Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_07-cv-01139/USCOURTS-cand-3_07-cv-01139-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1331 Fed. Question

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United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

AHCOM, LTD.,

Plaintiff,

 v.

HENDRIK SMEDING, LETTIE SMEDING,

and DOES 1-15, inclusive,

Defendants.

 

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No. C-07-1139 SC

ORDER DENYING MOTIONS

FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiff Ahcom, Ltd., ("Ahcom") brought this suit in the

Napa County Superior Court, alleging that the Defendants Hendrik

and Lettie Smeding ("Defendants" or "Smedings") are the alter egos

of Nuttery Farms, Inc. ("NFI"), and asking the court to confirm

and enforce the award issued in an arbitration between Plaintiff

and NFI. See Notice of Removal, Docket No. 1, Ex. A ("Compl."). 

Defendants timely removed the suit to this Court under the

Convention on the Recognition and Enforcement of Foreign Arbitral

Awards ("Convention"), codified in chapter 2 of the Federal

Arbitration Act, 9 U.S.C. § 201, et seq. See Notice of Removal.

Now before the Court are the parties' cross-motions for

summary judgment. See Docket No. 22 ("Defs.' Mot."), 27 ("Pl.'s

Mot."). Each party filed a reply brief. See Docket Nos. 30

("Defs.' Reply"), 31 ("Pl.'s Reply"). The Court took the matter

under submission without oral argument. While the motions were

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pending, Defendants submitted an ex parte Application to File

Supplementary Letter Brief. Docket No. 32. Plaintiff opposed

this application. Docket No. 33. 

Having considered the parties' submissions, the Court DENIES

Defendants' Motion and DENIES Plaintiff's Motion.

II. BACKGROUND

NFI was incorporated in California in 1985. The Smedings

were the founders and only shareholders of NFI. Hendrik Smeding

was the president and treasurer of NFI. Lettie Smeding was the

vice president and secretary of NFI. According to the Smedings,

they each owned 5,000 shares of NFI stock. 

NFI was a broker of dried fruit and nuts for around 21 years. 

As a broker, NFI simultaneously bought and sold its products, and

attempted to turn a profit on the margin based on fluctuations in

market pricing. In late 2004 and early 2005, NFI's pistachio

suppliers chose not to renew their contracts, even though NFI had

already entered contracts to sell the same pistachios. At the

same time, NFI's pecan and almond suppliers defaulted on a number

of contracts, leaving NFI short in these commodities as well. As

a result, NFI lacked the necessary capital to meet a number of its

own obligations and it defaulted on numerous contracts. 

Ultimately, NFI entered Chapter 7 bankruptcy and ceased to

operate.

Ahcom is a London-based fruit and nut broker. Ahcom claims

that, through NFI's agent S.J. Redfern, Ltd. ("Redfern"), it had

entered a series of contracts to purchase almonds from NFI. For

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1The information regarding the Waren-Verein is taken from the

English language section of that association's web site, available

at http://www.waren-verein.de/index.afp?&LG=EN&CMD=STARTSEITE. 

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each transaction, Redfern prepared a written confirmation. At the

bottom of every confirmation, the following text appears in the

"SPECIAL REMARKS" section: 

AS PER THE EXPORT CONTRACT FOR DRIED FRUIT,

TREE NUTS AND KINDRED PRODUCTS, ADOPTED BY THE

CALIFORNIA DRIED FRUIT EXPORT ASSOCIATION

EFFECTIVE MARCH 1989. - ARBITRATION IN

ACCORDANCE WITH THE RULES OF WAREN VEREININTERNATIONAL PARTICIPATION PERMITTED - SHALL

BE COMPETENT FOR FINAL SETTLEMENT OF ALL AND

ANY DISPUTES ARISING THEREFROM.

See Michael Decl. Ex. B (capitalization in original). Based on

these confirmation documents, Ahcom would send NFI a purchase

contract, listing Redfern as the broker, and including the

following conditions of sale: 

All other terms and conditions as per USDA/DFA

terms and conditions, including Waren-Verein

arbitration clause and the rules of

arbitration and appeal, of which the parties

admit acknowledgment. In the event of

arbitration and subsequent legal enforcement,

all costs to be borne by the loser.

See id. 

According to Ahcom, NFI defaulted on one or more of these

purchase contracts. Ahcom then initiated an arbitration with the

Waren-Verein der Hamburger Börse e.V. The Waren-Verein is a

German trade association that represents the interests of

wholesale traders in dried fruit and edible nuts, among other

commodities, and that maintains its own arbitral tribunal.1 The

arbitrators awarded Ahcom $1,428,000.00 plus interest. NFI never

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satisfied this award.

