Liker v. Herbalife

Filed 3/20/07 Liker v. Herbalife CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, Kenneth Freeman, Judge. Reversed and remanded.

Hugh John Gibson for Plaintiffs and Appellants.

Gibson, Dunn & Crutcher LLP, Daniel Floyd and Eileen M. Ahern for for Defendant and Respondent.

Appellants Alan Liker and Michael Rosen appeal from an order dismissing the complaints in their consolidated action against respondent Herbalife International, Inc. (HII) on the ground of forum non conveniens. Appellants, purportedly former directors and minority shareholders of HIIs subsidiary, Herbalife Japan (HOJ), asserted claims against HII, the majority shareholder of HOJ, based on actions that allegedly devalued appellants shares. In support of the motion to dismiss, HII raised the forum selection clause contained in a contract executed by appellants and seven other directors and former directors of HOJ. Although HII was not a party to the contract and appellants did not purport to assert any claims under the contract, the trial court was persuaded that the contract was key to resolution of appellants claims because it defined the ownership interest in HOJ shares held by appellants. We conclude that interpretation of the contract raised, at most, an ancillary issue not founded in or intertwined with appellants underlying claims. We therefore reverse the order of dismissal and remand for further proceedings.

FACTUAL AND PROCEDURAL BACKGROUND

The Share Agreement

HOJ is a corporation formed under Japanese law as a wholly-owned subsidiary of HII. In 1996, HII decided to transfer to nine of HOJs directors (the Participating Directors) a total of four of the 200 HOJ shares then outstanding.^[1]The price was $330,000 or 11,100,000 yen per share. The parties inform us that the laws of Japan do not permit ownership of fractional shares. Accordingly, the nine Participating Directors entered into an agreement among themselves regarding title to the shares: the Agreement Concerning Share Allocation Plan for Specific Directors of [HOJ] (the Share Agreement).

The Share Agreement stated that upon the execution of this Agreement, an entity shall be established, as an unincorporated association . . . for the purpose[] of acquiring from HII and holding, for and on behalf of all [Participating Directors], four (4) shares of [HOJ].^[2]Each Participating Director was given a joint and several, but undivided, interest in the Subject [HOJ] Shares with other [Participating Directors], according to the percentage that his or her cash contribution bears to the aggregate of all cash contributions made by the [Participating Directors] . . . .^[3]To fund the purchase of the shares, each Participating Director agreed to wire an initial cash contribution to a bank account set up in the name of the Entity and to wire additional cash contributions into the Entitys account each year for five years thereafter.

The Share Agreement named John Purdy, one of the Participating Directors, the representative of the Entity and, as such, authorized and empowered to conduct and manage all affairs pertaining to the operation of the Entity, in accordance with the provisions of this Agreement including act[ing] as proxy for the Entity, in order that the Entity may exercise voting and other rights, as a shareholder of [HOJ], at or in connection with any general meetings of shareholders of [HOJ].

Article 5.1 of the Share Agreement provided: In the event that the number of the Subject [HOJ] Shares is increased, through the acquisition of additional [HOJ] shares by the Entity or by reason of a splitting, by [HOJ], of the issued and outstanding [HOJ] shares into a greater number or otherwise, so that the Subject [HOJ] Shares may be distributed to all [Participating Directors], without necessitating the distribution of any fractional shares (less than one (1) share), according to their respective Interest Percentages, then and in such event the Subject [HOJ] Shares shall be distributed to the [Participating Directors] according to their respective Interest Percentages and, upon such distribution, the Entity shall be dissolved.

The Share Agreement contained a forum selection clause, which provided: Any disputes or controversies shall be submitted to the exclusive jurisdiction of the Tokyo District Court. It also contained the following choice of law provision: This Agreement shall be governed by and interpreted in accordance with the laws of Japan.

Sometime after 1996, HOJ shares were split twice. As a result, each single 1996 share became 175,000 shares and the four shares that were the subject of the Share Agreement became 700,000 shares.

The Forced Sale

In May 2002, appellants received nearly identical letters from Purdy containing checks drawn by HII. The letter stated that HOJ had completed a reverse split of its stock.^[4] As a result, [the Participating Directors] were left with a completely illiquid fractional interest in [HOJ]. According to the letter, HII had offered to acquire the fractional share based on a valuation report prepared by a reputable US financial advisory firm and formally reviewed by the Tokyo District Court and approved as fair and reasonable. The letter concluded: In view of the illiquid and effectively valueless nature of the [Entitys] fractional share interest in [HOJ], as representative of [the Entity], I saw no alternative to accepting [HIIs] offer to acquire [the Entitys] fractional share, seeing this as the only possible opportunity to obtain any value for [Participating Shareholders] for their fractional interest in [HOJ].

