Untitled California Attorney General Opinion ( 1998 )

TO BE PUBLISHED IN THE OFFICIAL REPORTS
OFFICE OF THE ATTORNEY GENERAL
State of California
DANIEL E. LUNGREN
Attorney General
______________________________________
OPINION :
: No. 98-201
of :
: July 15, 1998
DANIEL E. LUNGREN :
Attorney General :
:
ANTHONY DaVIGO :
Deputy Attorney :
General
:
______________________________________________________________________
EMERGING MARKETS LEASING CO., LLC, has requested this office to grant leave to
sue in quo warranto upon the following:
ISSUES OF FACT OR LAW
Is GLENDALE NISSAN, INC., by virtue of a single complaint of alleged unlawful
deceptive practice, unlawfully holding or exercising its corporate franchise?
CONCLUSION
GLENDALE NISSAN, INC. is not, by virtue of a single complaint of alleged unlawful
deceptive practice, unlawfully holding or exercising its corporate franchise.
PARTIES
EMERGING MARKETS LEASING CO., LLC. ("relator") contends that GLENDALE
NISSAN, INC. ("defendant") is unlawfully holding and exercising a corporate franchise within
this state.
MATERIAL FACTS
Relator is in the business of leasing automobiles. Defendant is in the business of selling
automobiles. Relator alleges essentially that on or about January 10, 1998, defendant advertised
for sale to the public certain automobiles at specified "blowout" prices. Relator dispatched an
employee to purchase one or more automobiles at the advertised price. Relator's employee
offered and defendant's salesperson agreed to accept a trade-in plus cash for one automobile and
a cash down payment for another.
On the following day, relator's president met with defendant's sales manager to formalize
the arrangement. However, the sales manager stated that he could not complete the deal, but
would allow a lesser amount for the trade-in on another vehicle. On the next day, the sales
manager explained that both of the vehicles which were the subject of the earlier oral agreement
had been sold, but that the lesser trade-in allowance on another vehicle was still available.
Defendant alleges that when the principals met for the first time, relator tendered the
registration for the trade-in, which was branded as "salvage." The fact that the trade-in had been
so branded had not been previously disclosed to defendant or its salesperson. Defendant
explained to relator that the salvaged trade-in was not acceptable, but that the new vehicle was
available at the advertised price. On the next day, negotiations were terminated and relator left
the premises.
ANALYSIS
In deciding whether to grant leave to sue in the name of the People of the State of California
in a quo warranto action, we consider initially whether there exists a substantial question of law
or fact that requires judicial resolution, and if so, whether the proposed action would serve the
overall public interest. (81 Ops.Cal.Atty.Gen. 98, 100 (1998).)
Code of Civil Procedure section 803 provides as follows:
"An action may be brought by the attorney-general in the name of the people of this state . .
. upon a complaint of a private party . . . against a corporation, either de jure or de facto, which
usurps, intrudes into, or unlawfully holds or exercises any franchise, within this state . . . ."
This statutory remedy, in the nature of quo warranto, is concurrent with that provided by
Corporations Code section 1801 whereby the Attorney General is authorized to bring an action to
dissolve and forfeit the existence of a corporation that has seriously offended against a provision
of the laws regulating corporations, has fraudulently abused or usurped corporate privileges or
powers, or has violated any provision of law by any act or default that is a ground for forfeiture
of corporate existence. (Citizens Utilities Co. v. Superior Court (1976) 56 Cal. App. 3d 399, 405.)
Accordingly, we must determine whether defendant has usurped or unlawfully exercised its
corporate franchise (Code Civ. Proc., § 803) or has fraudulently abused or usurped its corporate
privileges or powers (Corp. Code, § 1801). In People v. Milk Producers Assn. (1923) 60
Cal. App. 439, 443, the court stated:
"It certainly is a matter of public concern that a corporation, under the color or guise of a
nonprofit concern, is usurping the functions of an ordinary corporation by employing its capital
to engage in business for a profit and is combining with others in the illegal restraint of trade.
