Unpublished Disposition, 876 F.2d 896 (9th Cir. 1989)

MEMORANDUM^* 

William L. Bong appeals the district court's order of summary judgment in favor of FMC Corporation on Bong's tort claims against FMC. We affirm.

* Bong is an inventor. He was the president and sole stockholder of Weldmatic, Inc. In 1979, FMC purchased a welding gantry of Bong's devising from Weldmatic. A welding gantry is a piece of equipment that holds a welding torch and moves it along pieces of metal to be welded together. FMC used its Weldmatic gantry in production of the Bradley Fighting Vehicle for the U.S. Army.

The novel feature of the gantry invented by Bong was its electronic "breadboard circuitry," used to direct the welding heads. The circuitry developed problems, which Bong worked hard to solve--spurred by FMC's representations that if things went well it would order some twelve additional gantries from Weldmatic. In August 1982, FMC ordered a second gantry from Weldmatic. Bong claims that FMC persuaded him, as a result of its promises of gantry orders, to divulge his breadboard circuitry knowledge to FMC. He further alleges that FMC released his proprietary information to third parties, enabling Union Carbide's Linde Division, instead of Weldmatic, to successfully win a contract to build a third gantry in 1983. In March 1983, FMC contracted with Weldmatic to retrofit improved breadboard circuitry into the first gantry purchased in 1979.

Meanwhile, in late 1981 Bong had conceived of a new idea in welding technology--the "non-contact adaptive control weld seam tracker system" ("weld seam system"). The weld seam system was designed to guide the welding torch automatically with greater precision than had been possible before. In January 1982, Weldmatic proposed to FMC that it be given a contract to develop and manufacture the weld seam system. In June 1982, Weldmatic contracted with FMC to construct a prototype weld seam tracker. As part of the contract, Weldmatic agreed to give FMC the right of first refusal if it sold the weld seam technology. In the course of discussions between Weldmatic and FMC, Bong communicated the proprietary weld seam information to FMC. In 1983, FMC received an Army contract to develop a weld seam system, and FMC employees patented the technology.

As a result, in part, of Weldmatic's failure to win FMC contracts for more gantries, Weldmatic went bankrupt in 1983. No possible claims against FMC were listed as assets in bankruptcy. In 1985, Bong and Weldmatic sued FMC for breach of contract and various torts. The case was removed to federal court by FMC. FMC pointed out that Weldmatic's right to sue had been lost under California law as a result of its failure to pay franchise taxes. Calif.Rev.Code Sec. 23301, et seq.; Community Elec. Serv. v. National Elec. Contractors, No. 87-6280, slip op. 4337, 4343 (9th Cir. Apr. 27, 1989); United States v. 2.61 Acres of Land, More or Less, 791 F.2d 666, 668-69 (9th Cir. 1985) (per curiam). The complaint was amended to assert only personal tort claims of Bong's; the current Third Amended Complaint lists six such claims. On February 9, 1988, the district court granted summary judgment on all claims in favor of FMC, on the grounds that Bong had no standing to plead claims that properly belonged only to Weldmatic, when all dealings were with Bong, and all the alleged torts affected Bong solely through FMC's contracts with Weldmatic, if at all.

Bong timely appeals. Fed. R. App. P. 4(a) (1). We have jurisdiction over this appeal of a final judgment. 28 U.S.C. § 1291. We review a summary judgment de novo. Plaine v. McCabe, 790 F.2d 742, 745-46 (9th Cir. 1986). There are no federal claims; the applicable law is solely California law.

II

* The basic issue of California law pervading the case is this: May Bong raise these tort claims, or is Weldmatic the only proper party in interest? This issue may be referred to as one of "standing," although it must be distinguished from the entirely different question of federal standing. It is the substantive state law question of who is the injured party who may properly plead an action. See Von Brimer v. Whirlpool Corp., 536 F.2d 838, 841 n. 1 (9th Cir. 1976).

