Judge: Anne Richardson, Case: 23STCV12682, Date: 2024-01-29 Tentative Ruling

DEPARTMENT 40 - JUDGE ANNE RICHARDSON - LAW AND MOTION RULINGS
The Court issues tentative rulings on certain motions.The tentative ruling will not become the final ruling until the hearing [see CRC 3.1308(a)(2)]. If the parties wish to submit on the tentative ruling and avoid a court appearance, all counsel must agree and choose which counsel will give notice. That counsel must 1) email Dept 40 by 8:30 a.m. on the day of the hearing (smcdept40@lacourt.org) with a copy to the other party(ies) and state that all parties will submit on the tentative ruling, and 2) serve notice of the ruling on all parties. If any party declines to submit on the tentative ruling, then no email is necessary and all parties should appear at the hearing in person or by Court Call. 

Case Number: 23STCV12682    Hearing Date: February 28, 2024    Dept: 40

Superior Court of California

County of Los Angeles

Department 40

Background

Pleadings

Plaintiff Paul Auchterlonie sues Defendants Altior Healthcare, LLC (Altior), PT Innercept Inc. (PT Innercept), Innercept, LLC (Innercept), Paradigm Services Holdings, LLC (Paradigm Services), Paradigm Treatment Centers, LLC (Paradigm Treatment), Psych Me, LLC (Psych Me), Jeff Settembrino (Settembrino), Roberto Canto (Canto), Thomas Wilcop (Wilcop), and Does 1 through 50 pursuant to an August 25, 2023 First Amended Complaint (FAC). Defendants Paradigm Treatment Centers, Inc. and Pine Tree Equity Partners, LLC were amended in as Doe Defendants 1 and 2 on August 25, 2023.

(Defendant Innercept Holdings, LLC—the former legal name of Defendant Altior— was dismissed without prejudice on October 20, 2023. Defendants Pine Tree Equity IV, LP, Pine Tree Equity III, LP, Paradigm Co-lnvestfund, LP, PTE Principle IV – Shortridge, Shortridge Intermediate Holdings, LLC, and Paradigm Intermediate, LLC were dismissed without prejudice on January 16, 2024.)

The FAC alleges claims of (1) Violation of Health and Safety Code § 1278.5, (2) Violation of Labor Code § 1102.5, (3) Wrongful Termination in Violation of Public Policy, (4) Tortious Interference with Economic Advantage, and (5) Tortious Interference with Contractual Relations.

The claims arise from the following allegations, as modified by the dismissals and amendments discussed above. Defendants Altior, PT Innercept, Innercept, Paradigm Services, Paradigm Treatment, and Psych Me (the Entity Defendants) are owned, operated, controlled, supervised and/or managed by Defendants Settembrino, Canto, and Wilcop (the Individual Defendants). All Defendants are alleged as alter egos of one another. Plaintiff Auchterlonie was employed by Defendants Altior, Innercept Holdings, Paradigm Treatment, one or more subsidiary companies, and/or Does 1-50. Between January 2020 and January 2023, Plaintiff reported and disclosed certain suspected illegal, unsafe, fraudulent, and substandard conditions and services at the health facilities owned, managed, and/or operated by all Defendants.

According to the Complaint, these “Subject Conditions” included accepting substance abuse patients who Defendants were unqualified to treat, hiring therapists or clinical staff with little or no experience to safely treat patients, and maintaining overnight staffing ratios that were below California state standards and licensing requirements. These conditions also posed a significant health risk for current and future patients utilizing the services of Defendants. The reports, complaints, and disclosures were made to “the appropriate health facilities, the owners and operators of the health facilities and/or to the entities and agencies responsible for accrediting or evaluating the facilities, and/or the medical staff of the facilities as set forth in California Health and Safety Code § 1278.5.” Plaintiff had reasonable cause to believe reporting the Subject Conditions disclosed a violation of state or federal statutes, or a violation of or noncompliance with a local, state, or federal rules or regulations as set forth in California Labor Code § 1102.5, and he refused to participate in such activities. As a result of his reporting, Plaintiff was subjected to continuous harassment, exclusion, humiliation, intimidation, and retaliation from Defendants and their employees, agents, and/or independent contractors, including Defendants terminating Plaintiff’s employment.

Motions Before the Court

On October 13, 2023, Defendant PT Innercept filed a motion to quash service of the summons on PT Innercept based on lack of personal jurisdiction.

On November 13, 2023, Defendants Settembrino and Canto filed a motion to quash service of the summons on them based on improper service and lack of personal jurisdiction.

That same day, Defendant Pine Tree Equity Management LP (hereafter Pine Tree Equity; presumably the same entity as Pine Tree Equity Partners, LLC which was amended in as Doe 2) filed a motion to quash service of the summons on it based on lack of personal jurisdiction.

On February 14, 2024, Plaintiff Auchterlonie filed oppositions to each of the three motions to quash.

