ARGUMENT
I. Berber’s sale of CyberTrader to the Charles Schwab Corp. for more than $500 million is an act that by itself establishes jurisdiction over him
It is undisputed that, in early March, 2000, Respondent Philip Berber (“Berber”) sold his company, CyberTrader, Inc. (“CyberTrader”), to the Charles Schwab Corporation (“Schwab”) for more than $500 million in Schwab common stock. Berber did so in his personal capacity. The agreement covering this transaction (the “Agreement”) was personally signed by Berber, the founder, majority owner, Chairman & CEO of CyberTrader. This single act in and of itself is more than sufficient grounds to establish jurisdiction over Berber in California. The Supreme Court of the United States has held:
“So long as it creates a ‘substantial connection’ with the forum, even a single act can support jurisdiction. McGee v. International Life Insurance Co., 355 U.S., at 223.”
Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 1985 U.S. LEXIS 14 at footnote 18.
The Agreement was executed in California. It is the culmination of the key allegation in Appellant’s Complaint: seeking to artificially inflate his company’s revenues, and thus the value of his controlling stake in CyberTrader, Berber personally orchestrated a scheme whereby, due to the undisclosed kickback payments CyberTrader, on his order and at his direction made them, the third-party Investment Advisory Defendants would issue worthless investment advice geared only towards generating an extreme volume of client securities transactions and, hence, commission revenues. This scheme skyrocketed CyberTrader’s revenues, while the thousands of clients of Mr. Berber and the Investment Advisory Defendants Christopher Rea (“Rea”) and Trading Places, Inc. (“Trading Places”) consequently sustained catastrophic financial loss.
A. The Agreement was based on CyberTrader revenues, the majority of which were a direct result of Berber’s kickback scheme
The provisions of the Agreement, the value of CyberTrader, were based on CyberTrader revenues. The vast majority of these revenues were derived from client commissions. The vast majority of these commissions were a result of the kickback scheme. Therefore, the greatest part of the sale price, hundreds of millions of dollars, was derived from Berber’s scheme. Furthermore, the sale, taking as a benchmark CyberTrader’s past revenues in order to project future revenues, by definition included the sale of CyberTrader’s business model. That business model was fashioned almost completely around the kickback scheme Berber personally orchestrated. So the sale comprised both the kickback revenues, and in addition the kickback scheme business model.
B. The Agreement through which Berber cashed in his destruction of thousands of innocent citizens contained a mandatory San Francisco, California forum-selection clause
The Agreement contains a mandatory forum selection clause whereby Berber personally agreed to submit to the jurisdiction of “any California state or federal court sitting in the City and County of San Francisco.” This mandatory forum-selection clause pertained not only to the signatories of the Agreement, but also its provisions.
The Agreement is the vehicle through which Berber finally reaped his enormous ill-gotten gains, how he cashed in the betrayal of his clients. It is a mountain of wealth with at its foundation Berber knowingly destroying thousands of his own clients. It bears a direct, overwhelming connection to the allegations at issue in the Complaint, and to California.
II. Berber was aware that he inflicted damage in California on both his own clients and others
A. Berber deliberately targeted California
Berber has at no time denied that the company he founded, owned and controlled deliberately targeted California for its business operations. Many hundreds if not thousands of Berber’s clients were and are California residents.
In furtherance of his scheme, Berber was the keynote speaker and lead sponsor of huge trading conventions where both brokerage firms and investment advisors solicited clients. Two of these conventions took place in Oakland, and Anaheim, California, directly targeting this forum.
An illustrative case is Davis vs. Superior Court. In that case, non-resident defendants, who traveled to California to attend trade conventions in order to sell their wares and increase their business revenues, were by their acts held subject to jurisdiction in this State:
“We have little difficulty in finding petitioners Lerner and Earl to be subject to California jurisdiction in these actions for damages for personal injuries sustained through use of the shield. Lerner was employed by Robins as a consultant from 1970 to 1974. There is evidence that he assisted Earl in the operation of "technical booths" all over the United States to promote this shield. In September 1970, he attended the San Francisco convention of the American Academy of General Practice and operated a commercial exhibit in which the shield was advertised to physicians and order forms were available. In 1971, he attended the San Francisco convention of the American College of Obstetricians and Gynecologists. He asserts that he was merely a "visitor and observer" and "in no way connected with the Dalkon Shield or A. H. Robins Co." But, as the San Francisco court found, "it is difficult to understand why an engineer would attend [such a convention] unless he was there in his 'consulting' capacity or because of his self-interest arising from his royalty percentage."
