Judge: Carolyn M. Caietti, Case: 37-2023-00005994-CU-FR-CTL, Date: 2024-07-03 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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HALL OF JUSTICE

TENTATIVE RULINGS - June 27, 2024

06/28/2024  01:30:00 PM  C-70 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Carolyn Caietti

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Civil - Unlimited  Fraud Motion Hearing (Civil) 37-2023-00005994-CU-FR-CTL WILLIAM ROBERT AYRES SUCCESSOR RECEIVER TO RICHARD KIPPERMAN IN HIS CAPACITY AS COURT APPOINTED SUCCESSOR RECEIVER VS KORDUSA INC CAUSAL DOCUMENT/DATE FILED: Motion to Strike, 08/23/2023

Specially Appearing Defendants KordUSA, Inc., KordTech Pty Ltd. and KordDefence Pty Ltd.'s Motion to Quash Service of Summons is DENIED.

Plaintiff William Robert Ayres' Motion to Strike is DENIED.

Plaintiff William Robert Ayres' Motion for Sanctions is DENIED.

Background Plaintiff William Robert Ayres is the Successor Receiver in the San Diego Superior Court case, People v. McManus, et al, Case No. SCD266439. As alleged in this case's Complaint, the People's case stems from an alleged scheme to defraud the State of California through fraudulent billing practices in connection with the operation of 19 charter schools throughout California alleged to have been managed by Academic Arts and Action Charter Academy, doing business as A3 Education. As further alleged here, in 2018 and after the criminal investigation into A3 Education and various individuals began, Sean McManus and Jason Schrock, two individuals involved with A3 Education, found ways to fraudulently transfer, hide, delay the discovery and abscond with funds wrongfully obtained from the State of California. (Complaint, at ¶¶ 1-2.) The Complaint further alleges Schrock fraudulently transferred A3 Education funds into a purported investment in KordUSA, Inc. (KordUSA), KordTech Pty. Ltd. (KordTech) and/or KordDefence Pty. Ltd. (KordDefence) (collectively, the Kord Defendants). (Complaint, at ¶ 3.) More specifically, '[g]iven the challenges of the Kord Defendants faced in obtaining needed capital and with actual and/or constructive knowledge of the wrongful conduct by McManus and Schrock who presented the Kord Defendants with a $2,999,997.00 capital infusion, the Kord Defendants chose to accept' this transmission of stolen funds – the Receiver Property. (Id., at ¶ 19.) The Receiver was appointed in the criminal case to take possession and control of the Receiver Property and filed this suit. (Id., at ¶ 4.) Jurisdictional Discovery The Court allowed the parties to conduct jurisdictional discovery. (See, In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4th 100, 127 ['A plaintiff attempting to assert jurisdiction over a nonresident defendant is entitled to an opportunity to conduct discovery of the jurisdictional facts necessary to sustain its burden of proof.'].) Calendar No.: Event ID:  TENTATIVE RULINGS

3110065  64 CASE NUMBER: CASE TITLE:  WILLIAM ROBERT AYRES SUCCESSOR RECEIVER TO  37-2023-00005994-CU-FR-CTL On May 23, 2024, the Court granted in part and denied in part six motions to compel further discovery responses related to jurisdictional discovery. The Court ordered the Kord Defendants to serve further responses to certain special interrogatories and requests for documents. (ROA 239.) Motion to Quash Preliminary Matters The Receiver's unopposed request for judicial notice is granted and notice will be taken to the extent permitted.

Personal Jurisdiction The Receiver met its burden of showing the Kord Defendants have sufficient minimum contacts with California to justify jurisdiction. (C.C.P., §§ 418.10(a)(1), 410.10; see, Brue v. Shabaab (2020) 54 Cal.App.5th 578, 589–590.) General Jurisdiction Does Not Exist A defendant is subject to general jurisdiction when it has substantial, continuous, and systematic contacts in the forum state, i.e., its contacts with the forum are so wide-ranging that they take the place of a physical presence in the state. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445–446 (Vons); Daimler AG v. Bauman (2014) 571 U.S. 117, 127 [a nonresident corporation's contacts with the state must be so continuous and systematic that it can be considered 'at home' there].) For a corporation, its domicile, place of incorporation, and/or principal place of business within a state constitute the paradigm bases for establishing general jurisdiction. (Goodyear Dunlop Tires Operations, S.A. v. Brown (2011) 564 U.S. 915, 924.) In addition, in an exceptional case, a corporation's operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in the state. (Preciado v. Freightliner Custom Chassis Corporation (2023) 87 Cal.App.5th 964, 976-77.) Here, KordUSA is a Virginia corporation headquartered in Virginia. (ROA 19 - Declaration of Peter Moran, at ¶ 4.) KordTech and KordDefence are Australian companies headquartered in Australia. (Ibid.) The Kord Defendants do not have offices, facilities or employees located in California. (Id., at ¶ 5.) The Receiver argues Kord Defendants' 'sole business originates from a USMC Contract requiring them to work with Camp Pendleton, TwentyNine Palms, Quantico and various weapons development breaches to develop, test and train military personnel on a working RACU product for use by the USMC including personnel in California.' (Opp., at p. 18:8-12.) (For ease of refence, the Court refers to the exhibits in the Declaration of Chaz Glick; see also, Reply, at p. 1, fn. 1.) First, Plaintiff's argument is not factually supported. The contract ending in -0003 between KordDefence and the U.S. Air Force Global Procurement Office does not reference California, Camp Pendleton or Twentynine Palms. (Glick Decl., at Ex. A.) Neither does the agreement ending in -0005. (Id., at Ex. C.) Second, as held in Daimler, a defendant corporation's substantial sales in a state are insufficient to establish general jurisdiction, as the general jurisdiction analysis turns on the nature of the defendant's continuous corporate operations within a state. (Daimler, at pp. 138–139.) Here, at most, the Receiver points to one contract with the USMC without any reference to California or use of the RACU product in California. This one contract does not show affiliations with California that are so 'continuous and systematic' as to render the Kord Defendants 'at home' in California.