On February 21, 2024, Defendants PT Innercept, Settembrino and Canto, and Pine Tree Equity filed replies to the opposition directed at their respective motions.

Defendants PT Innercept’s, Settembrino and Canto’s, and Pine Tree Equity’s motions are now before the Court.

Motion to Quash, Legal Standard, Improper Service

A motion to quash can be brought on the ground that the court lacks personal jurisdiction over the defendant, e.g., because service was improper. (See Code Civ. Proc., § 418.10, subd. (a)(1); see, e.g., Tresway Aero, Inc. v. Superior Court (1971) 5 Cal.3d 431, 433 [defendant filed motion to quash on ground that service on corporation was defective because it did not comply with Code Civ. Proc., § 410, now § 412.30]; County of Riverside v. Superior Court (1997) 54 Cal.App.4th 443, 446 [defendant filed motion to quash on ground that service was defective because summons did not specify date for answering and appearing].)

The defendant should attach evidence to support its motion. (See School Dist. of Okaloosa Cty. v. Superior Court (1997) 58 Cal.App.4th 1126, 1131 [defendant must present some admissible evidence in form of affidavits or declarations to place the issue of lack of jurisdiction before court]; see, e.g., Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 563 [defendant supported motion to quash with declarations]; cf. Floveyor Int’l v. Superior Court (1997) 59 Cal.App.4th 789, 793-794 [“‘A defendant who takes the position that the service of summons as made upon him did not bring him within the jurisdiction of the court’[] may serve and file a notice of motion to quash the service,’” where “‘the effect of such a notice is to place upon the plaintiff the burden of proving the facts that did give the court jurisdiction … [or] the facts requisite to a[] [showing of] effective service,’” citations omitted].)

A motion to quash service of summons must be filed and served “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.” (Code Civ. Proc., § 418.10, subd. (a).)

Motion to Quash, Legal Standard, Personal Jurisdiction

Legal Standard

A defendant, on or before the last day of her time to plead or within any further time that the court for good cause may allow, may move to quash service of summons on the ground of lack of jurisdiction over her. (Code Civ. Proc., § 418.10, subd. (a); see Greener v. Workers’ Comp. Appeals Bd. (1993) 6 Cal.4th 1028, 1036.) For a court to have personal jurisdiction over a defendant, two elements are required: (1) there must be some basis for exercising personal jurisdiction over the defendant, i.e., defendant’s consent, physical presence, domicile, or minimum contacts; and (2) service of summons must be proper. (Ziller Elecs. Lab. GmbH v. Superior Court (1988) 206 Cal.App.3d 1222, 1229.)

A motion to quash service of summons can be used to challenge one or both elements of personal jurisdiction. (See ibid.) When the defendant makes a motion to quash, the burden is on the plaintiff to prove, by a preponderance of the evidence facts justifying the exercise of jurisdiction over the defendant. (See id. at pp. 1232-1233 [If a defendant files a motion to quash service of summons, the plaintiff has the burden to establish both elements of personal jurisdiction]; see also ViaView, Inc. v. Ratzlaff (2016) 1 Cal.App.5th 198, 209-210.) Thus, a plaintiff must file an opposition to defeat a motion to quash. (See Floveyor Internat., Ltd. v. Superior Court (1997) 59 Cal.App.4th 789, 794 [defendant does not have to act on motion to quash until plaintiff makes prima facie showing of jurisdiction].) Further, such a motion must establish personal jurisdiction on any grounds challenged by the defendants; if the defendant alleges that there is no basis for personal jurisdiction and that service was improper, the plaintiff must establish both a basis for personal jurisdiction and proper service. (See Ziller, supra, 206 Cal.App.3d at p. 1229; Summers v. McClanahan (2006) 140 Cal.App.4th 403, 413 [plaintiff required to prove jurisdictional facts supporting personal jurisdiction over each defendant when defendant challenged jurisdiction on improper service].) The mere allegations of facts or allegations in an unverified complaint are insufficient to establish jurisdiction for these purposes. (In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4th 100, 110 (In re Auto).)

If a motion to quash is granted because there was no basis for personal jurisdiction, the Court can dismiss the complaint without prejudice, either as a whole or as to the moving defendant if there are any remaining defendants in the action. (Code Civ. Proc., § 581, subd. (h).) Although the dismissal without prejudice is not res judicata on the merits of the action, it is res judicata on the court’s jurisdictional ruling. (See MIB, Inc. v. Superior Court (1980) 106 Cal.App.3d 228, 234-235.)

I.

