Sprig Elec. Co. v. ISR Resolutions
Filed 10/6/06 Sprig Elec. Co. v. ISR Resolutions CA5
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH APPELLATE DISTRICT
SPRIG ELECTRIC COMPANY, H029537
Plaintiff and Appellant, (Santa Clara County
Superior Court
v. No. 1-04 CV032026)
ISR SOLUTIONS (VIRGINIA), INC., et al.,
Defendants and Respondents.
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Plaintiff filed a fraud and breach of contract action against one California corporation, two out-of-state corporations and three non-resident individuals who were corporate officers of one of the out-of-state corporations. The superior court quashed service of summons and complaint on the three individuals. Plaintiff claims that the court had specific jurisdiction over these individuals as to the fraud cause of action. We find that plaintiff failed to carry its burden of proof as to jurisdiction and affirm the superior court’s order.
I. Background
Plaintiff Sprig Electric Company (Sprig) was the electrical contractor on a project that required Sprig to provide a security system. In November 2003, Sprig entered into a subcontract with ISR Solutions (Northern California), Inc. (hereafter CISR) for the installation of the security system for this project. On April 19, 2004, CISR notified Sprig that it was closing its office and “immediately and permanently terminating work” on the Sprig project.
In December 2004, Sprig filed an action against CISR, “ISR Solutions (Virginia), Inc.” (hereafter VISR) and ten Doe defendants. The original complaint alleged causes of action for breach of contract, fraud, interference with contract and interference with prospective economic advantage. In January 2005, VISR and CISR demurred to the complaint. Their demurrer was sustained with leave to amend.
In March 2005, Sprig filed a first amended complaint for breach of contract, fraud and interference that substituted “ISR Solutions, Inc.” (hereafter ISR) for one of the Doe defendants.[1] In April 2005, VISR, CISR and ISR demurred to the fraud and interference causes of action in the first amended complaint. In May 2005, the court sustained the demurrer to the interference causes of action without leave to amend and overruled the demurrer to the fraud cause of action.
In September 2005, Sprig amended the first amended complaint to substitute Joe Costa, Kevin Thimjon and Christopher Hinker for three of the Doe defendants. Thimjon was ISR’s chief financial officer, Costa was ISR’s president and CEO, and Hinker was ISR’s vice-president for operations. In October 2005, Costa, Thimjon and Hinker filed a motion to quash service of summons and complaint on them on the ground that the court lacked personal jurisdiction over them. Their motion was supported by their declarations. Sprig filed opposition to the motion. Its opposition was supported by deposition excerpts and exhibits. In November 2005, the superior court issued an order quashing service of summons on Costa, Thimjon and Hinker. Sprig filed a timely notice of appeal.
II. Discussion
A. Standard of Review
“When a defendant moves to quash service of process on jurisdictional grounds, the plaintiff has the initial burden of demonstrating facts justifying the exercise of jurisdiction. [Citation.] Once facts showing minimum contacts with the forum state are established, however, it becomes the defendant’s burden to demonstrate that the exercise of jurisdiction would be unreasonable. [Citation.] When there is conflicting evidence, the trial court’s factual determinations are not disturbed on appeal if supported by substantial evidence. [Citation.] When no conflict in the evidence exists, however, the question of jurisdiction is purely one of law and the reviewing court engages in an independent review of the record.” (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 449.)
“The existence of personal jurisdiction will often present a mixed question of law and fact. [Citation.] To the extent that there are factual conflicts, the trial court resolves those disputes and the substantial evidence standard governs our review. [Citation.] The ultimate question whether jurisdiction is fair and reasonable under all of the circumstances, based on the facts which are undisputed and those resolved by the court in favor of the prevailing party, is a legal determination warranting our independent review.” (Integral Development Corp. v. Weissenbach (2002) 99 Cal.App.4th 576, 585.)
“[W]herever affidavits filed in support of the motions to quash are in conflict with those opposing it we must deem the trial court resolved such conflicts against appellant and in support of its order.” (Tiffany Records, Inc. v. M. B. Krupp Distributors, Inc. (1969) 276 Cal.App.2d 610, 615; accord Evangelize China Fellowship, Inc. v. Evangelize China Fellowship (1983) 146 Cal.App.3d 440, 444.)