“A state has power to exercise judicial jurisdiction over an individual who has done . . . an act in the state with respect to any cause of action in tort arising from such act, . . ." (Judicial Council of Cal., Annual Rep., supra, Appendix II (p. 77), and authorities there cited; National Life of Florida Corp. v. Superior Court, 21 Cal.App.3d 281 [98 Cal.Rptr. 435].) Petitioner Earl on two occasions, and petitioner Lerner on at least one, came to California to conduct promotional campaigns for sale of the shield. These activities were directed to doctors, many obviously from this state, who are essential intermediaries in the sale and insertion of the shield. The promotion thus was designed to effect sales at the conventions and, more importantly, to build a continuing California market for the shield. It is clear that such conduct within California, performed by two men who sought financial benefits from sales of the shield, constitutes "an act by which" petitioners purposely availed themselves of "the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws" ( Hanson v. Denckla, 357 U.S. 235, 253 [2 L.Ed.2d 1283, 1298, 78 S.Ct. 1228]).”
Davis v. Superior Court (1976), 62 Cal. App. 3d 484, 488
Berber did not travel to California simply for a personal vacation, as he claims in his declaration; he directed his company to both sponsor and organize these conventions, in order to solicit clients for CyberTrader.
B. Berber, regardless whether or not he knew the identity of his victims, knowingly caused damage in California
Berber’s top competitor, Brokerage Defendant Manhattan Beach Trading, Inc. (“MB Trading”), was at all relevant times located in El Segundo, California. The majority of Appellant’s individual damages was sustained in his account with this firm. As Berber knew the scheme he orchestrated would damage residents of California whom he targeted, and additionally non-clients who maintained accounts with his top competitor, it is not reasonable for Berber to claim that he could not foresee his being haled into Court in California to answer for the damages he inflicted there. Indeed, the United States Supreme Court makes this clear:
“…to the extent that a corporation exercises the privilege of conducting activities within a state, it enjoys the benefits and protection of the laws of that state. The exercise of that privilege may give rise to obligations, and, so far as those obligations arise out of or are connected with the activities within the state, a procedure which requires the corporation to respond to a suit brought to enforce them can, in most instances, hardly be said to be undue. Compare International Harvester Co. v. Kentucky, supra, with Green v. Chicago, B. & Q. R. Co., supra, and People's Tobacco Co. v. American Tobacco Co., supra. Compare Connecticut Mutual Co. v. Spratley, supra, 619, 620 and Commercial Mutual Co. v. Davis, supra, with Old Wayne Life Assn. v. McDonough, supra. See 29 Columbia Law Review, 187-195.”
International Shoe Co. V. Washington (1945) 326 U.S. 310; 90 L. Ed. 95 at 10.
The same standard applies to the virtually one-man corporation Berber personally. Berber founded the company; he directed its operations; he was its spokesman; he personally conceived of, organized and executed the kickback scheme.
III. The United States Supreme Court requires a three-prong test to establish jurisdiction: Relatedness, Purposeful Availment and Reasonablness
The United States Supreme Court is clear on the requirements necessary to establish personal jurisdiction:
A. Relatedness
“Where a forum seeks to assert specific jurisdiction over an out-of-state defendant who has not consented to suit there, this "fair warning" requirement is satisfied if the defendant has "purposefully directed" his activities at residents of the forum, Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 774 (1984), and the litigation results from alleged injuries that "arise out of or relate to" those activities, Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984). n15.”
Burger King Corp. v. Rudzewicz, (1985)471 U.S. 462, 85 L. Ed. 2d 528, at 541.
