The Successor Agency to The Former Emeryville Redevelopment Agency and The City of Emeryville v. Swagelok Company et al, No. 3:2017cv00308 - Document 143 (N.D. Cal. 2019)
Court Description: ORDER DENYING HANSON BUILDING MATERIALS LIMITIED'S MOTION TO DISMISS SECOND AMENDED COMPLAINT FOR LACK OF PERSONAL JURISDICTION by Judge William H. Orrick denying 82 Motion to Dismiss for Lack of Jurisdiction. (jmdS, COURT STAFF) (Filed on 1/30/2019)
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The Successor Agency to The Former Emeryville Redevelopment Agency and...e v. Swagelok Company et al Doc. 143 1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 THE SUCCESSOR AGENCY TO THE FORMER EMERYVILLE REDEVELOPMENT AGENCY AND THE CITY OF EMERYVILLE, 7 8 9 Plaintiff, 10 v. United States District Court Northern District of California 11 SWAGELOK COMPANY, et al., 12 Case No. 17-cv-00308-WHO ORDER DENYING HANSON BUILDING MATERIALS LIMITIED’S MOTION TO DISMISS SECOND AMENDED COMPLAINT FOR LACK OF PERSONAL JURISDICTION Re: Dkt. No. 82 Defendants. 13 14 INTRODUCTION In this case concerning environmental contamination on a property in Emeryville, 15 16 California, defendant Hanson Building Materials Limited (“HBML”), which is located in the 17 United Kingdom, moves to dismiss the second amended complaint (“SAC”) pursuant to Federal 18 Rule of Civil Procedure 12(b)(2) for lack of personal jurisdiction. However, plaintiffs have made 19 a prima facie showing that HBML has had contacts with the state of California, plaintiffs’ 20 CERCLA claim arises out of HBML’s successor liability, and it is not unreasonable to exercise 21 jurisdiction over HBML. Swagelok and Whitney, as cross-claimants, have alternatively made a 22 prima facie showing of alter ego liability. Accordingly, HBML’s motion to dismiss is DENIED. 23 24 25 BACKGROUND I. CONTAMINATION OF THE PROPERTY The plaintiffs, Successor Agency to the former Emeryville Redevelopment Agency 26 (“Successor Agency”) and the City of Emeryville (“City”), bring ten claims under the 27 Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), the 28 Resource Conservation and Recovery Act (“RCRA”), and various California laws, to recover Dockets.Justia.com 1 environmental cleanup costs and related relief from plaintiffs’ investigation of contamination on a 2 property in Emeryville, California. Defendants HBML, Swagelok Company (“Swagelok”), 3 Whitney Research and Tool Co. (“Whitney”), and Catherine Lennon Lozick (“Lozick”), are 4 allegedly responsible for the contamination caused by industrial activities that began 5 approximately in 1910 on 5679 Horton Street in the City of Emeryville, California (“the 6 Property”). See Second Amended Complaint (“SAC”) ¶ 2. United States District Court Northern District of California 7 From approximately 1910 to 1959, the Property was owned by the Marchant Calculating 8 Machine Company (“Marchant”), a California company that manufactured mechanical calculating 9 machines. SAC ¶ 3. Marchant’s operations used various oils, chlorinated solvents, and other 10 chemicals that have been found in the soil at the Property, in groundwater on and down gradient 11 from the Property, and in vapors inside large buildings located on the Property. SAC ¶¶ 5, 21. 12 In 1958, Marchant was consolidated via merger with Smith-Corona Inc., a New York 13 corporation and Marchant was renamed Smith-Corona Marchant Inc. (“SCM”). SAC ¶ 3; 14 Bookspan Decl. ¶ 9. The following year, SCM moved operations to a different location along the 15 border of the cities of Oakland and Berkeley. Id. SCM regularly conducted business in California 16 and continued operating the Marchant business as a division within SCM. Id. By 1963, SCM 17 renamed itself SCM Corporation. It continued to operate in California until it closed the Marchant 18 division in approximately 1972. Id. ¶ 9. 19 Affiliates of defendant Swagelok purchased the Property in the mid-1960s and owned it 20 until the late-1990s. SAC ¶¶ 4, 11. Swagelok is an Ohio corporation with its principal place of 21 business in Solon, Ohio. Id. The Property was technically operated by defendant Whitney, which 22 was controlled and dominated by Swagelok. Id. Whitney was founded in 1959 as a California 23 corporation and is now dissolved. SAC ¶ 53. Whitney produced machine valves and associated 24 valve parts on the Property. Id. It also allegedly contaminated the Property through its operations, 25 including in the grease room, hazardous waste area, solvent recovery area, and drum storage areas. 26 SAC ¶ 52. 27 28 The Property changed hands once again in 1999 when the former Redevelopment Agency, a public entity formed under California law and authorized to undertake environmental cleanup 2 1 projects, purchased most of it from a Swagelok controlled entity. SAC ¶ 11. The proceeds of that 2 sale, assets worth in excess of $1.5 billion, and approximately 65% ownership interest in 3 Swagelok, all went to defendant Catherine Lozick as the sole beneficiary of the CLL Trust, in 4 2003. SAC ¶ 60. Since that time, the former Redevelopment Agency’s rights, powers, and 5 obligations have vested by statute in plaintiff Successor Agency, a separate public entity located 6 and operating in Alameda County, California. Id. 7 II. The Successor Agency investigated the contamination when it acquired the Property. SAC 8 United States District Court Northern District of California 9 INVESTIGATION INTO SUBSEQUENT MERGERS AND OWNERSHIP ¶ 20. Successor Agency identified a series of mergers that also linked Marchant and SCM’s 10 alleged contamination on the Property to defendant HBML via a series of transactions in the mid- 11 1980s. SAC ¶ 22. HBML was incorporated in 1950 under the name C. Wiles Limited, as a limited company 12 13 organized and existing under the laws of England and Wales. See Rogers Decl. ¶ 2. Its sole 14 current office and headquarters, which is its registered principal place of business, is in Berkshire, 15 England. Id. HBML has operated under several different names, including Wiles Group Limited, 16 Hanson Limited, Hanson PLC, and Hanson Trust PLC. HBML is the same entity originally 17 formed in 1950 though it has gone by different names since its incorporation.1 18 HBML first acquired control over SCM through hostile takeover tactics, including tender 19 offers to shareholders. SAC ¶ 23. Then, intent on liquidating the SCM conglomerate for profits, 20 HBML formed several new Delaware corporations in 1985 as indirect subsidiaries with names 21 beginning with “HSCM,” (i.e., HSCM-1 to -20), referred to as “fan companies.” SAC ¶ 24; 22 Hempstead Decl. ¶ 7. One of those fan companies, HSCM-20, eventually was merged into SCM 23 in 1986, with HSCM-20 as the surviving entity with residual assets and legacy liabilities. SAC ¶¶ 24 27, 28; Hempstead Decl. ¶ 12. HBML then caused HSCM-20 to merge into another subsidiary, 25 HSCM Holdings Inc., which then merged again into HBML subsidiary HM holdings, Inc. (“HM 26 27 28 1 This Order refers to defendant as HBML regardless of its name at the time. To the extent this Order refers to former company names interchangeably, such as Hanson Trust PLC, it is undisputed that HBML is the same entity that went by these former names at different stages of its existence since 1950. 3 United States District Court Northern District of California 1 Holdings”). SAC ¶ 29; Hempstead Decl. ¶¶ 13-15. Plaintiffs’ theory of the case is that these 2 mergers ultimately caused Marchant’s contamination liability for the Property, and its 3 jurisdictional contacts with California, to flow into HSCM-20, which was controlled by HBML. 4 SAC ¶¶ 27-28. HBML’s theory in defense is that the relevant transactional activities occurred 5 under the control of its United States counterparts, particularly Hanson Industries, which was 6 distinct from HBML in the United Kingdom. 7 Plaintiffs nonetheless allege that HBML’s control over these mergers and the liquidation of 8 SCM is demonstrated by a 1989 initial public offering for a typewriter business that was marketed 9 in California and other places. SAC ¶ 32; Hamidi Decl. ¶ 8, Ex. D. During the IPO, HBML 10 changed the name of HSCM-10 to Smith Corona Corporation and then dominated and controlled 11 the transactions. SAC ¶¶ 32-34; Hamidi Decl. ¶ 8, Ex. D at 5 (HBML 2968). Smith Corona 12 Corporation, HM Holdings, and other entities that HBML controlled entered transactions referred 13 to in the 1989 IPO prospectus as the “Reorganization.” SAC ¶ 35. In the Reorganization, Smith 14 Corona Corporation and HM Holdings entered a Cross Indemnity Agreement in which HBML 15 assured prospective buyers that the company was protected from all “Hanson Liabilities,” defined 16 as SCM non-typewriter businesses, past use of property, release of hazardous substances, and 17 nuisances from non-typewriter operations or properties. SAC ¶ 36. Following the investigation, plaintiffs plead that the presence of contaminants on the 18 19 Property can be traced to the operations of Marchant, SCM’s Marchant division, and Swagelok 20 and Whitney. SAC ¶ 5. 