Court Opinion

ID: 2683967
Source: CourtListenerOpinion
Date Created: 2014-07-16 18:01:16.181146+00
Date Added: 2024-06-11T13:13:44.735033
License: Public Domain

Filed 7/16/14 Spectrum Info. Services LLC v. Spectrum Info Services NW CA4/3

                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.

              IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                     FOURTH APPELLATE DISTRICT

                                                 DIVISION THREE

SPECTRUM INFORMATION
SERVICES, LLC, et al.,
                                                                       G048565
     Plaintiffs and Appellants,
                                                                       (Super. Ct. No. 30-2012-00586068)
         v.
                                                                       OPINION
SPECTRUM INFORMATION SERVICES
NW, INC., et al.,

     Defendants and Respondents.

                   Appeal from an order of the Superior Court of Orange County,
William M. Monroe, Judge. Affirmed. Motion for sanctions. Denied.
                   The Perry Law Firm, Michael R. Perry, Larry M. Roberts and Michelle A.
Hoskinson for Plaintiffs and Appellants.
                   Karr Tuttle Campbell, J. Dino Vasquez, J. Derek Little and Paul Richard
Brown for Defendants and Respondents.
                                             *               *               *
                                      INTRODUCTION
              Spectrum Information Services, LLC (Spectrum LLC), and Curtis Pilon
(together referred to as Plaintiffs) appeal from an order granting a motion to quash
service of summons for lack of personal jurisdiction. The motion was brought by
defendants Spectrum Information Services NW, Inc. (Spectrum NW Inc.), which is a
Washington corporation, Glenn Odell, who is a resident of Oregon, and Lisa Lynn Kays,
who is a resident of Washington (Spectrum NW Inc., Odell, and Kays are collectively
referred to as Defendants).
              We conclude none of Defendants has contacts with California sufficient to
support the exercise of personal jurisdiction and therefore affirm the order granting the
motion to quash. Defendants have brought a motion for sanctions against Plaintiffs on
the ground their appeal is frivolous and their appellate briefs violate court rules.
Although the appeal is without merit, it is not frivolous, and so we deny the motion for
sanctions.
                                FACTS AND ALLEGATIONS
                                              I.
                                        The Parties
              Plaintiffs: Spectrum LLC is a California limited liability company and is
the successor in interest to Spectrum Information Services Document Management
Corporation (Spectrum DMC), a California corporation. Pilon, a California resident, is
the president and chief executive officer of Spectrum LLC.
              Defendants: Spectrum NW Inc. is a Washington Corporation. Odell is an
Oregon resident, and Kays is a Washington resident.
              Spectrum Information Services Northwest (Spectrum NW Partnership) (not
a party to the lawsuit) is a general partnership formed to conduct business in the States of
Washington and Oregon.

                                              2
                                            II.
                     Allegations of the First Amended Complaint
              The first amended complaint (the Complaint) alleged the following:
              Spectrum DMC provided various document and data management services,
such as document imaging, scanning, indexing, Web hosting, and programming.
Spectrum DMC maintained an office in Santa Ana, California.
              In 2004, Pilon, Odell, and Jim Bradford Merriles formed Spectrum NW
Partnership to establish a branch of Spectrum DMC in the Pacific Northwest. Spectrum
NW Partnership was documented by a partnership agreement (the Partnership
Agreement) providing that all revenues, costs, and liabilities would be split equally
among the three general partners (Pilon, Odell, and Merriles), all agreements would be
made by committee, and any acquisition or expenditure of over $500 would need the
unanimous consent of all partners. Although the entity status of Spectrum NW
Partnership had not been determined, Pilon, Odell, and Merriles understood and agreed
they were, and would continue to be, equal partners and would execute a full partnership
agreement.
              Spectrum DMC paid for training of the new staff of Spectrum NW
Partnership and “provided services for the next five years to answer all questions, help
run production, perform set ups, provide IT support, etc.” to Spectrum NW Partnership.
In addition, Spectrum DMC ran “all post processing” for Spectrum NW Partnership out
of Spectrum DMC’s office in Santa Ana and provided “email, web hosting and a plethora
of other services as well as paid the insurance, the outside programmers’ charges and
[human resources] Administration.” Pilon and Merriles supplied Spectrum NW
Partnership with servers, scanners, software, and business contacts and relationships, and
Pilon “agreed to share the goodwill name ‘Spectrum Information Services,’ taken from
his business [Spectrum] DMC.”

