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CALIFORNIA CORPORATE & SECURITIES LAW

This Foreign Corporation’s Status May Be Forfeited, But The Resident Agent Remains

A recent ruling by U.S. District Court Judge Otis D. Wright II illustrates how it may be easier to enter California than to leave it.  Real v. St. Jude Med., Inc., 2017 U.S. Dist. LEXIS 47081 (C.D. Cal. Mar. 29, 2017)

In 1996, St. Jude Medical, Inc., a Minnesota corporation, qualified with the California Secretary of State’s office to transact intrastate business under the name St. Jude Medical Products, Inc..  As part of the qualification process, St. Jude was required to designate an agent for service of process in California.  Cal. Corp. Code § 2105(a)(5).  Some time later, St. Jude failed to file its annual statement of information.  Cal. Corp. Code § 2117.  St. Jude’s corporate powers, rights and privileges as a foreign corporation in California were then forfeited.  Cal. Corp. Code § 2206.

In 2016, Juan Real filed a putative class action lawsuit in Los Angeles Superior Court.  He served the complaint on St. Jude’s designated resident agent.  An affiliated corporation then removed the case to the federal court and Mr. Real sought to have the case remanded to state court.  The issue for Judge Wright was whether St. Jude had been properly served.  Judge Real analyzed the question as follows:

Thus, service of the Summons and Complaint on CT [the resident agent] constituted valid service; the fact that St. Jude Medical Products forfeited its right to transact business in California does not change this. See Cal. Code Civ. Proc. § 416.20(b); Cal. Corp. Code § 2114(c); Cal. Corp. Code § 2110(c). Unless a forfeited entity has also “fil[ed] a certificate of surrender”—which did not happen here—the designated agent’s appointment to receive process on behalf of the forfeited entity is not revoked. Cal. Corp. Code § 2114(d). Moreover, neither the fact that CT purported to reject service, nor the fact that it failed to forward the Summons and Complaint to St. Jude Medical Products, makes a difference. (Segal Decl. ¶ 8, Ex. 6, ECF No. 14-7.)  Service is deemed sufficient and complete upon delivery of the Summons and Complaint to a company’s agent for service of process—here, CT. See Cal. Corp. Code § 2110(c). What happens to those documents thereafter cannot change this; indeed, it would be a slippery slope for the Court to hold that valid service on an agent was ineffective just because the agent bungled his or her duty to then forward the documents to the right person

(Footnote omitted).  I do question the applicability of Section 2114(c).  That statute applies when the Franchise Tax Board has forfeited a foreign corporation’s right to transact intrastate business pursuant to the Bank and Corporation Tax Law (Cal. Rev. & Tax. Code § 23001 et seq.).  In general, California recognizes three categories of forfeiture: Secretary of State, Franchise Tax Board and both.  Section 2114(c) refers only to the second of these.  Section 2114(c) provides that in the case of FTB suspension, service may be effected pursuant to Section 2110.  This leaves open the question of how service is to be effected when the corporation’s rights have been forfeited by the Secretary of State and not the FTB, as was the case with St. Jude.

The fact that the Secretary of State has forfeited a foreign corporation’s rights to transact intrastate business does not necessarily mean that the corporation has been dissolved or defunct.  These corporations may not realize that they are subject to service in California by service on a long-ago designated agent for service of process.  As a result, they will be at the mercy of those agents in perpetuity.

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