Pacer Construction Holdings Corporation v. Pelletier

1

2

3

4

5

6

7

8 UNITED STATES DISTRICT COURT

9 SOUTHERN DISTRICT OF CALIFORNIA

10

PACER CONSTRUCTION HOLDINGS Case No.: 19cv1263-MMA (BGS)

11 CORPORATION,

ORDER DENYING RESPONDENT

12 RICHARD PELLETIER HOLDINGS,

Petitioner, INC.’S MOTION TO DISMISS

13 v. PETITION

14 RICHARD PELLETIER; and RICHARD [Doc. No. 9]

PELLETIER HOLDINGS, INC.,

15

16 Respondents.

17

18 On July 9, 2019, Petitioner Pacer Construction Holdings Corporation (“Petitioner”)

19 filed a Petition against Respondents Richard Pelletier (“Pelletier”) and Richard Pelletier

20 Holdings, Inc. (“RPHI”) (collectively, “Respondents”) to confirm two arbitration awards

21 dated March 13, 2019 and May 22, 2019. See Doc. No. 1 (hereinafter “Petition”). RPHI

22 moves to dismiss the Petition for lack of personal jurisdiction pursuant to Federal Rule of

23 Civil Procedure 12(b)(2). See Doc. No. 9. Petitioner filed an opposition, to which RPHI

24 replied. See Doc. Nos. 11, 12. The Court found the matter suitable for determination on

25 the papers and without oral argument pursuant to Civil Local Rule 7.1.d.1. See Doc. No.

26 13. For the reasons set forth below, the Court DENIES RPHI’s motion to dismiss.

27 / / /

28 / / /

1 BACKGROUND

2 Petitioner is a corporation organized under the laws of the Province of Alberta,

3 Canada, with its principal place of business in Calgary, Alberta. Petitioner is a

4 construction company in the business of, among other things, providing construction and

5 other services for oil and gas exploration and production companies. Petitioner alleges

6 that RPHI is a corporation organized under the laws of the Province of Alberta, Canada,

7 with its principal place of business in Alberta, Canada. Petitioner further alleges that

8 Pelletier is the sole director and shareholder of RPHI and currently resides in the Cayman

9 Islands. Pelletier has a residence at The Bridges in Rancho Santa Fe, San Diego,

10 California.

11 The dispute underlying the arbitration awards pertains to the sale of Pacer and its

12 related entities to MasTec, Inc., the parent corporation of Pacer. In June 2014, MasTec,

13 Inc., and its wholly owned subsidiary, entered into a share purchase agreement with

14 Pelletier, RPHI, Pelletier’s business partners Don Taylor and John Simpson, and their

15 respective holding companies, Resman Holdings Ltd. and 592652 Alberta Ltd. Through

16 the share purchase agreement, MasTec, Inc. acquired Pacer and its wholly owned

17 subsidiaries and various equity investments from the sellers. Following the acquisition, a

18 dispute arose between the parties concerning the parties’ rights and obligations under the

19 share purchase agreement.

20 In March 2016, Pacer, MasTec, Inc. and the sellers entered into an arbitration

21 agreement, governed by the International Commercial Arbitration Act, RSA 2000, c.i-5

22 and the laws of Alberta, Canada. After several months of deliberations, the Arbitration

23 Tribunal issued a partial final award in favor of Petitioner on March 13, 2019. On April

24 5, 2019, the Tribunal issued an award for interest, and later issued a corrected interest

25 award on May 22, 2019.

26 Petitioner claims that certain payments were made by co-respondents, but neither

27 Pelletier nor RPHI have made any payments toward the awards. Petitioner asserts that

28

1 Respondents owe CAD1 $26,493,322.50 under the awards. Petitioner brings the instant

2 Petition to confirm the arbitration awards pursuant to the Convention on the Recognition

3 and Enforcement of Arbitral Awards, 9 U.S.C. § 207.

4 Pelletier was personally served on July 19, 2019 with the Petition. See Doc. No. 5.

5 On August 16, 2019, Pelletier filed an answer2 and RPHI filed the instant motion to

6 dismiss. See Doc. Nos. 9, 10.

7 LEGAL STANDARD

8 Under Federal Rule of Civil Procedure 12(b)(2), a defendant may move for

9 dismissal based on lack of personal jurisdiction. On a motion to dismiss for lack of

10 personal jurisdiction, “the plaintiff bears the burden of establishing that jurisdiction

11 exists.” Rio Props., Inc. v. Rio Int’l Interlink, 284 F.3d 1007, 1019 (9th Cir. 2002).

