Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-00583/USCOURTS-caed-2_05-cv-00583-53/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Contract Dispute

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

FRU-CON CONSTRUCTION

CORPORATION, a Missouri

corporation,

NO. CIV. S-05-583 LKK/GGH

Plaintiff,

v. O R D E R

SACRAMENTO MUNICIPAL UTILITY

DISTRICT, a municipal utility

district; UTILITY ENGINEERING

CORPORATION, a Texas 

corporation,

Defendants.

 /

Pending before the court in this matter are three motions.

The first two are motions to dismiss for lack of personal

jurisdiction filed by counter-defendants Bilfinger Berger AG

(“Bilfinger”) and Fru-Con Holding Corporation (“FCHC”). The third

motion, filed by the Sacramento Municipal Utility District

(“SMUD”), seeks jurisdictional discovery and a stay of the pending

motions to dismiss. The crux of the present dispute is whether the

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1

 The court dispenses with any recitation of the general

background of this case, as it has been discussed in previous

orders.

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court may exert personal jurisdiction over these counter-defendants

based on an alter ego theory. The court resolves the matter on the

parties’ papers and after oral argument. For the reasons set forth

below, the court grants the motions to dismiss and denies the

motion seeking jurisdictional discovery.

I. Background1

On December 15, 2006, the court granted Fru-Con’s motion to

file an amended counterclaim adding Bilfinger and FCHC as counterdefendants in this action. Fru-Con is owned by FCHC, which in turn

is owned by Bilfinger. The first amended counterclaim alleges that

Bilfinger and FCHC are directly liable to SMUD “because there

exists a unity and identity of interest between Bilfinger Berger,

Fru-Con Holding and Fru-Con such that adherence to the fiction of

separate existences of these entities would sanction fraud and

promote injustice.” Counterclaim ¶ 6. The counterclaim further

alleges that Bilfinger and/or FCHC completely controlled Fru-Con,

that Fru-Con was inadequately capitalized, that Bilfinger and/or

FCHC made loans to Fru-Con and guaranteed certain aspects of FruCon’s business obligations, and that employees of the corporations

were freely interchanged. Id.

In support of these allegations and in response to the pending

motions to dismiss, Fru-Con has set forth two sets of facts

(detailed in the analysis section of this order) that fall under

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the two prongs of the alter ego test. See Sonora Diamond Corp. v.

Super. Ct., 83 Cal. App. 4th 523, 538 (2000). One pertains to the

alleged unity and identity of interest shared by Bilfinger, FCHC,

and Fru-Con (collectively, “the parties”). The other pertains to

the alleged injustice that would result if Bilfinger and FCHC were

not made parties to this action. With regard to the first set of

facts, SMUD maintains it can prove that (1) Bilfinger and FCHC

exerted control over Fru-Con’s day-to-day activities (2) the

parties shared employees, (3) the parties shared legal services,

(4) Fru-Con relied upon Bilfinger’s experience and financial

wherewithal, and (5) Fru-Con was inadequately capitalized.

II. Standard

Motion to Dismiss for Lack of Personal Jurisdiction

 When a defendant challenges the sufficiency of personal

jurisdiction, the plaintiff bears the burden of establishing that

the exercise of jurisdiction is proper. Sinatra v. National

Enquirer, Inc., 854 F.2d 1191, 1194 (9th Cir. 1988).

Analysis of the appropriateness of the court's personal

jurisdiction over a defendant in a case in which the court

exercises diversity jurisdiction begins with California's long arm

statute. Aanestad v. Beech Aircraft Corp., 521 F.2d 1298, 1300

(9th Cir. 1974). California's long arm statute authorizes the

court to exercise personal jurisdiction on any basis consistent

with the due process clause of the United States Constitution.

Cal. Code Civ. Proc. § 410.10; Rocke v. Canadian Auto Sport Club,

660 F.2d 395, 398 (9th Cir. 1981).

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Consistent with the due process clause, the court may exercise

personal jurisdiction over a defendant when the defendant has

certain minimum contacts with the forum state such that the

maintenance of the suit does not offend traditional notions of fair

play and substantial justice. Int’l Shoe Co. v. Washington, 326

U.S. 310, 316 (1945). If the defendant is domiciled in the forum

state, or if the defendant's activities there are "substantial,

continuous and systematic," a federal court can exercise general

personal jurisdiction as to any cause of action involving the

defendant, even if unrelated to the defendant's activities within

the state. Perkins v. Benguet Consolidated Mining Co., 342 U.S.

