Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. BC388122 Richard E. Rico, Judge.
Van Etten Suzumoto & Sipprelle, David Van Etten, Keith A. Sipprelle and Joshua D. Mendelsohn, for Plaintiff and Appellant.
DLA Piper, Jeffrey A. Rosenfeld and Matthew D. Caplan, for Defendant and Respondent.
ZELON, J.
INTRODUCTION
Appellant CSC Trust Company (CSC) filed an action alleging that Respondent Crompton Greaves, Ltd., an Indian corporation with no operations in the United States, wrongfully retained escrow funds that had been wired to it as the result of an error. Crompton moved to quash service of the summons and complaint for lack of personal jurisdiction. After permitting CSC to conduct jurisdictional discovery, the trial court granted the motion and dismissed the action for lack of jurisdiction. CSC now appeals. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
A. Background Facts
Respondent Crompton Greaves, Ltd. (Crompton) is an Indian company based in Mumbai, India. Although Crompton has no operations in the United States, its products are sold in this country through various independent third-party dealers and distributors. In 1996, Crompton was a founding investor in a company named Paxonet, which was incorporated in Delaware and had its principal place of business in California. At the time Paxonet was founded, Crompton owned approximately 40 percent of the company. From 1996 to 2004, K.K. Nohria served as a director of both Crompton and Paxonet. According to another Paxonet director, Crompton appointed Nohria to his Paxonet directorship and, in that role, he “represented the interests [of Crompton]... as a significant shareholder of the company.”
Paxonet was originally named Corel Microsystems, but later changed its name.
In December of 2004, Paxonet entered into a merger agreement with Conexant, a California-domiciled corporation. Conexant acquired 100 percent of Paxonet’s stock and, in exchange, all outstanding shares of Paxonet were converted into a right to receive cash. At the time of the merger, Crompton was one of 94 Paxonet shareholders and owned approximately 12 percent of the company.
Pursuant to the terms of the Conexant-Paxonet Merger Agreement, Paxonet shareholders were required to indemnify Paxonet and Conexant up to $3,000,000 for any claims arising out of the Merger Agreement and any unpaid tax liabilities. To cover these indemnification costs, the parties agreed that Conexant would deposit $3,000,000 of the purchase price into an escrow fund. The Merger Agreement required each Paxonet shareholder to consent to the appointment of Bipin Shah, a California resident, to represent their interests in administering the escrow fund.
The specific terms of the escrow fund were described in a separate “Escrow Agreement, ” which was entered into between Conexant, Paxonet, Bipin Shah, and Appellant CSC Trust Company, who was to serve as the escrow agent. The Agreement required that any claim for indemnification had to be filed within 18 months after delivery of the escrow amount. At the end of this “Escrow Period, ” which was set to expire on or around June 5, 2006, CSC was to distribute any remaining funds to Paxonet’s shareholders. The Agreement further provided that, in the event Conexant, Paxonet and Shah could not resolve a disagreement about the validity of an indemnity claim, the matter would be subject to arbitration in California.
Claims “seeking [d]amages arising from conduct constituting fraud” were exempted from arbitration. However, such claims were specifically subject to jurisdiction in California state court or the United States District Court, Central District of California.
On June 5, 2006, a CSC escrow agent informed Shah that no indemnity claims had been filed against the fund and that it would begin distributing the proceeds to Paxonet shareholders. Later that day, CSC wired Crompton its share of the escrow fund – approximately $375,000 – to an account in India. Shortly after CSC wired the funds, Conexant contacted CSC to inquire about a tax indemnity claim it had filed in May of 2006. CSC conducted an investigation of the matter and discovered that, although it had received Conexant’s claim during the escrow period, a CSC employee had “misplaced” the file and, as a result, the claim had never been resolved. Immediately after discovering its error, CSC unsuccessfully attempted to recall the money it wired to Crompton. CSC requested that Crompton return the funds but it declined to do so.
B. CSC’s Complaint and the Trial Court Proceedings
On March 28, 2008, CSC filed an action against Crompton seeking to recover the “erroneously released” escrow funds. The complaint includes numerous causes of action arising from Crompton’s retention of the funds, including, in part, breach of contract, conversion and unjust enrichment. Crompton initially failed to answer the complaint or appear in the action and, as a result, the court entered a default judgment on December 17, 2008. Several months later, Crompton specially appeared to set aside the default judgment and quash service of the complaint for lack of personal jurisdiction. Crompton contended that, as an Indian company with no business operations in the United States, it was not subject to jurisdiction in California. Crompton further argued that CSC had failed to properly serve the complaint.
