The opinion of the court was delivered by: Oliver W. Wanger United States District Judge
MEMORANDUM DECISION RE CLEAN AIR PRODUCTS, INC.'S DEFENDANTS DARRIN SIMMONS AND PARTIAL ADJUDICATION (DOC. 114.)
MOTION FOR SUMMARY JUDGMENT OR AND MOTION FOR SANCTIONS (DOC. 112.)
Plaintiff Thomas N. Smith initiated this action on September 19, 2005, and, on April 3, 2008, filed the operative fourth amended complaint ("4thAC") alleging breach of contract. Plaintiff alleges that Defendants Darrin Simmons ("Simmons") and Clean Air Products, Inc. ("Clean Air") breached a 1998 asset purchase agreement and a 2001 referral agreement. Plaintiff claims that Clean Air and Simmons are liable under the agreements either because the corporation and Simmons are alter egos of one another or because Simmons is directly liable as a party.
This matter is before the court on a motion for summary judgment, or in the alternative, summary adjudication pursuant to Rule 56 of the Federal Rules of Civil Procedure. Defendants have also filed a motion for Rule 11 sanctions against Plaintiff and his attorney.
Defendants argue they are entitled to summary judgment or adjudication because: 1) the 1998 contract is void for illegality and lack of mutuality; and 2) the 2001 contract was subject to a condition precedent that was never satisfied. Defendants also contend that there is no genuine issue of material fact regarding Clean Air's corporate form or that Simmons personally assumed liability under the 1998 or 2001 contracts.
Plaintiff opposes the motion, arguing that the November 1998 contract was not made for an improper or illegal purpose. Rather, Plaintiff asserts that the document accurately sets forth the sale of Help Smog Parts' assets. Plaintiff also contends that a triable issue of fact exists as to whether the 2001 Agreement relates only to the sale of the entire business, whether Simmons is liable pursuant to an alter ego theory whether, and Simmons personally assumed liability under the 1998 and 2001 Agreements.
II. FACTUAL BACKGROUND*fn1
The following background facts are taken from the parties' submissions in connection with the motions and other documents on file in this case.*fn2
Plaintiff is an individual maintaining residences in New Zealand and the United States.*fn3 (4thAC ¶ 1.) At all relevant times herein, Plaintiff was the sole owner of all the issued stock in Land O'Goshen, Inc., ("Land O'Goshen") which entered into a 1998 written agreement with Defendants to sell the assets of "Help Smog Parts, Inc." (Id. ¶ 9.)
Defendant Simmons, sole owner of Clean Air Products, Inc., is an individual residing in Tulare County. (Id. ¶ 2.) Defendant Clean Air is a California corporation with its principal place of business in Tulare County. (Id. ¶ 3.) Clean Air currently operates Help Smog Parts, Inc., with its principal place of business in Visalia, California. (DSUF 22.)
B. The 1998 Written Agreement
A written agreement was entered into on November 23, 1998 between Land O'Goshen, Inc. and Clean Air ("1998 Agreement"). (Doc. 98, 4thAC, Exhibit 1, p. 1) Under the terms of the 1998 Agreement, Land O'Goshen sold inventory from an auction held by Help Smog Parts, including the 800 telephone number, the customer database, the operating systems and various other business property and services. (Id. ¶ 9) Plaintiff was the sole owner of stock in Land O'Goshen and all rights in the "agreement" were assigned to Plaintiff once the assets were sold to Clean Air. (Id. at ¶ 11.)
The 1998 Agreement's introductory paragraph states "[t]his Agreement is between Land O'Goshen, Inc., Seller and Clean Air Products, Inc., buyer, dated November 23, 1998." (DSUF 25.) The 1998 Agreement was signed by Plaintiff on the line designated "Thomas N. Smith" and Defendant Simmons signed on the line designated as "Darrin Simmons." (DSUF 28.) Defendant Simmons signed his name and added his title "V.P." next to his signature. (Id.)
The 1998 Agreement specifies four conditions relevant to the asset sale:*fn4 1) that the contract signed July 1, 1998 between Land O'Goshen, Inc. and Clean Air Products, Inc. becomes null and void and is superceded by the 1998 Agreement; 2) that the contract signed July 1, 1998 between Thomas N. Smith and Clean Air Products, Inc. becomes null and void and is superceded by the 1998 Agreement; 3) and 4) outline the payment terms, detailing a purchase price of $430,000 and a down payment of $70,000.
The record indicates that Defendants performed under the 1998 Agreement for five years. They ceased making payments in 2003. Plaintiff claims that Defendants' breach resulted in damages of $278,929, plus interest. He seeks recovery from Clean Air and Simmons.
While Defendants do not contest they discontinued payments under the 1998 Agreement, they argue that Plaintiff cannot reach Simmons, individually, for recovery.*fn5 According to Defendants, the distinction between Clean Air and Simmons is clear and any money owed on the 1998 Agreement is owed by Clean Air.
C. 2001 Written Agreement
An Agreement and Contract of Sale, dated October, 2001, was entered between Defendant Simmons, as "President of Clean Air Products, Inc." and Plaintiff. ("2001 Agreement"). (Doc. 98, 4thAC, Exh.2, pg.1.) Under the terms of 2001 Agreement, Plaintiff was to prepare a business plan and solicit prospective buyers to be referred to Defendant Simmons to close the deals. (SUF 12.) If such a buyer was secured, the sales and proceeds would be divided among "Plaintiff and Clean Air Products, Inc." based upon the terms set forth in the 2001 Agreement. (DSUF 12.) The 2001 Agreement is signed by Thomas N. Smith on a line designated "Thomas N. Smith" and Defendant Simmons, on a line designated "Darrin K. Simmons, President, Clean Air Products, Inc. dba Help Smog Parts." (Doc. 98, 4thAC, Exh.2, pg.1.)
