Ahcom, Ltd. v. Smeding et al

Filing 92

ORDER by Judge Samuel Conti granting 87 Motion to Dismiss (sclc1, COURT STAFF) (Filed on 4/24/2009)

1 2 3 4 5 6 7 8 9 10
For the Northern District of California

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

AHCOM, LTD., Plaintiff, v. HENDRICK SMEDING, LETTIE SMEDING and DOES 1-15, inclusive, Defendants.

United States District Court

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

) ) ) ) ) ) ) ) ) ) ) )

No. C-07-1139 SC ORDER GRANTING DEFENDANTS' MOTION TO DISMISS

I.

INTRODUCTION Plaintiff Ahcom, Ltd., ("Ahcom") brought this suit in the

Napa County Superior Court, alleging that Defendants Hendrik and Lettie Smeding ("Defendants" or "Smedings") are the alter egos of Nuttery Farms, Inc. ("NFI"), and asking the Court to confirm and enforce the award issued in an arbitration between Plaintiff and NFI. See Notice of Removal, Docket No. 1, Ex. A ("Compl.").

Defendants timely removed the suit to this Court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, codified in chapter 2 of the Federal Arbitration Act, 9 U.S.C. § 201, et seq. See Notice of Removal.

Now before the Court is Defendants' motion to dismiss ("MTD"). Docket No. 87. The Plaintiff opposes the MTD, and

alternatively requests that it be permitted to amend its

1 2 3 4 5 6 7 8 9 10
For the Northern District of California

complaint.

Docket No. 88.

Defendants have submitted a reply.

Docket No. 90.

Having considered the parties' submissions, the

Court GRANTS Defendants' MTD.

II.

BACKGROUND The Court has already discussed the factual history of this

dispute in its order denying cross-motions for summary judgement. Docket No. 38. The facts most relevant to the motion before the Defendants were the sole shareholders, Compl. at 2. NFI filed a Request for

Court are as follows.

officers, and directors of NFI.

United States District Court

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

voluntary petition for bankruptcy on July 5, 2006. Judicial Notice ("RJN"), Ex. 1. Docket No. 35.1

On February 26, 2007, Plaintiff filed suit against Defendants, alleging that NFI and Plaintiff had entered contracts for the sale of almonds. Compl. at 3. NFI allegedly did not

fulfill these contracts, and Plaintiff previously sought and received an Arbitration Award against NFI from a German trade association, Waren-Verein der Hamburger Börse e.V. However, NFI is not a party to the present suit. Id. at 3-4.

Instead,

Plaintiff alleges that Defendants and NFI had "a unity of interest Defendants submitted a request for judicial notice in support of their motion to dismiss. The request includes filings and a claims register from NFI's bankruptcy proceedings. The Court may take judicial notice of filings in other courts. See United States ex rel. Robinson Racheria Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir. 1992). The request also includes a certificate of incorporation filed with the California Secretary of State. RJN, Ex. 3. District Courts routinely take judicial notice of certificates of incorporation. See, e.g., Shurkin v. Golden State Vintners, Inc., No. 04-3434, 2005 U.S. Dist. LEXIS 39301, at *19 (N.D. Cal. Aug. 10, 2005). The Court GRANTS defendants' request for judicial notice. 2
1

1 2 3 4 5 6 7 8 9 10
For the Northern District of California

in ownership" and commingled their funds, and that Defendants diverted funds, treated assets of NFI as their own, and failed to adequately capitalize NFI. Id. at 2-3. On this basis, Plaintiff

asserts that Defendants are the alter ego of NFI and seeks to enforce the arbitration award against them. Id.

Defendants now contend that the claims against them cannot go forward because Plaintiff's standing is premised upon an alter ego theory. MTD at 3. Defendants claim that this theory is based on

generalized misconduct and harm done to the corporation, and as such, it can only be brought by the bankruptcy trustee. Id.

United States District Court

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 IV. DISCUSSION After a corporation has filed for bankruptcy, only the Chapter 7 bankruptcy trustee has standing to collect the property of the estate. 11 U.S.C. § 704(a)(1). 3 This includes "all legal III. LEGAL STANDARD Pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court will grant a motion to dismiss if a plaintiff fails "to state a claim upon which relief can be granted." 12(b)(6). Fed. R. Civ. P.

When evaluating a motion to dismiss, the Court accepts

the facts as stated by the nonmoving party and draws all reasonable inferences in its favor. See Everest & Jennings, Inc. At

v. Am. Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir. 1994).

this stage, a plaintiff "need only show that the facts alleged, if proved, would confer standing upon him." Warren v. Fox Family

Worldwide, Inc., 328 F.3d 1136, 1140 (9th Cir. 2003).

