Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_05-cv-03033/USCOURTS-cand-4_05-cv-03033-6/pdf.json

Parties Involved:
Oncology Therapeutics Network
Plaintiff
Ronald Poulin
Defendant
VHO, PLLC
Defendant
Virginia Hematology Oncology PLLC
Defendant

Document Text:

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1

U

nite

d

States District C

o

u

rt

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

Oncology Therapeutics Network

Connection,

 Plaintiff,

 v.

Virginia Hematology Oncology

PLLC, a limited liability company;

Ronald Poulin, an individual,

 Defendants.

_____________________________/

No. C 05-3033 WDB

ORDER AND MEMORANDUM

OPINION (I) GRANTING

DEFENDANTS' MOTION FOR

SUMMARY JUDGMENT OF

PLAINTIFF'S CLAIM FOR BREACH

OF PERSONAL GUARANTY AND

(II) DENYING PLAINTIFF'S

COUNTER MOTION FOR

SUMMARY JUDGMENT AND (III)

GRANTING PLAINTIFF'S MOTION

FOR LEAVE TO AMEND THE

COMPLAINT

INTRODUCTION

For reasons we will explain in the pages that follow, we hereby GRANT

Ronald Poulin's Motion for Summary Judgment on plaintiff's claim that he is

personally liable as a guarantor of the debts in issue of Virginia Hematology

Oncology ("Virginia Hematology"). As stated in section I.E., we also DENY

plaintiff's "Counter Motion for Summary Judgment." Simultaneously, we

GRANT, on conditions later specified, plaintiff's motion for leave to amend and

supplement its complaint.

Oncology Therapeutics Network ("OTN") sells products used by health care

providers in the treatment of cancer patients. Virginia Hematology is an entity

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whose members treat cancer patients. Ronald Poulin is a physician at and

"managing member" of Virginia Hematology. 

On January 25, 2002, Ronald Poulin signed a contract titled "Credit

Application and Agreement." The Credit Application and Agreement ("CAA")

was a form provided by OTN. The form included OTN's logo on the top left

corner and "Oncology Therapeutics Network Joint Venture, L.P. ('Seller')

Commercial Credit Agreement" was centered at the top of the second page (back)

of the agreement. Among other things, the CAA provided Virginia Hematology

with a line of credit under which it could purchase and receive oncology products

and pay for them at a later date (e.g., after Virginia Hematology received payment

for the supplies from a patient's insurer).

It is undisputed that OTN products were purchased under the CAA and were

shipped to Virginia Hematology. It also is undisputed that, at some point, Virginia

Hematology began to fall behind in its payments to OTN.

On June 30, 2005, in San Mateo, California, plaintiff filed its Complaint for

Goods Sold and Delivered ("Complaint"). See, Defendants' Notice of Removal,

filed July 27, 2005, at Ex. B. Among other things, OTN alleged that Virginia

Hematology has failed and refused to pay amounts owed under the CAA. OTN

also alleged that, by signing the CAA, Dr. Poulin personally guaranteed Virginia

Hematology's debt and, therefore, that Dr. Poulin was personally obligated to pay

the amount owing.

On July 27, 2005, defendants removed plaintiff's action to federal court.

On December 16, 2005, Dr. Poulin filed his Motion for Summary Judgment

("Motion"). Dr. Poulin states that he signed the CAA as a representative of

Virginia Hematology only and not in his individual capacity, and asks the Court to

find that, as a matter of law, his signature on the CAA did not create a personal

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1Although the parties have referred to the entities as "VHO #1" and "VHO #2," for the

sake of clarity, we refer to the original entity Virginia Hematology Oncology, PLLC, (VHO #1),

as "Virginia Hematology" throughout and refer to VHO, PLLC (VHO #2) as "VHO" throughout.

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guaranty. Along with its Opposition to defendant's Motion, plaintiff presents a

"counter motion" for summary adjudication. 

On January 9, 2006, pursuant to a briefing schedule established by the

Court, plaintiff filed its Motion for Leave to File First Amended Complaint

("Request to Amend"). Plaintiff seeks to add allegations that defendants engaged

in fraudulent conveyances and allegations that Dr. Poulin is the alter ego of

Virginia Hematology and/or that a second entity created by Dr. Poulin, VHO,

PLLC ("VHO"),

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 is liable as Virginia Hematology's successor.

On February 1, 2006, the Court conducted a hearing in connection with Dr.

Poulin's Motion for Summary Judgment and plaintiff's Request to Amend.

For the reasons stated below, the Court GRANTS defendant's Motion for

Summary Judgment and DENIES plaintiff's "counter motion" for summary

judgment. Subject to the conditions set forth, infra, the Court also GRANTS

plaintiff's Request to Amend.

DISCUSSION

I. Dr. Poulin's Motion for Summary Judgment

A. Standard on Summary Judgment

To succeed on a motion for summary judgment, the moving party must

establish that, under facts that are not subject to genuine dispute, that party is

entitled to judgment as a matter of law. Federal Rule of Civil Procedure 56(c). In

reviewing a motion for summary judgment, the Court considers the evidence in the

light most favorable to the party against whom the judgment is sought.

If, when we consider the evidence in the best possible light for plaintiff, the

evidence is insufficient (as a matter of law) to support a finding by the trier of fact

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In his Motion, Dr. Poulin erroneously refers to "offensive collateral estoppel" which

applies where a plaintiff seeks to use the doctrine against a defendant.

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that plaintiff has proved all required elements of his claims we must grant the

request for summary judgment. 

In his Motion, Dr. Poulin argues that (1) collateral estoppel bars plaintiff

from asserting that the language in the CAA creates a personal guaranty on behalf

of the signatory, (2) pursuant to California contract law principles, the language of

the CAA does not create a personal guaranty as a matter of law, and (3) even if the

CAA had created a personal guaranty, Dr. Poulin has been exonerated from that

debt by virtue of the fact that OTN and Virginia Hematology substantially

modified the terms of the original agreement. We address defendant's arguments

below.

B. Collateral Estoppel Bars Plaintiff's Claim

Dr. Poulin invokes the doctrine of "defensive collateral estoppel" and asks

the Court to bar plaintiff's claim that the CAA created a personal guaranty on the

ground that plaintiff previously litigated that identical claim against another

litigant and lost. With defensive collateral estoppel, a defendant "seeks to prevent

a plaintiff from asserting a claim the plaintiff has previously litigated and lost

against another [party]." Masson v. New Yorker Magazine, 85 F.3d 1394 (9th Cir.

1996).2

In order to invoke collateral estoppel "(1) the issue at stake must be

identical to the one alleged in the prior litigation, (2) the issue must have been

actually litigated in the prior litigation, and (3) the determination of the issue in

the prior litigation must have been a critical and necessary part of the judgment in

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3Defendant anticipated an argument from OTN that it was not actually a party to the Vold

litigation. Motion at 12-13. Plaintiff made no such argument in its Opposition. We, therefore,

assume OTN concedes that it was a party to the Vold litigation for these purposes.

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the earlier action." Clark v. Bear Stearns and Co., 966 F.2d 1318, 1320 (9th Cir.

1992).

Dr. Poulin contends (1) that plaintiff was a party to an adversary claim

before the bankruptcy court in In re San Jose Medical Mngmt, Inc., (Vold v. San

Jose Medical Mngmt., Inc., et al), C02-55527 JRG and C02-55528 JRG ("Vold,"),

(2) that, in that proceeding, plaintiff asserted that the identical language in an

identical credit application created a personal guaranty by the signatory, Mr. Vold,

(3) that the bankruptcy court ruled that the language in the Credit Application did

not create a personal obligation, and (4) that the bankruptcy court's holding was a

critical and necessary part of the bankruptcy court's judgment. Motion at 8-14. 

See also, Defendant's Request for Judicial Notice, filed December 16, 2005.

