Sukumar v. Health Tech Resources
Filed 3/11/13 Sukumar v. Air Machine Com SRL
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
COURT
OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION
ONE
STATE
OF CALIFORNIA
PONANI N. SUKUMAR, et al.,
Plaintiffs and Appellants,
v.
AIR MACHINE COM SRL, et al.,
Defendants and Respondents.
D060743
(Super. Ct. No. 37-2007-00052071-
CU-BC-NC)
APPEAL from
orders of the Superior Court
of
County, Earl H. Maas, III, Judge. Affirmed.
Ponani
Sukumar and his physical rehabilitation
clinic, Southern California Stroke Rehabilitation Associates (together
Sukumar), appeal orders dismissing Panatta Sport SRL (Panatta) and Air Machine
Com SRL (COM) from the action for lack of personal jurisdiction. Sukumar contends the trial court erred when it
granted the separate motions to quash of Panatta and COM after ruling neither
was subject to jurisdiction in California
under a successor liability theory, based on the minimum contacts of their
alleged predecessor defendant Air Machine SRL (SRL). Sukumar also maintains both Panatta and COM are
subject to specific jurisdiction in California
based on each party's own activities/contacts (as opposed to those of SRL) in
the forum.
Because we
affirm an order granting SRL's motion to quash service for lack of jurisdiction
in a separate opinion,
name="_ftnref1" title="">[1] we
conclude here that Sukumar failed to satisfy his burden to establish
jurisdiction over Panatta and COM as successors of SRL. In addition, we also determine Sukumar did
not carry his burden to prove either Panatta or COM is subject to specific
jurisdiction based on each party's contacts with California. Therefore, we affirm the orders.
FACTUAL
AND PROCEDURAL BACKGROUND
Sukumar's
Complaint Against Panatta and COM
Sukumar's
operative complaint asserted causes of action against Panatta for breach of
express and implied warranties, breach of the implied covenant of good faith
and fair dealing, violation of Business and Professions Code section 17200 et
seq., promissory estoppel and intentional interference with contract.
Against
COM, Sukumar alleged causes of action for breach
of contract, breach of express and implied warranties, breach of the implied
covenant of good faith and fair dealing, violation of Business and
Professions Code section 17200 et seq., promissory estoppel and intentional
interference with contract.
Sukumar
alleged in his complaint that Panatta and SRL jointly owned and controlled COM;
SRL transferred all rights to manufacture and market its medical grade Air
Machine equipment to COM in return for a minority ownership in COM; Panatta's
subsequent purchase of SRL's interest in COM was without adequate
consideration; and Panatta and COM then refused to honor any warranty and
contractual obligations of SRL despite the fact SRL was rendered insolvent and
unable to meet its obligations to Sukumar.
All of
Sukumar's claims against Panatta and COM derive from Sukumar's contract with
Health Tech Resources, Inc. dba Impact Fitness Systems (Health Tech) whereby
Sukumar purchased certain exercise equipment from Health Tech, which was
manufactured in Italy
by SRL. The contract was dated February 26, 2004. Sukumar claimed the exercise equipment was
defective and informed Health Tech of the defects "immediately" upon
delivery in January 2005.
Panatta's
and COM's Motions to Quash
Panatta and
COM each moved to quash service of summons based on lack of personal
jurisdiction.
title="">[2] Panatta and COM contended Sukumar failed to
satisfy his burden to show either party was subject to specific jurisdiction in
California.
Panatta
contended it is an Italian limited liability company that designs, manufactures
and repairs sports equipment used in European gyms, sports centers and similar
entities. It also claimed to manufacture
its products in Italy
and market them exclusively in Europe, Asia,
Russia and the Middle
East. Panatta has never
owned or operated any retail stores, manufacturing facilities or warehouses in California;
it has never advertised, or maintained an office in California;
and it has not owned, used or possessed any real property in California. Panatta is not licensed or registered to do
business in California; it has no designated agent for service of process in
California; it conducted no business in California "up to and including
the entire year of 2004, which is the time period that [Sukumar's] claims
arose," and that from approximately May 2005 forward, it has conducted
limited business in California with two distributors, which accounted for less
than one percent of its overall sales.
In addition,
Panatta contended that it and SRL formed COM in 2006, nearly three years after
Sukumar entered into its contract with Health Tech, which gave rise to the
dispute. Because the superior court
ruled SRL was not subject to personal jurisdiction in California,
Panatta further contended that it could not be subject to jurisdiction under a
successor liability theory.
COM argued
that it was formed and registered in Italy in November 2006; it is a foreign
limited liability company headquartered in Apiro, Italy; its products are
manufactured in Italy and are marketed exclusively in Europe; it has never
owned or operated any retail stores in California; it has no bank accounts,
offices or employees in California; and it has never advertised, owned, used or
possessed real property in California.
