Simon v. Stang
Filed 7/11/13 Simon v. Stang CA6
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opinion has not been certified for publication or ordered published for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
SIXTH
APPELLATE DISTRICT
>
STEVEN SIMON et al., Plaintiffs and Appellants, v. ERIC STANG et al., Defendants and Respondents. | H038036 (Santa Clara County Super. Ct. No. CV159829) |
INTRODUCTION
In 2009,
appellants Steven Simon, Michael Kallok, and Alexey Terskikh filed a putative
class action on behalf of themselves and the other common shareholders of
respondent Reliant Technologies, Inc. (RTI).
They alleged that the defendants, including RTI and certain of the
company’s officers and directors (respondents Eric Stang, president; Len
DeBenedictis, chief technology officer; and Hank Gauthier, director), had
unlawfully entered into a merger
agreement with Thermage, Inc. (Thermage) that was not in the best interest
of RTI’s common shareholders.
In 2010,
defendants brought a motion to dismiss or stay the action on the ground of
forum non conveniens, arguing that the mandatory forum selection clause in the
merger agreement required litigation of plaintiffs’ claims in Delaware. The trial court granted the motion to stay
the action in its order of September
28, 2010, its amended stay order of November 3, 2010, and its extended stay order of September 19, 2011. Plaintiffs did not appeal any of the stay
orders.
In May
2011, the trial court issued an order to show cause why the action should not
be dismissed due to plaintiffs’ failure to take any action to litigate their
claims in Delaware. On January
20, 2012, the trial court entered its order dismissing the action
without prejudice.
On appeal
from the order of dismissal, plaintiffs argue that the trial court erred in
dismissing the action on the basis of an unenforceable forum selection
clause. They also contend that the court
erred in failing to grant them leave to conduct jurisdictional discovery. As we will further explain, since the orders
staying the action on the ground of forum non conveniens were appealable (Code
Civ. Proc., § 904.1, subd. (a)(3)),
name="_ftnref1" title="">[1]
and plaintiffs failed to appeal, we may not review the merits of those orders
or address the request for jurisdictional discovery. Our review is therefore limited to the January 20, 2012 order dismissing the
action without prejudice on the ground of delay in prosecution in Delaware. Having determined that the trial court did
not abuse its discretion in dismissing the action, we will affirm the order of
dismissal.
FACTUAL AND PROCEDURAL BACKGROUND
A. The
Complaint
The
original class action complaint was filed on December 21, 2009, and the first amended complaint was
filed on July 19, 2010. In the first amended complaint, plaintiffs
asserted that plaintiffs Simon and Kallok were residents of Minnesota
and plaintiff Terskikh was a resident of California. Defendant RTI was a Delaware
corporation with its principal place of business in Mountain
View, California.
On behalf
of themselves and the other common shareholders of RTI, plaintiffs alleged that
defendants had entered into a merger agreement with Thermage that was not in
the best interest of the common shareholders and was unlawful for several
reasons: (1) defendants breached
their fiduciary duty by, among other things, engaging in self-dealing; (2) the
merger violated Delaware’s fairness standard because the merger price was below
RTI’s worth; (3) defendants conspired within the meaning of Delaware law; and
(4) defendants violated Corporations Code section 2115 by depriving the common
shareholders of their voting rights.
B. The
Motion to Dismiss or Stay
On August 2, 2010, defendants filed a
motion to dismiss or stay the action pursuant to sections 418.10
and 410.30.
title="">[3] They contended that the merger agreement
between RTI and Thermage included a mandatory forum selection clause
that required plaintiffs to litigate their claims arising from the merger
agreement in Delaware. Defendants further contended plaintiffs were
bound by the forum selection clause since they had either expressly consented
to the merger agreement or were third party beneficiaries of the agreement.
In opposition
to the motion to dismiss or stay the action, plaintiffs argued that the forum
selection clause in the merger agreement was unenforceable because it was
substantively and procedurally unconscionable.
They asserted that a majority of the putative class of common
shareholders had not consented to the forum selection clause, which they
alleged was a contract of adhesion that allowed defendants to improperly
insulate themselves from liability under California
law in violation of public policy.
Plaintiffs also claimed that litigation in Delaware
would be unduly oppressive to them because most of the discovery had to be
conducted in California where the
defendants and witnesses resided.
