Court Opinion

ID: 854853
Source: CourtListenerOpinion
Date Created: 2013-03-11 20:24:11.386695+00
Date Added: 2024-06-11T13:22:30.562906
License: Public Domain

Filed 3/11/13 Sukumar v. Air Machine Com SRL
                      NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.

                    COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                  DIVISION ONE

                                           STATE OF CALIFORNIA

PONANI N. SUKUMAR, et al.,                                          D060743

         Plaintiffs and Appellants,

         v.                                                         (Super. Ct. No. 37-2007-00052071-
                                                                     CU-BC-NC)
AIR MACHINE COM SRL, et al.,

         Defendants and Respondents.

         APPEAL from orders of the Superior Court of San Diego County, Earl H. Maas,

III, Judge. Affirmed.

         Ponani Sukumar and his physical rehabilitation clinic, Southern California Stroke

Rehabilitation Associates (together Sukumar), appeal orders dismissing Panatta Sport

SRL (Panatta) and Air Machine Com SRL (COM) from the action for lack of personal

jurisdiction. Sukumar contends the trial court erred when it granted the separate motions

to quash of Panatta and COM after ruling neither was subject to jurisdiction in California
under a successor liability theory, based on the minimum contacts of their alleged

predecessor defendant Air Machine SRL (SRL). Sukumar also maintains both Panatta

and COM are subject to specific jurisdiction in California based on each party's own

activities/contacts (as opposed to those of SRL) in the forum.

       Because we affirm an order granting SRL's motion to quash service for lack of

jurisdiction in a separate opinion,1 we conclude here that Sukumar failed to satisfy his

burden to establish jurisdiction over Panatta and COM as successors of SRL. In addition,

we also determine Sukumar did not carry his burden to prove either Panatta or COM is

subject to specific jurisdiction based on each party's contacts with California. Therefore,

we affirm the orders.

                  FACTUAL AND PROCEDURAL BACKGROUND

                     Sukumar's Complaint Against Panatta and COM

       Sukumar's operative complaint asserted causes of action against Panatta for breach

of express and implied warranties, breach of the implied covenant of good faith and fair

dealing, violation of Business and Professions Code section 17200 et seq., promissory

estoppel and intentional interference with contract.

       Against COM, Sukumar alleged causes of action for breach of contract, breach of

express and implied warranties, breach of the implied covenant of good faith and fair

dealing, violation of Business and Professions Code section 17200 et seq., promissory

estoppel and intentional interference with contract.

1     See Sukumar v. Health Tech Resources, Inc., et al (Date, 2013, D054985)
[nonpub. opn.].
                                             2
       Sukumar alleged in his complaint that Panatta and SRL jointly owned and

controlled COM; SRL transferred all rights to manufacture and market its medical grade

Air Machine equipment to COM in return for a minority ownership in COM; Panatta's

subsequent purchase of SRL's interest in COM was without adequate consideration; and

Panatta and COM then refused to honor any warranty and contractual obligations of SRL

despite the fact SRL was rendered insolvent and unable to meet its obligations to

Sukumar.

       All of Sukumar's claims against Panatta and COM derive from Sukumar's contract

with Health Tech Resources, Inc. dba Impact Fitness Systems (Health Tech) whereby

Sukumar purchased certain exercise equipment from Health Tech, which was

manufactured in Italy by SRL. The contract was dated February 26, 2004. Sukumar

claimed the exercise equipment was defective and informed Health Tech of the defects

"immediately" upon delivery in January 2005.

                          Panatta's and COM's Motions to Quash

       Panatta and COM each moved to quash service of summons based on lack of

personal jurisdiction.2 Panatta and COM contended Sukumar failed to satisfy his burden

to show either party was subject to specific jurisdiction in California.3

2       There are separate appeals involving Panatta and COM, on the one hand, and SRL,
on the other hand, because at the same time the trial court granted SRL's motion to quash
it denied the separate quash motions of Panatta and COM. In denying the motions of
Panatta and COM, the court ruled they waived their jurisdictional challenge by jointly
serving Sukumar with a statutory offer to compromise pursuant to Code of Civil
Procedure section 998 ("998 offer") while their challenge to jurisdiction was pending.
(SRL did not participate in the 998 offer.) Panatta and COM sought to overturn that
                                              3
       Panatta contended it is an Italian limited liability company that designs,

manufactures and repairs sports equipment used in European gyms, sports centers and

similar entities. It also claimed to manufacture its products in Italy and market them

exclusively in Europe, Asia, Russia and the Middle East. Panatta has never owned or

operated any retail stores, manufacturing facilities or warehouses in California; it has

never advertised, or maintained an office in California; and it has not owned, used or

possessed any real property in California. Panatta is not licensed or registered to do

business in California; it has no designated agent for service of process in California; it

conducted no business in California "up to and including the entire year of 2004, which is

the time period that [Sukumar's] claims arose," and that from approximately May 2005

forward, it has conducted limited business in California with two distributors, which

accounted for less than one percent of its overall sales.

