Preview
Filed
13 March 19 P4:10
Gary Fitzsimmons
District Clerk
Dallas District
March 19, 2013
The Honorable Dale Tillery VIA ELECTRONIC SERVICE
134TH DISTRICT COURT
George L. Allen, Sr. Courts Bldg.
600 Commerce Street, Suite 650
Dallas, Texas 75202
RE: U.S. Merchants Financial Group, Inc. v. Martin, Cause No. 10-15757,
In the 134th Judicial District Court, Dallas, County, Texas.
Judge Tillery:
During the hearing on Defendant’s Motion for Reconsideration, the Court made the
following inquiries and rulings:
If US Merchants established alter ego by a preponderance of the evidence, was it entitled
to a jurisdictional ruling in its favor? If so, then US Merchants had an adequate remedy by
appeal.
Does alter ego in the personal jurisdiction context require proof of different elements or
proof of those elements beyond a preponderance of the evidence standard? If not, US Merchants’
claim in Texas is barred by collateral estoppel.
Upon review of US Merchants’ arguments before the California Court, the ultimate
ruling of that Court, and the bases for that ruling, it is clear that (1) US Merchants would have
received a jurisdictional ruling in its favor if it established, by a preponderance of the evidence,
that Martin was Synergy’s alter ego and (2) alter ego in the personal jurisdiction context does not
require proof of different elements or require US Merchants to establish those element beyond a
preponderance of the evidence standard.
I. Had US Merchants established alter ego by a preponderance of the evidence,
it would have received a jurisdictional ruling in its favor.
A. Alter ego is a valid basis for assertion of personal jurisdiction in
California.
Contrary to its argument before the California Court, US Merchants now contends that
“California Courts reject the use of alter ego to assert personal jurisdiction.” Ltr. Br. at 2. US
Merchants is wrong. It relies on HealthMarkets, Inc. v. Superior Court, 171 Cal. App. 4th 1160,
The Honorable Dale Tillery
March 19, 2013
Page 2
1169 (Cal. Ct. App. 2009) and Anglo Irish Bank Corp., PLP v. Superior Court, 165 Cal. App. 4th
969 (Cal. Ct. App. 2008) to support this contention. But since those two cases, California Courts
have considered alter ego as a basis to assert personal jurisdiction over nonresident defendants.
See Hollander v. XL Insurance (Bermuda) Ltd., No. B230807, 2012 WL 4748956, at *8-9 (Cal.
Ct. App., Oct. 5, 2012); Orthotec, LLC v. Surgiview, S.A.S., No. B216656, 2010 WL 5095303, at
*9 (Cal. Ct. App., Dec. 15, 2010). Because the alter ego doctrine is an extreme remedy that is
sparingly used in California, however, both courts found that the plaintiff had failed to establish
alter ego factors by a preponderance of the evidence. The courts, therefore, refused to assert
personal jurisdiction based on the alter ego theory.
In Hollander, the trial court granted a non-resident parent company’s motion to quash
service for lack of personal jurisdiction. In affirming this ruling, the appellate court reviewed the
alter ego elements and found that the plaintiff failed to establish general jurisdiction over the
parent company based upon the alter ego theory:
Alter ego is a method by which the corporate form will be
disregarded where (1) there is such a unity of interest and
ownership between the corporation and its equitable owner such
that the separate personalities of the corporation and the equitable
owner in reality do not exist; and (2) there is an inequitable result
in treating the acts of the corporation as those of the corporation
alone. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.
App. 4th 523, 538 (Sonora).) Factors to consider in applying the
doctrine include commingling of funds and other assets of the two
entities; ostensible liability of one entity for the debt of another;
identical ownership of the two entities; use of the same offices and
employees; inadequate capitalization; disregard of corporate
formalities; and identical directors and officers. (Id. at pp. 538–
539.) Alter-ego can be a basis for finding jurisdiction. (F.
Hoffman–La Roche, Ltd. v. Superior Court (2005) 130 Cal. App.
4th 782, 796 (F. Hoffman–La Roche).) Here, however, the
Hollanders have not established that XLIB is the alter ego of XL
Capital or XL Specialty such that the corporate form should be
disregarded: They presented no evidence, other than the
existence of a parent/subsidiary relationship and asserted
sharing of revenue, that there was commingling of funds and
assets, identical ownership, use of the same offices or employees,
inadequate capitalization, or identical officers and directors.
2012 WL 4748956, at *8 (emphasis added).
In Orthotec, a judgment creditor sued, among others, the non-resident parent company of
an entity that acquired assets of the judgment debtor, alleging that it participated in a scheme to
fraudulently transfer the judgment debtor’s assets with the intent of preventing it from collecting
The Honorable Dale Tillery
March 19, 2013
Page 3
on its judgment against the judgment debtor.1 The subsidiary was “in the business of purchasing
companies in the orthopedic device industry, using their management and organizational
expertise to increase value, and then selling those businesses to third parties at a profit.” Id. at
*9. The trialcourt granted the parent company’s motion to quash service for lack of personal
jurisdiction. The appellate court affirmed because the judgment creditor “provided no evidence
that [the companies the subsidiary purchased] [we]re agents or alter egos of the [parent
company] or that the [parent company] w[as] involved in the day-to-day management of those
companies. Indeed, the undisputed evidence is that each company is a separate corporate entity
with distinct management teams.” Id. at *8.
As in Hollander and Orthotec, had US Merchants established alter ego by a
preponderance of the evidence, it would have been entitled to a jurisdictional ruling in its favor.
US Merchants’ reliance on HealthMarkets and Anglo Irish to argue otherwise is misplaced. In
Anglo Irish, the trial court determined that the nonresident defendants “each had sufficient
contacts with the State of California to be subject to specific jurisdiction.” 165 Cal. App. 4th at
977. The appellate court disagreed and held that actions “undertaken on behalf of a defendant
could be attributed to that defendant for purposes of personal jurisdiction if the defendant
purposefully directed those activities toward the forum state.” Id. at 981 (emphasis added). In
analyzing whether the defendants had purposely directed activities toward the forum state, the
appellate court stated that although in some circumstances the alter ego analysis would mirror the
purposeful availment analysis, those circumstances were not before the court. Id. at 983, n.12.
The alter ego issue was clearly not before the appellate court and was not relevant to the issue
before that court. Therefore, the Anglo Irish holding has no bearing on the California Court’s
resolution of the alter ego issue presented in this case. Quoting some of the dicta from Anglo
Irish, the appellate court in HealthMarkets held that mere ownership of a subsidiary is
2
insufficient to create personal jurisdiction. 171 Cal. App. 4th 1169-70. This too has no bearing
on the analysis at issue in this case. In light of the holdings is Hollander and Orthotec, it is clear
that the California courts treat the language in Anglo Irish and HealthMarkets as dicta as well.
They continue to analyze alter ego as a valid theory of personal jurisdiction when it is properly
presented and proved. Had US Merchants established alter ego by a preponderance of the
evidence, the California Court would have asserted personal jurisdiction over Martin.
B. US Merchants argued alter ego was a valid basis for jurisdiction in the
California Court, but failed to meet its burden of proof on that theory.
In opposing Martin’s motion to quash, US Merchants advanced alter ego as a theory
under which the California Court could assert personal jurisdiction over Martin:
Numerous cases have held that if the defendant is the alter ego of a
company that is subject to jurisdiction in California, then the
1
Tellingly, the judgment creditor filed a substantially similar lawsuit in New York against this defendant. “The
New York trialcourt dismissed the complaint, finding the California trialcourt had determined [the judgment
creditor] could not demonstrate any fraudulent transfer and that ruling operated to collaterally estop [the judgment
creditor] from arguing otherwise.” Orthotec, 2010 WL 5095303 at *3, n.7.
