Opinion
As Modified on Denial of Rehearing Nov. 4, 1987.
Review Granted Jan. 21, 1988.
Previously published at 195 Cal.App.3d 533
Randall D. Gustafson and Bacalski & Lincoln, San Diego, for cross-complainants and appellants.
Gary L. Wollberg and Jenkins & Perry, San Diego, as amici curiae on behalf of appellants.
Lawrence T. Dougherty, Christopher D. McIntire and Sternberg, Eggers, Kidder & Fox, San Diego, for cross-defendants and respondents.
WIENER, Acting Presiding Justice.
We are presented in this case with the question whether there is a remedy against a dissolved corporation when a defective product it manufactures causes injury after the corporate dissolution. Interpreting the relevant sections of the Corporations Code , we conclude that a dissolved corporation may not be sued unless FACTUAL AND PROCEDURAL BACKGROUND
All statutory references are to the Corporations Code unless otherwise indicated.
The underlying facts are relatively simple. Pacific Scene mass-produces tract homes in the San Diego area. Prior to 1979 when it dissolved, Penasquitos was in the business of developing, finishing and selling residential lots suitable for building mass-produced tract homes. In 1974, Pacific Scene purchased a number of graded lots from Penasquitos and a year later sold finished homes built on those lots to the general public. In 1982, nine of the homes in the Penasquitos Bluffs development sustained damage as a result of subsidence. The homeowners sued Pacific Scene on theories of strict products liability, negligence and breach of warranty, among others. Pacific Scene, in turn, tried to cross-complain against Penasquitos. The trial court sustained a demurrer without leave to amend and dismissed the cross-complaint as to Penasquitos. Based on Corporations Code section 2011, subdivision (a) , it reasoned that a dissolved corporation cannot be sued on causes of action arising after dissolution.
When referring to statutory subparts, we omit repetition of the word "subdivision."
DISCUSSION
The centerpiece of this appeal is Corporations Code section 2011(a). It provides:
"In all cases where a corporation has been dissolved, the shareholders may be sued in the corporate name of such corporation upon any cause of action against the corporation arising prior to its dissolution. This section is procedural in nature and is not intended to determine liability."
Subdivision (b) then goes on to provide how service of summons can be obtained against a dissolved corporation.
Subdivision (b) states:
The first issue we must consider is whether a dissolved corporation may be sued pursuant to section 2011(a) based on pre-dissolution corporate conduct which causes damage to the plaintiff after the date of dissolution. If such a suit is not expressly sanctioned by section 2011(a), we must next inquire whether there exist other mechanisms not inconsistent with the statute which will allow Pacific Scene a remedy.
I
The trial court accepted Penasquitos' proffered interpretation of section 2011(a) to the effect that a cause of action does not "arise" within the meaning of the statute until it accrues for statute of limitations purposes. Amicus Genstar Development, Inc. on behalf of Pacific Scene asserts this is an overly restrictive interpretation of section 2011(a). It argues the cause of action should be deemed to have arisen when Penasquitos sold the allegedly defective lots to Pacific Scene in 1974 even though no cause of action accrued until the lots manifested subsidence damage in
Genstar is another cross-defendant in the underlying action. (See post, fn. 8.)
The major problem with this argument is the language of section 2011(a) itself. The statute speaks of "cause[s] of action against the corporation arising prior to its dissolution." (Emphasis added.) If the Legislature had intended to allow suits against corporations for any wrongful act occurring before dissolution, it would have been unnecessary to include any limitation as to when the cause of action must "arise." By definition, a dissolved corporation doesn't act--at least in a business sense--after it dissolves. Thus, a time limitation would be superfluous unless it was intended to distinguish a subset of cases in which direct suit against the corporate entity would be permitted from a larger set of cases in which causes of action existed "against the corporation."
Section 2010(a) provides in pertinent part: "A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs ... but not for the purpose of continuing business except so far as necessary for the winding up thereof."
