Court Opinion

ID: 4251533
Source: CourtListenerOpinion
Date Created: 2018-03-02 21:05:03.731659+00
Date Added: 2024-06-11T14:43:38.405066
License: Public Domain

Filed 3/2/18
                CERTIFIED FOR PUBLICATION

 IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                 SECOND APPELLATE DISTRICT

                          DIVISION EIGHT

DD HAIR LOUNGE, LLC,               B275388

       Plaintiff and Appellant,    (Los Angeles County
                                   Super. Ct. No. BC532889)
       v.

STATE FARM GENERAL
INSURANCE COMPANY et al.,

     Defendants and
Respondents.

     APPEAL from a judgment of the Superior Court of Los
Angeles County, Richard Fruin, Judge. Affirmed.

     Bendel Law Group and Jason R. Bendel for Plaintiff and
Appellant.

     Robie & Matthai and Kyle Kveton for Defendants and
Respondents.

                              ******
       This case involves the retroactive effect of a 2016 amendment
to Corporations Code section 17707.06,1 part of the California
Revised Uniform Limited Liability Company Act (the Revised Act),
which substantially revised the law of limited liability companies
(LLC’s) in California effective January 1, 2014. (Stats. 2012, ch.
419, § 20; § 17701.01 et seq.) The Revised Act provides that upon
filing a certificate of cancellation, an LLC’s “powers, rights, and
privileges shall cease.” (Stats. 2012, ch. 419, § 20; § 17707.08, subd.
(c).) Effective January 1, 2016, however, section 17707.06 was
amended to provide that an LLC could file a certificate of
cancellation, yet retain its powers of “prosecuting and defending
actions by or against it in order to collect and discharge
obligations.” (Stats. 2015, ch. 775, § 15; § 17707.06, subd. (a).)
       The question we face is whether the 2016 amendment to
section 17707.06 applied to a certificate of cancellation filed by
plaintiff DD Hair Lounge, LLC (DD Hair), in 2014. As purely a
question of statutory construction, we think it does. However, DD
Hair concealed the certificate of cancellation and then
unsuccessfully challenged its authenticity, prolonging the
proceedings into 2016 when the changes to section 17707.06 took
effect. Had DD Hair been forthcoming, the case would have been
dismissed under the prior law. It would now be unfair to reward
DD Hair’s delay by allowing it to take advantage of the 2016 law, so
we affirm the judgment dismissing DD Hair’s complaint.
                            BACKGROUND
       DD Hair was formed as an LLC on August 21, 2013, by
principal Uche Umeagukwu. Umeagukwu was familiar with the

1    All undesignated statutory citations are to the Corporations
Code unless noted otherwise.

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LLC process because she had previously formed another LLC on
May 31, 2012, under the name DE Hair Lounge, LLC, which she
cancelled on September 26, 2013, approximately one month after
DD Hair was formed. She also formed another LLC called Uche,
LLC, on October 24, 2014, while this case was pending.
       DD Hair filed a complaint against defendant State Farm
General Insurance Company, its insurer, and State Farm agent Leo
Gilling (together State Farm) on January 10, 2014, after State
Farm did not pay a burglary loss. Almost 10 months later on
November 5, 2014, a certificate of cancellation was filed for DD
Hair. Umeagukwu purportedly signed it as “president.” Consistent
with the law at the time, the form stated: “Upon the effective date
of this Certificate of Cancellation, this LLC’s Articles of
Organization (CA LLCs) or Certificate of Registration (registered
foreign LLCs) will be cancelled and its powers, rights and privileges
will cease in California.”
       DD Hair did not inform State Farm or the court that the
certificate of cancellation was filed. State Farm discovered it in late
September 2015, 10 months later. State Farm filed a motion for
judgment on the pleadings, arguing the law in effect at the time
deprived DD Hair of the power to pursue its case against State
Farm after its LLC status was cancelled. In opposition, DD Hair
argued Umeagukwu’s signature on the certificate of cancellation
was forged, and it sought reinstatement from the Secretary of State.
DD Hair also filed an ex parte request with the court to reinstate its
LLC status. The court denied both the motion and the ex parte
application because both procedures required resolution of the
disputed authenticity of Umeagukwu’s signature on the certificate
of cancellation.
       The court held an evidentiary hearing on January 8 and 15,
2016, to determine whether the certificate of cancellation was

