DAN CLARK FAMILY LIMITED PARTNERSHIP v. MIRAMONTES









Filed 3/3/11






CERTIFIED FOR PUBLICATION


COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

DAN CLARK FAMILY LIMITED PARTNERSHIP, Plaintiff and Appellant, v. JULIETA ADA MIRAMONTES et al., Defendants and Respondents.

D056064 (Super. Ct. No. ECU03788)

STORY CONTINUE FROM PART I….


2. Commerce Clause limitations on tolling statutes of limitation

In Bendix Autolite Corp. v. Midwesco Enterprises, Inc. (1988) 486 U.S. 888 (Bendix), the United States Supreme Court considered whether an Ohio statute that tolled claims against defendants who were not present in the state violated the Commerce Clause.^[1] The defendant in Bendix was an out-of-state corporation that had delivered and installed a boiler system at the plaintiff's facility in Ohio. (Bendix, supra, at pp. 889-890.) The court noted that "[a]lthough statute of limitations defenses are not a fundamental right [citation], it is obvious that they are an integral part of the legal system and are relied upon to project the liabilities of persons and corporations active in the commercial sphere." (Id. at p. 893.)
"The State may not withdraw such defenses on conditions repugnant to the Commerce Clause. Where a State denies ordinary legal defenses or like privileges to out-of-state persons or corporations engaged in commerce, the state law will be reviewed under the Commerce Clause to determine whether the denial is discriminatory on its face or an impermissible burden on commerce. The State may not condition the exercise of the defense on the waiver or relinquishment of rights that the foreign corporation would otherwise retain. [Citations.]" (Ibid.)

The Bendix court concluded that subjecting nonresident corporate defendants to an indefinite statute of limitations because they are not present in the state impermissibly burdens interstate commerce.^[2] The court stated, "Ohio cannot justify its statute as a means of protecting its residents from corporations who become liable for acts done within the State but later withdraw from the jurisdiction, for it is conceded by all parties that the Ohio long-arm statute would have permitted service on [the defendant] throughout the period of limitations. The Ohio statute of limitations is tolled only for those foreign corporations that do not subject themselves to the general jurisdiction of Ohio courts. In this manner the Ohio statute imposes a greater burden on out-of-state companies than it does on Ohio companies, subjecting the activities of foreign and domestic corporations to inconsistent regulations. [Citation.]" (Bendix, supra, 486 U.S. at p. 894.)
The Bendix court was concerned with the fact that "[t]he Ohio statutory scheme . . . forces a foreign corporation to choose between exposure to the general jurisdiction of Ohio courts or forfeiture of the limitations defense, remaining subject to suit in Ohio in perpetuity." (Bendix, supra, 486 U.S. at p. 893.) "Requiring a foreign corporation to appoint an agent for service in all cases and to defend itself with reference to all transactions, including those in which it did not have the minimum contacts necessary for supporting personal jurisdiction, is a significant burden [on commerce]. [Citation.]" (Ibid.) The court thus concluded that the burden imposed on interstate commerce exceeded any local interest that the state might advance (e.g., the state's interest in adjusting for the greater degree of difficulty that a resident might have in serving a foreign defendant). (Id. at pp. 893-895.)
Since Bendix was decided, a number of courts have considered whether application of section 351 violates the Commerce Clause. For example, in Abramson v. Brownstein (9th Cir. 1990) 897 F.2d 389, 392 (Abramson), a federal appeals court held that section 351 placed an unreasonable burden on interstate commerce with regard to an individual nonresident (as opposed to a corporate nonresident like the defendant in Bendix) who engaged in commerce within California. Abramson involved a Massachusetts resident who had entered into an agreement with two California residents to sell them gold coins and currency. The parties negotiated the transaction over the telephone. The California plaintiffs filed an untimely suit for breach of contract and fraud, but asserted that section 351 tolled the applicable statutes of limitations for the time period during which the defendant had been in Massachusetts.
The Abramson court determined that "Brownstein was engaged in interstate commerce when, as a Massachusetts resident, he entered into a sales transaction with Californians Abramson and World." (Abramson, supra, 897 F.2d at p. 392.) The court therefore weighed the state's putative interests against the interstate restraints " 'to determine if the burden imposed is an unreasonable one.' [Citation.]" (Ibid.) With regard to the burden imposed, the Abramson court stated:
"On the burden side, the statute requires a person engaged in interstate commerce outside of California to be in California for the appropriate limitations period in order to avoid the application of the tolling statute. This is a different burden from the one imposed by the Ohio statute in Bendix, where foreign corporations were required to appoint an agent in Ohio and thereby subject themselves to the general jurisdiction of the Ohio courts in order to avoid the application of the tolling provision. Nevertheless, the California statutory scheme forces a nonresident individual engaged in interstate commerce to choose between being present in California for several years or forfeiture of the limitations defense, remaining subject to suit in California in perpetuity. [Citation.] Section 351 imposes a significant burden." (Abramson, supra, at p. 392, italics added.)