437 (1952); Data Disc, Inc. v. Systems Technology Assoc., Inc., 557

F.2d 1280, 1287 (9th Cir. 1977).

If a non-resident defendant's contacts with California are not

sufficiently continuous or systematic to give rise to general

personal jurisdiction, the defendant may still be subject to

specific personal jurisdiction on claims arising out of defendant's

contacts with the forum state. Burger King Corp. v. Rudzewicz, 471

U.S. 462, 477-78 (1985); Haisten v. Grass Valley Medical

Reimbursement Fund, Ltd., 784 F.2d 1392, 1397 (9th Cir. 1986). 

The court employs a three-part test to determine whether the

exercise of specific jurisdiction comports with constitutional

principles of due process. See Schwarzenegger v. Fred Martin Motor

Co., 374 F.3d 797, 802 (9th Cir. 2004). First, specific

jurisdiction requires a showing that the out-of-state defendant

purposefully directed its activities toward residents of the forum

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state or purposefully availed itself of the privilege of conducting

activities in the forum state, thus invoking the benefits and

protections of its laws. Burger King, 471 U.S. at 474-75. Second,

the controversy must be related to or arise out of defendant's

contact with the forum. Ziegler v. Indian River County, 64 F.3d

470, 473 (9th Cir. 1995). Third, the exercise of jurisdiction must

comport with fair play and substantial justice, i.e., it must be

reasonable. Haisten, 784 F.2d at 1397.

III. Analysis

Here, SMUD argues that the court may exercise personal

jurisdiction under an alter ego or agency theory, or directly. As

explained below, none of these avenues is availing, and the motions

to dismiss must be granted.

A. Alter Ego & Agency Theory

First, SMUD asserts that the court may exercise personal

jurisdiction over Bilfinger and FCHC because they are alter egos

of Fru-Con. Under California law, two conditions must both be met

in order to invoke the alter ego theory: (1) a unity of interest

and ownership must exist between two corporate entities such that

there does not exist a separateness between them; and (2) injustice

would result if the acts in question were treated as those of only

one of the corporate entities. Sonora Diamond, 83 Cal. App. 4th

at 538. “[B]oth of these requirements must be found to exist

before the corporate existence will be disregarded.” Associated

Vendors, Inc. v. Oakland Meat Co., 210 Cal. App. 2d 825, 837

(1962). SMUD bears the burden in presenting evidence that

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2 A “variant” of the agency theory is the “representatives

services” doctrine, which permits jurisdiction where the subsidiary

“performs a function that is compatible with, and assists the

parent in the pursuit of, the parents’ own business.” Sonora

Diamond, 83 Cal. App. 4th at 543. This doctrine is inapplicable

to the facts here, because Fru-Con operated its business for over

100 years prior to its relationship with Bilfinger, just as

Bilfinger has likewise conducted its business operations for a

century prior to affiliating with Fru-Con.

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satisfies both prongs of the test. Mid-Century Ins. Co. v.

Gardener, 9 Cal. App. 4th 1205, 1212 (1992).

The agency theory of jurisdiction is closely related but

distinct. In the case of agency, “the question is not whether

there exists justification to disregard the subsidiary’s corporate

identity, the point of the alter ego analysis, but instead whether

the degree of control exerted over the subsidiary by the parent is

enough to reasonably deem the subsidiary an agent of the parent

under traditional agency principles.”2 Sonora Diamond, 83 Cal.

App. 4th 523, 541. Nevertheless, in the case at bar, one of the

principal arguments marshaled by SMUD in support of its claim that

a unity of interest exists (under the first prong of the alter ego

test) is that FCHC and Bilfinger exerted day-to-day control over

Fru-Con. Accordingly, the court addresses both the alter ego and

agency theories simultaneously, because they both rely on a similar

body of evidence.

1. Injustice

Here, in reverse order, the motions can be resolved on the

second prong of the test, because SMUD has not put forward (and

cannot put forward) enough evidence to prove that injustice would

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3 See, e.g., Norins Realty Co. v. Consol. Abstract & Title

Guar. Co., 80 Cal. App. 2d 879, 883 (1947); M.O.D. of the Islamic

Republic of Iran v. Gould, Inc., 969 F.2d 764, 770 (9th Cir. 1992);

Wady v. Provident Life & Accident Ins. Co. of Am., 216 F. Supp. 2d

1060, 1070 (C.D. Cal. 2002); Haskell v. Time, Inc., 857 F. Supp.