                                             3
              As part of the formation of Spectrum NW Partnership, Pilon, Odell, and
Merriles agreed they needed additional capital and obtained a line of credit in the amount
of $60,000, guaranteed by all three partners. The line of credit required the approval of
all partners to borrow against it. From this line of credit, Spectrum NW Partnership
borrowed about $10,000 for payroll.
              Odell received funds from the line of credit to pay Spectrum NW
Partnership’s bills, but “failed [to] distribute any proceeds as well as failed to pay for the
labor and support from [Spectrum] DMC, which labor and support was in excess of
$40,000.00.” From the inception of Spectrum NW Partnership, Odell paid himself a
salary of $4,000 per month but “has failed to pay the other Partners, and has now failed to
report or distribute any profits to the Partners.” Neither Pilon nor Merriles ever received
a paycheck from Spectrum NW Partnership. It is believed that “Odell siphoned funds out
of the [Spectrum NW] Partnership account and moved them into his own personal bank
account.”
              When Spectrum DMC was dissolved in May 2008, Merriles created a new
entity while maintaining his ownership interest in Spectrum NW Partnership. Spectrum
DMC was succeeded by Spectrum LLC.
              In May 2008, Odell created Spectrum NW Inc. as a Washington State S
corporation, and “without the knowledge or consent of the other Partners, Odell used
Partnership funds, monies, equipment and facilities to start his new venture.” Odell
converted the assets of Spectrum NW Partnership and transferred all of those assets to
Spectrum NW Inc. Pilon made “numerous written and oral requests of Odell to return the
stolen funds and make payment for additional services rendered by Spectrum [LLC].”
When Odell finally responded, he rejected those requests and stated he had “various
investors who had invested approximately $100,000 in [Spectrum NW Inc.] and
subsequently were part-owners of the entity.”

                                               4
              Pilon several times requested Odell and Spectrum NW Inc. to “cease and
desist” from using Spectrum LLC’s name and to “pay back the joint line of credit which
Odell had exhausted on his own.” Odell “rebuffed” all the requests, including a demand
letter from Pilon’s attorney.
              Odell convinced Kays, who worked as the controller for Spectrum NW
Partnership, to keep two sets of books to conceal his activities. “Such acts and agreement
to act together constitute a conspiracy subjecting Defendant Kays to liability for each and
every act taken by the conspiracy as though committed by Defendant Kayes [sic]
herself.”
              Based on these allegations, the Complaint set forth 13 causes of action:
(1) embezzlement (against Defendants); (2) conversion (against Defendants); (3) breach
of written contract (by Pilon only against Odell); (4) breach of fiduciary duty (against
Defendants); (5) fraud (against Defendants); (6) negligent misrepresentation (against
Defendants); (7) unfair business practices (against Defendants); (8) unjust enrichment
(against Defendants); (9) misappropriation of trade secrets (against Defendants);
(10) misuse of corporate assets (against Spectrum NW Inc.); (11) conspiracy (against
Defendants); (12) common law trade name infringement (Spectrum LLC only against
Defendants); and (13) breach of the implied covenant of good faith and fair dealing
(against Defendants).

                                  PROCEDURAL HISTORY
              Plaintiffs filed the Complaint in August 2012. In October 2012,
Defendants filed their motion to quash service of summons. Plaintiffs filed opposition
and moved for a continuance to conduct jurisdictional discovery. The trial court issued a
tentative ruling that Plaintiffs had failed to meet their burden to establish jurisdiction as to
any of Defendants, but granting Plaintiffs’ request to conduct jurisdictional discovery “to
develop the facts necessary to sustain [their] burden of proof.”

                                               5
              In February 2013, after conducting jurisdictional discovery, Plaintiffs filed
a supplemental opposition to the motion to quash, supported by declarations and
discovery responses. Defendants filed supplemental briefing in support of their motion to
quash. On April 9, 2013, after hearing oral argument, the trial court issued a minute
order granting the motion to quash, explaining at length the factual and legal basis for the
ruling. The trial court concluded: “Despite a continuance to conduct discovery,
Spectrum Plaintiffs have not met their burden to show that minimum contacts exist
between Spectrum Defendants and California to justify imposition of personal
jurisdiction. Therefore, Spectrum Defendants’ motion to quash service of summons is
granted.”
              Plaintiffs timely filed a notice of appeal. Under Code of Civil Procedure
section 904.1, subdivision (a)(3), an appeal may be taken from “an order granting a
motion to quash service of summons.”
                                       DISCUSSION
                                             I.
                              Jurisdictional Requirements
              California courts may exercise jurisdiction over nonresidents “on any basis
not inconsistent with the Constitution of this state or of the United States.” (Code Civ.
Proc., § 410.10.) Code of Civil Procedure section 410.10 “manifests an intent to exercise
the broadest possible jurisdiction, limited only by constitutional considerations.” (Sibley
v. Superior Court (1976) 16 Cal.3d 442, 445.)
              The United States Constitution permits a state to exercise jurisdiction over
a nonresident defendant if the defendant has sufficient “minimum contacts” with the
forum such that “maintenance of the suit does not offend ‘traditional notions of fair play
and substantial justice.’ [Citations.]” (Internat. Shoe Co. v. Washington (1945) 326 U.S.
310, 316.) “The ‘substantial connection . . .’ [citations] between the defendant and the
forum State necessary for a finding of minimum contacts must come about by an action

