Herrera v. Modular Properties CA4/1 ( 2014 )

Filed 12/31/14 Herrera v. Modular Properties CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
EMANUEL HERRERA, D065116
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2011-00092682-
CU-PL-CTL)
MODULAR PROPERTIES, LIMITED,
Defendant and Respondent.
APPEAL from an order of the Superior Court of San Diego County,
Ronald L. Styn, Judge. Affirmed.
The Law Office of Joseph A. Howell and Joseph A. Howell for Plaintiff and
Appellant.
G&P | Schick, Malcolm D. Schick, John G. McKaveney and Danielle C. Loss for
Defendant and Respondent.
Emanuel Herrera sued Modular Properties, Limited (Modular), a British Virgin
Islands company, and several other defendants for injuries suffered after he obtained
treatment at Boston Medical Group (BMG) for premature ejaculation. Modular held the
patent for the treatment method utilized by BMG to treat Herrera. The trial court granted
Modular's motion to quash service of the summons and complaint for lack of personal
jurisdiction. Herrera appeals, contending he made a sufficient showing of Modular's
direct and indirect contacts with California to subject it to personal jurisdiction. Herrera
also argues the trial court abused its discretion by denying his request for a continuance
to complete additional jurisdictional discovery. We find Herrera's arguments unavailing
and affirm the trial court's order.
FACTUAL AND PROCEDURAL BACKGROUND
In 2009, Herrera learned about a treatment for premature ejaculation called the
"Boston Method" on a Web site for BMG. Modular owned the trademark for the Boston
Method and a patent for the treatment method associated with that mark. Modular had
licensed its intellectual property to North American Men's Health (North American) who
in turn licensed it to Boston Men's Health Center (Boston Men). Modular had the ability
to terminate North American's sublicense to Boston Men. Boston Men provided
management services and the use of Modular's intellectual property to BMG. Boston
Men also established the Web site to promote the services of BMG.
Finca Verde was the hundred percent shareholder of North American, which was
the hundred percent shareholder of Boston Men. Quoc Ha and another individual were
the shareholders of Finca Verde. Ha was the president of Boston Men. He was also the
president of Modular until he resigned in 2007. Modular did not have a bank account or
any income.
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After reviewing BMG's Web site, Herrera called the number provided on the Web
site and was connected to a call center in Boston Men's office in Costa Mesa, California.
The call center was part of the Boston Method. Through the Web site, Herrera eventually
made an appointment at the BMG office in San Diego to seek treatment for premature
ejaculation. Dr. Brennan saw Herrera and provided him the Boston Method of treatment.
BMG also sold Herrera a supply of medicine, which he was told would be shipped to
him. Herrera alleged that approximately two weeks after his BMG visit, he received a
package from Meditech Laboratories, Inc. (Meditech) containing the supplies he needed
to administer treatments at home.
Modular had formed Meditech, a pharmacy, which received management services
from Boston Men. Ha was the president of Meditech. Modular created Meditech to
improve patient confidentiality by allowing patients to receive prescriptions by having
them shipped directly to their door. At the time Herrera received treatment at BMG,
Modular did not have an ownership interest in Meditech. Rather, in 2008, Modular sold
its shares in Meditech to Kim Tran.
BMG had access to manuals Modular created for marketing purposes. The
manuals were created several years after Modular's licensing agreement with North
American and placed in medical offices to show potential investors. The manuals
consisted of a compilation of materials from books and other sources Ha and Dr. Sallis,
Modular's president after Ha, collected over time. There was nothing in the manuals that
was considered new or necessary for clinic operations. Around 2007 or 2008, Modular
recalled, destroyed and discontinued the manuals because it did not make any progress in
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attracting investors. Thus, BMG returned the manuals to Boston Men who destroyed
them.
Herrera sued Modular and several other defendants, alleging that after he received
treatment at BMG, he suffered permanent penile deformities and was unable to have
sexual intercourse without the help of medication. Modular moved to quash service of
the summons and complaint against it for lack of personal jurisdiction. In support of its
motion, Modular submitted a declaration from Modular's current president, Imad Masri.
According to Masri, Modular was strictly a holding company and did not have an office
or engage in business in California.