On the other side of the weighing analysis, the Abramson court noted the local interest that supported application of section 351, as identified by the California Supreme Court in Dew v. Appleberry (1979) 23 Cal.3d 630 (Dew). In Dew, the Supreme Court stated, "The Legislature may justifiably have concluded that a defendant's physical absence impedes his availability for suit, and that it would be inequitable to force a claimant to pursue the defendant out of state in order effectively to commence an action within the limitations period. . . . [¶] . . . [¶] . . . [S]ection 351 . . . rationally alleviates any hardship that would result by compelling plaintiff to pursue defendant out of state." (Dew, supra, at p. 636.)
The Abramson court concluded that applying the statute in the case before it would impermissibly burden interstate commerce, since the articulated local interest did not support the corresponding burden created by the California tolling statute. (Abramson, supra, 897 F.2d at p. 393.)
In Filet Menu, Inc. v. Cheng (1999) 71 Cal.App.4th 1276, 1283 (Filet Menu), a California appellate court considered the application of the tolling provision of section 351 to a resident defendant who was alleged to have been out of the state for various periods of time after the plaintiff's cause of action had accrued.^[3] The court found that application of section 351 to toll claims against California residents violates the Commerce Clause to the extent that it "imposes a special burden on residents who travel in the course of interstate commerce that is not shared by residents involved solely in 'local business and trade . . . .' [Citation.]" (Filet Menu, supra, at pp. 1282.) The Filet Menu court noted that "[r]esidents travel outside California for many reasons unrelated to the service of interstate commerce," and asserted that "tolling statutory periods for the duration of out-of-state travel unrelated to interstate commerce does not violate the commerce clause. [Citation.]" (Id. at p. 1283.) A violation of the Commerce Clause would occur only where tolling is applied to "travel for the facilitation of interstate commerce." (Ibid.)
Because the complaint in Filet Menu did not "describe the extent to which [the defendant's] absences from the state were in the course of interstate commerce," the court concluded that the complaint could "not establish that applying . . . section 351 in the circumstances of this case violates the commerce clause." (Filet Menu, supra, 71 Cal.App.4th at p. 1284.) The court therefore reversed the judgment that the trial court had entered after it sustained the resident defendant's demurrer without leave to amend. (Ibid.)
More recently, in Heritage Marketing & Ins. Services., Inc. v. Chrustawka (2008) 160 Cal.App.4th 754 (Heritage Marketing), the appellate court determined that section 351 could not be applied to toll the statute of limitations against individual defendants who had previously been California residents, but who had moved to Texas and had remained there after the move.
The Heritage Marketing plaintiffs owned a business in California that provided living trust services. The defendants were employees of the plaintiffs' various related businesses who had left their employment with plaintiffs and moved to Texas. (Heritage Marketing, supra, 160 Cal.App.4th at p. 758.) A few months after the defendants moved to Texas, they opened a business that the plaintiffs alleged competed with the plaintiffs' business. (Ibid.) Four years after defendants opened their business in Texas, the plaintiffs filed suit against the defendants, claiming breach of contract (against only one of the defendants), conspiracy to defraud, defamation, tortious interference with economic advantage, slander per se, and violation of California's Uniform Trade Secrets Act (Civ. Code, § 3426 et seq.). (Heritage Marketing, supra, at p. 758.)
The defendants asserted that the claims were barred by the applicable statutes of limitations. In response, the plaintiffs contended that section 351 applied to toll the statutes of limitations for the period(s) of time that the defendants had been in Texas. The Heritage Marketing court noted that where a statute of limitations defense is denied to " 'out-of-state persons or corporations engaged in commerce,' it must 'be reviewed under the Commerce Clause to determine whether the denial is discriminatory on its face or an impermissible burden on commerce.' " (Heritage Marketing, supra, 160 Cal.App.4th at p. 759, quoting Bendix, supra, 486 U.S. at p. 893.)