21 III. 22 PROCEDURAL HISTORY Successor Agency and the City filed this lawsuit on January 20, 2017 and amended the 23 complaint on June 30, 2017. Dkt. Nos. 1, 42. Swagelok and Lozick separately answered and filed 24 crossclaims against HBML and counterclaims against plaintiffs. Dkt. Nos. 46, 50. 25 In October 2017, I issued an Order granting the parties’ proposed stipulation to amend the 26 pleading to properly identify HBML as the named party, for Whitney to bring crossclaims against 27 HBML, and for the parties to conduct jurisdictional discovery. Dkt. No. 66. That discovery led to 28 the production of thousands of pages of documents, hundreds of emails between counsel, several 4 1 30(b)(6) depositions, and four written discovery disputes brought to the court’s attention. Noma 2 Decl. ¶¶ 6-10. Stopping short of raising additional disputes, Lozick maintains that HBML 3 engaged in certain jurisdictional discovery abuses and seeks to reserve the right to extend 4 jurisdictional discovery if needed. 5 6 Plaintiffs filed the operative second amended complaint on October 5, 2017. Dkt. No. 67. On December 4, 2017, HBML moved to dismiss for lack of personal jurisdiction. Dkt. No. 82. 7 8 United States District Court Northern District of California 9 LEGAL STANDARD A court’s jurisdiction to render judgment against a person depends on the court’s having personal jurisdiction against that person. See Int'l Shoe Co. v. State of Wash., Office of 10 Unemployment Comp. & Placement, 326 U.S. 310, 316 (1945). “For a court to exercise personal 11 jurisdiction over a nonresident defendant, that defendant must have at least ‘minimum contacts’ 12 with the relevant forum such that the exercise of jurisdiction does not offend traditional notions of 13 fair play and substantial justice.” Boschetto v. Hansing, 539 F.3d 1011, 1015–16 (9th Cir. 2008) 14 (internal quotations and citations omitted). 15 A court may exercise general or specific jurisdiction. Fields v. Sedgwick Associated Risks, 16 Ltd., 796 F.2d 299, 301 (9th Cir.1986). General jurisdiction exists when a defendant engages in 17 “continuous and systematic general business contacts” with the forum state. Helicopteros 18 Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 416 (1984). In determining whether specific 19 jurisdiction exists, courts employ a three-factor test: 20 21 22 23 24 25 26 27 28 (i) The non-resident defendant must purposefully direct his activities or consummate some transaction with the forum or resident thereof; or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws; (ii) the claim must be one which arises out of or relates to the defendant's forum-related activities; and (iii) the exercise of jurisdiction must comport with fair play and substantial justice, i.e. it must be reasonable. Boschetto, 539 F.3d at 1016 (internal quotations and citations omitted). The plaintiff bears the initial burden of establishing that personal jurisdiction is proper when a defendant moves to dismiss for lack of personal jurisdiction. Id. at 1015. 5 United States District Court Northern District of California 1 The first factor may be satisfied by “purposeful availment of the privilege of doing 2 business in the forum; by purposeful direction of activities at the forum; or by some combination 3 thereof.” Yahoo! Inc. v. La Ligue Contre Le Racisme Et L'Antisemitisme, 433 F.3d 1199, 1206 4 (9th Cir. 2006). A “purposeful availment” analysis is used in contract cases whereas “purposeful 5 direction” analysis is applied in tort cases. Pakootas v. Teck Cominco Metals, Ltd., 905 F.3d 565, 6 577 (9th Cir. 2018) (citing Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 802 (9th Cir. 7 2004)). In determining whether a contract creates sufficient contacts with the forum, courts look 8 to “prior negotiations and contemplated future consequences, along with the terms of the contract 9 and the parties’ actual course of dealing.” Burger King Corp. v. Rudzewicz, 471 U.S. 462, 479 10 (1985). To determine whether activities directed at a forum are sufficient, courts require facts 11 indicating the defendant: “(1) committed an intentional act, (2) expressly aimed at the forum state, 12 (3) causing harm that the defendant knows is likely to be suffered in the forum state.” Yahoo!, 13 433 F.3d at 1206 (internal quotation and citations omitted). 14 The second factor of the test—that the claim must arise out of or relate to the defendant’s 15 forum-related activities—is a “but for” test. Bancroft & Masters, Inc. v. Augusta Nat’l Inc., 223 16 F.3d 1082, 1088 (9th Cir. 2000). “Under this test, a defendant cannot be haled into court for 17 activities unrelated to the cause of action in the absence of a showing of substantial and continuous 18 contacts sufficient to establish general jurisdiction.” Shute v. Carnival Cruise Lines, 897 F.2d 19 377, 385 (9th Cir. 1990) rev’d sub nom. on other grounds Carnival Cruise Lines, Inc. v. Shute, 20 499 U.S. 585 (1991). “The ‘but for’ test preserves the requirement that there be some nexus 21 between the cause of action and the defendant’s activities in the forum.” Id. 22 The plaintiff bears the burden of satisfying the first two factors of the test. 23 Schwarzenegger, 374 F.3d at 802. If the plaintiff fails to satisfy either of these factors, personal 24 jurisdiction is not established in the forum state. Id. If the plaintiff succeeds in satisfying the first 25 two factors, the burden then shifts to the defendant to “present a compelling case” that the exercise 26 of jurisdiction would not be reasonable. Id. “Federal courts ordinarily follow state law in 27 determining the bounds of their jurisdiction over persons.” Daimler AG v. Bauman, 571 U.S. 117, 28 125 (2014). 6 Where, as in this case, the motion to dismiss is based on written materials, rather than an 1 2 evidentiary hearing, the plaintiff need only make a prima facie showing of jurisdiction. 3 Schwarzenegger, 374 F.3d at 800. A plaintiff makes a prima facie showing by producing 4 admissible evidence which, if believed, would be sufficient to establish the existence of personal 5 jurisdiction. Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995). A court must accept as true 6 the uncontroverted allegations in the complaint and resolve conflicts between facts contained in 7 the parties’ affidavits in the plaintiff’s favor. AT & T v. Compagnie Bruxelles Lambert, 94 F.3d 8 586, 588 (9th Cir. 1996). 9 10 United States District Court Northern District of California 11 DISCUSSION I. PERSONAL JURISDICTION HBML argues that there is no general or specific jurisdiction in California. The City and 12 Successor Agency filed an opposition asserting that the court has specific jurisdiction over HBML 13 arising from its direct contacts and its successor liability. Additionally, cross-claimants 14 Swagelok/Whitney and Lozick filed separate oppositions arguing for specific jurisdiction 15 premised on an alter ego theory. Therefore, I will only address specific jurisdiction and determine 16 whether plaintiffs and cross-claimants have made out a prima facie case based on HBML’s direct 17 contacts, successor liability, or an alter ego theory. 18 A. 19 In a single paragraph in its motion, HBML dismisses how plaintiffs could “possibly 20 establish that HBML purposefully availed itself of California’s laws in connection with Claimants 21 claims” because it did not cause the contamination itself or owned or operated the Property. Mot. 22 at 15:1-12. Related to the second factor, it repeats the undisputed fact that SCM’s Marchant 23 division did not become an indirect subsidiary of HBML prior to 1986, decades after Marchant 24 ceased to own or operate on the Property. SAC ¶¶ 3, 22-24; see also Hempstead Decl. ¶ 6. 25 HBML’s Direct Contact with California In response, plaintiffs argue for specific jurisdiction premised on HBML’s nationwide 26 tender offer to acquire SCM in 1985, use of the national financial press to accomplish this task, the 27 eventual merger agreement with SCM that transferred their liability for the Property to HBML, a 28 post-acquisition ad campaign that ran in states including California, and contemporaneous 7 1 documents showing HBML was in control of SCM activities when it was operating in California. 2 Plaintiffs successfully make out a prima facie case of specific personal jurisdiction based on this 3 combination of HBML’s direct contacts with California and the contacts of its predecessor SCM. 4 I analyze each of the factors that show specific jurisdiction below. 