In opposition to the motion, Herrera argued Modular purposefully availed itself of
California's jurisdiction through its direct and indirect acts in the State. Specifically,
Herrera claimed California could assert specific personal jurisdiction over Modular
because its trademarks were used in California, it owned Meditech which supplied a large
portion of BMG's prescriptions including the formula Herrera received, and Modular
acted in California through Meditech, Boston Men, BMG, Ha and Masri. Herrera sought
to establish jurisdiction under the principles of alter ego, agency and the representative
services doctrine.
The trial court granted Modular's motion, finding Modular's knowledge that its
trademarks were used in California was not sufficient to establish jurisdiction; Herrera
failed to establish that Modular purposely directed its activities at the forum; and there
was no evidence that Modular caused Meditech, North American, Boston Men or BMG
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to engage in contacts in California. The trial court also denied Herrera's request for a
continuance to depose Sallis.
DISCUSSION
I. General Legal Principles and Standard of Review
" 'California courts may exercise personal jurisdiction on any basis consistent with
the Constitution of California and the United States. [Citation.] The exercise of
jurisdiction over a nonresident defendant comports with these Constitutions "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.] [¶]
'The concept of minimum contacts . . . requires states to observe certain territorial limits
on their sovereignty. It "ensure[s] that the States, through their courts, do not reach out
beyond the limits imposed on them by their status as coequal sovereigns in a federal
system." ' [Citation.] To do so, the minimum contacts test asks 'whether the "quality and
nature" of the defendant's activity is such that it is "reasonable" and "fair" to require him
to conduct his defense in that State.' [Citation.] The test 'is not susceptible of mechanical
application; rather, the facts of each case must be weighed to determine whether the
requisite "affiliating circumstances" are present.' " (Snowney v. Harrah's Entertainment,
Inc. (2005) 35 Cal. 4th 1054, 1061 (Snowney).)
"Under the minimum contacts test, '[p]ersonal jurisdiction may be either general or
specific.' [Citation.] . . . 'When determining whether specific jurisdiction exists, courts
consider the " 'relationship among the defendant, the forum, and the litigation.' "
[Citation.] A court may exercise specific jurisdiction over a nonresident defendant only
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if: (1) "the defendant has purposefully availed himself or herself of forum benefits"
[citation]; (2) "the 'controversy is related to or "arises out of" [the] defendant's contacts
with the forum' " [citation]; and (3) " 'the assertion of personal jurisdiction would comport
with "fair play and substantial justice" ' " [citation].' " (Snowney, supra, 35 Cal.4th at p.
1062.) The question of purposeful availment focuses on the defendant's intentionality,
and is " 'only satisfied when the defendant purposefully and voluntarily directs [its]
activities toward the forum so that [it] should expect, by virtue of the benefit [it] receives,
to be subject to the court's jurisdiction based on' [its] contacts with the forum."
(Pavlovich v. Superior Court (2002) 29 Cal. 4th 262, 269 (Pavlovich).)
In Pavlovich, the California Supreme Court explained that to establish purposeful
availment, it is generally not enough to assert that a defendant could foresee his or her
conduct would have injurious effects in California. (Pavlovich, supra, 29 Cal.4th at pp.
270-271 ["[M]ost courts agree that merely asserting that a defendant knew or should have
known that his intentional acts would cause harm in the forum state is not enough to
establish jurisdiction . . . ."] & fn. 1; e.g., Burger King Corp. v. Rudzewicz (1985) 471
U.S. 462, 474, fn. and italics omitted ["Although it has been argued that foreseeability of
causing injury in another State should be sufficient to establish such contacts there when
policy considerations so require, the Court has consistently held that this kind of
foreseeability is not a 'sufficient benchmark' for exercising personal jurisdiction."].) The
California Supreme court requires "additional evidence of express aiming or intentional
targeting" to establish personal jurisdiction. (Pavlovich, at p. 273.)
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A plaintiff opposing a motion to quash service of process for lack of personal
jurisdiction has the initial burden to demonstrate facts establishing a basis for personal
jurisdiction. (Snowney, supra, 35 Cal.4th at p. 1062; HealthMarkets, Inc. v. Superior
Court (2009) 171 Cal. App. 4th 1160, 1167-1168 (HealthMarkets).) If the plaintiff
satisfies that burden, the burden shifts to the defendant to show the exercise of
jurisdiction would be unreasonable. (HealthMarkets, at p. 1168; Snowney, at p. 1062.)