The Complaints

In May 2003, appellants filed separate complaints against HII.^[5] The complaints contained virtually identical claims for breach of fiduciary duty, conversion, and injunctive relief. They alleged that in 1996, appellants purchased shares of stock in HOJ from HII. After the sale, HII continued to hold 93 percent of the stock.^[6] In 2002, HII entered into a merger agreement with a third party.^[7] Under the agreement, HII was required to use its commercially reasonable efforts to become sole owner of all shares of HOJ. HIIs shareholders approved the merger agreement in July 2002.

The complaints went on to describe how, after the merger was approved, appellants received the letters stating that HOJ had engaged in a reverse stock split, i.e., one in which the number of shares outstanding in the corporation is reduced so that existing shareholders are required to exchange their existing shares for a lesser number of new shares; that the number of HOJ shares required to be surrendered pursuant to the reverse stock split in order to receive one new share of HOJ was so great that surrender of all of [appellants] shares still did not allow [them] to receive even one new share of HOJ; that fractional shares are inconsistent with the Articles of Association of HOJ; that HII had elected to purchase the fractional share which included the interest of [appellants] in HOJ; that the price at which [HII] acquired said fractional share was based on a valuation report prepared by a reputable US financial advisory firm; and that the purchase price had been submitted to the Tokyo District Court in Japan which had approved the price . . . as being fair and reasonable. The letters included checks for $134,859.^[8]

The complaints alleged that the purpose of the reverse stock split was to enable HII to obtain an ownership interest in shares of HOJ which [appellants] and those similarly situated did not agree to sell at a bargain basement price, and that the only purpose and intent of the reverse stock split and the subsequent purchase of [appellants] shares by [HII] . . . was to reduce [appellants] shareholding to a fractional interest in a single share, to thus squeeze [appellants] out as [shareholders], and to have [HII] become sole owner of all shares of HOJ in order to facilitate, advance and promote the merger agreement . . . . In January 2003, appellants learned that the amount paid was not equivalent to their pro rata share of the total value of HOJ, but rather a lesser amount.

Motion to Dismiss or Stay

HII moved to dismiss or stay on the ground of forum non conveniens based on the forum selection clause in the Share Agreement. As the complaints had not mentioned the Share Agreement, the agreement was submitted with the motion, along with a declaration from Purdy. Purdy stated that shares of HOJ were issued in the name of the [Entity], and the [Entity] was the shareholder of record, and that he was the representative of the [Entity] and, as such, was authorized to conduct and manage all affairs related to the operation of the [Entity]. HII also submitted a certificate purportedly showing issuance or transfer of four shares of HOJ to the Entity.^[9]HII contended that appellants tort claims could not be adjudicated without interpreting the Share Agreement because appellants did not acquire the rights of [shareholders] based on [their] participation in the [Share] Agreement; instead, [appellants] received certain interests in the shares -- the extent of which must [be] determined by reference to the agreement itself, as interpreted under Japanese law.

Appellants opposed the motion, contending that the dispute set forth in their complaints was not related to the Share Agreement, and that the Share Agreement was, in any event, no longer in effect under its terms due to the post-1996 splitting of the stock. Appellants stated in separate declarations that at the time of the 1996 stock transfer to the Participating Directors, the parties anticipated that HOJ shares would soon be split, permitting issuance of full shares to each Participating Director. The Share Agreement was implemented to create a mechanism to hold nominal legal title to the shares temporarily until the share splits necessary to eliminate the fractional share technicality could be implemented. Once HOJ split its stock, the Share Agreement was to be dissolved. After HOJ split its shares and the original four shares became 700,000 new shares, the parties disregarded the Share Agreement, and the individual Participating Directors made the annual cash contribution discussed in the Share Agreement directly to HII. In addition, HOJ sent dividend payments directly to each Participating Director, not to the Entity. Tax forms sent to appellants in the years dividends were received showed them individually, not the Entity, as the payees.