                                  3
authentic. The court took documentary evidence and heard
testimony from Umeagukwu and competing forensic document
examiners. On January 25, 2016, the court ruled Umeagukwu’s
signature was genuine, the certificate of cancellation was validly
filed, and DD Hair could not maintain the action against State
Farm. The court dismissed the action with prejudice and entered
judgment on April 4, 2016.
                              DISCUSSION
1. Forfeiture
       DD Hair’s sole contention on appeal is that the 2016
amendment to section 17707.06 gave it authority to continue to
prosecute its case, despite filing the certificate of cancellation in
2014. DD Hair failed to raise this argument below, even though
doing so could have obviated the need to hold the two-day
evidentiary hearing in January 2016. Though we are troubled by
DD Hair’s failure to cite the key statute, we decline to find this
contention forfeited as it raises a pure question of law.
       “It is a well-established tenet of appellate jurisprudence that
a litigant may not pursue one line of legal argument in the trial
court, and having failed in that approach, pursue a different, and
indeed, contradictory line of argument on appeal, thus depriving the
trial court of the opportunity to consider what the appellant
contends on appeal is the real dispute.” (Brandwein v. Butler
(2013) 218 Cal.App.4th 1485, 1519.) Nonetheless, we may exercise
our discretion to address purely legal questions based on an
undisputed factual record. (C9 Ventures v. SVC-West, L.P. (2012)
202 Cal.App.4th 1483, 1492.) A party “may even ‘change the legal
theory he relied upon at trial, so long as the new theory presents a
question of law to be applied to undisputed facts in the record.’ ”
(Ibid.) DD Hair has not challenged the trial court’s finding that the
certificate of cancellation was authentic and valid, so the only issue

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is legal: whether the 2016 change to section 17707.06 applied to the
2014 certificate of cancellation. We will exercise our discretion to
consider that issue.
2. Merits
       As of January 1, 2014, the Revised Act replaced the Beverly-
Killea Limited Liability Company Act then in effect. (Stats. 2012,
ch. 419, §§ 19-20; Western Surety Co. v. La Cumbre Office Partners,
LLC (2017) 8 Cal.App.5th 125, 131.) Under the Revised Act, an
LLC can follow a two-step process when it elects to end its
existence. First, the LLC can file a certificate of dissolution.
(§ 17707.08, subd. (a).) As initially enacted, section 17707.06,
former subdivision (a) provided a dissolved LLC “nevertheless
continues to exist for the purpose of winding up its affairs,
prosecuting and defending actions by or against it in order to collect
and discharge obligations, disposing of and conveying its property,
and collecting and dividing its assets. A limited liability company
shall not continue business except so far as necessary for its
winding up.” (Stats. 2012, ch. 419, § 20.) At the second step, the
LLC can file a certificate of cancellation once its affairs are wound
up. (§ 17707.08, subd. (b)(1).) Section 17707.08, subdivision (c)
provides that, upon filing the certificate of cancellation, “a limited
liability company shall be canceled and its powers, rights, and
privileges shall cease.”
       Alternatively, the LLC can skip the dissolution step entirely
and proceed directly to cancellation with the agreement of all
members, which DD Hair did here. (Stats. 2012, ch. 419, § 20;
§ 17707.08, former subd. (a)(3).)
       Assembly Bill No. 506 (2015-2016 Reg. Sess.) amended the
Revised Act effective January 1, 2016. (Stats. 2015, ch. 775.)
Assembly Bill No. 506 did not change this basic process of ending
an LLC, but it changed section 17707.06 to provide that when an