Appellant’s claims against Berber for perpetrating a scheme which caused him substantial economic damages, the vast majority of which were sustained in his California, MB Trading account, bear a direct connection to this State. In that account, number 14416943, Appellant paid nearly $300,000 in commissions to execute more than 10,000 securities transactions of stock valued at more than $500 million, incurring a loss of some $10 million on these transactions. These losses are the direct result of the kickback scheme, which irrevocably corrupted the investment advice Appellant received from Rea and Trading Places. MB Trading is, and was at all relevant times, located in El Segundo, California. Therefore, Appellant’s damages arose in this forum. It would not be reasonable for Berber, founder, majority owner, Chairman and CEO of CyberTrader, who personally organized the kickback scheme that forms the basis of Appellant’s Complaint, to assert that he did not know the corporate identity or location of his #1 competitor. As Rea and Trading Places recommended not only CyberTrader, but also MB Trading, to their clients, disavowal of any knowledge that many Trading Places clients maintained accounts with MB Trading in California would not be credible. Therefore, as Berber personally orchestrated the scheme with the Investment Advisory Defendants, and knew it would affect clients of the Investment Advisory Defendants, many of whom were MB Trading clients, a company he knew was located in California, he knowingly inflicted damages in California. Whether or not, as Berber has previously argued is a material issue, Berber personally knew the Appellant or any and/or all of the recipients/victims of his scheme, he nevertheless inflicted substantial damage upon them in California.
Appellant’s claims against Berber for disgorgement of ill-gotten gains, arising from his scheme perpetrated against California residents, the fruits of which were consummated through his transaction with the San Francisco, California company Schwab, in an agreement specifically calling for San Francisco, California jurisdiction over any controversy pertaining to its provisions, likewise bear a direct connection to this State. Put another way, is there any other state that has a direct connection to these claims? How could Berber’s purposeful infliction of California damages, and execution of a California transaction worth hundreds of millions of dollars directly arising out of his scheme to defraud hundreds if not thousands of residents of this State have anything whatsoever to do with any other State but California?
B. Purposeful Availment
“Jurisdiction is proper, however, where the contacts proximately result from actions by the defendant himself that create a "substantial connection" with the forum State. McGee v. International Life Insurance Co., supra, at 223; see also Kulko v. California Superior Court, supra, at 94, n. 7. n18 Thus where the defendant "deliberately" has engaged in significant activities within a State, Keeton v. Hustler Magazine, Inc., supra, at 781, or has created "continuing obligations" between himself and residents of the forum, Travelers Health Assn. v. Virginia, 339 U.S., at 648, he manifestly has availed himself of the privilege of conducting business there, and because his activities are shielded by "the benefits and protections" of the forum's laws it is presumptively not unreasonable to require him to submit to the burdens of litigation in that forum as well.”
Burger King Corp. v. Rudzewicz, (1985)471 U.S. 462, 85 L. Ed. 2d 528, at 2184 and 543.
“Specific jurisdiction may be asserted where the defendant has purposefully availed himself of forum benefits and the controversy is related to or arises out of the defendant's contacts with the forum. (Vons Companies, Inc. v. Seabest Foods, Inc., supra, 14 Cal. 4th at p. 446.) Sufficient minimum contacts for specific jurisdiction exist where a nonresident ‘deliberately has engaged in significant activities within a [s]tate or has created 'continuing obligations' between himself and residents of the forum.’ ( Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 475-476 [105 S. Ct. 2174, 2184, 85 L. Ed. 2d 528, 543].)”
Hall v. LaRonde 1997 Cal. App. LEXIS 633 at 5.
There is no question that Berber’s own personal acts, purposefully directed at this forum, are at issue. He has availed himself of the privilege of doing business here; he is therefore accountable for his actions before its courts.
C. Reasonableness
“The Due Process Clause of the Fourteenth Amendment to the United States Constitution permits personal jurisdiction over a defendant in any State with which the defendant has "certain minimum contacts . . . such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' Milliken v. Meyer, 311 U.S. 457, 463." International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945). In judging minimum contacts, a court properly focuses on "the relationship among the defendant, the forum, and the litigation." Shaffer v. Heitner, 433 U.S. 186, 204 (1977). See also Rush v. Savchuk, 444 U.S. 320, 332 (1980).”
Calder v. Jones (1984) 465 U.S. 783; 79 L. Ed. 2d 804 at HR5.
