Procedural Posture

Appellant seller challenged the judgment of the Superior Court of Los Angeles County (California), which sustained respondent buyer’s demurrer on the basis that appellant’s causes of action against respondent for breach of its warranties of financial condition were barred by the statute of limitations.

California Business Lawyer & Corporate Lawyer, Inc. files California Labor Board Complaint

Overview

Appellant seller transferred his business assets to respondent buyer in exchange for stock in respondent’s company, and predicated on respondent’s warranties of financial condition. Respondent breached its warranties. Appellant brought suit in federal court. Pursuant to respondent’s motion, the federal district court dismissed appellant’s action as barred by the statute of limitations. Appellant sought review in the federal appellate court, while at the same time filing a state court case. The trial court sustained respondent’s demurrer that the complaint was barred by the statute of limitations, and dismissed the case. The court reversed the lower court, finding that it had erred in sustaining the demurrer based on the statute of limitations. The court found the issue to be the scope of the California rule of equitable tolling of the statute of limitations by the filing of an action in another forum when both federal and state law causes of action were alleged. The court held that a complaint which alleged the timely filing of a federal action sufficiently tolled the statute of limitations upon the California cause of action so that the state cause was not barred.

Outcome

The court reversed the judgment. The matter was remanded to the trial court with directions to permit appellant seller to file an amended complaint in appellant’s cause of action against respondent buyer. Appellant’s original complaint alleged the timely filing of a federal action. This sufficiently tolled the statute of limitations upon the California cause of action so that the state cause was not time-barred.