Judge: Craig Griffin, Case: "Fernandez v. Shofu, Inc.", Date: 2022-10-24 Tentative Ruling
Defendant Shofu, Inc., which is a Japanese corporation, specially appears and moves under Code Civ. Proc. § 418.10 for an order quashing service of summons for lack of personal jurisdiction.
A California court may exercise personal jurisdiction over a nonresident defendant to the extent allowed under the state and federal Constitutions. HealthMarkets, Inc. v. Superior Court (2009) 171 Cal.App.4th 1160, 1166. The exercise of personal jurisdiction is constitutionally permissible only if the defendant has sufficient “minimum contacts” with the forum state so that the exercise of jurisdiction does not offend traditional notions of fair play and substantial justice. Ibid. In other words, the defendant's contacts with the forum state must be such that the defendant had “fair warning” that its activities might subject it to personal jurisdiction in the state. Id. at pp. 1166-1167. Each defendant's contacts with the forum State must be assessed individually. Id. at p. 1167.
A defendant that has substantial, continuous, and systematic contacts with the forum state is subject to general jurisdiction in the state, meaning jurisdiction on any cause of action. HealthMarkets, Inc. v. Superior Court, supra, 171 Cal.App.4th at p. 1167. Absent such extensive contacts, a defendant may be subject to specific jurisdiction, i.e., jurisdiction in an action arising out of or related to the defendant's contacts with the forum state. Ibid. Specific jurisdiction depends on the quality and nature of the defendant's forum contacts in relation to the particular cause of action alleged. Ibid.
A nonresident defendant is subject to specific personal jurisdiction only if (1) the defendant purposefully availed itself of the benefits of conducting activities in the forum state; (2) the controversy arises out of or is related to the defendant's forum contacts; and (3) the exercise of jurisdiction would be fair and reasonable. HealthMarkets, Inc. v. Superior Court, supra, 171 Cal.App.4th at p. 1167. These guidelines are not susceptible of mechanical application, and the jurisdictional rules are not clear-cut. Rather, a court must weigh the facts in each case to determine whether the defendant's contacts with the forum state are sufficient. Ibid.
When a nonresident defendant challenges personal jurisdiction, the plaintiff must prove, by a preponderance of the evidence, the factual basis justifying the exercise of jurisdiction. BBA Aviation PLC v. Superior Court (2010) 190 Cal.App.4th 421, 428. The plaintiff must do more than merely allege jurisdictional facts; he or she must provide affidavits and other authenticated documents demonstrating competent evidence of jurisdictional facts. Id. at pp. 428-429. If the plaintiff does so, the burden shifts to the defendant to present a compelling case that the exercise of jurisdiction would be unreasonable. Id. at p. 429.
While the moving defendant contends that it is not subject to either general or specific jurisdiction in California because it is a Japanese corporation with no offices, employees, or bank accounts in the state, has no control over the day-to-day operations of its California subsidies, and was never the employer of the plaintiffs, responding plaintiffs contend otherwise. Plaintiffs contend that the moving defendant is subject to both general and specific jurisdiction in California. Plaintiffs contend that the moving defendant’s contacts with California are extensive, both generally and in relation to the activities giving rise to this litigation.
In opposing the motion, plaintiffs submit evidence that includes excerpts from the deposition of Takashi Wakayama, who was designated by the moving defendant to be its PMK to testify with respect to jurisdiction (Exhibit E to the declaration of attorney Lisa R. Brant.) and a lengthy declaration by plaintiff Mark Schwer.
In his deposition, Mr. Wakayama testified that he is the executive officer of the moving defendant and its officer for business defendant as well as the CEO and the president of co-defendant Smart Dentistry Solutions. (Exhibit E, 11:3-16.) He testified that one of the moving defendant’s subsidiaries, Shofu Dental Corporation, is its sales arm in the United States, including California. (Exhibit E, 34:13-25.) He also testified that he appeared for his deposition in California because he comes into the state about every other month because of his role as the president of co-defendant Smart Dentistry Solutions. (Exhibit E, 43:9-23.)
