CUSTOMPAK, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY VS 3L DISTRIBUTION, A MARYLAND CORPORATION

Tentative Rulings

Case Number: 19STLC06764    Hearing Date: July 14, 2020    Dept: 25

MOTION TO QUASH SERVICE OF SUMMONS; MOTION TO DISMISS COMPLAINT

(CCP §§ 410.30; 418.10)

TENTATIVE RULING:

Defendant 3L Distribution, Inc.’s (1) Motion to Quash the Summons and Complaint, and (2) Motion to Dismiss Plaintiff’s Complaint are DENIED.

SERVICE:

[X] Proof of Service Timely Filed (CRC, rule 3.1300) OK

[X] Correct Address (CCP §§ 1013, 1013a) OK

[X] 16/21 Court Days Lapsed (CCP §§ 12c, 1005(b)) OK

Motion to Quash Service

OPPOSITION: Filed on June 30, 3030 [ ] Late [ ] None

REPLY: Filed on July 6, 2020 [ ] Late [ ] None

Motion to Dismiss

OPPOSITION: Filed on June 30, 3030 [ ] Late [ ] None

REPLY: Filed on July 6, 2020 [ ] Late [ ] None

ANALYSIS:

1. Background

On July 22, 2019, Plaintiff Custompak, LLC (“Plaintiff”) filed an action for breach of contract and common counts against Defendant 3L Distribution, Inc. (“Defendant”). Plaintiff filed a proof of service demonstrating that, on December 17, 2019, Defendant was personally served through its Chief Executive Seth Lehner at 105 Eastern Ave., Annapolis, MD 21401. (1/2/20 Proof of Service.)

On February 3, 2020, Defendant filed the instant (1) Motion to Quash the Summons and Complaint (the “Motion to Quash”) and (2) Motion to Dismiss Plaintiff’s Complaint (the “Motion to Dismiss”) (collectively, the “Motions”). On June 30, 2020, Plaintiff filed an Opposition to both Motions, and on July 6, 2020, Defendant filed Reply briefs.

1. Motion to Quash Summons and Complaint

A. Legal Standard

“A defendant, on or before the last day of his or her time to plead or within any further time that the court may for good cause allow, may serve and file a notice of motion for one or more of the following purposes: ¶ To quash service of summons on the ground of lack of jurisdiction of the court over him or her.” (Code Civ. Proc., § 418.10, subd. (a)(1).) A defendant has 30 days after the service of the summons to file a responsive pleading, or 40 days if service was effectuated by substitute service. (Code Civ. Proc., § 412.20, subd. (a)(3); Code Civ. Proc., § 415.20, subd. (b).)

“A motion to quash service of summons lies on the ground that the court lacks personal . . . jurisdiction over the moving party.” (Greener v. Workers’ Comp. Appeals Bd. (1993) 6 Cal.4th 1028, 1036, citing to CCP § 418.10.) “A court of this state may exercise jurisdiction on any basis not inconsistent with the Constitution of the United States.” (Code Civ. Proc., § 410.10.) “The exercise of jurisdiction over a nonresident defendant comports with these Constitutions if the defendant has such minimum contacts with the state that the assertion of jurisdiction does not violate traditional notions of fair play and substantial justice.” (Elkman v. National States Ins. Co. (2009) 173 Cal.App.4th 1305, 1313.) “An essential criterion in all cases is whether the ‘quality and nature’ of the defendant’s activity is such that it is ‘reasonable’ and ‘fair’ to require him to conduct his defense in that state.” (Kulko v. Superior Court of California in and for City and County of San Francisco (1978) 436 U.S. 84, 92.) If a nonresident’s activities are “extensive or wide-ranging” or “substantial, continuous, and systematic” then jurisdiction is warranted. (Elkman v. National States Ins. Co., 173 Cal.App.4th at 1314.) If the activities are not so pervasive, then jurisdiction depends on the “quality and nature of his activity in the forum state as it relates to the particular cause of action. [Citation.]” (Ibid.) In that case, “[a] court may exercise specific jurisdiction over a nonresident defendant only if: (1) the defendant has purposefully availed himself or herself to the forum benefits; (2) the controversy is related to or arises out of the defendant’s contacts with the forum; and (3) the assertion of personal jurisdiction would comport with fair play and substantial justice. [Citation.]” (Ibid.) (Italics in original.)