                                             6
of the defendant purposefully directed toward the forum State. [Citations.]” (Asahi
Metal Industry Co. v. Superior Court (1987) 480 U.S. 102, 112.)
              Personal jurisdiction may be either general or specific. (Vons Companies,
Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445 (Vons).) A nonresident defendant
is subject to the forum’s general jurisdiction where the defendant’s contacts are
“‘substantial . . . continuous and systematic.’” (Ibid., quoting Perkins v. Benguet Mining
Co. (1952) 342 U.S. 437, 445, 446.) In that situation, the cause of action need not be
related to the defendant’s contacts because “[s]uch a defendant’s contacts with the forum
are so wide-ranging that they take the place of physical presence in the forum as a basis
for jurisdiction.” (Vons, supra, at pp. 445, 446.)
              If the nonresident defendant does not have substantial and systematic
contacts with the forum state, the defendant may be subject to specific jurisdiction if
(1) the defendant has purposefully availed itself of forum benefits with respect to the
matter in controversy, (2) the controversy is related to or arises out of the defendant’s
contacts with the forum, and (3) the exercise of jurisdiction would comport with fair play
and substantial justice. (Vons, supra, 14 Cal.4th at pp. 446, 447.)
                                             II.
                        Burden of Proof and Standard of Review
              “When a defendant moves to quash service of process on jurisdictional
grounds, the plaintiff has the initial burden of demonstrating facts justifying the exercise
of jurisdiction. [Citation.] Once facts showing minimum contacts with the forum state
are established, however, it becomes the defendant’s burden to demonstrate that the
exercise of jurisdiction would be unreasonable. [Citation.]” (Vons, supra, 14 Cal.4th at
p. 449, see DVI, Inc. v. Superior Court (2002) 104 Cal.App.4th 1080, 1090.) The
plaintiff must “‘present facts demonstrating that the conduct of defendants related to the
pleaded causes is such as to constitute constitutionally cognizable “minimum contacts.”
[Citation.]’” (DVI, supra, at pp. 1090-1091.)

                                              7
              When the evidence of jurisdictional facts is not in dispute, the issue
whether the defendant is subject to personal jurisdiction is a legal question subject to de
novo review. (Vons, supra, 14 Cal.4th at p. 449.) When evidence of jurisdiction is in
dispute, we accept the trial court’s resolution of factual issues, draw all reasonable
inferences in support of the trial court’s order, and review the trial court’s determination
of factual issues for substantial evidence. (Thomson v. Anderson (2003) 113 Cal.App.4th
258, 266-267; Archdiocese of Milwaukee v. Superior Court (2003) 112 Cal.App.4th 423,
434-435; DVI, Inc. v. Superior Court, supra, 104 Cal.App.4th at p. 1091.) “The ultimate
question whether jurisdiction is fair and reasonable under all of the circumstances, based
on the facts which are undisputed and those resolved by the court in favor of the
prevailing party, is a legal determination warranting our independent review.” (Integral
Development Corp. v. Weissenbach (2002) 99 Cal.App.4th 576, 585.)
                                             III.
                                   General Jurisdiction
              Plaintiffs argue they demonstrated Defendants are subject to general
jurisdiction in California. In analyzing general jurisdiction, we examine whether each of
them has substantial, continuous, and systematic contacts with California. (Vons, supra,
14 Cal.4th at p. 445.)

A. Spectrum NW Inc.
              In support of the motion to quash, Defendants presented evidence that
Spectrum NW Inc. is a Washington corporation and has never conducted business or
advertised for business in California. Plaintiffs presented no evidence that Spectrum NW
Inc. has, or ever had, any contacts with California, much less substantial, continuous, and
systematic ones. Plaintiffs argue only that the Partnership Agreement is a sufficient basis
to assert personal jurisdiction over Defendants. Spectrum NW Inc. was not, however, a
party to the Partnership Agreement.

                                              8
B. Odell
              In support of the motion to quash, Defendants presented evidence that
Odell is a resident of Oregon and owns no property in California. From 1993 to 2005, he
worked as a regional vice-president for Anacomp, a company headquartered in San
Diego, California. From 2005 through 2008, he worked in Enumclaw, Washington, for
Spectrum NW Partnership, and since 2008, he has worked in Enumclaw, Washington, for
Spectrum NW Inc. Plaintiffs presented no evidence that Odell had substantial,
continuous, and systematic contacts with California.
              Plaintiffs argue Odell subjected himself to general jurisdiction in California
by entering into the Partnership Agreement with two California residents. The seminal
case in this area is Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 478-479
(Burger King), in which the United States Supreme Court rejected the notion that a
contract with a party in the forum state in itself justifies the exercise of jurisdiction over
                         1
an out-of-state resident. In Burger King, which Plaintiffs do not cite, the United States
Supreme Court stated: “[W]e have emphasized the need for a ‘highly realistic’ approach
that recognizes that a ‘contract’ is ‘ordinarily but an intermediate step serving to tie up
prior business negotiations with future consequences which themselves are the real object
of the business transaction.’ [Citation.] It is these factors—prior negotiations and
contemplated future consequences, along with the terms of the contract and the parties’
actual course of dealing—that must be evaluated in determining whether the defendant
purposefully established minimum contacts within the forum.” (Id. at p. 479.)
              In Burger King, the Supreme Court held that a franchisee, who was a
Michigan resident, was subject to jurisdiction in Florida, in which the principal offices of

 1
   Burger King is a specific jurisdiction, rather than a general jurisdiction, case and was
based on the purposeful availment requirement. (Burger King, supra, 471 U.S. at
pp. 475-476.) We discuss it here, under general jurisdiction, because it is controlling of
Plaintiffs’ argument that Odell was subject to general jurisdiction in California based on
the Partnership Agreement.

