Chang v. Cashman

Background

The defendants filed a partial motion to dismiss all claims against newly added defendant Perseverus LLC. They relied primarily on Federal Rule of Civil Procedure 12(b)(2), which permits dismissal when the court lacks personal jurisdiction over a defendant. Chang opposed the motion, arguing that Perseverus was a successor-in-interest to Arrowside Ventures, LLC and that Perseverus had contacts with the forum supporting specific jurisdiction.

The court noted that California courts may exercise personal jurisdiction over a successor company when they would have had jurisdiction over the predecessor and the successor effectively assumed the predecessor’s relevant liabilities. Under California law, successor liability may arise when the successor agrees to assume the liabilities, the transaction is a consolidation or merger, the successor is a mere continuation of the predecessor, or the transfer of assets was made for the fraudulent purpose of avoiding the predecessor’s debts.

Mere-continuation theory

Chang argued that Perseverus was a mere continuation of Arrowside Ventures. The court explained that this theory requires a showing of at least one of two factual elements: inadequate consideration for the predecessor’s assets that was available to satisfy unsecured creditors, or overlapping officers, directors, or stockholders.

Although the parties did not dispute the second element, the court held that Chang’s allegations did not satisfy the first. The court rejected Chang’s argument that she only needed to allege an identity of people and purpose between the companies. It held that inadequate consideration is an essential part of a mere-continuation theory and concluded that Chang had not established successor liability under that theory.

The court therefore granted the defendants’ motion to dismiss as to the mere-continuation theory.

Fraudulent-purpose theory and specific jurisdiction

Chang also argued that Perseverus was a successor because it was created for a fraudulent purpose. Neither side addressed the standard the court should apply to that theory. The court declined to resolve the theory at the pleading stage, noting that successor-liability questions are highly fact-specific, the underlying facts were sharply disputed, and a more complete record would be available at the summary-judgment stage.

Because the successor-liability question remained unresolved, the court also did not reach Perseverus’s minimum-contacts arguments concerning specific jurisdiction. The court denied without prejudice the defendants’ motion as to specific jurisdiction and Chang’s fraudulent-purpose theory of successor liability. The opinion states that Perseverus may renew its minimum-contacts arguments at a later stage.

Other rulings

Because the partial motion to dismiss was granted only in part, the court denied as moot Chang’s request for leave to amend the operative complaint. The court stated that Chang could still file a one-page notice if she wished to seek leave to amend. The court also vacated the motion hearing then set for June 20, 2024 and denied as moot the parties’ request to appear at that hearing by video.

The court’s footnote states that the defendants also referenced Rule 12(b)(6), which concerns whether a complaint states a legally sufficient claim, but that the defendants had not sufficiently briefed that issue. The order therefore addressed only the personal-jurisdiction arguments presented in the parties’ papers.