A California court can exercise personal jurisdiction over a nonresident defendant who has “minimum contacts” with the state. (Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 268; Virtualmagic Asia, Inc. v. Fil-Cartoons, Inc. (2002) 99 Cal.App.4th 228, 238.) A defendant has minimum contacts if the quality and nature of its activity in the forum state (referred to as “contacts”) is such that it is reasonable and fair to require the defendant to conduct a defense in that state. (Pavlovich, supra, at p. 268; Strasner v. Touchstone Wireless Repair & Logistics, LP (2016) 5 Cal.App.5th 215, 221.) The focus of the minimum contacts analysis is the defendant’s contacts with the forum. (Bristol-Myers Squibb Co. v. Superior Court (2017) 137 S. Ct. 1773, 1779.) Depending on the extent of a defendant’s contacts with California, it may be subject to either general or specific jurisdiction. (Elkman v. National States Ins. (2009) 14 Cal.4th 434, 445-446; see Pavlovich, supra, at p. 268-269; see also Bristol-Myers, supra, at pp. 1779-1780 [noting that general and specific jurisdiction are the two types of personal jurisdiction the United States Supreme Court has recognized since its decision in International Shoe Co. v. State of Wash., Office of Unemployment Compensation & Placement (1945) 326 U.S. 310, 316].)

A.

General Jurisdiction

A court can exercise general jurisdiction over a nonresident defendant when the defendant’s in-state contacts are so continuous and systematic that the defendant is essentially “at-home” in the forum. (BNSF Ry. V. Tyrell (2017) 137 S. Ct. 1549, 1558; Daimler AG v. Bauman (2014) 571 U.S. 117, 138-139; Williams v. Yamaha Motor Co. (9th Cir. 2017) 851 F.3d 1015, 1020.) The contacts considered for the purposes of general jurisdiction are those that existed from the time the alleged conduct occurred to the time of the summons. (Strasner, supra, 5 Cal.App.5th 215, 222.) When the nonresident’s contacts render it essentially at home in the forum state, the court can exercise jurisdiction over the defendant even if the cause of action is unrelated to the defendant’s in-state activities. (See Bristol-Myers, supra, 137 S. Ct. at p. 1780; Vons Cos. V. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445.)

Generally, a natural person is “at home” where she is domiciled, while a corporation is “at home” where it is incorporated and where it has its principal place of business. (Bauman, supra, 571 U.S. at p. 137; see BNSF Ry., supra, 137 S. Ct. at p. 1558.) In exceptional cases, a corporate defendant’s contacts with a forum may be so substantial as to render it “at home” even when the forum is not where it is incorporated or where it has its principal place of business. (BNSF Ry., supra, at p. 1558; Bauman, supra, at p. 139, fn. 19.) To determine whether a foreign corporation is essentially “at home” in California despite being incorporated and having its principal place of business outside of the State, California courts look to a variety of factors, including the “maintenance of offices, the presence of employees, use of bank accounts and marketing or selling products in the forum state, to analyze whether a corporation’s contacts render it effectively at home in that state.” (Brue v. Shabaab (2020) 54 Cal.App.5th 578, 590-591.) However, the U.S. Supreme Court has clarified that the focus of this inquiry is the comparison between the defendant’s contacts with the forum state and the defendant’s activities worldwide and whether such contacts render it essentially “at home” in the forum state. (See Bauman, supra, at pp. 138-139, 139, fn. 20; Williams, supra, 851 F.3d at pp. 1021-1022; see e.g., Bristol-Myers, supra, at pp. 796-797 [California Supreme Court finding that although the defendant had employees, sizable sales, and a registered agent in California, the defendant was not “at home” in California given the imbalance between its in-state business activities and its nationwide operations in their entirety].)

B.

Specific Jurisdiction

A court can exercise specific jurisdiction over a nonresident defendant if (1) the defendant has purposefully availed itself of the forum’s benefits and protections and (2) the cause of action relates to or arises out of the defendant’s contacts with the forum, and (3) the exercise of personal jurisdiction would comport with fair play and substantial justice. (Williams, supra, 851 F.3d at p. 1023; Pavlovich, supra, 29 Cal.4th at p. 269.)

The contacts for specific jurisdiction are those that existed when the plaintiff’s cause of action arose. (Strasner, supra, 5 Cal.App.5th at p. 226.)

1.

Purposeful Availment

To establish minimum contacts for specific jurisdiction, the plaintiff must show that the defendant has purposefully availed itself of the privilege of conducting activities in California to involve its benefits and protections. (See Axiom Foods, Inc. v. Acerchem Int’l (9th Cir. 2017) 874 F.3d 1064, 1068; Bristol-Myers Squibb Co. v. Superior Court (2016) 1 Cal.5th 783, 799-800, rev’d on other grounds, Bristol-Myers, supra, 137 S. Ct. 1773 [reversing and remanding the specific—not general—jurisdiction analysis by the California Supreme Court].) In this analysis, (1) only the defendant’s contacts with California are considered, not the defendant’s contacts with persons who reside there, (2) the defendant’s contacts must have been purposeful rather than random, fortuitous, or attenuated, and (3) the defendant must have sought some benefit by availing itself of the jurisdiction. (See Walden v. Fiore (2014) 571 U.S. 277, 285-286; Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 474-475; Vons Cos., supra, 14 Cal.4th at pp. 446, 458.)

2.