2
Martin agrees with thisholding, especially since the mere ownership of a subsidiary, without exercise of the
requisite control, is also insufficient to establish alter ego.
The Honorable Dale Tillery
March 19, 2013
Page 4
defendant is also subject to jurisdiction in California. See, e.g.,
Madison, Iver & York v. Black, 176 Cal. App. 4th 36 (2009)
(holding that ‘“the trial court[,] having acquired jurisdiction of [a
company,] must likewise be held to have acquired jurisdiction of
its alter ego,’” and to deny jurisdiction would “‘place a premium
upon acts and conduct which have misled a litigant, and frustrate
the very purpose of our jurisprudence’”) (quoting Mirabito v. S.F.
Dairy Co., 8 Cal. App. 2d 54 ( 1935)); see also Rollins Burdick
Hunter of S. California, Inc. v. Alexander & Alexander Services,
Inc., 206 Cal. App. 3d 1, 9 (1988) (holding that jurisdiction exists
over an alter ego). Accordingly, if Martin is the alter ego of
Synergy, then there is jurisdiction over Martin.
Pl.’s Opp. at 5 (emphasis added). The California Court agreed that alter ego was a valid basis for
assertion of personal jurisdiction, but like the courts in Hollander and Orthotec, determined that
US Merchants failed to prove this theory:
I WANT TO THANK THE PARTIES FOR THE PAPERS. THE
COURT DID READ THOSE PAPERS. WE’RE HERE FOR A
MOTION TO QUASH THE SERVICE OF PROCESS FOR
LACK OF PERSONAL JURISDICTION. . . THIS IS LOUIS
MARTIN, JR.’S, MOTION TO QUASH THE SUMMONS . . . .
WHEN A NON-RESIDENT DEFENDANT CHALLENGES
PERSONAL JURISDICTION, THE BURDEN SHIFTS TO THE
PLAINTIFF TO DEMONSTRATE BY A PREPONDERANCE
OF EVIDENCE THAT THE NECESSARY JURISDICTIONAL
CRITERION IS SATISFIED. AND YOU HAVE THE ZILLA
CASE, 1988 CASE. THUS, PLAINTIFF BEARS THE BURDEN
OF ESTABLISHING PERSONAL JURISDICTION.
PLAINTIFF CONTENDS THAT THERE ARE TWO BASES
OF JURISDICTION OVER MARTIN -- ONE, THE ALTER
EGO OF SYNERGY; AND, TWO, BY CAUSING A SECOND
PERSON OR ENTITY TO ENGAGE IN FORUM CONTACTS
IN CALIFORNIA . . . .
PLAINTIFF ARGUES THAT PERSONAL JURISDICTION
OVER MARTIN IS PROPER, BECAUSE MARTIN IS THE
ALTER EGO OF SYNERGY. THE ALTER EGO IS EXTREME
REMEDY THAT’S FAIRLY (sic) USED, AND YOU HAVE
SONORA DIAMOND CASE, 2000, 83 CAL.APP.4TH, TO
ESTABLISH THAT.
PERSONAL JURISDICTION OVER ONE ENTITY MAY NOT
BE EXTENDED TO ANOTHER, ABSENT EVIDENCE
ESTABLISHING A VARIETY OF FACTORS AND THE
The Honorable Dale Tillery
March 19, 2013
Page 5
COURT NOTES THAT THE MERE INCLUSION IN A
COMPLAINT OF AN ALTER EGO ALLEGATION DOES NOT
GIVE THE TRIAL COURT JURISDICTION OVER THE
DEFENDANT AGAINST WHOM THE ALLEGATIONS ARE
DIRECTED. IT IS THE PLAINTIFF’S BURDEN TO PROVE
THAT MARTIN IS THE ALTER EGO TO ESTABLISH IT
OVER WHOM THE COURT HAS JURISDICTION. THE
PLAINTIFF HAS FAILED TO MEET ITS BURDEN TO
SHOW THAT MARTIN IS THE ALTER EGO OF SYNERGY. .
. . PLAINTIFF PROVIDES NO EVIDENCE THAT MARTIN
WAS A PRINCIPAL SHAREHOLDER. IN FACT,
ACCORDING TO MARTIN AND CLARK, HE WAS ONLY A
MINORITY SHAREHOLDER. YOU HAVE THE MARTIN
DEPOSITION AND THE CLARK DECLARATION.
ACCORDING TO THE EVIDENCE, CLARK WAS MARTIN’S
BOSS. AND YOU HAVE MARTIN DEPOSITION ON PAGE
25. ACCORDING TO CLARK, MARTIN DID NOT EXERCISE
CONTROL OVER SYNERGY, NOR DID HE DIRECT THE
COMPANY'S ACTIONS, CLARK DECLARATION,
PARAGRAPH 3. THERE’S NO EVIDENCE TO ESTABLISH
HE HAD ANY INTEREST BETWEEN MARTIN AND
SYNERGY.
PLAINTIFF ARGUES THAT SYNERGY WAS NEVER
CAPITALIZED. ALTHOUGH THIS IS ONE FACTOR,
PLAINTIFF MUST STILL ESTABLISH IT HAD ANY
INTEREST AND OTHER FACTS TO ESTABLISH THAT
MATTER. THE PLAINTIFF HAS FAILED TO MEET ITS
BURDEN IN THIS MATTER TO ESTABLISH THE ALTER
EGO FOR JURISDICTIONAL PURPOSES. DEFENDANT
MARTIN'S MOTION TO QUASH SUMMONS FOR LACK OF
PERSONAL JURISDICTION IS GRANTED. THE
PREVAILING PARTY TO GIVE NOTICE.
Hrg. Trans. 1:23-6:9. (emphasis added). There is no doubt that had US Merchants proved, by a
preponderance of the evidence, that Martin was Synergy’s alter ego, the California Court would
have asserted personal jurisdiction over him.
The argument that US Merchants now makes in its letter brief was also made as an
alternative basis for jurisdiction to the California Court:
The second basis for jurisdiction in this case was set forth
in Anglo Irish Bank Corp. v. Sup. Ct., 65 Cal. App. 4th 969 (2008).
There, the court held that, although several courts base jurisdiction
on alter ego status, courts also may base jurisdiction on a finding
that the “defendant has purposely directed its activities at the
The Honorable Dale Tillery
March 19, 2013
Page 6
forum state by causing a separate person or entity to engage in
forum contacts.” This jurisdictional analysis “does not turn on the
specific state law requirements of alter ego or agency, although the
inquiry may be similar in some circumstances.” Id.
Although both bases for jurisdiction are available, and
although several recent decisions, including those cited above,
continue to support jurisdiction based on alter ego status, the courts
are increasingly relying on the second basis for jurisdiction
discussed above - directing the acts of a company doing business
in California, Given this trend, the second reason is discussed first
below.
Pl.’s Opp. at 5 (emphasis added). The Court considered and rejected that basis as well. See Hrg.
Trans. 3:2-5:1 (holding “Plaintiff has not met its burden to establish jurisdiction over Martin
under the Anglo Irish Bank analysis.). Because that issue was necessarily decided by the
California Court, US Merchants is barred from re-litigating it as well. If US Merchants believed
the California Court erred, then its remedy was to seek reconsideration of or appeal the ruling.