" 'On review, we apply our independent judgment to the ultimate question of
jurisdiction, but to the extent that the question of jurisdiction turns on factual issues, we
are bound by the trial court's findings of fact if they are supported by substantial
evidence. [Citations.] We have no power to substitute our own assessment of the facts
for that of the trial court if substantial evidence supports [its] finding. [Citation.] That is
a trial court function, not one for us as an appellate court.' " (CenterPoint Energy, Inc. v.
Superior Court (2007) 157 Cal. App. 4th 1101, 1119; see also HealthMarkets, supra, 171
Cal.App.4th at p. 1168.)
II. Specific Jurisdiction
Herrera makes various arguments to support his position that California can assert
specific personal jurisdiction over Modular based on its direct contacts with the State, its
relationship to Meditech, alter ego principles, agency, and the representative services
doctrine. As we shall explain, we reject these arguments.
A. Direct Contacts
Herrera argues California can assert personal jurisdiction over Modular because its
trademarks were used in California, its intellectual property was advertised in California,
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the advertisements showing BMG's California locations were included in Modular's
trademark application to the United States Patent and Trademark Office, and Modular's
manuals were placed in California medical offices to secure investors.
In order to determine if Modular purposefully availed itself of California's
jurisdiction, we must determine whether it intentionally directed its activities toward the
forum so that it should expect by virtue of the benefits it received to be subject to the
court's jurisdiction. (Pavlovich, supra, 29 Cal.4th at p. 269.) Purposeful availment
requires more than foreseeability of harm in the forum state. (Id. at pp. 270-271.)
Rather, there must be additional evidence that the defendant expressly aimed or
intentionally targeted its activities at the forum. (Id. at p. 273.)
Here, Herrera failed to present sufficient evidence that Modular directed its
activities at the forum such that it should expect to be subject to the court's jurisdiction.
Although Modular's trademark, the Boston Method, was used in California, the record
lacks evidence that Modular itself specifically directed its activities toward the forum.
Instead, Modular licensed its treatment method to North American who in turn licensed it
to Boston Men. Boston Men provided management services and the use of Modular's
intellectual property to BMG. Boston Men also promoted BMG through a Web site. We
find no evidence in the record that Modular itself directly advertised or promoted the
Boston Method in the forum. Rather, it appears Modular was merely a holding company.
We are also not convinced that Modular's inclusion of advertisements showing
BMG's California locations in its trademark application to the United States Patent and
Trademark Office subjects it to California's jurisdiction. That evidence is not sufficient
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to show that Modular expressly aimed or intentionally targeted its activities at the forum.
Instead, it shows other entities used the Boston Method mark in commerce.
Similarly, Modular's placement of manuals in California medical offices does not
subject it to jurisdiction. The manuals were intended to obtain investors and did not
contain anything new or necessary for clinic operations. Importantly, around 2007 or
2008, Modular recalled, discontinued and destroyed the manuals. Accordingly, at the
time of Herrera's injury in 2009, the manuals were no longer in use at California medical
offices.
Based on the foregoing, we conclude Herrera failed to demonstrate a basis for
personal jurisdiction based on Modular's direct contacts with California.
B. Modular's Relationship to Meditech
Herrera asserts California can assert personal jurisdiction over Modular because of
its ownership and involvement with Meditech. We reject this argument.
Modular sold its stock in Meditech to Kim Tran in 2008. Thus, at the time Herrera
received treatment at BMG and any prescriptions from Meditech, Modular no longer had
an ownership interest in Meditech. Even if Modular did own Meditech during the
relevant time period, it is well settled that the mere ownership or control of a subsidiary
operating within a state does not show purposeful availment or justify the imposition of
jurisdiction over the parent in that state. (Sonora Diamond Corp. v. Superior Court
(2000) 83 Cal. App. 4th 523, 540-542 (Sonora Diamond).) Instead, a court must find that
the parent itself has "purposefully availed itself of the protection and benefits of the
forum state" (Id. at p. 552) or that there exists an alter ego or agency relationship between
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the parent and subsidiary. (Id. at pp. 541-542.) Accordingly, we next consider principles
of alter ego and agency.
C. Alter Ego
"Ordinarily, a corporation is regarded as a legal entity, separate and distinct from
its stockholders, officers and directors, with separate and distinct liabilities and
obligations. . . . Under the alter ego doctrine, . . . when the corporate form is used to
perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or
inequitable purpose, the courts will ignore the corporate entity and deem the corporation's
acts to be those of the persons or organizations actually controlling the corporation, in
most instances the equitable owners. . . . [¶] In California, two conditions must be met
before the alter ego doctrine will be invoked. First, there must be such a unity of interest
and ownership between the corporation and its equitable owner that the separate
personalities of the corporation and the shareholder do not in reality exist. Second, there
must be an inequitable result if the acts in question are treated as those of the corporation
alone." (Sonora Diamond, supra, 83 Cal.App.4th at p. 538.)
