Thomson v. Anderson

• Decision Date: 13 November 2003
• Docket Number: No. G031407,G031407
• Citation: 6 Cal.Rptr.3d 262,113 Cal.App.4th 258
• Court: California Court of Appeals Court of Appeals
• Parties: Robert Stephen THOMSON, Plaintiff and Appellant, v. Kenneth ANDERSON et al., Defendants and Respondents.

6 Cal.Rptr.3d 262

113 Cal.App.4th 258

Robert Stephen THOMSON, Plaintiff and Appellant, v. Kenneth ANDERSON et al., Defendants and Respondents.

No. G031407

Court of Appeal, Fourth District, Division Three

November 13, 2003

Law Offices of Linda S. Platisha and Linda S. Platisha for Plaintiff and Appellant.

Stradling Yocca Carlson & Rauth, Julie McCoy Akins and M. Candice Bryner, Newport Beach, for Defendants and Respondents.

OPINION

FYBEL, J.

INTRODUCTION

We hold Corporations Code section 31420 (section 31420) does not create an independent basis for personal jurisdiction for claims arising under the Franchise Investment Law, Corporations Code section 31000 et seq. Section 31420 is a service of process statute providing that a nonresident, by engaging in conduct prohibited by or made actionable under the Franchise Investment Law, consents to the appointment of the Commissioner of Corporations as attorney to receive service of process of a complaint brought under the Franchise Investment Law. Notwithstanding section 31420, there still must exist grounds for exercising personal jurisdiction over a nonresident defendant that are not inconsistent with the United States Constitution.

Plaintiff Robert Stephen Thomson brought this action alleging violations of the Franchise Investment Law and asserted defendants Kenneth Anderson, Garrett Boone, Goodhue Smith III, and Roy Terracina (the moving defendants), all Texas residents, were subject to personal jurisdiction in California pursuant to section 31420. The trial court granted the moving defendants' motion to quash service of summons for lack of personal jurisdiction. We conclude: (1) section 31420 does not create an independent basis for personal jurisdiction and (2) Thomson failed to meet his burden of producing evidence to establish the moving defendants had sufficient minimum contacts with California to support personal jurisdiction. We therefore affirm.

ALLEGATIONS

The unverified complaint alleges the following.

Earful of Books Franchising Company, Inc. (Earful), is a Texas corporation with its principal place of business in Austin, Texas. Earful sells franchises for retail establishments that rent and sell audio books. Defendant FranNet of Southern California, Inc. (FranNet), is a California corporation and "holds itself out as a `franchise consulting organization with experience and success in helping prospective franchisees find businesses.'"

Defendant Paul A. Rush was, until April 1, 2002, Earful's president. Defendant James C. Grant was Earful's vice-president. Defendant Richard Eggleton is FranNet's president.

The moving defendants — Anderson, Boone, Smith, and Terracina — were members of Earful's board of directors.

In December 1999, Thomson, an Orange County resident, signed a written franchise agreement and area development agreement (the agreement) with Earful. Pursuant to the agreement, Thomson was to open one or more Earful franchises in Southern California. Defendants Rush and Grant executed a personal guarantee (the guarantee) to refund the money Thomson invested if he canceled the agreement. Eggleton executed a separate guarantee in favor of Thomson.

Various representations were made to Thomson concerning Earful's management, financial condition, contractual relationships with established companies, and benefits Thomson would receive in connection with the purchase and operation of an Earful franchise. These representations were made "[i]n various meetings with Rush, Grant, and Eggleton and in disclosure documents delivered to Plaintiff including but not limited to a Uniform Franchise Offering Circular that purported to comply with California law."

After entering into the agreement, Thomson learned many of the representations were false. He made a demand under the guarantee, but Rush and Grant paid nothing.

Thomson's franchise apparently failed. Thomson closed his Earful store to mitigate damages and filed this lawsuit.

The complaint asserted causes of action for (1) violation of the California Franchise Investment Law, Corporations Code section 31000, et seq.; (2) sale of franchise by means of untrue statements in violation of Corporations Code section 31202; (3) fraud; and (4) breach of contract. The first two causes of action were against all defendants; the latter two causes of action were against defendants Rush, Grant, and Eggleton only. The complaint alleged the moving defendants were liable pursuant to Corporations Code section 31302 because they "knew of the facts surrounding the misrepresentations, were given actual notice ... of the basis for liability, and directly or indirectly controlled Earful and defendants Rush, Grant and Eggleton."