Thus, there is insufficient evidence to support general jurisdiction.

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3110065  64 CASE NUMBER: CASE TITLE:  WILLIAM ROBERT AYRES SUCCESSOR RECEIVER TO  37-2023-00005994-CU-FR-CTL Specific Jurisdiction Exists Specific jurisdiction requires some nexus between the cause of action and the defendant's activities in the forum state and exists when: (1) the defendant has 'purposefully availed' itself of forum benefits; (2) the controversy is related to or arises out of the defendant's contacts with the forum; and (3) the assertion of personal jurisdiction would comport with fair play and substantial justice. (Brue, supra, 54 Cal.App.5th at p. 589-90.) For the first prong, the Kord Defendants purposefully availed themselves to forum benefits.

As explained in Preciado, supra, purposeful availment occurs where a nonresident defendant: purposefully directs its activities at residents of the forum; purposefully derives benefit from its activities at residents of the forum; purposefully derives benefit from its activities in the forum; creates a substantial connection with the forum; deliberately engages in significant activities within the forum; or creates continuing obligations between itself and residents of the forum. (Preciado, supra, 87 Cal.App.5th at p. 978.) The focus is on the defendant's intentionality. (Ibid.) '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.' (Ibid., citing Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 269 [internal quotations omitted].) Here, there is sufficient evidence the Kord Defendants purposefully availed themselves to forum benefits through its solicitation of an investment opportunity with A3 Education and receipt of investment funds from A3 Education/A3 Consulting, Inc. As an initial note, the Kord Defendants worked together.

KordTech develops and produces technology for military applications and licenses its technology to KordDefence. KordUSA is a subsidiary of KordTech and is the exclusive licensee of KordTech's technology in the United States. (Moran Decl., at ¶ 4.) Peter Moran is the managing director of KordTech and KordDefence and interim president of KordUSA. (Id., at ¶ 5.) A3 Education was a California corporation with its primary place of business in Long Beach, California.

Sean McManus held the position of President and CEO; Jason Schrock held the position of Secretary.

(ROA 251 – Declaration of Joseph Schrock, at ¶ 7.) The evidence shows how KordUSA needed capital (Moran Decl., at ¶ 10) and the Kord Defendants collectively courted McManus, and thereby A3 Education, to invest in it. (Moran Decl., at ¶ 11; Supplemental Declaration of Sean McManus, at ¶¶ 9-13 & Ex. 2-8.) The Kord Defendants flew McManus to KordDefence and KordTech's headquarters in Australia, planned and provided his travel arrangements and pitched the investment opportunity with Moran, Kelly and other KordDefence engineers. (Supp. McManus Decl., supra.) After confirming their investment agreement, the Kord Defendants exchanged due diligence information (with McManus using an email signature block identifying A3 Education's Newport Beach address), including, scoping papers for KordDefence, a strategic marketing plan for KordUSA, KordUSA's past board minutes and executive summaries. (McManus Supp. Decl., at ¶ 15-20; Ex. 10-15, 22.) In the process, McManus informed Moran that A3 Consulting, Inc. would be the investing entity (Id., at ¶ 21) with a registered address in Newport Beach, California. (McManus Supp. Decl., at ¶ 16.) The Kord Defendants then coordinated with Schrock to arrange the wiring of the 'first tranche' of nearly $1 million from A3 Education's Farmers & Merchants Bank of Long Beach. (Shrock Decl., at ¶ 11 & Supp. McManus Decl., at Ex. 19) and confirmed receipt of those funds (i.e. the alleged stolen California money). (Supp. McManus Decl., at Ex. 20.) This was more than a one-time investment/receipt of funds. The evidence shows the parties agreed - or at least intended - for McManus/A3 Consulting to serve on KordUSA's board of directors. (Supp.