Plaintiffs also requested in their memorandum of points and authorities
that they be allowed to conduct discovery relating to jurisdictional issues.
C. The
Stay Orders
On September 28, 2010, the trial court
issued its order granting the motion to dismiss or stay the action and staying
the action. The record reflects that
plaintiffs sent a letter to the trial court dated October 27, 2010, requesting clarification of the
order. The court then issued an amended
order on November 3, 2010,
that states: “Defendants’ motion for a
stay is GRANTED. This action is stayed
until further Order of the Court.â€
Plaintiffs did not appeal either of the stay orders.
D. Order
to Show Cause
On May 3, 2011, the trial court
issued a “Notice of Hearing on OSC Re:
Dismissal.†The order directed
the parties and their attorneys to “Show Cause why the . . .
case should not be dismissed for failure of Plaintiff to take affirmative
action to pursue the claims in Delaware.â€
The order also provided the parties with the opportunity to file
responses to the order to show cause.
Plaintiffs
filed points and authorities in opposition to dismissal, arguing that the
action should not be dismissed for failure to take action in Delaware because
the forum selection clause was unenforceable.
Regarding their failure to appeal the prior stay orders, plaintiffs stated: “With no disrespect intended, Judge Huber’s
sixteen word Order staying this matter left Plaintiffs guessing as to his
rationale. Furthermore, his indication
that a ‘further order’ would be forthcoming left Plaintiffs without an ability
to appeal. Did Judge Huber rely on
Defendants’ submissions containing materials outside the Complaint? Did Judge Huber adopt the third party
beneficiary argument put forward by Defendants?
Did Judge Huber determine that the forum selection clause was not
unconscionable? Since his Order did not
mention requiring Plaintiffs to bring the matter in Delaware, was Judge Huber
merely intending to impose a stay of discovery until, as he stated, there was
‘further order from the Court’?â€
Defendants
requested in their response that the action be dismissed with prejudice because
plaintiffs had not appealed the September 2010 stay order and therefore they
could not relitigate the forum selection clause issue. Defendants also pointed out that despite the
trial court’s prior orders, plaintiffs had taken no affirmative action to
proceed in Delaware.
On
September 19, 2011, the trial court issued its order extending the stay. The order states in part: “Plaintiffs’ position is without merit. Judge Huber was not required to provide a
rationale for his order. The ‘until further
Order’ language in Judge Huber’s November 3, 2010 order means that the action
will be stayed until a further order (if any) lifts the stay. It was not a signal that a more detailed
rationale was forthcoming such that Plaintiffs could simply do nothing until it
arrived. The court’s position was clear;
in granting the stay, it necessarily rejected Plaintiffs’ arguments—the same
arguments raised again in response to the OSC. . . . It is self-evident the stay meant that
Plaintiffs were without a forum here and could only pursue the subject matter
of this action in Delaware.†However,
since less than two years had elapsed since plaintiffs filed the original
complaint, the trial court determined that it did not have statutory authority
to dismiss the action. The court
therefore kept the stay in place and continued the hearing on the order to show
cause to December 2011.
Plaintiffs
did not appeal the September 19, 2011 order extending the stay. Instead, on October 14, 2011, plaintiffs
filed a petition for writ of mandate in this court in which they requested that
the stay be lifted. This court summarily
denied the writ petition on December 29, 2011.
Plaintiffs
also filed a second memorandum of points and authorities in opposition to
dismissal. They argued that the trial
court did not have discretion to dismiss the action for failure to prosecute
because they had diligently prosecuted the action in the proper California
forum and none of the “statutory events†triggering dismissal for delay in
prosecution, such as lack of service for two years or failure to bring the case
to trial in three years, had occurred.
E. Order
Dismissing the Action
After
considering the parties’ submissions and hearing oral argument, the trial court
in its order of January 20, 2012, dismissed the action without prejudice. Plaintiffs filed a timely
DISCUSSION
On appeal,
plaintiffs reiterate their arguments below that the forum selection clause in
the merger agreement is unenforceable.
They also argue that the trial court abused its discretion in dismissing
the action for delay in prosecution in Delaware. We will begin by determining the threshold
issue of whether we have jurisdiction to consider plaintiffs’ contentions
regarding the enforceability of the forum selection clause.