Mr. Wakayama also testified that Mr. Schwer had been employed by co-defendant Smart Dentistry Solutions in California as its COO and was responsible for its business. (Exhibit E, 53:1-9.) He testified that, during Mr. Schwer’s tenure with Smart Dentistry Solutions, he was “seconded” to the headquarters of the moving defendant. (Exhibit E, 53:11-15.) He testified that, during this time, when he worked for the moving defendant, Mr. Schwer was partly paid by the moving defendant and partly by co-defendant Smart Dentistry Solutions (exhibit E, 53:11-15) and that his pay was given in yen and dollars (Exhibit E, 54:25-54:6). As for his own compensation, Mr. Wakayama testified that he was paid only by the moving defendant and not by co-defendant Smart Dentistry Solutions. (Exhibit E, 61:11-14.)
Mr. Wakayama testified that he was planning to move to California and continue to be the president of and board member for co-defendant Smart Dentistry Solutions and the executive officer of the moving defendant. (Exhibit E, 82:20-83:25.)
In his declaration, Mr. Schwer attests that he worked for the moving defendant and two of its California subsidiaries for almost twelve years. (Declaration of Mr. Schwer, 2:9-10.) He testified that, at all times when he worked for the three entities, “he considered myself to be a Shofu Inc. employee as the crux of my activities were always directly and indirectly controlled by Shofu Inc. and specifically benefited and enriched Shofu Inc.” (Declaration, 2:13-15.)
Mr. Schwer attests that he began his career with the moving defendant in 2010 as product manager for Shofu Dental, and that it was his job to assist the moving defendant with launching its materials successfully to the United States market through Shofu Dental. (Declaration, 2:17-19.) He attests that his job responsibilities required him to “communicate frequently and directly” with members of the moving defendant’s marketing and research and development team and executives in Japan to ensure that company products were accurately depicted on marketing materials and launched to the United States sales market accurately. (Declaration, 2:19-22.)
Mr. Schwer attests that moving defendant keeps “close tabs” on the financials of Shofu Dental and the monthly expense reports were submitted directly to the moving defendant’s accounting team for approval. (Declaration, 3:12-15.) He attests that the moving defendant’s staff would conduct business for both the moving defendant and Shofu Dental when they came to the offices of Shofu Dental and that they occupied office space for extended periods of time. (Declaration, 3:14-4:2.)
Mr. Schwer attests that, in his experience with the moving defendant, “the lines between Shofu entities and their workforces were always blurred.” (Declaration, 4:4-5.) He attests that “[r]ather than maintaining separate workforces, Shofu Inc. executives always maintained positions at Shofu Inc. and its subsidiaries simultaneously, and Shofu, Inc. routinely moved employees amongst its global entities as Shofu Inc. saw fit.” (Declaration, 4:5-7.)
Mr. Schwer attests that, in 2013, moving defendant “seconded” him to its Japanese to Shofu headquarters for a three-year term to act as its marketing manager and he reported to executives of the moving defendant and was paid in yen and dollars. (Declaration, 4:8-15.) He attests that he was transferred back to California in 2016 to work for Shofu Dental. (Declaration, 4:16-17.)
MR. Schwer attests that, although he was the COO of Smart Dental Solutions, he always understood that the moving defendant would be controlling Smart Dental Solutions. (Declaration, 4:18-19.) He attests that he started working with executives of the moving defendant in September 2019 to set up Smart Dental Solutions. (Declaration, 5:23-6:4.) He attests that even though he was the COO of Smart Dental Solutions, he did not have the authority to make hiring decisions, because those were controlled by the moving defendant. (Declaration 7:7-9.)
This evidence is enough to show that moving defendant would be subject to specific jurisdiction. Specifically, it shows that moving defendant purposefully availed itself of conducting activities in California because it shares employees with its California subsidiaries and makes employment decisions that affect those subsidiaries. In addition, the instant action arises out of plaintiffs’ employees with the moving defendant and at least one of its California subsidiaries. Given the interaction of the corporation and its California subsidiaries and the frequent travel of the moving defendant’s executives to California, the exercise of jurisdiction by California over the moving defendants would be fair and reasonable.
Moving defendant does not submit any evidence with its reply to rebut the evidence submitted by the plaintiffs or to show that the exercise of jurisdiction by California would be unreasonable.
The motion of defendant Shofu, Inc., for an order quashing service of summons is DENIED.