The trial court vacated and set aside the default judgment, concluding there was “insubstantial evidence” that CSC had properly served Crompton. However, the court continued the motion to quash service for lack of jurisdiction to allow CSC to conduct “jurisdictional discovery.” After issuing written discovery and deposing two third-party witnesses, CSC filed a supplemental opposition to Crompton’s motion to quash arguing that jurisdiction was appropriate based on Crompton’s status as a shareholder in Paxonet and its role in the merger with Conexant. The trial court granted the motion to quash, ruling that CSC had failed to establish that Crompton had sufficient minimum contacts with the California forum. CSC timely appealed the ruling.
DISCUSSION
I. General Principles of Personal Jurisdiction
Under California Code of Civil Procedure section 410.10, California courts may exercise jurisdiction over nonresidents “on any basis not inconsistent with the Constitution of this state or of the United States.” “The statute ‘manifests an intent to exercise the broadest possible jurisdiction, limited only by constitutional considerations.’ [Citation.]” (DVI, Inc. v. Superior Court (2002) 104 Cal.App.4th 1080, 1089 (DVI).)
“The federal Constitution permits a state to exercise jurisdiction over a nonresident defendant if the defendant has sufficient ‘minimum contacts’ with the forum such that ‘maintenance of the suit does not offend “traditional notions of fair play and substantial justice.” [Citations.]’ [Citation.] ‘The “substantial connection, ” [citations] between the defendant and the forum State necessary for a finding of minimum contacts must come about by an action of the defendant purposefully directed toward the forum State. [Citations.]’ [Citation.]” (DVI, supra, 104 Cal.App.4th at pp. 1089-1090.)
“Personal jurisdiction may be either general or specific. [Citation.] A nonresident defendant is subject to the forum’s general jurisdiction where the defendant’s contacts are ‘“substantial... continuous and systematic.”’ [Citations.] In that situation, the cause of action need not be related to the defendant’s contacts. [Citations.] ‘Such a defendant’s contacts with the forum are so wide-ranging that they take the place of physical presence in the forum as a basis for jurisdiction.’ [Citation.]” (DVI, supra, 104 Cal.App.4th at p. 1090.)
“If the nonresident defendant does not have substantial and systematic contacts with the forum state, the defendant may be subject to specific jurisdiction if (1) ‘“the defendant has purposefully availed [itself] of forum benefits”’ with respect to the matter in controversy, (2) ‘“the ‘controversy is related to or “arises out of” [the] defendant’s contacts with the forum, ’”’ and (3) the exercise of jurisdiction would comport with fair play and substantial justice. [Citations.]” (DVI, supra, 104 Cal.App.4th at p. 1090.)
II. Burden of Proof and Standard of Review
“When a nonresident defendant challenges personal jurisdiction, the plaintiff bears the burden of proof by a preponderance of the evidence to demonstrate the defendant has sufficient minimum contacts with the forum state to justify jurisdiction. [Citations.] The plaintiff must ‘present facts demonstrating that the conduct of defendants related to the pleaded causes is such as to constitute constitutionally cognizable “minimum contacts.” [Citation.]’ [Citation.] An unverified complaint has no evidentiary value in meeting the plaintiff’s burden of proving minimum contacts. [Citation.]” (DVI, supra, 104 Cal.App.4th at pp. 1090-1091.)
“When the evidence of jurisdictional facts is not in dispute, whether the defendant is subject to personal jurisdiction is a legal question subject to de novo review. [Citation.] When evidence of jurisdiction is in dispute, the trial court’s determination of factual issues is reviewed for substantial evidence. [Citations.]” (DVI, supra, 104 Cal.App.4th at p. 1091.)
III. CSC Has Failed to Establish Personal Jurisdiction
CSC does not contend that “general” jurisdiction exists in this case. Instead, it argues that Crompton committed various acts in relation to Paxonet and the Paxonet-Conexant merger that establish the minimum contacts necessary to satisfy specific jurisdiction. CSC has identified two general categories of “acts” that support jurisdiction: (1) Crompton’s actions as a founder and shareholder in Paxonet, and (2) Crompton’s decision to allow Bipin Shah, a California resident, to represent the company in administering the Escrow Agreement, which requires that disagreements over indemnity claims filed against the escrow fund be resolved in California.
