Opinion
B161611.
7-31-2003
JONG HUN SONG et al., Plaintiffs and Appellants, v. KOREA BROADCASTING SYSTEM, etc., et al., Defendants and Respondents.
Law Offices of J.S. Kim & Associates, Inc. and Gregory M. Kim for Plaintiffs and Appellants. Mark R. Harvey for Defendants and Respondents.
INTRODUCTION
After they lost their investment in an international internet project called Hanternet USA, plaintiffs filed a complaint against 10 corporate and individual defendants alleging fraud and conspiracy to commit fraud, among other causes of action. Seven of the 10 defendants specially appeared and moved to quash service of summons on the ground they are not subject to personal jurisdiction in California because they are Koreans with no contacts in California. Plaintiffs opposed the motion arguing one of the defendants has contacts in Los Angeles based on the activities of its subsidiary, and others of the defendants committed acts outside of California as agents of and in furtherance of a conspiracy designed to cause harm inside this state. The trial court denied plaintiffs request for a continuance to conduct discovery into the grounds for jurisdiction and granted the motion to quash. Plaintiffs appeal. We hold the trial court abused its discretion in denying the request to conduct discovery. Accordingly, the judgment is reversed.
Plaintiffs are individuals Jong Hun Song, Jong Ryul Song, Chung Hyun Chi, Yun Jung Han, Hyun Mi Kwak (plaintiffs), and Hanternet USA, LLC f/k/a Hanternet USA, Inc., all allegedly residents of Los Angeles County.
The named defendants are: Korea Broadcasting System, Nagnet Co., Ltd., Hanternet Korea, e-KBS, Crezio.com, Inc., EBS, and individuals, Se Je Lee, In Kyu Kim, Jong Moon Song, and Kwon Sang Park (defendants).
FACTUAL AND PROCEDURAL BACKGROUND
1. The complaint.
The following scenario is set forth in plaintiffs operative complaint: Defendant Se Je Lee and his businesses, defendants Nagnet Company, Ltd. (Nagnet) and Hanternet Korea, arranged to make Korean television programming available outside Korea by way of the internet. To accomplish this, Lee negotiated agreements between (1) Nagnet and defendant Korean Broadcasting System (KBS), (2) Hanternet Korea and defendant EBS, and (3) Hanternet Korea and defendant Crezio.com, Inc. (Creizo.com) (Hereinafter, these three agreements are referred to as the licensing agreements.) Under each of these three licensing agreements, KBS, EBS, and Crezio.com agreed to license or provide videotapes of their programs to Se Je Lees companies.
Continuing, the complaint alleges on February 25, 2000, Lee and defendant Song established plaintiff Hanternet USA, a California limited liability corporation through which they planned to make Korean programs available on the internet. KBS embarked on a publicity campaign while Lee and defendant Song allegedly solicited investment money from plaintiffs. Plaintiffs interest in Hanternet USA was piqued in part by misrepresentations made by Lee and defendant Song about the licensing agreements, and that the entire internet venture was part of KBS and was a project of the Korean government. Plaintiffs invested over $ 1 million in Hanternet USA.
Hanternet USA failed as a business venture triggering plaintiffs complaint against defendants seeking damages for, inter alia, fraud, conspiracy to defraud, negligence, and interference with prospective economic advantage. In general, plaintiffs allege (1) Lee and defendant Song conspired to defraud plaintiffs through KBSs internet project; (2) KBS, defendant Song, and Lee entered into a joint venture to implement the fraudulent scheme; (3) KBS undermined Hanternet USA by creating competitor Worldnet and by breaching its contract with Nagnet; (4) Lee drafted fake contracts with Crezio.com, EBS, and Hanternet Korea, and the former two corporate defendants breached their licensing agreements with Hanternet Korea; (5) Hanternet USA is a third party to the licensing agreements and is entitled to damages for the breach of those agreements.