5 1. The first factor is satisfied “by purposeful availment of the privilege of doing business in 6 United States District Court Northern District of California Purposeful Availment and Purposeful Direction 7 the forum; by purposeful direction of activities at the forum; or by some combination 8 thereof.” Yahoo!, 433 F.3d at 1206. Recently in a CERCLA liability case, the Ninth Circuit 9 applied the purposeful direction test because the statute sounded in tort more so than contract. See 10 Pakootas, 905 F.3d at 577 (“The Calder test plainly applies here. Claims for recovery of response 11 costs and natural resource damages are “more akin to a tort claim than a contract claim.”). 12 Here, HBML’s alleged involvement revolves around its transactional contacts as a 13 successor to the allegedly tortious conduct of its predecessor. The first factor is not difficult for 14 plaintiffs to establish given the evidence surrounding HBML’s hostile takeover of SCM, the 15 subsequent liquidation of SCM, and SCM’s contacts imputed to HBML as its successor (which I 16 address more comprehensively in the analysis of the second factor). SAC ¶ 23; Bookspan Decl. ¶ 17 21. 18 Plaintiffs produce evidence that HBML’s Financial Director and member of its Board of 19 Directors in 1985, Brian Hellings, testified that he may have initiated discussion on the prospect of 20 selling SCM’s typewriter business at an August 21, 1985 meeting preceding any press release that 21 HBML would announce a tender offer. See Request for Judicial Notice (“Plaintiff RJN”) Ex. A at 22 251:14-252:15 (Dkt. No. 115-2); Bookspan Decl. ¶¶ 11-14 (discussing HBML’s corporate raider 23 reputation). When the takeover efforts began, HBML announced that the tender offer would be 24 “advertised nationally by use of the national financial press and by the interstate mail.” Hamidi 25 Decl. ¶ 6, Ex. B at 4-5 (HBML 7736-37). The national campaign involved numerous press 26 releases to investors and was sent from “the Hanson Trust,” the name of HBML at the time, 27 between August 21 to October 10, 1985. See Hamidi Decl. ¶ 16, Ex. J (HBML 15572, -15574, - 28 8 1 15576, -15580, -15581, -15585).2 Plaintiffs provide evidence that the national press strategy continued after HBML made a United States District Court Northern District of California 2 3 final tender offer as well. See id. (HBML 8828-29, 8797, 15549, 15551-53). From 1986 to 1993, 4 HBML ran advertisements in California, at times through the Los Angeles Times. See Bookspan 5 Decl., Ex. C. The ads were for HBML products, provided background on HBML, and one 6 announced that HBML was sponsoring a gala with a local public television station. Id. ¶ 12, Ex. I; 7 ¶ 32, Ex. C. From 1985 to 1996, HBML also periodically filed SEC documents involved in the 8 tender offer and liquidation of SCM. See Hamidi Decl. ¶ 4, Ex. A at 83:17-84:18, 178:13-179:3. 9 HBML’s reliance on Callaway Golf Corp. v. Royal Canadian Golf Ass'n, 125 F. Supp. 2d 10 1194, 1198 (C.D. Cal. 2000) to discredit the materiality of press releases directed to California is 11 distinguishable. In Callaway, the district court found that a nationwide press release was not 12 sufficient to establish purposeful availment because “[n]one of the four U.S. media 13 publications…[were] located in California, nor did defendant send press releases to any entity or 14 person with a California address.” Callaway, 125 F. Supp. 2d at 1198–1200. Here, the press 15 releases were nationwide, but there is the additional evidence of advertising directed towards 16 California specifically. Given HBML’s direct involvement in the nationwide press coverage of its 17 tender offer, and subsequent ads in California, it purposefully availed itself of California. See 18 Farmers Ins. Exchange v. Portage La Prairie Mut. Ins. Co., 907 F.2d 911 (9th Cir. 1990) (finding 19 that the decision to provide a nationwide press coverage permitted jurisdiction in Montana where 20 the claims happened to be filed). Finally, plaintiffs have provided evidence that both Lord Hanson and Sir Gordon White, 21 22 who were partners managing HBML, lived part-time in California and conducted business there. 23 See Bookspan ¶ 33. Lord Hanson, who was known to operate the business “wherever he [was],” 24 according to HBML’s own 30(b)(6) designee, went so far as to maintain a secretary in California 25 and to meet with HBML executives there. Plaintiff RJN Ex. A at 237:17-238:16. HBML claims 26 27 28 2 Plaintiffs also include evidence of correspondence dated May 30, 1986 between HM AngloAmerican Ltd., an HBML subsidiary that shared HBML’s London office space, and Security Pacific National Bank in Los Angeles, suggesting that at least part of the eventual financing for the tender offer of SCM came from a California bank. See Doty Decl. ¶ 15, Ex. K. 9 1 that Lord Hanson and Sir Gordon White’s part-time residence in California is irrelevant, but it 2 does not dispute the work alleged to have been conducted in California. These contacts are not 3 irrelevant for purposes of the establishing personal jurisdiction. See Perkins v. Benguet Consol. 4 Mining Co., 342 U.S. 437 (1952) (finding it would not violate due process to exercise jurisdiction 5 over a foreign company when the president maintained an office in Ohio where he conducted 6 personal and business tasks on behalf of the company). United States District Court Northern District of California 7 Plaintiffs have produced evidence and sufficiently alleged that HBML, primarily through 8 its transactions in the 1980s, “performed some type of affirmative conduct which allows or 9 promotes the transaction of business within the forum state.” Sinatra v. National Enquirer, 854 10 F.2d 1191, 1195 (9th Cir. 1988). They sufficiently allege that HBML was involved in the 11 acquisition of SCM, which took on the Property contamination liability of Marchant. 12 13 2. Plaintiffs’ CERCLA Claims Arise Out of HBML Predecessor Contacts The second factor is that “the claim must be one which arises out of or relates to” HBML’s 14 contacts. Boschetto, 539 F.3d at 1016. There must be a “nexus between the cause of action and 15 the defendant’s activities in the forum.” Shute, 897 F.2d at 385. Plaintiffs establish this factor 16 through their successor liability theory. 17 HBML’s acquisition of SCM is the but for cause of its alleged CERCLA liability, creating 18 the nexus between its activities in California and the cause of action. Plaintiffs allege that the 19 industrial operations-based contamination occurred on the Property because of Marchant’s 20 operations from approximately 1910 to 1958, SCM’s Marchant division after it acquired Marchant 21 between 1958 to 1959, and Swagelok and Whitney from the mid-1960s to the late 1990s. SAC ¶¶ 22 3-4. HBML’s involvement arises through the series of mergers and acquisitions transactions 23 detailed above; namely, SCM’s consolidation of Marchant in 1958 and HBML’s consolidation of 24 SCM “beginning in the mid-1980s.” SAC ¶ 22. Thus, plaintiffs rely on Shute to argue that 25 HBML’s successor liability makes it responsible for the “but for” cause of the injury—Marchant 26 and SCM’s contamination of the Property—and brings it within the “striking distance” allowed in 27 the Ninth Circuit. 897 F.2d at 386. I find that plaintiffs’ claim arises out of HBML’s contacts 28 with California to the extent HBML was plausibly the successor of SCM. 10 a. 1 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Successor Liability Theory for Personal Jurisdiction A court has personal jurisdiction over an alleged successor company, here HBML, if: (i) “the court would have had personal jurisdiction over the predecessor” and (ii) “the successor company effectively assumed the subject liabilities of the predecessor.” Lefkowtiz v. Scytl USA, No. 15-CV-05005-JSC, 2016 WL 537952, at *3 (N.D. Cal. Feb. 11, 2016) (internal quotation marks and citation omitted). The parties do not dispute that I would have personal jurisdiction over SCM, as the alleged predecessor of HBML’s successor liability, because it was a New York company that regularly conducted business in California before and after “acquiring the Marchant Corporation in a merger transaction.” FAC ¶ 3. So the question is whether HBML assumed SCM’s liabilities. Under federal common law and California law, asset purchasers3 are not liable as successor companies unless: (i) “The purchasing corporation expressly or impliedly agrees to assume the liability;” (ii) “The transaction amounts to a ‘de-facto’ consolidation or merger;” (iii) “The purchasing corporation is merely a continuation of the selling corporation;” or (iv) “The transaction was fraudulently entered into in order to escape liability.” Atchison, Topeka & Santa Fe Ry. Co. v. Brown & Bryant, Inc., 159 F.3d 358, 362–64 (9th Cir. 1997); see also Ray v. Alad Corp., 19 Cal.3d 22, 28 (Cal. 1977) (applying similar analysis under California law). Plaintiffs’ FAC and opposition explicitly invokes only the first basis for successor liability. FAC ¶¶ 37, 51; Emeryville Oppo. at 13:21-24. Plaintiffs state that HBML “explicitly and implicitly adopted as its own, assumed, and inherited Marchant’s environmental liability at the Property…and [SCM’s] liabilities and contacts.” SAC ¶ 37; CenterPoint Energy, Inc. v. Superior Court, 157 Cal.App.4th 1101, 1120 (Cal. Ct. App. 2007) (applying the first exception to successor liability). Their evidence in support of successor liability includes the same events that it cites for purposeful availment and purposeful direction—the tender offer for SCM, the nationwide press releases it used to acquire SCM, and 3 As an initial requirement, successor liability according to California law “requires the purchase of assets, not merely the purchase of stock.” Sunnyside Dev. Co., LLC v. Opsys Ltd., No. 05-cv0553-MHP, 2007 WL 2462142, at *6 (N.D. Cal. Aug. 29, 2007). There is no dispute that the acquisition of SCM involved assets. See Hempstead Decl. ¶ 7 (“Following the acquisition, in 1986, SCM’s assets and liabilities were liquidated…”). 