Judge Peter A. Hernandez, Case Number: 23PSCV03948, Date: 2024-05-24 Tentative Ruling

Specially Appearing Cross-Defendant Twain GL XXV, LLC’s Motion to Quash Service of Summons and [Cross-]Complaint for Lack of Personal Jurisdiction is GRANTED.

Plaintiff B.R. Building Resources Company (“B.R. Resources”) alleges as follows:

B.R. Resources is a boutique builder. Defendants SA Hospital Acquisition Group, LLC (“SAH Acquisition”), SA Hospital Real Estate Holdings, LLC (“SAH Real Estate”) and SA Hospital Real Estate Holdings-Jefferson, LLC (“SAH Jefferson”) (hereinafter collectively, the “SAH Entities”) own and/or operate the South City Hospital (“Hospital”) in St. Louis, Missouri. Defendants Lawrence Feigen (“Feigen”) and Jeffrey Ahlholm (“Ahlholm”) are the owners/agents of the SAH Entities. B.R. Resources and the SAH Entities entered into a “Master Service Agreement” (“MSA”), wherein B.R. Resources agreed to perform different categories of construction projects to improve the Hospital. The funding for the projects to be completed by B.R. Resources was provided by Twain Financial Partners (“Twain”). The SAH Entities had an agreement with Twain to provide the funding directly to B.R. Resources upon completion of certain work related to the projects. These funds were deposited into an escrow account (“Construction Fund”). Twain was to make deposits to the Construction Fund on a per project basis. B.R. Resources entered into twelve subcontracts (“AIA Contracts”) with the SAH Entities, each of which pertained to specific construction work to improve different portions of the Hospital. B.R. Resources was to be paid $15,537,397.16 to perform the work contemplated in the AIA Contracts. To date, Twain has provided $6,460,063.24 in funds to the Construction Fund.

On January 3, 2022, Feigen and asked B.R. Resources to give them $826,937.00 from the Construction Fund to cover operating costs for the Hospital. On this same date an additional $200,000.00 from the Construction Fund was given to Feigen and Ahlholm upon requesting funds from B.R. Resources and assuring B.R. Resources they had approval from Twain to make this request. On March 3, 2022, Feigen and Ahlholm made another request for B.R. Resources to give $400,000.00 directly to Modern HR Payroll Company from the Construction Fund to cover the Hospital’s payroll expenses, again assuring B.R. Resources they had Twain’s approval. On April 26, 2022, B.R. Resources met with Dave Merrifield, an employee of Twain, to discuss funding for ongoing projects, at which time B.R. Resources learned that Twain did not know that Feigen and Ahlholm had requested Construction Funds from B.R. Resources, nor that B.R. Resources had transferred Construction Funds to Feigen and Ahlholm. Twain subsequently stopped funding the projects, which has rendered B.R. Resources unable to complete the AIA Contracts.

Also, since January 2022, B.R. Resources entered into a contract to rent a boiler and a chiller to service the Hospital. B.R. Resources was instructed by the SAH Entities, by and through Feigen and Ahlholm, to use the Construction Fund to pay for the aforesaid service as. Due to no longer receiving fund deposits to the Construction Fund, B.R. Resources is unable to continue paying the rental fees for the boiler or chiller or any other temporary services.

On June 21, 2023, B.R. Resources filed an “Amendment to Complaint,” wherein Modern HR, Inc. (“Modern HR”) was named in lieu of Doe 1.

On August 21, 2023, Modern HR filed a cross-complaint, asserting causes of action against SAH Acquisition, Feigen, Ahlholm and Roes 1-10 for:

On November 14, 2023, B.R. Resources filed a First Amended Complaint (“FAC”), asserting causes of action against the SAH Entities, Feigen, Ahlholm, Modern HR and Does 2-25 for:

On December 15, 2023, the SAH Entities, Ahlholm and Feigen filed a cross-complaint, asserting causes of action against B.R. Resources, Juan Banos (“Banos”) and Roes 1-50 for:

On March 15, 2024, the court related Case Nos. 22PSCV01609 and 23PSCV03948; Case No. 22PSCV01609 was designated as the lead case.