1 2 3 4 5 6 7 8 9 10
For the Northern District of California

or equitable interests of the debtor in property as of the commencement of the case," and all causes of action that the debtor might have. 11 U.S.C. § 541(a)(1); United States v. Defendants

Whiting Pools, Inc., 462 U.S. 198, 205 n.9 (1983).

contend that only NFI's bankruptcy trustee can bring alter egobased claims against them. MTD at 3-4. The question of whether a

particular cause of action is the property of a debtor is a question of state law. Cir. 1997). In re Folks, 211 B.R. 378, 384 (B.A.P. 9th

Because NFI is located and incorporated in

California, RJN, Ex. 3, this Court applies California law. Defendants rely on Folks, which stated that California law recognizes two kinds of alter ego claims: one in which the injury

United States District Court

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

is to the corporation, and one in which the cause of action belongs to a creditor individually. Id. at 385 (citing In re

Davey Roofing, Inc., 167 B.R. 604, 608 (Bankr. C.D. Cal. 1994); Stodd v. Goldberger, 73 Cal. App. 33 827, 833 (App. Ct. 1977)). "In California, only a creditor with a particularized injury has standing to assert an alter ego claim." Id. Absent a unique

injury arising from the same facts that are used to pierce the veil, facts giving rise to an alter ego theory could be used by any creditor to bring a claim for repayment against the debtor's shareholders. Id. at 387. Giving the trustee exclusive standing

to bring this claim therefore "promotes equitable distribution and accords the Bankruptcy Code's ultimate goal of balancing the equities and interests of all affected parties in a bankruptcy case." Id. at 386.

This Court finds that the Plaintiff has set out a general 4

1 2 3 4 5 6 7 8 9 10
For the Northern District of California

alter ego claim, with no injury specific to Plaintiff.

If the

Plaintiff's allegations are correct, then Defendants could be liable for all of NFI's debts, rather than only the debt to Ahcom. Plaintiff has pointed to no unique injury that has arisen from Defendants' alleged malfeasance. It is of no consequence that

Ahcom seeks a determination that Defendants are the alter ego of NFI only for the purpose of Ahcom's contract claim. The holding

in Folks applies whenever a general alter ego theory is used as the basis for liability for a distinct cause of action, even if that separate cause of action involves unique harm. See Eddleman

United States District Court

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

v. Thomas, No. 07-207, 2007 U.S. Dist. LEXIS 81185, at *3-4 (D. Nev. Oct. 12, 2007) (applying Folks to claim involving breach of lease and unjust enrichment coupled with alter ego theory); Carramerica Realty Corp. v. NVIDIA Corp., No. 05-00428, 2006 U.S. Dist. LEXIS 75399, at *8-11 (N.D. Cal. Sept. 29 2006) (applying Folks to claim of intentional interference with contractual relations). Ahcom's alter ego claim is available only to the See Folks, 311 B.R. at 387.

NFI's trustee.

Plaintiff contends that Folks relies on a single California case, Stodd, 73 Cal. App. 3d 827, which it misreads to conclude that California law allows a company to pierce its own veil. Opp'n at 2. Plaintiff suggests that, under California law, the

corporate veil is pierced primarily to protect the rights of third parties. Id.; See also Katzir's Floor and Home Design, Inc. v. M-

MLS.Com, 394 F.3d 1143 (9th Cir. 2004); Kohn v. Kohn, 95 Cal. App. 2d 708, 720 (Ct. App. 1950). If the veil can only be pierced for

third parties, then the alter ego claim that Ahcom is raising 5

1 2 3 4 5 6 7 8 9 10
For the Northern District of California

could never be brought by NFI's trustee.

However, this Court is

bound by Folks, and cannot find that California law disallows an alter ego claim brought by NFI's bankruptcy estate. The Ninth

Circuit's "interpretation of [California] law remains binding in the Ninth Circuit in the absence of any subsequent indication from the [California] courts that [their] interpretation was incorrect." Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877,

884 n.7 (9th Cir. 2000) (quotation omitted); see also F.D.I.C. v. Abraham, 137 F.3d 264, 268-69 (5th Cir. 1998) (interpretation of state law by federal appellate panel is binding on federal courts in circuit). Plaintiff has requested leave to amend its complaint. at 10-11. Plaintiff has proceeded through discovery, cross Opp'n

United States District Court

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

motions for summary judgment, and nearly to trial on a theory of general alter ego liability. expired on December 5. No. 45. The deadline for pretrial motions Docket See

See Status Conference Order at 1.

Plaintiff must therefore show "good cause" to amend.

Fed. R. Civ. P. 16(b); Johnson v. Mammoth Recreations, Inc., 975 F.2d 604, 608 (9th Cir. 1992). In its request, Plaintiff did not

show good cause, and pointed to no fact that may support its alter ego theory and show unique harm that is distinct from harm to all of NFI's creditors. This Court therefore DENIES Plaintiff's

request for leave to amend. \\\ \\\ \\\ \\\ 6

1 2 3 4 5 6 7 8 9 10
For the Northern District of California

V.

CONCLUSION For the reasons stated above, the complaint is hereby

DISMISSED WITH PREJUDICE.

IT IS SO ORDERED.

April 24, 2009 ____________________________ UNITED STATES DISTRICT JUDGE

United States District Court

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7