It is a basic tenet of California law that a shareholder in a corporation may not sue individually for an injury to the corporation. E.g., Sutter v. General Petroleum Corp., 28 Cal. 2d 525, 170 P.2d 898, 900-01 (1946). "Generally, a stockholder may not maintain an action in his own behalf for a wrong done by a third person to the corporation on the theory that such wrong devalued his stock and the stock of the other shareholders, for such an action would authorize multitudinous litigation and ignore the corporate entity." Id. Such a suit may only be brought as a derivative suit: " 'The action is derivative ... if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock or property without any severance or distribution among individual holders....' " Id., 170 P.2d at 901 (quoting treatise).

Individual litigation is not precluded merely because a corporation is involved, however. A stockholder may sue in his individual capacity when he has been "directly and individually injured although the corporation may also have a cause of action for the same wrong." Id. As examples of permissible individual actions, the Sutter court noted suits based upon contracts to which the stockholder is a party, upon a right belonging severally to him, or upon a fraud affecting him directly. Id. The Sutter court allowed the action to proceed, because the alleged fraud upon the plaintiff took place before the formation of the relevant corporation. Id.

In the four decades since Sutter, the California courts and this circuit have attempted to distinguish corporate from individual claims along the lines suggested by that decision. In Nathanson v. Murphy, the appellate court considered facts similar to Sutter, holding that when the alleged fraud induced the formation of the corporation, the claim was individual. 132 Cal. App. 2d 363, 282 P.2d 174, 179-80 (1955). The Supreme Court considered the question again in 1969. Jones v. H.F. Ahmanson & Co., 1 Cal. 3d 93, 460 P.2d 464, 81 Cal. Rptr. 592 (1969). In Jones, a minority stockholder sued the majority for breach of fiduciary duty. The court held that a cause of action existed, stating:

It is clear ... that [plaintiff] does not seek to recover on behalf of the corporation for injury done to the corporation by defendants. Although she does allege that the value of her stock has been diminished by defendants' actions, she does not contend that the diminished value reflects an injury to the corporation and resultant depreciation in the value of the stock. Thus, the gravamen of her cause of action is injury to herself and the other minority stockholders....

The individual wrong necessary to support a suit by a shareholder need not be unique to that plaintiff. The same injury may affect a substantial number of shareholders. If the injury is not incidental to an injury to the corporation, an individual cause of action exists.

Id.; 460 P.2d at 470, 471 (footnote omitted).

The California courts have allowed cases to proceed under similar circumstances involving disputes between minority and majority stockholders. Smith v. Tele-Communication, Inc., 134 Cal. App. 3d 338, 184 Cal. Rptr. 571, 573 (1982) (inquiry into where "gravamen" of claim lies); Low v. Wheeler, 207 Cal. App. 2d 477, 24 Cal. Rptr. 538, 542 (1962); cf. Weingard v. Atlantic Savings and Loan Ass'n, 1 Cal. 3d 806, 464 P.2d 106, 111-12, 83 Cal. Rptr. 650 (1970) (importance of allowing stockholders to assert rights; derivative suit).

The question of corporate versus individual standing also has arisen in the context of insurance contracts. The courts have allowed stockholders to sue on contracts of insurance with their corporations, but have specifically limited standing to situations in which the individuals were also parties to the contracts. Tan Jay Int'l, Ltd. v. Canadian Indemnity Co., 198 Cal. App. 3d 695, 243 Cal. Rptr. 907, 912-13 (1988); Umann v. Excess Ins. Co., 190 Cal. App. 3d 1532, 236 Cal. Rptr. 89, 92-93 (1987); Truestone, Inc. v. Travelers Ins. Co., 55 Cal. App. 3d 165, 127 Cal. Rptr. 386, 388-90 (1976); see Larraburu Bros., Inc. v. Royal Indemnity Co., 604 F.2d 1208, 1211 (9th Cir. 1979).

