department of Corporations does
not have the authority to “suspend” corporations. A
corporation may be suspended or forfeited for three reasons:
- By the Secretary of State failure to file a Statement of
Information; - By the Secretary of State in the case of a domestic or foreign
corporation, for failure to reimburse the Victims
of Corporate Fraud Compensation Fund (VCFCF) for
a paid claim; and/or - By the Franchise Tax Board for failure to meet tax requirements
(e.g., file a return, pay taxes, penalties, interest).
None of these involve the Department of Corporations which is
now known as the Department of Financial Protection &
Innovation).
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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