Sonora Diamond Corp. v. Superior Court, F034780.

Citation99 Cal.Rptr.2d 824,83 Cal.App.4th 523
Decision Date30 August 2000
Docket NumberNo. F034780.,F034780.
CourtCalifornia Court of Appeals
PartiesSONORA DIAMOND CORP., Petitioner, v. SUPERIOR COURT of Tuolumne County, Respondent; Sonora Union High School District, Real Party in Interest.

Carlsmith Ball, Albert H. Ebright, Los Angeles, and Priscilla I. Davis, Sonora, for Petitioner.

No appearance by Respondent.

Bergman, Wedner & Dacey, Inc., Gregory M. Bergman, Richard V. Godino and Daphne M. Humphreys, Los Angeles, for Real Party in Interest.

OPINION

DIBIASO, Acting P.J.

INTRODUCTION

Real Party in Interest Sonora Union High School District (District) sued Sonora Mining Corp. (Sonora Mining) and Petitioner Sonora Diamond Corp. (Diamond) for breach of contract. Diamond moved for an order quashing service of process on the ground the trial court was without personal jurisdiction over Diamond. The District's position that jurisdiction existed relied upon three independent grounds— alter ego, agency (including the representative services doctrine) and availment. Ultimately, the trial court denied Diamond's motion. In this opinion, we explore the nature of, and compare, the three jurisdictional theories advanced by the District and apply each to the record evidence. We will grant the petition and order appropriate relief.

STATEMENT OF THE CASE

On June 29, 1998, the District filed an action in Tuolumne County Superior Court for breach of a real estate sales contract. Named as defendants were Diamond, a Canadian corporation,1 and Sonora Mining, a Nevada corporation doing business in California. Sonora Mining is a wholly owned subsidiary of Diamond. Diamond was not a signatory to the contract, but the complaint alleged that Sonora Mining was the alter ego of Diamond and therefore that Diamond was liable on the contract. On June 30, 1998, Sonora Mining filed its answer, consisting of a general denial and two affirmative defenses.

On January 11, 1999, Diamond filed a motion to quash service of process, asserting the trial court did not have personal jurisdiction over Diamond. The District opposed the motion, arguing in part that jurisdiction over Diamond existed because Sonora Mining was the alter ego of Diamond and because Diamond exercised such control over the mining operations conducted on the subject property as to make Sonora Mining the agent or instrumentality of Diamond.

On October 21, 1999, the trial court granted Diamond's motion to quash, finding that the District had failed to prove Sonora Mining was the alter ego of Diamond and that Diamond had insufficient minimum contacts with California to support personal jurisdiction.

The District thereafter brought a motion for reconsideration, arguing that the trial court had erroneously found certain declarations, allegedly containing evidence favorable to the District, inadmissible because they lacked signatures. The District's moving papers established that the problem with the declarations was the result of a court clerk's error.

On December 10, 1999, the trial court granted the motion for reconsideration and vacated its previous order. After reevaluating all the evidence (including the previously rejected declarations) and hearing further argument by counsel for the parties, the trial court denied Diamond's motion to quash, finding that Sonora Mining was an instrumentality of Diamond in California.

On January 19, 2000, Diamond filed a petition for writ of mandate with this court seeking extraordinary review (Code Civ. Proc., § 418.10, subd. (c)) of the trial court's order. We issued an order to show cause.

STATEMENT OF FACTS

Sonora Mining and Diamond Sonora Mining, a Nevada corporation, was formed in 1983. On August 14, 1984, Sonora Mining entered into the contract by which Sonora Mining bought the real property from the District. The property, valued at $900,000 and located in the Jamestown area of Tuolumne County, was the site of a gold mining operation (the Jamestown Mine). As consideration for the property, the contract provided for an exchange and an endowment. Under the exchange, Sonora Mining agreed to pay the District two million dollars; under the endowment, Sonora Mining agreed to pay the District four million dollars over a period of 20 years, with minimum payments of $200,000 yearly. The endowment payments were due in November of each year, beginning in 1985.

When the District negotiated for the sale of the property, it knew that Sonora Mining was a wholly owned subsidiary of Diamond and was aware that final approval of the contract made by Sonora Mining was to come from another person or entity. In addition, although the District initially asked that the purchase be secured by a deed of trust on the property and that interest be paid on the unpaid balance of the endowment, the District instead agreed to accept a $2 per ounce royalty on the gold production.