12 Uncontroverted allegations in a complaint must be taken as true when a prima facie

13 showing of personal jurisdiction is required. Am. Tel. & Tel. Co. v. Compagnie Bruxelles

14 Lambert, 94 F.3d 586, 588 (9th Cir. 1996). However, the court “may not assume the

15 truth of allegations in a pleading which are contradicted by affidavit.” Data Disc, Inc. v.

16 Systems Tech. Assocs. Inc., 557 F.2d 1280, 1284 (9th Cir. 1977). Conflicts between facts

17 contained in the parties’ affidavits must be resolved in favor of the party asserting

18 jurisdiction when deciding whether there has been a prima facie showing of personal

19 jurisdiction. Am. Tel. & Tel., 94 F.3d at 588.

20 The Court applies the personal jurisdiction law of the forum state where, as here,

21 “there is no applicable federal statute governing personal jurisdiction[.]” Dole Food Co.,

22 Inc. v. Watts, 303 F.3d 1104, 1110 (9th Cir. 2002). “California’s long-arm jurisdictional

23 statute is coextensive with federal due process requirements,” and so under California

24 law a court can exert personal jurisdiction over a defendant if doing so would be

25

26

27 1 CAD refers to the Canadian Dollar.

28

1 consistent with constitutional due process. Id. A court may exercise personal jurisdiction

2 “over a non-resident defendant” without offending constitutional principles if that

3 defendant has “at least ‘minimum contacts’ with the relevant forum such that the exercise

4 of jurisdiction ‘does not offend traditional notions of fair play and substantial justice.’”

5 Id. at 1111 (quoting Int’l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945)).

6 DISCUSSION3

7 RPHI argues that the Court has neither general nor specific personal jurisdiction

8 over RPHI and exercising personal jurisdiction would be unreasonable and violate due

9 process. See Doc. No. 9 at 2. Petitioner claims that RPHI is merely a shell corporation

10 that Pelletier treats as his personal bank account. See Doc. No. 11 at 2. Thus, because

11 jurisdiction over Pelletier has already been obtained in a manner consistent with due

12 process, jurisdiction should be imputed to his alter ego, RPHI. See id. Alternatively,

13 Petitioner requests the Court permit jurisdictional discovery as to RPHI’s assets,

14 capitalization, asset transfers, and dealings with Pelletier himself that would “show their

15 ‘unity of interest’ and the injustice that would result if they are treated separately[.]” Id.

16 at 2. In reply, RPHI asserts: (1) complex factual determinations regarding alter ego are

17 improper in actions to confirm arbitration awards; (2) the alter ego theory does not flow

18 from an individual to a corporation; and (3) jurisdictional discovery is inappropriate in

19 this case. See Doc. No. 12 at 3-8. The Court addresses RPHI’s arguments in turn.

20 1. Scope of Jurisdiction

21 RPHI first argues that the Petition to confirm an arbitral award under the New

22 York Convention is not a proper procedure for a district court to make alter ego

23 determinations. See Doc. No. 12 at 3. RPHI cites to Orion Shipping & Trading Co. v.

24 Eastern States Petroleum Corp., where the Second Circuit considered application of the

25

26

3 On October 28, 2019, Petitioner filed a request that the Court take judicial notice of Pelletier’s

27 affidavit, dated October 15, 2019, filed in a bankruptcy proceeding on behalf of RPHI in Alberta,

Canada. See Doc. No. 16. The Court DENIES AS MOOT Petitioner’s request, as the Court need not

28

1 alter ego theory in deciding whether to confirm the portion of an arbitration award

2 holding a non-signatory to the arbitration agreement liable as guarantor of the signatory.

3 312 F.2d 299, 300-01 (2d Cir. 1963). The court held that “an action for confirmation is

4 not the proper time for a District Court to ‘pierce the corporate veil.’” Id. at 301. Orion,

5 however, is inapposite for several key reasons. First, in reaching its holding, the Second

6 Circuit analyzed the merits of the petition to confirm the arbitration award. Here,

7 however, the Court is only tasked at this stage with determining whether the Court has

8 personal jurisdiction over RPHI—not whether the Court should grant the Petition to

9 confirm the arbitration awards. Second, RPHI was a party to the arbitration proceedings

10 in Canada, unlike the non-signatory in Orion. Third, Orion makes no reference to the

11 personal jurisdiction analysis in the context of a motion to confirm an arbitration award.