Relatedness

To establish minimum contacts for specific jurisdiction, the plaintiff must show that its claim relates to or arises from the defendant’s contacts with the forum. (Bristol-Myers, supra, 137 S. Ct. at p. 1780.) This is referred to as the “relatedness” requirement. (Snowney v. Harrah’s Entm’t, Inc. (2005) 35 Cal.4th 1054, 1067.) This requirement is satisfied if there is a substantial nexus or connection between the defendant’s California contacts and the plaintiff’s claim. (Id. at p. 1068.)

3.

Fair Play and Substantial Justice

If the plaintiff establishes that the defendant’s contacts are sufficient to invoke specific jurisdiction, the burden shifts to the defendant to establish that exercising jurisdiction would be unreasonable, i.e., that it would offend traditional notions of fair play and substantial justice. (See Vons Cos., supra, 14 Cal.4th at p. 449.) Generally, exercising personal jurisdiction over a nonresident defendant is presumptive reasonable if the defendant has purposefully availed itself of the forum state. (Fighter’s Mkt., Inc. v. Champion Courage, LLC (S.D. Cal. 2016) 207 F.Supp.3d 1145, 1156.) The presumption of reasonableness can be overcome, however, by a compelling argument that the presence of some other consideration would render jurisdiction unreasonable. (Burger King, supra, 471 U.S. at p. 477.) To determine whether the exercise of jurisdiction would be unreasonable, the court must balance seven factors, none of which is dispositive by itself. (Core-Vent Corp. v. Nobel Indus. AB (9th Cir. 1993) 11 F.3d 1482, 1487-1488.) The factors the court must balance are:

(1) The burden to the defendant in defending the action in the forum, (Vons Cos., supra, 14 Cal.4th at p. 448; Bristol-Myers, supra, 137 S. Ct. at p. 1780 [discussing this factor as the primary concern of the fair play and substantial justice analysis]);

(2) The extent of the defendant’s interjection into the forum state’s affairs, (Core-Vent, supra, 11 F.3d at p. 1487; see Cornelison v. Chaney (1976) 16 Cal.3d 143, 151 [focus on defendant’s local activities]);

(3) The forum state’s interest in adjudicating the dispute, (Bristol-Myers, supra, 137 S. Ct. at p. 1780; Vons Cos., supra, 14 Cal.4th at p. 448);

(4) The most efficient judicial resolution of the controversy, (Core-Vent, supra, 11 F.3d at p. 1487; Bristol-Myers, supra, 1 Cal.5th at pp. 812-813; see Vons Cos., supra, 14 Cal.4th at p. 448 [judicial economy]);

(5) The extent of conflict with the sovereignty of the defendant’s state or nation, (Core-Vent, supra, 11 F.3d at p. 1487; Bristol-Myers, supra, 1 Cal.5th at pp. 812-813 [states’ shared interest in furthering substantive social policies]; Vons Cos., supra, 14 Cal.4th at p. 448 [same]);

(6) The importance of the forum to the plaintiff’s interest in convenient and effective relief, (Vons Cos., supra, 14 Cal.4th at p. 448; Core-Vent, supra, 11 F.3d at p. 1487-1488 [noting factor is of little weight due to plaintiff’s preference for bringing action where they live]); and

(7) The existence of an alternative forum, (Core-Vent, supra, 11 F.3d at p. 1488; see Cornelison, supra, 16 Cal.3d at p. 151 [ease of access of alternative forum]).

Evidentiary Objections [Identical, All Defendants]

I.

Jeff Settembrino and Roberto Canto’s Motion, Reply Objections

Objection Nos. 1-19, 21-22: OVERRULED [relevance; personal knowledge].

Objection No. 20: SUSTAINED [legal conclusion].

II.

Pine Tree Equity Management LP’s Motion, Reply Objections

Objection Nos. 1-19, 21-22: OVERRULED [relevance; personal knowledge].

Objection No. 20: SUSTAINED [legal conclusion].

II.

PT Innercept, Inc.’s Motion, Reply Objections

Objection Nos. 1-19, 21-22: OVERRULED [relevance; personal knowledge].

Objection No. 20: SUSTAINED [legal conclusion].

Motion to Quash Summons [PT Innercept]

Order Quashing Summons [PT Innercept]: DENIED.

I. Pleadings

Defendant PT Innercept is sued as a corporation authorized to do business and doing business in California, which, along with the other Entity Defendants, is owned, operated, controlled, supervised, and/or managed by Defendants Settembrino, Canto, and Wilcop. (FAC, ¶¶ 12, 21.)

The Defendants are all alleged as agents of one another (FAC, ¶ 2), and the Individual Defendants are alleged to have acted together to use the Entity Defendants to accomplish the improper purpose of protecting themselves from the liability alleged in the FAC and allegedly evidenced by Plaintiff’s attachments to the opposition. (See, e.g., Opp’n, Auchterlonie Decl., ¶¶ 1-12, 14-15.)