1392, 1403 (E.D. Cal. 1994). Nevertheless, there have also been

cases in which the courts were silent on the ability of a defendant

to satisfy a judgment. See, e.g., Elliott v. Occidental Life Ins.

Co. of Cal., 272 Cal. App. 2d 373, 377 (1969); Mathes v. Nat’l

Utility Helicopters Ltd., 68 Cal. App. 3d 182, 190 (1977).

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result if Bilfinger and FCHC were not made parties to this action.

SMUD initially maintains that “inequity would result because

. . . Bilfinger, FCHC, and Fru-Con failed in key instances to draw

any division between themselves as allegedly separate entities.”

Opp. at 28. If this were sufficient, however, the injustice prong

of the test would collapse into the unity prong and become

superfluous. Acknowledging as much, SMUD then goes on to argue

that Fru-Con would not be able to pay a judgment if one is obtained

in the District’s favor, or that there is at least a risk of such

a result. In the vast majority of cases, courts have only pierced

a corporation that was bankrupt, insolvent, or otherwise incapable

of paying judgment.3 

There appears to be no dispute that at all times relevant to

this matter, that Fru-Con was covered by a bond that had a minimum

capacity of $750 million dollars, and its present uncommited

capacity is in excess of $500 million dollars -- which would almost

certainly cover any judgment that SMUD might obtain in this action.

Decl. of James Scott, ¶ 8. This fact alone is sufficient to negate

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4 The fact that the bonding company, Travelers, has filed its

own suit and disputes its obligation to pay does not change this

conclusion. SMUD has the burden of showing that injustice would

result, and the chance that Travelers might be able to avoid

liability is not enough to satisfy SMUD’s burden under the alter

ego test. Furthermore, this is an obstacle that no amount of

discovery pertaining to the unity of interest prong can cure.

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the imposition of alter ego liability.4 In addition, Fru-Con has

provided evidence that it is presently involved in ongoing projects

throughout the United States totaling approximately $600 million.

Scott Decl., ¶ 8. Of course, this figure represents the gross

total value of its current construction contracts -- not

necessarily its ability to pay a judgment of a particular size --

but it is at least suggestive of Fru-Con’s current financial

health.

SMUD makes several arguments, none of which are responsive to

the fact that a bond covers the project. For example, SMUD asserts

that Fru-Con may be unable to pay because it was allegedly

undercapitalized for the project. The alleged undercapitalization

stems from the fact that the project’s performance bond, which SMUD

required, was obtained by Bilfinger, rather than independently by

Fru-Con. Nevertheless, the counterclaim states that “[a]s part of

the Contract, Fru-Con was obligated to obtain and provide to the

District a performance bond in a form acceptable to the District,

which Fru-Con did” -- suggesting that SMUD found the bond itself

to be acceptable, even if it was unhappy to discover the ultimate

source supporting the bond. Counterclaim ¶ 2.

SMUD also points out that there have been frequent infusions

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5

 Although SMUD has presented (hearsay) evidence that Bilfinger is

contemplating getting out of the U.S. construction business, this does

not prove that Fru-Con or Bilfinger is in financial trouble. Poulos

Decl., Ex. YY (news article reporting Bilfinger is considering pulling

out of the U.S. construction business). It is also worth noting that

Fru-Con has been in existence for over 130 years and is the 10th oldest

contracting firm in the U.S. 

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of money into Fru-Con by Bilfinger. Decl. of John Poulos, Ex. P

(discussing cash infusions from Bilfinger). There is also

evidence, however, indicating that Fru-Con has never failed to have

cash available to meet its obligations as they became due. Poulos

Decl., Ex. P. See Platt v. Billingsley, 234 Cal. App. 2d 577, 583

(1965) (focusing on whether company had assets to meet its debts

“as they came due”). To the extent that this cash was infused by

Bilfinger, there is no guarantee that such an infusion would be

forthcoming in the event of a judgment against Fru-Con, but FruCon’s historical payment history is nevertheless probative of its

future payment ability.5

Furthermore, while it is unclear if the presence of bad faith

is a requirement for alter ego liability or merely a factor,

compare Sonora Diamond, 83 Cal. App. 4th at 539 with Elliott, 272

Cal. App. 2d at 377, there is also insufficient evidence from which

to conclude that Fru-Con acted in bad fath. SMUD claims that it

was misled because Fru-Con described itself in its Statement of

Qualifications as “a major international constructor” and that it

had a $750 million bonding capacity -- which SMUD maintains would

be true only if the statements encompassed both Fru-Con and

Bilfinger, rather than only Fru-Con. This is far from clear,

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6 With regard to the quibble over whether Fru-Con was an

