Quattrone v. Superior Court

• Citation: 44 Cal.App.3d 296,118 Cal.Rptr. 548
• Court: California Court of Appeals
• Decision Date: 03 January 1975
• Parties: Philip P. QUATTRONE, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, Respondent; WHITTAKER CORPORATION, a corporation, Real Party in Interest. Civ. 44881.

Page 548

118 Cal.Rptr. 548

44 Cal.App.3d 296

Philip P. QUATTRONE, Petitioner, v. SUPERIOR COURT of the State of California FOR the COUNTY OF LOS ANGELES, Respondent WHITTAKER CORPORATION, a corporation, Real Party in Interest.

Civ. 44881.

Court of Appeal, Second District, Division 3, California.

Jan. 3, 1975.

Sedgwick, Detert, Moran & Arnold and Stephen Jones, San Francisco, for petitioner.

No appearance for respondent.

Gibson, Dunn & Crutcher, Wesley G. Howell, Jr., Roy G. Spece, Jr., and Ronald K. Fujikawa, Los Angeles, for real party in interest.

POTTER, Associate Justice.

This is a petition for writ of mandate pursuant to Code of Civil Procedure section 418.10, subdivision (c), to review respondent court's denial of a motion to quash service of summons made by mail on a Pennsylvania resident. In its complaint for damages, real party in interest, Whittaker Corporation (hereinafter 'Plaintiff'), a California corporation with its principal office in Los Angeles, alleged a conspiracy among petitioner Philip P Quattrone (hereinafter 'Defendant'), three other named conspirators and numerous Does to defraud Plaintiff by submitting to it falsified financial records relating to the operations of Crown Aluminum Industries Corp. (hereinafter 'Crown'), a Pennsylvania-based subsidiary of Plaintiff. Crown, acquired by Plaintiff in 1967 under an 'Acquisition Agreement and Plan of Reorganization,' had continued to operate under its existing management pursuant to a supplemental agreement covering 'Conduct of Business After Closing.'

The Acquisition Agreement provided for the exchange of Crown shares for shares of Plaintiff issued for such purpose under either of two options at the election of the Crown shareholders. One option under which 12.1 shares of Crown were exchanged for 1 share of Plaintiff included participation in a 'Reserve Stock A Performance Program' under which additional shares of Plaintiff's stock would be issued by Plaintiff, based upon the profit performance of Crown during a two-year period following closing. Fraudulent financial records of Crown's operations allegedly supplied to Plaintiff by the conspirators caused it to issue 18,607 shares of its common stock in 1969 which were not properly issuable in view of the true profit experienced by Crown.

Other injury allegedly incurred by Plaintiff as a result of the conspiracy and the continued submission of false financial information through 1972 included that resulting from contribution of additional capital based upon assumed earning capacity and loss of a beneficial contract to sell Crown when the true facts were discovered, bringing the total damage alleged to $11,000,000.

The other named defendants answered; Defendant made a timely motion under Code of Civil Procedure section 418.10 to quash service of summons on the ground of lack of jurisdiction of the court over him, and to dismiss the action on the ground of inconvenient forum.

In support of the motions, Defendant filed his affidavit comprising two pages. This affidavit stated that from August 1, 1963 to February 1, 1972, Defendant worked for Crown in Pittsburgh, Pennsylvania, and lived in that area, and that his only activities outside Pennsylvania were occasional visits to the company's plant in Roxboro, North Carolina. Petitioner further averred that after the Acquisition Agreement went into effect, he was 'asked to be acting controller of Crown' but was never asked to be or elected an officer either of Crown or of Plaintiff. Defendant stated his present employment was in a small accounting business in Pennsylvania, where he remained a registered voter. He denied (1) doing any business in the State of California, (2) receiving any income from California corporations or businesses, and (3) having solicited any clients in California.