A. The
Forum Selection Clause
“The doctrine of
California by judicial decision [citations], is codified in . . . section 410.30.†(Archibald
v. Cinerama Hotels (1976) 15 Cal.3d 853, 857 (Archibald).) Section 410.30,
subdivision (a) provides: “When a court
upon motion of a party or its own motion finds that in the interest of
substantial justice an action should be heard in a forum outside this state,
the court shall stay or dismiss the action in whole or in part on any
conditions that may be just.â€
“[T]he
procedure for enforcing a forum selection clause is a motion to stay or dismiss
for forum non conveniens pursuant to . . . sections 410.30 and 418.10
[citation].†(Berg v. MTC Electronics Technologies Co. (1998) 61 Cal.App.4th 349,
358 (Berg).) The initial issue for the trial court in
ruling on the motion is whether the forum selection clause is mandatory or
permissive. (Animal Film, LLC v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th
466, 471 (Animal Film).) “A mandatory clause ordinarily is ‘given
effect without any analysis of convenience; the only question is whether
enforcement of the clause would be unreasonable.’ [Citation.]
But, if ‘the clause merely provides for submission to jurisdiction and
does not expressly mandate litigation exclusively in a particular forum, then
the traditional forum non conveniens analysis applies. [Citation.]’
[Citations.]†(
The
California Supreme Court has distinguished a dismissal on the ground of forum
non conveniens from a stay of the action on that ground: “ ‘The staying court retains jurisdiction over the parties and the cause; . . . it can
compel the foreign [party] to cooperate in bringing about a fair and speedy
hearing in the foreign forum; it can resume proceedings if the foreign action
is unreasonably delayed or fails to reach a resolution on the merits. . .
. In short, the staying court can
protect . . . the interest of the California resident pending the final
decision of the foreign court.’
[Citations.] A court which has
dismissed a suit on grounds of forum non
conveniens, on the other hand, has lost jurisdiction over the action and in
relinquishing that jurisdiction deprived itself of the power to protect the
interests of the California resident.†(
In ruling
on a motion to stay or dismiss on forum non conveniens grounds, the trial court
is not required to expressly state its reasoning in its order. (Hahn
v. Diaz-Barba (2011) 194 Cal.App.4th 1177, 1187-1188.) An order granting a motion to stay an action
on forum non conveniens grounds is an appealable order. (§ 904.1, subd. (a)(3)
Olinick v. BMG Entertainment (2006)
138 Cal.App.4th 1286, 1293, fn. 6 (Olinick)
[affirming order staying California action on ground that mandatory forum
selection clause required trial in New York]; accord, Berg, supra, 61
Cal.App.4th at p. 355, fn. 1.)
In the
present case, defendants sought to enforce the forum selection clause in the
merger agreement between RTI and Thermage by filing a motion to dismiss or stay
the action on the ground of forum non conveniens. The trial court granted the motion to stay
the action and issued three orders staying the action on the ground of forum
non conveniens: (1) the September 28,
2010 order granting the motion to dismiss or stay the action and staying the
action; (2) the November 3, 2010 amended order granting the motion for a stay
and staying the action until further order of the court; and (3) the September
19, 2011 order extending the stay order.
All three orders were appealable as an order granting a motion to
stay on forum non conveniens grounds.
(§ 904.1, subd. (a)(3); Olinick,
supra, 138 Cal.App.4th at p. 1293,
fn. 6.) We are not convinced by
plaintiffs’ assertion that it was unclear that the basis for the stay orders
was forum non conveniens. It was obvious
that in granting the stay motion the court had necessarily found the forum selection
clause in the merger agreement to be enforceable and had stayed the action to
enable plaintiffs to file suit in Delaware.
(See, e.g., Olinick,
order enabling plaintiff to file suit in New York]; Animal Film, supra, 193
Cal.App.4th at p. 470 [stay order giving plaintiff time to file case in
Texas].)