“international” constructor, there is evidence that the company

had, at the time of its application, conducted “start-up work” in

non-U.S. countries such as Mexico and Indonesia, Poulos Decl., ¶

17, Ex. M, but it is unclear if this could reasonably refer to

“construction” work, and if not, whether this would rise to the

level of bad faith conduct.

With regard to the bonding issue, there is simply no dispute

that Fru-Con was in fact covered by a $750 million bond. The only

point of contention is that SMUD was unaware of the parental

guarantee that supported the bond. The ability to secure a bond

may have been valuable to SMUD for, primarily, its existence and,

incidentally, what it signaled (i.e., Fru-Con’s wherewithal to

secure a bond), but it is doubtful that the non-disclosure of

Bilfinger’s role rose to the level of bad faith. 

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however, and SMUD has not discharged its heavy burden in piercing

the corporate veil.6

In any event, because the bond is sufficient to cover any

judgment, the court finds that it is not apparent that injustice

would result if Bilfinger and FCHC were not party to this action.

2. Unity and Identity of Interest

Even if Fru-Con could meet the hurdle presented by the

injustice prong of the alter ego analysis, it would nevertheless

falter under the unity prong. The factors relevant to whether

there is a unity and identity of interest between corporations were

set forth in Associated Vendors. 210 Cal. App. 2d at 837-40. They

include, as SMUD maintains is present here, the control of the

subsidiary’s day-to-day operations, commingling of funds, shared

employees, shared legal services, disregard of corporate

formalities, and inadequate capitalization. Id. There is no

required magic number of factors that must be met in order for

alter ego liability to be imposed. See Mesler v. Bragg Mgmt. Co.,

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39 Cal. 3d 290, 300 (1985) (“There is no litmus test to determine

when the corporate veil will be pierced”). A corporate veil,

however, ought to be pierced only in “rare” and “exceptional”

circumstances. Dole Food Co. v. Patrickson, 538 U.S. 468, 475

(2003).

Some of the factors alleged in the counterclaim, such as

commingling of funds and the diversion of assets, lack any

evidentiary support whatsoever. See Decl. of Joerg Mrosek ¶ 11-12

(adherence to corporate formalities and no shared bank accounts);

Scott Decl. ¶ 5-6 (same). Accordingly, the court only focuses on

the factors supported by evidence.

a. Day-to-Day Control

Where a parent dictates every facet of a subsidiary’s business

from policy to day-to-day operations, courts have found the alter

ego test satisfied. See Rollins Burdick Hunter of S. Cal., Inc.

v. Alexander & Alexander Servs., Inc., 206 Cal. App. 3d 1, 11

(1988) (finding alter ego where “every facet” of the subsidiary’s

business seemed to be dictated by the parent, including budget

approval, hiring, compensation, and certain real estate purchases

and leases); Mathes v. Nat’l Utility Helicopters Ltd., 68 Cal. App.

3d 182, 190-91 (1977) (finding alter ego where parent exercised

control over subsidiary's budget, replaced the subsidiary's general

manager, and sent employees to subsidiary to investigate problems

and report back). 

Nevertheless, a “parent corporation may be directly involved

in the activities of its subsidiaries without incurring liability

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so long as that involvement is ‘consistent with the parent’s

investor status.’ Appropriate parental involvement includes:

‘monitoring of the subsidiary’s performance, supervision of the

subsidiary’s finance and capital budget decisions, and articulation

of general policies and procedures.’” AT&T v. Compagnie Bruxelles

Lambert, 94 F.3d 586, 591 (9th Cir. 1996); see also Calvert v.

Huckins, 875 F. Supp. 674, 679 (E.D. Cal. 1995) (holding that

plaintiffs “must present evidence showing that [the parent

companies] do more than exercise the broad oversight indicated by

common ownership and common directorship”).