In response to Defendant's motion, Plaintiff submitted two declarations. The declaration of Albert A. Murphy, who made an operational audit of Crown in 1972, detailed an interview with Defendant in which Defendant allegedly said that he had been responsible for the preparation of financial reports relating to Crown from 1968 to 1972, and that he had participated in the preparation and submission of deceptive financial reports designed to 'cover' inventory shortages apparent from Crown's primary records in 1969, 1970 and 1971. The other declaration was that of Harry S. Derbyshire, Plaintiff's senior vice-president and, since 1967, chief financial officer. It explained Defendant's relationship to the so-called 'Reserve Stock A Performance Program' under the Acquisition Agreement. Derbyshire stated that defendant was one of the former Crown shareholders who elected to participate in said program and thereby to receive additional reserve shares based upon the profitability of Crown for the two fiscal years ending October 31, 1969. He further stated that '(i)n direct reliance upon the fraudulent financial information prepared by Crown employees, Whittaker issued 27,663 'reserve' shares to participating shareholders,' that '(h)ad the true results of Crown's operation been reported, only 9,056 'reserve' shares would have been issued,' and that the market value of Plaintiff's stock in 1969 was $24.875 per share. Derbyshire's declaration also averred in general terms that Plaintiff infused additional capital into Crown's operations on the basis of the false financial reporting and that a 1972 proposed sale of Crown's assets and business to a third party was rescinded by such third party when a Price Waterhouse audit disclosed an inventory shortgage of approximately $6,000,000 (excess of book inventory over physical inventory).

Defendant's motion to quash and to dismiss was heard on August 21, 1974, and on that date both motions were denied. Notice of entry of said order was waived. Thereafter, on September 4, 1974, Defendant filed with this court his petition for writ of mandate. This was one day beyond the ten-day period within which defendant was permitted to petition this court for a writ of mandate. (Code Civ.Proc., § 418.10, subd. (b).) The last day for filing was Tuesday, September 3, 1974, inasmuch as the tenth day fell on Saturday, August 31, 1974, and Monday was Labor Day. An examination of the superior court file reveals that no extension was granted by that court. ¹ In the absence of knowledge of this fact, the clerk of this court filed the petition and this court granted the alternative writ. When the superior court file revealed the absence of an extension, this court informed defendant that a showing under Code of Civil Procedure section 473 was required, establishing that the late filing was the result of inadvertence or excusable neglect.

The declaration of counsel for defendant was thereafter filed and stated that the petition was mailed for filing from San Francisco, California, on Friday, August 30, 1974, and that counsel, on the basis of prior experience in mailing matters between San Francisco and Los Angeles, believed it was resonable to expect that it would arrive and be filed not later than Tuesday, September 3d. Counsel's declaration further stated that if this court had declined to file the petition or had summarily denied the application on the ground of late filing, he would have petitioned the superior court for an extension.

Under such circumstances, this court is authorized to grant relief from default under equitable principles or under section 473 of the Code of Civil Procedure. (Cornell University Medical College v. Superior Court, 38 Cal.App.3d 311, 315, 113 Cal.Rptr. 291.)

We are not disposed to affirm the reasonableness of counsel's assumption that mail posted in San Francisco on Friday will be delivered in Los Angeles the first business day of the following week. However, under the particular circumstances of this case, we believe defendant is entitled to have his jurisdictional objection considered on the merits. As pointed out in Cornell, supra at p. 314, 113 Cal.Rptr. 291, if defendant's petition had been promptly denied by this court because of late filing, he could have sought an extension of time from the superior court. By the time attention was called to the late filing, the period within which such extension could have been granted and expired. Accordingly, relief will be granted from the default, and defendant's petition will be considered on its merits.

In his memorandum of points and authorities in support of the petition, Defendant relies exclusively upon the proposition that he is not amenable to the jurisdiction of the California court because, in the absence of the required minimum contact between him and this state, maintenance of the suit would offend traditional notions of fair play and substantial justice. He has not attempted to argue that the court abused its discretion in failing to dismiss on the ground of inconvenient forum. ²

The controlling issue in this proceeding is, therefore, the propriety of the superior court's order denying the motion to quash the service of summons.

Section 410.10 of the Code of Civil Procedure provides:

'A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of this state or of the United States.'

By imposing no limitation except those imposed by constitutional considerations, this section authorizes the broadest possible exercise of judicial jurisdiction. In its 1969 Annual Report to the Governor and the Legislature, the Judicial Council of California commented at length upon the effect of Code of Civil Procedure section 410.10. Its comment in that respect is reprinted as an annotation to Code of Civil Procedure section 410.10 in West's Annotated California Codes. The Judicial Council Comment on said section states:

'All the recognized bases of judicial jurisdiction are included. In the case of natural persons, such bases currently include presence, domicil, residence, citizenship, consent, appearance,...