Statute Of Limitations Issues In California With Dissolved Entities
LGC Staff
Fri January 31, 2014
6:13 PM UTC

Many states have statutes of limitations applicable to lawsuits against dissolved corporations.  California, however, does not.  Rather, California Corporations Code Section 2010, commonly referred to as California’s “survival statute,” states that “a corporation which is dissolved nevertheless continues to exist for the purpose of…prosecuting and defending actions by or against it.”  In other words, a California corporation can still be sued in California at any time after it has been dissolved, provided no other statutes of limitation apply to the particular causes of action at issue.

Under Corporations Code Section 2011(a), a California court can enforce an action against a dissolved corporation “to the extent of its undistributed assets, including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims.”  Therefore, because there is no statute of limitations on actions against California corporations, insurance carriers can be held responsible for indemnifying dissolved California corporations long after they dissolve.

In February of 2013, however, the California Supreme Court crafted an exception to this general rule in Greb v. Diamond International Corporation, (2013) 56 Cal.4th 243, holding that California’s survival statute does not apply to corporations that were incorporated in other states.  Such corporations are referred to as foreign corporations.  Under Greb, a dissolved foreign corporation is subject to its home state’s statute of limitations on suits against dissolved corporations.  Based on this finding, the Greb court dismissed a California lawsuit against a Delaware corporation because Delaware’s three-year statute of limitations on suits against dissolved corporations had expired.

The Greb decision has been particularly significant in the context of construction defect cases because many contracting corporations dissolved during the economic downturn.  Prior to Greb, general contractors could seek indemnity from dissolved foreign subcontractors long after the subcontractors dissolved, and the subcontractors’ insurance carriers often provided coverage.

Now, under the current law, dissolved foreign subcontractors are protected by their home states’ statutes of limitations on actions against dissolved corporations – limitations that are often much shorter than California's 10-year statute of limitations in construction defect cases.  The Greb decision can therefore make it much more difficult to settle construction defect cases by reducing the number of parties and insurance carriers available to contribute funds toward a settlement.

If you have any questions about the Greb case, please contact Rich Reese in LGC's San Diego office.

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