Rivelli v. Hemm
| Decision Date | 02 August 2021 |
| Docket Number | H046878 |
| Citation | 67 Cal.App.5th 380,282 Cal.Rptr.3d 181 |
| Parties | Patrick J. RIVELLI et al., Plaintiffs and Appellants, v. Frank HEMM et al., Defendants and Respondents. |
| Court | California Court of Appeals Court of Appeals |
Counsel for Plaintiffs/Appellants Patrick J. Rivelli and Pinecroft Ventures, LLC: Robert A. Goodin, Keith E. Johnson, Goodin, MacBride, Squeri & Day, LLP, San Francisco
Counsel for Defendants/Respondents Frank Hemm and Institut Straumann AG: René Pierre Tatro, Juliet A. Markowitz, Tatro Tekosky Sadwick, LLP, Los Angeles
In this appeal, we decide whether a Swiss company and its executive vice president, a Swiss citizen and resident, are subject to suit in California court for claims related to the purchase by the Swiss company of shares of a privately-held California corporation. The trial court granted the Swiss defendants' motions to quash service of summons for lack of personal jurisdiction. For the reasons explained below, we affirm the order.
Appellants Patrick Rivelli (Rivelli) and Pinecroft Ventures, LLC (Pinecroft) are Series A preferred shareholders in Rodo Medical, Inc. (Rodo), a medical device company in the field of dental implants
. Rivelli is a resident of Massachusetts, and Pinecroft is a Nevada limited liability company with its primary place of business in Incline Village, Nevada. Rodo is a California corporation with its primary place of business in San Jose, California.
Rivelli and Pinecroft (together, appellants) filed this lawsuit against Rodo and certain Rodo officers and directors (collectively, defendants).2 Only two of these defendants—Institut Straumann AG and Frank Hemm (together, respondents or Swiss defendants)—are party to this appeal. Institut Straumann AG (Straumann) is a foreign corporation with its primary place of business in Basel, Switzerland. Straumann, like Rodo, manufactures and distributes dental supplies and equipment, specializing in tooth replacement and restoration. Straumann holds a minority equity ownership interest in Rodo. Frank Hemm (Hemm) is a citizen and resident of Switzerland. Hemm is a corporate officer of Straumann and, at all times relevant to this appeal, was a Rodo director.
Appellants Rivelli and Pinecroft acquired their shares in Rodo in 2010, shortly after Rodo was founded. They were among several investors who bought Series A Preferred Stock (Series A) in Rodo based on various representations by the company, including that Series A shareholders would retain a liquidation preference over common stockholders, would have their own representative on Rodo's board of directors, would have certain preemption and anti-dilution rights, and that the Series A shares would be non-redeemable.
In 2014, Straumann—the Swiss company—acquired a 12 percent minority interest in Rodo. Hemm, an executive vice president of Straumann, joined Rodo's board of directors in April 2016.3 Hemm served as a Rodo director, and at times as a member of the Rodo board's compensation committee, until May 2018.
In late 2016, Rodo received approval from the United States Food & Drug Administration (FDA) to sell its dental device. Rodo's management began to negotiate with Straumann the terms of a stock purchase agreement, referred to by the parties as the "Straumann Transaction" (hereafter, "the transaction"). The transaction ultimately increased Straumann's equity interest in Rodo from 12 percent to 30 percent.
From September 2016 through December 2016, Hemm participated on behalf of Straumann in Rodo board discussions concerning the transaction, but Hemm asserts he did not participate in the Rodo board's decisions or in the vote approving the transaction. Rodo's board meetings were conducted in California.
Hemm attended Rodo board meetings on at least 13 occasions between September 2016 and April 2018, primarily by phone and at least once in person. According to Hemm, his role as a Rodo director during that time "centered on providing insight to Rodo regarding the suitability of its product portfolio and its commercialization strategy (sales channels, pricing, regulatory requirements) in and outside the United States." According to appellant Rivelli, Hemm traveled to California to attend board meetings in person in September 2016 and December 2016 and did not fully recuse himself from negotiations or discussions related to the transaction but instead attempted to dissuade the board from considering deals with other investors.