Appellants declarations further stated that the negotiations for the merger, including HIIs agreement to regain ownership of HOJ shares, took place in Los Angeles. HIIs corporate offices are in Los Angeles. The shareholder meeting at which the reverse split was approved was held in Los Angeles.

Courts Order and Subsequent Review Hearings

At the September 23, 2003, hearing, the court expressed agreement with HIIs position that the complaint arises from a shareholder agreement which has a forum selection clause directing that Japans Tokyo District Court is the forum with exclusive jurisdiction over this dispute, noting that California law holds that the clause binds parties as well as those closely related to the purpose of the agreement. The court discussed with counsel whether to dismiss or stay and was persuaded by [appellants] view that the matter should be stayed; because that way if the Japanese court does not take jurisdiction, then the [appellants] will not be left . . . without a remedy. The court decided to grant the motion, issue a stay, set the matter for an order to show cause re: continuation of the stay in six months [a]nd continue to do that until the matter is resolved in Japan or not resolved.

Prior to the first six-month review, appellants obtained Japanese counsel and investigated filing suit in Japan. In papers submitted to the court, the parties disputed whether the court should dismiss as soon as litigation was filed in a Japanese court or whether the court should await resolution to determine whether all issues between the parties had been resolved. The court stated at that review hearing that it would stay the matter an additional 180 days and order that as soon as the matter is resolved in Japan, meaning either . . . there is some way where the court in Japan decides not to exercise jurisdiction or it is resolved, meaning that theres been a decision [on jurisdiction], the court would dismiss.

In March 2005, prior to the third review hearing, HII renewed its motion to dismiss, contending that the Japanese court had assumed full jurisdiction over the matter and regardless of how [appellants] claims in the Japan action are ultimately determined, [appellants] may not return to this Court to seek relief. In June 21, 2005, the court issued a ruling stating: Upon filing of a declaration that this matter is currently pending in a Japanese Court of appropriate jurisdiction and attaching a certified translation of documents supporting that declaration, this case will be dismissed. HII submitted a declaration from a Japanese attorney stating that appellants had filed a complaint in Japan based on essentially the same facts on which the [underlying complaints were] based.

An order dismissing the action was entered August 26, 2005. Notice of entry was sent September 7, 2005. This appeal followed.

DISCUSSION

I

Standard of Review

Before we turn to our analysis, we clarify the standard of review. HII contends the ruling should be affirmed unless the trial court abused its discretion. Where the trial court addresses whether enforcement of a clearly applicable forum selection clause would be reasonable or unreasonable under the circumstances of the case, its decision is reviewed under an abuse of discretion standard. (Net2Phone, Inc. v. Superior Court (2003) 109 Cal.App.4th 583, 588; America Online, Inc. v. Superior Court (2001) 90 Cal.App.4th 1, 7-9; but see Cal-State Business Products & Services, Inc. v. Ricoh (1993) 12 Cal.App.4th 1666, 1680 [applying a substantial evidence standard of review].) Where, as here, the question is whether the forum selection clause applies to the parties dispute, the trial courts ruling represents a conclusion of law and we review it de novo. (Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 199.)

The standard would be otherwise if the trial courts ruling required evaluation of conflicting facts, such as extrinsic evidence concerning the proper interpretation of the relevant contract. (See Metalclad Corp. v. Ventana Environmental Organizational Partnership (2003) 109 Cal.App.4th 1705, 1715-1716 [if trial courts determination concerning applicability of arbitration clause turns on disputed facts or credibility of extrinsic evidence, appellate court reviews for substantial evidence]; Stirlen v. Supercuts, Inc. (1997) 51 Cal.App.4th 1519, 1527 [same].) Here, however, the ruling was based on the allegations of the consolidated complaints, the undisputed terms of the Share Agreement, and the undisputed facts concerning the relationship between the claims, the parties, and the Share Agreement. Because the relevant evidence is not conflicting, the appeal presents only a question of law.

II

Applicability of Share Agreements Forum Selection Clause

Application of the forum selection clause in the Share Agreement to the underlying controversy faces two complicating factors: HII was not a party to the Share Agreement and appellants complaints did not, on their face, raise any dispute under the Share Agreement. The forum selection clause may nonetheless be enforced if (1) HII had a sufficiently close relationship to the contracting parties or the contractual transaction and (2) the tort claims asserted were sufficiently related to the agreement. (See Bancomber, S. A. v. Superior Court (1996) 44 Cal.App.4th 1450, 1458-1462; Manetti-Farrow, Inc. v. Gucci America, Inc. (9th Cir. 1988) 858 F.2d 509, 513-514.) The authorities cited in the parties briefs focus primarily on the former question and we address that first.

