ALEXANDRIA REAL ESTATE EQUITIES, INC. v. BUGSBY PROPERTY, LLC, Cal: Court of Appeal, 2nd Appellate Dist., 2nd Div. 2021
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 anticipate being subject to suit in that state.” (BBA Aviation PLC v. Superior Court (2010) 190 Cal.App.4th 421, 429 (BBA Aviation).) There are two types of personal jurisdiction: (1) “general or all-purpose jurisdiction,” and (2) “specific or conduct-linked jurisdiction.” (Daimler AG v. Bauman (2014) 571 U.S. 117, 122 (Daimler).)
In its most typical iteration, the alter ego doctrine empowers courts to treat a collective entity (such as a corporation or LLC) as the “alter ego” of an individual for purposes of holding the individual responsible for the collective entity’s conduct; in this regard, the alter ego doctrine allows a court to “pierce[]” “the `corporate veil.'” (Sonora, supra, 83 Cal.App.4th at p. 538.) On the basis of this doctrine, courts have found that their personal jurisdiction over a collective entity—including specific jurisdiction—can justify exertion of personal jurisdiction over the individual who was using the corporation as his or her alter ego. (Id. at pp. 537-543; see Daimler, supra, 571 U.S. at p. 135, fn. 13 [noting that “[a]gency relationship[] . . . may be relevant to the existence of specific jurisdiction”].) Plaintiffs here are seeking to apply the alter ego doctrine in the reverse situation—that is, to hold the collective entity responsible for the individual‘s conduct by treating specific jurisdiction over Steven as tantamount to specific jurisdiction over Bugsby.
In the reverse veil piercing situation at issue here, a court may treat an LLC (or a corporation) as the “alter ego” of its members (or shareholders) only if (1) there is “`such unity of interest and ownership that the separate personalities of the [LLC] and the individual no longer exist'”; and (2) “`an inequitable result will follow'” “`if the acts [of the individual] are treated as those of the [individual] alone.'” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300; Sonora, supra, 83 Cal.App.4th at p. 538; see also Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 221-222 (Curci Investments) [employing this test in the reverse veil piercing situation].) Application of the alter ego doctrine “`”var[ies] according to the circumstances of each case.”‘ [Citation.]” (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1248.) Because the alter ego doctrine marks a departure from the presumption that collective entities are legally distinct from their members and shareholders, piercing the veil is “`an extreme remedy, [to be] sparingly used'” (Hasso, supra, 227 Cal.App.4th at p. 155), and the party seeking to invoke it generally bears a “heavy burden” (Santa Clarita Organization for Planning & Environment v. Castaic Lake Water Agency (2016) 1 Cal.App.5th 1084, 1105). In the reverse veil piercing context, that burden is even more onerous and its use should be “`extremely rare.'” (Postal Instant Press, Inc. v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, 1518; Curci Investments, at pp. 221-222.)
In assessing whether there is a “unity of interest and ownership” between the collective entity and the individual, courts look to the totality of the circumstances. (Sonora, supra, 83 Cal.App.4th at p. 539.) Included among those relevant circumstances are (1) whether organizational formalities have been observed and organizational records maintained, (2) whether the collective entity has any employees, officers, or operating funds, and (3) whether the collective entity was used as a “mere shell or conduit” for the individual’s affairs. (CADC/RADC Venture 2011-1 LLC v. Bradley (2015) 235 Cal.App.4th 775, 789; Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 512-513; Sonora, at pp. 538-539.)
Even when the collective entity and the individual share a “unity of interest and ownership,” courts will apply the alter ego doctrine only when “adherence to the fiction of the[ir] separate existence . . . would promote injustice [citation] or bring about inequitable results [citation].” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1074.) What matters is whether the result is unjust or inequitable, not whether the individual acted with any fraudulent or other nefarious intent. (Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 816.)