       In addition, Panatta contended that it and SRL formed COM in 2006, nearly three

years after Sukumar entered into its contract with Health Tech, which gave rise to the

dispute. Because the superior court ruled SRL was not subject to personal jurisdiction in

California, Panatta further contended that it could not be subject to jurisdiction under a

successor liability theory.

ruling by writ of mandate (Air Machine v. Superior Court (July 2, 2010, D054878)). We
subsequently granted the writ and remanded the case for the trial court to consider their
motions on the merits. Meanwhile, Sukumar separately appealed the order granting the
motion to quash of SRL (D054985). (See fn. 1, ante.) We stayed D054985 pending the
outcome of the quash motions of COM and Panetta, which are the subject of this opinion.

3      Sukumar does not argue that the activities of COM and/or Panatta in California
subject either party to general jurisdiction in the forum.
                                              4
       COM argued that it was formed and registered in Italy in November 2006; it is a

foreign limited liability company headquartered in Apiro, Italy; its products are

manufactured in Italy and are marketed exclusively in Europe; it has never owned or

operated any retail stores in California; it has no bank accounts, offices or employees in

California; and it has never advertised, owned, used or possessed real property in

California.

       Regarding its formation, COM noted it was created in 2006 as a result of a joint

venture between Panatta and SRL. Initially when it was formed, Panatta owned 51

percent of COM and SRL owned 49 percent, and the goal of the joint venture was to use

Panatta's "established European distribution network to better market the 'Air Machine'

line of products then owned by SRL." In connection with the joint venture, SRL

transferred its intellectual property rights to COM, and after less than two years, when

sales of SRL products failed to meet expectations, SRL, in March 2008, withdrew from

the joint venture and cashed out its stock in COM for €90,000, leaving Panatta as the sole

remaining shareholder of COM.

       COM further noted in its motion to quash that it "was and still is a wholly separate

company from S.R.L. S.R.L operates in different city, namely, Cesena, Italy. [Citation.]

COM operates in Apiro, Italy. [Citation.] COM was always managed and operated

independently of S.R.L. [Citation.] COM holds its own Board of Directors' meetings

separate and independent from S.R.L. [Citation.] With the exception of one common

officer, COM and S.R.L. have completely different officers and directors. [Citation.]

COM maintains its own bank accounts, corporate books and records separate and apart

                                             5
from S.R.L. [Citation.] COM markets, distributes, and sells its products through

Panatta's distribution network . . . which is separate and independent from S.R.L.'s

distribution network."

       Moreover, like Panatta, COM also contended that it was not subject to personal

jurisdiction in California under a successor liability theory because the superior court

ruled SRL did not have sufficient minimum contacts in the forum and because, in any

event, Sukumar's claims did not arise from or out of its contacts.

       Sukumar opposed the motions to quash of Panatta and COM on the ground that

both parties were successors to SRL and thus subject to specific jurisdiction in California

based on the minimum contacts of SRL because Panatta did not pay adequate cash

consideration to SRL for SRL's interest in COM and, after that sale, SRL was effectively

insolvent and unable to meet its obligations to Sukumar.

                         The Superior Court's Ruling on the Motions

       The court granted Panatta's motion. It found that Sukumar could not prove

successor liability as to Panatta because the court had already ruled that SRL was not

subject to specific jurisdiction. It further found Sukumar did not prove that Panatta

assumed the liabilities of SRL. Finally, the court determined Sukumar had not proved

specific jurisdiction was proper based on Panatta's contacts with California.

       The superior court also rejected jurisdiction over COM based on successor

liability for the same reasons it granted Panatta's motion to quash.

                                             6
       The superior court also ruled on Panatta's, COM's, and Sukumar's objections to

evidence in connection with the motions to quash, and none of the parties challenge any

of the rulings. We therefore do not discuss the specific objections.

                                       DISCUSSION

                                              I

                                 SUCCESSOR LIABILITY

       Sukumar spends much of his opening brief arguing that the superior court should

have exercised jurisdiction over Panetta and COM because they are successors to SRL.

We disagree.

       "In a case raising liability issues, a California court will have personal jurisdiction

over a successor company if (1) the court would have had personal jurisdiction over the

predecessor, and (2) the successor company effectively assumed the subject liabilities of

the predecessor." (CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal.App.4th

1101, 1120 (CenterPoint) [citing among other cases Ray v. Alad Corporation (1977) 19

Cal.3d 22, 28, 31].)

       In a separate opinion,4 we affirmed the superior court's order granting SRL's

motion to quash for lack of jurisdiction. Because we determined the superior court did

not have jurisdiction over Panatta's and COM's alleged predecessor, SRL, Sukumar's

contention that the superior court could exercise jurisdiction over Panatta and/or COM

under a successor liability theory necessarily fails. As such, we do not reach the second

4      See footnote 1, ante.
                                              7
prong of the successor liability test: whether the successor effectively assumed the

subject liabilities of the predecessor.

                                                II

            SPECIFIC JURISDICTION BASED ON PANATTA'S AND COM'S
                   RESPECTIVE CONTACTS WITH CALIFORNIA

       Sukumar next argues that even if we do not determine that Panetta and COM are

subject to jurisdiction in the superior court because they are successors to SRL, he has

satisfied his burden of proving they are subject to specific jurisdiction based on their own

contacts with California. We disagree.