Defendants Smart Dentistry Solutions, Inc., and Insperity PEO Services, L.P. move for an order compelling plaintiffs Mark Schwer and Claudia Fernandez to submit each of the causes of action in their complaint to binding individual arbitration and to stay this proceeding pending the completion of arbitration.
Code of Civil Procedure section 1281.2 provides in relevant part that, on petition of a party to an arbitration agreement alleging the existence of a written agreement to arbitrate a controversy and that a party to the agreement refuses to arbitrate that controversy, the court must order the petitioner and the respondent to arbitrate the controversy if it determines that an agreement to arbitrate the controversy exists, unless it determines that: (1) the right to compel arbitration has been waived by the petitioner; (2) grounds exist for rescission of the agreement; or (3) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.
The two plaintiffs are in different positions with respect to the existence of an arbitration agreement with the moving defendants. Specifically, it is undisputed that plaintiff Claudia Fernandez entered into an arbitration agreement with defendant Smart Dentistry Solutions when she was hired that included an agreement to arbitrate employment disputes. The agreement was part of the “onboarding” process handled by Insperity PEO Services when she was hired and she accessed the agreement electronically and had the opportunity to print it out.
Moving defendants have not shown that plaintiff Mark Schwer entered into an arbitration agreement with either defendant. However, they contend that under California law he could be presumed to have entered into an arbitration agreement if he was aware that the company required arbitration agreements when employees were hired and that it had a policy of arbitrating employment disputes.
While plaintiffs do not dispute the law cited by moving defendants, they offer the declaration of Mr. Schwer to show that he was working at the company before Insperity PEO Services was hired to handle human resources issues and that he was unaware of the policy or even the existence of the arbitration agreements. Furthermore, he attests that Smart Dentistry Solutions only hired two employees and one independent contractor (his wife) during his tenure as COO there, which means that the issue of arbitration probably did not arise during that tenure.
Thus, the situation is that plaintiff Fernandez agreed to arbitrate the claims in the complaint, which relate to employment, and that plaintiff Schwer did not.
The question then becomes whether the Court should compel arbitration between plaintiff Fernandez and the defendants and stay the Court action or whether it should decline keep the dispute as to both plaintiffs. Plaintiffs contend that the entire action should stay with the Court under subdivision (c) of section 1281.2, which, as noted above, permits the Court to decline to enforce an agreement to arbitrate where:
“A party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party, arising out of the same transaction or series of related transactions and there is a possibility of conflicting rulings on a common issue of law or fact.”
Plaintiffs cite three cases in support of their position that the case falls within this provision and defendants contend that these cases are distinguishable and favor arbitration of Fernandez’s claims and a stay of the court action.
The first case is Whaley v. Sony Computer Entertainment (2004) 121 Cal.App.4th 479, where the court at p. 484 rejected the argument that subdivision (c) “may be applied only at the request of a party to an arbitration agreement who is caught ‘in the middle’ of a multi-party dispute in which some litigants are bound by the arbitration agreement, and others are not.”
The court said the following at pp. 485-487:
“SCEA concedes that it is a party to arbitration agreements with Whaley and Walker; that it is also a party to related litigation with Ryan arising out of the same transaction; and that there is a possibility of conflicting rulings on common issues in the arbitration proceedings and the Ryan litigation, particularly with respect to Yoshida's alleged oral agreement to permit Sevigny to participate in the financial benefits of the Red Zone acquisition. However, SCEA contends that the trial court erred in applying section 1281.2, subdivision (c) because, according to SCEA, this statutory provision is intended solely for the benefit of a party to the arbitration agreement who is also a party to the related litigation against a third party.
“We conclude that SCEA's argument is contrary to the plain language of the statute. Section 1281.2, subdivision (c) contains no provision stating that it may be invoked only in favor of the party caught “in the middle” between arbitration and litigation. The statute is unambiguous: it allows the trial court to deny a motion to compel arbitration whenever “a party” to the arbitration agreement is also “a party” to litigation with a third party that (1) arises out of the same transaction or series of related transactions, and (2) presents a possibility of conflicting rulings on a common issue of law or fact. As the trial court concluded, SCEA is “a party” to the arbitration agreements and is also “a party” to litigation with a third party, Ryan, that satisfies the other conditions set forth in the statute. Thus, the trial court had discretion to refuse to compel arbitration in order to avoid the possibility of conflicting rulings. [Citations.]”