FMC relies on Ninth Circuit cases applying California law. The case most on point is Sherman v. British Leyland Motors, Ltd., 601 F.2d 429, 439-41 & n. 13 (9th Cir. 1979). In Sherman, we denied standing to an automobile dealer who did business entirely through his closely held corporation to assert federal and pendent California claims based upon the termination of franchise contracts entered into in the name of the corporation. Id. Since Sherman was only an incidental beneficiary of the contracts, he could plead no "separate individual damage," despite the facts that "the franchisor recognized the importance of Sherman's services ... to the corporation ...," and that Sherman was personally responsible for certain obligations of the corporation. Id. at 439, 440 n. 13.

There is a strong line of Ninth Circuit case law using Sutter to bar California law claims that actually allege injury to the corporation. Id.; Von Brimer, 536 F.2d at 846 (praising Sutter; examining alleged injuries and concluding that all accrued to corporation, thus barring individual action); Erlich v. Glasner, 418 F.2d 226, 227-28 (9th Cir. 1969) (status of litigant as sole stockholder does not in itself authorize personal suit; rejecting argument that claim could be asserted by both parties, when damages flowed to plaintiff only through corporation).

There is no brightline test. The state courts have recognized the general rule barring individual claims that should accrue to the corporation only, but have tended to honor it in the breach, allowing individual claims to proceed on various theories. The Ninth Circuit has faced fact patterns more closely resembling ours, and has applied Sutter quite strictly, barring claims that are not sufficiently distinguishable from the corporate claims. Given FMC's showing as movant that its dealings were with Weldmatic alone, can Bong, as the non-moving party, point to evidence in the record indicating that the gravamen of the claims is personal, not corporate? We examine each of the six claims in the Third Amended Complaint, and find he cannot.

B

Claim 1

The first claim is fraud and deceit, based upon FMC's representations that it intended to purchase twelve additional gantries from Weldmatic. Bong alleges that as a result of these fraudulent misrepresentations, he was induced "to totally devote all of his personal finances and technical knowledge and the finances and resources of his solely owned corporation, Weldmatic, without compensation from FMC, all to FMC's betterment." Bong claims, inter alia, revenues he would have received if Weldmatic had received the gantry orders, and had not been bankrupted.

The gravamen of this claim clearly is corporate. Any revenues flowing through Weldmatic to Bong are only the incidental results of Weldmatic's contracts with FMC. Bong's interests are not distinguishable from those of other shareholders or employees. Sherman, Von Brimer, and Erlich compel affirmance. The only damages theoretically accruing personally to Bong in claim 1 are the alleged drains on his personal finances. Any such cost was borne as a result of employment with Weldmatic, working on Weldmatic's machinery, in the hopes of further benefits to Weldmatic. Weldmatic is the real party in interest.

Claim 2

Claim 2 alleges that FMC appropriated Bong's breadboard circuitry through intentional misrepresentation. The only damages claimed here accrued to Weldmatic.

Claim 3

Claim 3 alleges that FMC fraudulently and intentionally misappropriated Bong's weld seam system and patented it itself. Bong claims "damages from being denied the revenues he would have realized through the development and patenting of his system, including royalties, licensing and sales revenues in an amount yet to be ascertained." If indeed Bong personally owned the technology, and would have received revenues from it that did not pass through Weldmatic, this claim might survive. Bong points out that California law does not provide for automatic transferral of an employee's inventions to his employer merely because of the employment relationship. See Banner Metals, Inc. v. Lockwood, 178 Cal. App. 2d 643, 3 Cal. Rptr. 421, 428 (1960); but see Daniel Orifice Fitting Co. v. Whalen, 198 Cal. App. 2d 791, 18 Cal. Rptr. 659, 665 (1962) (person employed to design products for employer may not use results for his own benefit).

Although we do not presume that the invention belongs to the employer automatically, we can consider all the relevant facts in deciding whether the right is individual or corporate. The record is absolutely clear: Weldmatic was the only party having dealings with FMC regarding the new technology. Weldmatic and FMC entered into contracts regarding not only new gantries, but exploitation of the weld seam system as provided by Weldmatic. All the dealings were solely on a corporation-to-corporation basis. Bong's deposition admits that he planned to assign the patent to Weldmatic. Bong's assertions that he suffered separate and independent damage are pure speculation, unsupported by any evidence that Bong would receive any financial benefits from the invention from a source other than Weldmatic. Bong's personal interests were inextricably linked to Weldmatic's, and the gravamen of the claim was corporate. It is impossible to separate Bong's role as a Weldmatic employee from his role as an independent inventor.