Regarding
its formation, COM noted it was created in 2006 as a result of a joint venture
between Panatta and SRL. Initially when
it was formed, Panatta owned 51 percent of COM and SRL owned 49 percent, and
the goal of the joint venture was to use Panatta's "established European
distribution network to better market the 'Air Machine' line of products then
owned by SRL." In connection with
the joint venture, SRL transferred its intellectual property rights to COM, and
after less than two years, when sales of SRL products failed to meet
expectations, SRL, in March 2008, withdrew from the joint venture and cashed
out its stock in COM for €90,000, leaving Panatta as the sole remaining
shareholder of COM.
COM further
noted in its motion to quash that it "was and still is a wholly separate
company from S.R.L. S.R.L operates in
different city, namely, Cesena, Italy. [Citation.]
COM operates in Apiro, Italy. [Citation.]
COM was always managed and operated independently of S.R.L. [Citation.]
COM holds its own Board of Directors' meetings separate and independent
from S.R.L. [Citation.] With the exception of one common officer, COM
and S.R.L. have completely different officers and directors. [Citation.]
COM maintains its own bank accounts, corporate books and records
separate and apart from S.R.L.
[Citation.] COM markets,
distributes, and sells its products through Panatta's distribution network . .
. which is separate and independent from S.R.L.'s distribution network."
Moreover,
like Panatta, COM also contended that it was not subject to personal
jurisdiction in California under
a successor liability theory because the superior court ruled SRL did not have
sufficient minimum contacts in the forum and because, in any event, Sukumar's
claims did not arise from or out of its contacts.
Sukumar
opposed the motions to quash of Panatta and COM on the ground that both parties
were successors to SRL and thus subject to specific jurisdiction in California
based on the minimum contacts of SRL because Panatta did not pay adequate cash
consideration to SRL for SRL's interest in COM and, after that sale, SRL was
effectively insolvent and unable to meet its obligations to Sukumar.
The
Superior Court's Ruling on the Motions
The court
granted Panatta's motion. It found that
Sukumar could not prove successor liability as to Panatta because the court had
already ruled that SRL was not subject to specific jurisdiction. It further found Sukumar did not prove that
Panatta assumed the liabilities of SRL.
Finally, the court determined Sukumar had not proved specific
jurisdiction was proper based on Panatta's contacts with California.
The
superior court also rejected jurisdiction over COM based on successor liability
for the same reasons it granted Panatta's motion to quash.
The superior
court also ruled on Panatta's, COM's, and Sukumar's objections to evidence in
connection with the motions to quash, and none of the parties challenge any of
the rulings. We therefore do not discuss
the specific objections.
DISCUSSION
I
Sukumar
spends much of his opening brief arguing that the superior court should have
exercised jurisdiction over Panetta and COM because they are successors to
SRL. We disagree.
"In a
case raising liability issues, a California
court will have personal jurisdiction over a successor company if (1) the court
would have had personal jurisdiction over the predecessor, and (2) the
successor company effectively assumed the subject liabilities of the
predecessor." (CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal.App.4th
1101, 1120 (CenterPoint) [citing
among other cases Ray v. Alad Corporation
(1977) 19 Cal.3d 22, 28, 31].)
In a
separate opinion,
title="">[4]
we affirmed the superior court's order granting SRL's motion to quash for lack
of jurisdiction. Because we determined
the superior court did not have jurisdiction over Panatta's and COM's alleged
predecessor, SRL, Sukumar's contention that the superior court could exercise
jurisdiction over Panatta and/or COM under a successor liability theory necessarily
fails. As such, we do not reach the
second prong of the successor liability test:
whether the successor effectively assumed the subject liabilities of the
predecessor.
II
SPECIFIC
JURISDICTION BASED ON PANATTA'S AND COM'S
RESPECTIVE
CONTACTS WITH CALIFORNIA
Sukumar
next argues that even if we do not determine that Panetta and COM are subject
to jurisdiction in the superior court because they are successors to SRL, he
has satisfied his burden of proving they are subject to specific jurisdiction
based on their own contacts with California. We disagree.
A. Limits of Asserting Jurisdiction
"State courts will assert
personal jurisdiction over nonresident defendants which have been served with
process only if those defendants have such minimum contacts with the state to
ensure that the assertion of jurisdiction does not violate ' "
' "traditional notions of fair play and substantial
justice." ' " '
[Citations.] 'It is
well-established that only " ' "random,"
"fortuitous," or "attenuated" contacts' " do not
support an exercise of personal jurisdiction.