Plaintiff counters by asserting that the facts before the Vold court were

materially different than those before this Court and, therefore, that Dr. Poulin

cannot demonstrate that the issue at stake in that litigation was "identical" to the

issue presented here – a necessary prerequisite to invoking collateral estoppel.3

See, Transcript of February 1, 2006, hearing. More specifically, plaintiff contends

that it was essential to Judge Grube's opinion in Vold that Mr. Vold's position with

the oncology provider in that case was as a "CFO" and that there was no indication

he owned any share of the practice. Plaintiff also notes that Mr. Vold drew a line

through part of the application and then attached the entity's credit information on

a separate sheet, rather than writing the information in the spaces provided on the

form. In contrast, Dr. Poulin is a physician at the practice (and, therefore, the

argument presumably goes, the practice is primarily for his benefit), Dr. Poulin

owns a substantial portion, if not all, of Virginia Hematology, and Dr. Poulin did

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4We have identified two sentences on the back of the contract that contribute to our

finding of ambiguity that it appears Judge Grube did not consider. However, as explained, infra,

these sentences are only marginally susceptible to plaintiff's proffered meaning, and we find

them legally irrelevant for this analysis. 

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not draw a line through any of the form contract and attach Virginia Hematology's

credit information on a separate sheet.

As explained on the record, in the Court's view, the Vold court's opinion

satisfies the requirements for asserting defensive collateral estoppel. As we read

Vold, Judge Grube did not rely on evidence outside the language of the contract. 

Judge Grube reviewed the language of the identical sentence on which OTN relies

in this case and, as we read his opinion, considered whether this language, if

unsupported by extrinsic evidence that could sustain a finding that the parties

mutually intended the signatory to be personally liable, creates a personal

guaranty.4 Judge Grube ruled that it did not. 

Judge Grube's opinion indicates that he relied on the language of the

contract itself.

The court [is] left to discern the meaning of the clause through the

terms of the agreement itself.

RFJN at Ex. E (Grube Order) at 12.

An examination of the extrinsic evidence offered in this case provides

no support that OTN's interpretation is reasonable.

RFJN at Ex. E (Grube Order) at 10. See also, RFJN Ex. D at 6 ("the question of

the guaranty comes down to one sheet of paper, the credit application and

agreement"). Statements made by Judge Grube at oral argument on the Vold

motion provide further support for the conclusion that Judge Grube's reasoning

encompassed any agent who would be authorized to sign on behalf of the entity. 

RFJN at Ex. D at 4. For these reasons, we conclude Judge Grube did not deem it

material that Mr. Vold was a CFO, as opposed to an owner or managing director,

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5The form in Vold and this case appear to be identical except for a change in the OTN

logo.

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or that Mr. Vold provided the information sought by OTN on a separate sheet

rather than in the spaces set forth on the form. 

The facts in Vold are in all material respects identical to those here. It was

undisputed that no communication had taken place regarding the nature of the

CAA. RFJN (Grube Order) at Ex. E at 3 and 10. Mr. Vold signed the identical

form contract Dr. Poulin signed.5 Mr. Vold did not draw a line through the

language that plaintiff contends created the personal guaranty and, just as with Dr.

Poulin, that language immediately preceded Mr. Vold's signature. In our view,

Judge Grube decided the identical issue that confronts this Court, whether, absent

extrinsic evidence supporting personal liability, the language of the contract

creates a personal guaranty by the signatory. See, section C, infra.

It is clear from the record that the Vold parties fully and fairly litigated the

meaning of this language before Judge Grube. Additionally, whether the Credit

Application created a personal guaranty by Mr. Vold was the sole issue before

Judge Grube and, therefore, determination of the issue was "a critical and

necessary part of [Judge Grube's] judgment."

We conclude that the Vold opinion satisfies the requirements of defensive

collateral estoppel and that collateral estoppel, therefore, constitutes an

independent and sufficient basis on which to GRANT defendant's motion. 

In the next section we consider whether defendant has established an

additional and separate ground for summary judgment by demonstrating that, as a

matter of law, the CAA did not create a personal guaranty.

//

//

//

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C. The "Credit Application and Agreement" Does Not Create a

Personal Guaranty

Dr. Poulin asks the Court to find that there are no material facts subject to a

genuine dispute and that, as a matter of law, the CAA does not create a personal

guaranty by Dr. Poulin. Plaintiff, on the other hand, argues that the CAA must be

interpreted to create a personal guaranty by Dr. Poulin and asks the Court to enter

summary judgment in its favor. 

The parties focus on the following language found immediately before the

signature line at the bottom of the first page: 

The person signing below personally guarantees that Applicant will

pay all amounts due under this Agreement and shall be responsible

for such amounts being paid.

Poulin Decl., at Ex. A.

The contract provides that the"Agreement will be governed by and

construed in accordance with the laws of the State of California." Poulin Decl., at

Ex. A. Neither party disputes that California law governs interpretation of the

contract. Under California law, in order to resolve the parties' dispute, we must

determine whether it is objectively reasonable to conclude that the parties

mutually intended to create a personal guaranty.

In this state, . . ., the intention of the parties as expressed in the

contract is the source of contractual rights and duties. A court must

ascertain and give effect to this intention by determining what the

parties meant by the words they used.

Pacific Gas and Electric, Co., v. G.W. Thomas Drayage & Rigging Co., Inc., 69

Cal.2d 33, 38 (1968). "The precise meaning of any contract, . . . , depends upon

the parties' expressed intent, using an objective standard." ASP Properties Group,

v. Fard, Inc., 133 Cal.App. 4th 1257, 1266 (4th Dist. 2005) emphasis added

quoting Golden West Baseball Co., v. City of Anaheim, 25 Cal.App.4th 11 (1994).

Where the parties disagree about the meaning of the contract, the Court

construes the contract using a two step process.

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6OTN suggests that the Court does not look to extrinsic evidence absent allegations of

misrepresentation or fraud. Transcript of February 1, 2006, hearing. This contention is not

supported by the cases. California case law clearly directs the Court to consider extrinsic

evidence offered by a party to support the party's proffered meaning and/or assess ambiguity.

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First, the Court must determine whether the contract is "ambiguous." A

contract is ambiguous when "it is 'reasonably susceptible' to either of the meanings

urged by the parties." Curry v. Moody, 40 Cal. App. 4th 1547, 1552 (2nd Dist.

1995). A contract may be ambiguous on its face, for example, where the language

used therein is imprecise. However, 

[i]n making this determination, the court is not limited to the contract

language itself but provisionally receives, without actually admitting,

any extrinsic evidence offered by a party which is relevant to show

the contract could or could not have a particular meaning.

Curry, 40 Cal. App. 4th at 1552.6 Whether the contract is "ambiguous" is a

question of law. Id. If the language of the contract cannot reasonably be

construed as a party suggests – even considering extrinsic evidence offered by the

party – then the Court will find that the contract is not "ambiguous" and the

inquiry is over.

If, on the other hand, the Court finds that the contract is "reasonably

susceptible to either of the meanings urged by the parties" then the Court "moves

on to the second step which is to determine just what the parties intended the

contract term to mean." Curry, 40 Cal. App. 4th at 1552.

In this second step, the Court admits the extrinsic evidence, if any, proffered

by each party to aid in interpreting the contract. ASP Properties, 133 Cal.App. 4th

at 1266. If the parties submit no extrinsic evidence, or if the material extrinsic

evidence is not in conflict, the Court's construction of the contract is purely a

question of law. Id. If, however, the evidence presents a genuine issue of material

fact, that fact issue must be resolved by a jury before the Court can interpret the

contract.

//

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1. The CAA is "ambiguous"

Following California law, we first determine whether the CAA is

"ambiguous." We find that it is – i.e., that the CAA is reasonably susceptible to

either of the meanings proffered by the parties.

When interpreting the potential meaning of the contract we may not

consider the sentence on which the parties focus in isolation.

[L]anguage in a contract must be construed in the context of that

instrument as a whole, and in the circumstances of that case, and

cannot be found to be ambiguous in the abstract.

Bank of the West v. Superior Court, 2 Cal 4th 1254, 1265 (1992) (emphasis

omitted) citing Producers Dairy Delivery Co. v. Sentry Ins. Co., 41 Cal.3d 903

(1986).

Plaintiff urges us to find that the parties intended that Dr. Poulin was

personally guaranteeing Virginia Hematology's debt to OTN. Dr. Poulin, on the

other hand, contends that the CAA can be understood only as a contract for credit

between Virginia Hematology and OTN for the purchase of oncology supplies. 

According to Dr. Poulin, he did not personally guarantee Virginia Hematology's

debt by signing the CAA. 