See Hollander, 2012 WL 4748956, at *8-9 (plaintiff appealed trial court’s order quashing service
of their summons and complaint for lack of personal jurisdiction); Orthotec, 2010 WL 5095303,
at *9 (same).
II. Establishing alter ego for jurisdictional purposes requires proof of the
same elements by a preponderance of the evidence as establishing alter
ego cause of action.
“When a non-resident defendant challenges personal jurisdiction, the burden shifts to the
plaintiff to demonstrate by a preponderance of the evidence that the necessary jurisdictional
criterion is satisfied.” Hrg. Trans. 2:18-22. The “jurisdictional criterion” that US Merchants was
required to satisfy to establish its alter ego theory are the same requirements it needed to
establish for its alter ego cause of action. See Sonora Diamond Corp. v. Superior Court, 83 Cal.
App. 4th 523, 538-39 (Cal. Ct. App. 2000) (personal jurisdiction case holding two conditions
required to invoke the alter ego doctrine are (1) “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” and (2) “there must be an inequitable
result if the acts in question are treated as those of the corporation alone”).
Whether in the context of personal jurisdiction or otherwise, California Courts consider
the following factors in determining whether the alter ego doctrine applies: “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, . . . inadequate
capitalization, disregard of corporate formalities, lack of segregation of corporate records, and
identical directors and officers.” Id.; Encore Elecs., Inc. v. Amapex, Inc., No. B223437, 2011
WL 3612153, at *5 (Cal. Ct. App. Aug. 17, 2011) (setting forth same alter ego elements and
The Honorable Dale Tillery
March 19, 2013
Page 7
factors in determining merits of alter ego claim); S. J. Amoroso Const. Co., Inc. v. Knecht, No.
B214595, 2010 WL 2951456, at *2-3 (Cal. Ct. App. July 29, 2010) (same).
Because US Merchants was entitled to a jurisdictional ruling in its favor if it established
alter ego by a preponderance of the evidence, it had an adequate remedy by appeal. Moreover,
establishing alter ego in the personal jurisdiction context requires the same proof by the same
preponderance of the evidence standard as establishing the merits alter ego liability. Therefore,
under California law, US Merchants’ suit is barred by collateral estoppel and is therefore barred
in Texas under Tex. Civ. Prac. & Rem. Code §16.066.
Respectfully submitted
LaKeisha M. Forté
Att.: Additional California Authority
cc: William D. Dunn
ddunn@dunnsheehan.com
Encore Electronics, Inc. v. Amapex, Inc., Not Reported in Cal.Rptr.3d (2011)
predecessor corporations, including Kaion, unsuccessfully
sought to obtain an exclusive distributorship agreement with
Not Officially Published
RJ for Encore products in Paraguay. In July 2008, after it
(Cal. Rules of Court, Rules 8.1105 and 8.1110, 8.1115)
was unable to obtain this agreement and RJ stopped making
2011 WL 3612153
payments, defendants in turn refused to pay Encore for
Only the Westlaw citation is currently available.
product they had purchased from it.
California Rules of Court, rule 8.1115, restricts
citation of unpublished opinions in California courts.
1. Pretrial Proceedings.
Court of Appeal, Second District, Division 1, California. Encore's operative firstamended complaint alleged that
in 2008, Encore entered into a series of oral agreements
ENCORE ELECTRONICS, for the sale of goods to Amapex in the total amount of
INC., Plaintiff and Appellant, $1,316,903.48. 1 Pae and Kim, acting on behalf of Amapex,
v. delivered checks to Encore for payment of the goods, but
AMAPEX, INC., et al., Defendants and Respondents. defendants Pae and Kim stopped payment on the checks
before Encore could negotiate the checks. Encore alleged
No. B223437. | (Los Angeles County defendants did so to coerce Encore into the exclusive
Super. Ct. No. KC053478). | Aug. 17, 2011. distribution agreement. Encore's First Amended Complaint
stated claims against Kaion Corporation (Kaion), Kaivest
APPEAL from a judgment of the Superior Court of Los
Corporation (Kaivest), Amapex, Pae and Kim based on
Angeles County. Peter Joseph Meeka, Judge. Affirmed.
deceit, negligent misrepresentation, breach of contract, goods
Attorneys and Law Firms sold and delivered, quantum valebant, open book account,
account stated, and negligence, and sought punitive damages.
Law Offices of Vincent Y. Lin and Vincent Y. Lin for Liability was also premised on the theory that Kim and Pae
Plaintiff and Appellant. were the alter egos of the three defendant corporations.
No appearance for Defendants and Respondents. 1 The first amended complaint stated claims against for
Opinion deceit, negligent misrepresentation, breach of contract,
goods sold and delivered, quantum meruit, open book
JOHNSON, J. account, account stated,and negligence, and sought
punitive damages. Although Amapex answered the First
*1 Plaintiff Encore Electronics, Inc. (Encore) prevailed Amended Complaint, its answer is not part of the record.
on its contract-based claims against defendants Kaion
Amapex cross-complained against Encore, alleging that
Corporation, Amapex Corporation, and Jason Pae arising
Encore, through its president Austin Huang, agreed in
from a sales agreement, and the trial court awarded it
connection with the sale of electronic equipment to
$1,307,349. Encore contends the trial court erred in failing
defendants, that Encore would give RJ the exclusive
to enter judgment against a defaulted defendant, Kaivest
distribution rights of Encore merchandise in Paraguay.
Corporation, and in failing to find defendant Allen Kim was
Amapex sought $1,348,960 in damages.
the alter ego of the corporate defendants. We affirm.
On September 1, 2009, Encore applied for entry of default
and obtained defaults against defendants Kaion Corporation
FACTUAL BACKGROUND and Kaivest Corporation. This left the matter pending against
AND PROCEDURAL HISTORY Amapex, Pae, and Kim.
Encore buys and sells electronic computer components. On December 17, 2009, the trialcourt granted summary
Amapex, Inc. (Amapex) bought computer and electronic judgment in favor of Encore on itsthird, fourth and fifth
parts from Encore and sold them to an entity known as causes of action (for breach of contract, goods sold and
RJ International, Inc. (RJ) in Paraguay. Jason Pae (Pae) delivered, and quantum valebant) against Amapex and Pae
and Allen Kim (Kim), acting on behalf of Amapex and its on a theory of alter ego liability,
and denied summary
© 2013 Thomson Reuters. No claim to original U.S. Government Works. 1
Encore Electronics, Inc. v. Amapex, Inc., Not Reported in Cal.Rptr.3d (2011)
adjudication on the issue of whether Kim was the alter ego Pae met Tommy Huang of Encore in 1996, and started
of Amapex. The court granted Encore's unopposed motion business with Encore the same year.
for summary adjudication on Amapex's cross-complaint,
disposing of Amapex's cross-claims. Encore dismissed the Encore never sold directly to RJ. In early 2008, RJ had
second, sixth, seventh and eighth causes of action. begun to complain about Encore. Pae and Kim decided
to spin off Amapex to take care of the RJ business, and
told Encore of their plans in January 2008. Pae intended to
2. Trial, Default Prove–Up and Judgment. capitalize it with $400,000. Kim helped him out financially
*2 Trial commenced January 19, 2010 on the remaining when invoices came due if he did not have sufficient funds,
first cause of action for fraud against Amapex, Pae, and Kim. although Amapex would solely be Pae's company.