The FAC alleges only three causes of action against PT Innercept: (1) Violation of Health and Safety Code § 1278.5; (4) Tortious Interference with Economic Advantage; and (5) Tortious Interference with Contractual Relations. (FAC, ¶¶ 28-38 [first cause of action (COA)], 39-48 [second COA; no PT Innercept], 49-56 [third COA; no PT Innercept], 54-62 [fourth COA; reuses ¶¶ 54-55], 63-71 [fifth COA].)

PT Innercept was served with the summons, FAC, and other documents on July 26, 2023 via service on its registered agent in Wilmington, Delaware. (8/2/23 Proof of Service.)

II. Moving Papers

On October 13, 2023, PT Innercept filed its motion to quash service, asserting that it is a Delaware corporation that owns approximately 98% of Defendant Altior, the holding company for five operating businesses that provide mental health and therapeutic treatment for patients in Maine (Ironwood), New Hampshire (Shortridge and Ridge RTC), Idaho (Innercept), California, and Texas (Paradigm Treatment Centers). PT Innercept then argues that PT Innercept (i) is a “blocker” entity formed solely for tax purposes, (ii) does not have any operations in California, (iii) does not manage, control, or approve the day-today operations of Altior, and (iv) does not share offices with Altior. (Mot., pp. 2-4.)

PT Innercept argues that no general jurisdiction exists where (i) PT Innercept is incorporated in Delaware and does not have its principal place of business in California, (ii) conclusory allegations of jurisdiction do not establish generally jurisdiction, and (iii) PT Innercept is not registered or licensed to do business in California, does not own or lease property in California, maintains no office in California, has no employees in California, and has no facilities, physical operations or physical books or records in California. (Mot., pp. 5-6.)

PT Innercept also argues that no specific jurisdiction exists where (i) Plaintiff has not established by a preponderance of the evidence that PT Innercept has purposefully availed itself of this forum, (ii) PT Innercept has neither purposefully availed itself of the benefits and protections of California, nor purposefully directed any activities expressly aimed at the, and (iii) PT Innercept has no other connection to California related to Plaintiff’s claims in this litigation. (Mot., pp. 6-7.)

PT Innercept adds that its ownership interest in Altior does not create grounds for jurisdiction where (i) the purposes and acts of one party cannot be imputed to a third party to establish jurisdiction over that third party, (ii) mere ownership in a subsidiary, without more, does not create ground for jurisdiction, (iii) the agency and alter ego theories cannot establish jurisdiction, and (iv) there are no evidentiary grounds to show that PT Innercept exerts a degree of control exerted over Altior as to reasonably deem Altior an agent of PT Innercept under traditional agency principles or that the purpose of the alter ego doctrine is satisfied through its application to PT Innercept. (Mot., pp. 7-10.)

PT Innercept last argues that jurisdiction does not comport with traditional notions of fair play and substantial justice because it is not at home in California and is not using Altior as its alter ego. PT Innercept adds that given that PT Innercept has no presence in California, the burden on PT Innercept to litigate in California would be oppressive and unreasonable, forcing PT Innercept to incur substantial time and expense in sending its representatives to California for depositions, hearings, mandatory settlement conferences or trial. (Mot., p. 10.)

III. Opposition

In opposition, Plaintiff Auchterlonie argues that the Individual Defendants had complete control over the the Entity Defendants and used the entities to shield the Individual Defendants from wrongdoing, with PT Innercept receiving the profits from Altior and Paradigm Treatment. (Opp’n, pp. 1-5.)

Plaintiff argues that general jurisdiction exists here based on agency principles and the imputation of Defendants Settembrino and Canto’s contacts with California to PT Innercept and based on application of the alter ego doctrine to the facts of this case, with there being a unity of interest between Altior, Paradigm Treatment, and PT Innercept: use of the entities as mere shells with inadequate capitalization, comingling of funds, and a large overlap in persons directing the leadership roles in the Entity Defendants. (Opp’n, pp. 6-7, citing Opp’n, Auchterlonie Decl., ¶¶ 3-13 & Mot., Water Decl., ¶ 4 & Opp’n, Nickerson Decl., ¶ 3, Ex. 3.)

Plaintiff argues that specific jurisdiction also exists over PT Innercept here based on (i) PT Innercept owning and operating businesses and treatment centers in California for California residents and patients, (ii) PT Innercept deriving profit from Altior and Paradigm Treatment, (iii) the effects of PT Innercept withholding patient deposits and not reimbursing patients, thus subsidizing its need for loans and undercutting the need for investment sourcing, and (iv) the negative impact of PT Innercept’s agents’ conduct on California residents. (Opp’n, pp. 7-9, citing Opp’n, Auchterlonie Decl., ¶¶ 3-7, 9-13 & Mot., Water Decl., ¶ 4.)

Plaintiff argues that PT Innercept’s contacts relate to this action insofar as this Defendant and its agents in California “hired Plaintiff as CEO for California based companies to run treatment centers for California residents, made decisions negatively affecting those patients which Plaintiff reported, refused to participate in and attempted to correct, and subsequently engaged in retaliatory acts to terminate Plaintiff and interfere with his employment, contractual and economic relationships that he had in California.” (Opp’n, pp. 9-10, citing Opp’n, Auchterlonie Decl., ¶¶ 3-7, 9-13.)