A Case Management Conference and Status Conference Re: Related Case are set for May 24, 2024.

On/about and between March 31, 2022 and May 4, 2024, Trane and Defendants B.R. Building Resources Company fka B.R. & Sons Co. (“B.R. Resources”) and B.R. & Co., Inc. (“B.R. Co.”) entered into several written Equipment Leases, wherein Trane provided equipment to B.R. Resources and B.R. Co. on credit in exchange for B.R. Resources’ and B.R. Co.’s promise to pay monthly lease payments to Trane. B.R. Resources and B.R. Co. have failed to make payments due.

On December 20, 2023, Trane filed a complaint, asserting causes of action against B.R. Resources, B.R. Co. and Does 1-10 for:

On February 5, 2024, B.R. Resources filed a cross-complaint, asserting causes of action against the SAH Entities, Feigen, Ahlholm, Twain GL XXV, LLC (“Twain”) and Roes 1-10 for:

On March 15, 2024, the court related Case Nos. 22PSCV01609 and 23PSCV03948; Case No. 22PSCV01609 was designated as the lead case.

On April 30, 2024, the SAH Entities, Feigen and Ahlholm filed a cross-complaint, asserting causes of action against B.R. Resources and Moes 1-50 for:

A Case Management Conference and Status Conference Re: Related Case are set for May 24, 2024.

“A defendant, 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, may serve and file a notice of motion for one or more of the following purposes: (1) To quash service of summons on the ground of lack of jurisdiction of the court over him or her . . .” (Code Civ. Proc. § 418.10, subd. (a).)

“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. The plaintiff must come forward with affidavits and other competent evidence to carry this burden and cannot simply rely on allegations in an unverified complaint. If the plaintiff meets this burden, it becomes the defendant’s burden to demonstrate that the exercise of jurisdiction would be unreasonable.” (ViaView, Inc. v. Retzlaff (2016) 1 Cal.App.5^th 198, 209-210 [internal quotations and citation omitted].)

Twain moves the court, pursuant to Code of Civil Procedure § 418.10, for an order quashing service of summons and cross-complaint for lack of personal jurisdiction.

Here, B.R. Resources alleges that Feigen and Ahlholm are the owners/agents of the SAH Entities (Cross-Complaint, ¶ 18); that Twain is the owner of the land upon which the Hospital is located (Id., ¶ 19); that on December 29, 2021, Twain entered into a ground lease agreement with SAH Real Estate, whereby SAH Real Estate leased the land to own and operate the Hospital (Id., ¶ 20); that SAH Real Estate and SAH Acquisition thereafter entered into a sublease agreement authorizing SAH Acquisition to operate the Hospital (Id., ¶ 22); that, in January 2021, the SAH Entities entered into a “Master Service Agreement” (the “MSA”) with B.R. Resources for construction projects at the Hospital (Id., ¶ 23); that B.R. Resources entered into twelve subcontracts with the SAH entities (the “AIA Contracts”) for specific construction jobs at the Hospital (Id., ¶ 24); that Twain entered into a funding agreement with the SAH Entities to provide funding for the construction projects, for which Twain received a benefit “from the continued operation and profiting” of the Hospital (Id., ¶ 25); that the funds were deposited into an escrow account known as the “Construction Fund” (Id., ¶ 26); that on January 3, 2022, Ahlholm and Feigen met with B.R. Resources’ CEO and CFO and represented that they were allowed to use the Construction Funds at their discretion, including for various operating expenses (unrelated to construction (Id., ¶ 28); that Twain was privy to and approved this arrangement (Id.); that Ahlholm and Feigen instructed B.R. Resources not to communicate with Twain absent their explicit approval (Id.); that Ahlholm and Feigen instructed B.R. Resources to distribute $826,937.00 from the Construction Fund, which it did (Id., ¶ 29); and that Ahlholm and Feigen instructed B.R. Resources to distribute another $200,000.00 from the Construction fund to cover purported outstanding attorney fees owed by the SAH Entities, which B.R. Resources did (Id., ¶ 30).