Simultaneously and by supplemental bench trial,plaintiffs
sought to establish that Kim was the alter ego of Amapex on In Pae's opinion, Encore understood the relationship and
those claims where Encore had obtained summary judgment changes with Interage, Kaion, and Amapex. In 2004, Interage
in its favor. Encore also put on evidence for its default prove- did about $100 million in business, and Encore's portion was
up hearings against Kaion and Kaivest. about 10 percent of that. Interage had a judgment against it
and had to shut down.
The evidence at trial established Pae formed Amapex in
February 2008 and was the president and sole owner. Amapex Amapex's first order from Encore was in February 2008. It
operated out of a house in San Jose. Pae also operated Kaion took one to two weeks to ship from Hong Kong, and 60 days
and Kaivest out of the same house. Kaion is a semiconductor from factory to the final destination. The terms of payment
business formed by Daniel Kim, who was no relation to to Encore permitted Amapex to pay with a 75–day postdated
defendant Allen Kim. check that it would provide within seven days of a shipment
leaving Encore. Kaion and Interage, on the other hand, paid
Amapex is a successor to two prior corporations, Interage and Amapex on a 60–to–90–day basis, and were not latewith
Kaion, that had dealings with RJ. Prior to 2005, Pae and Kim payments.
worked for Interage, which had about 20 employees. Pae was
not a shareholder or officer of Interage, although Kim was the *3 Amapex ordered approximately $500,000 worth of
president. Andrew Jeong “opened” (incorporated) Amapex components from Encore that it paid for without any
for Pae. disputes arising between the parties. Pae stopped payment
on subsequent checks for goods already shipped because,
From 2006 through the end of 2007, Pae worked for according to Pae, Encore had verbally agreed to give
Kaion. While working for Kaion, Pae, who was not an Amapex an exclusive distributorship agreement in Paraguay.
officer,received a salary, but did not do any accounting Furthermore, Amapex had learned that RJ was not going to
work for Kaion. Kim did the accounting work and signed pay them for goods because RJ wanted to be the exclusive
checks for Kaion, but was not an officer of the corporation. distributorbecause they carried a large amount of Encore
The Statement by Domestic Stock corporation for Kaion, product in Paraguay.
however, was signed by Pae as president.
At trial, the following checks were introduced as exhibits:
Pae was not an officer of Kaivest, although he invested in
itand worked for itfrom 2004 to 2007. Pae acquired an Amapex checks totaling $55,000 written to Pae during July,
ownership interest in Kaivest in 2006 that he sold in 2008.
August and September 2008. 2 Pae claimed these were his
draws as a shareholder.
In early 2008, Pae consulted with Kim about forming
Amapex. Pae had been servicing the RJ account through
2 Those checks were: exhibit 14/5, $10,000 check from
Kaion for 12 years, and wanted to release Kaion from the
financial burden of the account. After Amapex was formed, Amapex toPae dated July30, 2008, signed by Pae;
exhibit 14/6, $10,000 check from Amapex to Pae dated
Kaion continued to engage in business, but no longer operated
August 8, 2008, signed by Pae; exhibit 14/7, $10,000
in Paraguay.
check from Amapex to Pae dated August 7, 2008, signed
by Pae; exhibit 14/8,$5,000 check from Amapex to
© 2013 Thomson Reuters. No claim to original U.S. Government Works. 2
Encore Electronics, Inc. v. Amapex, Inc., Not Reported in Cal.Rptr.3d (2011)
Pae dated August 27, 2008, signed by Pae; exhibit 14/9, 6 Those checks were: exhibit 21/10, $9,000 check from
$10,000 check from Amapex to Pae dated September 4, Kaivest to Pae dated January 24, 2008, for a dividend on
2008, signed by Pae; and exhibit 14/10, $10,000 from Pae's Kaion investment, signed by Kim; exhibit 21/11,
Amapex to Pae dated September 16, 2008, signed by Pae. $9,000 check from Kaivest to Pae dated February 4,
Kaion checks totaling $105,000 written to Pae during 2008 for a dividend on Pae's Kaion investment, signed
by Kim; exhibit 21/12, $5,000 check from Kaivest to Pae
January, March and April 2008. 3 Pae testified that a $90,000
dated February 28, 2008 for a dividend on Pae's Kaion
check was for a loan.
investment, signed by Kim; exhibit 21/13, $4,550 check
from Kaivest to Pae dated March 13, 2008, for dividend,
3 Those checks were: exhibit 18/31, $5,000 Kaion check signed by Kim; and exhibit 21/14, $8,325 from Kaivest
to Pae dated January 5, 2008, signed by Pae; exhibit to Pae dated April 4, 2008 for dividend, signed by Kim.
18/32, $10,000 Kaion check to Pae dated March 27,
Kaivest checks totaling $45,000 written to Amapex during
2008, signed by Kim; and exhibit 18/32, $90,000 Kaion
check to Pae dated April 11, 2008, signed by Kim. This March and April 2008. 7 Pae believed these were for a loan,
last check Pae believed to be for a loan. and that one of them, for $10,000, could either have been a
loan or his capital withdrawal to “fulfill Amapex's capital.”
Kaion checks totaling $105,000 written to Amapex in
Pae has never seen accounting records to reconcile the loan
February and June 2008. 4 Pae explained that these checks with the capitalization of Amapex.
were loans, but that the Kaion checks written to him were a
separate loan. All checks written on behalf of Kaion were at 7 Those checks were: exhibit22/1, $1,000 check from
Kim's direction.
Kaivest to Amapex dated march 3, 2008, signed by
Young Kim; exhibit 22/2, $34,000 check from Kaivest
4 These checks were: exhibit 19/1, $100,000 Kaion check to Amapex dated March 4, 2008, signed by Young Kim
to Amapex dated June 30,2008, signed by Kim for for a loan; and exhibit 22/3, $10,000 check from Kaivest
a loan, and exhibit 19/2, $5,000 check from Kaion to to Amapex dated April 30, 2008, signed by Kim.
Amapex dated February 2, 2008, signed by Kim for a
Kaivest checks to Amapex totaling $388,000 dated May, June
loan.
and July, 2008. 8
Kaion checks totaling $137,000 written to Kaivest during
January and February 2008 were introduced as exhibits at
8 These checks were: exhibit 22/4, $70,000 check from
trial. 5Pae explained that Kaion loaned Kaivest $32,000
Kaivest to Amapex dated May 27,2008 for loan or
in January 2008, made another loan in February 2008 for
withdrawal of Pae's capital; exhibit 22/5, $10,000 check
$25,000, and made payments to Kaivest in February 2008 for from Kaivest to Amapex dated May 29, 2008 for either
$60,000 and $20,000. Pae did not know whether the latter two a loan or withdrawal of capital, signed by Kim; exhibit
checks were for loans. 22/6, $20,000 check from Kaivest to Amapex dated June
3, 2008; exhibit 22/7, July 1, 2008, $218,000 check from
5 Those checks were: exhibit 20/21, $32,000 Kaion check Kaivest to Amapex dated July 1, 2008 for a loan to
to Kaivest dated January 17, 2008, signed by Pae; exhibit pay Encore, as authorized by Pae after consultation with
20/22, $25,000 check from Kaion to Kaivest dated Kim; and exhibit 22/8, July 30, 2008, $70,000 check
February 5, 2008 signed by Pae; exhibit 20/23, $60,000 from Kaivest to Amapex dated July 30, 2008 for a capital
check from Kaion to Kaivest dated February 7, 2008, withdrawal and investment in Amapex.
signed by Pae; and exhibit 20/24, $20,000 check from The money Pae invested in Amapex came from $400,000 he
Kaion to Kaivest dated February 27, 2008, signed by Pae. had invested in Kaivest. On numerous occasions, Amapex
Kaivest checks totaling $35,875 written to Pae during January borrowed money from Kaivest and Kaion, but paid the money
through April 2008. 6 Pae claimed that these monies were back.
for dividends. As Pae paid back some of the investment
he withdrew from Kaivest to fund Amapex, his dividends Both Kim and Pae were signatories on Amapex's bank
increased. account at Wells Fargo. Pae is listed as vice president; Kim
is listedas “owner.” Kim did accounting and banking for
Amapex.