                                               9
the franchisor were located. (Burger King, supra, 471 U.S. at pp. 463-464.) The
franchisee had no physical ties to Florida whatsoever except that his business partner had
attended a brief training course in that state. (Id. at p. 479.) But the Supreme Court
reasoned the franchisee was subject to jurisdiction in Florida because the dispute grew
directly out of a contract—the franchise agreement—having “‘a substantial connection’”
with that state. (Ibid.) The court concluded: “Eschewing the option of operating an
independent local enterprise, [the franchisee] deliberately ‘[reached] out beyond’
Michigan and negotiated with a Florida corporation for the purchase of a long-term
franchise and the manifold benefits that would derive from affiliation with a nationwide
organization. [Citation.] Upon approval, he entered into a carefully structured 20-year
relationship that envisioned continuing and wide-reaching contacts with [the franchisor]
in Florida. In light of [the franchisee’s] voluntary acceptance of the long-term and
exacting regulation of his business from [the franchisor]’s Miami headquarters, the
‘quality and nature’ of his relationship to the company in Florida can in no sense be
viewed as ‘random,’ ‘fortuitous,’ or ‘attenuated.’” (Id. at pp. 479-480.)
              Under Burger King, Odell did not subject himself to jurisdiction in
California by entering into the Partnership Agreement. The evidence supported a finding
the Partnership Agreement was negotiated in Portland, Oregon. In interrogatory
responses, Odell stated: “The Partnership Agreement for Spectrum [NW Partnership] . . .
was negotiated and agreed to in Portland, Oregon in July 2004 as evidenced by travel
receipts after a meeting between a potential lessor of facility space, Iron Mountain, and
Glenn Odell, Curtis Pilon and Jim Merriles. . . . Some further redline revisions were made
to the agreement during the following months and a final draft was circulated via email
for signature. As is reflected on the agreement, Glenn Odell signed on September 4,
2004, Jim Merriles signed on September 8, 2004, and Curtis Pilon signed on
September 9, 2004. The location of the three partners when they separately signed the
agreement and circulated it via email is unknown at this time.”

                                            10
              Pilon declared Odell was present in Orange County, California, for the
negotiation and signing of the Partnership Agreement. The fact that Odell’s signature on
the Partnership Agreement is dated six days earlier than Pilon’s signature cuts against
that assertion. Also, the Partnership Agreement refers to “today’s date” as July 27, 2004,
which is consistent with Odell’s statement the Partnership Agreement was negotiated in
July, not September, 2004.
              More importantly, under Burger King, the Partnership Agreement and
Odell’s obligations related to it were to be performed in the State of Washington. The
Partnership Agreement states: “This agreement is for the Pacific Northwest territory only
and operations in the states of Washington and Oregon only. If at any time there is to be
any additional locations between above-mentioned partners an additional agreement will
need to be entered into at that time.” Under the terms of the Partnership Agreement,
Odell worked in Washington for Spectrum NW Partnership from 2005 through 2008.
              Plaintiffs argue, without citing Burger King, the Partnership Agreement has
“substantial connections with California” because Spectrum NW Partnership was an
expansion of Spectrum LLC, a California company, was to use Spectrum LLC’s
goodwill, name, and “relationships,” and received services, equipment, staff training, and
payroll services from Spectrum LLC. The evidence showed that Spectrum NW
Partnership used the Spectrum name, received assets and some technical support from
Spectrum DMC, and two of the three partners were California residents. But, as
Defendants point out, the Partnership Agreement created a separate and distinct entity,
and Spectrum NW Partnership was not merely an expansion of Spectrum DMC. The
Partnership Agreement did not have a substantial connection with California, and
certainly did not create the “carefully structured 20-year relationship” subject to
“long-term and exacting regulation” with “continuing and wide-reaching contacts with
[California],” envisaged by Burger King, supra, 471 U.S. at page 480, as supporting
personal jurisdiction.

                                             11
              In asserting the Partnership Agreement established general jurisdiction over
Odell in California, Plaintiffs rely heavily on two pre-Burger King cases: Ault v. Dinner
For Two, Inc. (1972) 27 Cal.App.3d 145 (Ault) and McGee v. International Life Ins. Co.
(1957) 355 U.S. 220 (McGee). In Ault, the plaintiff, a California resident, entered into an
employment contract with the defendant, a New Jersey corporation that published books
of discount tickets. (Ault, supra, at p. 147.) The contract made the plaintiff the
defendant’s exclusive representative in California; before that time, the defendant had not
conducted business in California. (Ibid.) Pursuant to the contract, the plaintiff solicited
business for the defendant in California and forwarded orders to the defendant in New
Jersey; however, none of the orders was ever completed, and the defendant derived no
income from the plaintiff’s efforts. (Ibid.) The contract was terminated, and the plaintiff
sued the defendant in California for breach of contract. (Id. at pp. 147-148.)
              The trial court granted the defendant’s motion to quash service of summons
for lack of personal jurisdiction. (Ault, supra, 27 Cal.App.3d at p. 148.) The Court of
Appeal reversed, concluding the defendant was subject to personal jurisdiction in
California. Citing McGee, the Court of Appeal reasoned: “Here the contract under
consideration was to be performed in California. By it, the plaintiff undertook to
represent the corporate defendant in California and to sell its product to California
restaurant owners. Moreover, the corporation had direct contact with several of these
owners—first accepting, and then canceling the orders the plaintiff had taken from them.
That the corporate defendant eventually derived no income from the contract is not
controlling. The constitutional requirements of due process are met because the suit was
based upon a contract which had a substantial connection with this state. [Citations.]”
(Ault, supra, at p. 151.)
              The issue in McGee, supra, 355 U.S. at pages 221-222, was whether
California could exercise personal jurisdiction over an insurance company that had
assumed a life insurance policy issued to a California resident. The insurance company