B.R. Resources further alleges that in January 2022, it entered into equipment rental agreements with Trane in connection with the construction projects (Id., ¶ 32); that B.R. Resources was instructed by Ahlholm and Feigen to use the Construction Fund to pay for the equipment rentals (Id.); that Trane delivered the equipment directly to the Hospital (Id.); that on March 3, 2022, Twain deposited additional funds in the Construction Fund (Id., ¶ 33); that Ahlholm and Feigen instructed B.R. Resources to transfer $400,000.00 directly to Modern HR, to meet the Hospital’s payroll expenses (Id.); that Ahlholm and Feigen verbally assured B.R. Resources that they had Twain’s authorization for this transfer (Id.); that B.R. Resources wired these monies to Modern HR on March 9, 2022 (Id.); that on April 26, 2022, B.R. Resources met with Twain’s Dave Merrifield to discuss funding for ongoing Hospital projects and learned at this time that Twain knew nothing about Ahlholm’s and Feigen’s disbursement requests (Id., ¶¶ 36 and 37); and that Twain thereafter stopped funding the Hospital projects, which left B.R. Resources “exposed” to claims by subcontractors and vendors, including Trane (Id., ¶¶ 37 and 40).

On December 20, 2023, Trane filed its complaint against B.R. Building, B.R. Co. and Does 1-10 for (1) Breach of Contract, (2) Open Book Account and (3) Account Stated. On February 5, 2024, B.R. Building filed its cross-complaint against the SAH Entities, Feigen, Ahlholm, Twain and Roes 1-10 for (1) Equitable Indemnity and (2) Unjust Enrichment.

There are two bases for personal jurisdiction of a forum state such as California over a non-resident: general jurisdiction and specific jurisdiction.

“General jurisdiction results where the defendant's contacts with the forum state are so ‘systematic and so continuous as to make it consistent with traditional notions of fair play and substantial justice to subject the defendant to the jurisdiction of the forum, even where the cause of action is unrelated to the contacts.’” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 536 [citation omitted].) For a corporation, the “paradigm forum” for general jurisdiction is “one in which the corporation is fairly regarded as at home.” (Goodyear Dunlop Tires Operations, S.A. v. Brown (2011) 564 U.S. 915, 924.)

"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.” (Sonora Diamond, supra, 83 Cal.App.4th at 536.) “Specific jurisdiction exists if: (1) the defendant has purposefully availed itself 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.” (Id.)

B.R. Resources concedes that Twain is a Missouri limited liability company. (Cross-Complaint, ¶ 13.) Further, Twain submits that its principal place of business is 2200 Washington Avenue, St. Louis, Missouri, 63103 (Vigil Decl., ¶ 5); that Twain does not own, lease, or maintain any real estate or interest in property in California (Id., ¶ 6); that Twain has never incurred any obligation to pay, and has never paid, franchise or property taxes in California (Id.); that Twain’s only asset is certain real estate in St. Louis, Missouri (Id.); that Twain does not maintain any offices in California and has no employees in California (Id., ¶ 7); that Twain is not formally licensed, registered, or authorized to do business in California and does not have any places of business, post office boxes, telephone listings or bank accounts in California (Id., ¶ 8) and that Twain does not maintain a registered agency for service of process in California (Id.).

B.R. Resources, in turn, asserts that Twain, “through its alter ego and/or agency relationship with Twain Financial Partners [“TFP”], possesses significant and systematic contacts within California.” (Opp. 4:10-12). “[G]eneral jurisdiction may exist when evidence establishes the parent and the subsidiary are alter egos.” (DVI, Inc. v. Superior Court (2002) 104 Cal.App.4th 1080, 1093).

“In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.) “In the case of agency the corporate identity is preserved but the principal is held for the acts of the agent. . . the hallmark of agency is the exercise of control over the agent by the principal.” (F. Hoffman-La Roche, Ltd. v. Superior Cout (2005) 130 Cal.App.4th 782, 797 [quotations and citation omitted].)

