2017-00220149-CU-MC

David Masters vs. The Foundation of Human Understanding

Nature of Proceeding: Motion to Quash Service of Summons

Filed By: Schrimp de la Vergne, Angela

Specially Appearing Defendants Roy Masters and Alan Masters’ Motion to Quash Service of Summons for Lack of Personal Jurisdiction is denied.

Plaintiffs’ Request for Judicial Notice of the court order granting a Limited Judgment Appointing Guardian Conservator for Roy Masters is granted.

Defendants’ Evidentiary objections are overruled.

Defendants seek and order quashing the service of summons in this action for lack of personal jurisdiction pursuant to Section 418.10(a)(1) of the Code of Civil Procedure. Defendants contend that this Court does not have personal jurisdiction over defendants Roy Masters and Alan Masters because said defendants do not have minimum contacts with this state.

This action involves a claim by Plaintiffs David Masters and The Foundation of Human Understanding for Ratification of Non-Profit Board’s Actions and for Injunctive and Declaratory Relief against defendants Roy Masters, Alan Masters, and Michael Masters.

Plaintiffs allege David Masters is a Director of The Foundation of Human Understanding (“FHU”). Plaintiff FHU is a California nonprofit religious corporation, with its principal place of business in Sacramento County, California. (FAC ¶ 2). Plaintiffs allege that defendants, current or former officers, directors, or agents of the Corporation, have permitted conflicts to exist including: (1) Employment or independent contractor agreements between the corporation and a director or a member of the director’s family; (2) Provision of a good or service or use of a facility to a director, a member of the director’s family, or an entity affiliated with a director; (3) Provision to the corporation of a good, service, or use of a facility by a director, a member of director’s family, or an entity affiliated with a director; (4) Decision to engage in a transaction or activity that may benefit a director’s personal interests; and

(5) “Self-dealing transactions as defined by Corporations Code section 5233(a) of the California Corporations Code; (6) “Excess benefit transactions” as defined in federal tax law; and (7) Solicitation of money, real estate, and other property diverted to a use not intended by the Donor. (FAC ¶ 4)

Plaintiffs contend that since court decisions have determined that FHU is not a church, defendants should have filed California and federal tax returns since 2001.

Plaintiff David Masters further alleges that he decided, after reviewing the corporations records for compliance with an IRS agreement, that the organization’s principal office should be relocated to California because the office in Oregon was merely an intake point for money donated. He determined that substantial probate estates were left to FHU by California residents and that any activities in Oregon were merely tangential to the majority of nonprofit work which occurs in California and is directed to California residents. Plaintiffs allege that the principal office of the organization was formally relocated to Sacramento, California in 2017 and the Board proceeded to appoint counsel and nonprofit accountants to begin the process of bringing the organization into compliance with the California law and the IRS closing agreement. (FAC ¶ 10(C), 12). Plaintiffs allege defendants have failed and refused to permit inspection of the nonprofit’s

books and records under California Corporations Code Section 6334, notwithstanding proper demand therefor. (FAC ¶ 13)

In support of the instant motion, Defendants have submitted evidence that both Roy and Alan are residents of the State of Oregon where each has lived since 1982 and 1980, respectively, and that neither was personally served with process in the California.

Roy is the founder of FHU and has served as the founder and a director since the inception of FHU in 1963. He states he has not conducted business in California since relocating FHU to Oregon in 1982. Although Roy owns a single vacation property in Ventura, California he has not visited that property in approximately five years and Roy’s personal vacation property has no connection to the business of FHU. Roy visited his vacation property in Ventura about once a year in the 1980s. Roy states he has not visited the Ventura property since 2014 when he delivered a lecture in Los Angeles and spent the night in Ventura. Roy states that the principal place of business of FHU has been in Grants Pass Oregon since 2003. (Declaration of Roy Masters)

Alan is a professional speaker, emcee, journalist, and nationally syndicated television and radio talk show host. His speaking and talk show work is unrelated to the FHU and only occasionally does he go to California for his work. Alan is only occasionally in California for business entirely unrelated to FHU. Alan states to his recollection he has never conducted business on behalf of FHU in the State of California. Allan is currently on the board of directors of FHU and currently serves as the President and CEO. Alan owns no property, real or personal, in California. (Declaration of Alan Masters.)