McManus Decl., at ¶¶ 13, 25.) The criminal investigation into McManus and Shrock served to sever the relationship. (Supp. McManus Decl., at ¶¶ 23, 28-29.) Notwithstanding, and after allegedly learning of the criminal investigation, the Kord Defendants kept the A3 money. (Schrock Decl., at ¶ 13; Supp.

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3110065  64 CASE NUMBER: CASE TITLE:  WILLIAM ROBERT AYRES SUCCESSOR RECEIVER TO  37-2023-00005994-CU-FR-CTL McManus Decl., at ¶¶ 28-32 & Ex. 23.) As a whole, the Kord Defendants' solicitation of A3 Education's investment and intended long-term relationship with its president and CEO and its retention of its money after they became aware of McManus' 'legal problems relating to [his] business interests in the United States relating to A3 Education' created a substantial connection with California. (Supp. McManus Decl., at ¶ 28.) This is enough to show the Kord Defendants' intention to conduct business with McManus/A3 Education/A3 Consulting and that they should have expected to be subject to this Court's jurisdiction based on their contact with McManus/A3 Education/A3 Consulting.

For the second prong, the parties do not address nor dispute this controversy relates to or arises out of the Kord Defendants' contacts with California, namely through the A3 entities. As alleged, the Receiver was appointed in the criminal case to pursue claims related to Receiver Property including the 'first tranche' in the amount of $999,999 transferred to the Kord Defendants. (E.g., Complaint, at ¶¶ 15-25.) For the third prong, the burden is on the defendant to present a 'compelling case that the presence of some other considerations would render jurisdiction unreasonable.' (Vons, supra, 14 Cal.4th 434, 476; Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 476.) Here, the Kord Defendants maintain it is 'not necessary' to assess its reasonableness because the Receiver did not establish the factual bases justifying the exercise of jurisdiction. (Memo., at p. 8: 15-23; Reply, at p. 10:12-15.) The Court disagrees for the reasons above. Without having provided any other analysis, the Kord Defendants did not meet their burden on this third prong.

Thus, California's exercise of personal jurisdiction comports with fair play and substantial justice.

Accordingly, the motion to quash is DENIED.

Motion to Strike The Receiver's unopposed request for judicial notice is granted and notice will be taken to the extent permitted. (ROA 49.) C.C.P. section 436, provides that '[t]he court may, upon a motion ... (a) [s]trike out any irrelevant, false or improper matter...(b) [s]trike out all or any part of any pleading not drawn or filed in conformity with the laws of this state, a court rule, or an order of the court.' The grounds for a motion to strike must appear on the face of the challenged pleading or matter subject to judicial notice. (C.C.P., § 437(a).) The Receiver moves to strike certain lines from Peter Moran's declaration and in the motion to quash.

(ROA 47.) As discussed above, specific jurisdiction exists. The Kord Defendants made colorable arguments in the motion and while certain lines of Mr. Moran's declaration regarding Mr. Kelly's involvement on KordTech's board were made with oversight, the Court does not agree it warrants striking the pleading as false or improper. In light of the ruling on the motion to quash, the Court, in its discretion allowed under C.C.P. section 436, declines to strike the requested matter.

The motion to strike is DENIED.

Motion for Sanctions The Receiver's unopposed request for judicial notice is granted and notice will be taken to the extent permitted. (ROA 66.) In this motion, the Receiver asks for $40,436 in monetary sanctions under C.C.P. section 128.7 for the 'false and improper matter' inter alia, presented in the motion to quash. There is no evidence the Kord Defendants made the motion for an improper purpose and some of the legal contentions held merit.

(C.C.P., § 128.7(b).) Again, the Kord Defendants made colorable arguments in their motion to quash and the Court found a lack of general jurisdiction. (See also, Kumar v. Ramsey (2021) 71 Cal.App.5th 1110, 1126 [the evidentiary burden to escape sanctions under section 128.7 is light].) Calendar No.: Event ID:  TENTATIVE RULINGS

3110065  64 CASE NUMBER: CASE TITLE:  WILLIAM ROBERT AYRES SUCCESSOR RECEIVER TO  37-2023-00005994-CU-FR-CTL Thus, the motion for sanctions is DENIED.

Concluding Orders The Kord Defendants are ordered to file a responsive pleading within 15 days of service of the Court's final order. (C.C.P., § 418.10(b).) If the tentative ruling is confirmed without modification, the minute order will be the Court's final ruling on these three motions. The Receiver is ordered to serve written notice of the Court's final ruling on all appearing parties by July 2, 2024 Calendar No.: Event ID:  TENTATIVE RULINGS

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