APT Electronics v. SMTC Corporation

 O 1 2 3 4 5 6 7 8 United States District Court 9 Central District of California 10 11 APT ELECTRONICS, Case № 8:25-cv-00098-ODW (JDEx) 12 Plaintiff, ORDER GRANTING IN PART AND 13 v. DENYING IN PART MOTION TO 14 SMTC CORPORATION et al., DISMISS [19] 15 Defendants. 16 17 I. INTRODUCTION 18 Plaintiff APT Electronics brings this breach of contract action against 19 Defendants SMTC Corporation and MC Test Service, Inc. dba MC Assembly 20 (“Defendants”). (Second Am. Compl. (“SAC”), ECF No. 17.) Defendants move to 21 dismiss APT’s claims based on Federal Rules of Civil Procedure (“Rule” or 22 “Rules”) 12(b)(2), lack of personal jurisdiction, and 12(b)(6), failure to state a claim. 23 (Mot. Dismiss SAC (“Mot.” or “Motion”), ECF No. 19.) For the reasons addressed 24 below, the Court GRANTS IN PART and DENIES IN PART Defendants’ Motion.1 25 26 27 28 1 Having carefully considered the papers filed in connection with the Motion, the Court deemed the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; C.D. Cal. L.R. 7-15. 1 II. BACKGROUND2 2 APT is a “fully automated electronic contract manufacturer” specializing in box 3 build assembly. (SAC ¶ 9.) SMTC provides end-to-end electronics manufacturing 4 services. (Id. ¶ 10.) SMTC wholly owns MC Assembly, an electronics manufacturer. 5 (Id. ¶¶ 6, 11.) In December 2018, APT began discussing with SMTC a project that 6 APT had with Boeing (“Boeing Contract”). (Id. ¶ 12.) On December 28, 2018, 7 MC Assembly—not SMTC—sent APT a cost proposal for some of the Boeing 8 Contract assembly work. (Id.) After APT obtained approval from Boeing for SMTC 9 and MC Assembly to perform the work, APT, SMTC and MC Assembly agreed orally 10 and in writing to work together on the Boeing Contract. (Id. ¶¶ 12–13.) The 11 scheduled deliverables for this work spanned from 2019 to 2023. (Id. ¶ 14.) 12 In March 2021, after SMTC and MC Assembly had missed several deadlines 13 and failed to perform satisfactory work, APT, SMTC, and MC Assembly agreed that 14 APT would pay for the remaining Boeing Contract work with milestone payments. 15 (Id. ¶¶ 16–17.) According to the agreement, SMTC and MC Assembly would retain 16 all the milestone payments only if they completed all the remaining work. (Id.) In 17 May 2021 and February 2022, APT paid MC Assembly two milestone payments of 18 $226,504.00 each. (Id. ¶ 18.) However, in December 2023, APT discovered issues 19 with some of SMTC and MC Assembly’s work and determined they were not 20 “performing work in a timely manner or pursuant to Boeing’s quality specifications 21 and drawings.” (Id. ¶ 19.) Thus, in January 2024, APT cancelled the remaining items 22 and demanded return of the portion of the advance payments related to the 23 uncompleted work, $361,655.76. (Id. ¶¶ 19, 21.) SMTC and MC Assembly refused 24 to return the advance payments. (Id. ¶ 21.) Following APT’s cancellation, SMTC and 25 MC Assembly shipped all remaining products and materials to APT. (Id. ¶ 22.) APT 26 27 28 2 All factual references derive from APT’s Complaint and well-pleaded factual allegations are accepted as true for purposes of this Motion. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). 1 reviewed the products and found they did not meet standards, requiring APT to correct 2 and complete the work. (Id.) 3 Based on the above allegations, APT initiated this action against Defendants to 4 recover the unreturned advance payments and the cost to itself to correct and complete 5 the work. (Id. ¶¶ 23–46.) APT asserts that MC Assembly is SMTC’s alter ego, and 6 the two companies operate and should be treated as one. (Id. ¶ 6.) It asserts five 7 causes of action against them: (1) breach of contract, (2) conversion, (3) money had 8 and received, (4) open book account, and (5) unfair competition. (Id. ¶¶ 23–46.) 9 Defendants move to dismiss APT’s claims based on Rules 12(b)(2) and 10 12(b)(6), arguing the Court lacks personal jurisdiction over MC Assembly and that 11 APT fails to sufficiently allege an alter ego relationship, conversion, and unfair 12 competition. (Mot. 10.) 