In March 2017, Rodo's board approved the transaction and authorized Rodo's management to solicit shareholder approval of the transaction. An information statement detailing the transaction, its risks and benefits, and the consequences of its approval was sent to Rodo shareholders, requesting their written consent. Hemm did not participate in the drafting of the information statement. For those shareholders holding shares of preferred stock, the information statement further asked them to sign amended and restated voting, investor rights, and co-sale agreements.
The transaction closed on April 13, 2017, at the Palo Alto, California offices of Rodo's legal counsel. The transaction is memorialized in a set of at least eight documents, including an amended and restated investor rights agreement, an amended and restated voting agreement, a stock purchase and exchange agreement, an exclusive distribution agreement, a right of first refusal agreement, a revolving line of credit term sheet, and an indemnification agreement.4 Hemm signed the agreements on behalf of Straumann, as did Straumann's general counsel, Dr. Andreas Meier.
Through the transaction, Straumann gained an additional seat on the Rodo board of directors (for a total of two seats), became Rodo's exclusive worldwide distributor (excepting the United States, Canada, Hong Kong and South Korea) under an exclusive distributorship and license agreement, agreed to establish a revolving $5 million line of credit between Straumann and Rodo (if requested by Rodo and subject to negotiation of a separate credit agreement), and gained "considerable influence over the long-term viability of" Rodo, as explained in the information statement presented to Rodo's shareholders.
The transaction limited Rodo's control of acquisition and financing for four to six years and rendered shares held by shareholders other than Straumann, including those of the Series A shareholders, subject to redemption.
The transaction documents state that proceeds of the sale of shares to Straumann are to be used for general working capital for Rodo. The exclusive distributorship and license agreement imposes obligations on both companies. These obligations include Rodo's provision of cooperation, information, material, and support to Straumann, Rodo's provision of reasonable assistance in any regulatory approval process, and Straumann's commitment to meeting annual milestones related to purchasing Rodo's product and issuing purchase orders to Rodo. The exclusive distributorship and license agreement also gives Straumann the right to manufacture accessory products compatible with Rodo's products, and for Rodo to receive a royalty on those sales. The distributorship agreement does not select California law to govern the agreement; however, the other agreements, including the stock purchase agreement, each contain a California choice of law provision.
Appellant Rivelli states that he was the only Rodo board member who opposed the transaction. According to the information statement, upon the close of the transaction Rivelli would "no longer be a director" of Rodo. Rivelli alleges, however, that he was removed from the board without a shareholder vote, in breach of the voting agreement and California law. Rivelli communicated his concerns about the transaction to the Rodo board, both in person and in writing, before filing this civil action in April 2018.
The operative, first amended complaint (complaint) asserts causes of action against Hemm and Straumann, for fraud,5 breach of fiduciary duty (against Hemm, among other directors), aiding and abetting breach of fiduciary duty (against Straumann), and statutory violations of the Corporations Code. It alleges, in relevant part, that defendants materially mispresented the transaction to Rodo's shareholders to obtain their consent; that the director defendants—aided and abetted by Straumann—breached their fiduciary duties by failing to act in the best interests of Rodo and its shareholders and by engaging in self-dealing; and that defendants violated California law by replacing a seat on the board without the written consent of those shareholders entitled to vote for the election of directors, by withholding company information from a director, and by altering the rights of Series A shareholders without a separate vote. The complaint seeks declaratory and injunctive relief, rescission of the transaction, and compensatory and punitive damages.
After initial attempts to serve a copy of the summons and complaint on Straumann, and a dismissal without prejudice based in part on improper service after the trial court granted an earlier motion to quash brought by Straumann, appellants effected service of the summons and complaint on both Straumann and Hemm through the Hague Service Convention. In response, respondents each appeared specially and moved to quash for lack of personal jurisdiction. The separate motions to quash service of summons asserted that appellants could not satisfy their burden of establishing personal jurisdiction because they could not demonstrate purposeful availment by either Straumann or Hemm of the benefits of the California forum, nor that the controversy was related to or arose out of Straumann's or Hemm's contacts with the forum.
Straumann submitted the following uncontroverted evidence in support of its motion to quash. Straumann is incorporated under the laws of Switzerland, with its principal place of...
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