                             A. Limits of Asserting Jurisdiction

       "State courts will assert personal jurisdiction over nonresident defendants which

have been served with process only if those defendants have such minimum contacts with

the state to ensure that the assertion of jurisdiction does not violate ' " ' "traditional

notions of fair play and substantial justice." ' " ' [Citations.] 'It is well-established that

only " ' "random," "fortuitous," or "attenuated" contacts' " do not support an exercise of

personal jurisdiction. [Citation.] In analyzing such issues, the courts have rejected any

use of " 'talismanic jurisdictional formulas.' " [Citation.] Rather, " ' "the facts of each

case must [always] be weighed" in determining whether personal jurisdiction would

comport with "fair play and substantial justice." ' [Citation.]" [Citation.]' "

(CenterPoint, supra, 157 Cal.App.4th at p. 1117.)

       "Minimum contacts" may support either general or specific jurisdiction. (Aquila,

Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 569.) " ' "Specific jurisdiction results

                                                8
when the defendant's contacts with the forum state, though not enough to subject the

defendant to the general jurisdiction of the forum, are sufficient to subject the defendant

to suit in the forum on a cause of action related to or arising out of those contacts.

[Citations.] Specific jurisdiction exists 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 assertion of

jurisdiction would comport with fair play and substantial justice." ' [Citations.]"

(CenterPoint, supra, 157 Cal.App.4th at p. 1117, italics omitted; Helicopteros Nacionales

de Columbia v. Hall (1984) U.S. 466 404, 414 [in determining whether specific

jurisdiction exists, courts generally look to the relationship among the defendant, the

forum, and the litigation].)

                       B. Burden of Proof and Standard of Review

       "When a nonresident defendant challenges personal jurisdiction, the plaintiff must

prove, by a preponderance of the evidence, the factual basis justifying the exercise of

jurisdiction. [Citation.] The plaintiff must do more than merely allege jurisdictional

facts; the plaintiff must provide affidavits and other authenticated documents

demonstrating competent evidence of jurisdictional facts. [Citation.] If the plaintiff does

so, the burden shifts to the defendant to present a compelling case that the exercise of

jurisdiction would be unreasonable. [Citation.]" (BBA Aviation PLC v. Superior Court

(2010) 190 Cal.App.4th 421, 428-429.) "In this analysis, the merits of the complaint are

not implicated." (F. Hoffman-La Roche, Ltd. v. Superior Court (2005) 130 Cal.App.4th

782, 794.)

                                              9
       "Where the evidence of jurisdictional facts is not in conflict, we independently

review the trial court's decision. [Citation.] To the extent there are conflicts in the

evidence, we must resolve them in favor of the prevailing party and the trial court's

order." (Malone v. Equitas Reinsurance Ltd. (2000) 84 Cal.App.4th 1430, 1436.) We

review the trial court's resolution of factual conflicts under the substantial evidence

standard. (People v. Mickey, supra, 54 Cal.3d at p. 649; Integral Development Corp. v.

Weissenbach (2002) 99 Cal.App.4th 576, 585.) Under this standard, "the power of an

appellate court begins and ends with the determination as to whether there is any

substantial evidence, contradicted or uncontradicted, which will support the finding of

fact." (Grainger v. Antoyan (1957) 48 Cal.2d 805, 807, italics omitted.) " '[S]ubstantial

evidence' is . . . evidence . . . 'of ponderable legal significance, . . . reasonable in nature,

credible, and of solid value.' [Citations.]" (Bowers v. Bernards (1984) 150 Cal.App.3d

870, 873, italics omitted.) Such evidence may be in the form of declarations. (Atkins,

Kroll & Co. v. Broadway Lumber Co. (1963) 222 Cal.App.2d 646, 654.) If supported by

substantial evidence, the trial court's resolution of conflict will not be disturbed on

appeal. (Kroopf v. Guffey (1986) 183 Cal.App.3d 1351, 1356.)

                                          C. Analysis

       Sukumar contends Panatta's contacts with California consist of its efforts to

establish a market in California for its products since the late 1990s. Sukumar further

asserts Panatta's purchase of SRL was part of these efforts.

       Sukumar maintains COM's contacts with California consist of COM

representatives emailing Sukumar directly and inviting Sukumar to contact the new COM

                                                10
sales manager for SRL products for assistance with his order. In addition, Sukumar also

points to COM's use of Panatta's distribution network, which included two California

distributors. COM also apparently took over SRL's website and continues to distribute

promotional materials to Sukumar.

       Sukumar, however, fails to appreciate that his entire case against Panatta and

COM hinges on his purchase of SRL equipment in 2004, which was delivered in 2005.

None of Panatta's or COM's contacts with California having anything to do with SRL's

products occurred prior to 2006. Sukumar sued COM because he believes it is SRL's

successor. Sukumar sued Panatta because he argues it owns COM and assumed certain

of SRL's warranty obligations.