Under California’s long-arm statute, California courts may exercise personal jurisdiction over non-residents only on a basis that is “not inconsistent with the Constitution of this state or of the United States.” (Code Civ. Proc, § 410.10.) “A state court’s assertion of personal jurisdiction over a nonresident defendant who has not been served with process within the state comports with the requirements of the due process clause of the federal Constitution if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not

violate ‘traditional notions of fair play and substantial justice.'” (Vons, supra, 14 Cal.4th at p. 444, quoting Internat. Shoe Co. v. Washington (1945) 326 U.S. 310, 316.) “The Due Process Clause [of the Fourteenth Amendment] protects an individual’s liberty interest in not being subject to the binding judgments of a forum with which he has established no meaningful ‘contacts, ties, or relations.'” (Pedus Building Services, Inc. v. Allen (2002) 96 Cal.App.4th 152, 162, quoting
Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 471-472.)

“Personal jurisdiction may be either general or specific. A nonresident defendant may be subject to the general jurisdiction of the forum if his or her contacts in the forum state are ‘substantial … continuous and systematic’ Specific jurisdiction exists when, although the defendant lacks such pervasive forum contacts that the defendant may be treated as present for all purposes, it is nonetheless proper to subject the defendant to the forum state’s jurisdiction in connection with a particular controversy.” (ViaView, Inc. v. Retzlaff (2016) 1 Cal.App.5th 198,

209 [citations omitted], reh’g denied (July 25, 2016), review denied (June 14, 2017).) Therefore, personal jurisdiction analysis involves two questions: (1) Does general jurisdiction exist; and (2) absent general jurisdiction, does specific jurisdiction exist?

On a challenge to personal jurisdiction by a motion to quash, the plaintiff has the burden of proving, by a preponderance of the evidence, the factual bases justifying the exercise of jurisdiction. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 449; SEA Aviation PLC v. Superior Court (2010) 190 Cal.App.4th 421, 428.) The plaintiff cannot simply allege jurisdictional facts to survive the motion to quash; the plaintiff must come forward with affidavits and other competent evidence to carry this burden. (In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4th 100, 110.)

“A state has power to exercise judicial jurisdiction over an individual who causes effects in the state by an omission or act done elsewhere with respect to causes of action arising from these effects, unless the nature of the effects and of the individual’s relationship to the state make the exercise of such jurisdiction unreasonable.” (Judicial Council of Cal., com. (9), reprinted at 14A West’s Ann. Code Civ. Proc. (2004 ed.) foll.

§ 410.10, p. 381.) Generally, corporate officers are not shielded from jurisdiction in a forum merely because their acts in the forum were undertaken in an official business capacity. Indeed, courts examine the individual officer’s personal conduct with respect to the forum to determine whether he or she developed sufficient minimum contacts for personal jurisdiction: whether he or she personally authorized or actively participated in tortious activity or otherwise engaged in actions of the type that could subject them to personal liability. (Seagate, Technology v. A.J. Kogyo Co., (1990) 219 Cal.App.3d 696, 701-702, quoting Frances T. v. Village Green Owners Assn. (1986) 42 Cal.3d 490, 503-504). Accordingly, corporate officers and directors could be held personally liable if they directly authorized or actively participated in wrongful or tortious conduct Taylor-Rush v. Multitech Corp., (1990) 217 Cal. App. 3d 103.

General Jurisdiction

In order to establish general personal jurisdiction, the defendant’s contacts must be “so wide-ranging that they take the place of physical presence in the forum as a basis for jurisdiction.” (Doe v. Roman Catholic Archbishop of Cashel & Emly (2009) 177 Cal.App.4th 209, 217, as modified (Sept. 24, 2009).) In essence, in order for a California court to assert general personal jurisdiction over a non-resident defendant,

the defendant’s contacts with California must be so substantial that the defendant is essentially “at home” in California. Only when the nonresident defendant’s contacts are so systemic and continuous will “traditional notions of fair play and substantial justice” permit a California court to assert personal jurisdiction over a defendant for contacts unrelated to the cause of action. (Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 569.) Where a defendant’s sole contact to California is that he or she owns real property in the state, ownership of such property “alone would not support the State’s jurisdiction.” (Shaffer v. Heitner (1977) 433 U.S 186, 209).

A non-resident officer and/or director of a corporation is not subject to general jurisdiction simply because the entity in which they serve is subject to personal jurisdiction. (Calder v. Jones (1984) 465 U.S. 783, 790; Seagate Technology v. A. J. Kogyo Co. (1990) 219 Cal.App.3d 696, 706 [director and president of Japanese corporation was not automatically subject to general personal
jurisdiction because the corporate entity was subject to jurisdiction in California]). When assessing minimum contacts, each non-resident defendant’s contacts with the forum state “must be examined individually,” regardless of their status as an officer, director, or employee of an entity that is subject to personal jurisdiction in the forum state. (LeDuc v. Kentucky Cent. Life Ins. Co. (N.D. Cal. 1992) 814 F.Supp. 820, 824.)

