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Zoran Corp. v. Chen

June 15, 2010

ZORAN CORPORATION, PLAINTIFF AND APPELLANT,
v.
THOMAS CHEN, DEFENDANT AND RESPONDENT.



(Santa Clara County Super. Ct. No. CV-063088). Hon. William J. Elfving.

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

CERTIFIED FOR PUBLICATION

In this action for breach of contract, misrepresentation, and related causes of action against respondent Thomas Chen and seven corporations, the superior court granted summary judgment to Chen. Zoran contends that Chen was the alter ego of the corporate defendants and was therefore liable for the outstanding debts those defendants owed for their purchases of parts from Zoran. Zoran further contends that Chen personally guaranteed payment of those debts. We find triable issues of fact and therefore must reverse the judgment.

Background

Plaintiff Zoran is in the business of developing digital technologies and applications for home and office applications. Zoran sells various equipment components to manufacturers, which incorporate the components into their products. Among those who obtained Zoran products in 2004 and 2005 were Kent World Co., Ltd. (Kent World); Protop Innotech Inc.; Cyberhome Electronics, Inc. (Cyberhome); Argus Electronics, Inc. in Taiwan (Argus Taiwan); Argus Electronics, Inc. in the United States (Argus USA), a wholly owned subsidiary of Argus Taiwan; Citron Electronic Company (Citron); and Iwin International Corp. (Iwin), an affiliate of Cyberhome. Citron had been formed for the purpose of investing in the Chinese factory Han Hua Optics, which manufactured DVD players. Argus USA performed customer support for Cyberhome and some product development and testing. Kent World, Cyberhome, and Protop Innotech merged in 2005; their replacement entity was Protop Technology Co. (Protop Technology or Protop).

According to Zoran's second amended complaint, three companies--Kent World, Iwin, and Citron--submitted purchase orders to Zoran during the 2004-2005 period. Iwin was a "paper entity," which bought three million parts from Zoran toward the end of 2004 and sold the parts to Citron. The Zoran products ordered by all three companies were shipped directly to Citron. Citron assembled the components at its Han Hua factory and sold the finished goods to Protop, which then sold the products to Cyberhome. Cyberhome marketed those products in the United States. Protop's product development engineers were housed at the Han Hua factory.

Chen was one of three or four directors of Cyberhome in 2001 and 2002 and one of five directors of Kent World until the merger. He was one of the directors of Argus Taiwan from 2000 to 2003 and its chairperson until 2003. He was chairman of Protop Innotech and of Protop Technology after the merger. According to his declaration, Chen did not own stock in any of the defendants except Protop and Argus Taiwan. His wife and younger sister, however, owned minority shares in Cyberhome and Argus Taiwan; that sister owned a minority share in Kent World as well. Chen's older brother also owned a minority share in Argus Taiwan, as did his older sister and her husband.

Through May of 2005, Zoran extended more than $40,000,000 of credit to Kent World, Citron, and Iwin. In September 2004 Citron promised to be responsible for the debt of Kent World, which it represented to be its subsidiary. In December 2004 Cyberhome represented Iwin to be its affiliate and guaranteed payment of Iwin's obligations to Zoran. In February 2005 Cyberhome similarly guaranteed payment to Zoran for chipsets Citron would purchase from Zoran. On March 9, 2005 Chen wrote to Zoran to guarantee payment of Citron's balance in the amount of $1,300,000. Citron apparently paid that debt without the necessity of Chen's further involvement.

In January 2006, Zoran and Cyberhome entered into a "Consolidation Agreement" combining the prior financing obligations of the debtor companies. Although all were denoted as co-obligors in the agreement, only Tin Wu, president of Cyberhome, signed the document as a co-obligor.

According to Zoran, $8,841,151.10 remained unpaid. Zoran filed suit in May 2006, naming only Chen and Argus Taiwan as defendants. The second amended complaint, filed in August 2006, named Chen, Argus Taiwan, Argus USA, Cyberhome, Iwin, Citron, and Kent World. The complaint was later amended to substitute Protop Technology for one of the Doe defendants. Zoran pleaded causes of action for breach of contract, breach of the covenant of good faith and fair dealing, negligent and intentional misrepresentation, quantum meruit, unjust enrichment, promissory estoppel, and common counts for money due. The sixth cause of action was directed only at Chen; it alleged breach of his oral personal guaranties of payment on behalf of the "Argus Group Companies."*fn1

A central theory of the complaint was that Chen represented that he directly controlled and dominated the defendant companies, and that for each of them there was "a unity of interest and ownership" such that any "individuality and separateness" between Chen and the company had ceased and the company was the alter ego of Chen. With reference to each, Zoran alleged that adherence to the fiction of the entity as distinct from Chen "would permit an abuse of the corporate privilege and would sanction fraud in the form of Chen's misrepresentations made on behalf of himself and [the entity], which fraud resulted in substantial damage to Zoran."

Only Chen remains in the action. Cyberhome declared bankruptcy in September 2006, and the bankruptcy trustee eventually paid Zoran $139,925.03 in the case against it. In December 2006 the court entered defaults against Iwin and Citron, and it entered Protop's default on September 15, 2008, after striking Protop's untimely answer. Argus Taiwan and Argus USA were ordered to pay terminating sanctions for discovery abuses, and their defaults were entered in April 2009.

Chen moved for summary judgment or alternatively, summary adjudication. He maintained that he was not liable under any of the causes of action because he had made only one written contractual promise, which he performed; he did not make any misrepresentations or enforceable promises on which Zoran relied; and he did not order or receive any goods from Zoran. Chen further asserted that he was not the alter ego of Kent World, Citron, Iwin, Cyberhome, Argus Taiwan, or Argus USA. Finally, Chen claimed an affirmative defense to the allegation of breach of oral guaranty based on the Consolidation Agreement, which Chen had not signed and which modified all of the obligations underlying the alleged guaranty.

The trial court considered the moving and opposing papers and both parties' evidentiary objections. The court determined that Chen had met his initial burden to show that he was not an alter ego of any of the defendant entities, that he had not received goods or services from Zoran, and that he had negated at least one element of the causes of action for misrepresentation and promissory estoppel. Further, the court ruled, because Zoran had not met its burden of raising a triable issue of fact on any of the causes of action, Chen was entitled to summary judgment. From the ensuing judgment on June 29, 2009, Zoran brought this timely appeal.

Discussion

1. Scope and Standard ...


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