“The Legislature could easily have chosen to specify that the trial court's authority to deny arbitration pursuant to section 1281.2, subdivision (c) could be exercised only if the party resisting arbitration was also a party to the related litigation with a third party. However, it did not do so. ‘We may not, under the guise of construction, rewrite the law or give the words an effect different from the plain and direct import of the terms used.’ [Citation.] More specifically, we may not ‘insert qualifying provisions not included in the statute.’ [Citation.]”
The second case is Birl v. Heritage Care LLC (2009) 172 Cal.App.4th 1313, where the court discussed whether the “third party requirement” in subdivision (c) was satisfied where some defendants had an arbitration agreement with the plaintiffs’ decedent and co-defendants did not.
The court said at pp. 1320-1321:
“As alleged in the complaint, the tortious conduct of the other two residential nursing facility defendants, the Kaiser/SCPMG defendants, and defendant Heritage all contributed to the injuries suffered by Mr. Birl prior to his death. It is of no consequence that Heritage's services were separated by time from the sequential services provided by the other long-term care facilities. A temporal separation does not necessarily negate the existence of the requisite ‘series of related transactions.’ [Citation.] Likewise, all the codefendants contributed to the cause of the injuries suffered by Mr. Birl's wife and two daughters, as alleged in their individual causes of action for loss of consortium and the negligent infliction of emotional distress….
“The trial court properly noted the possibility of conflicting rulings on common issues of law or fact if defendant Heritage was not joined in the court action with the other defendants. A myriad of conflicting rulings is possible. For example, Heritage asserted as an affirmative defense that various third party health care providers, who are not defendants in the present case, caused the injuries suffered by Mr. Birl at Heritage. Different triers of fact in different proceedings could come to different and conflicting conclusions as to which party or parties were liable, and also could arrive at different conclusions in apportioning the amount of damages. However, if the trier of fact is the same for all defendants, as would occur if all defendants are joined in the court action, then the possibility of conflicting rulings concerning fault and apportionment of damages [citation] would not occur.”
The court third case is Lindemann v. Hume (2012) 204 Cal.App.4th 556. There the court said the following at pp.565-566:
“The Hancock Park defendants contend section 1281.2, subdivision (c), is inapplicable to their motion to compel arbitration of Lindemann's nondisclosure claims against them because those causes of action and the construction defect causes of action against The Lee Group do not arise out of the same transaction or series of transactions and also because there is no possibility of conflicting rulings. Both contentions are incorrect.
“As the Hancock Park defendants emphasize, Lindemann's claims against The Lee Group stem from the allegedly negligent design and construction of the home, which occurred before the Hancock Park Trust purchased the property, while the nondisclosure causes of action against them arise out of their alleged failure to make required material disclosures in connection with the resale of the home three years later. Thus, they are correct the claims do not arise from the same transaction. Their further contention that the causes of action do not arise out of a series of related transactions, however, requires an unduly cramped view of section 1281, subdivision (c), that we reject.”
These cases all involve the situation where plaintiffs had arbitration agreements with only some of the defendants. Here, one plaintiff has an arbitration agreement that is enforceable, and the other plaintiff does not.
The complaint contains ten causes of action. Six of the causes of action (the first through fifth and the tenth causes of action) are brought jointly by both plaintiffs. The sixth cause of action is brought by plaintiff Schwer only and the seventh, eighth, and ninth causes of action is brought by plaintiff Fernandez only. While there may be some duplication of the issues, the risk of inconsistent rulings is minimal. As the moving defendants argue in the reply, the cases could have been brought separately.
The motion of defendants Smart Dentistry Solutions, Inc., and Insperity PEO Services, L.P. for an order compelling plaintiffs Mark Schwer and Claudia Fernandez to submit each of the causes of action in their complaint to binding individual arbitration and to stay this proceeding pending the completion of arbitration is GRANTED IN PART AND DENIED IN PART.
The motion is GRANTED to the extent that it seeks to compel plaintiff Claudia Fernandez to arbitrate her claims in the complaint only.
The motion is also GRANTED only to the extent that it seeks to stay the action by plaintiff Mark Schwer pending completion of the arbitration involving the co-plaintiff.