At the hearing on February 1, 2006, the Court asked plaintiff to identify the

bases for its position that Dr. Poulin personally guaranteed Virginia Hematology's

debt. Plaintiff stated that the evidence in support of its position that Dr. Poulin

personally guaranteed the debt consists of the language of the CAA. Transcript

February 1, 2006, hearing. When asked whether plaintiff relied on any extrinsic

evidence (i.e., evidence outside the four corners of the contract) that the Court

should consider for its position, plaintiff conceded that it did not. Id. Plaintiff

added, however, that its position also was supported by the absence of evidence

that Dr. Poulin communicated to OTN that he did not intend to personally

guaranty the debt and by an “inference” created by an alleged “fact” about the way

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In support of its position plaintiff submitted the declarations of Kimberly Bergstrom and

John Akscin. It is not clear that these declarants have reliable personal knowledge or that

whatever information they do have is sufficient to support reliable generalizations about

oncology practice nationwide.

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oncologists generally order oncology supplies. Without any competent

evidentiary support, plaintiff contends that, as a matter of real-world fact, it is

generally the physicians themselves, not their staffs or administrators associated

with their practices, who place orders for oncology supplies.7 Plaintiff argued that

this alleged (but unsupported) “fact” supports an inference that Dr. Poulin was the

primary beneficiary of the CAA. Id. As we shall explain, this alleged fact (even

if true) – and this line of inferencing – are of no significance for the issues here. 

Because plaintiff relies almost entirely on the contract itself, we focus

largely on the language of that contract. For reasons we explain in the next

paragraphs, we find that the CAA is reasonably susceptible to the meaning Dr.

Poulin proffers. We also conclude that it would not be transparently unreasonable

to ascribe the meaning to the language of the contract that the plaintiff proffers. It

follows that the language is ambiguous. 

The critical sentence is poorly worded and could be read in two ways. We

begin by quoting it in full. “The person signing below personally guarantees that

Applicant will pay all amounts due under this Agreement and shall be responsible

for such amount being paid.” One rationally accessible interpretation of this

sentence is that the person who signs the document personally promises to see to it

that the Applicant pays the money it owes. Under this reading, the “Authorized

Person” is not making a personal guarantee at all – but making a promise to do

everything he reasonably can to assure that the Applicant honors the commitments

it makes pursuant to the terms of the Credit Application and Agreement. 

There is a second rationally accessible interpretation of these words if we

take into account only the words themselves and ignore the context, both textual

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and real-world, in which the words appear. Under this second interpretation, the

person who signs as the “Authorized Person” accepts a personal obligation to pay

out of his own funds the debts that the Applicant incurs under the Credit

Application and Agreement if the Applicant for any reason fails to pay those

debts. The source of this interpretation, of course, are the words “personally

guarantees” and “be responsible for such amounts being paid.” 

In support of Dr. Poulin's interpretation, the sentence on which the parties

focus is poorly worded, and, as written, it states that the signatory will "personally

guarantee[] that Applicant [Virginia Hematology] will pay all amounts owed under

this Agreement." Said another way, the language of the most important sentence

(for these purposes) states that Dr. Poulin will ensure that Virginia Hematology

pays its debt. How he would do that we do not know. The sentence does not state

that the signatory personally guarantees the debt.

Additionally, we are required to consider the contract as a whole, and it is

clear that the primary (if not entire) thrust of the CAA is to create a line of credit

on behalf of Virginia Hematology. In that regard, the CAA contains multiple

references to the fact that the agreement is "on behalf" of the entity Virginia

Hematology, that the "Applicant" is the entity, and that the signatory is an

"authorized representative" of the entity.

The agreement also is titled "Credit Application and Agreement." There is

no indication in the title of the agreement that a personal guaranty would be

created. 

Moreover, even if, under certain circumstances, California law permits one

signature to bind both the entity and the individual, we find that the fact that there

is only one signature line, that the CAA reads "Authorized Person's Signature" in

front of that line, and that the CAA asks that authorized person to provide his or

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her title all undermine the argument that the parties intended to create two distinct

sources of liability and support Dr. Poulin's position.

In support of plaintiff's position, we acknowledge that, despite the fact that

the sentence preceding Dr. Poulin's signature is poorly written it does contain the

phrase "personally guarantees." Additionally, on the back of the contract under

"Credit Investigation" it states, "[y]ou [which is defined as the "Applicant"] also

authorize us to investigate the personal credit histories of authorized

representatives of the business." Finally, under "Governing Law" the back of the

contract states "Applicant and Authorized Person agree to personal jurisdiction in

and by the State of California." Poulin Decl., at Ex. A emphasis added. Although

none of the quoted statements clearly create a personal guaranty, if other evidence,

rules of contract construction, or legal authority were to support that reading, we

find that the three quoted statements are reasonably susceptible to the

interpretation plaintiff urges. Falkowski v. Imation Corp., 132 Cal.App. 4th 499,

508-9 (1st Dist. 2005) (contract ambiguous where interpretation was plausible

although "not a perfect fit").

We find that the contract is ambiguous on its face. Plaintiff, however, has

not submitted extrinsic evidence that eliminates this ambiguity or that provides

any meaningful support for plaintiff's interpretation. Dr. Poulin, by contrast,

submits extrinsic evidence in support of his proffered meaning. In his declaration

Dr. Poulin testifies that (1) he signed the CAA only as an authorized

representative for Virginia Hematology, (2) that he never intended to personally

guaranty the debt, and (3) that there were no communications between himself and

OTN about the CAA much less about a personal guaranty. Dr. Poulin notes that

he wrote "Managing Member" next to his name when he signed the CAA and

argues that this supports a finding that he had no intention of assuming

responsibility for the debt in his individual capacity.

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8Heringer goes on to say, "[b]ut it is the disclosed intention which governs, not any

intention hidden in the mind of the agent, and accordingly the agent may render himself

personally, liable, although this is contrary to his actual intention if he has in fact bound himself

according to the terms of the contract." 88 Cal. App. at 353.

For the reasons stated in the text, we find that the "terms of the contract" do not bind Dr.

Poulin personally.

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At this juncture, we must admit all the extrinsic evidence and proceed to

determine whether plaintiff presents a genuine issue of material fact with respect

to the parties' intentions as expressed in the terms of the contract or whether we

interpret the contract as a matter of law. 

2. There Was No Mutual Intention to Create a Personal

Guaranty

At the outset, we must recognize that California law creates two

presumptions in favor of a finding that the CAA did not create a personal guaranty

by Dr. Poulin of Virginia Hematology's debt. 

It is undisputed that, when he signed the CAA, Dr. Poulin was acting on

behalf of Virginia Hematology and that plaintiff was aware that Dr. Poulin was

acting on behalf of the entity. Plaintiff argues only that Dr. Poulin was

simultaneously acting as an individual. California law employs a presumption that

an agent of a disclosed principal does not bind himself individually absent clear

evidence that the parties intended to do so.

Whether the agent of a disclosed principal binds himself depends

upon the intention of the parties, which must be gathered from the

facts and circumstances of each particular case. The presumption in

such a case is that it was the agent's intention to bind his principal and

not to incur a personal liability; and ordinarily the agent will not be

personally bound except upon clear and explicit evidence of an

intention to substitute or superadd his personal liability for or to that

of the principal.

S.F. Heringer v. A.G. Schumacher, 88 Cal. App. 349 (3d Dist. 1928) emphasis

added.8

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Additionally, California provides that agreements to guaranty the debt of

another are "strictly construed so as not to impose a burden not contained in or

clearly inferable from the language of the contract." Airlines Reporting Corp., v.

U.S. Fidelity and Guaranty Co., 31 Cal.App.4th 1458 (6th Dist. 1995). See also,

U.D. Switzer v. A.F. Baker, 95 Cal. 539 (1892) ("We cannot infer an agreement to

pay the debt of another from such doubtful language.").

Given these two presumptions against the imposition of individual liability

in circumstances such as these, to survive summary judgment plaintiff must

proffer evidence from which a trier of fact reasonably could conclude that OTN

had proven by "clear and explicit evidence" that both OTN and Dr. Poulin

mutually intended to impose personal liability. We emphasize that California law

requires that plaintiff demonstrate that that inference of mutual intent be clear. 

Plaintiff has presented no evidence from which an objective trier of fact could

reasonably conclude that it is clear that this language, in context, was intended by

both parties to impose a personal obligation on Dr. Poulin.

As noted, when interpreting what the parties intended by the words used in

the contract, we must consider the contract as a whole as well as the circumstances

surrounding its making -- and not simply the language highlighted by the parties. 