                                             12
had no office or agent, and never did business in California. (Id. at p. 222.) The United
States Supreme Court concluded the exercise of personal jurisdiction over the insurance
company comported with due process for these reasons: “The contract was delivered in
California, the premiums were mailed from there and the insured was a resident of that
State when he died. It cannot be denied that California has a manifest interest in
providing effective means of redress for its residents when their insurers refuse to pay
claims. These residents would be at a severe disadvantage if they were forced to follow
the insurance company to a distant State in order to hold it legally accountable.” (Id. at
p. 223.)
              Neither Ault nor McGee helps Plaintiffs. Both opinions focus on the place
of performance as determinative of personal jurisdiction. In Ault, supra, 27 Cal.App.3d
at page 151, the court based its ruling on the fact “the contract under consideration was to
be performed in California,” while in McGee, supra, 355 U.S. at page 223, the court
found a “substantial connection” because “[t]he contract was delivered in California, the
premiums were mailed from there and the insured was a resident of that State when he
died.” Odell worked for Spectrum NW Partnership in Washington and has no substantial
connection with California.

C. Kays
              In support of the motion to quash, Defendants presented evidence that Kays
was born in Portland, Oregon, is a Washington resident, and owns no property in
California. From 1992 to 2005, she worked as a business manager for Anacomp, a
company headquartered in San Diego, California. From 2005 through 2008, she worked
in Enumclaw, Washington, as the controller for Spectrum NW Partnership, and since
2008, she has worked in Enumclaw, Washington, as the controller for Spectrum NW Inc.
She is not a party to the Partnership Agreement.

                                             13
              The only basis for general jurisdiction over Kays, argued by Plaintiffs, is
she “is refusing to be bound by her obligations as bookkeeper for the resulting
partnership even when her salary was paid for by a California company.” There is some
question as to the extent to which Kays’s salary at Spectrum NW Partnership was paid by
Spectrum LLC (or Spectrum DMC). Kays worked, however, for Spectrum NW
Partnership in Washington. Plaintiffs cite no authority to support the proposition that
general jurisdiction extends to a nonresident with no forum contacts simply because the
nonresident’s salary earned while working outside the forum was paid by a forum
resident. Even if Kays’s salary was funded by Spectrum LLC or Spectrum DMC,
Kays—who has never resided or owned property in California—did not have contacts
with California that were “so wide-ranging that they take the place of physical presence
in the forum as a basis for jurisdiction.” (Vons, supra, 14 Cal.4th at p. 446.)
                                             IV.
                                   Specific Jurisdiction
A. Review of Relevant Law
              “The inquiry whether a forum State may assert specific jurisdiction over a
nonresident defendant ‘focuses on “the relationship among the defendant, the forum, and
the litigation.”’” (Walden v. Fiore (2014) 571 U.S. __, __ [134 S.Ct. 1115, 1121];
accord, Pavlovich v. Superior Court (2002) 29 Cal.4th 262, 269 (Pavlovich).) Three
requirements must be met to establish specific jurisdiction:
              1. Purposeful availment. “‘The purposeful availment inquiry . . . focuses
on the defendant’s intentionality. [Citation.] This prong is only satisfied when the
defendant purposefully and voluntarily directs his activities toward the forum so that he
should expect, by virtue of the benefit he receives, to be subject to the court’s jurisdiction
based on’ his contacts with the forum.” (Pavlovich, supra, 29 Cal.4th at p. 269.)
Purposeful availment asks whether the defendant’s “conduct and connection with the

                                             14
forum State are such that he should reasonably anticipate being haled into court there.”
(World-Wide Volkswagen Corp. v. Woodson (1980) 444 U.S. 286, 297.)
              2. Substantial Connection. The controversy must relate to or arise out of
the defendant’s forum contacts. (Pavlovich, supra, 29 Cal.4th at p. 269.) “‘The crucial
inquiry concerns the character of defendant’s activity in the forum, whether the cause of
action arises out of or has a substantial connection with that activity, and upon the
balancing of the convenience of the parties and the interests of the state in assuming
jurisdiction.’” (Vons, supra, 14 Cal.4th at p. 448.)
              3. Reasonableness. Finally, “‘[o]nce it has been decided that a defendant
purposefully established minimum contacts within the forum State, these contacts may be
considered in light of other factors to determine whether the assertion of personal
jurisdiction would comport with “fair play and substantial justice.”’ [Citation.]” (Vons,
supra, 14 Cal.4th at pp. 447-448.) We do not address whether the exercise of personal
jurisdiction would be reasonable because the first two requirements are not satisfied as
Spectrum NW Inc., Odell, or Kays.