With respect to all moving defendants except Crezio.com and EBS, the complaint also alleges (6) in general terms, all defendants are agents of each other and conspired to defraud plaintiffs by using KBSs internet project; (7) all moving defendants made false representations; and (8) aided and abetted the fraud by having KBS broadcast information about Hanternet USA, sending defendants corporate officers to attend the grand opening ceremony, and by signing a cooperation agreement.
2. Defendants motion to quash.
Appearing specially, defendants KBS, e-KBS, Crezio.com, EBS, and individuals In Kyu Kim, Jong Moon Song, and Kwon Sang Park (moving party defendants) moved to quash service of summons upon them on the ground none of the moving party defendants was subject to personal jurisdiction in California. In support of their motion, the moving party defendants submitted declarations describing the nature of the three licensing agreements, and a fourth agreement between Crezio.com and Hanternet USA, all of which were negotiated and entered into in Korea, and all of which provide that disputes arising therefrom were to be heard in Korea. KBS, Kwon Sang Park, EBS, and e-KBS also denied involvement with the conspiracy and fraud scheme. Defendants Song and KBS denied soliciting programs or advertising in California. Describing the contacts the moving party defendants have with California, the declarations explained no moving party defendant was a resident of California; none has ever done business in California (except KBS, and then only on a limited basis); none dealt directly with plaintiffs or conducted activities in the United States with respect to this matter. The individual defendants asserted they should not be subject to personal jurisdiction where their only alleged involvement was in the course and scope of their employment with KBS. Finally, moving party defendants asserted two of the plaintiffs, Hyn Mi Kwak and Jong Kook Song, reside in Korea, not Los Angeles as alleged.
The moving party defendants include all defendants except Hanternet Korea, Nagnet, and Se Je Lee.
3. Plaintiffs opposition to the motion to quash.
In their opposition to the motion to quash, plaintiffs defined the "entire scope of the overseas internet project:" Defendant Song, allegedly the Song who is an employee of KBS, together with Lee, "concocted a scheme in Korea to market an international internet broadcasting project to Korean American investors in California." Such project "was a joint effort/venture," plaintiffs urged, between the "KBS Defendants and the LEE Defendants" under which the KBS defendants would supply programming and the Lee defendants would provide network and infrastructure to deliver the programming to Koreans overseas by way of the internet.
In support of their opposition to the motion to quash, plaintiffs averred Hanternet USA was incorporated in California by Lee and Song of KBS, with the aim of delivering KBSs programs to Korean Americans in California. The profits were to be generated from Koreans in California. Defendants Song and Lee came to Los Angeles where they solicited and received money from Korean American investors. "An [unidentified] employee of Defendant E-KBS [represented to plaintiffs in] Los Angeles that KBS was a sponsor of Plaintiff HANTERNET." The cooperation agreement between KBS and another organization was entered into in Los Angeles. The grand opening ceremony for that project was held in Los Angeles.
The vice president of Hanternet USA declared the original Hanternet USA project was developed in January 2000 by KBSs New Media Centers chief, defendant Kim. All major decisions concerning the Hanternet USA project were made by defendant Song and approved by defendant Kim at KBS. Kim attended a ceremony in Los Angeles the declarant believed was to celebrate the grand opening of a new KBS business opportunity with the Korean government.
To establish KBSs presence through its subsidiary, Korean Television Enterprises, Ltd. (KTE), a California corporation, plaintiffs declared, "In effect, KBS controls KTE to such an extent that KTE is the alter ego of KBS." (Italics added.) KTE is a wholly owned subsidiary of KBS Media, Ltd., a Korean corporation wholly owned by KBS. The former President of KTE declared, although KTE is an indirect subsidiary of KBS, based on his experience as president, KTE is "so controlled by KBS that they are essentially one and the same company." As evidence of this, plaintiffs asserted: (1) KBS owns a building in Los Angeles, most of which it leases to KTE; (2) in turn, KTE broadcasts KBSs programs and sells advertising in conjunction with the KBSs programs; (3) KTE also sells KBSs videos to Korean Americans; (4) KBS has the right to select the president and senior manager of KTE; (5) KBSs subsidiary fired the president of KTE and paid the salaries of KTEs general manager and director of technicians; (6) KBS regularly interfered with KTEs daily operations; (7) KBSs Los Angeles Bureau correspondent is one of the five members of the Board of Directors of KTE; and (8) KBS and KTE share profits.