       On July 31, 2006, SRL and Panatta entered into a joint venture that resulted in the

formation of COM as an Italian limited liability company. SRL contributed its

trademarks and patents to the joint venture, and Panatta contributed its established

distribution network. Sukumar has cited to no evidence demonstrating that either Panatta

or COM had any affiliation, involvement, or responsibility relating to SRL's line of

fitness equipment or business operations prior to July 31, 2006.

       Based on the record before us, it is clear the controversy at issue here (i.e., SRL's

defective products) does not arise out of Panatta's and/or COM's contacts with California.

(See CenterPoint, supra, 157 Cal.App.4th at p. 1117.) Panatta's predispute contacts were

unrelated to SRL's product. COM did not even exist at the time the dispute arose.

Indeed, Sukumar sued Panatta and COM simply because of their relationship to SRL:

COM is the successor of SRL and Panatta owns COM. Panatta's and COM's respective

                                             11
contacts with California prior to and at the time of the dispute are either nonexistent or

have nothing to do with the dispute regarding SRL's products.

       Citing Bresler v. Stavros (1983) 141 Cal.App.3d 365 (Bresler), Sukumar argues

we may consider postdispute contacts with California to determine if specific jurisdiction

exists. Sukumar's reliance on Bresler is misplaced.

       Bresler, supra, 141 Cal.App.3d 365 involved an action for breach of contract and

other counts arising from the purchase and sale of stock in a medical group organized as a

California professional corporation. One of the defendant purchasers, George Stavros,

was an Arizona resident. Although he was licensed to practice medicine in California,

Stavros declared that he did not intend to practice medicine in California or to take part in

the corporation's management, and that he purchased the stock solely for investment

purposes. (Id. at p. 367.) A subsequent declaration by his attorney, however,

acknowledged that Stavros had visited a clinic operated in California by the corporation

and had worked in the clinic on one occasion. (Ibid.)

       The court in Bresler stated that Stavros sought the benefits and protections of

California securities law by purchasing California securities, he was permitted to

purchase stock in the corporation only because he was licensed to practice medicine in

California, and that he was subject to detailed regulations concerning transfer of the

securities. (Bresler, supra, 141 Cal.App.3d at p. 369.) The court stated the fact that

Stavros had performed medical services at the clinic in California on one occasion, within

a week of his signing the contract to purchase stock, also supported the conclusion that he

had invoked the benefits of California law. (Id. at pp. 369-370.) In addition, the court

                                             12
noted that the practice of medicine in this state was subject to " 'special regulation' " and a

defendant's intentional participation in an activity that is subject to special regulation can

support the exercise of jurisdiction. (Id. at p. 369, quoting Hanson v. Denckla (1958) 357

U.S. 235, 252.) The court concluded that the purchase and sale of the corporation "was

intimately related to California," and that Stavros had purposefully availed himself of

forum benefits. (Id. at pp. 370-371.) The court also determined that the exercise of

jurisdiction would be fair and reasonable, in part because California "has a strong interest

in policing the propriety of transactions transferring ownership in medical corporations."

(Id. at p. 371.) The court therefore held that the granting of the motion to quash service

of summons was error. (Id. at p. 372.)

       We struggle to find any aspect of Bresler, supra, 141 Cal.App.3d 365 that is even

tenuously related to the instant matter. In Bresler, Stavros's "post-dispute" contact

occurred less than a week after he signed the purchase contract. (Id. at p. 367.) In

contrast, here, Sukumar is trying to establish the requisite contacts, in part, by focusing

on contacts that occurred months, and in some cases over a year, after the dispute arose.

Bresler does not create a rule mandating that we consider Panatta's and COM's post-

dispute contacts.

       In addition, Bresler, supra, 141 Cal.App.3d 365 involved facts that are not

analogous to the instant matter. Stavros was a licensed California physician and was

purchasing stock in a California medical corporation. (Id. at pp. 366-367.) Moreover,

Stavros's contacts with California concerned the practice of medicine, which is subject to

                                              13
"special regulations." (Id. at p. 369.) Panatta's attempts to create a California market for

its products and COM's postdispute emails to Sukumar are not similar in any way.

       In summary, even if we were to accept Sukumar's claim of contacts with

California by both Panatta and COM as true, the controversy here did not arise out of any

of these contacts. Therefore, Sukumar has not carried his burden of satisfying the second

factor of proving specific jurisdiction. The court's orders were not in error.

                                      DISPOSITION

       The orders are affirmed. Panatta and COM are awarded their costs on appeal.

                                                                             HUFFMAN, J.

I CONCUR:

                         IRION, J.

                                             14
J. BENKE, dissenting.

       I conclude the trial court erred when it granted the separate motions to quash

service of summons of respondents Panatta Sport SRL (Panatta) and Air Machine Com

SRL (COM) for lack of personal jurisdiction in the action brought by appellants Ponani

Sukumar and his physical rehabilitation clinic, Southern California Stroke Rehabilitation

Associates (collectively Sukumar). Because I conclude Panatta and COM are subject to

jurisdiction in California under a successor liability theory, based on the minimum

contacts of defendant Air Machine SRL, an Italian Limited Company (SRL),1 I would

reverse the order granting the motions to quash of Panatta and COM and direct the court

to enter a new order denying their respective motions.