[Citation.] In analyzing such
issues, the courts have rejected any use of " 'talismanic jurisdictional
formulas.' " [Citation.] Rather, " ' "the facts of each case
must [always] be weighed" in determining whether personal jurisdiction
would comport with "fair play and substantial justice." ' [Citation.]"
" (CenterPoint, supra, 157 Cal.App.4th at p. 1117.)
or specific jurisdiction. (
148 Cal.App.4th 556, 569.) " '
"Specific jurisdiction results when the defendant's contacts with the
forum state, though not enough to subject the defendant to the general
jurisdiction of the forum, are sufficient to subject the defendant to suit in
the forum on a cause of action related to or arising out of those
contacts. [Citations.] Specific
jurisdiction exists 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 assertion of jurisdiction
would comport with fair play and substantial justice." ' [Citations.]" (CenterPoint,
supra, 157 Cal.App.4th at p. 1117,
italics omitted; Helicopteros Nacionales
de Columbia v. Hall (1984) U.S. 466 404, 414 [in determining whether
specific jurisdiction exists, courts generally look to the relationship among
the defendant, the forum, and the litigation].)
B. Burden of Proof and Standard of Review
"When a nonresident defendant
challenges personal jurisdiction,
the plaintiff must prove, by a preponderance of the evidence, the factual basis
justifying the exercise of jurisdiction.
[Citation.] The plaintiff must do
more than merely allege jurisdictional facts; the plaintiff must provide
affidavits and other authenticated documents demonstrating competent evidence
of jurisdictional facts.
[Citation.] If the plaintiff does
so, the burden shifts to the defendant to present a compelling case that the
exercise of jurisdiction would be unreasonable.
[Citation.]" (BBA
Aviation PLC v. Superior Court (2010)
190 Cal.App.4th 421, 428-429.) "In
this analysis, the merits of the complaint are not implicated." (F. Hoffman-La Roche, Ltd. v. Superior
Court (2005) 130 Cal.App.4th 782, 794.)
"Where the evidence of
jurisdictional facts is not in conflict, we independently review the trial
court's decision. [Citation.] To the extent there are conflicts in the evidence,
we must resolve them in favor of the prevailing party and the trial court's
order." (Malone v. Equitas Reinsurance Ltd. (2000) 84 Cal.App.4th 1430,
1436.) We review the trial court's
resolution of factual conflicts under the substantial evidence standard. (People
v. Mickey, supra, 54 Cal.3d at p.
649; Integral Development Corp. v.
Weissenbach (2002) 99 Cal.App.4th 576, 585.) Under this standard, "the power of an
appellate court begins and ends with the determination as to whether there is
any substantial evidence, contradicted or uncontradicted, which will support
the finding of fact." (
805, 807, italics omitted.) "
'[S]ubstantial evidence' is . . . evidence . . . 'of ponderable legal
significance, . . . reasonable in nature, credible, and of solid value.' [Citations.]" (Bowers
v. Bernards (1984) 150 Cal.App.3d 870, 873, italics omitted.) Such evidence may be in the form of
declarations. (Atkins, Kroll & Co. v. Broadway Lumber Co. (1963) 222
Cal.App.2d 646, 654.) If supported by
substantial evidence, the trial court's resolution of conflict will not be
disturbed on appeal. (
1351, 1356.)
C. Analysis
Sukumar
contends Panatta's contacts with California consist of its efforts to establish
a market in California for its products since the late 1990s. Sukumar further asserts Panatta's purchase of
SRL was part of these efforts.
Sukumar
maintains COM's contacts with California consist of COM representatives
emailing Sukumar directly and inviting Sukumar to contact the new COM sales
manager for SRL products for assistance with his order. In addition, Sukumar also points to COM's use
of Panatta's distribution network, which included two California distributors. COM also apparently took over SRL's website
and continues to distribute promotional materials to Sukumar.
Sukumar,
however, fails to appreciate that his entire case against Panatta and COM
hinges on his purchase of SRL equipment in 2004, which was delivered in
2005. None of Panatta's or COM's contacts
with California having anything to do with SRL's products occurred prior to
2006. Sukumar sued COM because he
believes it is SRL's successor. Sukumar
sued Panatta because he argues it owns COM and assumed certain of SRL's
warranty obligations.
On July 31,
2006, SRL and Panatta entered into a joint venture that resulted in the
formation of COM as an Italian limited liability company. SRL contributed its trademarks and patents to
the joint venture, and Panatta contributed its established distribution
network. Sukumar has cited to no
evidence demonstrating that either Panatta or COM had any affiliation,
involvement, or responsibility relating to SRL's line of fitness equipment or
business operations prior to July 31, 2006.