© 2013 Thomson Reuters. No claim to original U.S. Government Works.
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Filed 13 March 19 P4:10 Gary Fitzsimmons District Clerk Dallas District March 19, 2013 The Honorable Dale Tillery VIA ELECTRONIC SERVICE 134TH DISTRICT COURT George L. Allen, Sr. Courts Bldg. 600 Commerce Street, Suite 650 Dallas, Texas 75202 RE: U.S. Merchants Financial Group, Inc. v. Martin, Cause No. 10-15757, In the 134th Judicial District Court, Dallas, County, Texas. Judge Tillery: During the hearing on Defendant’s Motion for Reconsideration, the Court made the following inquiries and rulings: If US Merchants established alter ego by a preponderance of the evidence, was it entitled to a jurisdictional ruling in its favor? If so, then US Merchants had an adequate remedy by appeal. Does alter ego in the personal jurisdiction context require proof of different elements or proof of those elements beyond a preponderance of the evidence standard? If not, US Merchants’ claim in Texas is barred by collateral estoppel. Upon review of US Merchants’ arguments before the California Court, the ultimate ruling of that Court, and the bases for that ruling, it is clear that (1) US Merchants would have received a jurisdictional ruling in its favor if it established, by a preponderance of the evidence, that Martin was Synergy’s alter ego and (2) alter ego in the personal jurisdiction context does not require proof of different elements or require US Merchants to establish those element beyond a preponderance of the evidence standard. I. Had US Merchants established alter ego by a preponderance of the evidence, it would have received a jurisdictional ruling in its favor. A. Alter ego is a valid basis for assertion of personal jurisdiction in California. Contrary to its argument before the California Court, US Merchants now contends that “California Courts reject the use of alter ego to assert personal jurisdiction.” Ltr. Br. at 2. US Merchants is wrong. It relies on HealthMarkets, Inc. v. Superior Court, 171 Cal. App. 4th 1160, The Honorable Dale Tillery March 19, 2013 Page 2 1169 (Cal. Ct. App. 2009) and Anglo Irish Bank Corp., PLP v. Superior Court, 165 Cal. App. 4th 969 (Cal. Ct. App. 2008) to support this contention. But since those two cases, California Courts have considered alter ego as a basis to assert personal jurisdiction over nonresident defendants. See Hollander v. XL Insurance (Bermuda) Ltd., No. B230807, 2012 WL 4748956, at *8-9 (Cal. Ct. App., Oct. 5, 2012); Orthotec, LLC v. Surgiview, S.A.S., No. B216656, 2010 WL 5095303, at *9 (Cal. Ct. App., Dec. 15, 2010). Because the alter ego doctrine is an extreme remedy that is sparingly used in California, however, both courts found that the plaintiff had failed to establish alter ego factors by a preponderance of the evidence. The courts, therefore, refused to assert personal jurisdiction based on the alter ego theory. In Hollander, the trial court granted a non-resident parent company’s motion to quash service for lack of personal jurisdiction. In affirming this ruling, the appellate court reviewed the alter ego elements and found that the plaintiff failed to establish general jurisdiction over the parent company based upon the alter ego theory: Alter ego is a method by which the corporate form will be disregarded where (1) there is such a unity of interest and ownership between the corporation and its equitable owner such that the separate personalities of the corporation and the equitable owner in reality do not exist; and (2) there is an inequitable result in treating the acts of the corporation as those of the corporation alone. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal. App. 4th 523, 538 (Sonora).) Factors to consider in applying the doctrine include commingling of funds and other assets of the two entities; ostensible liability of one entity for the debt of another; identical ownership of the two entities; use of the same offices and employees; inadequate capitalization; disregard of corporate formalities; and identical directors and officers. (Id. at pp. 538– 539.) Alter-ego can be a basis for finding jurisdiction. (F. Hoffman–La Roche, Ltd. v. Superior Court (2005) 130 Cal. App. 4th 782, 796 (F. Hoffman–La Roche).) Here, however, the Hollanders have not established that XLIB is the alter ego of XL Capital or XL Specialty such that the corporate form should be disregarded: They presented no evidence, other than the existence of a parent/subsidiary relationship and asserted sharing of revenue, that there was commingling of funds and assets, identical ownership, use of the same offices or employees, inadequate capitalization, or identical officers and directors. 2012 WL 4748956, at *8 (emphasis added). In Orthotec, a judgment creditor sued, among others, the non-resident parent company of an entity that acquired assets of the judgment debtor, alleging that it participated in a scheme to fraudulently transfer the judgment debtor’s assets with the intent of preventing it from collecting The Honorable Dale Tillery March 19, 2013 Page 3 on its judgment against the judgment debtor.1 The subsidiary was “in the business of purchasing companies in the orthopedic device industry, using their management and organizational expertise to increase value, and then selling those businesses to third parties at a profit.” Id. at *9. The trialcourt granted the parent company’s motion to quash service for lack of personal jurisdiction. The appellate court affirmed because the judgment creditor “provided no evidence that [the companies the subsidiary purchased] [we]re agents or alter egos of the [parent company] or that the [parent company] w[as] involved in the day-to-day management of those companies. Indeed, the undisputed evidence is that each company is a separate corporate entity with distinct management teams.” Id. at *8. As in Hollander and Orthotec, had US Merchants established alter ego by a preponderance of the evidence, it would have been entitled to a jurisdictional ruling in its favor. US Merchants’ reliance on HealthMarkets and Anglo Irish to argue otherwise is misplaced. In Anglo Irish, the trial court determined that the nonresident defendants “each had sufficient contacts with the State of California to be subject to specific jurisdiction.” 165 Cal. App. 4th at 977. The appellate court disagreed and held that actions “undertaken on behalf of a defendant could be attributed to that defendant for purposes of personal jurisdiction if the defendant purposefully directed those activities toward the forum state.” Id. at 981 (emphasis added). In analyzing whether the defendants had purposely directed activities toward the forum state, the appellate court stated that although in some circumstances the alter ego analysis would mirror the purposeful availment analysis, those circumstances were not before the court. Id. at 983, n.12. The alter ego issue was clearly not before the appellate court and was not relevant to the issue before that court. Therefore, the Anglo Irish holding has no bearing on the California Court’s resolution of the alter ego issue presented in this case. Quoting some of the dicta from Anglo Irish, the appellate court in HealthMarkets held that mere ownership of a subsidiary is 2 insufficient to create personal jurisdiction. 