Cal. Civ. Code §1641. See also, Heringer, 88 Cal. App. at 353 ("if it can, upon

the whole instrument, be collected that the true object and intent of it are to bind

the principal and not to bind the agent, courts of justice will adopt that

construction of it, however informally it may be expressed").

Reading the CAA as a whole, we find that the contract leaves the

overwhelming impression that "the true object and intent of it" was to create a line

of credit for Virginia Hematology, to impose a duty only on the Applicant,

Virginia Hematology, and that the signatory was acting only in his capacity as an

"authorized representative" of that entity. Heringer, 88 Cal. App. at 353.

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The contract is titled "Credit Application and Agreement" and the

"Applicant" is clearly defined as Virginia Hematology. Poulin Decl., at Ex. A

emphasis added. There is no reference to a "guaranty" other than the poorly

worded sentence upon which plaintiff relies.

The first reference to the signatory reads, "[s]ignatory below represents he

or she is a principal owner or an officer of the company with authority to enter into

this contractual agreement on behalf of Applicant." Poulin Decl., at Ex. A

(emphasis added). The next reference to the signatory states

[a]ny person signing below on behalf of a business entity attests that

the buyer is a valid business entity and that such person is authorized

to enter into this Agreement on behalf of the buyer. By signing

below, Applicant agrees to the terms set forth in the Commercial

Credit Agreement . . ..

 Poulin Decl., at Ex. A emphasis added. These sentences clearly indicate that the

signatory is signing as an agent on behalf of the Applicant entity and the signature

is viewed as that of the Applicant.

Following these statements is the poorly written sentence which literally

states that the signatory will "personally guarantee" that the Applicant pays its

bills. This reading, although peculiar, is somewhat consistent with the prior

statement that the signatory is "attesting" that the entity is a valid business. 

Following that sentence is a signature line. The contract consists of a form

provided by OTN, and OTN's form contract provides only one signature line. That

signature line is preceded by the phrase, "Authorized Person's Signature" and is

succeeded by a request for the signatory's title. This further supports a finding that

the dominant import of the contract is that the signatory is signing as an agent on

behalf of the entity.

In support of his position that he had no intent to be personally liable on the

contract, Dr. Poulin points out that next to his name on the contract he wrote

"Managing Member." While it is true that the placement by an agent of his title

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9Compare, Sebastian Int'l, Inc. v. Peck, 195 Cal.App. 3d 803 (2nd Dist. 1987) (apart from

the signature line the guaranty contained "no reference" to the agent's relationship with its

principal).

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after his name does not necessarily prevent a finding that the agent is personally

liable on the contract, the addition of "words descriptio personae" "is significant

in connection with other facts." Heringer, 88 Cal.App. at 353. We note that, here,

Dr. Poulin did not add his title arbitrarily. OTN specifically requested that he

provide it, and the request was consistent with the prime import of the contract –

i.e., that the signatory had the authority under law to bind the Applicant.9 

Other than the word "personally" in one poorly drafted sentence, there is no

indication on the front of the document that the signatory is acting in his

individual capacity. Dr. Poulin could not reasonably have expected that he was

obligating himself individually.

This theme that the signatory has signed on the Applicant's behalf is

continued on the second page of the CAA. For example, the CAA defines "you"

and "your" as "the Applicant that signs the Application or on whose behalf the

Application is signed." Plaintiff contends that the CAA defines "you" and "your"

as both the Applicant and the signatory. Opposition at 16. This is clearly not

correct.

Moreover, if the parties intended to create a personal guaranty of the debt

one might expect there to be some reference to OTN's ability to seek payment

from the guarantor in the section of the contract titled "Default/Collection Costs." 

There is none.

We have identified only two statements on the back of the contract that

conceivably could support plaintiff's position. The first, the statement that the

Applicant also authorizes OTN "to investigate the personal credit histories of

authorized representatives of the business," does not clearly manifest an intention

to create a personal guaranty. First, it again uses the phrase "authorized

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representatives" rather than "guarantor" or some other clear indication that OTN

intends to refer to the signatory as an individual. Second, it obtains permission to

investigate the credit history, not just of the signatory, but of multiple "authorized

representatives." OTN cannot argue that authorized representatives other than Dr.

Poulin, who did not sign the CAA, personally guaranteed the debt. Accordingly,

this language does not clearly and explicitly evidence an intent to create a personal

liability on behalf of the signatory. We also note, in defendant's favor, that OTN

has not even contended that it conducted a credit check of Dr. Poulin personally.

The second statement, "Applicant and authorized person agree to personal

jurisdiction in and by the State of California" is insufficiently direct and explicit to

overcome the presumption against creating personal liability on behalf of an agent. 

A statement on the back of a contract, near the end of a full page of "fine print,"

would have to expressly state that it was creating a personal guaranty and be

highlighted visually in order to support a contention that an entity's agent was

intending to accept personal liability for the entity's debt. We also note that this

statement is not inconsistent with Dr. Poulin's position that there is no guaranty. If

an entity's representative committed a tort, such as fraud, in connection with the

contract, plaintiff could sue the signatory as an individual for his tort. Heringer,

88 Cal. App at 353; Cal. Civ. Code §2343(3). The request that the signatory

subject himself to personal jurisdiction in California, therefore, is not rendered

superfluous if we find that the CAA created no guaranty.

Absent extrinsic evidence to the contrary, the Court will adopt the

interpretation that is "more consistent with the articulated purposes of [the

contract]." Cf., Falkowski, 132 Cal. App. 4th at 510 (where neither party provided

extrinsic evidence about intent, the court relied on the language of the contract,

found both interpretations an imperfect fit, and adopted the construction that was

more consistent with the overall purpose of the contract). One poorly written

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10The only declarant proffered by plaintiff who had any direct contact with Virginia

Hematology or Dr. Poulin was Ms. Moore. Declaration of Allessaundra Moore in Opposition

to Motion for Summary Judgment, filed January 9, 2006 ("Moore Decl."). Ms. Moore indicates

that she had personal contact with defendants related to Virginia Hematology's account;

however, most, if not all, of this contact seems to have occurred after Dr. Poulin signed the

CAA. Nowhere does Ms. Moore state that she had any communications with Dr. Poulin prior

to his signing the CAA. Plaintiff confirmed on the record that it knows of no evidence that the

parties ever communicated about a personal guaranty. 

19

sentence above the signature line and two sentences whose specific purpose is

unclear are insufficient to overcome the presumptions against imposition of

personal liability in circumstances such as these recognized under California law.

Significantly, there is no extrinsic evidence in the record that could make

OTN's interpretation objectively reasonable. Instead, the only relevant extrinsic

evidence supports Dr. Poulin's contention that the parties' mutual intention was to

impose an obligation only on Virginia Hematology.

Dr. Poulin submits his declaration in which he testifies that,

[a]t the time I signed the Credit Application, I believed it to be only

an application for the extension of credit to [Virginia Hematology]. 

No other communication regarding the nature of the Credit

Application was exchanged between myself and any representative of

OTN. . . . I did not speak with any employee or agent of OTN

regarding the Credit Application. . . . I never received any

communication from OTN regarding the nature of the Credit

Application and OTN's intent to secure a personal guarantee from me. 

In fact, I was not aware that OTN believed that it had a personal

guarantee from me for [Virginia Hematology's] alleged debt until I

received the summons and complaint from OTN. At no time was I

made aware, told or informed that OTN sought my personal guarantee

on the Credit Application. I never consented, at any time, either

orally or in writing, to give OTN a personal guarantee on [Virginia

Hematology's] alleged debt to OTN or any other debt.

Poulin Decl., at ¶¶14-20.

These unequivocal statements by Dr. Poulin are undisputed by plaintiff. 

Plaintiff does not present any evidence that any agent of OTN ever advised Dr.

Poulin that OTN sought a personal guaranty or discussed the nature of the CAA

with Dr. Poulin in any manner.10 In fact, plaintiff submits no extrinsic evidence

even that it was OTN's intent to create a personal guaranty -- much less that Dr.

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Poulin reasonably should have understood that OTN intended to do so. OTN

neither submits evidence that it ever conducted an investigation of Dr. Poulin's

personal credit prior to entering the CAA nor identifies any other acts or

circumstances that would support a finding that OTN thought it was obtaining a

personal guaranty.