Specific Jurisdiction

‘”When determining whether specific jurisdiction exists, courts consider the ‘relationship among the defendant, the forum, and the litigation.'” (Bombardier Recreational Products, Inc. v. Dow Chemical Canada ULC (2013) 216 Cal.App.4th 591, 597-598, quoting Helicopteros Nacionales de Colombia v. Hall (1984) 466 U.S. 408, 414.) 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. Specific jurisdiction exists if: (1) the defendant has purposefully availed himself or herself 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.
(Strathvale Holdings v. E.B.H. (2005) 126 Cal.App.4th 1241, 1251 [citations omitted].) In determining whether a nonresident defendant has “purposefully availed himself,” courts focus on the defendant’s “intentionality.” (Strathvale Holdings v. E.B.H. (2005) 126 Cal.App.4th 1241, 1251.) “This prong is only satisfied when the defendant purposefully and voluntarily directs his activities toward the forum so that he should expect, by virtue of the benefit he receives, to be subject to the court’s jurisdiction based on his contacts with the forum.” (Id.) Furthermore, where a conspiracy is alleged, “an exercise of personal jurisdiction must be based on forum-related acts that were personally committed by each nonresident defendant.” (CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal.App.4th 1101,1118.) Defendants contend there are no forum-related contacts alleged to exist between Roy or Allan in California, and that plaintiff’s FAC makes it clear that the gravamen relates to actions taken by Plaintiff in the State of California, not defendants.

Defendants contend the only connection between California and the defendants is the fact that both serve as directors and officers of FHU. Under California law, service as a director or officer of a California corporation cannot be used as the sole basis for the assertion of personal jurisdiction over individual defendants. Defendants state that the

amended complaint does not allege a single action or transaction that was consummated in California– all actions transpired in Oregon.

In order to establish specific jurisdiction, Plaintiffs must establish that “the causes of action arose out of an act committed or transaction consummated in California, or that [defendants] performed some other act by which [they] purposefully availed [themselves] of the privilege of conducting activities within this state, thus invoking the benefits and protections of the state’s laws.” (Mansour v. Superior Court (1995) 38 Cal.App.4th 1750, 1759). It has been held that the “commission of and intentional tort that is directed at a California resident may provide sufficient minimum contacts to support the exercise of [specific] personal jurisdiction over a nonresident defendant.” ( Integral Development Corp. v. Weissenbach (2002) 99 Cal.App.4th 576, 587.)

Defendants contend that Plaintiffs brought this action in an attempt to validate actions taken by Plaintiffs in Oregon, not California. They contend Plaintiffs unilateral actions taken outside of California cannot confer jurisdiction on Defendants in California.
(Roy’s Decl. ¶15; Alan’s Decl. ¶ 15)

Balancing Test

Even if Plaintiff has satisfied either general or specific jurisdiction, thus determining the defendants have sufficient minimum contacts, the court must conduct a balancing analysis to determine whether exercising jurisdiction over the nonresident defendants comports with notions of fair play and substantial justice. (Doe, supra, 111 Cal.App.4th 209, 217). Factors to be considered in the balancing process include: “(1) relative availability of evidence and burden of defense and prosecution in one place rather than another; (2) interest of a state in providing a forum for its residents or regulating the business involved; (3) ease of access to an alternative forum; (4) avoidance of a multiplicity of suits and conflicting adjudications; and (5) extent to which the cause of action arose out of defendant’s local activities.” (Integral Development, supra, 99 Cal.App.4th 576, 591). “The ‘primary concern’ in assessing personal jurisdiction is ‘the burden on the defendant.'” (Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County (2017) 137 S.Ct. 1773, 1776, quoting World-Wide Volkswagen Corp. v. Woodson (1980) 444 U.S. 286, 292.) The sufficiency of the nonresident defendant’s minimum contacts and the reasonableness of the exercise of jurisdiction are inversely related: “the greater the intensity of the

defendant’s contacts, the more readily the reasonableness of the exercise of jurisdiction can be established.” (HealthMarkets, Inc. v. Superior Court (App. 2 Dist. 2009) 90 Cal.Rptr.3d 527, 171 Cal. App.4th 1160)

Defendants contend that the balance tips in favor of finding no jurisdiction, as FHU has been headquartered in Oregon for decades, the Oregon Action provides an alternative forum in which Plaintiff David Masters can litigate any dispute he has with his family members regarding FHU, and there has already been substantial litigation in that forum-which risks conflicting judgments if this action is allowed to proceed. And, Plaintiffs claims did not arise from any activity taken by Roy or Alan in the state of California.