B. Jurisdiction
“’[A] forum state may not exercise jurisdiction over a nonresident unless his relationship to the state is such as to make the exercise of such jurisdiction reasonable.’ [Citation.] That is, a defendant must establish minimum contacts with the state such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. [Citation.] A state has ‘general jurisdiction’ over a nonresident for all causes of action asserted against him if his activities within the state are ‘“extensive or wide-ranging”‘ or “’substantial . . . continuous, and systematic.”’ [Citation.] Where a nonresident’s activities are not this substantial, a state may exercise ‘limited jurisdiction’ over him if (1) the quality and nature of his activities are such that the cause of action arises out of an act or transaction completed in the state [citation]; (2) the quality and nature of his activities indicate that he purposefully availed himself of the privileges of conducting activities in the state, thereby invoking the benefits and protection of its laws [citation]; or (3) the state has passed special legislation on the subject matter at issue that supports the exercise of jurisdiction over a nonresident.” (Crea v. Busby (1996) 48 Cal.App.4th 509, 514-515.)
“The question whether there are minimum contacts necessary to support personal jurisdiction for purposes of a specific lawsuit involves an evaluation of ‘the interrelationship of the defendant’s conduct, the forum and the claim.’ [Citation.] This inquiry lends itself to a two-step analysis: first, has defendant purposefully directed his or her activities at forum residents or purposefully derived benefit from forum activities; and second, does the controversy arise from defendant’s contacts with the forum? Where there is such purposeful conduct by which defendant avails himself or herself of the privilege of conducting activities with the forum state, and such conduct results in a lawsuit, defendant must reasonably expect to submit to the burdens of litigation in the forum state.” (Integral Development Corp. v. Weissenbach, supra, 99 Cal.App.4th at p. 585.)
“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.” (DVI, Inc. v. Superior Court (2002) 104 Cal.App.4th 1080, 1090-1091, internal quotation marks and citations omitted, italics added.) “[A]n unverified complaint has no evidentiary value in determination of personal jurisdiction [citation], but such pleading has limited cognizable significance as a material fact, in that it defines the cause of action, the nature of which has some bearing upon the decision whether it is fair and reasonable to require the nonresident parties to appear and defend in this state.” (Mihlon v. Superior Court (1985) 169 Cal.App.3d 703, 710, italics added.)
Sprig concedes that California could not exercise general jurisdiction over Costa, Thimjon or Hinker[2] and that these individuals could not be held liable for breach of a contract that they did not sign and to which they were not parties.[3] Sprig’s argument is that California had specific jurisdiction over these three individuals with respect to their liability on Sprig’s pleaded fraud cause of action.
Since the determination of whether California has specific jurisdiction over these three individuals depends on their conduct in relation to the pleaded fraud allegations, our analysis must begin with the fraud allegations in Sprig’s first amended complaint.
The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity; (3) intent to defraud; (4) justifiable reliance; and (5) resulting damage. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.) Sprig’s fraud cause of action alleged both false representations and concealment with the requisite knowledge and intent. The alleged false representations were statements made in August and November 2003 during negotiation and execution of the subcontract and the promise in the subcontract to install the security system. The alleged concealment was the failure to disclose that defendants (1) “would or could not” fulfill this promise, (2) “were not reliable and were not a single ‘national company’, but separate corporations, although each was the agent, representative and/or alter ego of the other,” and (3) “were planning to close their offices in California, terminate their California employees, cease business operations in California, and abandon the [project] prior to completion.” Sprig’s sole allegation of justifiable reliance was its assertion that it had justifiably relied on defendants’ representations and concealment in entering into a contract with the general contractor that included the security system that defendants had promised to provide.
The critical issue is the connection between Costa, Thimjon and Hinker and the conduct alleged as the basis for the fraud cause of action. It was undisputed that Costa, Thimjon and Hinker were not signatories to the Sprig/CISR contract. Costa, Thimjon and Hinker submitted evidence that none of them were involved in the negotiation or execution of the contract, and none of them made any representations to Sprig with regard to that contract or were aware of any misrepresentations to Sprig. Their sole connection to the Sprig contract was their April 2004 participation in ISR’s decision to close CISR’s office and abandon the Sprig project.[4]
Sprig attempted to counter this showing. David Foster, the general manager of CISR, testified at his deposition that he had regular weekly conference calls with Thimjon, Hinker and Costa during which he informed ISR of CISR’s “billings and our bookings, both actuals and forecasted information.” “[T]ypically there was review of major projects that people had working . . . .” The Sprig project was a large project for CISR. Foster testified that ISR had, at some point, been informed of the Sprig subcontract during one of these weekly conference calls, but he did not identify when this had occurred. On April 13, 2004, Foster notified ISR that he was resigning effective in two weeks.