Although defendant is the moving party, the burden of proof is on plaintiff to demonstrate sufficient minimum contacts exist. (Milhon v. Superior Court (1985) 169 Cal.App.3d 703, 710 [“[W]hen jurisdiction is challenged by a nonresident defendant, the burden of proof is upon the plaintiff to demonstrate that ‘minimum contacts’ exist between defendant and the forum state to justify imposition of personal jurisdiction.”]; see also Floveyor International, Ltd. V. Superior Court (1997) 59 Cal.App.4^th 789, 793.) If Plaintiff is able to meet this burden, the burden shifts to Defendant to demonstrate the exercise of jurisdiction would be unreasonable. (Buchanan v. Soto (2015) 241 Cal.App.4th 1353, 1362.)

B. Discussion

Here, Defendant was personally served with the Summons and Complaint on December 17, 2019, so it had until January 16, 2020 to file a responsive pleading or a motion to quash. Not only was Defendant’s Motion to Quash filed late, it offers no explanation for the timing of the Motion that would allow the Court to find good cause to extend the time for filing. (See Code Civ. Proc., § 418.10, subd. (a)(1).) Defendant is admonished for failing to do so and should prepare to discuss its reasons demonstrating good cause for its late filing at the hearing.

On the merits, Defendant argues service of the Summons and Complaint should be quashed because it does not have the required minimum contacts with California. Specifically, it argues it is a Maryland corporation with its nerve center in Maryland, and that Defendant’s officers and directors all reside in Maryland. (Mot. to Quash, p. 3:7-10.) It also argues it has only two customers in California which account for less than 10% of its total business. (Id. at p. 2:1-5.)

In Opposition, Plaintiff argues Defendant routinely picked up scrap metal from Plaintiff’s Los Angeles office and that from July 13, 2016 through October 4, 2017, Plaintiff shipped 1,611,161 pounds of scrap with Defendant. (Oppo., p. 2:18-23, Winkler Decl., ¶ 5.) Plaintiff further argues that although there was no governing contract between the parties, they operated under various purchase orders, and that Defendant engaged in purposeful activity in California on 43 separate occasions. (Id. at p. 3:26-28.)

The parties agree about the existence of an agreement between them but disagree as to what agreement controls their relationship. Defendant argues the parties operated under a Purchase and Supply Agreement that was circulated, but never executed. (Mot. to Quash, Lehner Decl., ¶ 2, Exh. A.) This agreement pertains to the sale of certain materials by Defendant to Plaintiff. (Id.) In Opposition, Plaintiff concedes the Purchase and Supply Agreement was circulated, but clarifies it was never adopted because the parties could not agree on those terms. (Oppo., p. 2:28-3:2.) Instead, as noted above, Plaintiff argues this action is brought pursuant to an oral agreement as memorialized by several purchase orders. (Id. at p. 3:26-4:2.)

As evidence, Plaintiff provides a copy of an accounting record between the parties, purportedly generated by Defendant, detailing scrap metal shipments from Plaintiff to Defendant. (Id., Winkler Decl., ¶ 7, Exh. B.) The accounting record contains 43 different entries but does not clearly demonstrate it is an accounting between the parties. Indeed, Defendant’s name does not appear anywhere on the accounting record and the customer is identified as “Peninsula Packaging – CA.” (Id.) Plaintiff did not provide any explanation for this discrepancy.

In addition, both parties submit the same a purchase order, dated May 12, 2017, identifying Plaintiff as the customer and Defendant as the vendor. (Mot., Lehner Decl., ¶ 3, Exh. B; Oppo., Exh. D.) Plaintiff also submitted an accounts payable report for transactions between October 2017 and November 2017. (Oppo., Winkler Decl., ¶ 7, Exh. C.)

The Court finds that Defendant’s contacts with California are insufficient for general jurisdiction, as they are not so systematic and continuous as to effectively render Defendant at home in this state. However, Defendant’s contacts do provide a basis for the Court to exercise specific jurisdiction over it.