Ahcom brought this suit to confirm and enforce the WarenVerein's arbitration award. Although the Smedings were not

parties to the arbitration, Ahcom alleges that they are NFI's

alter egos, and that they should therefore be liable for the

arbitration award. The Smedings moved for summary judgment on the

grounds that they are not NFI's alter egos and that the Court

lacks jurisdiction to confirm the arbitration award because there

was not a signed, written agreement containing an arbitration

clause. Ahcom moved for summary judgment on the same issues.

III. LEGAL STANDARD

Entry of summary judgment is proper "if the pleadings, the

discovery and disclosure materials on file, and any affidavits

show that there is no genuine issue as to any material fact and

that the movant is entitled to judgment as a matter of law." Fed.

R. Civ. P. 56(c). "Summary judgment should be granted where the

evidence is such that it would require a directed verdict for the

moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250

(1986). Thus, "Rule 56(c) mandates the entry of summary judgment

. . . against a party who fails to make a showing sufficient to

establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at

trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In

addition, entry of summary judgment in a party's favor is

appropriate when there are no material issues of fact as to the

essential elements of the party's claim. Anderson, 477 U.S. at

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247-49.

IV. DISCUSSION

The Court finds that there remain significant disputes

regarding material issues of fact underlying both of the legal

issues presented in the motions.

Under Article II section 2 of the Convention, "The term

'agreement in writing' shall include an arbitral clause in a

contract or an arbitration agreement, signed by the parties or

contained in an exchange of letters or telegrams." The Smedings

argue that there is no contract signed by NFI agreeing to the

arbitration rules. Ahcom claims that Redfern agreed to the terms

as NFI's agent. Ahcom further claims that when the dispute arose,

Hendrik Smeding agreed in email, a written communication Ahcom

claims satisfies the Convention, that the dispute should proceed

before the Waren-Verein. The Smedings respond that Redfern was

only a broker, not an agent, and had no authority to agree to an

arbitration provision on NFI's behalf. The Smedings also claim

that the email on which Ahcom relies was in jest, a sarcastic

reply to Ahcom's threat. These factual disputes are central to

the question of whether the parties actually agreed to arbitrate,

and therefore determinative of the Court's jurisdiction. See,

e.g., Czarina, L.L.C. v. W.F. Poe Syndicate, 358 F.3d 1286, 1291-

92 (11th Cir. 2004). Considering the evidence offered by each

party, while drawing the necessary inferences for the other as the

non-moving party, the Court cannot grant summary judgment on the

jurisdiction question. 

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With regard to the question of alter ego, the parties dispute

whether California or federal law governs. The Court DENIES

Defendants' ex parte application to submit additional authority. 

Defendants provide no reason why they could not have cited these

authorities earlier. In their moving papers, Defendants cited

exclusively to California law to support their position regarding

alter ego. See Defs.' Mot. at 6-9. What's more, the additional

authorities Defendants attempt to offer demonstrate that it is

unclear whether courts should follow state or federal law on the

issue, and that resolution of the ambiguity is unnecessary because

there is no meaningful difference between the two and federal

courts regularly look to state law for guidance. See, e.g.,

Ministry of Def. of Iran v. Gould, 969 F.2d 974, 769 n.3 (9th Cir.

1992) (citing Mesler v. Bragg Mgt. Co., 702 P.2d 601, 606 (Cal.

1985)); Bowoto v. Chevron Texaco Corp., 312 F. Supp. 2d 1229, 1236

n.6 (N.D. Cal. 2004) ("California law on piercing the corporate

veil is substantially similar to the rule announced in federal

cases.") (citing Ministry of Def. of Iran, 969 F.2d at 769 n.3).

Given the significant factual disputes on the record, there

is no need at this juncture for the Court to enter uncharted

waters and resolve the tension, if any exists, between application

of state and federal law. The parties provide directly

conflicting declarations and documentary evidence regarding

whether and to what extent the Smedings observed corporate

formalities and distinguished their own interests from those of

NFI. As one example among many, Ahcom argues that NFI was never

adequately capitalized, and therefore could not be legally

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separate from the Smedings. The Smedings assert that NFI was

adequately capitalized for nearly two decades and that the

financial difficulties NFI faced near its demise are not

indicative of identity of interest between the Smedings and NFI. 

Without resolution of these factual issues, summary judgment for

either party is inappropriate, regardless of which law governs. 

V. CONCLUSION

The Court finds that there remain significant disputes

regarding material issues of fact. The Court therefore DENIES

Defendants' Motion and DENIES Plaintiff's Motion.

IT IS SO ORDERED.

Dated: April 10, 2008

 

UNITED STATES DISTRICT JUDGE

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