Berg v. MTC Electronics Technologies

• Decision Date: 05 February 1998
• Docket Number: No. B109755,B109755
• Citation: 61 Cal.App.4th 349,71 Cal.Rptr.2d 523
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 986, 98 Daily Journal D.A.R. 1318 Ken BERG et al., Plaintiffs and Appellants, v. MTC ELECTRONIC TECHNOLOGIES Co., Ltd. et al., Defendants and Respondents.

Page 523

71 Cal.Rptr.2d 523

61 Cal.App.4th 349, 98 Cal. Daily Op. Serv. 986,

98 Daily Journal D.A.R. 1318

Ken BERG et al., Plaintiffs and Appellants, v. MTC ELECTRONIC TECHNOLOGIES Co., Ltd. et al., Defendants and Respondents.

No. B109755.

Court of Appeal, Second District, Division 2, California.

Feb. 5, 1998.

Review Denied April 29, 1998.

Nagler & Associates, Lawrence H. Nagler, Robert M. Zabb and David F. Berry, Beverly Hills, for Plaintiffs and Appellants.

Bradley E. Brook, Irell & Manella, Alexander F. Wiles, Jessica M. Weisel, Quinn, Emanuel, Urquhart & Oliver, William Urquhart, Shapiro, Rosenfeld & Close, Edward M. Rosenfeld, Proskauer Rose Goetz & Mendelsohn, Lori Sambol, Alain H. Fairley and Stephen C. Krane, Los Angeles, for Defendants and Respondents.

ZEBROWSKI, Associate Justice.

This shareholder action raises questions of forum non conveniens. Two issues predominate. The first concerns the effect on forum non conveniens analysis of a clause by which a party submits to jurisdiction in California. The second concerns the circumstances in which a case filed in California by a California resident can properly be stayed pending litigation elsewhere.

The trial court stayed the instant action in favor of litigation of several similar suits pending in the United States District Court for the Eastern District of New York in Brooklyn ("EDNY"). The instant action as well as the previous suits pending in the EDNY all arise out of transactions involving the stock of MTC Electronic Technologies Co., Ltd. ("MTC"), and the activities of MTC in the telecommunications business in China. MTC, numerous MTC directors and officers, and MTC's underwriters and auditors are defendants in the litigation pending in the EDNY.

MTC is a British Columbia corporation. The clause by which MTC submitted to jurisdiction in California is contained in a prospectus for an MTC stock issue. The clause states simply that MTC has submitted to jurisdiction in Los Angeles. The clause does not expressly mandate Los Angeles as the exclusive forum in which any claims against MTC must be resolved, as "mandatory" forum selection clauses do. Instead, the clause in issue here is worded simply to submit a foreign corporation (MTC) to jurisdiction in Los Angeles.

Broadly worded service of suit clauses, by which a party submits to jurisdiction in any competent court, have been found not to be mandatory forum selection clauses. The clause in issue here is more narrowly worded; it submits MTC only to the jurisdiction of courts in Los Angeles, rather than to the jurisdiction of any competent court. The cases nevertheless interpret clauses of this type to confer personal jurisdiction on the selected forum, but not to mandate resolution of the dispute in that forum regardless of other considerations. The rigorous restrictions on avoidance of mandatory forum selection clauses therefore do not apply to this case. Instead, although the clause in issue is an important consideration, it is only one among many factors which must be evaluated in a proper forum non conveniens analysis.

The second issue, regarding when a case filed in California by a California resident may be stayed, implicates considerations of comity and judicial economy as opposed to California's strong interest in protecting the interests of California plaintiffs. Considerations of comity and judicial economy can sometimes justify a stay even if California plaintiffs are involved.

Under the circumstances of this case, the trial judge acted within the scope of her permissible discretion when she stayed the instant action. The order staying the instant action pending litigation of the related actions in the EDNY will therefore be affirmed.

I. FACTUAL AND PROCEDURAL BACKGROUND.

The focus of the instant action is MTC's representations concerning its involvement in the emerging telecommunications industry in the People's Republic of China. MTC's involvement in China also forms the subject matter of numerous other lawsuits, all of them pending in the EDNY. The allegations advanced in these numerous MTC lawsuits are detailed and complex, but a skeletal outline is sufficient to illustrate the forum non conveniens issues.

a. The "MTC I" and "MTC II" lawsuits.

In 1993, MTC shareholders filed three class actions in the EDNY. Named as defendants were MTC, numerous directors and officers of MTC, MTC's underwriters (plus an affiliated company which allegedly assisted in marketing MTC stock), and MTC's auditors. These actions were consolidated ("MTC I") and eventually assigned to Judge Gleeson and Chief Magistrate Chrein (the "EDNY judges"). In 1994, another class action was filed in the EDNY against substantially the same defendants ("MTC II"). MTC II was assigned to the same EDNY judges.