Here, SMUD identifies two examples of Bilfinger’s and (to a

lesser extent) FCHC’s alleged day-to-day control over Fru-Con.

First, SMUD points to a “Letter of Direction” issued by Bilfinger

to Fru-Con setting forth the overall limits of Fru-Con’s management

authority. Poulos Decl., ¶¶ 7, Ex. C. The Letter required Fru-Con

to seek the written approval of the FCHC Board for what SMUD terms

“routine” activities, such as “buying or selling real estate;

leasing real estate for more than five years; opening or closing

branch offices; entering into contracts outside of Fru-Con’s

traditional business activities; initiating litigation estimated

to cost more than $200,000; setting an annual salary budget for

employees; and appointing officers.” Opp. at 11-12. 

These activities may reasonably be characterized, as counterdefendants term them, “macro-management” decisions. They show that

only FCHC was entitled to make decisions regarding significant

contracts and major personnel decisions. They do not evidence dayCase 2:05-cv-00583-LKK -GGH Document 428 Filed 08/17/07 Page 12 of 23
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to-day control over Fru-Con. See Wady, 216 F. Supp. 2d at 1068-69

(finding appropriate parental involvement where parent monitored

subsidiary’s performance, supervised the subsidiary’s finance and

capital budget decisions, and articulated general policies and

procedures); Fletcher v. Atex, Inc., 68 F.3d 1451, 1459-60 (2d Cir.

1995) (no alter ego liability where parental approval was required

for leases, major capital expenditures, and the sale of its

subsidiary’s assets). The fact that some of the required approvals

were obtained via telephone with a group of three board members,

Poulos Decl. ¶ 8, Ex. D, rather than through the formality of a

full board meeting, gives the court pause, but this does not

justify alter ego liability.

The second example cited by SMUD of alleged day-to-day control

stems from the involvement of Peter Ophoven, a Bilfinger executive,

at the project site. Ophoven testified that he was present at the

site for a maximum of approximately 36 days spread out over the

course of several months. Poulos Decl., Ex. T (4 days in March;

5 days in September; 2 days in December; 18 days in January; 7 days

in February); Id. (stating that “[m]ost of the guys knew me.”).

He was at the site long enough that he was listed as a “monthly

employee” (at least for accounting purposes). Poulos Decl. ¶ 21,

Ex. Q. He also had his own telephone extension at the site.

Poulos Decl. ¶ 22, Ex. R. During his visits, Ophoven discussed the

project schedule, cost forecasts, possible improvements regarding

cost and time, and interviewed various project executives. Poulos

Decl. ¶ 25, Ex. U.

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 For example, Fru-Con Vice President and General Counsel Len

Ruzicka testified that he was an officer of Fru-Con, FCHC, and

other Fru-Con related entities. Poulos Decl. ¶ 38, Ex. HH. FruCon controller Martin Schaper and Vice President of Audit Tanya

Gale testified about various positions that they alternately filled

for Bilfinger and Fru-Con over the years. Poulos Decl. ¶ 12, Ex.

H; ¶ 59, Ex. CCC. Fru-Con Operations Manager Earle Hardgrave also

came from Bilfinger and went back to Bilfinger. Poulos Decl. ¶ 35,

Ex. EE.

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Again, these activities are not enough to show that Bilfinger

overstepped its bounds. Permissible parental conduct includes

monitoring and oversight of the subsidiary. See Wady, 216 F. Supp.

2d at 1068-69; AT&T, 94 F.3d 586 at 591. Interviewing project

executives, keeping abreast of project developments, and discussing

potential improvements do not rise to the level of day-to-day

control. Unlike the cases in which courts pierced the corporate

veil, see, e.g., Rollins, 206 Cal. App. 3d at 11; Mathes, 68 Cal.

App. 3d at 182, Fru-Con and Bilfinger each adhered to their own set

of corporate formalities from accounting and tax standpoints

through annual meetings, had separate bank accounts and payrolls,

and separately maintained corporate minutes. Jrosek Decl. ¶ 11;

Scott Decl. ¶ 5. 

b. Shared Employees 

Next, SMUD points out that Bilfinger, FCHC, and Fru-Con have

shared some of the same employees.7 Courts have noted the

existence of shared employees in imposing alter ego liability.

See, e.g., Rollins, 206 Cal. App. 3d at 11; Mathes, 68 Cal. App.

