Nordell International Resources Ltd.,plaintiff-counter-claimant-appellee, v. Triton Oil, Defendant,andtriton Indonesia Incorporated;defendant-counter-claimant-plaintiffs-appellants, 97 F.3d 1460 (9th Cir. 1996)

(3) the fraudulent intent of the incorporators.

Id. at 772 (quoting Seymour v. Hull & Moreland Eng'r, 605 F.2d 1105, 1111 (9th Cir. 1979)); Ministry of Defense v. Gould, Inc., 969 F.2d 764, 769 (9th Cir. 1992). A party seeking to pierce the veil must prevail on the first threshold factor and on either of the other two. UA Local 343 v. Nor-Cal Plumbing, Inc., 48 F.3d 1465, 1475 (9th Cir.), cert. denied, 116 S. Ct. 297 (1995).

* A disregard of corporate formalities or a serious abuse of the corporate identity can be established by a number of methods including (1) commingling of funds between the alter ego entities, (2) parent's treating of the subsidiary's assets as its own, (3) subsidiary's owning less than an adequate amount of assets to carry on its business, and (4) the presence of interest-free loans taken from the corporation. Seymour, 605 F.2d at 1112.

The district court concluded that Veronex did not demonstrate sufficient respect for Nordell's separate corporate identity during the period of the Joint Venture Agreement. Triton presented abundant evidence indicating that Nordell and Veronex disregarded their corporate separateness during the Joint Venture period, that Veronex treated Nordell's assets as its own, that Nordell had insufficient liquid assets to carry on its business, and that Veronex made interest-free loans to Nordell (although the loans predated the parties' parent-subsidiary relationship).

Veronex has not appealed the district court's decision on this point. Thus, the district court's analysis of this factor is undisputed. Veronex did not respect Nordell's separate corporate formality. The alter ego inquiry does not end at this point, however; " [e]vidence establishing shareholder disrespect for a corporation's separate identity alone is an insufficient reason to pierce the corporate veil." Valley Cabinet, 877 F.2d at 773.

2

The district court summarily found "no evidence of inequity or injustice, apart from Triton's inability to collect from Nordell." Triton argues that it presented additional evidence sufficiently establishing additional inequity, and that the district court's summary finding was therefore erroneous.

An "inability to collect [upon a judgment] does not, by itself, constitute an inequitable result." Seymour, 605 F.2d at 1113. However, the Ninth Circuit has recognized that severe undercapitalization can satisfy the element of injustice to litigants if the capital input is insufficient to meet obligations that "could reasonably be expected to arise in the normal course" of the corporation's business. Slottow v. American Cas. Co., 10 F.3d 1355, 1360 (9th Cir. 1993); Laborers Clean-Up Contract v. Uriarte Clean-Up Serv., 736 F.2d 516, 524 (9th Cir. 1984). The type of injustice or "kind of 'inequitable' result that makes alter ego liability appropriate is an abuse of the corporate form, such as undercapitalization or misrepresentation of the corporate structure to creditors." Orloff v. Allman, 819 F.2d 904, 909 (9th Cir. 1987), abrogated on other grounds, Hollinger v. Titan Corp., 914 F.2d 1564 (9th Cir. 1990).

The record indicates that Nordell's financial difficulties did not extend beyond an inability to pay off a judgment. This evidence does not sufficiently establish injustice to Triton to hold Veronex liable as the alter ego of Nordell.

As stressed by the district court, upon entering the contract, Triton was aware of the financial difficulties Nordell was experiencing. There were numerous provisions in the Farmout Agreement itself which reference Nordell's cash deficiency and attempt to protect Triton from Nordell's creditors. In addition, the Veronex 1988 Annual Report specifically mentions that the Indonesian oil operations were cash-stripped. Moreover, Coopers & Lybrand issued an unaudited Nordell balance sheet, dated May 31, 1988, that indicated a cash position of only $407,382. Finally, the evidence shows that Triton conducted substantial due diligence before entering into the ENIM joint venture agreement.

Hite has averred that " [d]uring ... negotiations, both Nordell and Triton discussed the fact that Nordell was cash poor, and [they] mutually understood that forfeiture was the sole remedy if Nordell were to default any terms of the farmout agreement."