171 Cal. App. 4th 1169-70. This too has no bearing on the analysis at issue in this case. In light of the holdings is Hollander and Orthotec, it is clear that the California courts treat the language in Anglo Irish and HealthMarkets as dicta as well. They continue to analyze alter ego as a valid theory of personal jurisdiction when it is properly presented and proved. Had US Merchants established alter ego by a preponderance of the evidence, the California Court would have asserted personal jurisdiction over Martin. B. US Merchants argued alter ego was a valid basis for jurisdiction in the California Court, but failed to meet its burden of proof on that theory. In opposing Martin’s motion to quash, US Merchants advanced alter ego as a theory under which the California Court could assert personal jurisdiction over Martin: Numerous cases have held that if the defendant is the alter ego of a company that is subject to jurisdiction in California, then the 1 Tellingly, the judgment creditor filed a substantially similar lawsuit in New York against this defendant. “The New York trialcourt dismissed the complaint, finding the California trialcourt had determined [the judgment creditor] could not demonstrate any fraudulent transfer and that ruling operated to collaterally estop [the judgment creditor] from arguing otherwise.” Orthotec, 2010 WL 5095303 at *3, n.7. 2 Martin agrees with thisholding, especially since the mere ownership of a subsidiary, without exercise of the requisite control, is also insufficient to establish alter ego. The Honorable Dale Tillery March 19, 2013 Page 4 defendant is also subject to jurisdiction in California. See, e.g., Madison, Iver & York v. Black, 176 Cal. App. 4th 36 (2009) (holding that ‘“the trial court[,] having acquired jurisdiction of [a company,] must likewise be held to have acquired jurisdiction of its alter ego,’” and to deny jurisdiction would “‘place a premium upon acts and conduct which have misled a litigant, and frustrate the very purpose of our jurisprudence’”) (quoting Mirabito v. S.F. Dairy Co., 8 Cal. App. 2d 54 ( 1935)); see also Rollins Burdick Hunter of S. California, Inc. v. Alexander & Alexander Services, Inc., 206 Cal. App. 3d 1, 9 (1988) (holding that jurisdiction exists over an alter ego). Accordingly, if Martin is the alter ego of Synergy, then there is jurisdiction over Martin. Pl.’s Opp. at 5 (emphasis added). The California Court agreed that alter ego was a valid basis for assertion of personal jurisdiction, but like the courts in Hollander and Orthotec, determined that US Merchants failed to prove this theory: I WANT TO THANK THE PARTIES FOR THE PAPERS. THE COURT DID READ THOSE PAPERS. WE’RE HERE FOR A MOTION TO QUASH THE SERVICE OF PROCESS FOR LACK OF PERSONAL JURISDICTION. . . THIS IS LOUIS MARTIN, JR.’S, MOTION TO QUASH THE SUMMONS . . . . WHEN A NON-RESIDENT DEFENDANT CHALLENGES PERSONAL JURISDICTION, THE BURDEN SHIFTS TO THE PLAINTIFF TO DEMONSTRATE BY A PREPONDERANCE OF EVIDENCE THAT THE NECESSARY JURISDICTIONAL CRITERION IS SATISFIED. AND YOU HAVE THE ZILLA CASE, 1988 CASE. THUS, PLAINTIFF BEARS THE BURDEN OF ESTABLISHING PERSONAL JURISDICTION. PLAINTIFF CONTENDS THAT THERE ARE TWO BASES OF JURISDICTION OVER MARTIN -- ONE, THE ALTER EGO OF SYNERGY; AND, TWO, BY CAUSING A SECOND PERSON OR ENTITY TO ENGAGE IN FORUM CONTACTS IN CALIFORNIA . . . . PLAINTIFF ARGUES THAT PERSONAL JURISDICTION OVER MARTIN IS PROPER, BECAUSE MARTIN IS THE ALTER EGO OF SYNERGY. THE ALTER EGO IS EXTREME REMEDY THAT’S FAIRLY (sic) USED, AND YOU HAVE SONORA DIAMOND CASE, 2000, 83 CAL.APP.4TH, TO ESTABLISH THAT. PERSONAL JURISDICTION OVER ONE ENTITY MAY NOT BE EXTENDED TO ANOTHER, ABSENT EVIDENCE ESTABLISHING A VARIETY OF FACTORS AND THE The Honorable Dale Tillery March 19, 2013 Page 5 COURT NOTES THAT THE MERE INCLUSION IN A COMPLAINT OF AN ALTER EGO ALLEGATION DOES NOT GIVE THE TRIAL COURT JURISDICTION OVER THE DEFENDANT AGAINST WHOM THE ALLEGATIONS ARE DIRECTED. IT IS THE PLAINTIFF’S BURDEN TO PROVE THAT MARTIN IS THE ALTER EGO TO ESTABLISH IT OVER WHOM THE COURT HAS JURISDICTION. THE PLAINTIFF HAS FAILED TO MEET ITS BURDEN TO SHOW THAT MARTIN IS THE ALTER EGO OF SYNERGY. . . . PLAINTIFF PROVIDES NO EVIDENCE THAT MARTIN WAS A PRINCIPAL SHAREHOLDER. IN FACT, ACCORDING TO MARTIN AND CLARK, HE WAS ONLY A MINORITY SHAREHOLDER. YOU HAVE THE MARTIN DEPOSITION AND THE CLARK DECLARATION. ACCORDING TO THE EVIDENCE, CLARK WAS MARTIN’S BOSS. AND YOU HAVE MARTIN DEPOSITION ON PAGE 25. ACCORDING TO CLARK, MARTIN DID NOT EXERCISE CONTROL OVER SYNERGY, NOR DID HE DIRECT THE COMPANY'S ACTIONS, CLARK DECLARATION, PARAGRAPH 3. THERE’S NO EVIDENCE TO ESTABLISH HE HAD ANY INTEREST BETWEEN MARTIN AND SYNERGY. PLAINTIFF ARGUES THAT SYNERGY WAS NEVER CAPITALIZED. ALTHOUGH THIS IS ONE FACTOR, PLAINTIFF MUST STILL ESTABLISH IT HAD ANY INTEREST AND OTHER FACTS TO ESTABLISH THAT MATTER. THE PLAINTIFF HAS FAILED TO MEET ITS BURDEN IN THIS MATTER TO ESTABLISH THE ALTER EGO FOR JURISDICTIONAL PURPOSES. DEFENDANT MARTIN'S MOTION TO QUASH SUMMONS FOR LACK OF PERSONAL JURISDICTION IS GRANTED. THE PREVAILING PARTY TO GIVE NOTICE. Hrg. Trans. 1:23-6:9. (emphasis added). There is no doubt that had US Merchants proved, by a preponderance of the evidence, that Martin was Synergy’s alter ego, the California Court would have asserted personal jurisdiction over him. The argument that US Merchants now makes in its letter brief was also made as an alternative basis for jurisdiction to the California Court: The second basis for jurisdiction in this case was set forth in Anglo Irish Bank Corp. v. Sup. Ct., 65 Cal. App. 4th 969 (2008). There, the court held that, although several courts base jurisdiction on alter ego status, courts also may base jurisdiction on a finding that the “defendant has purposely directed its activities at the The Honorable Dale Tillery March 19, 2013 Page 6 forum state by causing a separate person or entity to engage in forum contacts.” This jurisdictional analysis “does not turn on the specific state law requirements of alter ego or agency, although the inquiry may be similar in some circumstances.” Id. Although both bases for jurisdiction are available, and although several recent decisions, including those cited above, continue to support jurisdiction based on alter ego status, the courts are increasingly relying on the second basis for jurisdiction discussed above - directing the acts of a company doing business in California, Given this trend, the second reason is discussed first below. Pl.’s Opp. at 5 (emphasis added). The Court considered and rejected that basis as well. See Hrg. Trans. 3:2-5:1 (holding “Plaintiff has not met its burden to establish jurisdiction over Martin under the Anglo Irish Bank analysis.). Because that issue was necessarily decided by the California Court, US Merchants is barred from re-litigating it as well. If US Merchants believed the California Court erred, then its remedy was to seek reconsideration of or appeal the ruling. See Hollander, 2012 WL 4748956, at *8-9 (plaintiff appealed trial court’s order quashing service of their summons and complaint for lack of personal jurisdiction); Orthotec, 2010 WL 5095303, at *9 (same). II. Establishing alter ego for jurisdictional purposes requires proof of the same elements by a preponderance of the evidence as establishing alter ego cause of action. “When a non-resident defendant challenges personal jurisdiction, the burden shifts to the plaintiff to demonstrate by a preponderance of the evidence that the necessary jurisdictional criterion is satisfied.” Hrg. Trans. 