A

HIIs Relationship to Contract or Contracting Parties

Courts have formulated a tripartite test for determining whether a non-signatory defendant has a sufficiently close relationship to the contract or the contracting parties to assert a contractual forum selection clause in order to obtain dismissal of an action otherwise properly filed in California: For [the defendant] to demonstrate that it was so closely related to the contractual relationship that it is entitled to enforce the forum selection clause, it must show by specific conduct or express agreement that (1) it agreed to be bound by the terms of the [contract], (2) the contracting parties intended the [defendant] to benefit from the [contract], or (3) there was sufficient evidence of a defined and intertwining business relationship with a contracting party. (Bancomer, S. A. v. Superior Court, supra, 44 Cal.App.4th at p. 1461; accord Bugna v. Fike (2000) 80 Cal.App.4th 229, 233; Berclain America Latina v. Baan Co. (1999) 74 Cal.App.4th 401, 407.) HII does not contend it agreed to be bound by the Share Agreement or that it was an intended beneficiary. Rather, HII claims to have a defined and intertwining business relationship with all of the contracting parties . . . .

With regard to that relationship, it is true that HII is the parent of HOJ whose stock was the subject of the Share Agreement. But parent corporations are considered separate entities from their subsidiaries under the law, and the existence of a parent/subsidiary relationship has no particular legal significance. (See Laird v. Capital Cities/ABC, Inc. (1998) 68 Cal.App.4th 727, 737 [Corporate entities are presumed to have separate existences, and the corporate form will be disregarded only when the ends of justice require this result.]. In Berclain America Latina v. Baan Co., where a parent corporation unsuccessfully sought to enforce a forum selection clause in an agreement between its wholly owned subsidiary and the plaintiff, the court observed: Generally, a corporate entity does not assume the rights, duties and benefits of another entity which it acquires in a stock purchase. The two entities are assumed to remain separate absent circumstances justifying their treatment as a single entity, such as an alter ego showing or an asset purchase. (Berclain America Latina v. Baan Co., supra, 74 Cal.App.4th at p. 407.)

Otherwise, the basis for HIIs claim to be intertwined appears to be that it was the transferor of the stock allocated among the Participating Directors in the Share Agreement and that it orchestrated the transfer as a form of reward for their efforts on behalf of both HOJ and HII.^[10] We do not believe this is the type of connection that justifies enforcement of the Share Agreements forum selection clause by HII. The Share Agreement was not the agreement under which the shares were sold or transferred and neither HII nor HOJ were parties to it. The subject matter of the Share Agreement was the allocation of ownership interest in the four shares among the participating directors after the transfer from HII took place. Moreover, HIIs relationship with the Participating Directors was not formalized in the Share Agreement. There was no requirement that the Participating Directors remain with either HII or HOJ in order to retain their interest in the shares or enforce the agreements terms. Indeed, according to the parties declarations, appellants were no longer involved with HII or HOJ in any way at the time of the reverse split.

HII relies on three cases to support its claim of having a sufficiently close relationship to the contract or contracting parties: Net2Phone, Inc. v. Superior Court, supra, 109 Cal.App.4th 583, Lu v. Dryclean-U.S.A. of California, Inc. (1992) 11 Cal.App.4th 1490 and Bugna v. Fike, supra, 80 Cal.App.4th 229. In Net2Phone, the forum selection clause was enforced by a defendant who was a party to the agreement containing the clause, where the plaintiff was attempting to stand in the shoes of contracting parties by acting as a private attorney general or class representative. (109 Cal.App.4th at pp. 587-589.) It has no relevance here. Lu and Bugna are more factually similar as both involved enforcement of a forum selection clause by non-signatory defendants where the plaintiffs were parties to agreements containing the clause. In Lu, the plaintiffs alleged they had been fraudulently induced to enter into a franchise agreement requiring litigation in Florida, and brought suit against the signatory franchisor and its parent and grandparent corporations. In Bugna, a group of physicians asserted claims based on management agreements specifying a Colorado forum; they sued not only the signatory management company but also the physicians former office administrator, attorney, accountant, and consultant -- all of whom had either recommended the management company or otherwise facilitated the management agreements.