Such a corporation is not only usurping a franchise in violation of the quasi-contract from which
[it] derives its power from the state, but, in violating the law, it is exercising a power which the
state denies to all persons. The illegal practices complained of are by the complaint made a
feature of the business conducted for a profit - a kind of business which defendant has no right to
engage in."
We deduce from the foregoing that corporate conduct may constitute a usurpation of
franchise (1) which may not be unlawful in itself, but which is in excess of the corporation's
powers (People v. Milk Producers Assn., supra, 60 Cal. App. 439 [nonprofit corporation engaged
in business for profit]; People v. California Protective Corp. (1926) 76 Cal. App. 354, 361
[corporate practice of law] or (2) which is unlawful, although not in excess of the corporation's
powers (People v. Milk Producers Assn., supra, 60 Cal. App. 439 [combinations in restraint of
trade]; 22 Ops.Cal.Atty.Gen. 113, 116-117 (1953) [insurance company's attempt to influence
jurors]).
In the matter under consideration, it is contended that defendant has unlawfully exercised
and fraudulently abused its corporate franchise. In support thereof, it is alleged, based on the
facts summarized above, that defendant engaged in an unlawful deceptive trade practice in
violation of Civil Code section 1770 by (1) advertising goods or services with intent not to sell
them as advertised, (2) advertising goods or services with intent not to supply reasonably
expectable demand, and (3) misrepresenting the authority of a salesperson to negotiate the final
terms of a transaction. (Civ. Code, § 1770, subd. (a)(9), (10), (18).)
Thus, we are concerned with alleged conduct that would be unlawful, although not in excess
of defendant's corporate powers. This is not, however, the end of the inquiry. As further
explained in People v. Milk Producers Assn., supra, 60 Cal.App. at 444:
". . . We think that, as has been indicated in some of the cases, the attorney-general has
some discretion in passing upon complaints of public wrong (Lamb v. Webb, 151 Cal. 451); that
he ought not to sue where the reasons urged for the beginning of an action in quo warranto are
trivial or the purpose is to redress some grievance which is altogether private . . . ."
In our view, the sole transaction that is the basis for the instant application for leave to sue
is, insofar as public injury is concerned, both insubstantial and altogether private. In the first
instance, actual damages resulting from the alleged conduct are adequately remediable at law, in
addition to punitive damages, costs, attorney's fees, and other proper relief. (Civ. Code, § 1780;
Bus. & Prof. Code, § 17500 et seq.)
With respect to the essentially private nature of the alleged injury, we stated in 80
Ops.Cal.Atty.Gen. 290, 292-293 (1997), quoting 9 Ops.Cal.Atty.Gen. 1, 2 (1947), as follows:
"'The right to proceed in quo warranto is time honored, and the Attorney General is of the
opinion that in exercising the powers vested in him he should give careful consideration to the
question as to whether the leave to sue should issue in each case to the end that there will be
presented to the courts actions brought in the name of the People of the State only in cases where
such a course is the only one open to the proposed relator. In other words, in matters solely of
private concern, it should be the policy to deny quo warranto in cases where there is adequate
remedy otherwise available to the parties claiming to be aggrieved. People v. Milk Producers, 60
Cal. App. 439.'" (Italics added.)
Finally, as summarized in People v. Dashaway Assn. (1890) 84 Cal. 114, 119:
"Cases of forfeiture are said to be divided into two great classes:
"1. Cases of perversion; as where a corporation does an act inconsistent with the nature and
destructive of the ends and purposes of the grant. In such cases, unless the perversion is such as
to amount to an injury to the public, who are interested in the franchise, it will not work a
forfeiture.
"2. Cases of usurpation; as where a corporation exercises a power which it has no right to
exercise. In this last case the question of forfeiture is not dependent, as in the former, upon any
interest or injury to the public." (Italics added.)
Giving the application herein its proper weight, we find no substantial question of law or
fact that requires judicial resolution. Leave to sue in quo warranto is DENIED.
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