This conclusion, which equates "arises" with "accrues", is further supported by the numerous cases which state that a cause of action does not arise until the plaintiff suffers or discovers he has suffered damage. (See, e.g., Budd v. Nixen (1971) 6 Cal.3d 195, 201, 98 Cal.Rptr. 849, 491 P.2d 433; Bellman v. County of Contra Costa (1960) 54 Cal.2d 363, 369, 5 Cal.Rptr. 692, 353 P.2d 300; Veterans' Welfare Bd. v. City of Oakland (1946) 74 Cal.App.2d 818, 830, 169 P.2d 1000.) As the Supreme Court observed in Pierpont Inn, Inc. v. State of California (1969) 70 Cal.2d 282, 289, 74 Cal.Rptr. 521, 449 P.2d 737: "[I]t is self-evident that a claim or cause of action for damages cannot arise or accrue prior to the occurrence from which the damages arise." (Emphasis added.) In the absence of other evidence, we must assume the Legislature used the words in the statute consistent with their common legal meaning. Accordingly, section 2011(a) cannot be read to authorize direct suit against the corporation for causes of action which arise or accrue after the corporate dissolution. (See Levin Metals Corp. v. Parr-Richmond Terminal Co. (9th Cir.1987) 817 F.2d 1448.)
II
Under common law principles, the dissolution of a corporation ended its existence for all purposes, including defending lawsuits and responding to claims for damages based on corporate wrongs committed before dissolution. The unqualified nature of the legal rule was expressed by the California Supreme Court in Crossman v. Vivienda Water Co. (1907) 150 Cal. 575, 580, 89 P. 335:
"It is settled beyond question that, except as otherwise provided by statute, the effect of the dissolution of a corporation is to terminate its existence as a legal entity, and render it incapable of suing or being sued as a corporate body or in its corporate name. It is dead, and can no more be proceeded against as an existing corporation than could a natural person after his death. There is no one who can appear or act for it, and all actions against it are abated, and any judgment attempted to be given against it is void."
(See also Sharp v. Eagle Lake Lumber Co. (1923) 60 Cal.App. 386, 389-390, 212 P. 933.)
In order to ameliorate the harshness of the common law rule, an equitable doctrine developed known as the "trust fund" theory. Under this doctrine, claimants and "Where the assets of a dissolved corporation have been distributed among the stockholders, a creditor of the dissolved corporation may follow such assets as in the nature of a trust fund into the hands of stockholders. The creditors have the right to subject such assets to their debts and for that purpose the stockholders hold them as though they were trustees." (Koch v. United States (10th Cir. 1943) 138 F.2d 850, 852.)
The existence of this equitable doctrine in California has been recognized by the Supreme Court on at least two occasions. (See Crossman v. Vivienda Water Co., supra, 150 Cal. at p. 579, 89 P. 335; Trubowitch v. Riverbank Canning Co. (1947) 30 Cal.2d 335, 345, 182 P.2d 182; see also Zinn v. Bright (1970) 9 Cal.App.3d 188, 192-193, 87 Cal.Rptr. 736.)
Pacific Scene argues that section 2011(a) was not intended to eliminate the equitable "trust fund" theory as it applies to post-dissolution claims. Under this approach, the statute provides a simple and direct legal remedy as to causes of action arising before dissolution but it remains for equity to "fill in the gap" and provide a remedy where the claim against the corporation accrues after dissolution, an issue to which the Legislature has not yet spoken. This approach has considerable merit unless the retention of such an equitable remedy is inconsistent with the legislative purpose in enacting section 2011(a).
One law review commentary makes the argument as follows: "Equity, with its progressive view, could provide the means whereby a post-dissolution claimant could prevent the immunization of corporate assets even after they had been lawfully transferred in accordance with dissolution procedures. Such a utilization of equity is in harmony with its former task of bringing formative corporation law up to date. Moreover, it certainly would not collide with the current trend of products liability, which places the burden of injury on as wide a spectrum of society as possible. [p ] Dissolution can offer no sound reason, other than finality, why it should disrupt this policy. In the absence of a sound legislative solution, equity should provide a remedy." (Henn & Alexander, Effect of Corporate Dissolution on Products Liability Claims (1971) 56 Cornell L.Rev. 865, 909, fn. 222 [hereafter cited as Effect of Corporate Dissolution ].)