" 'Among the factors to be considered in applying the doctrine are commingling of
funds and other assets of the two entities, the holding out by one entity that it is liable for
the debts of the other, identical equitable ownership in the two entities, use of the same
offices and employees, and use of one as a mere shell or conduit for the affairs of the
other.' [Citations.] Other factors which have been described in the case law include
inadequate capitalization, disregard of corporate formalities, lack of segregation of
corporate records, and identical directors and officers. [Citations.] No one characteristic
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governs, but the courts must look at all the circumstances to determine whether the
doctrine should be applied." (Sonora Diamond, supra, 83 Cal.App.4th at pp. 538-539.)
Here, to support his alter ego argument, Herrera points to evidence that Modular
did not have a bank account, Boston Men paid for some of Modular's business expenses,
Modular shared office space with North American and Boston Men, and Ha was an
officer or director of Boston Men, Modular and Meditech.
However, Herrera did not establish the essential elements of the alter ego doctrine.
First, there is no evidence that Modular had an ownership interest in North American,
Boston Men, or BMG or that there was a unity of interest among them. Rather, the
evidence shows that Modular never held stock in those entities. Further, in regard to
Meditech, Modular transferred its stock to Tran in 2008, before Herrera's injuries.
Moreover, interlocking officers and directors is insufficient to rebut the presumption of
corporate separateness. (Sonora Diamond, supra, 83 Cal.App.4th at pp. 548-549.)
Second, Herrera failed to show an inequitable result from the recognition of
Modular as a separate entity. Herrera claims injustice would result if Modular was not a
defendant in this case because Ha would unilaterally terminate the licensing agreement,
pay out accrued royalties and leave himself, North American, and Boston Men insolvent
to judgment debtors. "The alter ego doctrine does not guard every unsatisfied creditor of
a corporation but instead affords protection where some conduct amounting to bad faith
makes it inequitable for the corporate owner to hide behind the corporate form.
Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard."
(Sonora Diamond, supra, 83 Cal.App.4th at p. 539.) In this case, even if Herrera
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established he would be an unsatisfied creditor, which he has not, that is insufficient to
satisfy the alter ego doctrine.
Based on the foregoing, we conclude Herrera failed to establish that California had
jurisdiction over Modular based on alter ego principles.
D. Agency
With respect to agency, there is a presumption of corporate separateness between
parent and subsidiary that must be overcome by clear evidence that the parent, in fact,
controls the activities of the subsidiary. (Sonora Diamond, supra, 83 Cal.App.4th at pp.
540-542.) Mere ownership or control, without more, does not subject the parent to
jurisdiction. (Id. at p. 540.) " 'Control' in this context means the degree of direction and
oversight normal and expected from the status of ownership; it comprehends such
common characteristics as interlocking directors and officers, consolidated reporting, and
shared professional services. [Citations.] The relationship of owner to owned
contemplates a close financial connection between parent and subsidiary and a certain
degree of direction and management exercised by the former over the latter." (Sonora
Diamond, at pp. 540-541.) However, "where the nature and extent of the control
exercised over the subsidiary by the parent is so pervasive and continual that the
subsidiary may be considered nothing more than an agent or instrumentality of the parent,
notwithstanding the maintenance of separate corporate formalities, jurisdiction over the
parent may be grounded in the acts of the subsidiary/agent." (Id. at p. 541.)
Here, Herrera asserts California can assert jurisdiction over Modular based on
agency principles because Modular indirectly promoted its brand through Boston Men
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and Masri and caused its intellectual property to be placed in BMG's clinic to attract
investors. Even if true, these facts do not demonstrate that Modular exercised such a
degree of control over Boston Men or BMG such that those entities were nothing more
than agents of Modular. (Sonora Diamond, supra, 83 Cal.App.4th at p. 541.) Similarly,
the evidence did not establish the necessary degree of control over Meditech to show it
was an agent of Modular.