A. Crompton’s Paxonet-related Actions do not Establish “Purposeful Availment”
CSC argues that Crompton “purposefully availed itself of and derived economic benefit from its activities in California by way of its investment and involvement in the activities of Paxonet, ” which has its principal place of business in California. Specifically, CSC points to the following Paxonet-related “acts:”
Crompton was an original founding investor of Paxonet and continued to own a substantial portion of the company until the merger with Conexant.
As a shareholder of Paxonet, Crompton voted to merge with Conexant.
K.K. Nohria, a director of Crompton, simultaneously served as a director of Paxonet. Nohria was allegedly appointed to his Paxonet directorship by Crompton and acted to protect Crompton’s interests as a Paxonet shareholder.
While serving as a director of both Crompton and Paxonet, Nohria approved numerous Paxonet actions, including the merger with Conexant.
In sum, CSC contends that because Crompton was a significant shareholder in Paxonet, and because a Crompton’s “agent, ” K.K. Nohria, served on the Paxonet board and took actions to further Crompton’s interests, Crompton “purposefully availed” itself of the benefits and protections of California.
It is well-established that “stock ownership in or affiliation with a corporation, without more, is not a sufficient minimum contact” to support jurisdiction. (Central States, Southeast and Southwest Areas Pension Fund v. Reimer Express World Corp. (7th Cir. 2000) 230 F.3d 934, 943 (Central States); Ruger v Superior Court (1981) 118 Cal.App.3d 427, 433, 434 [employee’s status as “shareholder” insufficient to establish personal jurisdiction]; DVI, supra, 104 Cal.App.4th at p. 1087 [“a parent company’s ownership or control of a subsidiary corporation does not, without more, subject the parent corporation to the jurisdiction of the state where the subsidiary does business].) As explained by one federal court: “the primary purpose of the corporate form is to prevent a company’s owners, whether they are persons or other corporations, from being liable for the activities of the company.... [As a result, ] such owners do not reasonably anticipate being hailed into a foreign forum to defend against liability for the errors of the corporation.” (Central States, supra, 230 F.3d at p. 943.) Thus, standing alone, Crompton’s status as a founder and significant shareholder of Paxonet is not sufficient to establish jurisdiction in this case.
CSC, however, argues that, rather than merely acting as a shareholder, Crompton attempted to actively control and influence Paxonet’s actions by placing its agent, K.K. Nohria, a Crompton director, on the Paxonet board, who voted for actions that allegedly benefited Crompton, including the Conexant merger. Numerous California and federal cases have considered and rejected analogous arguments arising in the context of a parent/subsidiary relationship.
In Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523 (Sonora Diamond), plaintiff sued Sonora Diamond (Diamond), a nonresident corporation, and its California-based subsidiary, Sonora Mining (Sonora), for breach of contract. Diamond filed a motion to quash, asserting that its ownership of a California-based subsidiary was insufficient to establish personal jurisdiction in California. The evidence established the following facts: (1) Diamond owned all of Sonora’s stock, (id. at p. 533); (2) Diamond approved the contract that Sonora allegedly breached, (id. at p. 531); (3) some directors of Diamond also served as directors of Sonora, (id. at pp. 531, 533); (4) Diamond lent Sonora millions of dollars and guaranteed additional Sonora loans (id. at pp. 533-544); (5) the vice-president and corporate secretary of Diamond maintained Sonora’s financial accounting (ibid.), and; (6) Diamond paid for various professional services rendered to Sonora (id. at p. 534).
Plaintiff asserted that, considered together, these facts supported specific jurisdiction under two different theories. First, plaintiff argued that the evidence showed Sonora was acting as Diamond’s agent and therefore all of its acts were attributable to Diamond. Second, plaintiff contended that, by exerting control over Sonora, Diamond had “purposeful[ly] avail[ed]... itself of the benefits and protections of California.” (Sonora Diamond, supra, 83 Cal.App.4th at p. 554.)
Plaintiff also argued that the facts demonstrated Diamond was Sonora’s “alter ego, ” and therefore all of Sonora’s actions could be imputed to Diamond. CSC has not alleged that the “alter ego” doctrine applies here.