Plaintiff argues that Dr. Poulin has submitted no evidence that he

communicated his intention not to be personally liable. Plaintiff has the burden to

establish, clearly, that the parties mutually intended to create a personal liability. 

It is not defendant's burden to prove a negative. Certainly defendant cannot be

required to negate an obligation that is contrary to two presumptions of contract

construction, not clearly supported by the contract language itself, and

unsupported by extrinsic evidence. There is no genuine issue of material fact with

respect to whether the parties discussed a personal guaranty in connection with the

making of the CAA. They did not. No rational trier of fact could conclude that

OTN expressed an intention that the sentence in the credit application would

create a guaranty. OTN has provided no evidence that could support a finding

that, in these circumstances, Dr. Poulin acquired some duty to actively

communicate to OTN that he was not assuming a personal obligation. In order to

create such a duty OTN would have had to take substantial steps to make it very

clear to Dr. Poulin that the document he was signing not only created a credit

account for Virginia Hematology, but also imposed a personal liability on himself.

To the extent that conduct subsequent to entry of the contract is relevant to

determining the parties' intent at the time they entered the contract, we note that

the evidence also is uncontradicted that at no time prior to the filing of this lawsuit

-- when OTN was discussing Virginia Hematology's rising upaid debt and

negotiating payment plans signed by Dr. Poulin -- did OTN indicate to Dr. Poulin

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that if Virginia Hematology did not pay its debts Dr. Poulin would have to pay

them personally. Poulin Decl., at ¶18.

Plaintiff also argues that Dr. Poulin was primarily responsible for ordering

the oncology supplies and that this supports a finding that the CAA was entered

primarily for his benefit. First, plaintiff's contention that Dr. Poulin ordered the

supplies is based on testimony of declarants without personal knowledge of the

practices at Virginia Hematology and with no personal contact with Dr. Poulin. 

Second, Virginia Hematology has employed three physicians over its existence, at

least one of whom was not an owner. Under plaintiff's logic, the CAA was equally

for Dr. Saman's benefit during his tenure with Virginia Hematology. It would be

irrational to use this "benefit" as a justification for imposing liability on Dr.

Poulin, but not on Dr. Saman, simply because Dr. Poulin also was a representative

of Virginia Hematology and, therefore, was authorized to sign the CAA. If an

agent other than Dr. Poulin had signed the CAA, Dr. Poulin (under plaintiff's

theory) would still be responsible for ordering the supplies his patients need. 

Therefore, even if plaintiff's witnesses had personal knowledge that Dr. Poulin

placed the orders for the oncology supplies, that fact would have no significant

bearing on whether the CAA imposed liability on Dr. Poulin personally.

Finally, we note that if, at this juncture, the ambiguity were not otherwise

resolved, California rules of contract construction would require us to construe

unresolved ambiguity against the drafter -- in this case, OTN. Tahoe Nat'l Bank v.

Phillips, 4 Cal. 3d 11 (1971).

We find that the facts material to determination of the parties' expressed

intentions are undisputed. In light of the literal meaning of the relevant sentence

as written, the overall purpose of the CAA, the repeated use of language in the

CAA that indicates Dr. Poulin was operating as a representative of the entity and

not an individual, undisputed extrinsic evidence that Dr. Poulin never intended to

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personally guarantee Virginia Hematology's debt, and undisputed extrinsic

evidence that OTN never communicated its intention to create a personal guaranty

and did not conduct a credit check of Dr. Poulin personally, we find that, as a

matter of law, the CAA does not create a personal guaranty by Dr. Poulin.

D. Were There Modifications to the Agreement That Exonerated Dr.

Poulin from Any Obligation under the Credit Application?

Because we grant defendant's motion and hold that, as a matter of law, the

CAA does not create a personal guaranty by Dr. Poulin of Virginia Hematology's

debts, we need not address this issue. 

E. Plaintiff's Counter Motion for Summary Judgment

Although it was improperly presented, the Court considered plaintiff's

counter motion for summary judgment on the merits. Plaintiff's motion is

DENIED for the reasons stated in section C, supra.

II. Request for Leave to Amend the Complaint

On January 9, 2006, plaintiff filed its request for leave to file an amended

complaint containing allegations that, among other things, Dr. Poulin is the alter

ego of Virginia Hematology and should be personally responsible for Virginia

Hematology's debt on that basis. Plaintiff also seeks to add allegations that Dr.

Poulin created a second entity, VHO, in order to avoid liability under the CAA. 

According to plaintiff, Dr. Poulin created VHO and fraudulently conveyed

Virginia Hematology's assets to VHO -- thus rendering Virginia Hematology

judgment proof. Plaintiff also alleges that VHO is liable for Virginia

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11Plaintiff indicates that it is seeking to "supplement" its complaint pursuant to F.R.C.P.

15(d). Request to Amend at 6. Rule 15(d) is used to add allegations relating to facts that

occurred after the filing of the original complaint. Most of the allegations in plaintiff's proposed

First Amended Complaint pertain to conduct that took place before plaintiff filed the original

complaint. Accordingly, plaintiff's request is primarily a request to amend under Rule 15 (a).

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Hematology's debt under the CAA as Virginia Hematology's successor. Plaintiff's

request is governed by F.R.C.P. 15.11

Motions to amend the pleadings are liberally granted. F.R.C.P. 15(a)

("leave shall be freely granted when justice so requires");U.S. v. Webb, 655 F.2d

977, 979 (9th Cir. 1981). In deciding whether justice requires granting leave to

amend, the Court will consider factors such as the presence or absence of undue

delay, bad faith, dilatory motive, undue prejudice to the opposing party, and

futility of the proposed amendment. Webb, 655 F.2d at 980.

Defendants oppose plaintiff's request.

For the reasons stated below, we GRANT plaintiff's Request subject to the

conditions noted below.

We address defendants' objections and our conditions for amendment in the

paragraphs that follow.

A. Defendants Argue That Plaintiff Unduly Delayed

Defendants complain that plaintiff knew that Dr. Poulin had created VHO

before plaintiff filed the original complaint and, therefore, that OTN has unduly

delayed in seeking to amend the complaint to add these allegations.

It is true Dr. Saman told OTN "that Dr. Poulin was changing his tax ID and

also his name to VHO, PLLC" before plaintiff filed the original complaint. Moore

Decl., at ¶17. However, OTN learned this information on June 23, 2005. Id. 

OTN filed the original complaint on June 30, 2005. The evidence indicates that

OTN learned that Dr. Poulin might somehow be altering Virginia Hematology's

corporate form only one week before it filed the original complaint. One week

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would not provide sufficient time to investigate and to identify possible causes of

action related to the recently learned information. 

Moreover, the primary purpose for denying leave to amend for undue delay

is prejudice to the defendants. Defendants do not contend that allowing

amendment at this juncture would be prejudicial. As of January 9, 2006, when

plaintiff filed its Request to Amend, this action was only six months old, and the

parties had conducted little, if any, discovery. Absent some particularized

showing of prejudice, we decline to deny plaintiff's request on the ground that

there was undue delay.

B. Defendants Argue That Leave to Amend Is Inappropriate Where,

as Here, a Motion for Summary Judgment Is Pending. 

According to defendants, when a motion for summary judgment is pending

at the time plaintiff seeks leave to amend, the Court must deny plaintiff's Request

to Amend unless plaintiff presents “substantial and convincing evidence”

supporting the proposed amendments. Alternatively, even if plaintiff is not

required to present such evidence in support of its amendments, defendants argue

that the fact that a motion for summary judgment is pending is a factor that weighs

against granting leave to amend.

The Ninth Circuit has found it within the trial court’s discretion to grant

leave to amend after a motion for summary judgment has been filed. Ferris v.

Santa Clara County, 891 F.2d 715 (9th Cir. 1989). However, district court cases

within the Ninth Circuit do indicate that where there is a summary judgment

motion pending, leave to amend may be denied when the plaintiff has not made a

“substantial showing” to support the amendment. Maldonado v. City of Oakland,

2002 WL 826801, *4 (N.D. Cal) citing Schwarzer, Tashima & Wagstaffe, Federal

Civil Procedure Before Trial, §8:420.1 (2002 ed.).

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We conclude that, in this Circuit, whether there is a summary judgment

motion pending is a factor the Court may consider in assessing whether there has

been undue delay and/or prejudice to the defendant. Typically, summary judgment

motions are brought after the parties have substantially developed the case through

discovery. Under those circumstances (which are not present here) the Court

should take special care to ensure that plaintiff is not abusing the system and that

defendants will not be unduly prejudiced.