Since
plaintiffs failed to appeal any of the three orders staying the action on the
ground of forum non conveniens, we lack jurisdiction to consider plaintiffs’ contentions
regarding the enforceability of the forum selection clause and the propriety of
the Delaware forum. Under section 906,
it is well established that where, as here, the “ ‘order is appealable, an
aggrieved party must file a
review.’ [Citations.]†(Norman
I. Krug Real Estate Investments, Inc. v. Praszker (1990) 220 Cal.App.3d 35,
46 (Krug); accord,
Baycol Cases I & II (2011)
51 Cal.4th 751, 762, fn.8 [“California follows a ‘one shot’ rule under which,
if an order is appealable, appeal must be taken or the right to appellate
review is forfeited.â€].) Thus, where
no appeal is taken from an appealable order, “the appellate court has no
jurisdiction to review it.†(
Our review
in the instant appeal is therefore limited to the merits of the trial court’s
January 20, 2012 order dismissing the action without prejudice on the ground of
delay of prosecution in Delaware. For
that reason, we need not reach plaintiffs’ request for jurisdictional
discovery.
B. The
Order Dismissing the Action
Section 583.410, subdivision (a)
provides that “[t]he court may in its discretion dismiss an action for delay in
prosecution pursuant to this article on its own motion or on motion of the
defendant if to do so appears to the court appropriate under the
circumstances.â€
“In other
words, while California’s policy favors trial
on the merits, there comes a time when that policy is overridden by
California’s policy requiring dismissal for failure to prosecute with
reasonable diligence. As this is true
for any action prosecuted in
California courts, it must be true for an action initially filed in [a]
California court but stayed on forum non conveniens grounds. In short, California’s interest in assuring
an adequate forum for a California plaintiff is not absolute, and can be
overcome when the plaintiff is unreasonably dilatory in prosecuting the action
in the convenient forum. If, by a California
plaintiff’s lack of reasonable diligence in prosecuting its action, California
has lost its interest in providing an adequate forum, an action originally
stayed on forum non conveniens grounds may therefore be dismissed.†(Van
Keulen v. Cathay Pacific Airways, Ltd. (2008) 162 Cal.App.4th 122, 130 (
The trial
court’s authority to dismiss an action for delay in prosecution is governed by
various provisions of the Code of Civil Procedure and the California Rules of
Court. Section 583.410, subdivision (b)
requires that “[d]ismissal shall be pursuant to the procedure and in accordance
with the criteria prescribed by rules adopted by the Judicial Council.†Section 583.420,
subdivision (a)(2)(B) provides: “The court may not dismiss an action pursuant to this article for delay in
prosecution except after one of the following conditions has occurred: [¶] . . . [¶]
Two years after the action is commenced against the defendant if the
Judicial Council by rule adopted pursuant to Section 583.410 so prescribes for
the court because of the condition of the court calendar or for other reasons
affecting the conduct of litigation or the administration of justice.†California Rules of Court, rule 3.1340
provides: “The court on its own motion
or on motion of the defendant may dismiss an action under . . . sections
583.410-583.430 for delay in prosecution if the action has not been brought to
trial or conditionally settled within two years after the action was commenced
against the defendant.†Thus, “a minimum
delay of two years is required before a trial court can exercise its
discretionary dismissal powers.
[Citations.]†(
915.)
We review
the trial court’s order dismissing an action for delay in prosecution for abuse
of discretion. (Landry v. Berryessa Union School Dist. (1995) 39 Cal.App.4th 691,
698.) “Such abuse of discretion is
generally considered to be demonstrated when the trial court has exceed the
bounds of reason. [Citation.] We must presume the trial court’s order was
correct, and it is the plaintiff’s burden to overcome that presumption and
establish a clear abuse of discretion.
[Citations.]†(
In
brought wrongful termination actions against their employer, Cathay Pacific
Airways, Ltd. (Cathay), in both California and Hong Kong. (Van
Keulen, supra, 162 Cal.App.4th at
pp. 125-126.) Cathay moved to dismiss or
stay the California action on the ground of forum non conveniens. (Id.
at p. 126.) The California trial
court dismissed the action with respect to the non-California plaintiffs and
stayed the action with respect to the plaintiffs who were California
residents. (Id. at p. 126.) After the
stay order was affirmed on appeal, Cathay moved to dismiss the California
action on the grounds that, among other things, the California plaintiffs had
not been diligent in pursuing their action in Hong Kong. (Id.
at pp. 127-128.)