There are two significant differences between the present litigation and Lu and Bugna. In both those cases, parties to the contracts containing the forum selection clauses were named defendants; additionally, the non-signatory co-defendants were alleged to have participated in the same wrongful conduct as the contracting defendants. In Lu, the plaintiffs alleged that the non-signatory parent and grandparent were the alter egos of the signatory franchisor corporation and participated in the fraudulent representations which induced plaintiffs to enter into the [franchise] Agreement. (Lu v. Dryclean-U.S.A. of California, Inc., supra, 11 Cal.App.4th at p. 1494.) In Bugna, the complaint alleged that the non-signatory defendants conspired with and in effect became agents for [the signatory management company]. (Bugna v. Fike, supra, 80 Cal.App.4th at p. 235.) Here, no contracting party was sued, HII is not an alleged alter ego or agent of any contracting party, and there is no claim of conspiracy involving HII and any contracting party. Instead, appellants alleged that HII, as majority shareholder of HOJ stock, breached its fiduciary duty to the minority shareholders by engaging in actions that devalued appellants shares. The contracting parties to the Share Agreement -- appellants fellow Participating Directors and minority shareholders

-- could not have committed the torts alleged.

As Lu and Bugna demonstrate, it is not enough for the non-signatory to establish a connection or relationship with the contracting parties. To qualify under the third prong of the tripartite test, the intertwining relationship must also have a connection with the allegations of the complaint. The question to be addressed in determining whether a non-signatory should benefit from a forum selection clause is whether the alleged conduct of the [non-signatory] is so closely related to the contractual relationship that the forum selection clause applies to all defendants. (Manetti-Farrow, Inc. v. Gucci America, Inc., supra, 858 F.2d 509, 514.) As explained in Bugna, [t]he key to the closely related [to the contractual relationship] test is whether the nonsignatories were close to the contractual relationship, not whether they were close to the third party signator. This makes sense because the forum selection clause is part of the underlying contract, and it is the contractual relationship gone awry that presumably spawns litigation and activates the clause. (Bugna v. Fike, supra, 80 Cal.App.4th at p. 235.)

This principle is further illustrated by Bancomer, S. A. v. Superior Court, supra, 44 Cal.App.4th 1450, where plaintiffs had purchased leasehold interests in properties located in Baja California from a developer through agreements naming a Mexican court as the exclusive forum for disputes. The leasehold interests turned out to be worthless because the developer did not hold title to the property. Plaintiffs brought an action in California for fraud against the bank designated in the agreements as the trustee through which the interests could be purchased, claiming that the bank misrepresented the validity of the leasehold interests . . . . (Id. at p. 1455.) The Court of Appeal found that the bank was not closely related to the contractual relationship and could not assert the forum selection clause, in part because the offending conduct preceded formation of the purchase agreement[s], the bank was being held directly liable for its own conduct, not derivatively liable for that of . . . the developer[,] and the complaint alleged that the bank acted alone, containing no assertions of fraudulent conduct by any other person or entity. (Id. at pp. 1460-1461.)

Here, the allegations of the consolidated complaints assert that HII was acting independently of the Participating Directors when, in its capacity as majority shareholder for HOJ, it voted to reverse split the stock and leave appellants with a devalued fractional share. The Participating Directors -- the only signatories to the Share Agreement -- were not charged with facilitating HIIs wrongdoing. In the declarations filed by the parties, it became clear that Purdy had voted with the majority on the reverse split and agreed, after the fact, to accept the offered payment for the devalued shares, but the complaints did not assert any claim against him or any other Participating Director. The claim for breach of fiduciary duty could not have been asserted against Purdy or any other Participating Director, as only HII -- the majority shareholder -- owed a fiduciary duty to appellants. Likewise, the claims for conversion and injunctive relief could not have named Purdy or the Participating Directors, as they did not obtain title to or possession of the shares. In sum, the fact that HII had a connection with the Participating Directors unrelated to the claims asserted by appellants did not justify the trial courts decision to permit HII to take advantage of the forum selection clause.

B

Relationship of Claims Asserted to the Share Agreement

Our conclusion that the relationship between HII and the Share Agreement or the contracting parties was insufficient to trigger the forum selection clause justifies reversal of the trial courts order. Further support is provided by the lack of relationship between appellants claims and the Share Agreement.