First, the Court finds that Defendant purposefully availed itself to the benefits of the state of California. The purposeful availment requirement focuses on the defendant’s intentionality. (Elkman v. National States Ins. Co. (2009) 173 Cal.App.4th 1305, 1317.) This prong is satisfied when the defendant “purposefully and voluntarily directs his activities toward the forum so that he should expect, by virtue of the benefits he receives, to be subject to the court’s jurisdiction based on his contacts with the forum.” (Id.) Defendant argues that specific jurisdiction requires a substantial connection between a defendant and a forum state, and that Defendant’s mere transportation of materials does not satisfy this requirement under Asahi Metal Industry Co., LTD v. Superior Court of California, Solano County (1987) 402 U.S. 102, 103-04. (Mot. to Quash, p. 2:15-3:18.) Asahi found that “a defendant’s awareness that the stream of commerce may or will sweep the product into the forum state does not convert the mere act of placing the product into the stream into an act purposefully directed toward the forum state.” (Asahi Metal Industry Co., LTD v. Superior Court of California, Solano County, supra, at p. 112.) Here, Defendant did not merely place its products in the stream of commerce; it directed its products to a California customer. Specifically, the May 2017 purchase order demonstrates the products Defendant sold to Plaintiff were to be shipped to Plaintiff’s Los Angeles address. (Mot. to Quash, Lehner Decl., ¶¶ 2-3, Exhs. A, B.) In addition, Plaintiff’s accounts payable report shows three invoices billed by Defendant dated October 3, 2017 for $14,335.31, November 10, 2017 for $14,697.20, and November 30, 2017 for $14,193.40. (Oppo., Winkler Decl., ¶ 3, Exh. C.) Defendant does not dispute this evidence in its Reply. Thus, the Court finds Defendant purposefully directed its commercial activities to a California customer.

Second, it is undisputed that Plaintiff’s action arises out of the parties’ agreement to buy and sell certain materials. (Compl., p. 3, ¶ BC-1; Mot., Lehner Decl., ¶¶ 2-3, Exhs. A, B.) Thus, the controversy is related to Defendant’s contacts with the forum.

Lastly, requiring Defendant to defend this action in California would not violate traditional notions of fair play and substantial justice. Defendant argues that Defendant is a Maryland corporation, with its principal place of business in Maryland, that all of its officers reside in Maryland, and that less than 10% of its business consists of California consumers. (Oppo., p. 3:27-4:5.) However, Defendant has not demonstrated that it would be unreasonable for California courts to exercise jurisdiction because, for example, this action does not relate to Defendant’s contacts with the state, because all evidence is located in Maryland, because defending this action in California would result in an unreasonable financial burden on Defendant, or that some other policy exists that provides for an alternative forum. (See World-Wide Volkswagen Corp. v. Woodson (1980) 444 U.S. 286, 292; Fisher Governor Co. v. Superior Court (1959) 53 Cal.2d 222, 225-26.)

Thus, Defendant’s Motion based on lack of personal jurisdiction is DENIED.

1. Motion to Dismiss

Defendant moves the Court to dismiss the Complaint on the basis that under the parties’ agreement, and pursuant to Code of Civil Procedure section 410.30, subdivision (a), California is not the proper forum for this litigation. (Mot. to Dismiss, p. 3:10-13.)

Code of Civil Procedure section 410.30 states, in pertinent part:

“When a court upon motion of a party or its own motion finds that in the interest of substantial justice, an action should be heard in a forum outside this state, the court shall stay or dismiss the action in whole or in part on any conditions that may be just.”

As noted above, the Complaint states that the parties entered into an oral contract on or about October 4, 2017. (Compl., p. 3, ¶ BC-1.) Defendant argues the parties’ oral contract is based on the unexecuted Purchase and Supply Agreement. (Mot. to Dismiss, Lehner Decl., ¶ 2, Exh. A.) Defendant further argues that the unexecuted agreement sets forth that the correct forum for this action is in Maryland. (Mot. to Dismiss, at p. 1:10-13.)

However, based on the parties conflicting evidence, it is not clear the terms of the Purchase and Supply Agreement were ever adopted. (Oppo., p. 2:28-3:2.) Even the Purchase and Supply Agreement did govern the parties’ relationship, it contains a choice of law provision, not a forum selection clause. (See Mot. to Dismiss, Lehner Decl., ¶ 2, Exh. A.) It states, “[t]he terms of this Agreement shall be [governed] by the laws of the State of Maryland.” (Id.) Indeed, California courts may, and routinely do, apply non-California law when required by a choice of law provision. (Animal Film, LLC v. D.E.J. Productions, Inc. (2011) 193 Cal.App.4th 466, 475.) Contrary to Defendant’s argument, dismissing an action solely because a contract contains a choice of law provision requiring non-California law to be applied is not warranted. (Ibid.)

Thus, Defendant’s Motion to Dismiss is DENIED.

1. Conclusion & Order

For the foregoing reasons, Defendant 3L Distribution, Inc.’s (1) Motion to Quash the Summons and Complaint, and (2) Motion to Dismiss Plaintiff’s Complaint are DENIED.

Moving party is ordered to give notice.