Both MTC I and MTC II revolve around allegations of false statements concerning MTC's activities in selling fax machines, cellular telephones and pagers in China. MTC I was brought on behalf of all persons who purchased MTC stock during a class period ending February 22, 1993. MTC II was brought on behalf of all persons who purchased MTC stock during a class period beginning February 25, 1993. MTC II thus takes up chronologically close to where MTC I leaves off.

Both MTC I and MTC II allege fraudulent activities in violation of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78j, 78t), Securities and Exchange Commission Rule 10b-5, and the Racketeer Influenced and Corrupt Organizations Act ("RICO"). In 1994, an additional action was filed in the EDNY, pleading claims identical to MTC I, apparently for the sole purpose of adding another class representative to the MTC I litigation. This latter case was also assigned to the same EDNY judges. For purposes of forum non conveniens analysis, we consider this latter case to be part of MTC I.

b. The Kayne case.

In 1995, another MTC case was filed in the United States District Court for the Central District of California in Los Angeles ("Kayne"). The plaintiffs in Kayne are MTC shareholders. The defendants are MTC and numerous directors and officers of MTC. The Kayne case alleges, similarly to MTC I and MTC II, fraud in connection with MTC's cellular phone, pager and fax activities in China, as well as claims of improprieties in connection with an ensuing hostile takeover battle. The Kayne complaint pleads violations of sections 10(b) and 20 of the Securities Exchange Act of 1934 (15 U.S.C. §§ 78j, 78t) and Securities and Exchange Commission Rule 10b-5, plus pendent state claims of fraud, negligent misrepresentation, breach of fiduciary duty and violations of the California Corporations Code, as well as other claims. The time period during which the Kayne plaintiffs allegedly bought MTC stock coincides in large part with the combined class periods alleged in MTC I and MTC II.

c. The Ruling of the MDL Panel.

After the Kayne case was filed, MTC plus ten director and officer defendants filed a motion with the federal Judicial Panel on Multidistrict Litigation (the "MDL panel") seeking transfer of the Kayne case to the EDNY for coordination with MTC I and MTC II. The MDL panel granted the motion, finding that the Kayne case and MTC I and MTC II "involve common questions of fact, and that centralization ... in the Eastern District of New York will best serve the convenience of the parties and witnesses and promote the just and efficient conduct of the litigation. While some differences may exist among the actions in terms of parties, claims, and time periods involved, all actions are rooted in allegations that defendants engaged in multiple misrepresentations and omissions regarding MTC's telecommunications business in China. Centralization ... is thus necessary in order to eliminate duplicative discovery, prevent inconsistent pretrial rulings, and conserve the resources of the parties, their counsel and the judiciary." The Kayne case was transferred to the EDNY and assigned to the same EDNY judges. (The MTC I case, MTC II case and the Kayne case are sometimes hereafter referred to collectively as the "EDNY cases.")

d. This action.

In 1996, the instant action was filed in the Superior Court in Los Angeles. Plaintiffs again are shareholders of MTC. The defendants are MTC, several subsidiary or affiliated corporations, numerous MTC directors and officers, MTC's underwriter and auditor, a company that assisted in the marketing of MTC stock, and MTC's California securities counsel. The instant action again seeks recovery for losses allegedly sustained in purchasing MTC stock on the basis of misrepresentations about MTC's telecommunications business in China.

e. The motion to stay and this appeal.

Numerous defendants filed a joint motion to stay the instant action pending litigation of the EDNY cases. The defendants argued traditional forum non conveniens, and additionally argued that a court also has "inherent authority," apart from its forum non conveniens authority, to stay an action when a federal action is pending covering the same or similar subject matter. The plaintiffs opposed, emphasizing the interest of California in protecting California plaintiffs and the clause in MTC's prospectus.

The trial court granted the motion, and this appeal followed ¹. Since we will conclude that the trial court ruled properly in staying this action on traditional forum non conveniens grounds, we need not reach the question of whether a court has "inherent authority" to stay an action even if forum non conveniens considerations do not warrant a stay.

II. DISCUSSION.

a. The actions of the MDL panel and the EDNY.

Much of plaintiffs' briefing is devoted to attacking the transfer order of the MDL panel and the rulings of the EDNY judges. Plaintiffs first complain that the MDL panel's transfer order reflects insufficient respect for the desire of a California plaintiff to litigate in California (citing Judge Kozinski's dissenting opinion...