3d at 191. At the same time, however, other courts have observed

that “[i]t is considered a normal attribute of ownership that

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officers and directors of the parent serve as officers and

directors of the subsidiary.” Sonora Diamond, 83 Cal. App. 4th at

548-49; see also Doe v. Unocal, 248 F.3d 915, 925-26 (9th Cir.

2001) (noting that it is appropriate for directors of a parent to

serve as directors of the subsidiary without exposing the parent

to liability for the subsidiary’s act). Accordingly, while this

factor carries some weight, the court will not impose alter ego

liability without a more substantial showing. 

c. Legal Services

SMUD also argues that Len Ruzicka, Fru-Con’s general counsel,

provided legal services for both Fru-Con and FCHC, and was an

officer of both. Poulos Decl. ¶ 38, Ex. HH. The use of the same

lawyers is another relevant factor in the alter ego analysis. See

Slottow v. Am. Cas. Co., 10 F.3d 1355, 1360 (9th Cir. 1993) (use

of same lawyer a “relevant factor[]”); Marr v. Postal Union Life

Ins. Co., 40 Cal. App. 2d 673, 683 (1940) (use of same lawyer “a

fact entitled to consideration”); Calvert, 875 F. Supp. at 679 (use

of same lawyer “carries plaintiffs’ [alter ego] argument the

furthest” but nevertheless finding no alter ego liability). At the

same time, “common characteristics [such] as . . . shared

professional services” may be normal and appropriate. See Sonora

Diamond, 83 Cal. App. 4th at 540-41.

Here, Ruzicka did not testify that he provided legal advice

to both Fru-Con and FCHC in his capacity as an officer of each

corporation; rather, he stated that it was his role in such

capacities to complete the meeting minutes and oversee certain

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activities from a corporate legal standpoint. Poulos Decl. ¶ 38,

Ex. HH (“My primary function as a secretary of each of those

corporations is to do the corporate minutes, [] be involved in

overseeing what was done from a legal corporate point of view. So

it would have been more of . . . corporate legal services.”). That

Ruzicka “change[d] hats,” Sonora Diamond, 83 Cal. App. 4th at 548-

49, like the other employees who have worked for Fru-Con in

addition to FCHC and/or Bilfinger, is still not enough to establish

alter ego liability.

Ruzicka’s contact with Bilfinger was even less direct than the

contact with FCHC. He testified that he would call Bilfinger’s

general counsel and “keep him informed.” Poulos Decl. ¶ 38, Ex.

HH. As a subsidiary, Fru-Con had a duty to report significant

legal issues to its parent. Sonora Diamond, 83 Cal. App. 4th at

548-89. There is no indication that Bilfinger or its general

counsel directed Fru-Con’s day-to-day litigation. 

d. Experience and Financial Wherewithal

SMUD also maintains that Fru-Con misrepresented its

experience, relying on Bilfinger’s track record for its

representation that it was a “major international constructor,” (a

point addressed above) and also misrepresented its financial

wherewithal by not disclosing Bilfinger’s backing in obtaining the

bond. “[T]he concealment and misrepresentation of the identity of

responsible ownership, management and financial interest, or

concealment of personal business activities” is a factor in the

alter ego analysis. Associated Vendors, 210 Cal. App. 2d at 840-

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41; Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft, LLP, 69

Cal. App. 4th 223, 251 (1999) (describing “financial

misrepresentation” as an “important” factor).

Fru-Con’s conduct, however, does not rise to the level of a

“financial misrepresentation.” The fact that Bilfinger used its

financial weight to secure Fru-Con’s bond is insufficient to

establish alter ego liability. See Akzona, Inc. v. E.I. Du Pont

De Nemours and Co., 607 F. Supp. 227, 238 (D. Del. 1984) (parental

guaranty of third party loans insufficient); Japan Petroleum Co.

(Nigeria) Ltd. v. Ashland Oil, 456 F. Supp. 831, 841-43 (D. Del.

1978) (surety on bank loans insufficient); Calvert, 875 F. Supp.

at 679 (parental guarantees appropriate feature of parentsubsidiary relationship). As noted above, from all that appears,

what was most valuable to SMUD (and what SMUD inquired about) was

the existence of the bond, not its source.

e. Undercapitalization

SMUD argues that Fru-Con was undercapitalized, another factor

in the alter ego analysis. See Associated Vendors, 210 Cal. App.