                                  5
LLC files a certificate of cancellation, rather than a certificate of
dissolution, it “nevertheless continues to exist for the purpose of
winding up its affairs, prosecuting and defending actions by or
against it in order to collect and discharge obligations, disposing of
and conveying its property, and collecting and dividing its assets. A
limited liability company shall not continue business except so far
as necessary for its winding up.” (§ 17707.06, subd. (a).)
       The summary digest to Assembly Bill No. 506 (2015-2016
Reg. Sess.) explained this change: “Under existing law, the persons
who filed the certificate of dissolution are required to sign and file
with the Secretary of State a certificate of cancellation of articles of
organization upon the completion of the winding up of the affairs of
the limited liability company, except as specified. Existing law
requires the certificate of cancellation of articles of organization to
include, among other things, that upon the filing of the certificate of
cancellation, the limited liability company is required to be canceled
and its powers, rights, and privileges are required to cease. Under
existing law, a limited liability company that is dissolved continues
to exist for the purpose of, among other things, winding up its
affairs and prosecuting and defending actions by or against it in
order to collect and discharge obligations. [¶] This bill would
instead provide that a limited liability company that has filed a
certificate of cancellation continues to exist for those purposes, as
specified.” (Leg. Counsel’s Dig., Assm. Bill No. 506 (2015-2016 Reg.
Sess.) Summary Dig.)
       The Revised Act also added section 17713.04, which provides
that the entire “title”—that is, the Revised Act—applies to all LLC’s
existing as of January 1, 2014, and to all acts or transactions
undertaken on or after that date. (§ 17713.04, subds. (a), (b).)
Assembly Bill No. 506 (2015-2016 Reg. Sess.) made changes to
section 17713.04 in 2016, but significantly, it did not change the

                                   6
date of January 1, 2014. To the contrary, Assembly Bill No. 506
expressly reaffirmed that date: “This bill would limit the
applicability of the act to acts or transactions by a limited liability
company or by the members or managers of the limited liability
company occurring, or an operating agreement or other contracts
entered into by the limited liability company or by the members or
managers of the limited liability company, on or after January 1,
2014.” (Leg. Counsel’s Dig., Assm. Bill No. 506 (2015-2016 Reg.
Sess.) Summary Dig.)2
       “[S]tatutes ordinarily are interpreted as operating
prospectively in the absence of a clear indication of a contrary

2      Section 17713.04 currently reads: “(a) Except as otherwise
provided in subdivisions (b) and (c), this title shall apply to all
domestic limited liability companies existing on or after January 1,
2014, to all foreign limited liability companies registered with the
Secretary of State prior to January 1, 2014, whose registrations
have not been canceled as of January 1, 2014, to all foreign limited
liability companies registered with the Secretary of State on or after
January 1, 2014, and to all actions taken by the managers or
members of a limited liability company on or after that date. [¶] (b)
Except as otherwise specified in this title, this title applies only to
the acts or transactions by a limited liability company or by the
members or managers of the limited liability company occurring, or
an operating agreement or other contracts entered into by the
limited liability company or by the members or managers of the
limited liability company, on or after January 1, 2014. The prior
law governs all acts or transactions by a limited liability company
or by the members or managers of the limited liability company
occurring, and any operating agreement or other contracts entered
into by the limited liability company or by the members or
managers of the limited liability company, prior to January 1,
2014.”