B. Spectrum NW Inc.
       1. Purposeful Availment
              The trial court found, “[t]here is no evidence to show how Defendant
Spectrum [NW Inc.] purposefully directed its activities at California with the knowledge
that its conduct would cause harm in the state.” Plaintiffs neither challenge that finding
nor argue that Spectrum NW Inc. purposefully availed itself of benefits of California.
       2. Substantial Connection
              Plaintiffs’ only argument in support of jurisdiction over Spectrum NW Inc.
is “[Spectrum] NW, Inc.’s contact with California includes being formed by wrongfully
utilizing assets from [Spectrum] NW Partnership, utilizing equipment and services from
[Spectrum LLC], and becoming indebted to a California resident (Pilon) and a California

                                             15
company ([Spectrum LLC])” and this conduct “is directly related to [Plaintiffs’] claims.”
In opposition to the motion to quash, Pilon submitted a declaration in which he stated,
“[b]ased upon communications with Odell and Kays, I know that Odell utilized funds and
resources from [Spectrum] NW [Partnership] to incorporate Defendant [Spectrum] NW,
Inc.” and that “use of funds was in violation of the [Partnership] Agreement.”
              The trial court found against Plaintiffs: “Spectrum Plaintiffs allege that
Defendant Odell improperly used funds and resources from Spectrum NW [Partnership]
to start Defendant Spectrum [NW Inc.]. However, there is no evidence regarding where
the funds came from, much less from California. And Spectrum Plaintiffs did not
provide any evidence to show what resources Defendant Odell used, much less where
they came from.” Substantial evidence supported the trial court’s findings. Spectrum
NW Partnership conducted business only in Oregon and Washington, and assets that
Spectrum NW Partnership received from Spectrum LLC were located in those states.
              In opposition to the motion to quash, Plaintiffs submitted the declaration of
Brian Lipscomb, who worked as the information technology manager for Spectrum DMC
from May 2003 through May 2008, and thereafter worked in the same position for
Spectrum LLC. Lipscomb declared Spectrum DMC provided “all assets” that Spectrum
NW Partnership used in its daily business and, to his declaration attached two lists of
assets “deployed” to Spectrum NW Partnership. The lists refer, respectively, to “Portland
Assets” and “Seattle Assets.” A reasonable inference from this evidence is that the assets
Spectrum NW Partnership received from Spectrum DMC were kept in Oregon and
Washington, and, therefore, any misappropriation of those assets by Spectrum NW Inc.
(or Odell) would have occurred in those states. Thus, even if Spectrum NW Inc. used
Spectrum NW Partnership assets, that activity would have no substantial connection with
California. Finally, Plaintiffs do not cite to any evidence in the record to support the
assertion that Spectrum NW Inc. used equipment or services of Spectrum LLC or that
Spectrum NW Inc. “bec[ame] indebted” to Pilon.

                                             16
C. Odell
              Plaintiffs argue Odell’s contacts with California were (1) Odell entered into
the Partnership Agreement with two parties who were California residents; (2) he knew
that Spectrum NW Partnership and Spectrum NW Inc. received services from Spectrum
LLC; (3) he formed Spectrum NW Inc. by wrongfully using funds from Spectrum NW
Partnership; and (4) he became “indebted” to Pilon and Spectrum LLC by breaching the
Partnership Agreement.
       1. Purposeful Availment
              Plaintiffs argue those four contacts satisfy the purposeful availment
requirement. We disagree. As to the first two contacts, the evidence, which we construe
in Defendants’ favor, showed the Partnership Agreement was negotiated in Portland,
Oregon. By arguing that Odell entered into the Partnership Agreement with California
residents, Plaintiffs “shift[] the analytical focus from [Odell]’s contacts with the forum to
his contacts with [Plaintiffs].” (Walden v. Fiore, supra, 571 U.S. at p. __ [134 S.Ct. at
p. 1124].)
              The Partnership Agreement expressly stipulated that Spectrum NW
Partnership would conduct business only in Oregon and Washington, and Odell worked
for Spectrum NW Partnership in Washington. Odell’s actions in Oregon and Washington
did not create sufficient contacts with California “simply because he allegedly directed
his conduct at plaintiffs whom he knew had [California] connections.” (Walden v. Fiore,
supra, 571 U.S. at p. __ [134 S.Ct. at p. 1125].) By entering into the Partnership
Agreement and engaging in partnership business, Odell did not “‘purposefully and
voluntarily direct[] his activities toward [California] so that he should expect, by virtue of
the benefit he receives, to be subject to the court’s jurisdiction based on’ his contacts with
[California].” (Pavlovich, supra, 29 Cal.4th at p. 269.)
              Breach of the Partnership Agreement might have caused Pilon and
Merriles, both California residents, to suffer harm; however, “knowledge that harm will

