Alexandria Real Estate Equities, Inc. v. Bugsby Prop., LLC

ALEXANDRIA REAL ESTATE EQUITIES, INC. et al., Plaintiffs and Appellants, v. BUGSBY PROPERTY, LLC, Defendant and Respondent.

B304839

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO

March 4, 2021

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. 19STCV05246)

APPEAL from a judgment of the Superior Court of Los Angeles County, Richard J. Burdge, Jr., Judge. Affirmed.

Gibson, Dunn & Crutcher, James P. Fogelman and William F. Cole for Plaintiffs and Appellants.

RJM Litigation Group and Richard J. Mooney for Defendant and Respondent.

* * * * * * The trial court dismissed an out-of-state limited liability company (LLC) as a defendant after finding it had insufficient contacts with the State of California to be subject to personal jurisdiction. The plaintiff challenges this ruling. Although the record does not compel this ruling, it certainly supports the ruling. Accordingly, we affirm.

FACTS AND PROCEDURAL BACKGROUND

I. Facts

A. The parties

Joel Marcus (Joel) is the founder and Executive Chairman of Alexandria Real Estate Equities, Inc. (Alexandria).¹ Alexandria is in the business of developing and managing real estate for use by the "life sciences and technology sectors." Alexandria is a corporation; it was formed in Maryland and its principal place of business is in Pasadena, California.

Steven Marcus (Steven) is the founder and sole manager of Bugsby Property, LLC (Bugsby). Bugsby is in the business of "private investment." Bugsby has an operating agreement that lists Steven and his wife as its sole "members." However, Bugsby has no officers, no directors, and no managing board; its two members only meet "informal[ly]" and have never passed a resolution or kept minutes; it has no employees, although it once contracted with an individual for less than a year but never compensated him; it does not prepare or maintain financial statements and has no payroll records; it maintains a bank account but Steven cannot recall the last time any money went into or out of that account; and Steven is its only manager and the only person to receive its services. From the time of itscreation in October 2012 to June 2017, Bugsby was owned 97 percent by Steven and 3 percent by his wife; in June 2017, Steven transferred his ownership to his wife as a gift. Bugsby is an LLC incorporated in Delaware, with its principal office in New York, and its principal place of business in London, UK.

Steven is Joel's son.

B. "Project Affirmed"

While Steven was visiting Joel's home in California over the Thanksgiving weekend in 2013, Joel asked Steven if he would be willing to provide "strategic advice" "to Alexandria with respect to certain potential programmatic joint ventures." Steven agreed to do this project, which the parties have subsequently called "Project Affirmed." Although Steven agreed that his sole remuneration for doing the project would be his father's "appreciation" as well as "the exposure" and "credit" the project would "bring[]," the parties did not contemporaneously discuss whether Steven was undertaking the project on behalf of Bugsby or how, if at all, Bugsby would be compensated.

Within a few weeks, Steven transmitted to Joel a PowerPoint presentation that set forth Steven's investment strategy for Alexandria and that was to be shared with potential Alexandria investors. Steven did research for the project by speaking with potential investors at a New York conference, and prepared the PowerPoint presentation itself from his home in London.

Consistent with Steven's belief that he had undertaken the project for Bugsby (rather than purely in his individual capacity), the cover slide of the PowerPoint presentation listed its author as "Bugsby Property LLC - Steven Marcus."

About a week later, Joel e-mailed Steven and asked him not to "use [B]ugsby on stuff with [him]."

C. Post-project contractual negotiations

After Steven had completed Project Affirmed, one of Alexandria's lawyers sent Steven two written agreements—one for Steven individually and one for Bugsby.

The agreements purported to "supersede[]" the prior oral agreements regarding Project Affirmed, and further specified that (1) the signatory would be "paid" "no compensation," (2) the signatory agreed not to disclose any of Alexandria's confidential information acquired at any time for the project, and (3) the signatory "consent[ed] to" "personal jurisdiction" in the federal and state courts in Los Angeles County and agreed to have "[a]ny disputes" resolved under California law (the "Superseding Agreement"). Joel told Steven that the express no-compensation provision was necessary to comply with Alexandria's anti-nepotism policy.