The
appellate court in Van Keulen determined
that the trial court had the discretionary authority to dismiss the California
action due to the plaintiffs’ failure to diligently prosecute their action in
Hong Kong, finding that the factors set forth in rule 3.1342(e)
(availability of the other party for service, diligence in seeking to effect
service, the extent of settlement negotiations, diligence in pursuing
discovery, the nature and complexity of the case, whether another action was
pending, the extensions of time or delay attributable to the other party, the
condition of the court’s calendar in the other forum, whether the interests of
justice are served by dismissal or trial, and any other relevant fact or
circumstance), weighed in favor of dismissal.
(Id. at pp. 132-133.) In so ruling, the appellate court noted that
the three years of delay in litigating their claims in Hong Kong was wholly
attributable to the plaintiffs. (
We reach a
similar result in the present case. It
is undisputed that the instant action was commenced in December 2009; the
action was first stayed on the ground of forum non conveniens in September
2010; plaintiffs did not appeal that stay order or any other stay order; and
the trial court dismissed the action for delay in prosecution in Delaware in
January 2012. It is also undisputed that
plaintiffs have never filed an action in Delaware or taken any other steps to
litigate their claims against defendants in Delaware. Since the trial court did not dismiss
plaintiffs’ California action until more than two years had passed after
commencement of the action and after the action was stayed, we determine that
the trial court did not abuse its discretion in dismissing the action for
plaintiffs’ failure to prosecute their action in Delaware.
Plaintiffs
contend that the trial court’s discretion to dismiss their action was limited
to dismissal under the criteria set forth in sections 583.410 and 583.420, and
since none of those criteria apply, the trial court abused its discretion in
dismissing their action. We disagree.
As we have
discussed, rule 3.1340 provides: “The
court on its own motion or on motion of the defendant may dismiss an action
under . . . sections 583.410-583.430 for delay in prosecution if the action has
not been brought to trial or conditionally settled within two years after the
action was commenced against the defendant.â€
Rule 3.1340 has the force of a statute for the following reasons: “The California Rules of Court are adopted by
the Judicial Council of California. The
Judicial Council, which is charged by the state Constitution with ‘improv[ing]
the administration of justice,’ is authorized to ‘adopt rules for court
administration, practice and procedure,’ which shall ‘not be inconsistent with
statute.’ (Cal. Const., art. VI, § 6,
subd. (d).) ‘The rules have the force of
statute to the extent that they are not inconsistent with legislative
enactments and constitutional provisions.’
[Citation.]†(
1402, quoting In re Richard S. (1991) 54 Cal.3d 857, 863.)
Rule 3.1340
is consistent with sections 583.410 and 583.420 since both statutes provide
that the Judicial Council may adopt rules governing discretionary
dismissal. In particular, we emphasize
that section 583.420, subdivision (a)(2)(B) provides for discretionary
dismissal after a two-year delay in prosecution: “The court may not dismiss an action pursuant to this article for delay in
prosecution except after one of the following conditions has occurred: [¶] . . . [¶]
Two years after the action is commenced against the defendant if the
Judicial Council by rule adopted pursuant to Section 583.410 so prescribes for
the court because of the condition of the court calendar or for other reasons
affecting the conduct of litigation or the administration
of justice.â€
Thus, we
conclude that the trial court had the discretion under sections 583.410 and
583.420 and rule 3.1340 to dismiss plaintiff’s California action for their
complete failure to prosecute their action in Delaware for more than two years
after the California action was commenced and then stayed on the ground of
forum non conveniens. (See
We will therefore affirm the January 20, 2012 order of dismissal.
DISPOSITION
The January
20, 2012 order dismissing the action without prejudice is affirmed. Costs on appeal are awarded to respondents.
___________________________________________
Bamattre-Manoukian, J.
WE CONCUR:
________________________________
ELIA, ACTING P.J.
________________________________
Márquez,
J.
name="_ftn1" title=""> [1]
All further statutory references are to the Code of Civil Procedure unless
otherwise indicated.
Section 418.10, subdivision (a)(2) provides:
“A defendant, on or before the last day of his or her time to plead or
within any further time that the court may for good cause allow, may serve and
file a notice of motion for one or more of the following purposes: [¶] . . . [¶]
To stay or dismiss the action on the ground of inconvenient forum.â€