                                    BRIEF OVERVIEW2

       Sukumar's operative complaint asserted causes of action against Panatta for breach

of express and implied warranties, breach of the implied covenant of good faith and fair

dealing, violation of Business and Professions Code section 17200 et seq., promissory

estoppel and intentional interference with contract.

       Against COM, Sukumar's operative complaint alleged causes of action for breach

of contract, breach of express and implied warranties, breach of the implied covenant of

1      Also on this date the majority issued a separate, nonpublished opinion in the
related appeal D054985, affirming the trial court's order granting SRL's motion to quash
service of summons, to which I also dissent.

2       I discuss the relevant jurisdictional facts, post, in connection with the issues raised
in this proceeding.
                                               1
good faith and fair dealing, violation of Business and Professions Code section 17200 et

seq., promissory estoppel and intentional interference with contract.

       Sukumar alleged in his complaint that Panatta and SRL jointly owned and

controlled COM; that SRL transferred all rights to manufacture and market its medical-

grade Air Machine equipment to COM in return for a minority ownership in COM; that

Panatta's subsequent purchase of SRL's interest in COM was without adequate

consideration; and that Panatta and COM then refused to honor any warranty and

contractual obligations of SRL, despite the fact SRL was rendered insolvent and unable

to meet its obligations to Sukumar.

                                        DISCUSSION

       A. Minimum Contacts and Standard of Review

       Courts in California will exercise jurisdiction over nonresidents "'on any basis

consistent with the Constitution of California and the United States.'" (Snowney v.

Harrah's Entertainment, Inc. (2005) 35 Cal.4th 1054, 1061; Code Civ. Proc., § 410.10

[long-arm statute].) Accordingly, courts will assert jurisdiction over a nonresident

defendant "if the defendant has such minimum contacts with the state that the assertion of

jurisdiction does not '"violate traditional notions of fair play and substantial justice."'

[Citations.]" (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444

(Vons).)

       "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.]" (Vons, supra, 14 Cal.4th at p. 449.) A plaintiff must meet this

                                               2
burden with competent evidence and establish jurisdiction by a preponderance of the

evidence. (Aquila, Inc. v. Superior Court (2007) 148 Cal.App.4th 556, 568.) This may

be done through declarations and other admissible evidence; a plaintiff is not required,

however, to prove the elements of one or more causes of action to satisfy this burden.

(Nobel Farms, Inc. v. Pasero (2003) 106 Cal.App.4th 654, 657–658; Aquila, Inc. v.

Superior Court, supra, at p. 568.)

       Once a plaintiff has demonstrated facts establishing minimum contacts with the

forum state, it becomes the defendant's burden to demonstrate the exercise of jurisdiction

would be unreasonable. (Vons, supra, 14 Cal.4th at p. 449.)

       A trial court's factual determinations are reviewed for substantial evidence. (Vons,

supra, 14 Cal.4th at p. 449.) But "'"the question of jurisdiction is, in essence, one of law.

When the facts giving rise to jurisdiction are conflicting, the trial court's factual

determinations are reviewed for substantial evidence. [Citation.] Even then, we review

independently the trial court's conclusions as to the legal significance of the facts.

[Citations.]"'" (CenterPoint Energy, Inc. v. Superior Court (2007) 157 Cal.App.4th 1101,

1117-1118, italics added (CenterPoint); see also F. Hoffman-LaRoche, Ltd. v. Superior

Court (2005) 130 Cal.App.4th 782, 794 ["[T]he ultimate question whether jurisdiction is

fair and reasonable under all the circumstances, based on the undisputed facts and those

resolved by the court in favor of the prevailing party, is a legal determination warranting

independent review."].)

                                               3
       Among other theories, Sukumar contends that Panatta and COM are subject to

jurisdiction in California as a result of the contacts of their predecessor, SRL, under a

successor theory of liability.

       B. Jurisdiction Premised on Successor Liability

       "In a case raising liability issues, a California court will have personal jurisdiction

over a successor company if (1) the court would have had personal jurisdiction over the

predecessor, and (2) the successor company effectively assumed the subject liabilities of

the predecessor." (CenterPoint, supra, 157 Cal.App.4th at p. 1120, citing among other

cases Ray v. Alad Corp. (1977) 19 Cal.3d 22, 28, 31.)

       As I discuss in my dissent to the separate majority opinion issued this date, from

my review of the entire record in that case, I independently conclude Sukumar met his

burden to show that SRL purposefully availed itself of the benefits of doing business in

California and that the controversy is related to and/or arises out of SRL's contacts in

California. I also conclude that SRL failed to make a compelling case to show the

assertion of jurisdiction over it in California would be unfair and unreasonable and that it

would be unfair to Sukumar and consumers similarly situated if California did not

exercise specific jurisdiction over SRL.

       As such, unlike the majority, I conclude for purposes of this dissent that Sukumar

has satisfied "prong one" of the CenterPoint test to establish jurisdiction over Panatta

and/or COM based on a successor liability theory.