2:18-22. The “jurisdictional criterion” that US Merchants was required to satisfy to establish its alter ego theory are the same requirements it needed to establish for its alter ego cause of action. See Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523, 538-39 (Cal. Ct. App. 2000) (personal jurisdiction case holding two conditions required to invoke the alter ego doctrine are (1) “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” and (2) “there must be an inequitable result if the acts in question are treated as those of the corporation alone”). Whether in the context of personal jurisdiction or otherwise, California Courts consider the following factors in determining whether the alter ego doctrine applies: “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, . . . inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers.” Id.; Encore Elecs., Inc. v. Amapex, Inc., No. B223437, 2011 WL 3612153, at *5 (Cal. Ct. App. Aug. 17, 2011) (setting forth same alter ego elements and The Honorable Dale Tillery March 19, 2013 Page 7 factors in determining merits of alter ego claim); S. J. Amoroso Const. Co., Inc. v. Knecht, No. B214595, 2010 WL 2951456, at *2-3 (Cal. Ct. App. July 29, 2010) (same). Because US Merchants was entitled to a jurisdictional ruling in its favor if it established alter ego by a preponderance of the evidence, it had an adequate remedy by appeal. Moreover, establishing alter ego in the personal jurisdiction context requires the same proof by the same preponderance of the evidence standard as establishing the merits alter ego liability. Therefore, under California law, US Merchants’ suit is barred by collateral estoppel and is therefore barred in Texas under Tex. Civ. Prac. & Rem. Code §16.066. Respectfully submitted LaKeisha M. Forté Att.: Additional California Authority cc: William D. Dunn ddunn@dunnsheehan.com Encore Electronics, Inc. v. Amapex, Inc., Not Reported in Cal.Rptr.3d (2011) predecessor corporations, including Kaion, unsuccessfully sought to obtain an exclusive distributorship agreement with Not Officially Published RJ for Encore products in Paraguay. In July 2008, after it (Cal. Rules of Court, Rules 8.1105 and 8.1110, 8.1115) was unable to obtain this agreement and RJ stopped making 2011 WL 3612153 payments, defendants in turn refused to pay Encore for Only the Westlaw citation is currently available. product they had purchased from it. California Rules of Court, rule 8.1115, restricts citation of unpublished opinions in California courts. 1. Pretrial Proceedings. Court of Appeal, Second District, Division 1, California. Encore's operative firstamended complaint alleged that in 2008, Encore entered into a series of oral agreements ENCORE ELECTRONICS, for the sale of goods to Amapex in the total amount of INC., Plaintiff and Appellant, $1,316,903.48. 1 Pae and Kim, acting on behalf of Amapex, v. delivered checks to Encore for payment of the goods, but AMAPEX, INC., et al., Defendants and Respondents. defendants Pae and Kim stopped payment on the checks before Encore could negotiate the checks. Encore alleged No. B223437. | (Los Angeles County defendants did so to coerce Encore into the exclusive Super. Ct. No. KC053478). | Aug. 17, 2011. distribution agreement. Encore's First Amended Complaint stated claims against Kaion Corporation (Kaion), Kaivest APPEAL from a judgment of the Superior Court of Los Corporation (Kaivest), Amapex, Pae and Kim based on Angeles County. Peter Joseph Meeka, Judge. Affirmed. deceit, negligent misrepresentation, breach of contract, goods Attorneys and Law Firms sold and delivered, quantum valebant, open book account, account stated, and negligence, and sought punitive damages. Law Offices of Vincent Y. Lin and Vincent Y. Lin for Liability was also premised on the theory that Kim and Pae Plaintiff and Appellant. were the alter egos of the three defendant corporations. No appearance for Defendants and Respondents. 1 The first amended complaint stated claims against for Opinion deceit, negligent misrepresentation, breach of contract, goods sold and delivered, quantum meruit, open book JOHNSON, J. account, account stated,and negligence, and sought punitive damages. Although Amapex answered the First *1 Plaintiff Encore Electronics, Inc. (Encore) prevailed Amended Complaint, its answer is not part of the record. on its contract-based claims against defendants Kaion Amapex cross-complained against Encore, alleging that Corporation, Amapex Corporation, and Jason Pae arising Encore, through its president Austin Huang, agreed in from a sales agreement, and the trial court awarded it connection with the sale of electronic equipment to $1,307,349. Encore contends the trial court erred in failing defendants, that Encore would give RJ the exclusive to enter judgment against a defaulted defendant, Kaivest distribution rights of Encore merchandise in Paraguay. Corporation, and in failing to find defendant Allen Kim was Amapex sought $1,348,960 in damages. the alter ego of the corporate defendants. We affirm. On September 1, 2009, Encore applied for entry of default and obtained defaults against defendants Kaion Corporation FACTUAL BACKGROUND and Kaivest Corporation. This left the matter pending against AND PROCEDURAL HISTORY Amapex, Pae, and Kim. Encore buys and sells electronic computer components. On December 17, 2009, the trialcourt granted summary Amapex, Inc. (Amapex) bought computer and electronic judgment in favor of Encore on itsthird, fourth and fifth parts from Encore and sold them to an entity known as causes of action (for breach of contract, goods sold and RJ International, Inc. (RJ) in Paraguay. Jason Pae (Pae) delivered, and quantum valebant) against Amapex and Pae and Allen Kim (Kim), acting on behalf of Amapex and its on a theory of alter ego liability, and denied summary © 2013 Thomson Reuters. No claim to original U.S. Government Works. 1 Encore Electronics, Inc. v. Amapex, Inc., Not Reported in Cal.Rptr.3d (2011) adjudication on the issue of whether Kim was the alter ego Pae met Tommy Huang of Encore in 1996, and started of Amapex. The court granted Encore's unopposed motion business with Encore the same year. for summary adjudication on Amapex's cross-complaint, disposing of Amapex's cross-claims. Encore dismissed the Encore never sold directly to RJ. In early 2008, RJ had second, sixth, seventh and eighth causes of action. begun to complain about Encore. Pae and Kim decided to spin off Amapex to take care of the RJ business, and told Encore of their plans in January 2008. Pae intended to 2. Trial, Default Prove–Up and Judgment. capitalize it with $400,000. Kim helped him out financially *2 Trial commenced January 19, 2010 on the remaining when invoices came due if he did not have sufficient funds, first cause of action for fraud against Amapex, Pae, and Kim. although Amapex would solely be Pae's company. Simultaneously and by supplemental bench trial,plaintiffs sought to establish that Kim was the alter ego of Amapex on In Pae's opinion, Encore understood the relationship and those claims where Encore had obtained summary judgment changes with Interage, Kaion, and Amapex. In 2004, Interage in its favor. Encore also put on evidence for its default prove- did about $100 million in business, and Encore's portion was up hearings against Kaion and Kaivest. about 10 percent of that. Interage had a judgment against it and had to shut down. The evidence at trial established Pae formed Amapex