Bushansky v. Soon-Shiong

• Citation: 234 Cal.Rptr.3d 54,23 Cal.App.5th 1000
• Decision Date: 25 May 2018
• Docket Number: D072213
• Court: California Court of Appeals
• Parties: Stephen BUSHANSKY, Plaintiff and Appellant, v. Patrick SOON-SHIONG et al., Defendants and Respondents.

23 Cal.App.5th 1000

234 Cal.Rptr.3d 54

Stephen BUSHANSKY, Plaintiff and Appellant,

v.Patrick SOON-SHIONG et al., Defendants and Respondents.

D072213

Court of Appeal, Fourth District, Division 1, California.

Filed May 25, 2018

Weisslaw, Joel E. Elkins, Los Angeles, David C. Katz and Joseph H. Weiss, for Plaintiff and Appellant.

Wilson Sonsini Goodrich & Rosati, Boris Feldman, Cynthia A. Dy and Cheryl W. Foung, Palo Alto, for Defendants and Respondents Patrick Soon-Shiong, Barry J. Simon, Steve Gorlin, Michael D. Blaszyk, Henry Ji, Richard Kusserow, John T. Potts, Jr., Robert Rosen, John C. Thomas, Jr., Richard Gromberg and NantKwest, Inc.

Hunton & Williams, Philip J. Eskenazi, and Andrew J. Peterson, Los Angeles, for Defendant and Respondent Mayer Hoffman McCann.

DATO, J.

Plaintiff Stephen Bushansky filed a shareholder derivative action in San Diego Superior Court on behalf of nominal defendant NantKwest, Inc. Based on a forum selection provision contained in NantKwest's certificate of incorporation that generally designates Delaware as the forum for shareholder derivative actions, the trial court dismissed Bushansky's suit.

On appeal, Bushansky argues that the forum selection provision was never triggered since a condition precedent to its operation was never met. That condition requires that Delaware courts have personal jurisdiction over all indispensable parties named as defendants. Since Delaware courts lacked jurisdiction over one of the defendants at the time the action was filed in California, Bushansky urges that the condition was not met and, thus, the forum selection provision was not triggered.

The provision, however, does not specify that personal jurisdiction must be determined as of the date an action is filed and no later. In fact, it is silent as to when personal jurisdiction in Delaware must exist. Faced with that silence, we—in accord with a well-established principle of contract law—presume that the parties intended a reasonable timeframe for the condition to be fulfilled. As we shall explain, here the condition was satisfied within a reasonable amount of time. Accordingly, dismissal based on the forum selection clause was proper.

FACTUAL AND PROCEDURAL BACKGROUND

Bushansky filed a shareholder derivative action in San Diego Superior Court on behalf of nominal defendant NantKwest, a Delaware corporation headquartered in California. The complaint alleged causes of action against NantKwest's directors and officers for breaches of fiduciary duty. It also alleged a malpractice claim and aiding/abetting claim against Mayer Hoffman McCann PC (the Auditor), an accounting firm that served as NantKwest's auditor. The Auditor is a Missouri professional corporation with offices in California.

NantKwest moved to dismiss the suit based on forum non conveniens, arguing that a forum selection provision in its certificate of incorporation mandated dismissal. ( Code Civ. Proc., §§ 410.30, 418.10.) The provision states, in relevant part:

"Unless the Corporation consents in writing to the selection of an alternative forum and to the fullest extent permitted by law, the Court of Chancery of the State of Delaware (or, if such court lacks jurisdiction, any other state or federal court located within the State of Delaware) shall be the sole and exclusive forum for ... any derivative action or proceeding brought on behalf of the Corporation ...; in all cases subject to the court's having personal jurisdiction over the indispensable parties named as defendants ." (Italics added.)

The Auditor joined NantKwest's motion to dismiss and demurred. All the other defendants demurred too. The Auditor's demurrer specified that "for this derivative action, [it] consents to venue in the Delaware Court of Chancery."

In opposition to NantKwest's motion to dismiss, Bushansky argued that the final clause of the forum selection provision—"in all cases subject to the court's having personal jurisdiction over the indispensable parties named as defendants"—was not met. It was (and is) undisputed that there was no personal jurisdiction over the Auditor in Delaware when the suit was filed in California.¹ Bushansky asserted that the Auditor's later consent to personal jurisdiction in the Delaware Court of Chancery was insufficient to satisfy the provision's final clause, which Bushansky characterized as a condition precedent to its operation. Bushansky also argued that the provision was permissive, not mandatory, and that the traditional forum non conveniens factors counseled in favor of hearing the action in California.