Plaintiff concludes that “[i]t is entirely reasonable for Defendant to be subject to this suit in California given its substantial forum-related activities and benefits it has received.” (Opp’n, p. 10.)

In the alternative, Plaintiff requests a continuance to conduct additional discovery as to grounds for jurisdiction over PT Innercept. (Opp’n, pp. 10-11.)

IV. Reply

In reply, PT Innercept highlights the burden Plaintiff carries as to jurisdiction and reiterates arguments relating the lack of contacts between PT Innercept and California and the lack of merit to alter ego liability based on ownership in a subsidiary alone as to support general jurisdiction. PT Innercept also argues that Plaintiff does not explain how PT Innercept’s agent’s conduct can be imputed to PT Innercept when that conduct was pursued by the same agents in favor of Altior, not PT Innercept. PT Innercept adds that its blocker status is not nefarious and that Plaintiff fails to present evidence showing that PT Innercept “takes the assets of Altior and Paradigm.” PT Innercept then argues that no specific jurisdiction applies because the ‘taking of assets’ and other conduct alleged against the Individual Defendants were actions performed by the Individual Defendants in favor of Altior or Paradigm Treatment, not PT Innercept, undercutting the grounds to impute contacts to PT Innercept. Last, PT Innercept argues that jurisdiction here would be unreasonable for failing to comport with fair play and substantial justice and that discovery should not be permitted as to jurisdiction grounds where Plaintiff should have, prior to PT Innercept’s motion, or even prior to his hearing, attempted to obtain the discovery referenced in the opposition, which is not sufficiently described as to demonstrate that the sought-after discovery is likely to lead to the production of evidence of facts establishing jurisdiction. (Reply, pp. 1-8.)

V. Outcome

The Court determines that insufficient grounds exist for jurisdiction on this record.

California courts have held that an entity’s contacts with California can be attributed to its parent-company when evidence establishes that the parent and subsidiary are alter egos or have an agency relationship with representative services performed by the subsidiary, or pervasive control exercised by the parent. (DVI, Inc. Superior Court (2002) 104 Cal.App.4th 1080, 1093-94; F. Hoffman-La Roche, Ltd. v. Superior Court (2005) 130 Cal.App.4th 782, 796; Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538-541.)

To invoke the alter-ego doctrine, the plaintiff must establish (1) there is such a unity of interest and ownership between the parent and subsidiary that they do not have separate personalities and (2) it would be inequitable to treat the conduct as attributable to only one of the entities. (Strasner, supra, 5 Cal.App.5th at p. 223.) The factors considered in such a determination are:

(1) Comingling of funds and assets (Sonora Diamond, supra, 83 Cal.App.4th at p. 538);

(2) The representation of one entity that it is liable for the debts of the other (ibid.);

(3) Identical equitable ownership of the two entities (ibid.);

(4) The use of the same offices and employees (ibid.);

(5) Use of one entity as a mere shell or conduit for the affairs of the other (ibid.); and

(6) Inadequate capitalization (ibid.).

To impute contacts under a theory of agency, a plaintiff must demonstrate that the parent exercised pervasive and continuous control over the subsidiary’s day-to-day operations that went beyond the normal parent-subsidiary relationship. (Strasner, supra, 5 Cal.App.5th at p. 223; see also Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 578 [nature of control must reflect parent’s purposeful disregard of subsidiary’s independent corporate existence].) Normal characteristics of ownership (e.g., some degree of direction or oversight, interlocking directors and officers, a close financial connection, consolidated reporting, and shared professional services), evidence of co-branding, or the broad use of terms linking the parent and subsidiary in SEC filings or other materials are insufficient to establish an agency relationship. (Strasner, supra, 5 Cal.App.5th at p. 225.) But when the parent exercises such a degree of control over its subsidiary that the subsidiary is only a means through which the parent acts, or is merely an incorporated department of the parent, the subsidiary will be regarded as the parent’s agent. (Sonora Diamond, supra, 83 Cal.App.4th at p. 541; see, e.g., Harley-Davidson, Inc. v. Franchise Tax Bd. (2015) 237 Cal.App.4th 193, 215 (Harley-Davidson) [court found agency relationship where subsidiaries were formed and acted sole for a parent’s direct benefit, had no employees of their own but instead acted entirely through parent’s employees, and were governed by parent’s officers and directors].)

To support alter ego, Plaintiff argues (1) comingling of funds and assets between PT Innercept and Altior/Paradigm Treatment, (2) identical equitable ownership by the Individual Defendants, (3) the use of PT Innercept, Altior, and Paradigm Treatment as mere shells to shield the Individual Defendants from liability, and (4) inadequate capitalization of PT Innercept. (Cf. FAC, ¶ 21 [alleging inadequate capitalization, treatment of corporate assets as one’s own, comingling of funds and other assets, failure to maintain minutes or records, disregard of legal formalities, and use of the Entity Defendants as mere shells].)