The 2001 Agreement prescribes four conditions relevant to the referral agreement. (DSUF 32.) The first item states that "[a]fter the figure of 500,000.00 is exceeded, any overage will be split 50/50 between Smith and Clean Air Products, Inc." (Doc. 98, 4thAC, Exh.2, pg.1.) The second item provides an example of the revenue split. (Id.) The third item states that the 2001 Agreement does not affect any previous "Sales Agreement or Contracts between Smith, Simmons, Land O'Goshen, Inc., or Clean Air Products, Inc." (Id.) The final item provides that any closing costs related to the sale will be split evenly between Smith and Clean Air, Products, Inc. (DSUF 33.)
According to Plaintiff, the purpose of the 2001 Agreement was to steer prospective buyers to Simmons and increase revenue at Help Smog Parts. (Decl. Smith ¶ 5.) The prospective buyers could purchase existing inventory or, potentially, the entire business. (Id.) Plaintiff claims that he referred customers pursuant to the 2001 Agreement, but does not know whether any of the referrals resulted in sales. (Id. ¶ 7.)
According to Defendants, Clean Air agreed to pay a commission to Plaintiff if he referred "buyers," one of which bought Help Smog Parts from Defendants for a purchase price of at least $500,000. (DSUF 12.) Defendants argue that Plaintiff cannot recover under the 2001 Agreement because Defendants never sold Help Smog Parts, a condition precedent to Plaintiff's commission. (DSUF 12.)
III. PROCEDURAL BACKGROUND.
In the original complaint, Plaintiff, appearing pro per, brought several causes of action related to Land O'Goshen's sale of certain assets to Defendants pursuant to several written contracts.*fn6 (Doc. 1.) Defendant Simmons filed a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim. (Doc. 8, Motion to Dismiss I.)
On February 9, 2006, Plaintiff filed his first amended complaint, again seeking damages for breach of the 1998 and 2001 written contracts. (Doc. 11, First Amended Complaint ("FAC").) On April 3, 2006, Defendant Simmons again filed a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim. (Doc. 15, Motion to Dismiss II.) On June 19, 2006, Plaintiff was granted leave to file an amended complaint. (Doc. 18.)
On July 5, 2006, Plaintiff, now represented by counsel, filed a second amended complaint alleging breach of contract and fraud.*fn7 (Doc. 19, Second Amended Complaint ("SAC").) Plaintiff's claims were based on the 1998 and 2001 written contracts. (Id.) On July 25, 2006, Defendants moved to dismiss Plaintiff's third cause of action for fraud. (Doc. 20.) On September 15, 2006, Defendants' motion was granted with prejudice. (Doc. 24.) On October 4, 2006, Defendants filed an answer to Plaintiff's second amended complaint. (Doc. 26.)
On July 6, 2007, Defendant Darrin Simmons filed a motion for judgment on the pleadings. (Doc. 42.) Defendant's motion was granted on September 25, 2007, although Plaintiff was permitted leave to amend. (Doc. 73.)
On October 10, 2007, Plaintiff filed a third amended complaint against Defendant Simmons and Defendant Clean Air for breach of the 1998 and 2001 written contracts.*fn8 (Doc. 77, Third Amended Complaint ("TAC").) On October 23, 2007, Defendant Darrin Simmons filed a motion to dismiss pursuant to Rules 12(b)(1) and (12(b)(6). (Doc. 85, Motion to Dismiss III.) Defendant's motion was granted, in part, on March 18, 2007, although Plaintiff was again permitted leave to amend. (Doc. 97.)
On April 3, 2008, Plaintiff filed a fourth amended complaint, bringing his claims pursuant to the 1998 and 2001 written contracts. (Doc. 98, Fourth Amended Complaint ("FAC").) On April 23, 2008, Defendants filed an answer to Plaintiff's fourth amended complaint. (Doc. 101.)
On March 31, 2009, Plaintiff filed a motion for leave to file a fifth amended complaint.*fn9 (Doc. 108.)
On April 1, 2009, Defendants filed this motion for summary judgment or, in the alternative, summary adjudication. (Doc. 114.)
On April 1, 2009, Defendants filed a motion for sanctions pursuant to Rule 11. (Doc. 112.) Defendants' motion for sanctions challenges Plaintiff's February 9, 2009 deposition testimony where he admitted that the purpose of the November 1998 contract was to defraud creditors. Defendants argue that Plaintiff is subject to Rule 11 sanctions because he initiated and maintained the present lawsuit with full knowledge of the 1998 contract's illegality.
On June 1, 2009, Defendants filed an opposition to Defendants' motion for summary judgment or, in the alternative, summary adjudication.*fn10 (Doc. 130.)
"The standards and procedures for granting partial summary judgment, also known as summary adjudication, are the same as those for summary judgment." Mora v. Chem-Tronics, Inc., 16 F. Supp. 2d 1192, 1200 (S.D. Cal. 1998). Summary judgment is appropriate when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). The movant "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (internal quotation marks omitted).
With respect to an issue as to which the non-moving party will have the burden of proof, the movant "can prevail merely by pointing out that there is an absence of evidence to support the nonmoving party's case." Soremekun, 509 F.3d at 984. When a motion for summary judgment is properly made and supported, the non-movant cannot defeat the motion by resting upon the allegations or denials of its own pleading, rather the "non-moving party must set forth, by affidavit or as otherwise provided in Rule 56, 'specific facts showing that there is a genuine issue for trial.'" Soremekun, 509 F.3d at 984. (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. ...