The Heritage Marketing court noted other cases in which an individual defendant had moved to another state after a cause of action had accrued. (See Pratali v. Gates (1992) 4 Cal.App.4th 632, 643 [defendant who permanently moved to Idaho after judgment was entered against him on a promissory note was a noncommercial defendant not engaged in interstate commerce, and applying § 351 to toll claims against him thus did not violate the Commerce Clause]; Tesar v. Hallas (N.D. Ohio 1990) 738 F.Supp. 240, 242 [applying Ohio tolling statute to a defendant who moved from Ohio to Pennsylvania to take a new job would violate the Commerce Clause because the statute unreasonably burdened the flow of persons between states for employment purposes]; State ex rel. Bloomquist v. Schneider (Mo. 2008 ) 244 S.W.3d 139, 142-143 (Bloomquist) [applying tolling statute against defendant who left Missouri after cause of action accrued would violate Commerce Clause because "it plainly discourages and burdens his ability to move from state to state"].) The Heritage Marketing court also cited Bottineau Farmers Elevator v. Woodward-Clyde (8th Cir. 1992) 963 F.2d 1064, 1073–1074, "which applied Bendix to a North Dakota tolling provision that extended the limitations period against nonresidents, concluding that it impermissibly burdened interstate commerce 'because it forces a non-resident defendant to choose between being physically present in the state for the limitations period or forfeiting the statute of limitations defense.' [Citation.]" (Heritage Marketing, supra, 160 Cal.App.4th at p. 763, italics added.)
The Heritage Marketing court adopted the reasoning of the Bloomquist court that
" ' "[t]he state's interest in aiding its residents' efforts to litigate against non-resident defendants d[oes] not justify denying non-residents the protections of the statute of limitations, particularly when long-arm service of process was available." [Citation.]' [Citation.]" (Heritage Marketing, supra, 160 Cal.App.4th at p. 763.) The Heritage Marketing court explained, "Section 351 penalizes people who move out of state by imposing a longer statute of limitations on them than on those who remain in the state. The commerce clause protects persons from such restraints on their movements across state lines. [Citations.] By creating disincentives to travel across state lines and imposing costs on those who wish to do so, the statute prevents or limits the exercise of the right to freedom of movement. Applying section 351 under the facts of this case would impose an impermissible burden on interstate commerce as it would force defendants to choose between remaining residents of California until the limitations periods expired or moving out of state and forfeiting the limitations defense, thus 'remaining subject to suit in California in perpetuity.' [Citation.]" (Heritage Marketing, supra, at pp. 763-764.)
C. Analysis
Under Bendix, we first consider whether application of section 351 in this case "denies ordinary legal defenses or like privileges to out-of-state persons . . . engaged in commerce." (Bendix, supra, 486 U.S. at p. 893.) If it does, then we review "the state law . . . under the Commerce Clause to determine whether the denial is discriminatory on its face or an impermissible burden on commerce." (Ibid.)
The allegations of the complaint in the present case demonstrate that the Miramonteses are "out-of-state persons" who were "engaged in commerce" when they purchased the Vehicles from Frehner. Dan Clark alleges that "Frehner purported to convey ownership of the Vehicles to Defendants" in March 2002, and further alleges that "[t]he 'purchase' took place in Las Vegas, Nevada." Although Dan Clark also alleges that the Miramonteses knew that Frehner did not possess title to the Vehicles, or, at a minimum, acted unreasonably in failing to demand proof that Frehner owned the Vehicles, this does not alter the fact that the conduct underlying Dan Clark's claims is a commercial transaction--and an interstate commercial transaction, at that. Because the allegations of the complaint demonstrate that the Miramonteses were "engaged in commerce" when they participated in the underlying transaction at issue, application of section 351 in this instance would serve to "den[y] ordinary legal defenses or like privileges to [an] out-of-state person[] . . . engaged in commerce." (Bendix, supra, 486 U.S. at p. 893.) Since applying section 351 in this case would deny the Miramonteses the ordinary legal defense of the statute of limitations, we review its application "under the Commerce Clause to determine whether the denial is discriminatory on its face or an impermissible burden on commerce." (Bendix, supra, at p. 893.)
Even assuming that the application of section 351 to toll the statute of limitations in this case is not discriminatory,^[4] we conclude that application of the statute would place an impermissible burden on commerce, since the burden is significant when compared with the minimal state interest in this case.
A statute imposes a burden when it inhibits the flow of goods interstate. (See Ford Motor Co. v. Texas Dept. of Transportation (2001) 264 F.3d 493, 503.) "An 'excessive' burden 'in relation to' putative benefits, we elaborated in [Nat'l Elec. Mfrs' Ass'n v. Sorrell (2d Cir. 2001) 272 F.3d 104] is a burden on interstate commerce that is 'different from' the burden imposed on intrastate commerce. [Sorrell] at [page] 109 (stating that, 'to run afoul of the Pike standard, the statute . . . must impose a burden on interstate commerce that is qualitatively or quantitatively different from that imposed on intrastate commerce')." (Brown & Williamson Tobacco Corp. v. Pataki (2003) 320 F.3d 200, 209.)