Section 2011 was originally enacted as part of an omnibus revision of the Corporations Code in 1975. (See Stats. 1975, ch. 682, § 7, p. 1516.) The bill was an outgrowth of a project by the State Bar Committee on Corporations. We unsuccessfully attempted to obtain legislative history materials from both the Legislature and the State Bar. We were able to locate more than 200 pages of materials concerning the bill through the State Archives, but section 2011 is never mentioned.
Nonetheless, it is possible to trace the derivation of section 2011 back to the enactment of former section 3305 in 1947. (See Stats. 1947, ch. 1038, p. 2368.) That section incorporated the substance of what is now subdivision (b) of section 2011, allowing for service of summons on a dissolved corporation. In 1969, the predecessor of subdivision (a) was added as section 3305.2. (See Stats. 1969, ch. 1610, § 26, p. 3374.) When enacted, that section provided: "In all cases where a corporation has forfeited its charter or right to do business, or has dissolved, the trustees of the corporation and of its stockholders or members may be sued in the corporate name of such corporation." As is evident from the language and context of the sections, the focus of sections 3305 and 3305.2 is exclusively procedural. The statutes were designed to facilitate suit against the shareholders of a dissolved corporation by allowing them to be sued and served in the name of the corporation. They do not address the question of the circumstances under which the shareholders may be sued other than in the corporate name.
When section 2011(a) was enacted in 1975, the broad scope of former section 3305.2 ("In all cases where a corporation ... has dissolved ...") was somewhat narrowed so that shareholders could only be sued in the corporate name as to causes of Subdivision (b) of section 2011 provides a simple means in such cases by which the corporation may be served in lieu of the shareholders. When coupled with section 2010(a), which allows the corporate entity to continue to defend lawsuits after dissolution, the practical effect of the statute is to continue the existence of the corporate mechanism for the purposes of a lawsuit raising pre-dissolution claims. On the other hand, the "trust fund" theory does not allow suits to continue against the corporation. In fact, the express holding in Crossman v. Vivienda Water Co., supra, was that a judgment entered against a dissolved corporation was void. Under the "trust fund" doctrine, shareholders may be sued as trustees of the corporate assets but must be named and served individually. Furthermore, plaintiffs seeking to utilize the "trust fund" mechanism can only recover from each shareholder up to the amount of any distributions received from the dissolved corporation. The fact that the Legislature has provided in section 2011(a) for a streamlined procedural mechanism applicable to pre-dissolution claims is not inconsistent with retention of the more cumbersome equitable "trust fund" theory as to post-dissolution causes of action.
