Case Number: KC062856    Hearing Date: August 19, 2014    Dept: O

Private Label PC, Inc. v. PQI Corporation, et al. (KC062856)

1. Specially Appearing Defendants Power Quotient International (HK) Co., Ltd. and Power Quotient International Co. (Taiwan) Ltd.’s RENEWED MOTIONS TO QUASH

Respondent: Plaintiff Private Label PC, Inc.

2. Cross-Defendant Versa Transport LLC’s DEMURRER TO AND MOTION TO STRIKE PORTIONS OF SECOND AMENDED CROSS-COMPLAINT

Respondent: Cross-Complainant PQI Corporation

TENTATIVE RULING

1. Motions to Quash

Specially Appearing Defendants Power Quotient International (HK) Co., Ltd. and Power Quotient International Co. (Taiwan) Ltd.’s renewed motions to quash are DENIED.

MOTION TO QUASH:
A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion to quash service of summons on the ground of lack of jurisdiction of the court over him or her. (CCP §418.10(a)(1).)

When a nonresident defendant challenges personal jurisdiction the burden shifts to the plaintiff to demonstrate by a preponderance of the evidence that all necessary jurisdictional criteria are met. (Jewish Defense Org. v. Superior Court (1999) 72 Cal. App. 4th 1045, 1054-55.) This burden must be met by competent evidence in affidavits and authenticated documentary evidence. (Id. at 1055.)

GENERAL JURISDICTION:
General jurisdiction may lie for all purposes if a defendant has established a presence in the forum state by virtue of activities in the state which are extensive or wide-ranging, or substantial and systematic, in which case a defendant’s contacts take the place of physical presence within the state. (Integral Dev’t Corp. v. Weissenbach (2002) 99 Cal. App. 4th 576, 583-84.) The cause of action need not be related to the defendant’s contacts. (Thomson v. Anderson (2003) 113 Cal.App.4th 258, 265-266.)

The “representative services” doctrine supports the exercise of jurisdiction when the local subsidiary performs a function that is compatible with, and assists the parent in the pursuit of, the parent’s own business, but the doctrine does not support jurisdiction where the parent is merely a holding company whose only business pursuit is the investment in the subsidiary… If a parent uses a subsidiary to do what it otherwise would have done itself, it has purposely availed itself of the privilege of doing business in the forum. Jurisdiction over the parent is therefore proper. This contrasts to the case of a holding company. In such a case, the subsidiary is not performing a function that the parent would otherwise have had to perform itself, the holding company could simply hold another type of subsidiary. In such a case, imputing jurisdictional contacts is improper. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 543.)

SPECIFIC JURISDICTION:
Specific jurisdiction results when the defendant’s contacts with the forum state, though not enough to subject the defendant to the general jurisdiction of the forum, are sufficient to subject the defendant to suit in the forum on a cause of action related to or arising out of those contacts. (Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 569-570.) Specific jurisdiction exists if: (1) the defendant has purposefully availed itself of forum benefits with respect to the matter in controversy; (2) the controversy is related to or arises out of the defendant’s contacts with the forum; and (3) the assertion of jurisdiction would comport with fair play and substantial justice. (Id. at 570.) Courts must additionally evaluate the burden on the defendant of appearing in the forum, the forum state’s interest in adjudicating the claim, the plaintiff’s interest in convenient and effective relief within the forum, judicial economy, and the shared interest of the several states in furthering fundamental substantive social policies. (Id.)

