CNR Consulting Services, Inc. dba Party Plan Solutions v. Grace & Heart, LLC, et al.

Case Number

23CV05752

Case Type

Hearing Date / Time

Wed, 01/21/2026 - 10:00

Nature of Proceedings

Defendant Grace & Heart, LLC’s Demurrer to Second Amended Complaint

Tentative Ruling

For Plaintiff CNR Consulting Services, Inc. dba Party Plan Solutions: Ron Chow, Gardener Riechmann & Chow

For Defendants Grace & Heart, LLC and Suzanne Garrett: Geoffrey G. Melkonian, Law Offices of Geoffrey G. Melkonian

                       

RULING

Defendant Grace & Heart, LLC’s demurrer to the second amended complaint is overruled. Defendant Grace & Heart, LLC, shall file a responsive pleading on or before January 30, 2026.

Background

On December 28, 2023, Plaintiff CNR Consulting Services, Inc. dba Party Plan Solutions (Plaintiff) commenced this action by filing a complaint against Defendants Grace & Heart, LLC (Grace & Heart) and Suzanne Garrett (Garrett), alleging four causes of action for (1) breach of contract, (2) open book account, (3) account stated, and (4) quantum meruit. The complaint alleges that Plaintiff provided goods and services to Defendants on credit in the amount of $31,537.50 which remains unpaid. (Compl., ¶¶ 4-19.)

The issue presented in this demurrer is whether Plaintiff has alleged the capacity to sue in California Courts as a foreign corporation under Corporations Code sections 2105 and 2203.

As alleged in the original complaint: “Plaintiff is, and at all times herein mentioned was, a Virginia Corporation, qualified to do business in California.” (Compl., ¶ 1, italics added.)

As alleged in the first amended complaint (FAC) filed on April 2, 2025: “Plaintiff is, at all times herein mentioned was, a Virginia Corporation, conducting only interstate business with no presence in the State of California.” (FAC, ¶ 1, italics added.) Otherwise, the allegations in the FAC are largely identical to the original complaint.

As alleged in the second amended complaint (SAC) filed on July 16, 2025: “Plaintiff is, and at all times herein mentioned was, a Virginia Corporation, conducting only interstate business with no presence in the State of California. Plaintiff erroneously plead in the original complaint that it was qualified to do business in California. Plaintiff is not qualified to do business in California. At all times relevant, Plaintiff conducts only interstate business with the Defendant.” (SAC, ¶ 1, italics added.) Defendant Garrett was not named as a Defendant in the SAC. Otherwise, the allegations in the SAC are largely identical to the original complaint.

Defendant Grace & Heart demur to the SAC on the grounds that Plaintiff cannot not allege the legal capacity to sue. This demurrer is opposed.

Analysis

“The party against whom a complaint … has been filed may object, by demurrer or answer as provided in Section 430.30, to the pleading on any one or more of the following grounds: [¶] … [¶] The person who filed the pleading does not have the legal capacity to sue.” (Code Civ. Proc., § 430.10, subd. (b).)

“Because the function of a demurrer is to test the sufficiency of a pleading as a matter of law, we … assume the truth of the allegations in the complaint, but do not assume the truth of contentions, deductions, or conclusions of law. [Citation.] It is error for the trial Court to sustain a demurrer if the Plaintiff has stated a cause of action under any possible legal theory, and it is an abuse of discretion for the Court to sustain a demurrer without leave to amend if the Plaintiff has shown there is a reasonable possibility a defect can be cured by amendment.” (California Logistics, Inc. v. State of California (2008) 161 Cal.App.4th 242, 247.) “The reviewing Court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded.” (Payne v. National Collection Systems, Inc. (2001) 91 Cal.App.4th 1037, 1043.) “[I]n ruling on a demurrer the trial Court may take into account in addition to the complaint itself any matter that may be properly considered under the doctrine of judicial notice.” (Cruz v. County of Los Angeles (1985) 173 Cal.App.3d 1131, 1133-1134.)

“A foreign corporation … which transacts intrastate business without complying with Section 2105 shall not maintain any action or proceeding upon any intrastate business so transacted in any Court of this state, commenced prior to compliance with Section 2105, until it has complied with the provisions thereof ….” (Corp. Code, § 2203, subd. (c).) “A foreign corporation shall not transact intrastate business without having first obtained from the Secretary of State a certificate of qualification ….” (Corp. Code, § 2105, subd. (a).)