11 1 United States District Court Northern District of California 2 ads directed to California. Plaintiffs’ contend that HBML was essentially the ultimate parent company that dominated 3 and controlled the pertinent events involving SCM. They emphasize that there was a January 4 1986 merger agreement from SCM to HSCM Industries Inc. and Hanson Trust PLC, which was 5 sent to the attention of Sir Gordon White. Hamidi Decl. ¶ 7, Ex. C. The second paragraph of the 6 agreement, Section 1, states that “Hanson,” defined in the letter as collectively HSCM Industries 7 Inc., Hanson Holdings Netherlands B.V. and Hanson Trust PLC, “agrees to effect as promptly as 8 practicable a merger with” SCM. Id. at 1 (HBML 24750). There is no dispute Hanson Trust PLC 9 is the same entity as HBML. Section 12 then declares the contract to be binding on the parties in 10 the letter, again including HBML. Id. at 6. (HBML 24755) (“This contract shall be binding upon 11 and inure to the benefit of the parties hereto, [and] the persons and entities referred to herein.”). 12 Plaintiffs observe that the letter does not include Hanson Industries, the United States counterpart 13 to HBML. 14 Moreover, they point to the testimony of an HBML Rule 30(b)(6) witness, Graham 15 Dransfield, who was an HBML employee in the legal department starting in 1982, former Legal 16 Director of HBML from 1993 to 2003, and Legal Director of Hanson Limited from 2003 to 2009. 17 See Dransfield Decl. ¶ 1. Dransfield testified that Hanson Industries (a division of an HBML 18 subsidiary named Tillotson Commercial Motor Company in the United States) was not involved in 19 making the tender offer for SCM. See Doty Decl. ¶ 7 Ex. D at 381:2-6 (“As I see it [the merger 20 agreement was] signed by the people who were making the tender offer.”). When asked about 21 HSCM Industries Inc. and Hanson Building Holdings Netherlands B.V., Dransfield did not know 22 if they even had the resources (employees, bank accounts, phone and fax numbers) to perform the 23 merger with SCM independent of HBML. Id., Ex. D at 378:11-380:24. All of these facts, along 24 with the press releases and ads from HBML during the time of the transactions, give rise to a 25 prima facie showing of successor liability. 26 HBML “does not dispute that the company formerly known as SCM was ultimately 27 merged into HM Holdings,” another subsidiary of HBML. Mot. to Dismiss at 4 n.3; see also 28 Hempstead Decl. ¶¶ 5-15 (explaining the various corporate transactions and noting that “the 12 1 surviving company from the above-described mergers [referring to the twenty fan companies after 2 the 1986 SCM corporate restructuring] ultimately was merged into another U.S. company and an 3 indirect subsidiary of HBML, known as HM Holdings, Inc.”). But it argues that its United States 4 subsidiaries were in control. HBML contends that management of its United States businesses 5 reported directly to Hanson Industries, and that as a result HBML is not the successor to SCM. United States District Court Northern District of California 6 In 1986, SCM was acquired by the indirect subsidiaries of HBML, Hanson Holdings 7 Netherlands B.V. and HSCM Industries Inc. See Hempstead Decl. ¶ 6; Swagelok Oppo., Berle 8 Decl. Ex. D (HBML 604-607); Reck Decl. Ex. C at 68:5-11; 69:2-6. HBML points to its own 9 1986 Chronology of the Acquisition and Restructuring of SCM, which states that on March 31, 10 1986 the merger occurred, “resulting in ownership by HSCM Industries of 8,040,000 shares of 11 SCM (80.4%) and by [Hanson Holdings Netherlands B.V.] of 1,960,000 shares (19.6%) of SCM.” 12 Berle Decl. Ex. D (HBML 605). 13 But the observation that the actual purchase was through subsidiaries or that they reported 14 to Hanson Industries as entirely separate from HBML is unpersuasive given evidence that HBML 15 (Hanson Trust PLC at the time) was in control. In the 1986 HBML annual report, Sir Gordon 16 White explained the two entities of HBML and Hanson Industries as “constituting a single 17 corporate entity and sharing a common business strategy,” though operating as two separate 18 companies. Hamidi Decl., ¶ 17, Ex. K (HBML 6517-6525); Doty Decl., ¶ 14, Ex. J at 17 (HBML 19 15572). 20 Consistent with this outlook, on August 22, 1985, meeting minutes from HBML in London 21 show that its directors determined a cash tender offer announcement was necessary following a 22 rise in the share prices the day before. See Doty Decl. Ex. L at 1. The minutes also “resolved” 23 that the announcement “on behalf of the Company,” HBML, was approved and a committee of the 24 board consisting of HBML directors were appointed to “facilitate the proposed cash tender offer.” 25 Id. HSCM Industries was formed by HBML in 1985 for the purpose of purchasing SCM and did 26 not own other asserts or conduct other activities. See Berle Decl. Ex. A at 65:4-17; Ex. G (HBML 27 7462). Hanson Netherlands spent money for the acquisition it received from loans directly by 28 HBML. See Berle Decl., Ex. G (HBML 7462-63); Ex. E (HBML 25531). Again, this is 13 1 consistent with Sir Gordon White’s single corporate entity statement, and the meeting minutes of 2 directors discussing HBML’s intent to “facilitate the proposed cash tender offer.” Doty Decl. Ex. 3 L at 1. United States District Court Northern District of California 4 Through the tender offer and acquisition process, HBML then made clear that “as soon as 5 practicable, Hanson Trust intends to seek to influence the management of the Company, to seek 6 majority representation on the Company’s Board of Directors and to seek to effect a business 7 combination between the Company and Hanson Trust or an affiliate of Hanson Trust…” Berle 8 Decl., Ex. G (HBML 7450, 7469). HBML’s involvement in the open market transactions for 9 SCM obligated it to file a Schedule 13D with the SEC as a result of its beneficial ownership of 10 more than 5% of the voting class. See Request for Judicial Notice (“Swagelok RJN”) Ex. TT at 11 18495 (Dkt. No. 113-5). Moreover, HBML was part of the group Schedule 13D along with its 12 subsidiaries HSCM Industries, Hanson Netherlands, and HMAC Investments Inc., which would 13 not have been filed but for these entities acting together for the purpose of acquiring SCM. See 17 14 C.F.R. 240.13d-5(b)(1) (“When two or more persons agree to act together for the purpose of 15 acquiring, holding, voting or disposing of equity securities of an issuer, the group formed thereby 16 shall be deemed to have acquired beneficial ownership…”). 17 HBML’s attempt in this litigation to separate itself from the tender offer and acquisition of 18 SCM is also unsuccessful, at least at this stage, in light of certain holes in Hempstead’s testimony. 19 He states that he was an Associate Director of HBML from 1990 to 1996, but that this was only an 20 “honorary title” with his only role being “to sign certain disclosures for the company to be filed 21 with U.S. regulatory authorities.” Hempstead Decl. ¶ 3. From 1976 to 1978, and then from 1982 22 through 1996, he says that he was employed by Hanson Industries. Id. ¶ 1. Yet Hempstead is the 23 signatory for HBML and Hanson Netherlands on the 1986 merger agreement, which did not 24 include any mention of Hanson Industries. See Hamidi Decl., Ex. C (HBML 24756). Hanson 25 Industries, according to plaintiffs, is a division of Tillotson Commercial Motors, but the 26 company’s director’s report for 1985 to 1987 does not mention any SCM-related activities. See 27 Doty Decl. ¶ 18, Ex. N at 1. 