Plaintiff cites case law from the Seventh Circuit to the effect that a party

seeking to amend after a motion for summary judgment is pending must present

“substantial and convincing evidence” supporting the proposed amendments. We

are not governed by the Seventh Circuit. Additionally, Cowen v. Bank of United

Texas,, 70 F.3d 937 (7th Cir. 1995), the case on which defendants most heavily

rely goes on to say that this “statement [is not] presented as a rule to confine the

district court’s discretion.” Cowen, 70 F.3d 937 emphasis in original. Carey v.

Beans, 500 F.Supp. 580, 582 (D.C.Pa., 1980), states that the purpose of this 'rule'

is to prevent prejudice to the opposing party. In our view, cases in the Seventh

Circuit are little more than a directive to trial courts to more closely scrutinize

whether amendment is appropriate after the parties have conducted a great deal of

discovery and expended substantial resources developing the case as originally

framed.

In the case before us, plaintiff notified the Court of its intention to amend

the complaint before defendant filed his summary judgment motion. See,

Transcript December 1, 2005, case management conference. This Court

established a briefing schedule for this Request to Amend that would overlap with

the briefing scheduling for defendant's Motion. This is not a case in which

plaintiff saw defendant's motion for summary judgment, saw the "writing on the

wall," and then sought to amend to circumvent the inevitable. Additionally, in this

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case, the value of defendant's Motion will not be undercut by the proposed

amendments because our ruling that plaintiff cannot, as a matter of law, sustain its

claim that the CAA created a personal guaranty by Dr. Poulin of Virginia

Hematology's debts still stands and that claim must be eliminated. Plaintiff's

proposed amendments do not affect our resolution of the merits of the motion for

summary judgment. 

Finally, the central concern of all these inquiries is prejudice to the

defendants and, here, defendants have identified no prejudice.

C. Defendants Argue That Addition of VHO Would Be Futile

Before we address whether the addition of VHO as a defendant would be

futile, we note that plaintiff has not directly named VHO as a party in the proposed

First Amended Complaint. If plaintiff intends to sue VHO as the successor to

Virginia Hematology, plaintiff must directly name VHO as a party to the case.

Defendants argue that it would be futile, in any event, to add VHO as a

defendant because the Court cannot secure jurisdiction over VHO. According to

defendants, plaintiff cannot demonstrate that VHO has minimum contacts in

California sufficient to satisfy due process. Defendants have not addressed Ninth

Circuit law on this issue.

In the Ninth Circuit, where plaintiff makes a prima facie showing of alter

ego or agency, plaintiff can attribute the minimum contacts of one party to those of

another in order to obtain personal jurisdiction over the second party. HarrisRutsky & Co. Ins. Services, Inc. v. Bell & Clements Ltd., 328 F.3d 1122 (9th Cir.

2003). 

It is well-established that a parent-subsidiary relationship alone is

insufficient to attribute the contacts of the subsidiary to the parent for

jurisdictional purposes. . . .Two exceptions to that general rule exist,

however - a subsidiary’s contacts may be imputed to the parent where

the subsidiary is the parent’s alter ego, or where the subsidiary acts as

the general agent of the parent.

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12Defendants argue that the law of Virginia, not California, governs plaintiff's alter ego

claim. Because defendants have not addressed Harris-Rutsky they do not address whether it is

nonetheless appropriate to apply the California alter ego standard with respect to the

jurisdictional question. However, as explained in section D.1 infra, we find, preliminarily, that

the standard for finding alter ego and piercing the corporate veil in Virginia is essentially the

same as the standard in California.

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To satisfy the alter ego exception . . . the plaintiff must make out a

prima facie case “(1) that there is such unity of interest and ownership

that the separate personalities [of the two entities] no longer exist and

(2) that failure to disregard [their separate identities] would result in

fraud or injustice.” . . . The plaintiff must show that the parent

exercises such control over the subsidiary so as to “render the latter

the mere instrumentality of the former.”

To satisfy the agency test, the plaintiff must make a prima facie

showing that the subsidiary represents the parent corporation by

performing services “sufficiently important to the [parent] corporation

that if it did not have a representative to perform them, the [parent]

corporation . . . would undertake to perform substantially similar

services.” . . . The agency test permits the imputation of contacts

where the subsidiary was “either established for, or is engaged in,

activities that, but for the existence of the subsidiary, the parent

would have to undertake itself.”

Harris-Rutsky, 328 F.3d at 1134-35.12 Harris-Rutsky also found that where the

record is insufficiently developed for the Court to make this assessment, plaintiff

may obtain jurisdictional discovery.

Although Harris-Rutsky involved a parent company and its subsidiary, we

see no reason to limit the doctrine to that situation. Accord, Las Palmas Assoc. v.

Las Palmas Center Assoc., 235 Cal. App. 3d 1220 (2nd Dist 1992) (California

courts will disregard the corporate form between sister corporations where its clear

that those involved operate as one "single enterprise").

Plaintiff has not responded to defendants' argument that addition of VHO

would be futile. See, Reply. Nonetheless, there is enough evidence suggestive of

plaintiff's contention to permit plaintiff to plead that VHO is only a shell for taking

over Virginia Hematology. Dr. Poulin essentially states that he created VHO as a

shell for the continuation of Virginia Hematology in the event that Dr. Needleman

created problems. “VHO . . . was formed as the company through which proper

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patient care could continue should [Virginia Hematology] be deadlocked, be

dissolved by Dr. Needleman, or otherwise compromised by Dr. Needleman.” 

Poulin Second Decl., at ¶46.

There also is evidence in the record that, at this time, VHO has little or no

operations and no office space apart from Virginia Hematology. Declaration of

David J. Cook in Opposition to Motion for Summary Judgment, filed January 9,

2006, ("Cook Decl.") at Ex. C; Declaration of Ronald Poulin, filed January 17,

2006, at ¶49 ("Second Poulin Decl."). Although there is reason to think that

Virginia Hematology assigned Dr. Saman's employment contract to VHO, Dr.

Saman has left VHO (and/or Virginia Hematology), and there is no evidence in the

record that VHO has treated any patients. Second Poulin Decl., at ¶18; Cook

Decl., at Ex. D. In the lawsuit against Dr. Saman, defendants refer to VHO as an

"affiliate" of Virginia Hematology. Cook Decl., at Ex. D.

Thus there is evidentiary and circumstantial support for plaintiff's allegation

that VHO is legally indistinguishable (for purposes of this case) from Virginia

Hematology and possibly from Dr. Poulin. 

In a separate section of their Opposition, defendants argue that plaintiff

cannot satisfy the second alter ego requirement -- a showing of injustice. While

the scope of this requirement is somewhat unclear, plaintiff has alleged that

defendants have engaged in fraudulent conveyances and that Dr. Poulin has

intentionally transferred assets to VHO in an attempt to avoid Virginia

Hematology's contractual obligations to OTN. Evidence in the record could

support an inference that defendants attempted to assign Dr. Saman's employment

contract to VHO and that at some point Dr. Poulin "resigned" from Virginia

Hematology, although he now denies this. VHO was formed at a time that

Virginia Hematology allegedly owed large sums to plaintiff – and there is reason

to believe that VHO always has been assetless and judgment proof. In this setting,

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13Defendants do not argue that Virginia law applies to plaintiff's fraudulent conveyances

claim. Therefore, we assume that defendants concede that California law applies to that claim.

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we would abuse our discretion if we refused to permit plaintiff to plead that

honoring the formal separateness of Virginia Hematology and VHO would result

in an injustice.

It follows that we cannot conclude that this Court could not assert

jurisdiction over VHO. Plaintiff must be permitted to plead that Virginia

Hematology's contacts with California should be attributed to VHO.

D. Defendants Argue That Addition of Plaintiff's Alter Ego Claim

Would Be Futile 

Defendants argue that plaintiff's proposed amendments relating to alter ego

are governed by Virginia law, as opposed to California law, and that the standard

for demonstrating alter ego in Virginia is more stringent than in California.13

Furthermore, according to defendants, plaintiff cannot satisfy the standard in

either state, and, therefore, amendment would be futile regardless of which state's

law applies.

