Two years after filing suit, the corporate defendant ("Old Monterey") in a lawsuit converts into an limited liability company ("New Monterey") pursuant to to the California Corporations Code. In the parlance of the Code, Old Monterey is a "converting corporation" and New Monterey is a "converted entity". Cal. Corp. Code § 1150(c) & (b). The plaintiff amends her complaint to add New Monterey as a defendant but does not drop the Old Monterey from the suit. The plaintiff, moreover, demands responses to written discovery from Old Monterey, even though that discovery is identical to that propounded upon New Monterey. This forces Old Monterey to move to substitute out of the case pursuant to Federal Rule of Civil Procedure 25(c).
Magistrate Judge William V. Gallo was not pleased with the plaintiff's insistence on keeping Old Monterey in the case:
"What is going on in this case is unnecessary, aggressive litigation that will delay this case in the future—for no good reason. Old Monterey contends it should be terminated from this case because New Monterey is 'effectively 'the same entity,' as Old Monterey. (Doc. No. 84 at 7.) As a result, Old Monterey contends it does not have separate liability from New Monterey, which remains liable for all of Old Monterey's debts and liabilities. (Id.) However, Old Monterey actually understates the conversionary effect of [Cal. Corp. Code] sections 1150 et seq. New Monterey is not "effectively" the same entity as Old Monterey. As California law makes clear, it is the same entity. With exceptions that do not apply here, '[a]n entity that converts into another entity . . . is for all purposes . . . the same entity that existed before the conversion.' [Cal. Corp. Code] § 1158(a) (emphasis added). California's conversion statutes make clear not only that rights, property, debts and liabilities are automatically transferred to the new LLC, but also that the rights of creditors and all legal actions against the corporation continue unimpaired against the new LLC. New Monterey retains all of Old Monterey's real and personal rights and property. [Cal. Corp. Code] § 1158(b)(1). New Monterey remains liable for all of Old Monterey's debts, liabilities, and obligations. § 1158(b)(2). All of Old Monterey's creditors and lienholders retain all of their preexisting rights and liens, all of which remain enforceable against New Monterey with equal force as they were against Old Monterey. § 1158(b)(3). As a result of this this comprehensive and total conversion, New Monterey is indistinguishable from Old Monterey except in name only. Thus, New Monterey and Old Monterey are not essentially the same entity—they are the same entity in the eyes of the law."
Brinkley v. Monterey Fin. Servs., Inc., 2018 U.S. Dist. LEXIS 127272.
While I agree with the court's ruling, it does raise an etiological question. If Old Monterey is the same entity as New Monterey, how could Old Monterey make the motion for substitution?