Bong's only possible response is to point to these two facts:¹  1) the patent would be taken out by him, and 2) FMC's "sub-project authorization" for the prototype stated that development would be done "in conjunction with Mr. William L. Bong who has disclosed an invention of this type," and listed Bong as a "consultant." Neither of these points raises a material question of fact. Bong admitted that, in accordance with normal patent law procedure, he planned to assign the invention to Weldmatic after taking the patent out in his own name. The subproject authorization nowhere states that Bong offered the technology to FMC in his individual capacity, and any such inference is contradicted by the weight of the evidence indicating that Weldmatic was the sole party contracting with FMC on the project.

Claim 4

Claim 4 alleges that FMC tortiously interfered with prospective economic advantage by interfering with the existing economic relationship between Bong and FMC. California law allows such a claim only against an interfering third party, not against one of the parties to the relationship allegedly interfered with. See, e.g., Dryden v. Tri-Valley Growers, 65 Cal. App. 3d 990, 135 Cal. Rptr. 720, 724 (1977).

Claim 5

The fifth claim is virtually identical to claim 3. While claim 3 alleged fraud and deceit in misappropriation of the weld seam system, claim 5 simply alleged misappropriation. Summary judgment is affirmed for the reasons discussed supra.

Claim 6

Claim 6 is for the intentional infliction of emotional distress on Bong. The district court found that Bong "has failed to show any intention by [FMC] to inflict emotion [sic] distress on [Bong] individually."

FMC argues that Bong has failed to plead a necessary element of the tort in its complaint. It is true that Bong does not allege an intent to cause emotional distress; rather, he merely alleges that FMC's intentional acts caused Bong's emotional distress. The distinction between these allegations was noted in Truestone, 127 Cal. Rptr. at 390. The complaint survives scrutiny, however, although just barely. It alleges that FMC's actions "were engaged in with a conscious or reckless disregard for Bong's rights." Reckless disregard of the probability of causing emotional distress may substitute for actual intent as an element of the tort. Truestone, 127 Cal. Rptr. at 390.

To recover for the intentional infliction of emotional distress, the plaintiff must show the defendant's conduct to be outrageous. Beckham v. Safeco Ins. Co., 691 F.2d 898, 904 (9th Cir. 1982) (applying California law); see generally, B. Witkin, Summary of California Law Sec. 404 (9th ed. 1988). "Conduct to be outrageous must be so extreme as to exceed all bounds of that usually tolerated in a civilized community." Cervantez v. J.C. Penney Co., 24 Cal. 3d 579, 595 P.2d 975, 983, 156 Cal. Rptr. 198 (1979); see Davidson v. City of Westminster, 32 Cal. 3d 197, 649 P.2d 894, 900-01, 185 Cal. Rptr. 252 (1982). The outrageous conduct alleged by Bong consisted of FMC's misappropriation of technology and its false promise to purchase gantries from Weldmatic. This conduct, even if true, simply does not rise to the required level of outrageousness. No facts in evidence indicate that FMC had any intent to cause emotional distress to Bong individually, or acted with reckless disregard of that possibility.

III

Bong contends that the district court improperly refused to compel further discovery, and therefore ruled on the summary judgment motion prematurely. We review the district court's regulation of discovery for abuse of discretion. Century 21 Real Estate Corp. v. Sandlin, 846 F.2d 1175, 1181 (9th Cir. 1988). There is no evidence to support a finding of abuse. Bong conceded at the summary judgment hearing, when pressed on the issue, that further discovery would not be particularly helpful. Given the relevant law and facts, it is unclear how further discovery of FMC would help Bong.

FMC requests fees for defending against Bong's allegedly frivolous appeal under Fed. R. App. P. 38. Bong's arguments, although they are ultimately unsuccessful, are not frivolous, and we do not award fees.

AFFIRMED.