28 HBML attempts to push successor liability onto another entity, Millennium Chemicals, 14 1 Inc. (“Millennium”). It asserts that after the acquisition in 1986, SCM’s assets and liabilities were 2 restructured by Hanson Industries and its general counsel. Hempstead Decl. ¶¶ 5-15. After the 3 SCM businesses were distributed to the fan companies, SCM was merged into HSCM-20. Id. ¶¶ 4 7, 13. HSCM-20 merged again into a direct parent company, HSCM Holdings, Inc., and the 5 surviving corporation was renamed SCM once again. Hempstead Decl. ¶ 14, Ex. C. SCM then 6 merged into another HBML subsidiary, HM Holdings, Inc. in October 1988. Id. at ¶ 15. Finally, 7 HBML argues that in 1996, Millennium, “a newly formed Delaware company,” acquired HM 8 Holdings, Inc. as part of a “demerger” and became the successor. Id. ¶¶ 26-28.4 Millennium 9 merged into Lyondell Chemical Co. in 2004, which filed for bankruptcy in 2009. See Request for 10 Judicial Notice (“HBML RJN”) Ex. D at 20 (Dkt. No. 82-2). HBML’s reliance on the spinoff of liabilities onto Millennium in 1988 for purposes of United States District Court Northern District of California 11 12 personal jurisdiction is irrelevant. It does not refute or negate evidence of HBML’s earlier control 13 of the SCM acquisition or its ownership of SCM while SCM allegedly contributed to the 14 contamination of the Property.5 For these reasons, I find that plaintiffs’ successor liability theory 15 meets the second factor of personal jurisdiction. 16 3. Exercising Jurisdiction Over HBML Would be Reasonable Once plaintiffs satisfy the first two factors of the specific personal jurisdiction test, the 17 18 burden shifts to the defendant, HBML, to show why jurisdiction would not be reasonable. 19 Schwarzenegger, 374 F.3d at 802. The Ninth Circuit examines seven factors to determine whether 20 jurisdiction is reasonable: (i) “existence of an alternative forum;” (ii) “burden on the defendant;” 21 (iii) “convenience and effectiveness of relief for the plaintiff;” (iv) “most efficient judicial 22 resolution of the dispute;” (v) “conflict with sovereignty of the defendant’s state;” (vi) “extent of 23 24 25 26 27 28 4 Hempstead apparently left Hanson Industries to join Millennium as its Senior Vice President, Secretary, and General Counsel simultaneously. Hempstead Decl. ¶ 1. 5 Lozick’s opposition disputes the lack of jurisdictional discovery provided, particularly related to documents in Millennium’s custody that it asserts HBML has control over and was obligated to produce. Lozick Oppo. at 14, 17-18. Plaintiffs have provided sufficient evidence of successor liability, for jurisdictional purposes, making these concerns perhaps less significant. If discovery disputes persist, Lozick should follow the procedures outlined in my Civil Standing Order for discovery disputes. 15 1 purposeful interjection;” and (vii) “the forum state’s interest in the suit.” Brand v. Menlove 2 Dodge, 796 F.2d 1070, 1075 (9th Cir. 1986). HBML asserts that the second and sixth factors 3 make jurisdiction unreasonable. Its arguments are unpersuasive. United States District Court Northern District of California 4 HBML argues that it is overly burdensome to require it, a London-based corporation, to 5 litigate in California. It highlights that three of four depositions have already taken place in 6 London, relevant employees are outside the United States, those same relevant employees may not 7 be able to participate given health issues, they would not be able to travel to California to testify in 8 defense of HBML, and HBML’s document repository is located outside the United States. But a 9 similar burden would apply to plaintiffs and cross-claimants if they had to litigate in the United 10 Kingdom. Moreover, as the Ninth Circuit stated in Sinatra in 1988, “modern advances in 11 communications and transportation have significantly reduced the burden of litigating in another 12 country.” 854 F.2d 1191, 1199. HBML’s witnesses may testify by video deposition if they are 13 unable to travel. It would not be overly burdensome to hale HBML into federal court in 14 California. 15 HBML also argues that any interjection it has made in California was not on purpose. It 16 says that it has not operated any business in California, has no facilities in California, and has had 17 no contacts of any kind—including subsidiaries—since 2005. Rogers Decl. ¶¶ 3-4. I disposed of 18 this argument above and found that HBML purposefully directed its activities toward California 19 when it acquired SCM, and that SCM’s conduct on the Property could be imputed to HBML 20 through a successor liability theory. See Corp. Inv. Bus. Brokers v. Melcher, 824 F.2d 786, 790 21 (9th Cir. 1987) (“Ninth Circuit cases give the purposeful interjectment factor no weight once it is 22 shown that the defendant purposefully directed its activities to the forum state.”). 23 I do not find that HBML’s burden to litigate in this forum, nor its extent of purposeful 24 interjection, weighs against the otherwise reasonable exercise of jurisdiction in this forum. 25 Accordingly, plaintiffs have made a prima facie showing of personal jurisdiction. 26 B. 27 Given my findings on personal jurisdiction, it is not necessary to address a second avenue 28 Alter Ego Theory for personal jurisdiction that relies on cross-claimants’ theory, joined by plaintiffs, that HBML 16 1 (including Hanson PLC, Hanson Trust PLC, and Hanson Limited) and Hanson entities in the 2 United States are alter egos. I will do so, however, as it provides an alternative reason to assert 3 jurisdiction over HBML. California recognizes a prima facie showing of an alter ego liability theory where two 4 5 conditions are met: (i) “there is such a unity of interest and ownership that the individuality, or 6 separateness, of the said person and corporation has ceased;” and (ii) “adherence to the fiction of 7 the separate existence of the corporation would…sanction a fraud or promote injustice.” In re 8 Schwarzkopf, 626 F.3d 1032, 1038 (9th Cir. 2010).6 Many factors may suggest an alter ego relationship: (i) “commingling of funds and other United States District Court Northern District of California 9 10 assets,” (ii) “identical equitable ownership in the two entities,” (iii) “failure to maintain minutes or 11 adequate corporate records, and the confusion of the records of the separate entities,” (iv) “use of 12 the same office or business location; the employment of the same employees and/or attorney,” (v) 13 “identification of the directors and officers of the two entities in the responsible supervision and 14 management,” (vi) “sole ownership of all of the stock in a corporation by one individual or the 15 members of a family,” (vii) “failure to adequately capitalize a corporation,” (viii) “failure to 16 maintain arm’s length relationships among related entities,” (ix) “use of a corporation as a mere 17 shell, instrumentality or conduit for a single venture or the business of an individual or another 18 corporation,” and (x) “manipulation of assets and liabilities between entities so as to concentrate 19 the assets in one and the liabilities in another.” Associated Vendors, Inc. v. Oakland Meat Co., 20 Inc., 26 Cal. Rptr. 806, 813–15 (1962) (internal citations omitted). Because no one factor governs 21 the analysis, courts “should look at all the circumstances to determine whether the alter ego 22 doctrine applies.” Butler v. Adoption Media, LLC, 486 F. Supp. 2d 1022, 1067 (N.D. Cal. 2007) 23 (citing Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523, 539 (2000)). 24 25 26 27 28 6 HBML and Swagelok/Whitney dispute as an initial matter whether Delaware or California law applies to the forthcoming analysis of an alter ego theory for purposes of personal jurisdiction. The Ninth Circuit has clarified that where “there is no applicable federal statute governing personal jurisdiction, the law of the state in which the district court sits applies.” Harris Rutsky & Co. Ins. Servs. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003). Thus, I analyze the issues under California law. 17 1. 