As for the individual defendants, one declarant explained that defendants Song and Lee went to high school together, which in Korea, creates important social relationships and frequently leads to business relationships. Defendant Park, as president of KBS, knew of Hanternet USA because Hanternet USA is a party to the KBS-Nagnet licensing agreement. Defendant Song was a major shareholder of Nagnet and mentioned the Nagnet-KBS-Hanternet USA licensing agreement in a cover letter concerning another venture in the Los Angeles area. Finally, the declarant indicated that defendant Song arranged for Lee to be introduced to plaintiffs after which Lee solicited money for the Hanternet USA project.
With respect to Crezio.com, plaintiffs asserted its major shareholder is KBS. Plaintiffs argued Hanternet USA is a third party beneficiary of the licensing agreement between defendants Crezio.com and Hanternet Korea, which provides that a party may file suit for the other partys breach of the agreement wherever either partys principal place of business is located. As a result, plaintiff Hanternet USA can elect to bring suit in Los Angeles, Hanternet USAs place of business.
Finally, plaintiffs argued, if the court were inclined to grant the motion, they had the right to conduct discovery into the jurisdictional issues.
The trial court denied, without explanation, the request to conduct discovery, and then granted the motion to quash service of summons ruling none of the moving party defendants except for KBS, had any connection whatsoever with California. With respect to KBS, the court ruled the forum selection clause in its contract with Nagnet governed, requiring suit in Korea. Plaintiffs appeal followed.
Plaintiffs appeal was taken from the unsigned minute order. " An unsigned minute order can form the basis of an appeal, unless it specifically recites that a formal order is to be prepared. . . . [Citations.] " (Cuenllas v. VRL International, Ltd. (2001) 92 Cal.App.4th 1050, 1053; Cal. Rules of Court, rule 2(c)(2).) The minute order here did not specify that a further order be prepared and this minute order indicates the minutes were entered by the County Clerk on July 3, 2002.
CONTENTION
Plaintiffs contend the trial court erred in granting the motion to quash service of summons and should have continued the hearing on the motion until completion of discovery on the issue of jurisdiction.
DISCUSSION
Plaintiffs contend the trial court erred in denying their request for a continuance of the motion to quash service of summons so they could take discovery to obtain more information about the "conspiracy/principal/agency relationship between the KBS Defendants and their agents who swindled" plaintiffs.
The party seeking to establish jurisdiction over a nonresident defendant bears the burden to demonstrate by a preponderance of the evidence that exercise of jurisdiction is constitutional. (Bresler v. Stavros (1983) 141 Cal. App. 3d 365, 367, 189 Cal. Rptr. 58; Kroopf v. Guffey (1986) 183 Cal. App. 3d 1351, 1356, 228 Cal. Rptr. 807.) The plaintiff need only present facts demonstrating that the defendants conduct related to the pleaded causes of action so as to constitute constitutionally cognizable " minimum contacts. " (Mihlon v. Superior Court (1985) 169 Cal. App. 3d 703, 710, 215 Cal. Rptr. 442.) "Evidence of those facts or their absence may be in the form of declarations . . . Where there is a conflict in the declarations, resolution of the conflict by the trial court will not be disturbed on appeal if the determination of that court is supported by substantial evidence. " (Sammons Enterprises, Inc. v. Superior Court (1988) 205 Cal. App. 3d 1427, 1430, 253 Cal. Rptr. 261; Kroopf v. Guffey, supra.)