1. Whose Law Applies to Plaintiff's Alter Ego Claims?

Defendants argue that Virginia law, not California law, applies to plaintiff's

alter ego claim(s). Defendants cite a decision from Illinois applying Illinois'

choice of law rules. Defendants also cite a California case that supports

application of a doctrine to the effect that the laws of the state in which a

corporation is incorporated should govern that corporation's "internal affairs." 

Defendants do not discuss California's choice of law rules. Plaintiff completely

fails to address defendants' choice of law argument. 

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14The CAA contains a choice of law provision for disputes relating to the contract. No

party argues that this provision governs an alter ego claim.

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A federal court sitting in diversity applies the choice of law rules of the

forum state. Liew v. Official Receiver and Liquidator, 685 F.2d 1192 (9th Cir.

1982). Accordingly, we must analyze defendants' choice of law argument under

California law.14 The test crafted by California courts is referred to as a

"governmental interest" test. Under this test, we first determine whether the

competing states' laws differ. If the laws of the competing states do not differ,

there is no harm to Virginia if the Court applies California law and the inquiry is

over. If, on the other hand, the laws of the competing states do differ, we identify

which interests, if any, of each state could be impaired if we did not apply that

state's laws. If both states have interests that would be impaired if its laws were

not applied, we conduct an analysis of "comparative impairment" to determine

which state has the greater interest in having its laws applied. Liew, 685 F.2d aat

1196.

Defendants argue that the "internal affairs doctrine" compels application of

Virginia law. Opposition at 19 citing State Farm Mut. Auto. Ins., Co. v. Superior

Court, 114 Cal.App. 4th 434 (2003). Pursuant to State Farm, the internal affairs

doctrine is 

a conflict of laws principle which recognizes that only one State

should have the authority to regulate a corporation’s internal affairs –

matters peculiar to relationships among or between the corporation

and its current officers, directors, and shareholders – because

otherwise a corporation could be faced with conflicting demands. 

“Internal affairs” include steps taken in the course of the original

incorporation . . . the adoption of by-laws, the issuance of corporate

shares, the holding of directors’ and shareholders’ meetings, . . . the

declaration and payment of dividends and other distributions, charter

amendments, mergers, consolidations, and reorganizations, the

reclassification of shares and the purchase and redemption by the

corporation of outstanding shares of its own stock.

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State Farm, 114 Cal.App. 4th at 442. State Farm does not involve an effort by an

outsider to pierce the corporate veil based on alter ego. Moreover, it is not clear to

us that an "alter ego" claim such as that asserted by plaintiff involves "internal"

affairs of the corporation, as opposed to affairs "external" to the corporation. See,

Note, Piercing the Corporate Law Veil: the Alter Ego Doctrine Under Federal

Common Law, 95 Harv. Law Rev. 853, 862-863 (1982) (suggesting corporate veil

issue may be “external”).

Most significantly, defendants have presented no authority for the position

that the "internal affairs doctrine" replaces the traditional "governmental interest"

test. Absent authority to the contrary, it is our view that the internal affairs

doctrine is a product of the notion that a state has a substantial interest in

governing the internal affairs of its corporations. Rather than replacing the

traditional test, this doctrine simply relates to the second and third step of our

analysis -- where we would identify the competing state's interests and assess their

relative weight. This conclusion is consistent with cases from our District Court

(and those from other jurisdictions) that support a view that a state has a

“substantial interest in determining whether to pierce the corporate veil of one of

its corporations.” E.g., Sunnyside Development Co., LLC v. Opsys, Ltd. et al,

2005 WL 1876106, *3 (N.D. Cal). We are aware of no Ninth Circuit or California

cases directly discussing choice of law in an alter ego case. 

Because neither party has adequately briefed the issue, we refrain from

ruling at this time. We make a preliminary finding, however, that the standard

applied to determine an alter ego claim appears to be essentially the same under

California and Virginia law. Moreover, even if Virginia law is more stringent than

California law on this subject, defendants have not persuaded us that plaintiff's

allegations and/or the record are insufficient to meet that standard at the pleading

stage.

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Both Virginia and California consider piercing the corporate veil to be an

extraordinary remedy. Sonora Diamond Corp., v. Superior Court, 83 Cal.App.4th

523, 539 (5th Dist. 2000); Dana v. 313 Freemason, 266 Va. 491 (2003).

California courts state that there is no specific "litmus test" for identifying

when an individual is the alter ego of an entity but that the facts must support two

general requirements: (1) that there is such unity of interest and ownership that the

separate personalities of the corporation and the individual (or the two

corporations) no longer exist and (2) that failure to disregard their separate

identities would result in fraud or injustice. Mesler v. Bragg Mngmt Co., 39 Cal.

3d 290 (1985); Sonora, 83 Cal.App.4th at 538. 

California courts emphasize that the alter ego determination is very fact

specific. Some of the factors that California courts consider when assessing

whether there is the requisite "unity of interest" include: inadequate capitalization,

commingling of funds and other assets, holding out by one entity that it is liable

for the debts of the other, identical equitable ownership, use of the same offices

and employees, use of one as a mere conduit for the affairs of the other, disregard

of corporate formalities, lack of segregation of corporate records, and identical

directors and officers. VirtualMagic Asia, Inc., v. Fil-Cartoons, Inc., 99 Cal.

App.4th 228, 245 (4th Dist. 2002). When sister corporations are involved

California also recognizes the “single enterprise rule” and will disregard the

corporate form between "sister" corporations where it is clear that the entities

involved operate as one single enterprise. Las Palmas Assoc., 235 Cal.App.3d

1220.

Virginia courts have articulated their standard slightly differently. The test

for alter ego in Virginia has required the court to find: (1) that the corporate entity

was the alter ego, alias, stooge, or dummy of the individuals sought to be charged

personally and (2) that the corporation was a device or sham used to disguise

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wrongs, obscure fraud, or conceal crime. Wigand v. Wilkes and WHRO, 2004 WL

1939074, *2 (Va. Cir. Ct.). Defendants contend that the test in Virginia is more

stringent than the test in California and, more specifically, that in Virginia plaintiff

must prove a "legal wrong" and that this means something stronger than

"injustice." Opposition at 19-21. See also, Spacenet, Inc. v. American Ag. Comm.

Systems, Inc., 2005 WL 3416644 (E.D. Va) ("it is mandatory that Plaintiff allege a

wrong, fraud or crime"). Although the words "fraud" and "crime" are more precise

than the term "injustice" found in the California standard, recent cases from the

Virginia Supreme Court suggest that the standards are, in reality, the same. In

2003 the Virginia Supreme Court articulated the standard for finding alter ego this

way: “[p]iercing the corporate veil is justified when the unity of interest and

ownership is such that the separate personalities of the corporation and the

individual no longer exist and to adhere to that separateness would work an

injustice.” Dana, 266 Va. 491; C.F. Trust, Inc. v. First Flight Ltd Partnership,

266 Va. 806 (2003). In these pronouncements the Virginia Supreme Court did not

purport to change Virginia's standard. It appears that the court simply articulated a

"short hand" for the standard already in use, indicating that the terms "fraud" and

"crime" are examples of the more general term "injustice." This "short hand"

articulation is virtually identical to California's standard.

Moreover, Virginia courts, like California courts, view the alter ego analysis

as very fact specific. Wigand, 2004 WL 1939074, *2. 

Defendants also argue that Virginia courts are less sympathetic than

California courts to alter ego claims in contract cases, where the complaining

party’s risk was part of the bargain, than in tort cases where “third parties” are

hurt. Defendants assert that Virginia courts require plaintiff in an alter ego action

based on contract to demonstrate that the defendant(s) made a misrepresentation in

connection with the contract. Opposition at 20 citing Spacenet, 2005 WL

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15It is unclear whether plaintiff contends that VHO and Dr. Poulin are alter egos.

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3416644. See also, Perpetual Real Estate Serv., v. Michaelson Properties, Inc.,

974 F.2d 545 (4th Cir. 1992).

Although we have not found California cases that articulate this exact point,

California courts have stated that the "injustice" requirement is not satisfied by

'difficulty in collecting a debt.' Sonora, 83 Cal.App.4th at 539; VirtualMagic, 99

Cal.App.4th at 245. Instead, plaintiff must provide evidence of "bad faith." In our

view, both Virginia and California will not pierce the corporate veil for a mere

breach of contract. Instead, both states require some showing of bad faith or

wrongdoing. We cannot say, at this juncture, that Virginia law is materially "more

stringent" than California law.