13 III. LEGAL STANDARD 14 A. Rule 12(b)(2)—Personal Jurisdiction 15 Federal courts have the power to exercise personal jurisdiction to the extent 16 permitted by the laws of the states in which they sit. Fed. R. Civ. P. 4(k)(1)(A). 17 “California’s long-arm jurisdictional statute is coextensive with federal due process 18 requirements . . . .” Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800–01 19 (9th Cir. 2004); see Cal. Civ. Proc. Code § 410.10. Therefore, the court inquires 20 whether the defendant has “certain minimum contacts with [the forum] such that the 21 maintenance of the suit does not offend ‘traditional notions of fair play and substantial 22 justice.’” Glencore Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284 F.3d 23 1114, 1123 (9th Cir. 2002) (alteration in original) (quoting Int’l Shoe Co. v. 24 Washington, 326 U.S. 310, 316 (1945)). When a defendant seeks dismissal under 25 Rule 12(b)(2), the plaintiff bears the burden of demonstrating that personal 26 jurisdiction is proper. Sher v. Johnson, 911 F.2d 1357, 1361 (9th Cir. 1990). 27 28 1 B. Rule 12(b)(6)—Failure to State a Claim 2 A court may dismiss a complaint under Rule 12(b)(6) for lack of a cognizable 3 legal theory or insufficient facts pleaded to support an otherwise cognizable legal 4 theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988). To 5 survive a dismissal motion, a complaint need only satisfy the minimal notice pleading 6 requirements of Rule 8(a)(2)—a short and plain statement of the claim. Porter v. 7 Jones, 319 F.3d 483, 494 (9th Cir. 2003). The factual “allegations must be enough to 8 raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly, 9 550 U.S. 544, 555 (2007). That is, the complaint must “contain sufficient factual 10 matter, accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 11 556 U.S. at 678 (internal quotation marks omitted). 12 The determination of whether a complaint satisfies the plausibility standard is a 13 “context-specific task that requires the reviewing court to draw on its judicial 14 experience and common sense.” Id. at 679. A court is generally limited to the 15 pleadings and must construe all “factual allegations set forth in the complaint . . . as 16 true and . . . in the light most favorable” to the plaintiff. Lee v. City of Los Angeles, 17 250 F.3d 668, 688 (9th Cir. 2001). However, a court need not blindly accept 18 conclusory allegations, unwarranted deductions of fact, and unreasonable inferences. 19 Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). Where a 20 district court grants a motion to dismiss, it should generally provide leave to amend 21 unless it is clear the complaint “could not be saved by any amendment.” Manzarek v. 22 St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008); Fed. R. Civ. 23 P. 15(a). 24 IV. DISCUSSION 25 Defendants argue the Court should dismiss MC Assembly because the Court 26 lacks personal jurisdiction over it and APT fails to adequately allege an alter ego 27 relationship between SMTC and MC Assembly that could provide it. (Mot. 10. 28 1 Defendants further argue the Court should dismiss APT’s causes of action for 2 conversion and unfair competition as insufficiently pleaded. (Id.)3 3 A. Personal Jurisdiction & Alter Ego Doctrine 4 The only basis that APT asserts for the Court’s personal jurisdiction over 5 MC Assembly is that MC Assembly is SMTC’s alter ego. (SAC ¶¶ 6, 8; Opp’n 3–8.) 6 Defendants do not challenge the Court’s personal jurisdiction as to SMTC. (See 7 generally Mot.; Opp’n 3, ECF No. 27.) Instead, Defendants argue that the Court must 8 dismiss MC Assembly because (1) it is not subject to the Court’s personal jurisdiction, 9 (Mot. 12–18), and (2) APT fails to adequately allege that MC Assembly is SMTC’s 10 alter ego, (id. at 18–23).4 11 A party seeking to establish personal jurisdiction over a person or entity can 12 either: (1) show each defendant’s sufficient contacts with the forum state, or (2) use 13 the alter ego theory to “extend personal jurisdiction to a foreign parent or subsidiary 14 when, in actuality, the foreign entity is not really separate from its domestic affiliate.” 