12 As such, RPHI’s reliance on Orion is misplaced.

13 Additionally, the Ninth Circuit has reiterated that a district court must determine it

14 has jurisdiction over the defendant in an action to confirm an arbitration award. Glencore

15 Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 1114, 1121 (9th Cir.

16 2002) (“We hold that neither the Convention nor its implementing legislation removed

17 the district courts’ obligation to find jurisdiction over the defendant in suits to confirm

18 arbitration awards.”). Accordingly, the Court must ascertain whether it has personal

19 jurisdiction over RPHI. That Petitioner advances an alter ego theory of personal

20 jurisdiction does not change the Court’s “obligation” to make jurisdictional

21 determinations. Id.

22 2. Personal Jurisdiction

23 In its motion to dismiss, RPHI contends that the Court lacks general and specific

24 personal jurisdiction over it. See Doc. No. 9 at 4-6. In opposition, Petitioner does not

25 contest that the Court lacks specific personal jurisdiction over RPHI but claims that

26 because RPHI is the alter ego of Pelletier, there is imputed general personal jurisdiction

27 over RPHI. See Doc. No. 12 at 1. In reply, RPHI contends that imputed general

28 jurisdiction cannot flow from an individual to a corporate entity. See Doc. No. 12 at 6.

1 Rather, RPHI claims that the alter ego theory allows an individual to be liable for

2 obligations of an entity. See id. at 3 n.1.4

3 “[C]ourts have general jurisdiction over a foreign corporation only if the

4 corporation’s connections to the forum state ‘are so ‘continuous and systematic’ as to

5 render [it] essentially at home in the forum State.” Williams v. Yamaha Motor Co. Ltd.,

6 851 F.3d 1015, 1020 (9th Cir. 2017) (quoting Goodyear Dunlop Tires Operations, S.A. v.

7 Brown, 564 U.S. 915, 919 (2011)). “[I]n the paradigmatic circumstance for exercising

8 general jurisdiction, the corporate defendant is incorporated or has its principal place of

9 business in the forum state.” Id. Here, Petitioner does not allege that RPHI’s

10 connections to the forum as so continuous and systematic as to render it at home in

11 California. Rather, Petitioner claims that general jurisdiction over RPHI is proper based

12 on an alter ego theory of liability.

13 In Ranza v. Nike, Inc., the Ninth Circuit considered whether an in-state

14 corporation’s contacts could be attributed to its foreign subsidiary to establish general

15 jurisdiction over the subsidiary. 793 F.3d 1059, 1065 (9th Cir. 2015). The Ninth Circuit

16 held that “the alter ego test may be used to extend personal jurisdiction to a foreign parent

17 or subsidiary when, in actuality, the foreign entity is not really separate from its domestic

18 affiliate.” Id. at 1073 (emphasis omitted). Courts “apply the law of the forum state in

19 determining whether a corporation is an alter ego of an individual.” S.E.C. v. Hickey, 322

20 F.3d 1123, 1128 (9th Cir. 2003). In California, to satisfy this test, “a plaintiff must make

21 out a prima facie case (1) that there is such unity of interest and ownership that the

22 separate personalities of the two entities no longer exist and (2) that failure to disregard

23 their separate identities would result in fraud or injustice.” Id. (quotation marks and

24 alterations omitted). This doctrine is known as “traditional veil piercing.” Curci

25 Investments, LLC v. Baldwin, 221 Cal. Rptr. 3d 847, 851 (Ct. App. 2017).

26

27

4 Because Petitioner concedes that the Court does not have specific personal jurisdiction over

28

1 Although not addressed by either party, the case at bar involves the doctrine of

2 outside reverse veil piercing. “Reverse veil piercing is similar to traditional veil piercing

3 in that when the ends of justice so require, a court will disregard the separation between

4 an individual and a business entity.” Curci, 221 Cal. Rpt. 3d at 851. “But, the two serve

5 unique purposes and are used in different contexts. Rather than seeking to hold an

6 individual responsible for the acts of an entity, reverse veil piercing seeks to satisfy the

7 debt of an individual through the assets of an entity of which the individual is an insider.”

8 Id. “Outside reverse veil piercing arises when the request for piercing comes from a third

9 party outside the targeted business entity.” Id.

10 In Gemcap Lending I, LLc v. Crop USA Insurance Agency, Inc., the district court

11 found that the plaintiff could not obtain personal jurisdiction over corporate defendants

12 simply by virtue of an individual defendant’s ownership in the corporate entities. No.