To support alter ego liability, Plaintiff provides his own declaration alleging that the Individual Defendants have used the Entity Defendants to engage in conduct that is detrimental to California residents/patients, excerpts of the deposition of Paradigm Treatment’s CEO/Altior’s Chief Clinical Officer (CCO) showing that PT Innercept owns Altior and Paradigm Treatment, and copies of interrogatory responses by Altior giving member, owner, and other information regarding some of the Entity Defendants but evasively refusing to give the same information as to others, e.g., as to PT Innercept’s membership. (Opp’n, Auchterlonie Decl., ¶¶ 1-12, 14-15; Opp’n, Nickerson Decl., Ex. 3, pp. 17-18; Opp’n, Nickerson Decl., Ex. 4, pp. 1-14 [response to SROGs, Set One, showing overlap or evasive responses obfuscating alter ego determination].)

The Court finds this evidence is insufficient to show a claim of alter ego by a preponderance of the evidence on this record. Mere ownership by a parent of a subsidiary is insufficient. (Sonora Diamond, 83 Cal.App.4th at pp. 540-541.) The fact that several employees may be officers of different companies does not prove in what capacity they were acting. And there is a lack of evidence relating to whether PT Innercept is properly capitalized or maintains corporate formalities, or whether PT Innercept is in fact receiving the lion’s share of profits derived by Altior and Paradigm Treatment.

Moreover, the Court finds that the agency argument is unavailing based on this record.

To support agency, Plaintiff argues (1) imputation of agent’s conduct to PT Innercept and (2) continuous and systematic contacts by the agents in California through Altior and Paradigm Treatment. (Cf. FAC, ¶ 2; see Skopp v. Weaver (1976) 16 Cal.3d 432, 439 [An allegation of agency is itself an ultimate fact that need not be further explained or supported by other factual allegations]; accord Kiseskey v. Carpenters’ Trust for So. California (1983) 144 Cal.App.3d 222, 230.)

An agent may be solely liable to a third party for tortious conduct. (James v. Marinship Corp. (1944) 25 Cal.2d 721, 742-43 [“The true rule is, of course, that the agent is liable for his own act, regardless of whether the principal is liable or amenable to judicial action”].)

While Plaintiff was hired as CEO for Altior (formerly Innercept Holdings) and Paradigm Treatment (Opp’n, Auchterlonie Decl., ¶ 3, Exs. 1-2), and the FAC alleges a conspiracy between the Individual Defendants to use the Entity Defendants to shield the Individual Defendants from wrongdoing in relation to their inequitable conduct committed through the Entity Defendants. (See Opp’n, pp. 3-5.)

Paul Auchterlonie’s declaration asserts that the Entity Defendants are tied together because the Individual Defendants purportedly use Altior and Paradigm Treatment to escape liability. Altior’s evasive responses to Plaintiff’s Special Interrogatories, Set One, show an overlap between some of the Entity Defendants and control by the Individual Defendants (Responses to Nos. 2, 10, 11 [Altior, Innercept, Paradigm Services, and Paradigm Treatment share Settembrino and/or Canto]), and evince a reluctance by Altior to divulge the ownership, membership, or other interests or positions that the Individual Defendants hold in the Entity Defendants, e.g., in PT Innercept (Response to No. 8).

However, as noted above, mere ownership of a subsidiary, and the fact that officers and employees may work for different affiliated companies, is not sufficient to show the level of control by PT Innercept over the California entities or other activity that would be required to find either personal or general jurisdiction here.

However, Plaintiff has requested to conduct discovery into jurisdiction. (Mihlon v. Superior Court (1985) 169 Cal.App.3d 703, 710.) While Defendant opposes this request, because of the complexity of the interrelated corporate structures at issue, the Court finds this request reasonable.

The Court also notes that based on the evidence before the Court, Plaintiff appears to be arguing that a number of Defendants and former Defendants—all alleged as one another’s agents (FAC, ¶ 2)—interfered with one another’s contract with Plaintiff. (FAC, ¶¶ 54-71, Fourth and Fifth Causes of Action.) Such a claim does not appear viable under established authority. (Asahi Kasei Pharma Corp. v. Actalion Ltd. (2013) 222 Cal.App.4th 945, 961 (Asahi) [“‘California recognizes a cause of action against noncontracting parties who interfere with the performance of a contract. “It has long been held that a stranger to a contract may be liable in tort for intentionally interfering with the performance of the contract.” [Citation.] [¶] … [¶] … The tort duty not to interfere with the contract falls only on strangers—interlopers who have no legitimate interest in the scope or course of the contract’s performance.’ (Applied Equipment [Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503,] 513-514, …, final italics added & fn. omitted” (Applied Equipment)].)

However, because the first cause of action states a claim upon which relief may be granted, this last argument alone would not be dispositive, as jurisdiction would be proper if even a single claim could be stated against that defendant.

