Suit by LLC Member
Holistic Supplement, LLC v. Stark, B300711, decided March 2, 2021. The California Court of Appeal held that an LLC member had standing to personally sue another member in a suit alleging the defendant, without the plaintiff’s knowledge, transferred her LLC membership interest to himself and converted the LLC to a corporation. The suit was direct, not derivative, because the plaintiff was claiming the defendant took her membership interest. and she could sue the defendant personally because he was alleged to have participated in tortious conduct.
Ukoha v. REGR, LLC, B295158, decided February 25, 2021. The California Court of Appeal held that the trial court had no choice but to dismiss an action filed against two individuals the plaintiff claimed to be alter egos of an LLC the plaintiff sued five years earlier. The plaintiff substituted the alter egos for the LLC but never served them with process. The court rejected the plaintiff’s argument that an alter ego need not be named as defendant or individually served for the court to have jurisdiction. The court also rejected the argument that the alter egos’ filing pleadings on the LLC’s behalf constituted a general appearance.
Classification of Independent Contractors
Vazquez v. Jan-Pro Franchising International, Inc., S258191, decided January 14, 2021. The California Supreme Court, in answering a question at the request of the U.S. Court of Appeals, 9th Circuit, held that its decision in Dynamex Operations West, Inc. v. Superior Court, 416 P.3d 1 (2018), which created a three part test for determining when independent contractors should be classified as employees for the purpose of the obligations imposed by wage orders, applies retroactively.
Capra v. Capra, C084032, decided December 22, 2020. The California Court of Appeal affirmed denial of the plaintiffs’ motion to dismiss the defendants’ attorney because he had been corporate counsel for a corporation of which the plaintiffs were shareholders. The court noted that the plaintiffs were not suing on the corporation’s behalf so there was no concurrent representation. In addition, the court rejected the plaintiffs’ contention that corporate counsel necessarily represents its shareholders. And in the absence of evidence the attorney ever represented the plaintiffs, there was no continuous representation.
Choy v. Ribeiro, C080715, decided November 3, 2020. The California Court of Appeal ruled the trial court erred in holding a corporation’s president and owner personally liable for severance pay to an employee. They could not be considered alter egos based on the fact they jointly filed papers contesting the plaintiff’s allegations or that the president recruited employees. The president and owner also could not be liable as successors or assignees as that relates to separate companies buying assets and not to shareholders and officers.
Mueller v. Clarke, SACV 20-01401, decided September 28, 2020. The U.S. District Court, Central District of California held that a Texas professional corporation was not a citizen of California for diversity purposes because it qualified to do business in California as foreign professional corporation. The court noted that this is a registration requirement for foreign corporations and “to state the obvious, because they are foreign to California they are not citizens of the state”.
Suspension and Revival
Granny Purps, Inc. v. County of Santa Cruz, H045387, decided August 5, 2020. The California Court of Appeal ruled that the plaintiff’s causes of action were time barred by the statute of limitations. The plaintiff filed within the limitations period but its corporate status was suspended at the time and it was not revived until after the limitations period. According to the court the statute of limitations is a substantive defense and a corporation’s revivor does not retroactively validate a lawsuit filed during suspension.
Right to Jury
Nationwide Biweekly Administration, Inc. v. Superior Court, No. S250047, decided April 30, 2020. The California Supreme Court held that civil actions brought by the Attorney General or local prosecuting authorities against a business under the state’s unfair competition law and false advertising law seeking civil penalties as well an injunction or other equitable remedies are equitable in nature and are properly tried by the court rather than a jury. The legislative history and legislative purpose of both statutes convincingly establish that the Legislature intended that such causes of action under these statutes would be tried by the court, exercising the traditional flexible discretion and judicial expertise of a court of equity, and not by a jury, including when civil penalties as well as injunctive relief and restitution are sought.
Applicability of Securities Laws to Direct Listings
Pirani v. Slack Technologies, Inc., No. 19-cv-05857, decided April 21, 2020. The U.S. District Court, Northern District of California held, in a case of first impression, that an investor who purchased stock in a direct listing in which registered and unregistered shares were made publicly tradeable at the same time has standing to bring an action under Sec. 11 of the Securities Act of 1933 claiming losses due to misstatements and omissions in the offering documents.
Wanke Industrial, Commercial, Residential, Inc. v. AV Builder Corp., D074392, decided February 19, 2020. The California Court of Appeal held that a judgment creditor could bring a creditor’s suit against a third party that owed the judgment debtor money even though the judgment debtor was a suspended corporation that lacked the capacity to sue the third party. The creditor’s suit statute considers whether the judgment debtor is owed a debt by the third party, not whether it has the capacity to collect the debt.