15 Ranza v. Nike, Inc., 793 F.3d 1059, 1073 (9th Cir. 2015) (emphasis omitted). “Alter 16 ego is an extreme remedy” and is “sparingly used.” Sonora Diamond Corp. v. 17 Superior Ct., 83 Cal. App. 4th 523, 539 (2000). “The purpose of the doctrine is to 18 bypass the corporate entity in order to avoid injustice.” Gerritsen v. Warner Bros. Ent. 19 Inc., 116 F. Supp. 3d 1104, 1136 (C.D. Cal. 2015). Thus, it is applied only in 20 “narrowly defined circumstances.” Id. (citing Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 21 290, 301 (1985)). 22 23 3 Defendants briefly suggest the Court should also dismiss SMTC because “the alleged transaction 24 underlying [APT’s] claims was between MC Assembly and [APT],”and not SMTC. (Reply 1, , ECF 25 No. 29; Mot. 22.) However, Defendants do not develop this argument. As such, the Court does not consider it. United States v. Graf, 610 F.3d 1148, 1166 (9th Cir. 2010) (“Arguments made in 26 passing and not supported by citations to the record or to case authority are generally deemed 27 waived.”). 4 Defendants challenge APT’s alter ego allegations only under Rule 12(b)(6). (Mot. 18–23.) As 28 such, the Court evaluates APT’s alter ego assertions under the plausibility standard of Twombly and Iqbal. Twombly, 550 U.S. at 555; Iqbal, 556 U.S. at 678. 1 A plaintiff asserting alter ego must allege specific facts supporting: (1) “such a 2 unity of interest and ownership between the corporation and its equitable owner that 3 the separate personalities . . . do not in reality exist,” and (2) “an inequitable result if 4 the acts in question are treated as those of the corporation alone.” Sonora, 83 Cal. 5 App. 4th at 538. Both prongs are “necessary for a [c]ourt to impose alter ego 6 liability.” Tatung Co., Ltd. v. Shu Tze Hsu, 217 F. Supp. 3d 1138, 1176 (C.D. Cal. 7 2016). 8 In determining whether to apply the alter ego doctrine, courts may consider 9 factors including: the “commingling of funds and other assets”; one entity holding 10 itself out as liable for the debts of the other; “identical equitable ownership in the two 11 entities”; use of the same offices and employees; “the failure to maintain arm’s length 12 relationships”; “the use of the corporate entity to procure labor, services, or 13 merchandise for” the other; and the use of one as a “mere shell, instrumentality or 14 conduit.” Zoran Corp. v. Chen, 185 Cal. App. 4th 799, 811–12 (2010). This list is not 15 exclusive, and courts must “examine all the circumstances to determine whether to 16 apply the doctrine.” Gerritsen, 116 F. Supp. 3d at 1137. “[T]he party seeking to have 17 the corporate entity disregarded has the burden of proving that the alter ego theory 18 should be applied.” Matter of Christian & Porter Aluminum Co., 584 F.2d 326, 338 19 (9th Cir. 1978); see Minifie v. Rowley, 187 Cal. 481, 487–88 (1921) (requiring that the 20 complaint contain sufficient factual allegations to invoke alter ego doctrine). 21 Regarding the first prong—unity of interests—APT offers little more than a 22 conclusory recitation of the alter ego factors listed above. (SAC ¶ 6.) APT states that 23 MC Assembly is a “wholly owned subsidiary of SMTC”; MC Assembly and SMTC 24 share the “same equitable ownership,” “location for the corporate headquarters,” and 25 “officers and directors”; SMTC used MC Assembly “as a mere shell, instrumentality 26 or conduit to conduct a single enterprise”; they “failed to maintain arm’s length 27 relationships”; and SMTC used MC Assembly to “procure labor, services and goods 28 for the other in completing the assembly alleged.” (Id.) These allegations are merely 1 conclusions, unsupported by any specific facts, and thus insufficient to establish a 2 unity of interests. Gerritsen, 116 F. Supp. 3d at 1136 (“[A] plaintiff must allege 3 specific facts supporting” the necessary elements). 