Preliminarily, we note the scarcity of authority addressing when tort claims sufficiently relate to a contract to support transfer to an alternate forum under the contracts forum selection clause. Of the cases discussed in the briefs, Net2Phone involved claims under the contract; Lu and Bugna involved fraud in the inducement. Claims of fraud in the inducement are generally deemed to be related to the contract on which they are based. (See Ericksen, Arbuthnot, McCarthy, Kearney & Walsh, Inc. v. 100 Oak Street (1983) 35 Cal.3d 312, 323-324 [where leases arbitration clause covered disputes with respect to provisions of lease, claim for fraud in the inducement subject to arbitration]; Prima Paint v. Flood & Conklin (1967) 388 U.S. 395, 402 [arbitration clause covered claim for fraud in the inducement]; see also Rosenthal v. Great Western Fin. Securities Corp. (1996) 14 Cal.4th 394, 417.) Thus, the courts had no reason to address the relationship between the contracts involved and the claims asserted.

In Bancomer, S. A. v. Superior Court, supra, the court suggested that a relationship requiring enforcement of the forum selection clause exists where resolution of the tort claim relates to or require[s] interpretation of the contract. (Bancomer, S. A. v. Superior Court, supra, 44 Cal.App.4th at p. 1461, quoting Manetti-Farrow, Inc. v. Gucci America, Inc., supra, 858 F.2d at p. 514; but see Berclain America Latina v. Baan Co., supra, 74 Cal.App.4th at p. 408 [The mere fact that the contract will need to be construed and interpreted in order to evaluate a plaintiffs claim of interference does not trigger application of a forum selection clause in the contract.].) This was based on the approach taken by the Ninth Circuit in Manetti-Farrow, Inc. v. Gucci America, Inc. There, the plaintiff had entered into an exclusive dealership contract with Gucci Parfums which provided that any litigation take place in Italy. When the contract was abruptly terminated, the plaintiff brought suit against a number of Gucci corporate entities for conspiracy to interfere with contractual relations and prospective economic advantage. The court found that the forum selection clause applied to the plaintiffs claims because [e]ach . . . relates in some way to rights and duties enumerated in the exclusive dealership contract; the claims cannot be adjudicated without analyzing whether the parties were in compliance with the contract; and the tort causes of action related to the central conflict over the interpretation of the contract. (Manetti-Farrow, Inc. v. Gucci America, Inc., supra, 858 F.2d at p. 514.)

A slightly different approach was discussed in Metalclad Corp. v. Ventana Environmental Organizational Partnership, supra, 109 Cal.App.4th 1705, which addressed the closely-related issue whether a plaintiff who had signed a contract containing an arbitration clause could be forced by a non-party to arbitrate tort claims. The court stated that in such situations, courts should look to the relationships of persons, wrongs and issues, in particular whether the claims that the nonsignatory sought to arbitrate were intimately founded in and intertwined with the underlying contract obligations. (109 Cal.App.4th at p. 1713, quoting Choctaw Generation Ltd. v. American Home Assur. (2d Cir. 2001) 271 F.3d 403, 406; see also Izzi v. Mesquite Country Club (1986) 186 Cal.App.3d 1309, 1315-1316, quoting Berman v. Dean Witter & Co., Inc. (1975) 44 Cal.App.3d 999, 1003 [tort claims can be ordered to arbitration as long as they have their roots in the relationship between the parties which was created by the contract].)

Whether we follow the Bancomer/Manetti-Farrow or Metalclad approach, we do not believe the underlying claims were sufficiently related to the Share Agreement to trigger the forum selection clause. Looking at the specific allegations of the consolidated complaints, appellants asserted that HII, the majority shareholder of HOJ, breached its fiduciary duty to the minority shareholders by voting to reverse split the stock, leaving the minority shareholders with a devalued fractional share. California courts recognize an obligation of majority or dominant shareholders . . . to refrain from using their controlling authority to produce corporate action unfair to the minority. (9 Witkin, Summary of Cal. Law (10th ed. 2005) Corporations, 180, p. 952.) Majority shareholders may not use their power to control corporate activities to benefit themselves alone or in a manner detrimental to the minority. Any use to which they put the corporation or their power to control the corporation must benefit all shareholders proportionately and must not conflict with the proper conduct of the corporations business. (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108.) A determination that HII violated a duty of care owed to minority shareholders could be resolved without any reference to the Share Agreement.