The trial court rejected Bushansky's arguments and granted the motion to dismiss. Characterizing the forum selection clause as mandatory and not permissive, it reasoned that the Auditor's later consent to jurisdiction in Delaware satisfied the provision. The court further concluded that even if the clause was not triggered by the Auditor's postfiling consent, Bushansky could not take advantage of that fact since he "deprived [the Auditor] of the opportunity to consent to jurisdiction at the outset" by failing to "present a litigation demand on [NantKwest's] Board." (See 1 Witkin, Summary of Cal. Law (11th ed.) Contracts § 846, p. 897 ["A person cannot take advantage of his or her own act or omission to escape liability; if the person prevents or makes impossible the performance or happening of a condition precedent, the condition is excused"].) It deemed the pending demurrers moot given its ruling on the motion to dismiss.

DISCUSSION

In this appeal, we must determine whether dismissal was warranted in light of the forum selection clause contained in NantKwest's certificate of incorporation. We conclude it was.

1. Background Principles and Standard of Review

The parties spend considerable time and space debating who has what burden on the crucial issue in this case. We therefore review the applicable principles.

The parties agree that NantKwest's certificate of incorporation constitutes a contractual agreement between the corporation and its shareholders. (See Airgas, Inc. v. Air Products & Chemicals, Inc. (Del. 2010) 8 A.3d 1182, 1188 ( Airgas ) ["Corporate charters and bylaws are contracts among a corporation's shareholders"].) Where a plaintiff brings suit in California, the potential applicability of a contractual forum selection clause is raised by the defendant through a motion to dismiss on grounds of forum non conveniens.² ( Berg, supra, 61 Cal.App.4th at p. 358, 71 Cal.Rptr.2d 523.) As the moving party here, NantKwest bore the initial burden. (See Stangvik v. Shiley, Inc. (1991) 54 Cal.3d 744, 751, 1 Cal.Rptr.2d 556, 819 P.2d 14 ( Stangvik ).) It sought to satisfy that burden by invoking the forum selection clause in its certificate of incorporation, arguing that the burden then shifted to the plaintiff to show that enforcement of clause was somehow precluded.

Defendants rely heavily on case law suggesting that where a "mandatory" forum selection clause is involved, the party opposing enforcement of the clause bears the burden of proof. ( Cal-State Business Products & Services, Inc. v. Ricoh (1993) 12 Cal.App.4th 1666, 1679–1680, 16 Cal.Rptr.2d 417 ( Cal-State ); see Smith, Valentino & Smith, Inc. v. Superior Court (1976) 17 Cal.3d 491, 496, 131 Cal.Rptr. 374, 551 P.2d 1206 ( Smith ).) It is true that a party seeking to avoid enforcement of an otherwise applicable forum selection clause has the burden of proving that such enforcement would be unreasonable. ( Smith , at p. 496, 131 Cal.Rptr. 374, 551 P.2d 1206.) But defendants' burden-shifting argument puts the cart before the horse in assuming the forum selection clause is otherwise applicable. Whether the clause applies to the facts of this case—where the Auditor consented to personal jurisdiction in Delaware only after the lawsuit was filed in California—presents a preliminary question of contract interpretation. If no extrinsic evidence was presented, as none was in this case, we review that issue de novo. ( Animal Film , supra , 193 Cal.App.4th at p. 471, 123 Cal.Rptr.3d 72 ; Intershop Communications AG v. Superior Court (2002) 104 Cal.App.4th 191, 196, 127 Cal.Rptr.2d 847 ( Intershop ).)

Relying on Cal-State , supra , 12 Cal.App.4th 1666, 16 Cal.Rptr.2d 417, defendants suggest that to some extent our review is for substantial evidence. ( Id. at p. 1680, 16 Cal.Rptr.2d 417.) This contention overreads Cal-State , which said "a substantial-evidence standard of review applies where a forum has been selected by contract." ( Ibid. )³ That statement was made in reference to assessing the trial court's decision as to the reasonableness of enforcement. But Bushansky is not arguing that we should decline to enforce the provision as unreasonable; rather he contends the provision does not apply—i.e., the "forum has [not ] been selected by contract" under the present circumstances. ( Ibid. ) We thus review the issue de novo given the absence of conflicting evidence.

2. The Provision Was Triggered

With those background principles in mind, we turn to interpretation of the forum selection provision in this case. Central to this appeal is its final clause: "in all cases subject to the court's having personal jurisdiction over all indispensable parties named as defendants."

As a threshold matter, we observe that the parties—at least in certain parts of their briefing—seem to agree that Delaware law governs the interpretation of NantKwest's certificate of incorporation. Yet they also cite law from a multitude of other jurisdictions, and defendants at one point even assert that California law militates in favor of a particular interpretation of the certificate. For the sake of clarity, we note that as a California court we generally apply California law except to the extent there is a conflict, in which case Delaware law governs the interpretation. ( Hurtado v. Superior Court (1974) 11 Cal.3d 574, 580–581, 114 Cal.Rptr. 106, 522 P.2d 666 ; see State Farm Mutual Automobile Ins. Co. v....