1 a. 2 3 4 5 6 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 There is a Unity of Interest and Ownership Acquisition Conduct Swagelok discusses several pieces of evidence both before and after the acquisition of SCM to demonstrate a unity of interests between HBML and its subsidiaries. To start, it is undisputed that HBML incorporated the twenty entities, HSCM-1 through HSCM-20, in anticipation of the takeover and that it organized these entities as subsidiaries of HM AngloAmerican Ltd. (“HM Anglo”), another wholly owned subsidiary of HBML sharing its executive offices with HBML in London, England. See Berle Decl., Ex. I (HBML 15566-67); Ex. A 49:420. On August 21, 1985, a press release was sent from HBML stating that “Hanson Trust PLC (either directly or through one or more of its affiliates) intends to commence a tender offer for any and all outstanding shares of common stock of SCM Corporation.” Berle Decl. Ex. G (HBML 7468). HBML notes that the letter began with “Sir Gordon White, Chairman of Hanson Trust PLC’s North American interests, announced today…” Id. It also asserts that London Stock Exchange rules required HBML to inform its own shareholders and the market generally of the transaction. See Notice of Foreign Law, LSE Listing Rules (Jan. 1999) §§ 10.1(a), 10.37 (requiring “an explanatory circular must be dispatched to the company’s shareholders” for “a transaction by any subsidiary undertaking of the listed company.”). This does not make the initial representation that HBML was the entity “intend[ing] to commence a tender offer” any less significant. Berle Decl. Ex. G (HBML 7468). HBML issued several other press releases taking apparent credit for the SCM takeover as well. See Berle Decl., Ex. S (announcing “SCM is now part of Hanson Trust,” “Hanson Gains Control of SCM,” “Hanson Extends SCM Offer,” “Hanson to Purchase SCM shares,” and “Hanson Wins SCM Appeal.”). HBML does not respond to the particular statements in the releases, except to repeat that they were sent by HBML’s United States entities or by Sir Gordon White on behalf of North American interests. See Reply to Swagelok Oppo. at 5 n.10. The communications still tend to show that HBML shared a unity of interest with the subsidiary vehicles used to acquire SCM. 18 1 In addition, Swagelok and Lozick present the HBML directors meeting minutes from 2 August 22, 1985, which I discussed above in analyzing the successor liability theory. The meeting 3 minutes show that HBML considered the tender offer announcement “on behalf of the Company” 4 to “facilitate the proposed cash tender offer” and that one director discussed “the background to 5 the Company’s interest in SCM Corporation.” Doty Decl. Ex. L at 1. HBML argues that the 6 board was required to approve the transaction by the London Stock Exchange because it was 7 considered a material transaction by an indirect subsidiary. See Notice of Foreign Law, LSE 8 Listing Rules (Jan. 1999) §§ 10.1(a), 10.37. However, as with the SEC filings, those obligations 9 do not diminish the evidence of HBML’s involvement and control over the effort to acquire and 10 United States District Court Northern District of California 11 liquidate SCM. Next, Swagelok contends that the August 26, 1985 tender offer was made by HBML 12 through two wholly owned subsidiaries which it controlled, HSCM Industries, Inc. and Hanson 13 Holdings Netherlands B.V. See Berle Decl., Ex. G (HBML 7462-63). Hanson Netherlands 14 received the money for the acquisition from loans directly by HBML. Id. at Ex. E (HBML 15 25531). In the tender offer, HBML made clear that “as soon as practicable, Hanson Trust intends 16 to seek to influence the management of the Company, to seek majority representation on the 17 Company’s Board of Directors and to seek to effect a business combination between the Company 18 and Hanson Trust or an affiliate of Hanson Trust…” Id. at Ex. G (HBML 7450, 7469). HBML’s 19 response to this evidence is that the tender offer was made by HSCM Industries Inc. and Hanson 20 Holdings Netherlands B.V. as indirect wholly owned subsidiaries of HBML. Id. (HBML 7448, 21 7450). The tender offer, press releases, and meeting minutes evidence suggest that HBML was the 22 power behind the acquisition of SCM, which was accomplished through its control of the 23 subsidiaries. 24 b. Lawsuits Reflecting HBML Control Over the SCM Acquisition 25 Swagelok also asserts that litigation filed by HBML concerning SCM shows its control 26 over the acquisition. In August 1985, HBML filed two lawsuits against SCM for attempting to 27 utilize the New York Securities Takeover Disclosure Act to prevent the takeover. See Berle Decl., 28 Ex. J; Ex. K; Ex. V. Swagelok argues that HBML used the court system to its benefit and in the 19 1 process claimed that it was the real party in interest. This is additional evidence of HBML’s 2 control over the acquisition, according to Swagelok. United States District Court Northern District of California 3 HBML disagrees. It contends that its role in the litigation was “merely incidental to its 4 status as the beneficial owner” and that the legal fees were paid by Hanson Industries and 5 managed by George Hempstead, not HBML counsel. See Hempstead Dep. Tr. 81:19-81:23. As 6 noted earlier, it is not clear that the fact of Hempstead’s management absolves HBML of control: 7 from 1982 to 1996, which includes the time of the lawsuits, he signed the 1986 merger agreement 8 with SCM on behalf of HBML and Hanson Netherlands. See Hamidi Decl., Ex. C (HBML 9 24756). Hempstead additionally served as a Director of HSCM Industries and as Vice President 10 of all the fan companies when he signed the consent to liquidate HSCM Industries and SCM in 11 1986. See Berle Decl., Ex. P-Q. HBML’s participation in the litigation to acquire SCM tends to 12 support a unity of interest with its subsidiaries, regardless of Hempstead’s official role. 13 14 c. Undercapitalizing HBML-20 Swagelok next argues that the HBML-20 entity, formed to house the Marchant liability, 15 was not adequately capitalized because HBML did not conduct any valuation of the assets and 16 liabilities deposited into HSCM-20. The Ninth Circuit has found that inadequate capitalization 17 alone can serve as a basis for alter ego liability against a parent corporation. Slottow v. Am. Cas. 18 Co. of Reading, Pa., 10 F.3d 1355, 1360 (9th Cir. 1993) (“[I]nadequate capitalization of a 19 subsidiary may alone be a basis for holding the parent corporation liable for acts of the 20 subsidiary.”). 21 During liquidation, SCM’s operating businesses were distributed to the fan companies 22 HSCM-1 through HSCM-19. See Berle Decl., Ex. N, Hempstead Decl. ¶¶ 11-12. SCM was left 23 with “residual assets and contingent/legacy liabilities associated with [SCM’s] former defunct 24 businesses” that were merged into HSCM-20. Id. ¶ 11; see also Ex. X (Memorandum of 25 Distribution in Liquidation). None of the businesses distributed into HSCM-20 were operating 26 businesses. Id., Ex. N; Ex. B at 228:17-230:11, 238:2-10. 27 28 HBML contends it did value the HSCM-20 assets and liabilities in a balance sheet. See Berle Decl. Ex. AA at HBML0026899 (showing assets equal to liabilities with Kalamazoo 20 United States District Court Northern District of California 1 Reserves at $0). The valuation was performed by Hellings and other HBML employees. See 2 Reck Decl. Ex. E (Hempstead Dep. Tr.) at 418:13-15. Hempstead testified generally that he 3 believed HSCM-20 was properly capitalized in 1986 because they “were not aware of any 4 significant pending liabilities or contingent liabilities at the time.” Id. at 401:23-402:18. But 5 when he was asked if he knew the residual assets and contingent liabilities were valued at $150 6 million (the amount of debt allocated to HSCM-20) Hempstead stated he did not know. Id. at 7 299:2-9. Dransfield also testified, again as HBML’s 30(b)(6) witness, that he was not aware that 8 the assets or liabilities deposited into HSCM-20 were valued to determine adequate capitalization. 9 Berle Decl., Ex. C at 219:12-221:9, 281:16-292:21. 10 To show that HSCM-20 was undercapitalized, Swagelok focuses on Marchant’s liabilities 11 and liabilities from the Kalamazoo Mill, an entity distributed to HSCM-20 that was not valued in 12 the acquisition. It had been part of the former Allied Paper Division of SCM. The Kalamazoo 13 Mill, also referred to as the Kalamazoo Site by the parties, was placed on the Environmental 14 Protection Agency National Priorities List in 1989 as one of the most polluted areas in the country. 15 See Swagelok RJN Ex. UU at 1-2 (discussing the Kalamazoo River Cleanup in 2002 and Allied 16 Paper’s operations there since 1925) (Dkt. No. 113-5); Berle Decl., Ex. BB (letter from Allied 17 Paper to the Michigan Department of Natural Resources regarding PCB levels tested in 18 Kalamazoo River). The SCM acquisition occurred in 1986, three years prior. 19 Swagelok suggests that the Allied Paper Division of SCM would have known, or had 20 reason to know, about the contamination at the Kalamazoo Site in 1986 during the time of the 21 merger. Prior to the SCM acquisition in 1986, HBML also acknowledged in a Form 20-F that 22 SCM was in negotiations with “pollution control agencies” on steps to be taken for compliance 23 with applicable regulations. Berle Decl., Ex. M (HBML 8514); Ex. B, Hempstead Dep. Tr. at 24 235:10-237:5. 