It has long been established in California that the plaintiff has the right to conduct discovery into the issue of personal jurisdiction to develop the facts necessary to sustain his or her burden. (1880 Corp. v. Superior Court (1962) 57 Cal.2d 840, 843, 22 Cal. Rptr. 209, 371 P.2d 985; Magnecomp Corp. v. Athene Co. (1989) 209 Cal. App. 3d 526, 533, 257 Cal. Rptr. 278; Mihlon v. Superior Court, supra, 169 Cal. App. 3d at p. 710; Omega Video Inc. v. Superior Court (1983) 146 Cal. App. 3d 470, 481, 194 Cal. Rptr. 574.) "California law permits a plaintiff seeking to assert claims against a corporation to obtain discovery against it about whether it has been doing business in this state, since such facts are normally within the knowledge of the corporate officers and such jurisdictional issues are subject to discovery. [Citation.]" (Warburton/Buttner v. Superior Court (2002) 103 Cal.App.4th 1170, 1181.) Otherwise, the plaintiff is placed at the significant disadvantage of having to submit evidence rebutting the defendants claim that he or she is not subject to personal jurisdiction, while being precluded from discovery on the very same jurisdictional issues. (See Omega Video Inc. v. Superior Court, supra.)
The plaintiffs right to discovery, however, is limited to those questions that are relevant to the issue of jurisdiction, and are necessary to sustain the plaintiffs burden in opposing the motion. (1880 Corp. v. Superior Court, supra, 57 Cal.2d at p. 843.) Accordingly, the defendant is not required to answer any question that is not relevant to the jurisdictional issue. (Ibid.)
The grant of a discovery request lies within the discretion of the trial court whose ruling will only be disturbed upon a showing of abuse of that discretion. (Goehring v. Superior Court (1998) 62 Cal.App.4th 894, 911.)
A. KBS.
In moving to quash service of summons, defendant KBS denied any connection with California other than (a) to own a commercial office building in Los Angeles which it leases to KTE, a California company; and (b) to employ one correspondent in Los Angeles who gathers news for KBS and sends it to Korea for use by KBS in Korea. KBS denied broadcasting its programs or soliciting advertising in California. KBS denied knowledge of the allegedly fraudulent conduct of defendant Lee.
In opposition to the motion, plaintiffs asserted California had jurisdiction over KBS by virtue of the extensive activities in Los Angeles of its subsidiary KTE. Evidence there is no formal or real separation between parent and subsidiary corporations can subject the parent to suit in this state. A parent corporation will be deemed to be present in California based on the subsidiarys conduct when there is proof the parent controls and manages the subsidiary. "The parent controls the subsidiary when it dictates general policies, but it manages the subsidiary when it controls the internal affairs of the subsidiary and determines how the company will be operated on a day-to-day basis. [Citations.]" (Williams v. Canon, Inc. (C.D. Cal. 1977) 432 F. Supp. 376, 380.)
There must be " "clear evidence that the parent in fact controls the activities of the subsidiary." [Citations.]" (Sammons Enterprises, Inc. v. Superior Court, supra, 205 Cal. App. 3d at p. 1434, italics added.) There must be a "substantial link" among the defendant, the forum state, and the plaintiffs injuries. (Sammons Enterprises, Inc., supra, at p. 1435.)
To make this showing, plaintiffs rely on their declarations which provide the following facts: (1) "KTE is wholly owned by KBS;" (2) In the opinion of a former president of KTE, and an employee of KBS in its Los Angeles bureau, KBS "dominates and controls KTE;" indeed, it "so controls" KTE, "that they are essentially one and the same company," and regularly interfered with KTEs daily operations. (3) "KBS has the right to select the high-ranking officers of KTE including the President and Senior Manager." (Italics added.) (4) KBSs Los Angeles Bureau correspondent "is one of the five members on the Board of Directors for KTE." (5) In 2001, a KBS employee reviewed KTE operations and fired KTEs general manager. The declarant was fired from his position as president of KTE by the president of KBS Media, itself a subsidiary of and controlled by KBS. (6) KTEs general manager and director of technicians are paid by KBS. (7) KBS does business in the United States by providing KTE with news programs and videos and sharing profits from the advertising of KBS news and sales of KBS videos with KTE, and by participating in satellite broadcasting to the United States market. KBS and KTE correspondents share the same offices.