       Under "prong two" as set out in CenterPoint, typically a successor company is

liable for a predecessor's actions if (1) there is an express or implied agreement of

                                              4
assumption; or (2) the transaction between the successor and predecessor amounts to a

consolidation or merger of the two; or (3) the successor is a mere continuation of the

predecessor; or (4) the transfer of assets to the successor is for the fraudulent purpose of

escaping liability for the predecessor's debts. (CenterPoint, supra, 157 Cal.App.4th at p.

1120; see also Ray v. Alad Corp., supra, 19 Cal.3d at p. 28.)

       Sukumar contends Panatta and COM are subject to jurisdiction based on the

second, third or fourth bases or theories set out in CenterPoint (i.e., merger; continuation;

and/or fraudulent transfer).

       1. Brief Additional Background

       The record shows that like SRL, Panatta manufactured and sold its own line of

exercise equipment and product. In 2006, Panatta was actively seeking to increase sales

of its exercise equipment in the United States, including in California.3 Panatta and SRL

in July 2006 formed a "strategic association," the terms of which were set forth in a

"private contract" translated from Italian into English. A press release issued on Air

Machine letterhead noted this alliance was important for the "future" of SRL because the

company needed a "great ally" after facing "difficult years of large investments" that

were inhibiting its growth potential.

       Under the private contract, Panatta and SRL agreed to form a joint venture. SRL

agreed to transfer to the joint venture (then named "newco," later to become COM) the

3      Although the record shows Panatta sold exercise equipment in 2005 and 2006 to
various distributors located in California, Sukumar does not contend that Panatta's
contacts in California were sufficient to subject Panatta to general jurisdiction in the
state.
                                              5
exclusive rights to its "intangible fixed assets" as set forth in an exhibit (written in Italian)

attached to the private contract. Panatta in turn agreed to grant the joint venture the

nonexclusive right to use Panatta's "network of agents, both in Italy and abroad, as well

as its own service centers," to market and distribute Air Machine equipment and product.

The private contract also provided that once the joint venture had taken over the Air

Machine brand, SRL could exercise a "put" option within a certain time period that

would require Panatta to purchase SRL's interest in the joint venture under a set formula

based in part on the earnings of the joint venture (before interest and tax).

       As contemplated by the private contract, Panatta transferred to COM the rights to

access its distribution network and service centers. Those rights were valued at a little

over €2 million. In return, Panatta received a 51 percent share of COM's stock. SRL, for

its part, transferred to COM exclusively "its intangible assets (i.e., patents and trademarks

owned by SRL[)] and allowed COM access to its list of customers and distributors[,]"

which were valued slightly below the rights transferred by Panatta in order to support

SRL's 49 percent ownership in COM. COM also retained an SRL officer (Riccardo

Piccioli) and various SRL employees (Sebastiano Zannoli, Giacomo Di Leo and Davide

Sanson), including its then export manager (Tomas Bilardo).

       In addition, the private contract between Panatta and SRL required SRL to change

its name to eliminate any reference to the brand name "Air Machine" and precluded SRL

from performing for five years "any activity" that competed with COM. SRL also agreed

to transfer its internet address to COM so that COM could use and control the

"airmachine.it" email domain and URL. COM also adopted SRL's web site as its own.

                                               6
       After COM's formation, SRL's 2006 year-end balance sheet showed that its debts

substantially outweighed its revenues; that it lost over €1.5 million in production costs in

2006; that its operating costs alone outweighed its revenue; that it owed banks nearly €3

million and suppliers over €1.5 million; and that a divestiture of assets (e.g., such as to

COM) would leave SRL more than €4.5 million in debt with no recourse for its creditors,

inasmuch as SRL did not transfer any of its liabilities to COM. SRL also reported no

bank deposits for the year ending in 2006.

       Although in existence less than a year, the record shows that COM in April 2007

marketed the "Air Machine systems" on Air Machine letterhead as a "leader for 20 years

in [the] medical and rehabilitation areas," which utilized the "best" technologies and

equipment "today." In that particular marketing brochure, other than the name and

address of "Air Machine COM srl" listed in very small font at the top of the page, there

was no mention that COM was a new entity formed by SRL and Panatta.

       The record also shows that in mid-April 2007, COM notified various existing and

potential customers about its formation and noted that it would continue and grow Air

Machine's "outstanding and innovat[ive]" technology, which had a proven track record

"[f]or more than 20 years" in the fitness, health and rehabilitative products industry.

       Similarly, a three-page "company profile," dated April 2007, stated in all capital

letters at the top on page 1, "AIR MACHINE: since 1985 . . . UNLIKE ANYTHING

ELSE," and then went on to discuss the fact that "Air Machine S.r.l. started in December

1985 in Cesena," Italy as a fitness company and has been "operating for more than 20

years" in the fitness market. That profile also stated that "[t]oday, Air Machine operates

                                              7
[in] both [the] fitness and medical market, through its dedicated product lines (both

cardio and isotonic)" and that the "Air System" is the "BEST SOLUTION FOR

METABOLIC FITNESS." Toward the bottom of page 2 of the company profile, COM

introduces itself as "THE FUTURE" and describes the "goal of Air Machine" as

"bringing fitness to a wider range of people."

