Everflow Technology Corporation v. Millenium Electronics, Inc., No. 5:2007cv05795 - Document 65 (N.D. Cal. 2008)

Court Description: ORDER GRANTING 50 , 51 PLAINTIFF'S MOTION FOR LEAVE TO FILE FIRST AMENDED COMPLAINT. Signed by Judge Jeremy Fogel on 11/3/08. (jflc2, COURT STAFF) (Filed on 11/3/2008)
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Everflow Technology Corporation v. Millenium Electronics, Inc. Doc. 65 1 **E-Filed 11/3/08** 2 3 4 5 6 7 8 IN THE UNITED STATES DISTRICT COURT 9 FOR THE NORTHERN DISTRICT OF CALIFORNIA 10 SAN JOSE DIVISION 11 12 13 EVERFLOW TECHNOLOGY CORPORATION, incorporated under the laws of the Republic of China (Taiwan), Plaintiff, 14 v. 15 16 Case No. C 07-05795 JF (HRL) ORDER1 GRANTING PLAINTIFF’S MOTION FOR LEAVE TO FILE FIRST AMENDED COMPLAINT [re: docket no. 50, 51] MILLENIUM ELECTRONICS, INC., a California corporation, 17 Defendant. 18 19 20 21 Plaintiff Everflow Technology Corp. (“Everflow”) seeks leave to file a first amended 22 complaint. The motion is opposed by Defendant Millenium Electronics, Inc. (“MEI”). The 23 Court has considered the moving and responding papers as well as the oral arguments presented 24 at the hearing on October 27, 2008. For the reasons set forth below, the motion will be granted 25 26 27 28 1 This disposition is not designated for publication in the official reports. Case No. 07-05795 JF (HRL) ORDER GRANTING PLAINTIFF’S MOTION TO FILE FIRST AMENDED COMPLAINT (JFEX1) Dockets.Justia.com 1 2 I. BACKGROUND Everflow is a specialized fan manufacturer located in Taiwan. The fans are used by large 3 computer manufacturers that incorporate them into computers, which then are sold on the retail 4 market. MEI is a California corporation located in San Jose, California. It markets cooling 5 systems directly to computer assembly companies for incorporation into the individual personal 6 computer designs sold by those companies. MEI used Everflow’s fans as part of MEI’s cooling 7 systems. Everflow entered into a series of agreements to deliver computer cooling products to 8 MEI. MEI allegedly agreed to wire payment for each shipment of goods within forty-five (45) 9 days. Everflow claims that MEI ordered goods from Everflow and took delivery but has failed to 10 make payments in excess of $2,000,000. 11 Everflow filed the instant action on November 14, 2007, seeking to recover the payments 12 allegedly owed under the contract. In the course of discovery, Everflow subpoenaed MEI’s bank 13 records, which revealed wire transfers from MEI to James Loro, one of the company’s two 14 shareholders who also served as the company’s CEO, CFO and Director. The records reflected 15 other wire transfers out of MEI’s account to Peralta Investment Group (“Peralta”). Upon 16 discovery of these and other facts, Everflow filed the instant motion on September 19, 2008, 17 seeking to add proposed defendants Jamel Enterprises, Lororco Sales, Inc., James Loro, Melva 18 Loro, Nadene Loro Snapp, and Peralta Investment, LLC; and seeking to assert new claims for 19 fraud, alter ego, unfair competition, fraudulent transfer and conspiracy 20 II. LEGAL STANDARD 21 A request for leave to amend is governed by Federal Rule of Civil Procedure 15(a). 22 “Rule 15(a) declares that leave to amend ‘shall be freely given when justice so requires’; this 23 mandate is to be heeded.” Foman v. Davis, 371 U.S. 178, 182 (1962). “[T]he grant or denial of 24 an opportunity to amend is within the discretion of the District Court,” id., and the standard for 25 leave under Rule 15(a) is “very liberal,” AmerisourceBergen Corp. v. Dialysist West, Inc., 465 26 F.3d 946, 951 (9th Cir. 2006). In deciding whether to grant leave to amend, courts consider 27 several factors, including: (1) undue delay by the party seeking the amendment; (2) prejudice to 28 the opposing party; (3) bad faith; (4) futility of amendment; and (5) whether the party previously 2 Case No. 07-05795 JF (HRL) ORDER GRANTING PLAINTIFF’S MOTION TO FILE FIRST AMENDED COMPLAINT (JFEX1) 1 has amended its pleadings. Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995). 2 3 III. DISCUSSION Everflow seeks leave to file its first amended complaint to add new defendants and claims 4 based on newly discovered facts. The Ninth Circuit has held that discovery of new facts after a 5 complaint was filed may warrant granting leave to amend. See Wittmayer v. U. S., 118 F.2d 808, 6 809 (9th Cir. 1941) (upholding leave to amend granted ten months after commencement of the 7 suit); see also Abels v. JBC Legal Group, P.C., 229 F.R.D. 152, 156 (N.D. Cal. 2005) (granting 8 leave to amend where plaintiff “acted quickly once identifying [new facts] and discovery is not 9 complete”). Here, within a month of discovering new facts in the case, Everflow sought a 10 stipulation from MEI for the filing of a first amended complaint; on MEI’s refusal, Everflow 11 filed the instant motion, which represents its first attempt to amend the original complaint. 12 Accordingly, leave to amend appears appropriate. 13 MEI argues in opposition to the motion that (1) Everflow seeks leave to amend in bad 14 faith, and (2) amendment to add the alter ego claim would be futile. 