The operation of the mine required the acquisition of vehicles, equipment, supplies, services and various licenses and permits from the controlling governmental agencies. Sonora Mining filed annual tax returns, both federal and state. Proceeds from the sale of gold extracted from the mine were paid to Sonora Mining and deposited in its Toronto bank account. Sonora Mining had separate bank accounts and its own board of directors, but some of Sonora Mining's directors and officers were also directors and officers of Diamond. Sonora Mining also held annual corporate meetings and maintained its own corporate books. The employees at the mine were employed by Sonora Mining, which offered these workers a whole panoply of employment benefits.

The mine was operational until July 1994, at which time the ore reserves were depleted and operations ceased. Sonora Mining failed to make the November 1997 endowment payment due under the contract or, apparently, any further payments. During the life of the mine, Sonora Mining lost $52.5 million. The mine was not profitable because the price of gold was not as forecasted, the amount of gold per ton of rock extracted was less than expected, and the operating costs were higher than expected.

Relationship Between Sonora Mining and Pathfinder

In 1985, in order to raise operating capital, Sonora Mining sold a 30 percent interest in the mine to Pathfinder, a Delaware corporation, and formed, with Pathfinder, the Jamestown Mine Joint Venture, a California partnership. The stated purpose of the joint venture was to allow Pathfinder to participate with Sonora Mining in the further exploration, evaluation, development and mining of the mineral resources of the Jamestown Mine. Pathfinder contributed $20 million to the joint venture in exchange for the 30 percent interest in the mine. Sonora Mining contributed all its interest in the mine and the mining operation, as well as the property, to the joint venture, in exchange for a 70 percent interest in the joint venture. Sonora Mining's endowment obligation to the District was noted in the initial accounting attached to the joint venture agreement and transferred to the joint venture under the terms of the agreement. Diamond was not a party to the joint venture.

After its formation and through October 1997, the joint venture made the endowment payments to the District each year. Between 1985 and 1996, Sonora Mining and the joint venture together paid the District a total of $2.6 million under the endowment.

Although in the joint venture agreement Sonora Mining was appointed operator of the mine with day-to-day management responsibility, the operating decisions were made by a five-person operating committee, of which three members were appointed by Sonora Mining and two were appointed by Pathfinder. Action required approval by at least four members. No representative of Diamond sat on the committee.

At the outset, the joint venture did not retain any of the proceeds of the mine operations to cover operating costs. Instead all the gold produced by the mine was processed into gold bars and distributed to the two joint venturers in accord with their respective percentage interests in the joint venture. To fund the mine's operations, the joint venture provided for monthly cash calls to the two partners, again according to their pro rata partnership shares. The funds thus raised were paid into an account owned by the joint venture and designated the "COR" account. In addition to this COR account, the joint venture maintained three operating accounts. When any one of these operating accounts required an infusion of funds, the necessary amount was transferred from the COR account.

At some point, the revenue generated by selling its share of the gold became inadequate to meet the cash calls to Sonora Mining for operating funds. Thereafter, the joint venturers agreed that the joint venture would itself market the gold production to generate operating income and the proceeds would be credited to Sonora Mining in satisfaction of its pro rata share of operating costs. However, because Sonora Mining's operating costs exceeded the mine's production, Sonora Mining was dependent on the cash contribution it received from Pathfinder and the loans it received from Diamond.

In 1993, Diamond purchased all the stock of Pathfinder's parent corporation, Minecorp, Inc.

Relationship with Diamond

Diamond was formed in May 1983, just shortly before the purchase of the property, as a Canadian corporation, for the purpose of acquiring and developing the Jamestown Mine. Its stock is publicly traded. Until December 1998, its corporate offices were located in the Province of Ontario Canada. On January 1, 1999, Diamond became a Bermuda corporation and relocated its corporate offices to Hamilton, Bermuda.

Until 1996, the primary business of Diamond consisted of its ownership of all the stock of Sonora Mining. Diamond formed Sonora Mining to ease its ability to do business in California. It provided preoperation loans to Sonora Mining, which served to pay Sonora Mining's...

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