In opposition, plaintiffs contend that the controversy in this case arises out of defendant’s contacts related to the forum because they, as directors, communicate with agents in California for the purpose of continuing to control the assets and receive payments from residents within California. This is a corporation incorporated in

California, and the cases cited by defendants involve foreign corporations where the officers had no contact with the state of California. Plaintiffs contend that the motion inaccurately implies that defendants must commit a tortious act in the forum to assert personal jurisdiction over them. However, if a corporate officer may be held personally responsible for causing the corporation to act, that act may be imputed to the officer for purposes of establishing personal jurisdiction over him. (Seagate Technology v A.J. Kogyo Co. (1990) 219 Cal.App.3d 696, 703. Plaintiffs in this case sue defendants in their individual capacity. Plaintiffs contend both defendants have taken actions as directors for the purposes of directing agents of FHU within California financial institutions and the courts. Plaintiffs contend defendants availed themselves of the probate system in California by receiving millions in donations from bequests from listeners to their broadcasts in California, and that they hired and directed legal counsel within California for this purpose. FHU owns property and has bank accounts in the State of California. FHU has chosen to operate under the laws of California rather than to incorporate in the State of Oregon and the defendants, after having operated the corporation in California for many years, would expect to be hailed into California for their violations of the Corporations Code. Roy and Ann Masters own real property in the State of California. The defendants still hold themselves out as directors of FHU and still communicate with agents within California for the purpose of continuing to control assets and receive payments from residents within California for their California corporation.

Mark Masters states he has been a board member of FHU for 25 years and states that the vast majority of FHU’s donative income comes from residents of the State of California. He states Alan Masters has frequent live broadcasts of interviews from locations in California. Mark is involved in the publication of FHU magazine and states 1/3 of the subscriber base are located in California. He has also been aware of probate proceedings in California in which Roy Masters has participated or the recipient of distributions from estates of California residents. (Declaration Mark Masters) David Masters states he is the oldest son of Roy and has been a board member for more than 40 years. David has requested to inspect the financial documents of the corporation pursuant to the Corporations Code and has been refused all access by Roy Masters. He states Roy’s usual practice is to reserve meeting space close to the Los Angeles Airport to hold his “Hypnosis of Life” seminars to speak and receive donations. This practice continued until recently when his health began to decline. (Declaration of David Masters.

Plaintiffs also dispute the admissibility of Roy’s declaration, contending he is incompetent to testify and presenting evidence from the probate court in the form of a Limited Judgment Appointing Guardian, Conservator for Roy Masters. (See RJN)

In opposition, both David Masters and Mark Masters state that they are aware of Alan’s frequent weekly use of the home in Ventura since their own families have been precluded from using it. (Decls Mark and David Masters.)

Counsel David Epstein states that in the course of his representation of the New Board of FHU he has not known anyone other than Roy Masters to have executed or authorized the filing of California tax form 199 for certain years. (Decl. Epstein)

In Reply Alan Masters submitted a supplemental declaration in which he states that within the last three years he has visited California approximately four times per year for work entirely unrelated to FHU. Between three and seven years ago he visited

California approximately one time per month for work entirely unrelated to FHU. He states he does not frequent the vacation property in Ventura owned by his family but that he has visited the property within the last three years to check-up on the property. He states that his father visited Los Angeles in 2014 for a speaking engagement and is not aware of any other trips he would have made since he is frequently at his house in Grants Pass and would have known if he came to California. He states his father is still mentally capable of his weekly interviews that he posts on the FHU website. (Declaration of Alan Masters)

After having reviewed all of the evidence, the Court finds that plaintiffs have met their burden to show that the individual defendants have sufficient contacts with the State of California to satisfy both general and/or specific jurisdiction. Again, “Minimum Contacts” means the relationship between the nonresident and the forum state is such that exercise of jurisdiction does not offend “traditional notions of fair play and substantial justice” under the U.S. Constitution’s Fourteenth Amendment Due Process Clause. International Shoe Co. v. Washington (1945) 326 U.S. 310. The defendants have purposefully availed themselves of forum benefits, the controversy is related to or arises out of the defendant’s contacts with the forum (i.e. non payment of California taxes and violation of the corporations code), and the assertion of personal jurisdiction would comport with “fair play and substantial justice. (Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 269)

Moreover after conducting the balancing test, the court finds that exercising jurisdiction comports with notions of fair play and substantial justice.

The prevailing party shall prepare a formal order for the Court’s signature pursuant to C.R.C. 3.1312.