15 A. Everflow Does Not Seek Leave To Amend In Bad Faith 16 Everflow asserts that examination of MEI’s bank records revealed “wholesale looting” of 17 MEI’s funds by its principals during the time MEI was negotiating with Everflow. Furthermore, 18 Everflow claims that it recently discovered that MEI’s two shareholders began a parallel business 19 operation to continue the same line of work while avoiding MEI’s creditors. In support of these 20 assertions, Everflow attached bank records and incorporation papers containing the names of the 21 proposed defendants. 22 Despite the well-supported motion, MEI argues that Everflow ignored two documents in 23 a bad faith attempt to make the proposed defendants personally liable for MEI’s alleged debts. 24 MEI offers UCC Financing Statements filed by the Loro Living Trust and Peralta. MEI argues 25 that these statements establish that its wire payments to James Loro and Peralta were to “secured 26 creditors,” and that Everflow’s interest as an unsecured creditor is subordinate to that of a 27 creditor having a perfected security interest. However, MEI fails to establish that Everflow had 28 access to these records. Moreover, even if Everflow did have access to the records and failed to 3 Case No. 07-05795 JF (HRL) ORDER GRANTING PLAINTIFF’S MOTION TO FILE FIRST AMENDED COMPLAINT (JFEX1) 1 acknowledge their existence in its moving papers, MEI does not offer any explanation for its 2 payments to Peralta. 3 MEI also argues that Everflow seeks to exert pressure on James Loro to settle the action 4 on terms favorable to Everflow. The amended complaint would add as defendants Melva Loro 5 and Nadene Loro Snapp, the wife and daughter of MEI’s President James Loro, as well as Loro 6 himself. Everflow describes the various roles the three family members had in the different 7 companies and attaches numerous exhibits supporting its allegations. MEI does not directly 8 address the controlling roles each family member appears to have had in the closely held 9 companies. Although pressure to settle may increase with the filing of the amended complaint, 10 that fact alone does not establish that amendment is sought in bad faith. 11 B. Everflow’s Amendment Would Not Be Futile 12 Challenges to a pleading usually are deferred until after the amended pleading has been 13 filed, but leave to amend sometimes may be denied if the proposed amendment is futile. 14 DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 188 (9th Cir. 1987). “However, a proposed 15 amendment is futile only if no set of facts can be proved under the amendment to the pleadings 16 that would constitute a valid and sufficient claim or defense.” Miller v. Rykoff-Sexton, Inc., 845 17 F.2d 209, 214 (9th Cir.1988). Here, the amended complaint would add claims for fraud, alter 18 ego, unfair competition, fraudulent transfer and conspiracy.2 MEI argues that the corporate veil 19 doctrine prevents Everflow’s assertion of the proposed claims, and the alter ego claim in 20 particular. 21 In California, a corporation may be regarded as the alter ego of the stockholders. 22 Associated Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 836 (1962). “The two 23 requirements are (1) that there be such unity of interest and ownership that the separate 24 25 26 27 28 2 Specifically, Everflow proposes to add the following new claims: (1) fraud count one (against MEI and proposed defendant James Loro); (2) fraud count two (against MEI, Jamel Enterprises, Peralta, James Loro, Melva Loro and Nadene Loro Snapp); (3) alter ego; (4) unfair competition in violation of California Business and Professions Code § 17200; (5) fraudulent transfer in violation of California Civil Code § 3439.05; and (6) conspiracy in violation of California Civil Code § 3439.05. 4 Case No. 07-05795 JF (HRL) ORDER GRANTING PLAINTIFF’S MOTION TO FILE FIRST AMENDED COMPLAINT (JFEX1) 1 personalities of the corporation and the individual no longer exist, and (2) that, if the acts are 2 treated as those of the corporation alone, an inequitable result will follow.” Id. at 837. Here, 3 MEI cites only to the general purpose of the corporate veil doctrine, maintaining that “[t]he 4 purpose of the doctrine is not to protect every unsatisfied creditor.” Id. at 842. By definition, 5 then, the doctrine protects at least some unsatisfied creditors. Everflow sets out and addresses 6 facts supporting the first and second requirement for its alter ego claim. It offers evidence that 7 the Loros family had a “unity of interest and ownership” in MEI, and it alleges that the MEI and 8 the proposed defendants “engaged in a concerted effort to hide assets from creditors.” At the 9 pleading stage, these allegations suffice to make out an alter ego claim. 10 11 IV. ORDER Good cause therefore appearing, IT IS HEREBY ORDERED that Everflow’s motion for 12 leave to file its first amended complaint is GRANTED. The amended complaint shall be filed 13 and served within ten (10) days of the date of this order. 14 15 16 DATED: November 3, 2008 17 18 JEREMY FOGEL United States District Judge 19 20 21 22 23 24 25 26 27 28 5 Case No. 07-05795 JF (HRL) ORDER GRANTING PLAINTIFF’S MOTION TO FILE FIRST AMENDED COMPLAINT (JFEX1) 1 This Order has been served upon the following persons: 2 Mark M Fang: Mfang@MarkFangAPC.com 3 Mark Figueiredo: mrf@structurelaw.com 4 Kevin Richard Martin: kmartin@randicklaw.com 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 6 Case No. 07-05795 JF (HRL) ORDER GRANTING PLAINTIFF’S MOTION TO FILE FIRST AMENDED COMPLAINT (JFEX1)