While the vice president of Hanternet USA, who worked as a coordinator at the Los Angeles Bureau of KBS for 17 months, declared KBS does business in the United States by itself and through KTE, the Director of KBSs New Media Department Division 1 declared "KBS does not do and has not done any business in the United States."
Plaintiffs have insufficient evidence upon which to show personal jurisdiction based upon the alter ego theory. Plaintiffs presented evidence that KBS pays at least some of the employees of KTE, and hires and fires KTE employees. However, other than conclusory, legal opinions of declarants with inadequate foundation for those opinions, plaintiffs have no evidence of KBSs control of KTEs daily operations or of who dictates KTEs policies, or of the actual corporate formalities, about the capitalization; conflicting evidence of whether KBS is the sole owner or a partial owner of KTE; and no suggestion KTE is not financially self-sustaining.
Indeed, defendants challenged the declaration of a former employee of KTE.
Plaintiffs did, however, seek to conduct discovery into the jurisdictional issues. The knowledge of the interconnection between KBS and KTE lies solely within those companies. (1800 Corp. v. Superior Court, supra, 57 Cal.2d at p. 843.) Indeed, the only declarant with knowledge of this issue, whom plaintiffs could question, was a former president of KTE and moving party defendants objected to that declaration on the grounds it was biased and based on improper opinion. Therefore, because the information necessary for plaintiffs to meet their burden is in the control of moving party defendants, the trial court abused its discretion in denying them the opportunity to conduct limited discovery on the question of whether KTE is an alter ego in Los Angeles of KBS.
B. The remaining corporate and individual moving party defendants.
Plaintiffs seek to subject EBS, e-KBS, Crezio.com, and individuals Jong Moon Song, Kwon Sang Park, and In Kyu Kim to personal jurisdiction in California on the grounds they committed wrongful acts outside of California in furtherance of a conspiracy and joint venture that caused harmful effects inside California, namely plaintiffs investment in Hanternet USA.
"A state has a special interest in exercising jurisdiction over those who commit tortious acts within its territory. Therefore, it is reasonable that a state should exercise jurisdiction over those who commit or cause to be committed in the state what is claimed to be a tortious act. [Citation.] Jurisdiction is proper over a nonresident defendant who, while personally present in California, makes representations or nondisclosures to the plaintiff which constitute the gravamen of the action. [Citation.] If a defendant commits an act or omission outside the forum state with the intent to cause a tortious effect within the state, the state may exercise jurisdiction over the defendant as to any cause of action arising from the effects. The intent to cause tortious injury within the state where the tort actually occurs is generally a sufficient basis, without more, for the exercise of in personam jurisdiction. "The act may have been done with the intention of causing effects in the state. If so, the state may exercise the same judicial jurisdiction over the actor, or over the one who caused the act to be done, as to causes of action arising from these effects as it could have exercised if these effects had resulted from an act done within its territory." [Citation.] [Citation.]" (Taylor-Rush v. Multitech Corp . (1990) 217 Cal. App. 3d 103, 113, 265 Cal. Rptr. 672.)
"Corporate officers and directors cannot ordinarily be held personally liable for the acts or obligations of their corporation. However, they may become liable if they directly authorize or actively participate in wrongful or tortious conduct. [Citations.]" (Taylor-Rush v. Multitech Corp., supra, 217 Cal. App. 3d at p. 113.)