13 CV13-05504 SJO (MANx), 2014 WL 12589333, at *8 (C.D. Cal. Feb. 14, 2014). The

14 court reasoned that in Postal Instant Press, Inc. v. Kaswa Corp., 77 Cal. Rptr. 3d 96

15 (2008), the California Court of Appeal considered outside reverse piercing as an issue of

16 first impression and rejected the doctrine. See id. Among the court’s concerns in Postal

17 Instant Press were allowing judgment creditors to bypass standard judgment collection

18 procedures, harming innocent shareholders and corporate creditors, and using an

19 equitable remedy in situations where other legal theories or legal remedies are available.

20 77 Cal. Rptr. 3d at 98.

21 However, the California Court of Appeal recently held that “reverse veil piercing

22 may be available” in certain cases. Curci, 221 Cal. Rptr. 3d at 853. The Curci court

23 distinguished Postal Instant Press noting that the case before it did not present the

24 concerns previously identified. See id. at 852. Specifically, the individual defendant

25 effectively had complete control over the LLC. See id. at 853. Moreover, unlike in

26 Postal Instant Press, “[t]here simply is no ‘innocent’ member of [the LLC] that could be

27 affected by reverse piercing here.” Id. at 852. Further, the court noted that the purpose

28 of the LLC “has always remained the same—to serve as a vehicle for holding and

1 investing [the individual defendant’s] money.” Id. at 853.

2 Here, contrary to RPHI’s argument that imputed general jurisdiction cannot flow

3 from an individual to a corporate entity, the Court finds persuasive the reasoning of the

4 Curci court that reverse veil piercing may be available in certain cases. See also TV Ears,

5 Inc. v. SYK Grp., LLC, No. 16cv867-GPC (WVG), 2016 WL 6248539, at *3 (S.D. Cal.

6 Oct. 26, 2016) (“[I]f a plaintiff shows that a defendant corporation is the alter ego of an

7 individual defendant such that the corporate form may be disregarded, then a finding of

8 personal jurisdiction over one supports a finding of personal jurisdiction over the other.”).

9 Federal courts “must follow the decision of the intermediate appellate courts of the state

10 unless there is convincing evidence that the highest court of the state would decide

11 differently.” In re Schwarzkopf, 626 F.3d 1032, 1038 (9th Cir. 2010). The parties have

12 not shown, nor is the Court aware of, any convincing evidence that the California

13 Supreme Court would decide the matter differently. As such, the Court proceeds to

14 conduct the required fact-driven analysis for determining whether the Court has personal

15 jurisdiction over RPHI. In doing so, the Court must evaluate “the same factors that are

16 employed in a traditional veil piercing case,” as well as whether Pacer has any “plain,

17 speedy, and adequate remedy at law.” Curci, 221 Cal. Rptr. 3d at 854.

18 a. Unity of Interest

19 Petitioner argues that Pelletier treats RPHI as his “personal bank account” and the

20 two should be treated as one for purposes of the alter ego analysis. Doc. No. 11 at 1.

21 RPHI argues that the corporation has operated as a “holding company” and demonstrates

22 simply that Pelletier sought to step back from his business operations and wind down the

23 corporation. Doc. No. 12 at 8.

24 In assessing unity of interest, courts consider several factors including:

25

inadequate capitalization, commingling of funds and other assets of the two

26

entities, the holding out by one entity that it is liable for the debts of the

27 other, identical equitable ownership in the two entities, use of the same

offices and employees, use of one as a mere conduit for the affairs of the

28

1 other, disregard of corporate formalities, lack of segregation of corporate

records, and identical directors and officers.

2

3

Virtualmagic Asia, Inc. v. Fil-Cartoons, Inc., 99 Cal. App. 4th 228, 245 (2002) (citations

4

omitted). “No single factor is determinative, and instead a court must examine all the

5

circumstances to determine whether to apply the doctrine.” Id.

6

Here, several factors demonstrate a unity of interest between Pelletier and RPHI.

7

Pelletier has sole ownership and control of RPHI. See Doc. No. 11-1 (hereinafter

8

“Gonzalez Opp. Decl.”), Ex. J (showing Pelletier owns 100% of the voting shares of

9

RPHI). The addresses for RPHI’s director, registered office, and sole shareholder are all

10

the same. See id. Moreover, after the sale giving rise to the underlying dispute, RPHI

11

received approximately CAD $59 million. See id., Ex. K. Pelletier then took CAD $20

12

million from the proceeds and “donated it to the Olga Pelletier5 Family Trust. The rest is

13

still in RPHI at this time.” Id. The Arbitral Tribunal indicated that Pelletier later used

14

approximately CAD $6 million from the proceeds to buy a condominium in the Cayman

15

Islands that is now owned by the Pelletier Family Star Trust. See Doc. No. 1-2

16

(hereinafter “Gonzalez Decl.”), Ex. F ¶ 510. The Arbitral Tribunal noted that “although

17

Pelletier Holdings still exists, it has no assets.” Id. RPHI does not dispute these facts,

18

but summarily asserts that it is a holding company that holds controlling interests in other

19

companies. See Doc. No. 12 at 8. However, RPHI cites to no authority, nor is the Court

20

aware of any, that stands for the proposition that the unity of interest analysis does not

21

apply to, or is different for, a holding company.