Herrera asserts jurisdiction based on agency is proper because the facts in this case
are similar to Anglo Irish Bank Corp., PLC v. Superior Court (2008) 165 Cal. App. 4th
969 (Anglo Irish). In that case, the court found specific jurisdiction over two foreign
banks and a foreign trust company based on the activities of the managing director of one
of the banks, the head of offshore trust operations for the other bank, and the managing
director of the trust company. (Id. at pp. 975-976, 984.) Those individuals, at the
direction of defendants, visited California for the purpose of soliciting investments for the
defendants. (Id. at p. 984.) The Anglo Irish court concluded the defendants availed
themselves of the forum's benefits because they "purposefully directed their activities at
California residents by and through the individuals who visited California on their
behalf." (Ibid.)
In the instant case, Herrera failed to present facts analogous to Anglo Irish. He
does not point to evidence that Modular controlled the activities of Boston Men, BMG or
Meditech for its benefit. Further, Herrera did not establish that Modular caused Boston
Men, BMG or Meditech to engage in forum contacts. The evidence Herrera relies upon
is not of such a nature that would allow California to assert jurisdiction over Modular.
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E. Representative Services Doctrine
Herrera argues California should assert jurisdiction over Modular based on the
representative services doctrine, a variation of agency. We reject this argument.
"The [representative services] doctrine supports the exercise of jurisdiction when
the local subsidiary performs a function that is compatible with, and assists the parent in
the pursuit of, the parent's own business, but the doctrine does not support jurisdiction
where the parent is merely a holding company whose only business pursuit is the
investment in the subsidiary. . . . '[I]f a parent uses a subsidiary to do what it otherwise
would have done itself, it has purposely availed itself of the privilege of doing business in
the forum. Jurisdiction over the parent is therefore proper. [Citations.] This contrasts to
the case of a holding company. In such a case, the subsidiary is not performing a
function that the parent would otherwise have had to perform itself (the holding company
could simply hold another type of subsidiary). In such a case, imputing jurisdictional
contacts would be improper.' " (Sonora Diamond, supra, 83 Cal.App.4th at p. 543.)
The representative services doctrine does not apply in this case because Herrera
did not establish that Modular was more than a holding company or that it engaged in
business operations other than licensing its intellectual property to others. We find no
indication in the record that BMG, Boston Men, Meditech or any other relevant entity
performed functions that Modular would have otherwise performed itself. Accordingly,
jurisdiction over Modular based on the representative services doctrine would be
improper.
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III. Request for Continuance
Herrera argues the trial court abused its discretion in denying his request for a
continuance to complete jurisdictional discovery, namely to take Sallis's deposition.
We apply an abuse of discretion standard of review to the trial court's decision to
deny Herrera a continuance in order to conduct discovery. (In re Automobile Antitrust
Cases I & II (2005) 135 Cal. App. 4th 100, 127 (In re Automobile Antitrust) ["A ruling on
a motion to continue in order to allow additional time to discover jurisdictional facts lies
in the trial court's discretion. . . . [W]e will not reverse . . . unless we find a manifest
abuse of that discretion."].)
"In order to prevail on a motion for a continuance for jurisdictional discovery, the
plaintiff should demonstrate that discovery is likely to lead to the production of evidence
of facts establishing jurisdiction." (In re Automobile Antitrust, supra, 135 Cal.App.4th at
p. 127; see also Beckman v. Thompson (1992) 4 Cal. App. 4th 481, 487 [trial court did not
err in denying a continuance to pursue jurisdictional discovery where "[i]n light of the
showings already made, the court could reasonably conclude further discovery would not
likely lead to production of evidence establishing jurisdiction"].)
Here, Herrera moved to compel Sallis's deposition, asserting Sallis was Modular's
person most knowledgeable for day-to-day affairs between 2007 and 2009. The trial
court denied the motion, finding Herrera failed to provide authority requiring Modular to
produce Sallis, a former officer. Thereafter, in his opposition to Modular's motion to
quash, Herrera argued the court should defer its ruling until he had an opportunity to
depose Sallis. The court denied this request.
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Herrera argues he needed Sallis's deposition because Sallis would "likely provide
evidence of and insight, as to Modular's ownership of Meditech" and the circumstances
surrounding the placement and removal of manuals in BMG's clinic. Herrera failed to
explain how Sallis's testimony would establish jurisdiction in light of the evidence
already produced. Thus, the trial court was well within its discretion in denying Herrera's
request for a continuance.
DISPOSITION
The trial court's order is affirmed. Modular is entitled to costs on appeal.
MCINTYRE, J.
WE CONCUR:
MCCONNELL, P. J.
AARON, J.
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