3

Fraudulent intent can be satisfied "either by proof of fraud in the formation of the corporation or fraudulent misuse of the corporate form after incorporation." Valley Cabinet, 877 F.2d at 773 (emphasis in original). Fraudulent intent can also be established solely by evidence of undercapitalization. Gould, Inc., 969 F.2d at 769. Insisting that Nordell's lack of capital alone constitutes fraudulent intent, Triton argues that the district court erred in its finding that there was no evidence of fraudulent intent. We are unpersuaded.

The district court stated that it had found almost no evidence of fraudulent intent on the part of the officers and directors of Veronex and Nordell. Although conceding that undercapitalization can, in certain circumstances, constitute evidence of fraud, the court stated that "any inference of fraud from Nordell's alleged undercapitalization [was] completely negated by the evidence of Nordell's corporate history." The court then pointed to the fact that Nordell conducted a "legitimate business enterprise" for eight years before the Joint Venture Agreement, and cited the proposition from Seymour, that " [t]he very fact of continuing to do business for a period of at least five years tends to indicate a good faith use of the corporation to conduct a legitimate business enterprise." 605 F.2d at 1113.

We agree with the district court that "the picture that emerges from the record is one of a legitimate joint venture arrangement, with full disclosure and good faith negotiation on both sides." The district court did not err in finding no fraudulent intent.

Triton can satisfy only one of the two required elements of the federal alter ego test. Therefore, the district court did not clearly err in concluding that Veronex was not the alter ego of Nordell under federal law.

B

California law requires two elements for the application of the alter ego doctrine: (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist, and (2) that an inequitable result will follow if the acts [giving rise to liability] are treated as those of the corporation alone. Orloff, 819 F.2d at 908; Automotriz del Golfo de California S.A. v. Resnik, 306 P.2d 1, 3 (1957).

Triton contends that the district court, although correct in finding Veronex-Nordell unity of interest and ownership, was incorrect in summarily finding insufficient evidence of an inequitable result or injustice under state law.

The kind of inequitable result necessary to find alter ego liability under state law is an abuse of the corporate form, such as undercapitalization or misrepresentation of the corporate structure to creditors. Orloff, 819 F.2d at 909; American Home Ins. Co. v. Travelers Indem. Co., 175 Cal. Rptr. 826, 834 (1981).

Under California law, Nordell's alleged undercapitalization is insufficient to establish alter ego status. As the California Supreme Court has stated, "adequate capitalization" is but only one factor in the alter ego determination. Automotriz del Golfo, 306 P.2d 1, 3 (1957).

Moreover, in G.E.J. Corp. v. Uranium Aire, Inc., 311 F.2d 749 (9th Cir. 1962), this court, applying California alter ego law, upheld a finding of alter ego against a parent corporation whose subsidiary entered into an option contract with another corporation. Id. at 757. However, the circuit panel noted that, under California law, "the alter ego doctrine should not be applied where the plaintiff dealt with the corporation having full knowledge of the facts and where considerations of equity and fair dealing do not require application of the doctrine on his behalf." Id. Here, because of Triton's extensive pre-Farmout Agreement due diligence, Veronex could not, and did not, provide fraudulent assurances to Triton about Nordell's financial strength, as was the case in Uranium Aire. Id. at 757.

III

Triton contends that the district court abused its discretion in denying Triton's request for further discovery prior to a summary disposition on the alter ego issue. A district court's order denying request for discovery is reviewed for abuse of discretion. Harris v. Duty Free Shoppers Ltd. Partnership, 940 F.2d 1272, 1276 (9th Cir. 1991).

Ordinarily, summary judgment is not granted when there are relevant facts remaining to be discovered, but the party seeking discovery bears the burden of showing what specific facts it hopes to discover that will raise an issue of material fact. Harris, 940 F.2d at 1276.

The district court's order explains that Triton's discovery request was denied for three reasons. First, the request was "completely at variance with the summary procedure adopted by the Court at the urging of Triton's counsel." Second, "the request for discovery, timed as it was after an adverse ruling on the first issue of consent, appear [ed] to the Court as an effort by Triton to manipulate the proceeding to avoid an unfavorable result." Third, "Triton's request was not properly brought before the Court by a noticed motion or ex parte application." Triton should have made a separate motion making a specific request for discovery, rather than including it in a supplemental memorandum.

The district court has articulated three valid reasons. Thus, the district court did not abuse its discretion in denying Triton's request for further discovery.

AFFIRMED.