                                             17
likely be suffered in the forum state, ‘when unaccompanied by other contacts,’ is
therefore ‘too unfocused to justify personal jurisdiction.’” (Pavlovich, supra, 29 Cal.4th
at p. 272; see Walden v. Fiore, supra, 571 U.S. at p. __ [134 S.Ct. at p. 1125] [“mere
injury to a forum resident is not a sufficient connection to the forum”].)
              As to the third contact, the trial court found there was no evidence
regarding where any misappropriated funds came from or what resources Odell used.
The assets that Spectrum NW Partnership received from Spectrum LLC were located in
Oregon and Washington, and it is reasonable to infer that any misappropriation of
Spectrum NW Partnership assets by Odell would have occurred in those states.
              The fourth contact is no contact at all; rather, as Defendants argue,
Plaintiffs are “refer[ring] to the judgment debt they hope to obtain in this litigation.”
       2. Substantial Connection
              In analyzing specific jurisdiction, we examine the nexus between Odell’s
contacts in California and ask whether the causes of action against Odell arise out of or
are substantially connected to those contacts. (Vons, supra, 14 Cal.4th at p. 448.) The
causes of action against Odell, asserted in the Complaint, include breach of the
Partnership Agreement, breach of fiduciary duty arising out of the partnership
relationship, fraud, and various tort claims based on alleged misappropriation and
wrongful taking of Spectrum NW Partnership assets.
              Although Spectrum NW Partnership did have some connection to
California, the causes of action alleged against Odell did not arise out of that connection,
and Plaintiffs presented no evidence to suggest Odell’s alleged wrongdoing took place
                                                   2
anywhere other than in Oregon and Washington. The Partnership Agreement stated,

 2
    In his declaration, Pilon stated that in January 2009, he “became aware” that Odell
had created Spectrum NW Inc. and that Odell and Kays were working with a
representative of Wells Fargo Bank in Orange County to set up a line of credit or loan for
Spectrum NW Inc. The claims asserted in the Complaint are not related to those
activities.

                                              18
“[t]his agreement is for the Pacific Northwest territory only and operations in the states of
Washington and Oregon only,” and Odell—an Oregon resident—worked for Spectrum
NW Partnership in Washington. Any misappropriation of Spectrum NW Partnership
assets by Odell, and any conduct by him, which allegedly constituted breach of the
Partnership Agreement or breach of fiduciary duty, would have occurred in Oregon or
Washington.

D. Kays
              Plaintiffs assert Kays’s contacts with California were (1) Kays was a
bookkeeper for Spectrum LLC, Spectrum NW Partnership, and Spectrum NW, Inc., and
her salary was paid by Spectrum LLC; (2) she “refus[ed] to provide financial information
to Pilon”; and (3) she became “indebted” to Pilon and Spectrum LLC.
       1. Purposeful Availment
              As to the first contact, Plaintiffs argue Kays purposefully availed herself of
forum benefits because, as a bookkeeper for the Spectrum entities, she “knew that her
payroll came from [Spectrum LLC].” This argument fails for two reasons. First, Kays, a
Washington resident, did not voluntarily direct her activities toward the forum by
receiving a salary paid directly or indirectly by a California corporation. It is the
defendant’s conduct that forms the necessary connection with the forum state that is the
basis for personal jurisdiction. (Walden v. Fiore, supra, 571 U.S. at p. __ [134 S.Ct. at
p. 1122].) As the trial court found, “[t]here is no evidence to show how Defendant Kays
purposefully directed her activities at California with the knowledge that her conduct
would cause harm in the state.” By receiving a bookkeeper’s salary paid by a California
corporation that was not her employer, Kays, a Washington resident, would not expect to
be subject to jurisdiction in California and would not have “‘clear notice that [she] is
subject to suit there.’” (Pavlovich, supra, 29 Cal.4th at p. 269.)

                                             19
              Second, there is a factual dispute as to the extent to which Kays’s salary
was paid by Spectrum LLC. In discovery responses, Kays stated: “Kays’ position as
Controller was split between rendering services to the [Spectrum NW] Partnership and to
Spectrum [DMC]. [Spectrum ]DMC paid the Partnership for Kays’ services as
Controller rendered to [Spectrum ]DMC. Kays was not paid by [Spectrum ]DMC for
bookkeeping services provided to the Partnership.”
       2. Substantial Connection
              The causes of action against Kays, alleged in the Complaint, include
embezzlement, conversion, breach of fiduciary duty, fraud, negligent misrepresentation,
and conspiracy. With respect to the substantial connection requirement, the trial court
found that “Kays’ receipt of a salary does not support specific jurisdiction because that
has nothing to do with the claims against her.” We agree. The Complaint alleged that
Odell convinced Kays, who worked as the controller for Spectrum NW Partnership, to
keep two sets of books to conceal his activities, and “[s]uch acts and agreement to act
together constitute a conspiracy subjecting Defendant Kays to liability for each and every
act taken by the conspiracy as though committed by Defendant Kayes [sic] herself.”
Although Plaintiffs assert that Kays’s “misconduct” as bookkeeper for Spectrum NW
Partnership “is the very root” of their causes of action against her, the source of payment
of her salary has no “‘substantial connection’” to them (Vons, supra, 14 Cal.4th at
p. 448).
              As evidentiary support for the second contact (“refusing” to provide
financial information to Pilon), Plaintiffs cite the declaration of Pilon, in which he states
that “[s]ince January 2009, I have requested documents reflecting the financials of
[Spectrum] NW [Partnership] from Defendants Odell and Kays on numerous occasions,”
but they “kept all financials of [Spectrum] NW [Partnership] from me from 2009 through
the present date.” Assuming this conduct was in furtherance of the alleged conspiracy, its
connection with California is not substantial enough to support jurisdiction. Pilon