22

Accordingly, the Court finds that Petitioner has made a prima facie showing “that

23

there is such unity of interest and ownership that the separate personalities of the two

24

entities no longer exist.” Ranza, 793 F.3d at 1073; see also Flynt Distributing Co., Inc. v.

25

Harvey, 734 F.2d 1389, 1393 (9th Cir. 1984) (finding the unity of interest factor satisfied

26

27

28

1 where the plaintiff’s “affidavits showed that Leon and Alfred Harvey, the sole

2 shareholders of the corporations and partnerships, converted the assets of the various

3 corporations and partnerships for their own use and dealt with them as if they were

4 one.”).

5 b. Inequitable Result

6 Petitioner claims that injustice would result if Pelletier and RPHI are treated

7 separately because Pelletier can “divert assets to this entity to avoid the Court’s

8 enforcement of the [arbitration] [a]ward[s].” Doc. No. 11 at 2. RPHI does not address

9 the inequitable result factor.

10 Here, the Court finds that the “failure to disregard their separate identities would

11 result in . . . injustice.” Ranza, 793 F.3d at 1073. Co-respondents in the arbitration have

12 made certain payments toward the arbitration awards but Pelletier and RPHI “have failed

13 to pay any amount pursuant to the awards.” Petition ¶ 19. “[T]he current amount

14 outstanding and payable by Respondents Pelletier and Pelletier Holdings” is CAD

15 $26,493.322.50. Id. ¶ 18. As demonstrated above, Pelletier has already transferred assets

16 to and from RPHI for personal use. Moreover, Pelletier kept RPHI active because of the

17 representations made in the Pacer sale but cleared out the assets and left the company as a

18 “shell.” Gonzalez Opp. Decl., Ex. M. Petitioner claims that through its motion, RPHI

19 seeks to evade the jurisdiction of this Court and the CAD $26.5 million that [Pelletier]

20 and Pelletier Holdings owe Petitioner under the Awards.” Doc. No. 11 at 1. “The

21 attempt to do corporate business without providing any sufficient basis of financial

22 responsibility to creditors is an abuse of the separate entity[.]” Automotriz Del Golfo De

23 California S.A. De C. V. v. Resnick, 306 P.2d 1, 4 (Cal. 1957). “The essence of the alter

24 ego doctrine is that justice be done.” Mesler v. Bragg Mgmt. Co., 702 P.2d 601, 607

25 (Cal. 1985). Additionally, it does not appear that Petitioner has alternate adequate legal

26 remedies available to enforce the arbitration awards against Respondents in this case.

27 Accordingly, the Court finds that Petitioner has made a prima facie showing that

28 the failure to disregard the separate identities of Pelletier and RPHI would result in

1 |/injustice. See Flynt, 734 F.2d at 1394 (“Such conduct constitutes a prima facie showing

2 || that it would be unjust to shield the Harveys behind the corporate veil.”’).

3 c. Summary

4 In sum, Petitioner has made a prima facie showing of the alter ego relationship

5 || between Pelletier and RPHI. As such, the Court finds that it has personal jurisdiction

6 ||over RPHI.®

7 CONCLUSION

8 Based on the foregoing, the Court DENIES RPHI’s motion to dismiss for lack of

9 || personal jurisdiction. Respondents may file a brief in opposition to the Petition to

10 ||Confirm Arbitration Award on or before February 20, 2020. Petitioner may file a reply

11 in support of its Petition on or before February 27, 2020. Upon completion of the

12 || briefing, the Court will take the matter under submission on the papers and issue a written

13 |/ruling in due course.

14

15 IT IS SO ORDERED.

16

17 || Dated: February 5, 2020

18 Mikel

19 HON. MICHAEL M. ANELLO

50 United States District Judge

21

22

23

24

25

26

27

® Because the Court finds that it has personal jurisdiction over RPHI, the Court need not address

28 || Petitioner’s alternate request for jurisdictional discovery.