Pacific Scene's interpretation finds some support in the Supreme Court's decision in Ray v. Alad Corp. (1977) 19 Cal.3d 22, 136 Cal.Rptr. 574, 560 P.2d 3. In one sense, Ray is another side to the same coin we confront here. The question in Ray was whether a plaintiff injured by a defective product manufactured by a dissolved corporation could sue the company which acquired the assets of the dissolved entity. In holding such a suit permissible, the court cited California "trust fund" cases and law review articles discussing application of the theory to post-dissolution claims but noted that a plaintiff attempting to satisfy a judgment against former shareholders "would face formidable and probably insuperable obstacles...." (Id. at p. 32, 136 Cal.Rptr. 574, 560 P.2d 3.) By implication, the Supreme Court appears to be suggesting that the "trust fund" theory, while procedurally cumbersome, remains an available remedy. The notion that statutes such as section 2011(a)--known generically as corporate continuation statutes--should be interpreted as supplementing rather than supplanting the "trust fund" doctrine has received the support of several commentators including those cited by the Supreme Court in Ray v. Alad. Two articles have focused specifically on the problems created by corporate dissolutions in the context of product liability claims because the basis for such claims regularly manifest themselves some years after the purchase of the product and thus potentially after the dissolution of the corporate manufacturer. In the earliest discussion of the issue, Cornell Professor Harry Henn and John Alexander observed that virtually all corporate continuation statutes ignore the issue of post-dissolution claims. (Effect of Corporate Dissolution, supra, 56 Cornell L.Rev. 865, 896.) They conclude that while "[t]he comprehensive coverage of pre-dissolution claims by corporate statutes supports the possibility that common law and equitable principles thereby might be preempted ... the statutory application to post-dissolution claims is so tenuous as to make it more probable that common law and equitable principles apply to the extent they are not inconsistent with the statute." The authors went on to comment directly on the viability of the "trust fund" theory:
In its petition for rehearing, Penasquitos refers us to Potlatch Corp. v. Superior Court (1984) 154 Cal.App.3d 1144, 201 Cal.Rptr. 750, a case which interprets Ray. In Potlatch, the dissolved corporation which manufactured the allegedly defective product was formerly a wholly-owned subsidiary of the defendant Potlatch Corporation. Upon dissolution, Potlatch did not acquire the assets of the subsidiary nor did it in any way continue the subsidiary's business. The court properly rejected plaintiff's argument that Potlatch should be viewed as the successor of the former subsidiary within the meaning of Ray, pointing to portions of the Supreme Court's opinion emphasizing the continuing nature of the successor corporation's business activities. (154 Cal.App.3d at pp. 1149-1150, 201 Cal.Rptr. 750.)
Among other cross-defendants from whom Pacific Scene has sought indemnity is Genstar Development, Inc., an alleged successor-in-interest to Penasquitos. We of course have no way of knowing at this point in the litigation whether Pacific Scene will be able to satisfy the requisites of Ray v. Alad in attempting to recover on this claim. We accordingly express no opinion on Pacific Scene's ability to pursue such a theory or on the proper basis for apportionment of responsibility in the event Pacific Scene is successful against both Genstar and the former shareholders of Penasquitos.
A more recent comment considers the issue specifically in the context of California law, but appears to be more of a description of the author's view of current law rather than an analysis of how unresolved issues should be approached. (See Comment, Continuing Corporate Existence for Post-Dissolution Claims: The Defective Products Dilemma (1982) 13 Pacific L.J. 1227 [hereafter Defective Products Dilemma ].) The author takes the position that some remedy is needed for post-dissolution claimants. (Id. at p. 1244.) In a cryptic footnote reference, however, she apparently concludes that the "trust fund" theory is unavailable in California "because [section 2011(a) ] allows service of process on shareholders only for pre-dissolution causes of action." (Id. at p. 1237, fn. 79.) No support is offered for this parenthetical statement and, as we have noted, section 2011(b ) only speaks to service of process on the corporation. (Ante, p. 769.) From discussion later in the comment it appears the author's statement regarding the unavailability of the "trust fund" theory derives from a Nevada superior court decision quashing an attempted service of summons on a former shareholder of a dissolved California corporation. (Id. at p. 1240; see post, fn. 10.) However, the author then qualifies the statement with the following conclusion: "If all courts give Section 2011(a) this same strict interpretation, a plaintiff may be left entirely without a remedy...." (Id. at p. 1241, emphasis added, footnote omitted.)
"The 'trust fund theory' has been applied for over a century to satisfy pre-dissolution claims out of the distributions of the 'net assets' of dissolved corporations made to shareholders, whether or not such shareholders knew or had reason to know of such claims. No reason appears why the 'trust fund theory,' absent legislation to the contrary, should not be applicable to protect persons injured by defective products after dissolution...." (Id. at p. 909.)