Based on
the record before us, it is clear the controversy at issue here (i.e., SRL's
defective products) does not arise out of Panatta's and/or COM's contacts with
California. (See CenterPoint, supra, 157
Cal.App.4th at p. 1117.) Panatta's
predispute contacts were unrelated to SRL's product. COM did not even exist at the time the
dispute arose. Indeed, Sukumar sued
Panatta and COM simply because of their relationship to SRL: COM is the successor of SRL and Panatta owns
COM. Panatta's and COM's respective
contacts with California prior to and at the time of the dispute are either
nonexistent or have nothing to do with the dispute regarding SRL's products.
Citing
365 (Bresler), Sukumar argues we may
consider postdispute contacts with California to determine if specific
jurisdiction exists. Sukumar's reliance
on Bresler is misplaced.
and other counts arising from the purchase and sale of stock in a medical group
organized as a California professional corporation. One of the defendant purchasers, George
Stavros, was an Arizona resident.
Although he was licensed to practice medicine in California, Stavros
declared that he did not intend to practice medicine in California or to take
part in the corporation's management, and that he purchased the stock solely
for investment purposes. (
however, acknowledged that Stavros had visited a clinic operated in California
by the corporation and had worked in the clinic on one occasion. (Ibid.)
The court
in Bresler stated that Stavros sought
the benefits and protections of California securities law by purchasing
California securities, he was permitted to purchase stock in the corporation
only because he was licensed to practice medicine in California, and that he
was subject to detailed regulations concerning transfer of the securities. (Bresler,
supra, 141 Cal.App.3d at p.
369.) The court stated the fact that
Stavros had performed medical services at the clinic in California on one
occasion, within a week of his signing the contract to purchase stock, also
supported the conclusion that he had invoked the benefits of
at pp. 369-370.) In addition, the court
noted that the practice of medicine in this state was subject to "
'special regulation' " and a defendant's intentional participation in an
activity that is subject to special regulation can support the exercise of
jurisdiction. (Id. at p. 369, quoting Hanson
v. Denckla (1958) 357 U.S. 235, 252.)
The court concluded that the purchase and sale of the corporation
"was intimately related to California," and that Stavros had
purposefully availed himself of forum benefits.
(Id. at pp. 370-371.) The court also determined that the exercise
of jurisdiction would be fair and reasonable, in part because California
"has a strong interest in policing the propriety of transactions transferring
ownership in medical corporations." (Id.
at p. 371.) The court therefore held
that the granting of the motion to quash service of summons was error. (Id.
at p. 372.)
We struggle
to find any aspect of Bresler,
tenuously related to the instant matter.
In Bresler, Stavros's
"post-dispute" contact occurred less than a week after he signed the
purchase contract. (Id. at p. 367.) In contrast,
here, Sukumar is trying to establish the requisite contacts, in part, by
focusing on contacts that occurred months, and in some cases over a year, after
the dispute arose. Bresler does not create a rule mandating that we consider Panatta's
and COM's post-dispute contacts.
In
addition, Bresler,
that are not analogous to the instant matter.
Stavros was a licensed California physician and was purchasing stock in
a California medical corporation. (
concerned the practice of medicine, which is subject to "special
regulations." (Id. at p. 369.) Panatta's
attempts to create a California market for its products and COM's postdispute
emails to Sukumar are not similar in any way.
In summary,
even if we were to accept Sukumar's claim of contacts with California by both
Panatta and COM as true, the controversy here did not arise out of any of these
contacts. Therefore, Sukumar has not
carried his burden of satisfying the second factor of proving specific
jurisdiction. The court's orders were
not in error.
DISPOSITION
The orders
are affirmed. Panatta and COM are
awarded their costs on appeal.
HUFFMAN, J.
I CONCUR:
IRION,
J.
J. BENKE, dissenting.
I conclude the trial court erred
when it granted the separate motions to quash service of summons of respondents
Panatta Sport SRL (Panatta) and Air Machine Com SRL (COM) for lack of personal
jurisdiction in the action brought by appellants Ponani Sukumar and his
physical rehabilitation clinic, Southern California Stroke Rehabilitation Associates
(collectively Sukumar). Because I
conclude Panatta and COM are subject to jurisdiction in California under a
successor liability theory, based on the minimum contacts of defendant Air
Machine SRL, an Italian Limited Company (SRL),
would reverse the order granting the motions to quash of Panatta and COM and
direct the court to enter a new order denying their respective motions.
BRIEF OVERVIEW
Sukumar's
operative complaint asserted causes of action against Panatta for breach of
express and implied warranties, breach of the implied covenant of good faith
and fair dealing, violation of Business and Professions Code section 17200 et
seq., promissory estoppel and intentional interference with contract.