2d at 839. To be adequately capitalized, a subsidiary must have

“capital reasonably regarded as adequate to enable the corporation

to operate its business and pay its debts as they mature.”

Laborers Clean-Up Contract Admin. Trust Fund v. Uriarte Clean-Up

Serv., Inc., 736 F.2d 516, 524 (9th Cir. 1984). 

SMUD bases its argument on Bilfinger’s role in securing the

bond (addressed above) and on the cash infusions that Fru-Con

received from Bilfinger. Poulos Decl. ¶ 20, Ex. P (testimony of

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Fru-Con’s cash manager, who stated that “if there was ever a need

for cash that Bilfinger would -- there would be a cash infusion.”).

This latter practice, however, is a common feature of parentsubsidiary relationships, and the fact that a subsidiary receives

cash infusions from time to time does not necessarily mean that it

has been inadequately capitalized. See Sonora Diamond, 83 Cal.

App. 4th at 546 (finding corporation “was adequately capitalized

at the outset and regularly funded, by intercompany loans, when

operational losses made cash infusions necessary”); Poulos Decl.

¶ 20, Ex. H (Fru-Con controller testifying that when Fru-Con “had

some longer-term cash flow problems” in the 1980s, Bilfinger would

send cash). 

In sum, SMUD has not tendered sufficient evidence to show that

there was a unity of interest and identity between Fru-Con, on the

one hand, and Bilfinger or FCHC, on the other. With regard to

FCHC, the only evidence presented in support of an alter ego theory

is that (1) Fru-Con was required to obtain FCHC board approval with

respect to certain “macro-management” decisions contained in the

Letter of Direction, (2) Fru-Con and FCHC shared certain employees,

and (3) Fru-Con’s general counsel also performed certain tasks as

an officer of FCHC from a legal standpoint. This falls far short

of the required showing for alter ego liability.

With regard to Bilfinger, the evidence at issue consists

of (1) Ophoven’s periodic visits to the site over a span of several

months, (2) shared employees, (3) the description of Fru-Con as a

major international constructor and the alleged reliance on

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Bilfinger’s experience in making that statement, (4) Bilfinger’s

role in obtaining the bond, and (5) Bilfinger’s cash infusions to

Fru-Con. While perhaps a closer issue than that presented by FCHC,

SMUD has also not introduced sufficient evidence to prove that

alter ego liability is warranted.

B. Direct Contacts

Alternately, SMUD asserts that the court may exert

jurisdiction over Bilfinger and FCHC based on their direct contacts

with California. As detailed below, this argument is even less

availing than jurisdiction under an alter ego or agency theory.

1. General Jurisdiction

General jurisdiction can exist where a foreign corporation’s

contacts with the forum are “continuous and systematic general

business contacts.” Helicopteros Nacionales de Colombia, S.A. v.

Hall, 466 U.S. 408, 414-16 (1984). The standard for establishing

general jurisdiction is “fairly high and requires that the

defendant’s contact be of the sort that approximate physical

presence.” Bancroft & Masters, Inc. v. Augusta Nat’l Inc., 223

F.3d 1082, 1086 (9th Cir. 2000) (internal citations and quotations

omitted).

With regard to Bilfinger, the only alleged direct contact with

California consists of two general engineering licenses, the most

recent of which expired in 1992, a decade before Fru-Con’s contract

with SMUD was negotiated. Poulos Decl. ¶¶ 17, 19, Ex. O. These

licenses are simply too stale to permit the exercise of general

jurisdiction. Courts reach back no more than five to seven years

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in examining jurisdictional facts. See Metropolitan Life Ins. Co.

v. Robertson-Ceco Corp., 84 F.3d 560, 569 (2d Cir. 1996) (noting

that other courts have found three to seven years to be

reasonable); Slurry Sys. v. Berminghammer Found. Equip., 2006 U.S.

Dist. LEXIS 20238, *12-13 (N.D. Ind. 2005) (declining to examine

contacts beyond seven years).

With regard to FCHC, there are two alleged contacts: (1) a

lease for three cars associated with the project and (2) an

insurance policy endorsement that covered some project-related

equipment. Poulos Decl. ¶ 27, Ex. W (lease agreements); ¶ 28, Ex.