Another commentator has employed similar reasoning. (See Wallach, Products Liability: A Remedy in Search of a Defendant--The Effect of a Sale of Assets and Subsequent Dissolution on Product Dissatisfaction Claims [hereafter Product Dissatisfaction Claims ] (1976) 41 Mo.L. Rev. 321.) Professor Wallach points out that the chief justification for limiting creditor rights against a dissolved corporation is the need for finality in the winding up of corporate affairs. "However, the need for promptness in regard to claims against the corporation does not necessarily exist for the shareholders. The relatively short grace period of the postponed abatement statutes has been created so that at the expiration of the grace period the corporation's existence, and its records, could be finally closed.... The shareholders, however, continue to function as individuals, and to enjoy the assets of the former corporation or the fruits of those assets. Allowing creditors to assert claims against them under the 'trust fund' theory, while creating uncertainty, does not prevent the final possibility of delayed claims against the dissolved corporation." (Id. at p. 333.)
The continued viability of the "trust fund" doctrine is an issue of first impression in California. Other states with statutes which differ somewhat from California's section 2011(a) have considered the issue and reached different conclusions. (Compare Blankenship v. Demmler Mfg. Co. (1980) 89 Ill.App.3d 569, 44 Ill.Dec. 787, 411 N.E.2d 1153 and Hunter v. Fort Worth Capital Corp. (Tex.1981) 620 S.W.2d 547 with State ex rel. Pabst v. Circuit Court for Milwaukee County (1924) 184 Wis. 301, 199 N.W. 213.)
A recent law review comment makes reference to a Nevada superior court case in which the issue was raised with respect to the California statute. (See Defective Products Dilemma, supra, 13 Pacific L.J. at p. 1240.) Plaintiff, whose husband had been killed in an elevator accident, attempted to sue the major shareholder of the dissolved California corporation which manufactured the elevator. Although there is no published citable opinion in the case, the Nevada judge apparently concluded that the "trust fund" theory could not be utilized and quashed an attempted service of summons on the shareholder.
In the Texas and Illinois cases, the relevant statutes provided that any remedy available to a corporate creditor against a corporation, its directors or shareholders on a pre-dissolution claim is not destroyed by the dissolution of the corporation as long the lawsuit is commenced within two (Illinois) or three (Texas) years of the date of dissolution. (Blankenship, supra, 44 Ill.Dec. at p. 790, 411 N.E.2d at p. 1156; Hunter, supra, 620 S.W.2d at p. 549.) Although not technically applicable to a plaintiff's post-dissolution claim, these statutes clearly preempt the "trust fund" theory as to pre-dissolution causes of action. It was difficult for the Hunter and Blankenship courts to believe that their respective state legislatures intended to create a system with a two or three-year limitation on pre-dissolution claims but with no limitation on post-dissolution suits. Even so, Hunter drew a vigorous dissent from Justice Spears arguing that where the legislature had made no provision for post-dissolution claims, the courts should not restrict traditional equitable remedies. He concluded:
It should be noted, however, that the Blankenship court's extended discussion in dicta of the need for corporate finality (44 Ill.Dec. at p. 790, 411 N.E.2d at p. 1156) ignores the fact that the "trust fund" theory applies only against shareholders whose interests in finality do not match those of the corporation. (See Product Dissatisfaction Claims, op. cit. supra.)
"The net effect of the court's holding is to permit, and even encourage, the evasion of historic common law principles and sound public policy that wrongdoers respond in damages to a person injured as a proximate cause of the wrong.... The shareholders of the dissolved corporation have received value for their stock, yet are shielded from contributing to the compensation of the victims of the wrongs perpetrated by the dissolved corporation to the extent of assets received by them upon dissolution.... The only losers are the victims of the wrongs that were set in motion during the dissolved corporation's existence. Such a public policy should not be countenanced by any court." (620 S.W.2d at p. 556.)
Unlike the Texas and Illinois statutes, California's section 2011(a) imposes no time limitation on pre-dissolution claims. It is thus not even impliedly inconsistent with the legislative intent in enacting that section to retain the broader-but-more-cumbersome "trust fund" doctrine as to post-dissolution causes of action.
