By Louis M. Solomon
Ltd. v. Hendrik Smelding, et al., Case No. 07-1139 SC (N.D. Cal.
Aug. 2011) [enhanced version available to lexis.com subscribers], presents two interesting issues
for international litigation and dispute resolution. Nuttery Farms,
Inc., a U.S. corporation, defaulted in connection with a series of
contracts for the sale of almonds to Ahcom, Ltd., a U.K. limited liability
corporation in the business of buying and selling dried fruit and nuts.
The Smeldings are the sole shareholders of Nuttery. The noteworthy rulings
affecting international practice are:
First, a clause in the faxed
confirmations provided as follows:
AS PER THE EXPORT CONTRACT FOR DRIED
FRUIT, TREE NUTS AND KINDRED PRODUCTS, ADOPTED BY THE CALIFORNIA DRIED FRUIT
EXPORT ASSOCIATION EFFECTIVE MARCH 1989. - ARBITRATION IN ACCORDANCE WITH THE
RULES OF WAREN VEREIN - INTERNATIONAL PARTICIPATION PERMITTED - SHALL BE
COMPETENT FOR FINAL SETTLEMENT OF ALL AND ANY DISPUTE ARISING THEREFROM.
The one-way confirms were sufficient
to entail arbitration; Nuttery never objected to the arbitration "provision" in
the confirms. The Waren-Verein, says the Court, is a trade association
located in Hamburg, Germany that provides arbitration services. Ahcom was
awarded $1,428,000 in damages plus interest.
Second, Ahcom then sought to
confirm the award and enforce it against the Smeldings. The Smeldings
were not joined in the arbitration; the effort to enforce the award against
them arose from a supplemental judicial proceeding attempting to pierce the corporate
veil. In assessing that question, the Court applied California law (where
the Smeldings resided) and ruled that there is no litmus test to determine when
the corporate veil will be pierced; "rather the result will depend on the
circumstances of each particular case" (finding the doctrine "essentially
an equitable one and for that reason is particularly within the province of the
trial court" and calling for an examination of whether "there be such unity of
interest and ownership that the separate personalities of the corporation and
the individual no longer exist", and "if the acts are treated as those of
the corporation alone, an inequitable result will follow." The evidence
the Court considered included a variety of factors, including:
commingling of assets; diversion of
corporate assets to personal use; whether the individual defendants held
themselves out as personally liable for the debts of the corporation; whether
the individual defendants acted in bad faith; whether the individual defendants
entered into contracts with the intent to avoid performance by using the
corporate entity as a shield against personal liability; whether the
individuals and corporation used the same office; whether they employed the
same attorney; whether the individuals used the corporation to procure labor,
services and merchandise for another person or entity; whether the individuals
failed to adequately capitalize the corporation; and whether the individuals
failed to maintain minutes or adequate corporate records.
On the facts shown the Court found
that piercing was inappropriate.
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