Against COM, Sukumar's operative
complaint alleged causes of action for breach of contract, breach of express
and implied warranties, breach of the implied covenant of good faith and fair
dealing, violation of Business and Professions Code section 17200 et seq.,
promissory estoppel and intentional interference with contract.
Sukumar alleged in his complaint
that Panatta and SRL jointly owned and controlled COM; that SRL transferred all
rights to manufacture and market its medical-grade Air Machine equipment to COM
in return for a minority ownership in COM; that Panatta's subsequent purchase
of SRL's interest in COM was without adequate consideration; and that Panatta
and COM then refused to honor any warranty and contractual obligations of SRL,
despite the fact SRL was rendered insolvent and unable to meet its obligations
to Sukumar.
DISCUSSION
A.
Minimum Contacts and Standard of
Review
Courts in California will exercise
jurisdiction over nonresidents "'on any basis consistent with the
Constitution of California and the United States.'" (Snowney v. Harrah's Entertainment, Inc.
(2005) 35 Cal.4th 1054, 1061; Code Civ. Proc., § 410.10 [long-arm
statute].) Accordingly, courts will
assert jurisdiction over a nonresident defendant "if the defendant has
such minimum contacts with the state that the assertion
of jurisdiction does not '"violate traditional notions of fair play and
substantial justice."' [Citations.]"
(Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th
434, 444 (Vons).)
moves to quash service of process on jurisdictional grounds, the plaintiff has
the initial burden of demonstrating facts justifying the exercise of
jurisdiction. [Citation.]" (Vons, supra, 14 Cal.4th at p. 449.) A plaintiff must meet this burden with
competent evidence and establish jurisdiction by a preponderance of the
evidence. (Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556,
568.) This may be done through
declarations and other admissible evidence; a plaintiff is not required,
however, to prove the elements of one or more causes of action to satisfy this
burden. (Nobel Farms, Inc. v. Pasero
(2003) 106 Cal.App.4th 654, 657–658; Aquila,
Inc. v. Superior Court, supra, at
p. 568.)
Once
a plaintiff has demonstrated facts establishing minimum
burden to demonstrate the exercise of jurisdiction would be unreasonable. (Vons, supra, 14 Cal.4th at p. 449.)
A trial court's factual
determinations are reviewed for substantial evidence. (Vons, supra, 14 Cal.4th at p. 449.) But "'"the question of jurisdiction
is, in essence, one of law. When the
facts giving rise to jurisdiction are conflicting, the trial court's factual
determinations are reviewed for substantial evidence. [Citation.]
Even then, we review independently
the trial court's conclusions as to the legal significance of the facts. [Citations.]"'" (CenterPoint
Energy, Inc. v. Superior Court (2007) 157 Cal.App.4th 1101, 1117-1118,
italics added (CenterPoint); see also
F. Hoffman-LaRoche, Ltd. v. Superior
Court (2005) 130 Cal.App.4th 782, 794 ["[T]he ultimate question
whether jurisdiction is fair and reasonable under all the circumstances, based
on the undisputed facts and those resolved by the court in favor of the
prevailing party, is a legal determination warranting independent
review."].)
Among other theories, Sukumar
contends that Panatta and COM are subject to jurisdiction in California as a
result of the contacts of their predecessor, SRL, under a successor theory of
liability.
B.
Jurisdiction Premised on Successor
Liability
"In a case raising liability issues, a
California court will have personal jurisdiction over a successor company if
(1) the court would have had personal jurisdiction over the predecessor, and
(2) the successor company effectively assumed the subject liabilities of the
predecessor." (CenterPoint, supra, 157
Cal.App.4th at p. 1120, citing among other cases Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28, 31.)
As I discuss in my dissent to the separate majority
opinion issued this date, from my review of the entire record in that case, I
independently conclude Sukumar met his burden to show that SRL purposefully
availed itself of the benefits of doing business in California and that the
controversy is related to and/or arises out of SRL's contacts in
California. I also conclude that SRL
failed to make a compelling case to
show the assertion of jurisdiction over it in California would be unfair and
unreasonable and that it would be unfair to Sukumar and consumers similarly
situated if California did not exercise specific jurisdiction over SRL.
As such, unlike the majority, I conclude for
purposes of this dissent that Sukumar has satisfied "prong one" of
the CenterPoint test to establish
jurisdiction over Panatta and/or COM based on a successor liability
theory.
Under "prong two" as set out in
company is liable for a predecessor's actions if (1) there is an express or
implied agreement of assumption; or (2) the transaction between the successor
and predecessor amounts to a consolidation or merger of the two; or (3) the
successor is a mere continuation of the predecessor; or (4) the transfer of
assets to the successor is for the fraudulent purpose of escaping liability for
the predecessor's debts. (
19 Cal.3d at p. 28.)
Sukumar contends Panatta and COM are subject to
jurisdiction based on the second, third or fourth bases or theories set out in
and/or fraudulent transfer).
