Wood v. Elling Corp.
142 Cal. Rptr. 696, 572 P.2d 755, 20 Cal.3d 353 (1977)
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Rule of Law:
The filing of a lawsuit that is later dismissed for failure to timely serve process does not toll the statute of limitations during the pendency of that action. Upon such a dismissal, the statute of limitations is restored as if the first action had never been filed.
Facts:
- Walter and Cathryn Wencke owed Phil L. Wood a significant sum of money on a promissory note.
- In 1969, less than ten months before the note was due, the Wenckes transferred various real properties to Elling Corporation, a company they controlled.
- In 1970, less than one month before the note was due, the Wenckes transferred other real properties to Adele, Inc., another company they controlled.
- The stock for both Elling Corporation and Adele, Inc. was not owned by the Wenckes but was issued to trusts established for the benefit of their children, with Walter Wencke serving as a trustee.
- The Wenckes subsequently defaulted on the promissory note owed to Wood.
Procedural Posture:
- In April 1971, Phil L. Wood filed his first action (SO C 25238) against the Wenckes, Elling Corp., and Adele, Inc. in trial court, alleging default and fraudulent conveyance.
- Wood failed to serve summons on Elling Corp. and Adele, Inc. within the statutory three-year period.
- Elling Corp. and Adele, Inc. moved to dismiss the action against them for failure of service; the trial court denied this motion.
- Elling Corp. and Adele, Inc. successfully petitioned the Court of Appeal for a writ of mandate, which ordered the trial court to dismiss them from the first action.
- On August 14, 1975, after the original fraud statute of limitations had run, Wood filed a new, separate action (SO C 39672) against the same defendants.
- Defendants filed a demurrer to the new complaint, arguing the claims were barred by the three-year statute of limitations for fraud.
- The trial court sustained the demurrer without leave to amend and entered a judgment of dismissal against Wood.
- Wood, as appellant, appealed the judgment of dismissal to the Supreme Court of California.
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Issue:
Does the filing of a lawsuit, which is later dismissed for failure to timely serve a summons, toll the statute of limitations for the underlying claim during the period the initial lawsuit was pending?
Opinions:
Majority - Manuel, J.
No, the filing of an action that is later dismissed for failure to serve a summons does not toll the statute of limitations. When a dismissal for failure to prosecute occurs, the applicability of the statute of limitations is restored as if no action had been brought. The court reasoned that allowing tolling in such circumstances would defy the public policy of encouraging prompt prosecution of legal claims. A plaintiff could indefinitely extend the statutory period by repeatedly filing and allowing the dismissal of their actions. The court also rejected an argument for equitable tolling under the doctrine of Bollinger v. National Fire Ins. Co., because that exception requires plaintiff diligence, which was absent here as the plaintiff failed to serve the corporate defendants for over three years. Finally, the court found that the plaintiff's alter ego claims were substantively claims of fraudulent conveyance, as the specific allegations showed the Wenckes lacked an ownership interest, and were thus barred by the same three-year statute of limitations.
Analysis:
This decision reinforces a strict application of statutes of limitations and clarifies that a procedural dismissal for lack of prosecution effectively resets the clock. It significantly limits the availability of equitable tolling under the Bollinger doctrine by emphasizing that a plaintiff's own lack of diligence is fatal to its application. The case serves as a critical warning to practitioners about the severe consequences of failing to diligently prosecute claims against all named defendants, as the mere filing of a complaint provides no long-term protection against the statute of limitations if the case is dismissed on procedural grounds before reaching the merits.