The SAC alleges that “Plaintiff is, and at all times herein mentioned was, a Virginia Corporation, conducting only interstate business with no presence in the State of California.” (SAC, ¶ 1.) This allegation is sufficient to allege the legal capacity to sue as a foreign corporation. While an entity’s legal capacity to sue can be raised by demurrer, the issue as presented here – whether Plaintiff transacted only interstate business in California during any specific timeframe – is a factual allegation that the Court must assume is true as alleged in the SAC. (Ibid.) Additionally, “the state cannot put any burden upon persons or corporations engaged wholly in interstate commerce.” (Id. at p. 345; see also Corp. Code, §§ 2203, subd. (c) [pertaining only to “intrastate business”], 2105, subd. (a) [same].)
 

Moreover, Plaintiff is not bound by its original allegations as to its corporate status. “The doctrine of judicial admissions … does not apply to allegations in pleadings that have been superseded by amendments, especially where the initial pleading was not verified and the Court granted permission to file the amended pleading to correct a potentially damaging admission in the initial pleading that was the result of mistake, inadvertence, or inadequate knowledge of the facts.” (Minish v. Hanuman Fellowship (2013) 214 Cal.App.4th 437, 456.)

Furthermore, the issue of a corporation’s legal capacity to sue in this context is generally a factual question that should not be resolved on demurrer. “A foreign corporation transacting intrastate business which has failed to qualify with the Secretary of State may … commence an action in state Court. [Citation.] A foreign corporation transacting intrastate business which has failed to qualify may not, however, maintain an action commenced prior to qualification, except upon the satisfaction of certain conditions. (§ 2203, subd. (c).) [¶] The failure of a foreign corporation to qualify to transact business prior to commencing an action is a matter of abatement of the action. [Citation.] Once a nonqualified foreign corporation commences an action regarding intrastate business, the Defendant may assert by demurrer or as an affirmative defense in the answer the lack of capacity to maintain an action arising out of intrastate business. [Citation.] This abatement procedure enables the foreign corporation to obtain a judicial determination as to whether it is in fact transacting intrastate business. The Defendant bears the burden of proving: (1) the action arises out of the transaction of intrastate business by a foreign corporation; and (2) the action was commenced by the foreign corporation prior to qualifying to transact intrastate business. [Citation.] If the Defendant establishes the bar of the statute, then the foreign corporation Plaintiff must comply with section 2203, subdivision (c). Ordinarily, the matter should be stayed to permit the foreign corporation to comply. If the foreign corporation Plaintiff complies with section 2203, subdivision (c), by qualifying and paying fees, penalties and taxes, it may maintain the action. If the foreign corporation fails to comply, the matter should be dismissed without prejudice.” (United Medical Management Ltd. v. Gatto (1996) 49 Cal.App.4th 1732, 1739-1740; see also Traub Co. v. Coffee Break Service, Inc. (1967) 66 Cal.2d 368, 370 [“a plea of lack of capacity of a corporation … ‘is a plea in abatement which is not favored in law, is to be strictly construed and must be supported by facts ...”].)

As to Grace & Heart’s request for judicial notice, the Court already has in its files all iterations of the SAC (exhibits 2-4) and a citation to these documents is sufficient. As to the Secretary of State filing on Plaintiff’s corporate status (exhibit 1), that Plaintiff was not qualified to conduct intrastate business in California at the time this action was initiated does not address the issue presented in this demurrer of whether Plaintiff had the legal capacity to sue as a foreign corporation conducting only interstate business in California as alleged in the SAC. “[J]udicial notice of matters upon demurrer will be dispositive only in those instances where there is not or cannot be a factual dispute concerning that which is sought to be judicially noticed.” (Unruh-Haxton v. Regents of University of California (2008) 162 Cal.App.4th 343, 365.) “[J]udicial notice, since it is a substitute for proof [citation], is always confined to those matters which are relevant to the issue at hand.’ [Citation.]” (Mangini v. R. J. Reynolds Tobacco Co. (1994) 7 Cal.4th 1057, 1063.) Moreover, a Court “may not take judicial notice of the truth of hearsay statements ….” (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882.)

For all these reasons, the Court will overrule this demurer and deny the request for judicial notice.

The Court notes that Defendant Garrett was named as a Defendant in the original complaint and the FAC, but not in the SAC.