in February 2008 and was the president and sole owner. Amapex Amapex's first order from Encore was in February 2008. It operated out of a house in San Jose. Pae also operated Kaion took one to two weeks to ship from Hong Kong, and 60 days and Kaivest out of the same house. Kaion is a semiconductor from factory to the final destination. The terms of payment business formed by Daniel Kim, who was no relation to to Encore permitted Amapex to pay with a 75–day postdated defendant Allen Kim. check that it would provide within seven days of a shipment leaving Encore. Kaion and Interage, on the other hand, paid Amapex is a successor to two prior corporations, Interage and Amapex on a 60–to–90–day basis, and were not latewith Kaion, that had dealings with RJ. Prior to 2005, Pae and Kim payments. worked for Interage, which had about 20 employees. Pae was not a shareholder or officer of Interage, although Kim was the *3 Amapex ordered approximately $500,000 worth of president. Andrew Jeong “opened” (incorporated) Amapex components from Encore that it paid for without any for Pae. disputes arising between the parties. Pae stopped payment on subsequent checks for goods already shipped because, From 2006 through the end of 2007, Pae worked for according to Pae, Encore had verbally agreed to give Kaion. While working for Kaion, Pae, who was not an Amapex an exclusive distributorship agreement in Paraguay. officer,received a salary, but did not do any accounting Furthermore, Amapex had learned that RJ was not going to work for Kaion. Kim did the accounting work and signed pay them for goods because RJ wanted to be the exclusive checks for Kaion, but was not an officer of the corporation. distributorbecause they carried a large amount of Encore The Statement by Domestic Stock corporation for Kaion, product in Paraguay. however, was signed by Pae as president. At trial, the following checks were introduced as exhibits: Pae was not an officer of Kaivest, although he invested in itand worked for itfrom 2004 to 2007. Pae acquired an Amapex checks totaling $55,000 written to Pae during July, ownership interest in Kaivest in 2006 that he sold in 2008. August and September 2008. 2 Pae claimed these were his draws as a shareholder. In early 2008, Pae consulted with Kim about forming Amapex. Pae had been servicing the RJ account through 2 Those checks were: exhibit 14/5, $10,000 check from Kaion for 12 years, and wanted to release Kaion from the financial burden of the account. After Amapex was formed, Amapex toPae dated July30, 2008, signed by Pae; exhibit 14/6, $10,000 check from Amapex to Pae dated Kaion continued to engage in business, but no longer operated August 8, 2008, signed by Pae; exhibit 14/7, $10,000 in Paraguay. check from Amapex to Pae dated August 7, 2008, signed by Pae; exhibit 14/8,$5,000 check from Amapex to © 2013 Thomson Reuters. No claim to original U.S. Government Works. 2 Encore Electronics, Inc. v. Amapex, Inc., Not Reported in Cal.Rptr.3d (2011) Pae dated August 27, 2008, signed by Pae; exhibit 14/9, 6 Those checks were: exhibit 21/10, $9,000 check from $10,000 check from Amapex to Pae dated September 4, Kaivest to Pae dated January 24, 2008, for a dividend on 2008, signed by Pae; and exhibit 14/10, $10,000 from Pae's Kaion investment, signed by Kim; exhibit 21/11, Amapex to Pae dated September 16, 2008, signed by Pae. $9,000 check from Kaivest to Pae dated February 4, Kaion checks totaling $105,000 written to Pae during 2008 for a dividend on Pae's Kaion investment, signed by Kim; exhibit 21/12, $5,000 check from Kaivest to Pae January, March and April 2008. 3 Pae testified that a $90,000 dated February 28, 2008 for a dividend on Pae's Kaion check was for a loan. investment, signed by Kim; exhibit 21/13, $4,550 check from Kaivest to Pae dated March 13, 2008, for dividend, 3 Those checks were: exhibit 18/31, $5,000 Kaion check signed by Kim; and exhibit 21/14, $8,325 from Kaivest to Pae dated January 5, 2008, signed by Pae; exhibit to Pae dated April 4, 2008 for dividend, signed by Kim. 18/32, $10,000 Kaion check to Pae dated March 27, Kaivest checks totaling $45,000 written to Amapex during 2008, signed by Kim; and exhibit 18/32, $90,000 Kaion check to Pae dated April 11, 2008, signed by Kim. This March and April 2008. 7 Pae believed these were for a loan, last check Pae believed to be for a loan. and that one of them, for $10,000, could either have been a loan or his capital withdrawal to “fulfill Amapex's capital.” Kaion checks totaling $105,000 written to Amapex in Pae has never seen accounting records to reconcile the loan February and June 2008. 4 Pae explained that these checks with the capitalization of Amapex. were loans, but that the Kaion checks written to him were a separate loan. All checks written on behalf of Kaion were at 7 Those checks were: exhibit22/1, $1,000 check from Kim's direction. Kaivest to Amapex dated march 3, 2008, signed by Young Kim; exhibit 22/2, $34,000 check from Kaivest 4 These checks were: exhibit 19/1, $100,000 Kaion check to Amapex dated March 4, 2008, signed by Young Kim to Amapex dated June 30,2008, signed by Kim for for a loan; and exhibit 22/3, $10,000 check from Kaivest a loan, and exhibit 19/2, $5,000 check from Kaion to to Amapex dated April 30, 2008, signed by Kim. Amapex dated February 2, 2008, signed by Kim for a Kaivest checks to Amapex totaling $388,000 dated May, June loan. and July, 2008. 8 Kaion checks totaling $137,000 written to Kaivest during January and February 2008 were introduced as exhibits at 8 These checks were: exhibit 22/4, $70,000 check from trial. 5Pae explained that Kaion loaned Kaivest $32,000 Kaivest to Amapex dated May 27,2008 for loan or in January 2008, made another loan in February 2008 for withdrawal of Pae's capital; exhibit 22/5, $10,000 check $25,000, and made payments to Kaivest in February 2008 for from Kaivest to Amapex dated May 29, 2008 for either $60,000 and $20,000. Pae did not know whether the latter two a loan or withdrawal of capital, signed by Kim; exhibit checks were for loans. 22/6, $20,000 check from Kaivest to Amapex dated June 3, 2008; exhibit 22/7, July 1, 2008, $218,000 check from 5 Those checks were: exhibit 20/21, $32,000 Kaion check Kaivest to Amapex dated July 1, 2008 for a loan to to Kaivest dated January 17, 2008, signed by Pae; exhibit pay Encore, as authorized by Pae after consultation with 20/22, $25,000 check from Kaion to Kaivest dated Kim; and exhibit 22/8, July 30, 2008, $70,000 check February 5, 2008 signed by Pae; exhibit 20/23, $60,000 from Kaivest to Amapex dated July 30, 2008 for a capital check from Kaion to Kaivest dated February 7, 2008, withdrawal and investment in Amapex. signed by Pae; and exhibit 20/24, $20,000 check from The money Pae invested in Amapex came from $400,000 he Kaion to Kaivest dated February 27, 2008, signed by Pae. had invested in Kaivest. On numerous occasions, Amapex Kaivest checks totaling $35,875 written to Pae during January borrowed money from Kaivest and Kaion, but paid the money through April 2008. 6 Pae claimed that these monies were back. for dividends. As Pae paid back some of the investment he withdrew from Kaivest to fund Amapex, his dividends Both Kim and Pae were signatories on Amapex's bank increased. account at Wells Fargo. Pae is listed as vice president; Kim is listedas “owner.” Kim did accounting and banking for Amapex. © 2013 Thomson Reuters. No claim to original U.S. Government Works.