PROCEEDINGS IN THE TRIAL COURT

The moving defendants moved to quash service of summons on the ground they are not subject to personal jurisdiction in California. Each of the moving defendants submitted a declaration in support of the motion. The declarations stated with respect to each moving defendant:

Anderson. Anderson resides in Texas and never has lived in California. He never has conducted business in California on behalf of Earful, never has communicated on its behalf with anyone in California, and never has communicated with Thomson. Anderson owns no real property in California. Anderson is retired, conducts no business in California, and was last in the state one and one-half years ago while on vacation.

Boone. Boone resides in Texas and never has lived in California. He never has conducted business in California on behalf of Earful, never has communicated on its behalf with anyone in California, and never has communicated with Thomson. Boone owns no real property in California. Boone has conducted business in California on behalf of The Container Store, which is unrelated to Earful. In 2001, Boone visited several outlets of The Container Store in California, including one in Orange County.

Smith. Smith resides in Texas and never has lived in California. He never has conducted business in California on behalf of Earful, never has communicated on its behalf with anyone in California, and never has communicated with Thomson. Smith owns no real property in California. Since early 2001, Smith has made two business trips to California on behalf of Duncan Smith Company, which is unrelated to Earful.

Terracina. Terracina resides in Texas and never has lived in California. He never has conducted business in California on behalf of Earful, never has communicated on its behalf with anyone in California, and never has communicated with Thomson. Terracina owns an interest in a time-share in Carlsbad, California and spends a vacation each year in the state. Terracina conducted business in California several years ago on behalf of a business unrelated to Earful.

In opposition to the motion to quash, Thomson submitted the following evidence: (1) two pages from Earful's uniform franchise offering circular and (2) a private placement memorandum for Audiobooks of Texas, Inc. doing business as Earful of Books. Both documents identified Anderson, Boone, Smith, and Terracina as members of Earful's board of directors, and the private placement memorandum identified Anderson, Boone, and Terracina as Earful shareholders. Neither document refers again to the moving defendants.

The trial court stated "[w]e don't have those minimum contacts ... for the individual people" and granted the motion to quash. The record contains a minute order granting the motion to quash, from which Thomson timely appealed. (See Code Civ. Proc., § 904.1, subd. (a)(3).)

JURISDICTIONAL REQUIREMENTS

California courts may exercise jurisdiction over nonresidents "on any basis not inconsistent with the Constitution of this state or of the United States." (Code Civ. Proc., § 410.10.) Code of Civil Procedure section 410.10 "manifests an intent to exercise the broadest possible jurisdiction, limited only by constitutional considerations." (Sibley v. Superior Court (1976) 16 Cal.3d 442, 445, 128 Cal.Rptr. 34, 546 P.2d 322.)

The federal Constitution permits a state to exercise jurisdiction over a nonresident defendant if the defendant has sufficient "minimum contacts" with the forum such that "maintenance of the suit does not offend `traditional notions of fair play and substantial justice.' [Citations.]" (Internat. Shoe Co. v. Washington (1945) 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95.) "The `substantial connection,' [citations], between the defendant and the forum State necessary for a finding of minimum contacts must come about by an action of the defendant purposefully directed toward the forum State. [Citations.]" (Asahi Metal Industry Co. v. Superior Court (1987) 480 U.S. 102, 112, 107 S.Ct. 1026, 94 L.Ed.2d 92.)

Personal jurisdiction may be either general or specific. (Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 445, 58 Cal.Rptr.2d 899, 926 P.2d 1085 (Vons ).) A nonresident defendant is subject to the forum's general jurisdiction where the defendant's contacts are "`substantial ... continuous and systematic.'" (Ibid., quoting Perkins v. Benguet Mining Co. (1952) 342 U.S. 437, 445, 446, 72 S.Ct. 413, 96 L.Ed. 485.) In that situation, the cause of action need not be related to the defendant's contacts. (Vons, supra, 14 Cal.4th at p. 445, 58 Cal.Rptr.2d 899, 926 P.2d 1085; Cornelison v. Chaney (1976) 16 Cal.3d 143, 147, 127 Cal.Rptr. 352, 545 P.2d 264.) "Such a defendant's contacts with the forum are so wide-ranging that they take the place of physical presence in the forum as a basis for jurisdiction." (Vons, supra, 14 Cal.4th at p. 446, 58 Cal.Rptr.2d 899, 926 P.2d 1085.)

If the nonresident defendant does not have substantial and systematic contacts with the forum state, the defendant may be subject to specific jurisdiction if (1) "`the defendant has purposefully availed himself or herself of forum benefits'" with respect to the matter in controversy, (2) "`the "controversy is related to...