HII contends that the claims require interpretation of the Share Agreement because [a]ppellants have never owned any shares of HOJ . . . , their shares were at all times owned by the [Entity] and thus, [t]he nature of [a]ppellants interest . . . can only be determined by interpreting [a]ppellants rights under the [Share] Agreement -- a dispute or controversy under the [Share] Agreement. (Italics omitted.) In essence, HII claims that appellants lack standing to assert a claim for breach of the fiduciary duty owed a minority shareholder.

We disagree. According to the undisputed facts, the Share Agreement gave Rosen a 28.75 percent interest in the shares held by the Entity and Liker a 10 percent interest. HOJ has had no difficulty calculating the amount of dividends to pay appellants over the years, and HII promptly determined the precise percentage of the proceeds from the sale of the fractional share to distribute to each appellant.^[11] In short, there can be no serious dispute that appellants had an ownership interest in HOJ.

As there is no real dispute concerning appellants right to either a specific group of shares or a specific percentage of the value of the shares held by the Entity, they meet Californias minimal standing requirements. California requires only that the complainant have a real interest in the ultimate adjudication demonstrated by being beneficially interested in the controversy[,] that is, having some special interest to be served or some particular right to be preserved or protected over and above the interest held in common with the public at large[,] an interest that is concrete and actual, and not conjectural or hypothetical. (Holmes v. California Nat. Guard (2001) 90 Cal.App.4th 297, 315.)

HIIs brief suggests an alternate theory for why the determination whether appellants or the Entity hold title to the shares is critical, viz., that a party who does not hold share certificates in his or her own name may be unable to assert a shareholder claim under Japanese law. It cites Batchelder v. Kawamoto (9th Cir. 1998) 147 F.3d 915 as involving a similar situation where Japanese law thwarted a shareholder claim.^[12] Rather than support HIIs position that the case must be transferred to a Japanese forum, the decision in Batchelder suggests the opposite. After determining that Japanese law applied, the California District Court and the Ninth Circuit were able to resolve the parties dispute by interpreting that countrys law. Similarly here, the decision whether to apply California law or Japanese law and whether, under the applicable law, appellants have a valid claim for devaluation of their interest in HOJ can be made in a California court without interpreting the meaning of the Share Agreement and appellants rights under it.

DISPOSITION

The order dismissing the action is reversed. The matter is remanded for further proceedings. Appellants are awarded their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

MANELLA, J.

We concur:

WILLHITE, Acting P.J.

SUZUKAWA, J.

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^[1] Of the nine Participating Directors, four were California residents, two were California residents on assignment to Japan, and three were Japanese citizens.

^[2] The entity was to be called the Herbalife of Japan K.K. Directors Share Allocation Plan and will be referred to herein as the Entity.

^[3] The Participating Directors did not hold equal percentages of the four shares of stock. Rosens contribution entitled him to 28.75 percent or 1.15 shares; Likers contribution bought him 10 percent or .40 of a share.

^[4] Although the letter did not so specify, under the reverse split, it apparently took 701,000 old shares to equal a single new share.

^[5] The cases were deemed related and assigned to a single judge. Subsequently, the parties stipulated to their consolidation.

^[6] At the time of the transfer of the four shares -- representing two percent of the total outstanding shares -- to the Participating Directors, Mark Hughes, a tenth director and the former president of HII, received 10 shares.

^[7] The third party was later identified as WH Acquisition Corp. and WH Holdings (Cayman Islands) Ltd.

^[8] This figure was mistakenly alleged in both complaints. Rosen later clarified in a declaration that he had received $387,721 for his larger interest in the transferred shares.

^[9] Most of the certificate is in Japanese, but the words Four Shares, the date, the name of HOJ, and the name of the Entity are in English.

^[10] According to their declarations, appellants were directors of both HII and HOJ at the time of the transfer. Rosen left his positions with the companies in 2000; Liker in 2001.

^[11] Moreover, as noted above, after the stock split, HOJ paid dividends directly to Liker and Rosen and prepared tax forms reflecting such payments to the individual appellants.

^[12] In Batchelder, the district court found that the holder of American Depository Receipts (ADRs) could not bring a derivative action under Japanese law. The ADRs reflected ownership of stock but were not share certificates, which continued to be owned by the depository. The Ninth Circuit affirmed, based on the declaration testimony of Japanese law experts who opined that only shareholders appearing on [the corporations] shareholders register may institute a derivative action under [the statute]. (Id. at p. 921.)