Application of section 351 would force defendants like the Miramonteses to choose between remaining in California until the limitations period expired, or returning to their place of residence, thereby forfeiting the limitations defense and remaining "subject to suit in California in perpetuity." (Abramson, supra, 897 F.2d at p. 392.) Putting a nonresident defendant to such a choice discourages interstate travel, or travel from California to Mexico, and thus burdens any commerce that the individual might choose to engage in during those travels.
Dan Clark contends that the Miramonteses "are not presented with the same 'Hobson's Choice' " as were the defendants in Heritage Marketing. Dan Clark bases this claim on the fact that the defendants in Heritage Marketing "would have been required to forego any desire to move out of California to avoid the tolling of the statute of limitations," while the Miramonteses already "live in Mexico." However, application of section 351 would force the Miramonteses to remain in California for the duration of the statute of limitations, or face indefinite potential liability under California law. Although application of section 351 would not affect the Miramonteses in terms of forcing them to choose between remaining residents of California or being subject to suit in perpetuity, it would essentially force them to either become residents of California or to be subject to suit in California in perpetuity. This choice is not fundamentally different from the choice that the defendants in Heritage Marketing faced. Further, this is precisely the choice that the Abramson court found to be untenable under the Commerce Clause when it concluded that applying section 351 in that case would impermissibly burden interstate commerce because "the California statutory scheme forces a nonresident individual engaged in interstate commerce to choose between being present in California for several years or forfeiture of the limitations defense, remaining subject to suit in California in perpetuity. [Citation.]" (Abramson, supra, 897 F.2d at p. 392.)
Further, the state's interests in applying the tolling provisions of section 351 do not outweigh the burdens on interstate commerce that would result from application of section 351 in this case. Just as the Bendix court determined that "Ohio cannot justify its statute as a means of protecting its residents from corporations who become liable for acts done within the State but later withdraw from the jurisdiction, for it is conceded by all parties that the Ohio long-arm statute would have permitted service on Midwesco throughout the period of limitations" (Bendix, supra, 486 U.S. at p. 894), neither can California justify its statute, since it, too, has a long-arm statute that would permit service on foreign defendants like the Miramonteses.^[5]
Dan Clark contends that Filet Menu is the governing authority in this case, and asserts that because the complaint alleges that the Miramonteses "spent time outside of California for personal reasons, and not for the purpose of engaging in interstate commerce," the complaint does not affirmatively show, on its face, that the lawsuit is untimely. According to Dan Clark, the "focus of a Section 351 analysis should be on the reason why the defendant left California, and if that reason does not involve commerce, the Commerce Clause is not implicated." We find this argument unpersuasive.
Filet Menu involved a resident defendant. A resident defendant does not face the same unpalatable choice that a nonresident faces with respect to the tolling of the statute of limitations under section 351--i.e., to remain in California, or be subject to suit in perpetuity. A resident defendant engaged in commerce in the state of California automatically receives the benefits of California's statute of limitations by virtue of his or her presence in California. A nonresident defendant, on the other hand, is potentially subject to liability in California indefinitely. Such application of the tolling statute discourages nonresidents from engaging in commercial transactions in California. Applying the tolling provisions of section 351 to a nonresident defendant engaged in commerce burdens interstate commerce in a way that applying it to a resident defendant who leaves the state for personal reasons does not. This result is impermissible under the Commerce Clause.
Application of the tolling provision of section 351in this case would violate the Commerce Clause. Because Dan Clark filed its complaint more than three years after its claims accrued, the claims are barred by the applicable statute of limitations. Dan Clark has not established that it could amend its pleadings in such a way as to resurrect its untimely claims. (See Blank v. Kirwan, supra, 39 Cal.3d at p. 318 [the plaintiff bears the burden of proving there is a reasonable possibility that a defect in the pleadings can be cured by amendment].) The trial court therefore acted reasonably in sustaining the demurrer without leave to amend.

IV.
DISPOSITION
The judgment of the trial court is affirmed. Respondents shall recover costs on
appeal.



AARON, J.

WE CONCUR:



HALLER, Acting P. J.



McDONALD, J.



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