PQI-HK and PQI-US are subsidiaries of PQI-TW, making them sister companies. (Plaintiff’s Separate Statement to PQI-HK (PSS-HK) 2-4.) PQI-US is incorporated in California. (PSS-HK 5.) Based on the submitted evidence, this court finds by a preponderance of the evidence that PQI-TW and PQI-HK utilized PQI-US to perform representative services in California. PQI-TW’s Vice President, Geoffrey Lai, assured plaintiff that “Kevin Chao’s dealings with [Plaintiff] were authorized by PQI Group and that Chao’s instructions as to the structure of the transactions should be carried out in accordance with his directions. Based on Mr. Lai’s assurances, [Plaintiff] felt confident enough to continue doing business with Chao at PQI Corp. even though the transactions were to be conducted through intermediaries. (Luke Decl., Par. 7.) Luke also attests that following Lai’s direction, she also worked with PQI-HK’s Mary Chan “to establish another channel through which goods could be sold to PQI Group via PQI-HK to supply Chao’s needs.” (Luke Decl., Par. 8.) Further, PQI-HK purchased computer components totaling $3,444,425.00 from plaintiff, and instructed plaintiff to deliver the goods to PQI-U.S. (Lau Decl., Par. 6.) The purchase orders identify a middleman, Landway Limited, at the request of Geoffrey Lai and Mary Chan. (Lau Decl., Pars. 5-7.) Mary Chan knew that the Landway Limited purchases actually came from plaintiff. (Lau Decl., Par. 8.) PQI-TW also exercised operational control over PQI-US. Purchases over $600 had to be approved by PQI-TW first. (Plaintiff’s Separate Statement to PQI-TW (PSS-TW) 6.) PQI US could not enter into a contract without its parent corporation’s approval. (PSS-TW 7.) Higher level new hires had to be cleared by PQI TW. (PSS-TW 8.) PQI TW reserve the right to hire employees of PQI US without consultation with PQI US’s president. (PSS-TW 9.) PQI US’s president, Jacky Lai, reported to two PQI TW vice presidents. (PSS-TW 10) while PQI US’s nominal CEO was also a secretary to the CEO of PQI TW. (PSS-TW 11.) Through the use of PQI-US, PQI-TW funneled sales of $106,429,063 worth of goods to California customers. (PSS-TW 12.)

Defendants contend that the representative services doctrine was disapproved by Daimler v. Bauman (2014) 134 S.Ct. 746, but Daimler is distinguishable because unlike MBUSA in Daimler, PQI-US was incorporated in the state and had offices here as well as more than $100 million in sales here (PSS-TW 2 and 12). Defendants cite the recent case of Young v. Daimler AG, 2014 WL 3827652, to support disapproval of the representative services doctrine, however, Young v. Daimler provides no guidance or analysis on the doctrine. Instead, the court simply concludes that the Bauman court “assumed agency and still concluded that MBUSA’s California contacts were insufficient… Thus, the specifics of the agency test applied are irrelevant to the Bauman II holding, as the result would be the same under any theory of agency.” There is no discussion of the doctrine, there is no analysis of how the contacts of a local agent through which a foreign principal acts may be imputed to that foreign defendant (see In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4th 100, 119-120; Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 543), and of notably, neither Daimler v. Bauman (2014) 134 S.Ct. 746 nor Young v. Daimler AG, 2014 WL 3827652 overturned the representative services doctrine.

Regardless, even if the ruling in Young v. Daimler AG, 2014 WL 3827652 can be construed to have overturned the representative services doctrine (which the court did not expressly hold), this court finds that sufficient evidence supports this court’s exercise of specific jurisdiction. A preponderance of the evidence supports the finding that PQI-TW and PQI-HK specifically targeted the California market. PQI-TW’s Vice President, Geoffrey Lai, assured plaintiff that “Kevin Chao’s dealings with [Plaintiff] were authorized by PQI Group and that Chao’s instructions as to the structure of the transactions should be carried out in accordance with his directions. Based on Mr. Lai’s assurances, [Plaintiff] felt confident enough to continue doing business with Chao at PQI Corp. even though the transactions were to be conducted through intermediaries. (Luke Decl., Par. 7.) Luke also attests that following Lai’s direction, she also worked with PQI-HK’s Mary Chan “to establish another channel through which goods could be sold to PQI Group via PQI-HK to supply Chao’s needs.” (Luke Decl., Par. 8.) Further, PQI-HK purchased computer components totaling $3,444,425.00 from plaintiff, and instructed plaintiff to deliver the goods to PQI-U.S. (Lau Decl., Par. 6.) The purchase orders identify a middleman, Landway Limited, at the request of Geoffrey Lai and Mary Chan. (Lau Decl., Pars. 5-7.) Mary Chan knew that the Landway Limited purchases actually came from plaintiff. (Lau Decl., Par. 8.) Therefore, this court finds defendants purposefully availed itself of this forum benefits, the controversy is related to or arises out of the defendants’ contacts with plaintiff, and this court’s assertion of jurisdiction would comport with fair play and substantial justice.