25 In its reply, HBML re-asserts that liabilities like the Marchant and Kalamazoo Site were 26 not part of the valuation because they were unknown at the time. This is consistent with 27 Dransfield’s 30(b)(6) testimony on September 14, 2018, explaining why the entity was not valued. 28 See Berle Decl., Ex. C at 220:11-12 (“…they wouldn’t put a value to it. And you can’t put a value 21 1 to things that are unknown.”). But it leaves unrebutted the likelihood that SCM, and HBML 2 through the acquisition process, would have known about the significant pollution at the 3 Kalamazoo Site. United States District Court Northern District of California 4 HBML also argues as a legal matter that it did not have to include an assessment of the 5 Marchant or Kalamazoo Site liabilities for the capitalization of HSCM-20 when there was only a 6 claim for liability rather than a judgment. See In re Packaged Seafood Prods. Antitrust Litig., 7 2018 U.S. Dist. LEXIS 151394, at *102 (S.D. Cal. 2018) (finding the relevant inquiry for 8 capitalization was “whether [defendant’s capital was sufficient to operate its normal business.”); 9 see also Sheppard v. River Valley Fitness One, L.P., No. CIV.00-111-M, 2002 WL 197976, at *12 10 (D.N.H. Jan. 24, 2002) (“the proper measure of the sufficiency of a corporate entity’s 11 capitalization is not whether it can pay a potential judgment in a lawsuit but, rather, whether it had 12 sufficient assets to meet the obligations incurred by conducting ordinary business...”). However, 13 California law still concerns itself with “prospective liabilities” and inequitable “risk of loss” to 14 shareholders. Remme v. Herzog, 222 Cal. App. 2d 863, 868 (Ct. App. 1963) (“shareholders should 15 in good faith put at the risk of the business [unencumbered] capital reasonably adequate for its 16 prospective liabilities. If the capital is illusory or trifling compared with the business to be done 17 and the risks of loss, this is a ground for denying the separate entity privilege.”). If the liabilities 18 from Marchant, the Kalamazoo Site, and other entities were known but not yet incurred, adequate 19 capitalization requirements suggest at least that a valuation occur to consider those risks and 20 prospective liabilities. 21 HBML argues that because HBML-20 had no active operations it required no assets, and 22 that in any event it had assets such as a lease of a building at 299 Park Avenue and others. See 23 Reck Decl. Ex. K (HBML 627-29) (listing assets in HSCM-20). But Swagelok disputes 24 Hempstead’s account that the proceeds of selling two properties were received by HSCM-20 and 25 that, if they were, they would be enough to capitalize it. See Berle Decl., Ex. B at 229:15-231:23. 26 On this record it appears that HSCM-20 did not have its assets or liabilities valued during the 27 SCM transactions, even while HBML had reason to know the fan company faced prospective 28 liabilities from its SCM distributions. At a minimum, there remains a question whether HSCM-20 22 1 was undercapitalized. 2 d. Finally, Swagelok discusses HBML’s use of the same officers for the restructuring and 3 United States District Court Northern District of California Sharing the Same Officers and Directors in Subsidiaries 4 liquidation of SCM as another factor weighing in favor of alter ego liability. See Slottow, 10 F.3d 5 at 1360 (finding a unity of interests where, in part, a parent company owned nearly all shares of a 6 subsidiary, and all the subsidiary’s officers were officers of the parent company). In Slottow, the 7 Ninth Circuit found relevant that the companies used the same business location, same lawyers, 8 failed to make arms-length transactions, and the parent represented it would cover the subsidiary’s 9 debts. Id. In this case, Swagelok contends Hempstead served as an officer or director on both 10 sides of several transactions, including May 7, 1986 liquidations of SCM and HSCM Industries 11 Inc., memorandums of distribution in liquidation between SCM and HSCM-20, a 1988 merger 12 agreement between SCM and HM Holdings Inc., and a 1986 subscription agreement. See Berle 13 Decl., Exs. P-R, X, CC, PP. As HBML asserts, this is insufficient to weigh in favor of a unity of interest or ownership. 14 15 Swagelok does not identify any directors of HBML in 1986 who were concurrently directors of 16 HSCM-20. See Berle Decl., Ex. NN at 710 (HBML 10818). According to HBML, of all twenty- 17 six directors, associate directors, and officers of HBML and HSCM-20, there was only one in 18 common between the two companies. See Dransfield Dep. Tr. at 5-9, 203:2-204:3, 204:21- 19 205:20. That said, sufficient evidence supports a finding that a unity of interest and ownership 20 exists. 21 22 2. Injustice Will Result if the Corporate Veil is Not Pierced The second requirement for alter ego liability is that there must be “an inequitable result if 23 the acts in question are treated as those of the corporation alone.” Wehlage v. EmpRes Healthcare, 24 Inc., 791 F. Supp. 2d 774, 782 (N.D. Cal. 2011) (internal citation omitted). Plaintiffs are required 25 to “plead facts sufficient to demonstrate that conduct amounting to bad faith makes it inequitable 26 for the corporate owner to hide behind the corporate form.” Prod. & Ventures Int’l v. Axus 27 Stationary (Shanghai) Ltd., No. 16-CV-00669-YGR, 2017 WL 201703, at *8 (N.D. Cal. Jan. 18, 28 2017) (internal quotation marks and citation omitted). 23 Swagelok repeats its earlier assertions that HBML intentionally targeted SCM for a hostile 1 2 takeover and liquidation, was directing the shell game involving Marchant’s environmental 3 liability, and acquired a company that retained the alleged environmental liabilities while 4 operating on the Property. See Berle Decl., Ex. N ¶¶ 11-12. Swagelok’s allegations are consistent 5 with plaintiffs’ in terms of demonstrating HBML’s control over the tender offer, acquisition, 6 liquidation of SCM, and the post-acquisition restructuring of its liabilities. Because I found that 7 plaintiffs stated a claim for successor liability against HBML, similar considerations would lead to 8 an inequitable result if the corporate veil were not pierced. Alter ego liability is a second, 9 alternative reason to find jurisdiction over HBML. 10 United States District Court Northern District of California 11 II. REQUESTS FOR JUDICIAL NOTICE AND EVIDENTIARY DISPUTES HBML, plaintiffs, and Swagelok filed requests for judicial notice. HBML then filed 12 separate oppositions to plaintiffs’ and Swagelok’s requests. Additionally, Swagelok filed 13 evidentiary objections to HBML’s Hempstead declaration in support of its motion, HBML moved 14 to exclude Dr. Bookspan’s testimony in its reply, and objects to specific paragraphs and exhibits in 15 the Berle, Doty, and Hamidi declarations. My findings on these issues are explained below. 16 17 A. Requests for Judicial Notice 1. HBML Request for Judicial Notice 18 HBML requests judicial notice of documents in support of its motion, including a 19 certificate of merger of Millennium Holdings Inc. to MHI 2, LLC (Exhibit A), a Form 8-K filed 20 by Lyondell Chemical Co. in 2004 (Exhibit B), excerpts from Lyondell’s Form 10-K filed in 2007 21 (Exhibit C), excerpts from Millennium’s voluntary petitions for Chapter 11 bankruptcy (Exhibit 22 D), an Order in the 2007 case Walter Van Doren v. Coe Press Equipment Corp., Case No. 2:06- 23 cv-02835-LDD (Exhibit E), and excerpts from the Phase I site assessment the City prepared for 24 Powell Street properties (Exhibit F). See HBML RJN at 1-2. 25 Courts may judicially notice documents in the public record to show the document was 26 filed or that a proceeding occurred. See United Tactical Sys., LLC v. Real Action Paintball, Inc., 27 2017 WL 713135, at *6 (N.D. Cal. Feb. 23, 2017) (taking judicial notice of documents that were 28 filed with the secretary of state). The ability to take judicial notice of court filings extends to 24 1 documents filed in federal bankruptcy court actions as well. See Richard & Sheila J. McKnight 2 2000 Family Tr. v. Barkett, 675 F. App’x 715, 716 (9th Cir. 2017) (taking judicial notice of 3 federal bankruptcy and district court documents). Other court decisions are also susceptible to 4 judicial notice, as are records that are generally publicly available. See, e.g., Lee v. City of Los 5 Angeles, 250 F.3d 668, 689 (9th Cir. 2001) (“A court may take judicial notice of ‘matters of public 6 record’”). 