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Yellowstone Poky, LLC v. First Pocatello Associates, L.P.

United States District Court, D. Idaho

November 7, 2016

YELLOWSTONE POKY, LLC, an Idaho Limited Liability Company, Plaintiff,
v.
FIRST POCATELLO ASSOCIATES, L.P., Defendant. FIRST POCATELLO ASSOCIATES, L.P., Counterclaim ant,
v.
YELLOWSTONE POKY, LLC, an Idaho Limited Liability Company, and FEATHERSTON HOLDINGS, INC. Counterdefendant.

          ORDER STAYING CASE

          B. Lynn Winmill, United States District Court Chief Judge.

         Defendant First Pocatello Associates, L.P., brought to the Court's attention, through a Motion to Dismiss pursuant to Rule 12(b)(1) (Dkt. 30), that Plaintiffs predecessor-in-interest, Featherston Holdings, Inc. ("FHI"), is a tax-suspended California corporation. Proceedings are pending to revive FHI's corporate status. The Court now considers, sua sponte, whether to order a brief stay to allow FHI to pursue reinstatement before considering the pending Motion to Dismiss (Dkt. 30).

         BACKGROUND

         This action arises out of an alleged real estate purchase and sale agreement (the "Agreement") between Defendant First Pocatello Associates, L.P., and Featherston Holdings, Inc., a California corporation.[1] FHI allegedly assigned its interest in the Agreement to Yellowstone Poky, LLC, the Plaintiff in this lawsuit. Yellowstone Poky alleges that First Pocatello failed to perform its obligations under the contract and brings claims for breach of contract, unjust enrichment, and promissory estoppel.

         On September 30, 2016, First Pocatello filed a Motion to Dismiss for Lack of Jurisdiction under Rule 12(b)(1) (Dkt. 30). Defendant argues primarily that Yellowstone Poky lacks standing to pursue the present action because its predecessor-in-interest, FHI, is a tax-suspended California corporation. The argument is twofold. First, Defendant argues that as a suspended corporation, FHI lacked the capacity to enter into the Agreement and thus it is unenforceable. Therefore, Defendant argues, Yellowstone Poky was not assigned a "legally protected interest" in the Agreement and can show no "injury in fact" necessary to confer standing. The second argument rests on the fact that FHI, as a suspended California corporation, cannot sue or defend a lawsuit. Defendant argues that Yellowstone Poky, as the purported assignee of FHI, is subject to the same defense and therefore lacks "standing" to bring this lawsuit.[2] See Cal-W. Bus. Servs., Inc. v. Coming Capital Grp., 163 Cal.Rptr.3d 911, 917 (Cal.Ct.App. 2013). If Defendant is correct, this Court lacks subject matter jurisdiction over the lawsuit.

         In its response brief, Plaintiff informed the court that proceedings are pending to obtain a "Certificate of Revivor" from the California Franchise Tax Board, which would reinstate FHI's corporate status. The central disagreement between the parties concerns the effect a successful reinstatement would have on Plaintiffs Motion to Dismiss under Rule 12(b)(1). Defendant argues that a Certificate of Revivor would not validate the alleged Agreement or standing deficiencies, meaning a stay would be futile. Plaintiff disagrees, arguing that reinstatement of FHI's corporate rights would retroactively cure the voidability of the agreement and reinstate Yellowstone Poky's capacity to sue

         LEGAL STANDARD

         "The District Court has broad discretion to stay proceedings as an incident to its power to control its own docket." Enelow v. New York Life Ins. Co., 293 U.S. 379, 382 (1935). In considering whether to issue a stay, the Court must weigh several "competing interests . . ., [including] the hardship or inequity which a party may suffer in being required to go forward, and the orderly course of justice measured in terms of the simplifying or complicating of issues, proof, and questions of law which could be expected to result from a stay." CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962).

         DISCUSSION

         1. Judicial Economy Favors a Stay

         First, the Court must consider whether a stay would further "the orderly course of justice" by simplifying issues, proof, and questions of law in this case. CMAX, 300 F.2d at 268. The Court finds that principles of judicial economy strongly dictate in favor of a stay, as a successful reinstatement of FHI's corporate status would render Plaintiffs 12(b)(1) Motion largely moot.

         A. Effect of Revival on Plaintiff's Capacity to Sue

         A corporation's capacity to sue or be sued is determined "by the law under which it was organized." Fed.R.Civ.P. 17(b). Under California law, a California corporation whose powers have been suspended for failure to pay taxes lacks the capacity to sue or defend a lawsuit. See Bourhis v. Lord, 295 P.3d 895 (Cal. 2013); Cal. Rev. & Tax Code § 23301. However, the California Supreme Court has held that once a suspended corporation pays its taxes and obtains a Certificate of Revivor, the corporation may continue an action filed during the period of suspension and not previously dismissed. See Peacock Hill Assn. v. Peacock Lagoon Constr. Co., 503 P.2d 285 (Cal. 1972) ("[Our] authorities make clear that as to matters occurring prior to judgment the revival of corporate powers has the effect of validating the earlier acts and permitting the corporation to proceed with the action.").

         Therefore, the Court finds that a successful reinstatement of FHI's corporate status would render moot the challenge to ...


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