Motions to quash are DENIED.

2. Demurrer and Motion to Strike

Cross-Defendant Versa Transport LLC’s demurrer to second amended cross-complaint is OVERRULED. Motion to strike is DENIED. Cross-Defendant is ordered to file and serve its Answer within 10 days.

[The court notes that Cross-Complainant contends in its opposition that Versa is named in other claims because it is an alter ego of SB Freight. However, an alter ego allegation, by itself, does not make an entity liable on all claims directed at other entities. Each cause of action must separately identify the party or parties to whom it is directed. The Roes are only named in the 3rd – 5th causes of action.]

5th CAUSE OF ACTION: FRAUD/CONSPIRACY:
The elements of fraud are: (1) misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (scienter); (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) damages. (See CC 1709.) Fraud actions are subject to strict requirements of particularity in pleading. (Committee on Children’s Television, Inc. v. General Foods Corp. (1983) 35 Cal. 3d 197, 216.) A plaintiff must allege what was said, by whom, in what manner (i.e. oral or in writing), when, and, in the case of a corporate defendant, under what authority to bind the corporation. (See Goldrich v. Natural Y Surgical Specialties, Inc. (1994) 25 Cal.App.4th 772, 782.)

Par. 24 alleges that SB Freight accepted and/or received PQI products pursuant to typed Bills of Lading (BOL) instructing SB Freight to handle/transport/or arrange to transport PQI products. Par. 19 alleges that after checks bounced, PQI went directly to SB Freight to inquire about the “typed” BOLs and discovered that SB Freight consented and ratified Chao’s “handwritten” modifications to the “typed” BOLs, and redirected PQI products, as well as who would actually be paid for the PQI products. Pars. 45-46 allege that SB Freight participated and conspired in the fraud from August 2011- December 12, 2011. Pars. 11-13 allege that Roes 1-50 are agents and/or alter egos of each Cross-Defendant entity. The court finds the allegations describe fraud by concealment with sufficient particularity. Demurrer is OVERRULED.

4th CAUSE OF ACTION: B&P CODE 17200:
The Unfair Business Practices Act shall include “any unlawful, unfair or fraudulent business act or practice.” (B&P Code 17200.) A plaintiff alleging unfair business practices under these statutes must state with reasonable particularity the facts supporting the statutory elements of the violation. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 619.) Even a single incident – a one-time act that is unfair, unlawful or fraudulent – is sufficient to state a claim under 17200. (Klein v. Earth Elements, Inc. (1997) 59 Cal.App.4th 965, 969 fn. 3.)

The 3rd cause of action sufficiently alleges fraud, which is the basis for PQI’s Unfair Business Practices claim. Accordingly, demurrer is OVERRULED.

3rd CAUSE OF ACTION: CONVERSION:
The elements are: 1) Plaintiff’s ownership or right to possession of personal property; 2) defendant’s disposition of the property inconsistent with plaintiff’s rights; and 3) resulting damages. (Fremont Indemnity Co. v. Fremont General Corp. (2007) 148 Cal.App.4th 97, 119; PCO, Inc. v. Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro, LLP (2007) 150 Cal.App.4th 384, *5 – money cannot be the subject of a cause of action for conversion unless there is an identifiable sum; Fischer v. Machado (1996) 50 Cal.App.4th 1069, 1072; Farmers Ins. Exchange v. Zerin (1997) 53 Cal. App. 4th 445, 451.)

Par. 36 alleges that the parties either took dominion or control of PQI products, and engaged in conversion of PQI products, proximately causing PQI to suffer losses. Demurrer is OVERRULED.

Motion to strike is DENIED as the fraud allegations support punitive damages. Cross-Defendant is ordered to file and serve its Answer within 10 days.