                                   7
legislative intent. [Citations.] In construing statutes, there is a
presumption against retroactive application unless the Legislature
plainly has directed otherwise by means of ‘ “express language of
retroactivity or . . . other sources [that] provide a clear and
unavoidable implication that the Legislature intended retroactive
application.” ’ [Citations.] Ambiguous statutory language will not
suffice to dispel the presumption against retroactivity; rather, ‘ “a
statute that is ambiguous with respect to retroactive application is
construed . . . to be unambiguously prospective.” ’ ” (Quarry v. Doe I
(2012) 53 Cal.4th 945, 955.)
       Looking only to the plain language of the Revised Act
currently in effect, section 17707.06 clearly applies to DD Hair’s
certificate of cancellation. State Farm is correct section 17707.06 is
itself silent as to any retroactive effect. But section 17713.04
unambiguously provides that the entire Revised Act, which would
include section 17707.06, applies to LLC’s existing, and acts
undertaken, on or after January 1, 2014. DD Hair filed the
certificate of cancellation on November 5, 2014, so based on the
language of section 17713.04, section 17707.06 would apply.
       Section 17707.06 only becomes potentially ambiguous when
considering its effective date of January 1, 2016. But even then,
Assembly Bill No. 506 (2015-2016 Reg. Sess.) made clear that the
Legislature intended the 2016 amendments to apply to any acts
undertaken after January 1, 2014. As outlined above, Assembly
Bill No. 506 amended both section 17707.06 and section 17713.04,
but expressly retained the January 1, 2014 date in section
17713.04. The ineluctable conclusion is that the Legislature must
have intended the 2016 amendments in Assembly Bill No. 506 to
have a limited retroactive effect to acts undertaken on or after
January 1, 2014. That would include DD Hair’s certificate of
cancellation.

                                  8
       Nevertheless, we decline to apply section 17707.06 to
reinvigorate DD Hair’s right to pursue this case. DD Hair’s
principal Umeagukwu concealed the November 2014 certificate of
cancellation for almost a year before State Farm discovered it in
September 2015. Then she claimed the certificate was forged,
forcing the trial court to hold an evidentiary hearing, which
prolonged the proceedings into 2016, after the change to section
17707.06 became effective. After the hearing, the court found
Umeagukwu was familiar with the LLC process in California and
found her claim that she did not sign the certificate of cancellation
was “mistaken.” We can reasonably infer from these findings that
Umeagukwu was aware of both the existence and authenticity of
the certificate in November 2014. Had she been forthright, DD
Hair’s case would have been swiftly dismissed and judgment
entered based on the Revised Act then in effect. Umeagukwu’s
delays and denials positioned DD Hair to raise the argument that
the newly revised section 17707.06 preserved its rights. There does
not appear to be any factual dispute about this and these issues
were discussed below and briefed on appeal.
       The doctrine of “unclean hands,” which applies equally to law
and equity, “demands that a plaintiff act fairly in the matter for
which he seeks a remedy. He must come into court with clean
hands, and keep them clean, or he will be denied relief, regardless
of the merits of his claim.” (Kendall-Jackson Winery, Ltd. v.
Superior Court (1999) 76 Cal.App.4th 970, 978 (Kendall-Jackson).)
This doctrine, which is often tendered as an affirmative defense,
actually exists to promote the court’s interest in “protect[ing]
judicial integrity and promot[ing] justice” by preventing a
wrongdoer from benefitting from his or her misconduct. (Ibid.)
       The primary requirement for application of the “unclean
hands” doctrine is that the misconduct must relate directly to the

                                  9
“cause at issue.” (Kendall-Jackson, supra, 76 Cal.App.4th at
p. 979.) This is often a complex factual question. However, it is very
straightforward in the case at bench. By concealing the certificate
of cancellation for nearly a year and then engaging in the time-
consuming charade of disingenuously challenging that certificate’s
authenticity, appellant effectively “stalled” the case to a point at
which it could arguably have obtained relief under the rule we have
discussed in this opinion. Had DD Hair acted with “clean hands,”
its claim would have properly been extinguished long before the
effective date of the amendment to section 17707.06.
       It would be unfair to State Farm to reward DD Hair’s
behavior by retroactively applying this provision to revive its right
to pursue this case.
                            DISPOSITION
       The judgment is affirmed. Respondent is awarded costs on
appeal.

                                           HALL, J.*
WE CONCUR:

            RUBIN, Acting P. J.

            GRIMES, J.

*     Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.

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