Hinker testified at his deposition that he had not expected Foster to resign. After receiving Foster’s resignation on April 13, 2004, Costa, Thimjon and Hinker met that afternoon and decided to close CISR. Foster’s resignation caused the closure of CISR because Foster’s leadership was necessary to the survival of the struggling office. On April 15, 2004, Foster was informed that ISR would be closing CISR.[5]
Early in the morning on Monday, April 19, 2004, Costa and Hinker, who had flown to California over the weekend, arrived at CISR. They terminated most of CISR’s employees, terminated most of its projects and closed the office. Not all of CISR’s projects were terminated. Three CISR projects that were nearly complete were retained for completion. On the evening of April 19, 2004, Foster notified Sprig that ISR had closed CISR effective that day, and “we are immediately and permanently terminating work” on the Sprig project.
Sprig bore the burden of demonstrating that its pleaded fraud cause of action arose from conduct of Costa, Thimjon and Hinker that was directed at California. “Directors or officers of a corporation do not incur personal liability for torts of the corporation merely by reason of their official position, unless they participate in the wrong or authorize or direct that it be done. They may be liable, under the rules of tort and agency, for tortious acts committed on behalf of the corporation [citations]. They are not responsible to third persons for negligence amounting merely to nonfeasance, to a breach of duty owing to the corporation alone; the act must also constitute a breach of duty owed to the third person.” (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc., supra, 1 Cal.3d 586, 595.)
Sprig made no showing that Costa, Thimjon or Hinker participated in, authorized or directed that any misrepresentations be made to Sprig. Nor did Sprig produce evidence that Costa, Thimjon or Hinker participated in, authorized or directed that any material facts be concealed from Sprig. Sprig had the burden of showing that the California-related conduct by Costa, Thimjon and Hinker was related to the pleaded fraud cause of action. Even if the superior court credited Sprig’s evidence, the passive receipt of information about the Sprig contract by Costa, Thimjon and Hinker from Foster during weekly conference calls could not have constituted fraud. Sprig produced no evidence that they took any action on this information, and Costa, Thimjon and Hinker denied that they had taken any action in connection with this California contract prior to its termination. While Costa, Thimjon and Hinker did participate in ISR’s decision to breach the Sprig contract, this action was neither a representation nor a concealment, and they could not be held liable for breach of contract because they were not parties to the contract.
Sprig claims that jurisdiction can be premised on the liability of Costa, Thimjon and Hinker for failing to inform Sprig on April 13 rather than April 19 of the decision to close CISR. Not so. This argument is outside the allegations in the fraud cause of action in Sprig’s first amended complaint. The pleaded cause of action defines the nature of the conduct upon which California’s jurisdiction over a defendant must be based. (Mihlon v. Superior Court, supra, 169 Cal.App.3d at p. 710.) Sprig did not allege delayed notification as a basis for its fraud cause of action in its first amended complaint. Furthermore, Sprig’s pleaded fraud cause of action premised Sprig’s justifiable reliance solely on its execution of a contract with the general contractor, which clearly occurred before the unalleged delayed notification. Jurisdiction depends on the allegations actually made in the complaint, not on other allegations that perhaps could have been made in a different or amended complaint.
Finally, Sprig’s contention that jurisdiction over Costa, Thimjon and Hinker could be premised on an alter ego theory (see VirtualMagic Asia, Inc. v. Fil-Cartoons, Inc. (2002) 99 Cal.App.4th 228, 244) is completely lacking in evidentiary support. “[T]he two requirements for application of [the alter ego] doctrine are (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.” (Automotriz etc. De California v. Resnick (1957) 47 Cal.2d 792, 796.)
Sprig made no attempt to show that Costa, Thimjon or Hinker had even the slightest ownership interest in ISR, CISR or VISR, let alone that they were the true beneficial owners of these corporations. Sprig’s sole showing was that these three individuals were corporate officers. Indeed, they were not even the only corporate officers. Sprig’s own evidence established that there was a fourth corporate officer named Tony Padillia.
The superior court did not err in quashing service of summons and complaint on Costa, Thimjon and Hinker.
III. Disposition
The order is affirmed.
_______________________________
Mihara, Acting P.J.
WE CONCUR:
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McAdams, J.
_____________________________
Duffy, J.
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Analysis and review provided by La Mesa Property line Lawyers.
[1] CISR and VISR are apparently wholly owned subsidiaries of ISR.
[2] None of these individuals lived or worked in California or owned any property in California. All of them were residents of Virginia at the time of the events in question, although Thimjon had subsequently moved to Indiana. They had visited California in the previous three years only on ISR business or on vacation.
[3] “Directors and officers are not personally liable on contracts signed by them for and on behalf of the corporation unless they purport to bind themselves individually.” (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 595.) Neither Costa nor Thimjon nor Hinker was a signatory to the Sprig/CISR contract, and the contract did not even purport to bind them.
[4] Thimjon was not involved in the project abandonment decision.
[5] Foster testified that he had made no fraudulent representations to Sprig.