4 The only factual allegations APT offers to support unity are that SMTC and 5 MC Assembly “did not distinguish between themselves in their dealings with APT,” 6 and that, although APT initially discussed the project with SMTC, it was 7 MC Assembly that submitted a cost proposal. (SAC ¶ 6.) These facts, standing alone, 8 fall far short of establishing that “the separate personalities . . . do not in reality exist.” 9 Sonora, 83 Cal. App. 4th at 538; see Gerritsen, 116 F. Supp. 3d at 1138–43 (finding 10 plaintiff failed to adequately allege unity of interest, despite raising more than ten 11 factors in support). Thus, APT fails to adequately allege a unity of interests.5 This 12 failure alone warrants refusal to impose the alter ego doctrine. Tatung, 217 F. Supp. 13 3d at 1176 (“Both factors are necessary for a [c]ourt to impose alter ego liability.”). 14 As for the second prong—inequitable result—APT alleges nothing at all in the 15 Second Amended Complaint to support that there will be “an inequitable result if the 16 acts in question are treated as those of the corporation alone.” Sonora, 83 Cal. App. 17 4th at 538; (see generally SAC). Nor is it an inequitable result, as APT argues in 18 opposition, to require APT to “incur more time and expense refiling this action in 19 Florida.” (Opp’n 8.) Declining to impose alter ego here does not deprive APT of its 20 rights as it may still pursue its suit against MC Assembly in Florida. See Salkin v. 21 United Servs. Auto. Ass’n, 767 F. Supp. 2d 1062, 1068 (C.D. Cal. 2011) (“[T]here is 22 no evidence that an ‘inequitable result’ will occur if the two entities are considered to 23 be separate [where] [p]laintiffs will be able to maintain their suit against” defendant in 24 a different court.). Thus, APT fails to adequately allege an inequitable result, which is 25 5 To support its argument that SMTC and MC Assembly acted as a single entity in their dealings 26 with APT, APT requests judicial notice or incorporation by reference of SMTC’s website and press release, and also submits copies of correspondence between the parties. (Req. Judicial Notice, ECF 27 No. 28; Decl. Ty Kim ISO Opp’n ¶¶ 4, 6, Exs. A–C, ECF Nos. 27-1 to 27-4). As these documents 28 exceed the pleading and are subject to reasonable dispute, (see Reply 4 n.1), the Court DENIES APT’s request and does not consider them here. 1 an additional and independent basis for the Court to decline to impose the alter ego 2 doctrine. Wady v. Provident Life & Accident Ins. Co. of Am., 216 F. Supp. 2d 1060, 3 1070 (C.D. Cal. 2002) (entering judgment for defendant where plaintiff “failed to 4 raise any genuine issue of material fact regarding the second, or ‘inequitable results,’ 5 prong” of alter ego doctrine). 6 As the only basis that APT asserts for the Court’s personal jurisdiction over 7 MC Assembly is that MC Assembly is SMTC’s alter ego, and as APT fails to 8 adequately allege that alter ego relationship, the Court dismisses MC Assembly for 9 lack of personal jurisdiction. APT suggests that it can add facts supporting the alter 10 ego relationship. As such, dismissal is with leave to amend. 11 B. Conversion 12 Defendants argue APT’s conversion cause of action is not cognizable because it 13 merely restates APT’s breach of contract claim. (Mot. 23.) However, “Rule 8(d) of 14 the Federal Rules of Civil Procedure expressly permits a plaintiff to plead claims in 15 the alternative,” Longest v. Green Tree Servicing LLC, 74 F. Supp. 3d 1289, 1302 16 (C.D. Cal. 2015), even where those claims are “mutually exclusive,” PAE Gov’t 17 Servs., Inc. v. MPRI, Inc., 514 F.3d 856, 859 (9th Cir. 2007). Here, APT alleges that 18 the terms of the oral and written agreement are in dispute. (See SAC ¶ 30.) Thus, it is 19 plausible that Defendants were not contractually obligated to return the advanced 20 funds, making conversion a properly pleaded alternative. See SDI Labs, Inc. v. 21 Sameday Techs., Inc., No. 2:23-cv-05619-MRA (MRWx), 2025 WL 1141165, at *5 22 (C.D. Cal. Mar. 24, 2025) (finding conversion claim “properly pleaded in the 23 alternative to the breach-of-contract claim” where the terms of the agreement were in 24 dispute and it was possible that the defendant “was not contractually obligated to 25 return the escrow funds”). 