"Allegations of conspiracy do not establish as a matter of law that if there is one resident conspirator, jurisdiction may be exercised over nonresident conspirators. [Citation.] The purpose of other parties cannot be imputed to petitioner for the purpose of assuming personal jurisdiction over him. [Citation.] . . . [Hence,] personal jurisdiction over any non-resident individual must be premised upon forum-related acts personally committed by the individual. " (Kaiser Aetna v. Deal (1978) 86 Cal. App. 3d 896, 901, 150 Cal. Rptr. 615, italics added.) With these rules in mind, we turn to the evidence.
Other than the mere general allegations in the complaint of agency, conspiracy, and joint venture, and a suggestion of connection by virtue of having attended the same high school, plaintiffs declarations in opposition to the motion to quash presented no actual evidence of conspiracy, agency, or joint project, and no evidence defendant Song and Kim authorized or actively participated in the wrongs in Korea with the intent to cause a tortious effect in California. Some defendants declarations denied participating in the conspiracy scheme; others did not. Given the dearth of facts related to this claim, and given the necessary facts concerning conspiracy, agency, or joint venture, all reside with defendants, the trial court abused its discretion in denying plaintiffs request for a continuance.
Moving party defendants contend there is no need for a continuance because the court already has "ample evidence" about where defendants reside, that none of the defendants but KBS have contacts with California; and that the licensing agreements show defendants did not contemplate having to defend an action in California where each agreement contains an express cause selecting Korea as the forum for litigation.
That moving party defendants do not have physical contacts with California is only part of the issue. Plaintiffs seek to subject moving party defendants, other than KBS, to California personal jurisdiction based on moving party defendants commission of intentional torts outside California directed at California residents, and directly authorizing or actively participating in wrongful or tortuous conduct, all of which conduct could provide sufficient minimum contacts to support the exercise of personal jurisdiction over the non-resident moving party defendants. (Calder v. Jones (1984) 465 U.S. 783, 79 L. Ed. 2d 804, 104 S. Ct. 1482; Taylor-Rush v. Multitech Corp., supra, 217 Cal. App. 3d at p. 113.) Plaintiffs can only obtain evidence supporting these bases for jurisdiction by specifically targeted discovery.
Additionally, the forum selection clauses in the licensing agreements are only relevant here if the harm alleged in this complaint arises out of those licensing agreements. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 436, 446, 926 P.2d 1085.) Those agreements are relevant to show a conspiracy, joint venture, and interrelatedness between the moving party defendants and Hanternet USA, not necessarily to establish the forum.
We note one of the licensing agreements was between Hanternet USA and Crezio.com and may allow for litigation in Hanternet USAs place of business. Section 15(2) of the Crezio.com-Hanternet USA agreement provides "any litigation relating to the rights and obligations arising under this contract shall be brought to the courts in jurisdiction where Crezio company B is located." (Italics added.) "B" is described as Hanternet USA in Los Angeles.
Moving party defendants chief objection to a continuance of the motion to quash for purposes of conducting discovery is that a continuance is "incompatible with the purpose of specially appearing to contest service." Actually, a defendant may object to interrogatories and participate in circumscribed discovery limited to jurisdictional issues without making a general appearance. (1880 Corp. v. Superior Court, supra, 57 Cal.2d at p. 843; Islamic Republic of Iran v. Pahlavi (1984) 160 Cal. App. 3d 620, 628, 206 Cal. Rptr. 752.) In any event, moving party defendants have already voiced their objections to the interrogatories previously propounded as being irrelevant to the question of jurisdiction. As long as the discovery propounded is specifically tailored to the jurisdictional issues, defendants may continue to participate without making a general appearance.
DISPOSITION
The judgment is reversed. The trial court is directed to allow plaintiffs a reasonable amount of discovery on the jurisdictional issue only, consistent with the views expressed in this opinion. Each party to bear its own costs.
We concur: KLEIN, P.J. CROSKEY, J.