The appellate court rejected both theories. It began its analysis by explaining that the normal incidents of control that a parent corporation exerts over a subsidiary are insufficient to establish personal jurisdiction:
neither ownership nor control of a subsidiary corporation by a foreign parent corporation, without more, subjects the parent to the jurisdiction of the state where the subsidiary does business.... “Control” in this context means the degree of direction and oversight normal and expected from the status of ownership; it comprehends such common characteristics as interlocking directors and officers, consolidated reporting, and shared professional services. [Citations.] The relationship of owner to owned contemplates a close financial connection between parent and subsidiary and a certain degree of direction and management exercised by the former over the latter.
(Id. at pp. 540-541.) The court specifically considered the issue of interlocking directors, and concluded that it was insufficient to support a finding of agency: “‘“[I]t is entirely appropriate for directors of a parent corporation to serve as directors of its subsidiary, and that fact alone may not serve to expose the parent corporation to liability for its subsidiary’s acts.” [Citations.] [¶] This recognition that the corporate personalities remain distinct has its corollary in the “well established principle [of corporate law] that directors and officers holding positions with a parent and its subsidiary can and do ‘change hats’ to represent the two corporations separately, despite their common ownership. [Citations.]”’ [Citation.]” (Id. at p. 549.)
The court also ruled that additional “attributes of the parent-subsidiary relationship” identified by plaintiff, including “Diamond’s monitoring of [Sonora’s] performance, supervising [Sonora’s] budget decisions, and setting general policies and procedures to be followed by [Sonora], ” were “of a type or nature deemed by the law to be appropriate, normal involvement by a parent corporation with its subsidiary and therefore insufficient alone or in combination to support a finding of agency.” (Sonora Diamond, supra, 83 Cal.App.4th at p. 551.) The court made clear that such facts, regardless of whether presented under a theory of agency or purposeful availment, were not sufficient to establish jurisdiction over the parent: “None of these factors support jurisdiction over Diamond on the basis of agency, and they likewise do not support jurisdiction over Diamond on the basis of availment.” (Id. at p. 554.)
The Ninth Circuit reached the same conclusion under a similar set of facts in AT&T v. Compagnie Bruxelles Lambert, (9th Cir. 1996) 94 F.3d 586 (AT&T). Plaintiff filed an action in California against a Belgian company, Groupe Bruxelles Lambert (GBL), which owned 80 percent of Keystone Resources, Inc., a company that allegedly caused environmental contamination in California. Plaintiff contended that GBL “‘purposefully availed itself of [the forum’s] benefits and protections’” as a result of its “‘domination’” of Keystone. (Id. at p. 590.) In support, plaintiff pointed to the following facts: (1) GBL owned a majority of seats on Keystone’s seven-member board; (2) a GBL board member served as Keystone’s chairman, (3) the GBL directors frequently proposed and approved various actions taken by the Keystone Board; (4) prior to purchasing Keystone, GBL received and reviewed reports about possible environmental contamination at some of its facilities. (Id. at p. 589, fn.4.) The Ninth Circuit held that GBL was not subject to personal jurisdiction in California, concluding that “[t]he circumstances relied upon to establish GBL’s ‘domination’ over Keystone reflect no more than a normal parent-subsidiary relationship.” (Id. at p. 591.)
In this case, the interrelationship between Crompton and Paxonet is far more attenuated than the parent/subsidiary affiliations discussed in Sonora Diamond or AT&T. Crompton has never been the “parent” of Paxonet or even a majority shareholder; indeed, at the time of the merger, Crompton owned just 12 percent of the company. Only one director, K.K. Nohria, has overlapped between the two companies and there is no evidence that Paxonet had to obtain Crompton’s approval for major policy decisions or that Crompton supervised Paxonet’s finances or guaranteed its obligations. Under Sonora Diamond, AT&T and numerous analogous California and federal cases, it is clear that Crompton’s status as a Paxonet shareholder and its purported attempts to “control” Paxonet are not sufficient to establish jurisdiction.
See Kramer Motors, Inc. v. British Leyland, Ltd. (9th Cir. 1980) 628 F.2d 1175 [no jurisdiction over parent that “reviewed and approved” subsidiary’s “major policy decisions, ” guaranteed subsidiary’s obligations, and appointed directors to its board]; J.M. Sahlein Music Co. v. Nippon Gakki Co. (1987) 197 Cal.App.3d 539, 543 [no jurisdiction where alleged acts by parent “consist of nothing more than would normally be expected where a domestic corporation is owned by... a foreign corporation”]; DVI, supra, 104 Cal.App.4th 1080.)