Wisconsin at one time had a statute similar to Texas which provided that corporations continued to exist for three years after dissolution for the purpose of prosecuting and defending legal actions. (See State ex rel. Pabst v. Circuit Court, supra, 199 N.W. at p. 214.) The statute, however, said nothing about remedies against shareholders of the dissolved corporation. The plaintiff in the Circuit Court case sued a dissolved corporation on a pre-dissolution claim but failed to obtain a judgment before the expiration of the three-year period. In a holding paralleling the Vivienda Water Co. case in California (see ante, p. 769), the Wisconsin Supreme Court held It is true that the Wisconsin statute, like the Texas and Illinois statutes in Hunter and Blankenship, differs from section 2011(a) in that it provides a time limitation on pre-dissolution claims, at least against the corporate entity. If anything, however, it is easier to argue that the Wisconsin statute preempts the "trust fund" theory than it is in the case of the California statute. Thus, the Wisconsin Supreme Court's reasoning in State ex rel. Pabst v. Circuit Court provides significant support for our conclusion that section 2011(a) supplements rather than supplants the "trust fund" theory.
A slightly different issue and different approach are manifest in Gonzales v. Progressive Tool & Die Co. (E.D.N.Y.1979) 463 F.Supp. 117, in which a New York federal district court applying Massachusetts law declined to allow a plaintiff with a post-dissolution product liability claim to utilize the "trust fund" theory. The court rested its holding on the fact that it could find no case which had applied the "trust fund" approach to a claim which had not accrued as of the time of dissolution (id. at p. 119) despite the fact that commentators and courts have consistently concluded there is no inherent reason why the theory is inapplicable in such situations. (See, e.g., Product Dissatisfaction Claims, supra, 41 Mo.L.Rev. at p. 331; Effect of Corporate Dissolution, supra, 56 Cornell L.Rev. at p. 909; Hunter, supra, 620 S.W.2d at p. 551, fn. 6.) The court's conclusion is premised on a faulty concern with corporate finality (see ante, pp. 770-771) and fails to recognize that even pre-dissolution claims will be unknown to a dissolving corporation unless suit is also filed before dissolution. Moreover, if the concern is simply with the foreseeability of the claims (see Roe, Mergers, Acquisitions, and Tort: A Comment on the Problem of Successor Corporation Liability (1984) 70 Va.L.Rev. 1559, 1564, fn. 15), it is certainly foreseeable that a dissolving product manufacturer will be subject to future claims for injuries caused by product defects.
Significant practical and policy considerations also support continued recognition of the "trust fund" theory in cases such as this involving defective products. California has traditionally been in the forefront of developments to increase the legal protections for injured consumers. As then-Justice Traynor expressed in his landmark concurring opinion in Escola v. Coca Cola Bottling Co. (1944) 24 Cal.2d 453, 462, 150 P.2d 436, "Those who suffer injury from defective products are unprepared to meet its consequences. The cost of an injury and the loss of time or health may be an overwhelming misfortune to the person injured, and a needless one, for the risk of injury can be insured by the manufacturer and distributed among the public as a cost of doing business." (See also Ray v. Alad Corp., supra, 19 Cal.3d at pp. 30-31, 136 Cal.Rptr. 574, 560 P.2d 3.) In this case, it appears there may be sources of compensation for the plaintiffs' damages other than the dissolved corporation. In other cases, however, the unavailability of the "trust fund" theory against the shareholders of a dissolved manufacturer might well leave a plaintiff without any recourse. In any event, it is unfair to place the entire burden of compensation on one (perhaps minimally responsible) defendant where another culpable party should contribute. (See Hunter v. Fort Worth Capital Corp., supra, 620 S.W.2d at pp. 555-556 [dis. opn. of Spears, J.]; cf. American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 595-598, 146 Cal.Rptr. 182, 578 P.2d 899.)
