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Healthmarkets, Inc. v. Superior Court of Los Angeles County

March 9, 2009

HEALTHMARKETS, INC., PETITIONER,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT; HARRY BERMAN, REAL PARTY IN INTEREST.



ORIGINAL PROCEEDINGS in mandate. Maureen Duffy-Lewis, Judge. Petition granted. (Los Angeles County Super. Ct. No. BC388824).

The opinion of the court was delivered by: Croskey, J.

CERTIFIED FOR PUBLICATION

HealthMarkets, Inc. (HealthMarkets), challenges the denial of its motion to quash service of summons based on lack of personal jurisdiction. HealthMarkets is a nonresident holding company and has no contacts with the State of California. Mid-West National Life Insurance Company of Tennessee (Mid-West) is a subsidiary of a subsidiary of HealthMarkets. The trial court concluded that Mid-West‟s contacts with this state should be attributed to HealthMarkets for purposes of specific personal jurisdiction. We conclude that specific personal jurisdiction over a parent company based on the activities of its subsidiary or sub-subsidiary is appropriate only if the parent purposefully directed those activities at this state. Absent evidence that HealthMarkets purposefully directed the activities of Mid-West toward this state, we conclude that there is no basis for personal jurisdiction over HealthMarkets and that the motion to quash must be granted.

FACTUAL AND PROCEDURAL BACKGROUND

HealthMarkets is a holding company incorporated in the State of Delaware, with its principal place of business in the State of Texas. HealthMarkets, LLC, is its subsidiary. Mid-West is a subsidiary of HealthMarkets, LLC.*fn1

Harry Berman filed a complaint against HealthMarkets, Mid-West, and others in April 2008. He alleged that he was the victim of a fraudulent health insurance sales scheme perpetrated by the defendants and that he was wrongfully denied insurance benefits. He alleged that he purchased insurance from an agent working for Cornerstone America (Cornerstone), that Cornerstone was a division of HealthMarkets, and that the policy was issued by Mid-West. He also alleged that HealthMarkets and Mid-West were alter egos. He alleged counts against HealthMarkets, Mid-West, and others for (1) breach of the implied covenant of good faith and fair dealing, (2) breach of the insurance contract, (3) false advertising, (4) negligent misrepresentation, and (5) intentional misrepresentation.

HealthMarkets moved to quash service of summons based on lack of personal jurisdiction. It filed a declaration describing the parent/subsidiary relationships noted above and also stating, among other things, that HealthMarkets had no office and no employees in California, neither owned nor leased property in this state, was not registered to do business in this state, was not involved in the marketing or administration of insurance issued to California residents, and did not participate in handling Berman‟s claims. The declaration also stated that Cornerstone was not a division of HealthMarkets.

Berman opposed the motion to quash, arguing that HealthMarkets conducted business in California through Mid-West as its alter ego. He also argued that Cornerstone was a division of HealthMarkets and that he had purchased insurance through a Cornerstone agent. He submitted a report entitled Multi-State Market Conduct Examination of the HealthMarkets, Inc. Insurance Companies (Market Report); an annual report and a form 8-K purportedly filed with the United States Securities and Exchange Commission in 2004 by a company known as UICI; and pages purportedly printed from Internet sites of UICI, Cornerstone, and Careerbuilder.com. He argued that statements in those materials showed that HealthMarkets owned and controlled Cornerstone and had trained the insurance agent who sold him an insurance policy. He also requested a continuance of the hearing to allow him to conduct discovery on jurisdictional issues if the court was inclined to grant the motion to quash. Berman filed an amended complaint in October 2008, alleging the same five counts as the original complaint.

HealthMarkets argued in reply that the term "UICI" as used in the securities filings referred to the parent and its subsidiaries, that the Internet sites and Market Report used the term "HealthMarkets" in the same manner, and that those documents were not evidence of HealthMarkets‟s contacts with California. HealthMarkets also argued that Berman had failed to present any evidence to support his alter ego allegations and failed to support his request for discovery. HealthMarkets filed evidentiary objections to the documents submitted by Berman based on lack of authentication, relevance, and hearsay.

The trial court stated in its minute order that the declaration filed by HealthMarkets showed that HealthMarkets was a holding company, that it had no contacts with California, and that it was not involved in the insurance transaction that is the subject of the complaint. The court stated that Berman had failed to "provide any evidence beyond that presented by the defendant," and that the documents submitted by Berman merely showed the same parent/subsidiary relationships described in the moving papers. The court nonetheless found a basis for specific personal jurisdiction.

Citing Bresler v. Stavros (1983) 141 Cal.App.3d 365, 369 (Bresler), the trial court stated that a nonresident defendant may be subject to personal jurisdiction if it "intentionally engage[s] in local activities that the forum state treats as exceptional and subject to special regulation." The court stated further, "California has a strong interest in providing its residents with effective redress against insurers. [Citation.]"

The trial court cited DVI, Inc. v. Superior Court (2002) 104 Cal.App.4th 1080 (DVI) for the proposition that a parent company‟s ownership of a subsidiary, " "without more,‟ " does not subject the parent to personal jurisdiction based on the subsidiary‟s forum contacts. It stated that Berman had failed to present evidence demonstrating any of the three circumstances described in DVI as sufficient to establish personal jurisdiction over a parent company based on a subsidiary‟s forum contacts. The trial court described those three circumstances as " "alter ego,‟ " " "representative services,‟ " and " "subsidiary is mere agent.‟ " It stated, however, that Berman was entitled to conduct discovery on those issues. It stated further that the circumstances justifying the exercise of personal jurisdiction over a parent company were not limited to those three circumstances. The trial court concluded as a matter of law that, in light of California‟s "strong policy regarding insurance," an insurer‟s contacts with the State of California may be attributed to the insurer‟s parent company for purposes of specific personal jurisdiction. The court therefore denied the motion to quash, and overruled all of HealthMarkets‟s evidentiary objections.

HealthMarkets petitioned this court for an extraordinary writ. We determined that the matter deserved immediate appellate review ...


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