B. Crompton’s Consent to be Represented by Bipin Shah is Insufficient to Establish Specific Jurisdiction
CSC next contends that Crompton is subject to personal jurisdiction in California because the Conexant-Paxonet Merger Agreement required that all shareholders consent to be represented by Bipin Shah, a California resident, in administering the escrow fund that was intended to indemnify Conexant for any claims arising from the merger. Specifically, the Merger Agreement provided that, upon completion of the merger, the shareholders “shall without any further act of any of them, be deemed to have consented to and approved the appointment of Bipin Shah as [their] representative... under the Escrow Agreement.” Shah was to serve as the “the attorney-in-fact and agent for and on behalf of each [shareholder]... to do any and all things... in each [shareholder’s name]... in any way in which each such [shareholder] could do if personally present.” The separate “Escrow Agreement, ” which was signed by Conexant, Paxonet, Shah, and CSC, further required that any dispute between Conexant, Paxonet and the Shah regarding an indemnity claim had to be arbitrated in California.
CSC argues that Crompton purposefully availed itself of the California forum by “knowingly and intentionally appoint[ing] a California resident to act as its attorney-in-fact and agent with respect to the... Escrow transactions, and instructed him to act within California.” In other words, it asserts that because Crompton consented to be represented by a California-based agent who agreed to arbitrate disagreements with Conexant or Paxonet arising from the Escrow Agreement in California, Crompton is subject to personal jurisdiction. There are two problems with this theory.
First, it is not clear that Crompton’s “consent” to allow Shah to administer the escrow fund and resolve disputed indemnity claims in California constitutes “purposeful availment.” Shah’s role as the escrow shareholder representative was a mandatory term of the Merger Agreement, and was therefore imposed upon all Paxonet shareholders as an incident of the merger. Thus, the act of “consent” at issue here was wholly derivative of Crompton’s status as a shareholder. As discussed above, “stock ownership” is insufficient to satisfy purposeful availment, (Central States, supra, 230 F.3d at p. 943; Ruger, supra, 118 Cal.App.3d 427), and it is therefore doubtful whether an act that derives entirely from one’s status as a shareholder is sufficient to establish availment.
Second, even if we assume Crompton’s “consent” constitutes a purposeful availment, CSC was required to demonstrate that its claims “arose” out of Crompton’s purported contact with the forum state. (Sacramento Suncreek Apartments, LLC v. Cambridge Advantaged Properties II, L.P. (2010) 187 Cal.App.4th 1, 21 [“Specific jurisdiction over a nonresident defendant requires both minimum contacts and the assertion of a claim that arose from those contacts”].) CSC argues that its claims arise out of the fact that Crompton, through its representative Shah, consented to resolve disputed indemnity claims in California arbitration. In support, CSC references the arbitration provision in the Escrow Agreement, which states that Conexant, Paxonet and Shah agreed to resolve claims arising from the Escrow Agreement in California. However, the arbitration provision clause does not make any reference to claims asserted by CSC. Thus, even if we assume that, through the appointment of Shah, Crompton agreed to resolve disputes with Conexant or Paxonet arising from the Escrow Agreement in California arbitration, there is no evidence that it agreed to resolve disputes with CSC about claims tangentially related to the Escrow Agreement in this state. The arbitration provision simply has no connection to CSC’s claims, as evidenced by the fact that CSC has never sought mandatory arbitration. Therefore, CSC’s claims do not arise out of Crompton’s alleged consent to the arbitration provision.
Given that Crompton is not a signatory of the Merger Agreement or the Escrow Agreement, it is not clear whether it would be personally bound by the arbitration agreement.
CSC has also never endeavored to explain what interest California has in resolving this dispute, which involves a Delaware company that wired money to a company in India, which is now retaining those funds in India. The case involves no California parties nor does it involve any act or injury that occurred in this state. (See generally Snowney v Harrah’s Entertainment, Inc. (2005) 35 Cal.4th 1054, 1070 [if purposeful availment and relatedness requirements are satisfied, court must consider whether specific jurisdiction is fair and reasonable, which requires analysis of several factors including “the interests of the forum State”].)
DISPOSITION
The trial court’s order granting Crompton’s motion to quash the summons and complaint is affirmed. Crompton is awarded its costs on appeal.
We concur: PERLUSS, P. J., JACKSON, J.