PT Innercept’s motion is thus CONTINUED.

Motion to Quash Summons [Settembrino; Canto]

Order Quashing Summons [Settembrino, Canto]: GRANTED.

The Defendants are all alleged as agents of one another (FAC, ¶ 2), and the Individual Defendants are alleged to have, in essence, acted in a conspiracy to use the Entity Defendants to accomplish the improper purpose of protecting themselves from the liability alleged in the FAC and allegedly evidenced by Plaintiff’s attachments to the opposition. (See, e.g., Opp’n, Auchterlonie Decl., ¶¶ 1-12, 14-15.)

The FAC only alleges two causes of action against Defendants Settembrino and Canto: (4) Tortious Interference with Economic Advantage; and (5) Tortious Interference with Contractual Relations. (FAC, ¶¶ 39-48 [second COA; no Settembrino, Canto], 49-56 [third COA; no Settembrino, Canto], 54-62 [fourth COA; reuses ¶¶ 54-55], 63-71 [fifth COA].)

Defendants Settembrino and Canto were served with the summons, FAC, and other documents on September 29, 2023 via substituted service on Jane Doe, “Office Administrator/Person in Charge,” in Miami, Florida. (See 10/3/23 Proof of Service.)

The arguments relating to general and specific jurisdiction in relation to these Individual Defendants are highly similar to those raised in relation to PT Innercept.

The primary difference is that this motion argues that these Individual Defendants were not properly served because they reside in Florida and that Florida or California law was not followed when these Defendants were served by substituted service at a business location. (Mot., pp. 4-5.)

After review, the Court finds in favor of Defendants Settembrino and Canto.

As discussed above in relation to PT Innercept, the interference claims are fatally defective where the FAC is alleging that Settembrino and Cantu interfered with an employment relationship to which, by way of the above discussion, Settembrino and Cantu are not interlopers, and thus cannot have interfered with the employment relationship under that specific theory of liability—as opposed to say, breach of some implied covenant in an employment contract. (See Asahi, supra, 222 Cal.App.4th at p. 961, quoting Applied Equipment, supra, 7 Cal.4th at pp. 513-514 [interference standard re: interlopers, discussed supra].)

If only defective claims are stated against these Defendants, there can be no jurisdiction over these Defendants pursuant to such claims.

Defendants Settembrino and Canto’s motion is thus GRANTED.

Motion to Quash Summons [Doe 2 Pine Tree]

Order Quashing Summons [Pine Tree]: CONTINUED.

Defendant Pine Tree is sued as Doe 2.

The Defendants are all alleged as agents of one another (FAC, ¶ 2), and the Individual Defendants are alleged to have, in essence, acted in a conspiracy to use the Entity Defendants to accomplish the improper purpose of protecting themselves from the liability alleged in the FAC and allegedly evidenced by Plaintiff’s attachments to the opposition. (See, e.g., Opp’n, Auchterlonie Decl., ¶¶ 1-12, 14-15.)

The FAC alleges all five causes of action against Pine Tree by virtue of Pine Tree being Doe 2. (FAC, ¶¶ 28-71.)

Defendant Pine Tree Equity was served with the summons, FAC, and other documents on September 21, 2023 via substituted service on Jane Doe, Front Desk, in Miami, Florida. (9/25/23 Proof of Service.)

After review, the Court finds in favor of Pine Tree.

At this moment, the Court is not satisfied that Plaintiff has shown that other Defendants’ contacts with California should be imputed to Pine Tree through alter ego liability or agency principles.

For alter ego or agency purposes, Plaintiff’s evidence is not clear as to the Individual Defendants’ relationship with Pine Tree or Pine Tree’s responsibility through its relationship with the Individual Defendants’ efforts to escape liability for alleged inequitable conduct in relation to medical treatment being given to California residents and patients through various of the Entity Defendants.

Plaintiff has requested to conduct discovery into jurisdiction. (Mihlon v. Superior Court (1985) 169 Cal.App.3d 703, 710.) While Defendant opposes this request, because of the complexity of the interrelated corporate structures at issue, the Court finds this request reasonable.

Pine Tree’s motion is thus CONTINUED to allow for jurisdictional discovery. 

Conclusion

I.

Specially Appearing Defendant PT Innercept, Inc.’s Motion to Quash Service for Lack of Personal Jurisdiction [CRS# 6273] is CONTINUED.

II.

Specially Appearing Defendants Jeff Settembrino and Roberto Canto’s Motion to Quash Service of Process for Ineffective Service and Lack of Personal Jurisdiction [CRS# 1299] is GRANTED.

Service of the summons on these Defendants is QUASHED.

III.

Specially Appearing Defendant Doe 2 Pine Tree Equity Management LP’s Motion to Quash Service of Process for Lack of Personal Jurisdiction [CRS# 9961] is CONTINUED.

The Court invites a discussion as to the length of time and a mutually agreeable further hearing date as to the two continued motions at oral argument.