X (insurance policy). These two contacts are not the sort that

“approximate physical presence.” Bancroft & Masters, 223 F.3d at

1086.

 2. Specific Jurisdiction

Alternately, a court may exert specific jurisdiction where (1)

the defendant has purposefully availed itself of a forum benefit,

(2) the controversy is related to or arises out of the defendant’s

contacts, and (3) the exercise of jurisdiction would comport with

fair play and substantial justice. Burger King, 471 U.S. at 475-

78.

With regard to Bilfinger, all of SMUD’s jurisdictional claims

are derivative. Accordingly, because SMUD cannot establish

jurisdiction under an alter ego or agency theory, there is no

specific jurisdiction over Bilfinger. With regard to FCHC, the

evidence shows that FCHC received the lease agreements, but there

is no indication that FCHC was the contracting party or in control

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of the cars in question. Moreover, although there is evidence that

an insurance policy obtained by FCHC was amended to include certain

Fru-Con equipment used on the project, this contact, like the lease

agreement, is simply too peripheral to be said to give rise to the

present controversy. Relatedly, it would not comport with fair

play and substantial justice to hail international defendants into

California on such an attenuated basis.

C. Discovery

The final matter before the court is SMUD’s motion, which

seeks jurisdictional discovery and requests that the court stay any

decision on the pending motions to dismiss. 

There is no definitive standard for whether to permit

jurisdictional discovery. Some courts have held that before

allowing such discovery, the plaintiff must first make a “colorable

or prima facie showing of personal jurisdiction.” See Central

States v. Reimer Express World Corp., 230 F.3d 934, 946 (7th Cir.

2000); see also United States v. Swiss Am. Bank, Ltd., 274 F.3d

610, 625 (1st Cir. 2001) (“[A] diligent plaintiff who sues an outof-state corporation and who makes out a colorable case for the

existence of in personam jurisdiction may well be entitled to a

modicum of jurisdictional discovery if the corporation interposes

a jurisdictional defense.”); Jazini v. Nissan Motor Co., 148 F.3d

181, 186 (2d Cir. 1998) (denying discovery where plaintiffs “did

not establish a prima facie case that the district court had

jurisdiction”). 

Other courts, however, have rejected the requirement of a

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8 As noted earlier, although SMUD maintains that Travelers’

legal obligation to pay is in doubt, this doubt is not enough to

satisfy its burden of showing that injustice will result.

Furthermore, additional discovery would not help SMUD with regard

to this issue.

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prima facie case. See Orchid Biosciences Inc. v. St. Louis Univ.,

198 F.R.D. 678, 673 (S.D. Cal. 2001) (“It would [] be

counterintuitive to require a plaintiff, prior to conducting

discovery, to meet the same burden that would be required in order

to defeat a motion to dismiss. Moreover, the authorities from our

circuit . . . indicate that our Federal Rules envision a broader

scope of even preliminary discovery.”). The Ninth Circuit has

also held that while “[a]n appellate court will not interfere with

the trial court’s refusal to grant discovery except upon the

clearest showing that the dismissal resulted in actual and

substantial prejudice to the litigant,” discovery “should be

granted where pertinent facts bearing on the question are

controverted . . . or where a more satisfactory showing of the

facts is necessary.” Wells Fargo & Co. v. Wells Fargo Exp. Co.,

556 F.2d 406, 430 n.24 (internal quotation marks omitted).

Here, most of the facts themselves are not seriously in

dispute; the issue is whether they rise to a level warranting

application of the alter ego theory. Furthermore, there is no

reasonable likelihood that additional discovery would help SMUD to

prove that injustice would result if Bilfinger and FCHC were not

made party to this action.8 Without proof of this necessary

element, any other discovery would be futile. The simple fact

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remains that a bond exists (with an uncommited capacity almost

assuredly large enough to satisfy any judgment). In addition, FruCon has ongoing projects worth hundreds of millions of dollars and

has a track record of timely payment of debts. Against this

background, it would be unfair to permit SMUD to conduct

jurisdictional discovery.

IV. Conclusion

For the reasons set forth above, the court GRANTS Bilfinger

and Fru-Con Holding Corporation’s motions to dismiss for lack of

personal jurisdiction (Doc. Nos. 410 & 412) and DENIES SMUD’s

motion for jurisdictional discovery (Doc. No. 419).

IT IS SO ORDERED.

DATED: August 17, 2007.

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