                                              20
attached to his declaration, as examples of his requests for financial documents and
Kays’s responses, printed copies of a few e-mail communications dated between
January 10 and March 5, 2009. A fair inference was that Kays was in Washington when
she communicated by e-mail because she lived and worked in that state at that time.
                The third contact, that Kays became “indebted” to Pilon and Spectrum
LLC, is no contact at all because, as Defendants argue, “to the extent [Plaintiffs] refer to
the judgment debt they hope to obtain in this litigation, they are alleging a ‘substantial
connection’ that exists of necessity in every complaint for monetary relief against a
nonresident.”

                           MOTION FOR SANCTIONS ON APPEAL
                Defendants have brought a motion under California Rules of Court,
rule 8.276(a)(1) for an order imposing sanctions against Plaintiffs for pursuing a frivolous
appeal. Defendants request sanctions in the amount of $24,355 to compensate them for
attorney fees and costs incurred in preparing the respondents’ brief and the motion for
sanctions. Plaintiffs have submitted opposition to the motion for sanctions.
                Code of Civil Procedure section 907 provides: “When it appears to the
reviewing court that the appeal was frivolous or taken solely for delay, it may add to the
costs on appeal such damages as may be just.” The Court of Appeal may impose
sanctions for “[t]aking a frivolous appeal or appealing solely to cause delay.” (Cal. Rules
of Court, rule 8.276(a)(1).) An appeal is frivolous when (1) “it is prosecuted for an
improper motive—to harass the respondent or delay the effect of an adverse judgment” or
(2) “it indisputably has no merit—when any reasonable attorney would agree that the
appeal is totally and completely without merit.” (In re Marriage of Flaherty (1982) 31
Cal.3d 637, 650.) The first standard—improper motive—is tested subjectively, while the
second standard—indisputably without merit—is tested objectively. (In re Marriage of
Gong & Kwong (2008) 163 Cal.App.4th 510, 516.)

                                             21
               Defendants make five arguments in support of their motion for sanctions:
(1) Plaintiffs’ argument in support of general jurisdiction was really based on specific
jurisdiction; (2) Plaintiffs’ discussion of legislative intent is meritless; (3) Plaintiffs
ignored the trial court’s ruling and tried to create confusion about the various entities;
(4) numerous statements in the Plaintiffs’ appellate briefs are not supported by the record;
and (5) Plaintiffs’ appellate briefs were frivolous and violated court rules.
               Defendants are correct in several respects. Plaintiffs confuse general with
specific jurisdiction by relying on the Partnership Agreement as a sufficient basis for
personal jurisdiction in California over Spectrum NW Inc. and Odell. Plaintiffs argue
general jurisdiction adamantly and at length even though there is not even a remotely
colorable claim of general jurisdiction over any of Defendants. Although Plaintiffs rely
on the Partnership Agreement as establishing personal jurisdiction, they do not cite
Burger King, the seminal case on the issue whether contracting with forum residents
subjects an out-of-state resident to jurisdiction in the forum.
               In opposition to the motion for sanctions, Plaintiffs argue courts have
declined to impose sanctions “where the law at issue is one that is evolving or developed
law is absent.” The law of general jurisdiction has been settled for decades. (Vons,
supra, 14 Cal.4th at p. 445.) Not by any stretch of the evidence or law does Spectrum
NW Inc., Odell, or Kays have substantial, continuous, and systematic contacts with
California.
               It is also true that Plaintiffs virtually ignore the trial court’s extensive
findings on both general and specific jurisdiction, and ignore the standard of review,
which requires conflicts in the evidence to be resolved, and all reasonable inferences to
be drawn, in favor of the trial court’s ruling. Plaintiffs exploit the similarities in names of
the various entities to create some confusion, and many assertions they make are not
supported by the record.

                                               22
              Despite all this, we conclude sanctions are not warranted. Although
Plaintiffs do make factual assertions without citing to the record, their court rule
violations are not pervasive, nor do Plaintiffs’ appellate briefs “garishly distort[] the
record.” (Kleveland v. Siegel & Wolensky, LLP (2013) 215 Cal.App.4th 534, 559.) The
appeal, though unsuccessful, cannot be said to be indisputedly without merit. Plaintiffs
could have made a reasonably strong, though ultimately not meritorious, claim of specific
jurisdiction against Odell based on Burger King by likening the Partnership Agreement
with a franchise agreement creating a long-term relationship with Spectrum DMC and
Spectrum LLC. The motion for sanctions on appeal is denied.

                                        DISPOSITION
              The order granting the motion to quash service of process is affirmed.
Defendants shall recover costs incurred on appeal.

                                                   FYBEL, J.

WE CONCUR:

O’LEARY, P. J.

ARONSON, J.

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