1.
The record shows that like SRL, Panatta
manufactured and sold its own line of exercise equipment and product. In 2006, Panatta was actively seeking to
increase sales of its exercise equipment in the United States, including in
California.
"strategic association," the terms of which were set forth in a
"private contract" translated from Italian into English. A press release issued on Air Machine letterhead
noted this alliance was important for the "future" of SRL because the
company needed a "great ally" after facing "difficult years of
large investments" that were inhibiting its growth potential.
Under the private contract, Panatta and SRL agreed
to form a joint venture. SRL agreed to
transfer to the joint venture (then named "newco," later to become
COM) the exclusive rights to its "intangible fixed assets" as set
forth in an exhibit (written in Italian) attached to the private contract. Panatta in turn agreed to grant the joint
venture the nonexclusive right to use Panatta's "network of agents, both
in Italy and abroad, as well as its own service centers," to market and
distribute Air Machine equipment and product.
The private contract also provided that once the joint venture had taken
over the Air Machine brand, SRL could exercise a "put" option within
a certain time period that would require Panatta to purchase SRL's interest in
the joint venture under a set formula based in part on the earnings of the
joint venture (before interest and tax).
As contemplated by the private contract, Panatta
transferred to COM the rights to access its distribution network and service
centers. Those rights were valued at a
little over €2 million. In return,
Panatta received a 51 percent share of COM's stock. SRL, for its part, transferred to COM
exclusively "its intangible
assets (i.e., patents and trademarks owned by SRL[)] and allowed COM access to
its list of customers and distributors[,]" which were valued slightly
below the rights transferred by Panatta in order to support SRL's 49 percent
ownership in COM. COM also retained an
SRL officer (Riccardo Piccioli) and various SRL employees (Sebastiano Zannoli,
Giacomo Di Leo and Davide Sanson), including its then export manager (Tomas
Bilardo).
In addition, the private contract between Panatta
and SRL required SRL to change its name to eliminate any reference to the brand
name "Air Machine" and precluded SRL from performing for five years
"any activity" that competed with COM. SRL also agreed to transfer its internet
address to COM so that COM could use and control the "airmachine.it"
email domain and URL. COM also adopted
SRL's web site as its own.
After COM's formation, SRL's 2006 year-end balance
sheet showed that its debts substantially outweighed its revenues; that it lost
over €1.5 million in production costs in 2006; that its operating costs alone
outweighed its revenue; that it owed banks nearly €3 million and suppliers over
€1.5 million; and that a divestiture of assets (e.g., such as to COM) would
leave SRL more than €4.5 million in debt with no recourse for its creditors,
inasmuch as SRL did not transfer any of its liabilities to COM. SRL also reported no bank deposits for the
year ending in 2006.
Although in existence less than a year, the record
shows that COM in April 2007 marketed the "Air Machine systems" on
Air Machine letterhead as a "leader for 20 years in [the] medical and
rehabilitation areas," which utilized the "best" technologies
and equipment "today." In that
particular marketing brochure, other than the name and address of "Air
Machine COM srl" listed in very small font at the top of the page, there
was no mention that COM was a new entity formed by SRL and Panatta.
The record also shows that in mid-April 2007, COM
notified various existing and potential customers about its formation and noted
that it would continue and grow Air Machine's "outstanding and
innovat[ive]" technology, which had a proven track record "[f]or more
than 20 years" in the fitness, health and rehabilitative products
industry.
Similarly, a three-page "company
profile," dated April 2007, stated in all capital letters at the top on
page 1, "AIR MACHINE: since 1985 . . . UNLIKE ANYTHING
ELSE," and then went on to discuss the fact that "Air Machine S.r.l.
started in December 1985 in Cesena," Italy as a fitness company and has
been "operating for more than 20 years" in the fitness market. That profile also stated that "[t]oday,
Air Machine operates [in] both [the] fitness and medical market, through its
dedicated product lines (both cardio and isotonic)" and that the "Air
System" is the "BEST SOLUTION FOR METABOLIC FITNESS." Toward the bottom of page 2 of the company
profile, COM introduces itself as "THE FUTURE" and describes the
"goal of Air Machine" as "bringing fitness to a wider range of
people."
