Sun Group U.S.A. Harmony City, Inc. v. CRRC Corporation LTD

Background

Sun Group and China CNR Corporation, Ltd. entered a 2014 Cooperation Agreement concerning Sun Group’s assistance with bids for manufacturing high-speed rail cars in North America. The opinion states that CNR later changed its name to CRRC Corporation LTD, and that CNR MA later changed its name to CRRC MA. The agreement stated that Sun Group would, in principle, receive 6% to 10% of a contract amount after a successful bid, with the final percentage to be determined before tendering the bid.

Sun Group’s remaining claims were: (1) breach of contract against CRRC based on contracts involving the Massachusetts Bay Transit Authority, the Los Angeles County Metropolitan Transportation Authority, and the Southeastern Pennsylvania Transportation Authority; and (2) breach of the implied covenant of good faith and fair dealing based on projects involving Los Angeles, Philadelphia, Chicago, and Montreal. CRRC MA—not CRRC—entered the contracts at issue in Sun Group’s breach-of-contract claim. Sun Group therefore relied on an alter-ego theory, arguing that CRRC and CRRC MA should be treated as the same entity for liability purposes.

Discovery and Evidence

The court had required Sun Group to seek discovery from CRRC in China through the Hague Convention on the Taking of Evidence in Civil or Commercial Matters. The court repeatedly stated that it could reconsider that process if it substantially limited Sun Group’s ability to obtain necessary evidence. The court also allowed discovery from CRRC MA under the Federal Rules of Civil Procedure and extended the discovery deadlines multiple times. Sun Group did not argue before discovery closed that the Hague Convention process was inadequate, and it did not seek additional discovery under the federal rules after completing that process.

The court denied Sun Group’s request to reopen discovery and continue all case deadlines, including the summary-judgment hearing. The court cited the approaching trial, CRRC’s opposition and potential prejudice, Sun Group’s lack of diligence, the foreseeability of the need for additional discovery, and Sun Group’s failure to show that further discovery would produce relevant evidence. The court also declined to draw a negative inference against CRRC because Sun Group had not obtained the discovery it wanted.

The court denied Sun Group’s request for judicial notice of the contents of most submitted documents, but granted judicial notice for Exhibit 7, an exchange-rate document published by the Federal Reserve, and Exhibit 18, CRRC MA’s Articles of Organization. The court sustained CRRC’s objections to CRRC MA’s 2015 financial statements, an unsigned and undated agreement involving CNR, CRRC MA, and Sojitz Corporation of America, and minutes from a Massachusetts Department of Transportation meeting.

The court also declined to consider the opinions of Sun Group’s expert, Thomas Y. Man, concerning the alter-ego issue. The court explained that an expert may analyze facts but may not give an opinion stating a legal conclusion. It further found that Sun Group had not shown that Man’s other opinions would assist the fact finder, and that his opinions concerned only one project and did not address the pervasive control needed to establish an alter-ego relationship.

Summary-Judgment Standard

Under Federal Rule of Civil Procedure 56, summary judgment is proper when there is no genuine dispute about a material fact and the moving party is entitled to judgment as a matter of law. The moving party must identify the absence of evidence supporting the opposing party’s claim. The opposing party must then identify specific evidence showing a genuine issue for trial; the court is not required to search the record for such evidence.

Breach-of-Contract Claim and Alter Ego

Under California law, a party seeking to disregard separate corporate identities must establish both: (1) unity of interest and ownership such that the companies’ separate personalities no longer exist; and (2) that respecting the corporate form would result in fraud or injustice. Sun Group had the burden to establish CRRC’s alter-ego relationship with CRRC MA.

The court concluded that Sun Group had little admissible evidence on this issue. Even considering evidence the court otherwise would not consider, the court found that Sun Group showed only conduct consistent with an ordinary parent-subsidiary relationship. That conduct included overlapping officers or directors, ownership of CRRC MA, guarantees and funding, consolidated annual reports, references to CRRC MA’s assets as CRRC’s own, and direction of major or broad financial decisions. Sun Group did not show that CRRC controlled CRRC MA’s day-to-day activities or that the companies failed to observe or document corporate formalities. The court therefore found no genuine factual dispute preventing summary judgment on the unity-of-interest requirement.

The court also held that Sun Group had not shown fraud or injustice. Sun Group argued that it would be unjust to deny recovery for an alleged breach involving CRRC MA’s contract with the Massachusetts Bay Transit Authority because CRRC controlled CRRC MA. The court found no evidence that CRRC MA’s role was intended to deprive Sun Group of a commission, and stated that the inability to collect or the failure of a claim, by itself, is not the type of inequity required for alter-ego liability.

Accordingly, the court granted CRRC’s motion for summary judgment on Sun Group’s breach-of-contract claim.

Implied Covenant of Good Faith and Fair Dealing

Sun Group alleged that the Cooperation Agreement gave it a right of first refusal or otherwise required CRRC to give Sun Group an opportunity to partner on rail-car projects. Sun Group argued that CRRC directed subsidiaries to submit bids in their own names to avoid CRRC’s contractual obligations and the payment of commissions, while CRRC received the benefits of those bids.

The court explained that California law implies a duty of good faith and fair dealing in contracts, but that duty cannot add obligations beyond the contract’s terms. A claim may proceed when a party alleges that the other side acted in bad faith to frustrate the benefits of the agreement. Here, however, Sun Group did not submit the Cooperation Agreement, the five contracts, or the email that allegedly terminated the agreement. The court found that testimony describing Sun Group’s belief that CRRC acted in bad faith was insufficient, and that Sun Group provided no evidence that CRRC received the benefits of the bids. The court therefore granted CRRC’s motion for summary judgment on the implied-covenant claim.

Disposition

The court granted CRRC’s motion for summary judgment on both remaining claims. It also denied Sun Group’s request to reopen discovery and continue the deadlines, denied most of Sun Group’s requests for judicial notice, granted the request as to Exhibits 7 and 18, and sustained the specified evidentiary objections. The court stated that it would issue a separate judgment and directed the clerk to close the file.