“It is the ‘rare occasion’ where a court is willing to treat a parent and subsidiary as one entity for jurisdictional purposes. In the absence of a showing of fraud or injustice, courts will generally respect the presumption of corporate separateness in a jurisdictional analysis.” (F. Hoffman-La Roche, Ltd. v. Superior Cout (2005) 130 Cal.App.4th 782, 797.)

B.R. Resources’ cross-complaint, however, makes no specific allegations supporting personal jurisdiction based on alter ego or agency principles. (See Cross-Complaint, ¶¶ 17 and 18). TFP, moreover, is not mentioned in the cross-complaint whatsoever, let alone as a named cross-defendant, and it has not been added as a cross-defendant via any amendment to cross-complaint, to date. It is unclear to the court how Twain can have any liability exposure as TFP’s alter ego when TFP has not been sued or even alleged in the cross-complaint to have engaged in any underlying conduct. B.R. Resources asserts that it was “left in the lurch” (Opp. 1:21), but has not made any allegations that Twain did anything wrong or ever entered into an agreement with it. As Twain points out, “the only parties charged with fraud are the SA Defendants, who convinced Building resources to leak hundreds of thousands of dollars for non-construction expenses.” (Reply, 4:13-15; See Cross-Complaint, ¶¶ 28-31). Further, even if the court considers Juan Banos’ statement that he “did not understand there to be a difference between ‘Twain Financial Partners’ and ‘Twain GL XXV,” (Banos Decl., ¶ 8), B.R. Resources has failed to make any showing of “fraud or injustice.”

The court determines that B.R. Resources has not demonstrated that Twain is subject to general or specific jurisdiction.[2]

B.R. Resources alternatively requests that the court continue the hearing and permit it, in the interim, to conduct jurisdictional discovery on TFP’s contacts and business presence within California. “In order to prevail on a motion for continuance for jurisdictional discovery, the plaintiff should demonstrate that discovery is likely to lead to the production of evidence of facts establishing jurisdiction.” (In re Automobile Antitrust Cases I & II (2005) 135 Cal.App.4^th 100, 127). Plaintiff has not identified what information it hopes to obtain to that would satisfy its burden of proof; accordingly, the court rejects its request to conduct jurisdictional discovery.

The motion is granted. Service of the summons and complaint on Twain is quashed.

[1] The instant motion was filed (and served via email) on March 20, 2024 and originally set for hearing on May 2, 2024. On April 30, 2024, the court granted B.R.’s “Ex Parte Application for an Order Continuing the Hearing on Twain GL XXV, LLC’s Motion to Quash Service of Summons and Complaint” and continued the hearing to May 24, 2024; notice was waived.

[2] As an aside, the court addresses B.R. Resources’ contention that the arrangement of a financial deposit with B.R. Resources “demonstrates a deliberate invocation of the benefits and protections of California’s laws.” (Opp., 2:23-26). As Twain points out, the evidence suggests that Ahlholm instructed Twain to send the money to B.R. Resources. (Banos Decl., ¶ 16, Exh. C.) (Fed. Dep. Ins. Corp. v. British-American Ins. Co. Ltd. (9^th Cir. 1987) 828 F.2d 1026, 1029 [“This circuit has recognized that the receipt of payment alone for services rendered outside the forum state is not sufficient to support personal jurisdiction;” see also Hydrokinetics, Inc. v. Alaska Mech., Inc. (5^th Cir. 1983) 700 F.2d 1026, 1029 [We agree with the district court's conclusion that Alaska Mechanical did not purposefully avail itself of the privilege of conducting business within Texas or invoke the benefits and protections of Texas law . . . no performance by Alaska Mechanical was to take place in Texas, other than perhaps the payment for the goods. . . Nor do we weigh heavily the fact that Alaska Mechanical may have mailed payment checks into the forum state in exchange for the goods. . .”].)