The record shows that various disputes arose
between SRL and Panatta shortly after they formed the joint venture that led to
COM. Rather than litigate, Panatta and
SRL agreed to a settlement (translated from Italian into English) in October
2007, in which Panatta paid SRL €90,000 net to complete the buyout of SRL's
interest in COM. Among other terms of
the settlement, SRL (i) guaranteed that it had transferred to COM all of its
patents and trademarks for Air Machine products and that there existed no other
patents, assets, commercial agreements or legal relationships "useful or
necessary" to produce Air Machine equipment; (ii) assigned to Panatta the
commercial contracts and "whatever else is necessary" for the functioning
of the software used in Air Machine equipment; and (iii) agreed to sell to
Panatta the molds SRL used in the production of the Air Machine equipment.
The record shows that at year-end 2007, COM valued
its intangible assets at €2.006 million, less depreciation.
After SRL sold its 49 percent interest in COM, it
appears SRL wound up its business as evidenced by the fact that its registered
operating facility was empty and in an "abandoned state," that there
was trash collecting outside the building and that a sign on the front door of
the building read, "for sale" and "for rent" (in
Italian). In addition, the database
repository for Italian corporate records and compulsory filings showed no 2007
balance sheet for SRL.
2.
A corporate acquisition constitutes a consolidation
or merger for jurisdictional purposes if a plaintiff demonstrates
predecessor corporation's assets and made available for meeting the claims of
its unsecured creditors; [and] (2) one or more persons were officers,
directors, or stockholders of both corporations. [Citations.]'" (CenterPoint,
supra, 157 Cal.App.4th at p. 1121.) "However, it is not dispositive that
some of the same persons may serve as officers or directors of the two
corporations. The relevant inquiries are
whether the two corporations have preserved their separate identities and
whether recourse to the debtor corporation is available. [Citation.]" (Ibid.)
"In
Marks [v. Minnesota Mining
& Manufacturing Co. (1986)] 187 Cal.App.3d [at page 1436], the
trial court set out a checklist for determining whether a de facto merger had
taken place that would render the successor company liable for the plaintiff's
product liability claim: '(1) was the consideration paid for the assets solely
stock of the purchaser of its parent; (2) did the purchaser continue the same
enterprise after the sale; (3) did the shareholders of the seller become
shareholders of the purchaser; (4) did the seller liquidate; and (5) did the
buyer assume the liabilities necessary to carry on the business of the
seller? [Citations.]'" (CenterPoint,
supra, 157 Cal.App.4th at p.
1121.)
Nonetheless, "'[t]he crucial factor in
determining whether a corporate acquisition constitutes either a de facto
merger or a mere continuation is the
same: whether adequate cash
consideration was paid for the predecessor corporation's assets.' [Citation.]" (CenterPoint,
supra, 157 Cal.App.4th at p. 1121,
italics added.) This is because "a
sale for adequate cash consideration
ensures that at the time of sale there are adequate means to satisfy any claims
made against the predecessor corporation."
(Franklin v. USX Corp. (2001)
87 Cal.App.4th 615, 625, italics added.)
3.
With regard to Panatta, I believe the primary issue
is whether it paid SRL "adequate cash
consideration" when it purchased SRL's shares in COM for €90,000 a little
more than a year after SRL agreed to transfer its intangible assets to COM for
a 49 percent ownership in COM. According
to Sukumar, the value of the assets transferred by SRL to COM was a little more
than €2 million, as reflected in COM's balance sheet in 2007 and in 2008, and
thus he contends the €90,000 cash payment comprised less than 5 percent of the
reported value of those assets.
Panatta claims the €2 million valuation for SRL's
transfer of its Air Machine patents and trademarks was for purposes of SRL's
not a true "cash or market valuation" of the SRL contribution. Panatta also claims that SRL was advised by
its own financial advisors that €90,000 was the fair value of SRL's 49 percent
ownership stake in COM, as also found by the trial court. Based on this evidence, as well as SRL's 2006
year-end balance sheet showing that at the end of 2005, SRL set a value of
€36,390 for the intangible assets it transferred to COM, Panatta claims the
record contains substantial evidence to support the court's finding that
Sukumar failed to carry his burden to show that SRL did not receive adequate
cash consideration from Panatta for the sale of its 49 percent share of COM.
From my review of the entire record, I
independently conclude the trial court erred when it found Sukumar did not
establish that Panatta paid inadequate cash
consideration for SRL's 49 percent stake in COM. (See CenterPoint,
supra, 157 Cal.App.4th at p. 1121;
see also F. Hoffman-LaRoche, Ltd. v.
Superior Court, supra, 130
Cal.App.4th at p. 794 [noting the "ultimate question whether jurisdiction
is fair and reasonable under all the circumstances, based on the undisputed
facts and those resolved by the court in favor of the prevailing party, is a
legal determination warranting independent review."].)
Indeed, the settlement agreement between SRL and
Panatta clearly shows there were a series of commercial disputes between those
two parties regarding COM and its operations.