7 8 filed documents, and their existence cannot be reasonably questioned. Accordingly, I GRANT 9 HBML’s request for judicial notice of Exhibits A through F. 10 11 United States District Court Northern District of California Exhibits A through F are appropriate for judicial notice because they are publicly available 2. Plaintiffs Request for Judicial Notice Plaintiffs request judicial notice of documents like a transcript of Hellings’s deposition in a 12 1985 case between HBML and SCM in the United States District Court for the Southern District 13 of California (Exhibit A) and a copy of HBML’s Memorandum of Contentions of Fact and Law 14 filed in another case in the United States District Court for the Central District of California 15 (Exhibit B). See Plaintiff RJN at 1. Judicial notice is possible for records filed in another case. 16 See First Mercury Ins. Co. v. Kinsale Ins. Co., 2018 WL 3995836 at n.2. (N.D. Cal. Aug. 21, 17 2018) (judicially noticing deposition transcripts and filed documents in the case). It is appropriate 18 to notice that the deposition occurred and was filed in another case, but I do not adopt Hellings’s 19 underlying testimony as undisputed fact. Because I did not need to rely on Exhibit B in rendering 20 a decision, I decline to take judicial notice of it. I GRANT plaintiffs’ request to take judicial 21 notice of Exhibit A and DENY AS MOOT judicial notice of Exhibit B. 22 3. Swagelok Request for Judicial Notice 23 Swagelok/Whitney requests judicial notice of Exhibits SS to EEE in its compendium of 24 evidence in support of its opposition to the motion to dismiss. Swagelok RJN at 2, 6. Of these 25 requests for judicial notice, I relied on Exhibits TT and UU in this Order, which are a beneficial 26 ownership disclosure statute in effect in 1985 when HBML filed a Schedule 13D and an EPA 27 2002 Fact Sheet regarding the Kalamazoo River Cleanup and the EPA 1993 Fact Sheet regarding 28 the proposed addition of sites to the National Priorities List, respectively. The existence of these 25 1 documents are judicially noticeable as publicly available documents whose existence cannot 2 reasonably be questioned. Therefore, I GRANT the request to judicially notice Exhibits TT and 3 UU, and the remaining exhibits I decline to judicially notice at this time are DENIED AS MOOT. 4 5 United States District Court Northern District of California 6 B. Evidentiary Objections 1. Swagelok and Lozick Evidentiary Objections Swagelok brings nine evidentiary objections to portions of HBML’s Hempstead 7 declaration. See Evidentiary Objections (Dkt. No. 113-6). All of Swagelok’s objections are based 8 on a lack of personal knowledge or lack of foundation under Federal Rule of Evidence 602, and 9 inadmissible hearsay grounds under Rules 801(c) and 802. Some objections are lodged on 10 relevance grounds under Rule 401. Lozick also challenges the relevance of two prior lawsuits 11 involving HBML. See Lozick Oppo. at 18-19. Because I find there is personal jurisdiction in 12 favor of plaintiffs, Swagelok, and Lozick, these various objections are moot at this stage. 13 14 2. HBML Evidentiary Objections HBML seeks rulings on evidentiary objections that it leveled in its reply to plaintiffs and 15 Swagelok’s oppositions, as well as at the hearing on their motion to dismiss. HBML first seeks to 16 exclude the testimony of plaintiffs’ historian, Dr. Bookspan. See Reply to Emeryville at 13-15 17 (Dkt. No. 126). HBML argues that it is inadmissible under Rule 702, which allows for testimony 18 based on sufficient facts, the product of reliable methods, and which applies those reliable 19 methods to the facts. Specifically, HBML contends that Dr. Bookspan is unqualified to offer her 20 opinion that HBML and its United States counterpart Hanson Industries were indistinguishable 21 entities in the way they were financed and managed. See Bookspan Decl. ¶ 40. It also argues that 22 her entire testimony on the content of the materials referenced in her declaration is not helpful 23 because of her lack of experience in corporate legal structures or finance; and that her testimony 24 on HBML’s California contacts should be excluded as irrelevant. Id. ¶¶ 31-39. 25 I do not agree that Bookspan lacks the expertise to offer an opinion on HBML’s activities 26 from the 1980s to 2000 that are relevant to the alleged environmental contamination. Bookspan 27 Decl. ¶ 2 (“I have 34 years of experience in conducting corporate history research for clients 28 involved in environmental cleanup liability issues as well as for internal corporate purposes.”). 26 1 Her testimony is relevant and her interpretation of the contents of historical materials referenced in 2 her declaration would be helpful to a factfinder. Therefore, HBML’s objection to Bookspan’s 3 declaration is OVERRULED. 4 5 declaration, and the entire Hellings’s deposition transcript. Starting with the Hamidi declaration, 6 HBML objects to paragraphs 8, 9, and 11 on hearsay grounds and the best evidence rule with 7 respect to how it summarizes Hempstead’s testimony. I do not rely on Hamidi’s declaration for its 8 statements on Hempstead’s testimony, making this objection moot. 9 United States District Court Northern District of California Next, HBML objects to exhibits attached to the Doty declaration, portions of the Hamidi HBML then objects to Hellings’s deposition on grounds that it is hearsay, an unsigned 10 copy of the transcript, and because plaintiffs apparently failed to produce it in advance of the Rule 11 30(b)(6) deposition of HBML. As I discussed above, the Hellings deposition transcript was found 12 suitable for judicial notice as a public record filed in another case whose existence cannot 13 reasonably be questioned. The objection is OVERRULED. 14 As for the Doty declaration, HBML’s objections are brought on the grounds of a lack of 15 authentication and lack of personal knowledge for both Exhibit I, an ad from the Los Angeles 16 Times, and Exhibit N, a Tillotson Director’s Report. HBML raises these technical objections 17 without giving cause for concern about authenticity, even though each was raised in depositions 18 taken in jurisdictional discovery. At this stage, it is clear from the exhibits themselves that they 19 are what they purport to be. See Fed. R. Evid. 901(b)(4) (a document’s “appearance, contents, 20 substance, internal patterns, or other distinctive characteristics of the item, taken together with all 21 the circumstances” is evidence enough to satisfy the authentication requirement). There is no 22 indication from HBML or otherwise that plaintiffs would be unable to authenticate the exhibits in 23 trial. See Faulks v. Wells Fargo & Co., 231 F.Supp.3d 387, 397-98 (N.D. Cal. 2017) (overruling 24 objections to admissibility because “it is possible that the facts underlying [the exhibit] could be 25 admissible at trial.”). These objections are OVERRULED. 26 Finally, with respect to HBML’s reply to Swagelok’s opposition, HBML objects to the 27 Berle declaration and several of its attached exhibits. See Reply to Swagelok Opposition at (Dkt. 28 No. 127). HBML objects to paragraph 23 to the extent it summarizes Lyondell bankruptcy 27 1 documents. I do not rely on Berle’s summary of the Lyondell bankruptcy, so this objection is 2 moot. HBML also objects to Berle declaration paragraphs 15 and 32, but since I do not rely on 3 these paragraphs in the Order these objections are moot as well. 4 HBML then objects to Exhibits L and BB for lack of authentication and lack of personal 5 knowledge to authenticate the documents. In addition, HBML objects to Exhibit BB for lack of 6 foundation. Exhibit L, a copy of HBML meeting minutes, was produced by HBML in 7 jurisdictional discovery. See Doty Decl. ¶ 16, Ex. L (explaining that the meeting minutes were 8 produced by Dransfield in his capacity as HBML’s Rule 30(b)(6) witness). Exhibit BB, a 1976 9 letter from Allied Paper to the Department of Natural Resources, was introduced by Berle citing 10 United States District Court Northern District of California 11 the ancient document exception to hearsay. Like cases at summary judgment, here the authenticity and lack of personal knowledge 12 objections are not well-taken because there is no suggestion the evidence would not be admissible 13 at trial. See Faulks, 231 F.Supp.3d at 397-98. Moreover, courts tend not to exclude evidence 14 before trial based on objections to form—such as a lacks foundation challenge—as opposed to 15 whether its contents are admissible. Ochoa v. Santa Clara Cty. Office of Educ., No. 16-CV- 16 03283-HRL, 2017 WL 2423183, at *5 (N.D. Cal. June 5, 2017) (“courts at the summary judgment 17 stage focus not on the form of the evidence submitted by the parties but on the admissibility of its 18 contents.”). The objections to Exhibit L and BB are OVERRULED. 19 20 21 22 23 CONCLUSION For the reasons stated above, HBML’s motion to dismiss for lack of jurisdiction is DENIED. It shall answer the SAC within fourteen days of the date below. IT IS SO ORDERED. Dated: January 30, 2019 24 25 William H. Orrick United States District Judge 26 27 28 28
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