       The record shows that various disputes arose between SRL and Panatta shortly

after they formed the joint venture that led to COM. Rather than litigate, Panatta and

SRL agreed to a settlement (translated from Italian into English) in October 2007, in

which Panatta paid SRL €90,000 net to complete the buyout of SRL's interest in COM.

Among other terms of the settlement, SRL (i) guaranteed that it had transferred to COM

all of its patents and trademarks for Air Machine products and that there existed no other

patents, assets, commercial agreements or legal relationships "useful or necessary" to

produce Air Machine equipment; (ii) assigned to Panatta the commercial contracts and

"whatever else is necessary" for the functioning of the software used in Air Machine

equipment; and (iii) agreed to sell to Panatta the molds SRL used in the production of the

Air Machine equipment.

       The record shows that at year-end 2007, COM valued its intangible assets at

€2.006 million, less depreciation.

       After SRL sold its 49 percent interest in COM, it appears SRL wound up its

business as evidenced by the fact that its registered operating facility was empty and in an

"abandoned state," that there was trash collecting outside the building and that a sign on

the front door of the building read, "for sale" and "for rent" (in Italian). In addition, the

                                               8
database repository for Italian corporate records and compulsory filings showed no 2007

balance sheet for SRL.

       2. Governing Law

       A corporate acquisition constitutes a consolidation or merger for jurisdictional

purposes if a plaintiff demonstrates "'(1) no adequate consideration was given for the

predecessor corporation's assets and made available for meeting the claims of its

unsecured creditors; [and] (2) one or more persons were officers, directors, or

stockholders of both corporations. [Citations.]'" (CenterPoint, supra, 157 Cal.App.4th at

p. 1121.) "However, it is not dispositive that some of the same persons may serve as

officers or directors of the two corporations. The relevant inquiries are whether the two

corporations have preserved their separate identities and whether recourse to the debtor

corporation is available. [Citation.]" (Ibid.)

       "In Marks [v. Minnesota Mining & Manufacturing Co. (1986)] 187 Cal.App.3d [at

page 1436], the trial court set out a checklist for determining whether a de facto merger

had taken place that would render the successor company liable for the plaintiff's product

liability claim: '(1) was the consideration paid for the assets solely stock of the purchaser

of its parent; (2) did the purchaser continue the same enterprise after the sale; (3) did the

shareholders of the seller become shareholders of the purchaser; (4) did the seller

liquidate; and (5) did the buyer assume the liabilities necessary to carry on the business of

the seller? [Citations.]'" (CenterPoint, supra, 157 Cal.App.4th at p. 1121.)

       Nonetheless, "'[t]he crucial factor in determining whether a corporate acquisition

constitutes either a de facto merger or a mere continuation is the same: whether adequate

                                                 9
cash consideration was paid for the predecessor corporation's assets.' [Citation.]"

(CenterPoint, supra, 157 Cal.App.4th at p. 1121, italics added.) This is because "a sale

for adequate cash consideration ensures that at the time of sale there are adequate means

to satisfy any claims made against the predecessor corporation." (Franklin v. USX Corp.

(2001) 87 Cal.App.4th 615, 625, italics added.)

       3. Analysis

       With regard to Panatta, I believe the primary issue is whether it paid SRL

"adequate cash consideration" when it purchased SRL's shares in COM for €90,000 a

little more than a year after SRL agreed to transfer its intangible assets to COM for a 49

percent ownership in COM. According to Sukumar, the value of the assets transferred by

SRL to COM was a little more than €2 million, as reflected in COM's balance sheet in

2007 and in 2008, and thus he contends the €90,000 cash payment comprised less than 5

percent of the reported value of those assets.

       Panatta claims the €2 million valuation for SRL's transfer of its Air Machine

patents and trademarks was for purposes of SRL's capital contribution to COM and thus

was not a true "cash or market valuation" of the SRL contribution. Panatta also claims

that SRL was advised by its own financial advisors that €90,000 was the fair value of

SRL's 49 percent ownership stake in COM, as also found by the trial court. Based on this

evidence, as well as SRL's 2006 year-end balance sheet showing that at the end of 2005,

SRL set a value of €36,390 for the intangible assets it transferred to COM, Panatta claims

the record contains substantial evidence to support the court's finding that Sukumar failed

                                             10
to carry his burden to show that SRL did not receive adequate cash consideration from

Panatta for the sale of its 49 percent share of COM.

       From my review of the entire record, I independently conclude the trial court erred

when it found Sukumar did not establish that Panatta paid inadequate cash consideration

for SRL's 49 percent stake in COM. (See CenterPoint, supra, 157 Cal.App.4th at p.

1121; see also F. Hoffman-LaRoche, Ltd. v. Superior Court, supra, 130 Cal.App.4th at p.

794 [noting the "ultimate question whether jurisdiction is fair and reasonable under all the

circumstances, based on the undisputed facts and those resolved by the court in favor of

the prevailing party, is a legal determination warranting independent review."].)