Defendant Berber directed his activities at this forum and caused damages in this forum. He then parlayed this forum-related activity into a windfall of hundreds of millions of dollars he personally reaped in this same forum. Jurisdiction is not only fair and reasonable, it is indeed a requirement of these claims: 95% of Appellant’s damages were sustained in California, and likely also 95% - if not 100% - of Berber’s present ill-gotten wealth was procured in California. California enriched Berber; now he attempts to argue that, though he partook of the rights and benefits of doing business here, reaching tycoon status thanks to this State, he is somehow entitled to avoid the rights of those he damaged in California to call him to book for his forum-related acts. This is not only not a reasonable argument; it is outlandish.
IV. Berber is not entitled to an official capacity shield for his personal conduct
Because he can neither truthfully claim that he did not in California sell CyberTrader for a vast sum based on its revenues, nor that his company did not target California and its residents, nor that his acts did not have a damaging effect on California brokerage accounts, nor that he did not personally conceive of, organize and execute the kickback scheme with the Investment Advisory Defendants, Berber deploys as the linchpin of his argument that the allegations at issue do not pertain to himself personally. He proposes that they relate solely to his role as a mere employee of CyberTrader. However, Berber was not merely some low-level employee or hapless corporate officer simply following policies and business practices with which he had nothing to do – he personally conceived of and established the kickback scheme, in order to artificially and fraudulently increase the value of his own personal stake in the company he founded. The Courts in this state require a two-prong test to strip away the corporate shield:
“A long line of cases has established two criteria for making [a] determination [that the alter ego doctrine is applicable], (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individuals no longer exist, and (2) if the acts are treated as those of the corporation alone an inequitable result will follow. ( Automotriz etc. De California v. Resnick, 47 Cal.2d 792, 796 [306 P.2d 1, 63 A.L.R.2d 1042]; Stark v. Coker, 20 Cal.2d 839, 846 [129 P.2d 390]; Ballantine & Sterling, California Corporation Laws, § 43A, p. 90C.)”
Platt v. Billingsley (1965) 234 Cal. App. 2d 577, 1965 Cal. App. LEXIS 1044 at 7.
There is no doubt that there was a “unity of interest” between Berber and his ownership stake in CyberTrader, which comprised not some small, partial stake, but a full 60%. His acts as Chairman and CEO of CyberTrader were predicated on this ownership stake. It would be inequitable and illogical to somehow allow CyberTrader and its parent company to face liability while permitting the chief architect of the kickback scheme, Mr. Berber personally, to escape any liability for damages that are a direct result of his personal acts and omissions. It would not be reasonable to allow Berber to personally reap more than $300 million selling his company to Schwab and then not call him to account for his own personal acts leading up to that sale. Indeed, in the absence of Berber’s personal acts orchestrating the kickback scheme, it is questionable whether that sale would have taken place at all, let alone for a sum of between $500 and 800 million.
V. California is the only proper forum in which to hale Berber
As demonstrated above, there is an overwhelming nexus between Appellant’s Complaint, Berber and California. Such a nexus does not exist in any other state. Put another way, should Appellant have filed suit in Maryland, where he is currently a resident? He never suffered damage there – his damages were incurred in California, in his El Segundo, MB Trading account. Indeed, during all times relevant to his claims, Appellant was a resident of the State of Virginia. He did not suffer damages there, either. Berber is and was at all relevant times a resident of Austin, Texas. Should Appellant have sued him there? He suffered no damages in Texas, except for the 5% of his claims that concern an account he briefly maintained with Berber’s firm. One would think Berber would have a far stronger anti-jurisdictional case in Maryland, Virginia and Texas than he does in California, where, unlike anywhere else, all elements required to assert jurisdiction are present: relatedness, purposeful availment and reasonableness under Constitutional due process.
VI. Conclusion
The facts and the law lead to but a single conclusion: jurisdiction over Mr. Berber in the State of California is not only fair, reasonable and expected – it is an absolute requirement of this action.
The May 5, 2003 order of the Superior Court to quash service of process and dismiss should be reversed in its entirety.
DATED: June 27, 2003
_____________________________
Olivier L. F. Asser
Appellant in propria persona |