More importantly, if dissolution will allow a corporation and its shareholders to limit their ultimate liability, it may become economically prudent for certain corporations to purposefully plan on only limited life spans. In those industries where significant tort claims often do not manifest themselves until years after the manufacture and sale of the product (e.g., construction, drugs, etc.), a corporation may find it On the other side of the coin, we admit that the prospect of unending liability of the shareholders of a dissolved corporation is at first glance disconcerting. On reflection, however, it turns out to be far less so. There are problems any time a lawsuit turns on operative facts which occurred some time in the past, but applicable statutes of limitation and statutes of repose still apply so that shareholders would only be potentially liable for the same time periods as would the corporation had it continued to exist. As a practical matter, a dissolving corporation with any significant potential post-dissolution claims will purchase insurance to cover that risk so that both shareholders and later-injured claimants will be protected. (See Defective Products Dilemma, supra, 13 Pacific L.J. at p. 1243-1244, fn. 141.) The only additional burden such a rule imposes is that corporate records relevant to potential post-dissolution claims would have to be retained, presumably by the insurance company which contracted to assume the risk. This is hardly a significant burden given the alternative that injured plaintiffs with meritorious claims will go uncompensated and substandard manufacturing practices will go undeterred.
We infer from the fact the interests of Penasquitos in this proceeding have been asserted by Allianz Insurance Company that Penasquitos purchased some sort of insurance policy which at least arguably affords coverage in these circumstances.
III
A fundamental premise of California product liability law is that damages resulting from defective products are a "cost of doing business" which should be internalized within the manufacturer's profit equation. The fact that a product defect causes injury after some change in the manufacturer's corporate form does not alter the importance or desirability of this principle. A chameleon is not less responsible for its bite because it has since changed color.
We recognize that the efficacy of the "trust fund" remedy will vary greatly from case to case and that the obstacles facing a plaintiff will often be "formidable" if not "insuperable". (Ray v. Alad Corp., supra, 19 Cal.3d at p. 32, 136 Cal.Rptr. 574, 560 P.2d 3.) Brought to its attention, the Legislature may confront the problem of post-dissolution product liability claims and devise a solution which is preferable for all concerned. But in the absence of express legislative direction, we see no reason to deprive plaintiffs of a traditional equitable remedy which may provide the only remedy in some circumstances. Accordingly, the superior court is directed to grant Pacific Scene leave to amend its cross-complaint to name the former shareholders of Penasquitos as cross-defendants under the "trust fund" theory.
DISPOSITION
Judgment reversed. Appellant shall recover costs.
TODD and BENKE, JJ., concur.
"Summons or other process against such a corporation may be served by delivering a copy thereof to an officer, director or person having charge of its assets or, if no such person can be found, to any agent upon whom process might be served at the time of dissolution. If none of such persons can be found with due diligence ... then the court may make an order that summons or other process be served upon the dissolved corporation by personally delivering a copy thereof, together with a copy of the order, to the Secretary of State...."
"Although the holding of Potlatch has nothing to do with the issue in this case, Penasquitos points to the fact that Potlatch was a shareholder of the dissolved corporation and thus it could have been argued that the 'trust fund' theory was applicable. In this context, Penasquitos finds support in an observation made by the Potlatch court near the end of its opinion: 'When a corporation has been duly and lawfully dissolved, its shareholders are not liable for debts of the corporation (see Ray v. Alad, supra, 19 Cal.3d at p. 32, 136 Cal.Rptr. 574, 560 P.2d 3, and authorities cited) ....' (154 Cal.App.3d at p. 1151, 201 Cal.Rptr. 750.) To begin with, the portion of Ray cited by the Potlatch court is the same passage we quoted above in which the Supreme Court references cases and other authorities which discuss the applicability of the 'trust fund' theory. More importantly, we have no quarrel with the Potlatch court's statement. This is not an alter ego case. Shareholders do not become liable for corporate debts by virtue of the 'trust fund' theory. That theory only suggests that to the extent there are corporate distributions, shareholders may hold such distributions in trust for the benefit of corporate creditors. Potlatch does not expressly or impliedly preclude application of the equitable 'trust fund' doctrine."