26 As APT properly pleads conversion in the alternative, the Court denies 27 Defendants’ Motion as to this cause of action. 28 1 C. Unfair Competition 2 Similarly, Defendants argue APT’s cause of action for unfair competition fails 3 because it is also based on the breach of contract allegations and “[a]n alleged breach 4 of contract . . . may not be a predicate for a[n unfair competition] action as a matter of 5 law.’” (Mot. 24 (quoting Puentes v. Wells Fargo Home Mortg., Inc., 160 Cal. App. 4th 6 638, 645 (2008).) Defendants misstate the case they quote, Puentes. The court in 7 Puentes actually wrote: “[A] breach of contract may . . . form the predicate for Section 8 17200 [unfair competition] claims, provided it also constitutes conduct that is 9 ‘unlawful, or unfair, or fraudulent.’” Puentes, 160 Cal. App. 4th at 645 (first two 10 alterations in original) (quoting Watson Lab’ys, Inc. v. Rhone-Poulenc Rorer, Inc., 11 178 F. Supp. 2d 1099, 1117 n.12 (C.D. Cal. 2001)). Here, APT asserts that 12 Defendants’ refusal to return the advance payments is unfair business conduct. (SAC 13 ¶ 44; Opp’n 10.) Thus, the question is whether APT adequately pleads unfair 14 competition under the “unfair” prong. (See Mot. 24 (arguing the unfair competition 15 claim fails as insufficiently alleged).) 16 With respect to business practices that affect consumers, courts have applied 17 three different tests to determine whether a practice is “unfair.” Drum v. San 18 Fernando Valley Bar Ass’n, 182 Cal. App. 4th 247, 256–57 (2010). APT relies on the 19 test that defines an “unfair” business practice as one that is “immoral, unethical, 20 oppressive, unscrupulous or substantially injurious to consumers.” (Opp’n 11 21 (quoting Doe v. CVS Pharmacy, Inc., 982 F.3d 1204, 1214–15 (9th Cir. 2020).) Under 22 this formulation, the court must “weigh the utility of the defendant’s conduct against 23 the gravity of the harm to the alleged victim.” Drum, 182 Cal. App. 4th at 257. 24 APT contends that Defendants contracted for advanced payments, failed to 25 provide the promised services and products, and then refused to return the advanced 26 funds. (Opp’n 11 (citing SAC ¶¶ 12–13, 17–19, 21, 44).) Accepting APT’s 27 well-pleaded allegations as true, Defendants’ business practice of accepting and 28 retaining funds for work that Defendants do not complete is plausibly “unethical,” 1 || “unscrupulous,” and “substantially injurious to consumers.” Doe, 982 F.3d at 1214. 2 || Further, the Court finds no reasonable utility to Defendants’ retaining APT’s advanced 3 || funds, and Defendants offer none. (See Mot. 23—25; Reply 7.) 4 As APT sufficiently pleads a cause of action for unfair competition under the 5 | “unfair” prong, the Court denies Defendants’ Motion as to this cause of action. 6 Vv. CONCLUSION 7 For the reasons discussed above, the Court GRANTS IN PART AND 8 | DENIES IN PART Defendants’ Motion to Dismiss APT’s Second Amended 9 || Complaint. (ECF No. 19.) Specifically, the Court grants the Motion to the extent that APT fails to adequately allege that MC Assembly is SMTC’s alter ego and 11 || DISMISSES APT’s claims against MC Assembly for lack of personal jurisdiction, 12 || with leave to amend. The Court denies the Motion in all other respects. 13 If APT wishes to amend, it must do so no later than twenty-one (21) days from 14 || the date of this Order, in which case Defendants shall answer or otherwise respond 15 | within fourteen days of the filing. If APT does not timely amend, the dismissal of 16 || MC Assembly for lack of personal jurisdiction shall be deemed final as of the lapse of 17 || the deadline to amend and SMTC shall answer within fourteen days of the lapsed 18 | deadline. If APT elects to amend, any amendment must be limited to allegations 19 | concerning Defendants’ alter ego relationship and the Court’s exercise of personal 20 || jurisdiction over Defendants. 21 22 IT IS SO ORDERED. 23 24 September 16, 2025 25 Se ws 7 OTIS D. HT, II 08 UNITED STATES “DISTRICT JUDGE