       Indeed, the settlement agreement between SRL and Panatta clearly shows there

were a series of commercial disputes between those two parties regarding COM and its

operations. Those disputes led to a series of payments and setoffs between SRL and

Panatta, as contained in their settlement. As a result of those disputes and in return for

their settlement, Panatta agreed to pay SRL €90,000 net in cash. I conclude that the

€90,000 sales figure was not the actual cash value of SRL's 49 percent interest in COM.

       I also conclude Panatta's €90,000 net cash payment to SRL was not "adequate

cash consideration" (see CenterPoint, supra, 157 Cal.App.4th at p. 1121, italics added) to

ensure there were "adequate means to satisfy any claims made against the predecessor

corporation" (see Franklin v. USX Corp., supra, 87 Cal.App.4th at p. 625). I base my

conclusion on the evidence in the record that: (i) SRL had "faced difficult years of large

investments inside [the] company" and that after SRL sold its interest in COM, it was left

with little or no cash assets and over €4.5 million in debt; (ii) SRL's registered operating

                                             11
facility was "for sale" and/or "for rent" and appeared abandoned and empty after the sale;

and (iii) on the front end of the transaction, Panatta and SRL valued SRL's contribution

of its intangible assets at about €2 million and that COM itself subsequently adopted a

similar valuation as well.

       That SRL may have received independent financial advice regarding the net value

of its 49 percent interest in COM—after taking into consideration the various commercial

disputes between the parties and the offsets to resolve them—does not change my

conclusion.4 A corporate acquisition may constitute a de facto merger when the

successor pays insufficient cash consideration for the predecessor's assets, which I

conclude is the case here. (See CenterPoint, supra, 157 Cal.App.4th at p. 1121.)

       Other factors also support my conclusion that SRL received insufficient cash

consideration for its interest in COM, including the fact that SRL was paid solely in stock

for the transfer of its intangible assets on the front end of the transaction. (See

CenterPoint, supra, 157 Cal.App.4th at p. 1121 [noting consideration paid only in stock

supports a finding of a de facto merger between the successor and predecessor].)

       In addition, the record supports the finding that Panatta and COM continued the

Air Machine enterprise after Panatta purchased SRL's interest in COM, as reflected by,

among other things: (i) the terms of the parties' agreements (i.e., their private contract and

4      I say may because the evidence in the record is less than compelling that SRL was
advised by its "own CPA as to the fair value of S.R.L.'s stock in COM" as Panatta and
COM argue. Rather, the record shows this evidence, which the trial court relied on in
finding SRL received an "independent financial analysis" regarding the valuation of its
interest in COM, was taken from the declaration of Angela Maria Tosti, who at the time
was the managing director of Panatta.
                                              12
settlement agreement) where SRL transferred to COM exclusively its patents,

trademarks, manufacturing molds and "know how" in the Air Machine brand and its

customer/distributor lists; (ii) various press and company releases on Air Machine

letterhead stating that Air Machine equipment and product would continue to be

manufactured in Italy as it had been for more than 20 years; (iii) COM's hiring of various

SRL employees familiar with the Air Machine equipment and product; (iv) COM's

control of the Air Machine website and its internet and email domains; and (v) SRL's

agreement to a stringent five-year noncompete clause in connection with the Air Machine

brand. (See CenterPoint, supra, 157 Cal.App.4th at p. 1121 [noting that the purchaser's

continuation of the same enterprise of the successor after the sale supports a finding of de

facto merger].)

       Finally, the record shows that SRL for all practical purposes ceased operations and

became effectively insolvent at or near the time it sold Panatta its interest in COM, as

evidenced by the "for sale" and/or "for rent" sign on the door of SRL's registered

operating facility, which was empty and appeared abandoned, and by its substantial debt.

(See CenterPoint, supra, 157 Cal.App.4th at p. 1121 [liquidation of predecessor is a

factor supporting a finding of de facto merger].)

       With respect to COM, I conclude many of these same factors support a finding of

successor jurisdiction over it based on the "mere continuation" doctrine, an independent

jurisdictional base. (See McClellan v. Northridge Park Townhome Owners Assn. (2001)

89 Cal.App.4th 746, 753 [noting this doctrine applies when, among other factors, all the

assets of one corporation are transferred to another corporation, but the latter "does not

                                             13
pay all the first corporation's debts[] and continues to carry on the same business" as the

first corporation].)

       In sum, after reviewing the entire record and taking into account "'the totality of

the unusual circumstances'" (see CenterPoint, supra, 157 Cal.App.4th at p. 1122) and

considerations of "fairness and equity" (ibid.), I conclude that Panatta and COM are

subject to jurisdiction in California as successors to SRL.5 As such, I would vacate the

trial court's order granting their separate motions to quash and direct the court to enter a

new order denying each party's motion.

                                                                        BENKE, Acting P. J.

5       Because I conclude Panatta (under the de facto merger doctrine) and COM (under
the mere continuation doctrine) are subject to jurisdiction in California under a successor
theory, unlike the majority I deem it unnecessary to reach Sukumar's alternative
contentions to establish jurisdiction (e.g., that Panatta and/or COM are subject to specific
jurisdiction based on their own activities/contacts) in the forum state.
                                             14