Because the parties have not adequately briefed the issue and because it is

our view that both states apply essentially the same standard, we do not address

the second and third steps of California's choice of law analysis – what interests

would be impaired and comparative impairment.

2. Has Plaintiff Alleged Elements and Facts That Would

Support a Claim for Alter Ego? 

Plaintiff's proposed amendments ask the Court to disregard the corporate

form with respect to two relationships. Plaintiff argues that Dr. Poulin is the alter

ego of Virginia Hematology and that VHO is the alter ego (successor) of Virginia

Hematology.15 We address the proposed allegations with respect to each.

As previously stated, under both Virginia and California law there are two

general requirements to satisfy an alter ego claim. First, plaintiff must allege facts

that would support a finding that the “unity of interest and ownership is such that

the separate personalities of the corporation and the individuals no longer exist.” 

Dana, 266 Va. 491 (2003); Mesler, 39 Cal.2d 290 (1985). Second, plaintiff must

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allege facts that would support a finding that “adher[ing] to that separateness

would work an injustice.” Id. 

Defendants argue that plaintiff has not alleged facts that would satisfy either

requirement and that plaintiff cannot show the requisite "injustice" because

difficulty collecting a debt does not satisfy that standard and plaintiff has alleged

no "legal wrong." Plaintiff has not responded to defendants’ argument.

This case is still at the pleading stage. In our view, plaintiff's proposed

allegations and the record before us are sufficient, at this stage, to support

amendment of the complaint.

For the reasons stated in our discussion of whether the Court can obtain

jurisdiction over VHO, the record more than adequately supports an allegation that

Virginia Hematology and VHO are a "single enterprise" and, therefore, satisfies

the "unity of interest" requirement as to VHO.

Although it is somewhat of a closer question with respect to Dr. Poulin we

think the record and plaintiff's allegations are sufficient, at this stage, to support an

inference of the requisite unity of interest between Dr. Poulin and Virginia

Hematology. At this juncture, plaintiff merely has to allege a colorable claim. 

Plaintiff does not have to prove the claim. The allegations and the record arguably

support a finding that Virginia Hematology, VHO, and Dr. Poulin constitute a

single enterprise directed by Dr. Poulin.

In their "Verified Bill of Complaint" in the Saman litigation, defendants

state "Virginia Hematology Oncology, PLLC, assigned the [employment]

Agreement to VHO, PLLC, an affiliated entity, in that both corporations are

controlled by Poulin, both corporations have performed or do now perform

specialty medical services . . ., and Poulin is an owner of both corporations." 

Declaration of David J. Cook, Esq. in Support of in [sic] Reply to Opposition to

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OTN's Motion for Leave to Amend Complaint, filed January 19, 2006, ("Second

Cook Decl.") at Ex. C at 4.

Additionally, plaintiff alleges that Dr. Poulin created VHO and transferred

Virginia Hematology's assets to it in order to avoid liability under the CAA. 

Evidence in the record could support a finding that VHO is nothing but a shell

created by Dr. Poulin. Second Poulin Decl., at 40-49. The record also indicates

that Dr. Poulin caused Dr. Saman's employment contract to be transferred from

Virginia Hematology to VHO. Second Cook Decl., at Ex. C.

We further note that apparent inconsistencies between Dr. Poulin's

representations in the Saman litigation and those in this case could create an

inference that Dr. Poulin is engaged in conduct that is morally untoward. In the

"assignment" of the Saman employment contract defendants state that "Dr. Poulin

has informed [Virginia Hematology] of his intention to resign" and "without the

revenues generated by Dr. Poulin, [Virginia Hematology] will not be able to

perform its obligations to [Dr. Saman]." In contrast, in this litigation, Dr. Poulin

testifies that he has not resigned from Virginia Hematology, that Virginia

Hematology is fully operative and generates significant income, and that VHO is

essentially non-operative. 

Defendants next argue that plaintiff cannot allege the requisite level of

"injustice" and, therefore, that amendment of the complaint is futile. According to

defendants, the "injustice" that plaintiff alleges is nothing more than "difficulty

collecting a debt." As indicated, it appears neither Virginia nor California law

would permit plaintiff to pierce the corporate veil for a mere breach of contract.

Defendants misstate plaintiff's allegations. Plaintiff clearly alleges that Dr.

Poulin, individually and/or on behalf of Virginia Hematology, and VHO have

engaged in conduct motivated by bad faith and/or fraudulent intent. Plaintiff

asserts that defendants have fraudulently transferred Virginia Hematology's assets,

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without its liabilities, to VHO in order to render Virginia Hematology judgment

proof and evade its obligation to OTN but, at the same time, to enable Dr. Poulin

to continue operating his/their oncology practice through VHO.

Again, the inconsistencies between Dr. Poulin's statements in the Saman

litigation and those here, and the evidence that Dr. Saman's employment contract

was transferred to VHO are sufficient, at the pleading stage, to support amendment

of the complaint. Therefore, even if Virginia law requires some identifiable "legal

wrong," plaintiff has adequately alleged it. 

Accordingly, we find that plaintiff's proposed alter ego/successor liability

allegations are not "futile."

E. Miscellaneous Orders re Form of First Amended Complaint

As stated on the record at the hearing, plaintiff's First Amended (and, if

applicable, Supplemented) Complaint must (1) name every defendant in the

caption, (2) for each claim, identify which defendant or defendants that claim runs

against, and (3) for each claim, identify the capacity in which each defendant is

being sued -- e.g., individually, as alter ego for Virginia Hematology, as successor

in interest for Virginia Hematology, etc.

Additionally, Plaintiff's Proposed First Amended Complaint names "Doe

defendants." The Ninth Circuit rejects the use of Doe defendants in diversity

actions. Fifty Assoc. v. Prudential Ins. Co. of America, 446 F.2d 1187 (9th Cir.

1970). Plaintiff has presented no reason to believe that other potential defendants

whom it is currently unable to identify exist. Although we grant plaintiff's request

for leave to amend the complaint, we ORDER plaintiff to remove references to

"Doe defendants" from the First Amended Complaint.

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Finally, because we grant Dr. Poulin's Motion for Summary Judgment,

plaintiff must remove its claim that Dr. Poulin personally guaranteed Virginia

Hematology's debt under the CAA from the First Amended Complaint.

III. Case Management Schedule

By Tuesday, February 21, 2006, plaintiff must file with the Court and

serve on defendants its First Amended (and, if appropriate) Supplemented

Complaint.

By Monday, March 13, 2006, defendants must file with the Court and

serve on plaintiff their responsive pleading.

The Court VACATES the previously entered stay of discovery.

As explained with more particularity on the record, by Friday, March 31,

2006, the parties must have informally exchanged all documents that evidence the

amount of the debt incurred by defendants and must have met and conferred in

person or via telephone to address any questions by either party about that

evidence.

On February 7, 2006, the Court referred this action to a Magistrate Judge for

a settlement conference to be conducted in the first half of April 2006 or as soon

thereafter as possible.

By Wednesday, April 20, 2006, the parties must file a jointly-submitted

case management conference statement. The parties' joint statement must include,

among other things, a detailed discovery and motion practice plan, proposed

deadlines for completing discovery and hearing motions, and a proposed trial date.

On Monday, April 24, 2006, at 1:00 p.m., the Court will conduct a case

management conference.

//

//

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CONCLUSION

For the reasons stated above, the Court GRANTS defendant's Motion for

Summary Judgment on plaintiff's claim that Dr. Poulin is personally liable as a

guarantor of the debts in issue of Virginia Hematology Oncology. Judgment will

be entered on plaintiff's claim for breach of a personal guaranty in favor of Ronald

Poulin and against plaintiff, OTN. 

The Court also GRANTS plaintiff's Request for leave to file a First

Amended Complaint on the condition that (1) plaintiff directly names VHO as a

party defendant, (2) plaintiff removes references to Doe defendants, (3) plaintiff

removes its claim that Dr. Poulin personally guaranteed Virginia Hematology's

debt, and (4) for each claim, plaintiff identifies every defendant that the claim runs

against and the capacity in which each defendant is sued.

IT IS SO ORDERED AND ADJUDGED.

Dated: February 10, 2006 /s/ Wayne D. Brazil 

WAYNE D. BRAZIL

United States Magistrate Judge

Copies to:

All parties (via electronic mail)

WDB, Stats.

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