Those disputes led to a series of payments and setoffs between SRL and
Panatta, as contained in their settlement.
As a result of those disputes and in return for their settlement,
Panatta agreed to pay SRL €90,000 net
in cash. I conclude that the €90,000 sales figure was
not the actual cash value of SRL's 49
percent interest in COM.
I also conclude Panatta's €90,000
payment to SRL was not "adequate cash
consideration" (see CenterPoint,
supra, 157 Cal.App.4th at p. 1121,
italics added) to ensure there were "adequate means to satisfy any claims
made against the predecessor corporation" (see Franklin v. USX Corp., supra,
87 Cal.App.4th at p. 625). I base my
conclusion on the evidence in the record that: (i) SRL had "faced
difficult years of large investments inside [the] company" and that after
SRL sold its interest in COM, it was left with little or no cash assets and
over €4.5 million in debt; (ii) SRL's registered operating facility was "for
sale" and/or "for rent" and appeared abandoned and empty after
the sale; and (iii) on the front end of the transaction, Panatta and SRL valued
SRL's contribution of its intangible assets at about €2 million and that COM
itself subsequently adopted a similar valuation as well.
That SRL may
have received independent financial advice regarding the net value of its 49 percent interest in COM—after taking into
consideration the various commercial disputes between the parties and the
offsets to resolve them—does not change my conclusion.
facto merger when the successor pays insufficient cash consideration for the predecessor's assets, which I conclude
is the case here. (See
Other factors also support my conclusion that SRL
received insufficient cash consideration for its interest in COM, including the
fact that SRL was paid solely in stock for the transfer of its intangible
assets on the front end of the transaction.
(See CenterPoint,
[noting consideration paid only in stock supports a finding of a de facto
merger between the successor and predecessor].)
In addition, the record supports the finding that
Panatta and COM continued the Air Machine enterprise after Panatta purchased
SRL's interest in COM, as reflected by, among other things: (i) the terms of
the parties' agreements (i.e., their private contract and settlement agreement)
where SRL transferred to COM exclusively its patents, trademarks, manufacturing
molds and "know how" in the Air Machine brand and its
customer/distributor lists; (ii) various press and company releases on Air
Machine letterhead stating that Air Machine equipment and product would
continue to be manufactured in Italy as it had been for more than
SRL employees familiar with the Air Machine equipment and product; (iv) COM's
control of the Air Machine website and its internet and email domains; and (v)
SRL's agreement to a stringent five-year noncompete clause in connection with
the Air Machine brand. (See
continuation of the same enterprise of the successor after the sale supports a
finding of de facto merger].)
Finally, the record shows that SRL for all
practical purposes ceased operations and became effectively insolvent at or
near the time it sold Panatta its interest in COM, as evidenced by the
"for sale" and/or "for rent" sign on the door of SRL's
registered operating facility, which was empty and appeared abandoned, and by
its substantial debt. (See
factor supporting a finding of de facto merger].)
many of these same factors support a finding of successor jurisdiction over it
based on the "mere continuation" doctrine, an independent jurisdictional base.
(See McClellan v. Northridge Park
Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 753 [noting this doctrine
applies when, among other factors, all the assets of one corporation are
transferred to another corporation, but the latter "does not pay all the
first corporation's debts[] and continues to carry on the same business"
as the first corporation].)
In sum, after reviewing the entire record and taking
into account "'the totality of the unusual circumstances'" (see
"fairness and equity" (ibid.),
I conclude that Panatta and COM are subject to jurisdiction in California as
successors to SRL.
name="_ftnref9" title="">[9]
their separate motions to quash and direct the court to enter a new order
denying each party's motion.
BENKE, Acting P. J.
name="_ftn1" title="">[1] See Sukumar v. Health
Tech Resources, Inc., et al (Date, 2013, D054985) [nonpub. opn.].
Panatta and COM, on the one hand, and SRL, on the other hand, because at the
same time the trial court granted SRL's motion to quash it denied the separate
quash motions of Panatta and COM. In
denying the motions of Panatta and COM, the court ruled they waived their
jurisdictional challenge by jointly serving Sukumar with a statutory offer to
compromise pursuant to Code of Civil Procedure section 998 ("998
offer") while their challenge to jurisdiction was pending. (SRL did not participate in the 998
offer.) Panatta and COM sought to
overturn that ruling by writ of mandate (Air
Machine v. Superior Court (July 2, 2010, D054878)). We subsequently granted the writ and remanded
the case for the trial court to consider their motions on the merits. Meanwhile, Sukumar separately appealed the
order granting the motion to quash of SRL (D054985). (See fn. 1, ante.) We stayed D054985 pending
the outcome of the quash motions of COM and Panetta, which are the subject of
this opinion.