Steven and Alexandria's lawyer later had a conversation, and Alexandria's lawyer came away from that conversation believing that Steven had performed Project Affirmed in his "individual capacity." Accordingly, the lawyer withdrew the proposed Superseding Agreement for Bugsby and clarified that the proposed Superseding Agreement for Steven applied to him as "an individual."

Steven signed a Superseding Agreement; Bugsby did not.

D. Demands in 2019

In January 2019, Steven and Bugsby demanded that Alexandria pay them $12 million as compensation for Project Affirmed.

On February 7, 2019, Steven and Bugsby followed up on their demand by suing Alexandria and Joel in New York state court, although this lawsuit was dismissed in August 2019 on forum non conveniens grounds.

II. Procedural Background

A. Filing of complaint

On February 13, 2019, Alexandria and Joel (collectively, plaintiffs) filed the underlying lawsuit in California against Steven and Bugsby and seeking declaratory relief that (1) Bugsby was Steven's alter ego, and (2) "no monetary compensation is or was owed to Steven or Bugsby."

B. Motion to quash

1. The motion

On March 25, 2019, Steven and Bugsby filed a motion to quash on the ground that the California courts lacked personal jurisdiction over them.²

2. Initial ruling

Following a full round of briefing, the trial court issued a tentative ruling finding personal jurisdiction over Steven but not Bugsby. In its tentative ruling, the court reasoned that Steven was subject to personal jurisdiction in California because (1) he consented to jurisdiction in California in the Superseding Agreement, and (2) he "purposefully availed himself of the benefits of doing business in California" by orally agreeing to undertake Project Affirmed while in California, by "provid[ing]" his "advisory services" to California-based Alexandria, and by negotiating and signing the Superseding Agreement inCalifornia. The court reasoned that Bugsby was not subject to personal jurisdiction in California because (1) it had not signed a Superseding Agreement, and (2) the contacts Steven had to California did "not necessarily" subject Bugsby to personal jurisdiction.

Following a hearing, the trial court deferred making a final ruling to allow the parties to conduct discovery on the issue of personal jurisdiction.

3. Further ruling

After the parties conducted discovery and submitted supplemental briefs, the trial court issued a further tentative ruling that it ultimately adopted as its final ruling.³

In addition to sticking with its prior ruling that Steven was subject to personal jurisdiction in California, the court also stuck with its prior ruling that it lacked personal jurisdiction over Bugsby and rejected both of plaintiffs' arguments to the contrary. First, plaintiffs had asserted that Steven's contacts should be imputed to Bugsby on the ground that Bugsby was Steven's "alter ego." The court found that Steven and Bugsby had a "unity of interest" because "[t]he entire evidentiary record shows that Bugsby is really a vehicle created and controlled by Steven and only operates through his services," but went on to rule that "recognizing Bugsby's separateness as an entity does not work an injustice on [p]laintiffs" or otherwise lead to an "inequitable result" because plaintiffs knew Steven did work for Bugsby in December 2013, accepted the PowerPoint presentation purportedly prepared by Bugsby, and knew that Bugsby never signed the Superseding Agreement plaintiffs subsequentlyproposed for its signature. Second, plaintiffs had asserted that Bugsby itself had minimum contacts with the State of California. The court rejected this argument at the hearing, finding that Bugsby itself had not "do[ne] anything here."

C. Appeal

After the trial court entered its order dismissing Bugsby as a defendant, plaintiffs filed this timely appeal.

DISCUSSION

Plaintiffs argue that the trial court erred in granting Bugsby's motion to quash due to lack of personal jurisdiction.

California grants to its courts the power to assert personal jurisdiction as far as the United States Constitution allows. (Code Civ. Proc., § 410.10; Integral Development Corp. v. Weissenbach (2002) 99 Cal.App.4th 576, 583 (Integral Development) [California's "long-arm statute 'manifests an intent to exercise the broadest possible jurisdiction,' limited only by constitutional considerations of due process"].) The federal Constitution upholds the exercise of personal jurisdiction over an out-of-state defendant as long as "the defendant has 'certain minimum contacts with [the State] such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice."'" (Goodyear Dunlop Tires Operations, S.A. v. Brown (2011) 564 U.S. 915, 923, quoting Int'l Shoe Co. v. Wash. (1945) 326 U.S. 310, 316.) "Minimum contacts exist where the defendant's conduct in, or in connection with, the forum state is such that the defendant should reasonably...