                                 Cite as 2016 Ark. App. 220

                 ARKANSAS COURT OF APPEALS

                                        DIVISION III
                                          CV-15-564
                                        No.

                                                 Opinion Delivered:   APRIL 20, 2016
HEATHER WEISKER, AS
ADMINISTRATOR OF THE ESTATE                      APPEAL FROM THE BENTON
OF EDWARD RANDOLPH,                              COUNTY CIRCUIT COURT
DECEASED, AND ON BEHALF OF THE                   [NO. CV-12-2336]
WRONGFUL DEATH BENEFICIARIES
OF EDWARD RANDOLPH                               HONORABLE DOUG SCHRANTZ,
                    APPELLANT                    JUDGE

V.

HARVEST MANAGEMENT SUB LLC
                    APPELLEE AFFIRMED

                             KENNETH S. HIXSON, Judge

       Appellant Heather Weisker, as the administrator of her deceased father’s estate,

appeals the dismissal of her negligence and wrongful-death action against appellee Harvest

Management Sub LLC (hereinafter referred to as “Harvest” or its residential facility “Apple

Blossom”) in the Circuit Court of Benton County, Arkansas. At the close of appellant’s

case in chief, the trial court granted the appellee’s motion for directed verdict. A final order

of dismissal followed. 1 Appellant contends that the trial court’s grant of the motion for

       1
          Appellant named several defendants and several causes of action in the original
complaint, including violation of the Arkansas Deceptive Trade Practices Act, negligence,
wrongful death, fraud and deceit, and civil conspiracy. Additional parties and causes of
action were dismissed prior to trial. In appellant’s notice of appeal, appellant recites that she
abandons all pending but unresolved claims in accordance with Ark. R. App. P.−Civ.
3(e)(vi). This renders the order on appeal final for purposes of appellate jurisdiction.
                                Cite as 2016 Ark. App. 220

directed verdict was in error and warrants reversal. 2 We disagree and affirm.

       The standard of review on appeal from the grant of a motion for directed verdict is

well settled. In determining whether a directed verdict should have been granted, we

review the evidence in the light most favorable to the party against whom the verdict is

sought and give it its highest probative value, taking into account all reasonable inferences

deducible from it. Woodall v. Chuck Dory Auto Sales, Inc., 347 Ark. 260, 61 S.W.3d 835

(2001). A motion for directed verdict should be granted only if there is no substantial

evidence to support a jury verdict. Id. Where the evidence is such that fair-minded persons

might reach different conclusions, then a jury question is presented, and the directed verdict

should be reversed. Id; see also Buckalew v. Arvest Trust Co., 2013 Ark. App. 28, 425 S.W.3d

819.

       What is important here, though, is determining whether a duty was owed by this

appellee to the decedent. The question of whether such a duty is owed is one of law, not

fact, and never one for the jury. Marlar v. Daniel, 368 Ark. 505, 247 S.W.3d 473 (2007).

Duty is a concept that arises out of the recognition that relations between individuals may

impose upon one a legal obligation for the other. Id. The law of negligence requires as an

essential element that the plaintiff show that a duty of care was owed. Kowalski v. Rose Drugs

of Dardanelle, Inc., 2011 Ark. 44, 378 S.W.3d 109. In order to prove negligence, there must

be a failure to exercise proper care in the performance of a legal duty that the defendant

       2
          We attempted to certify this appeal to our supreme court on the bases that this
appeal presented an issue of first impression, an issue of substantial public interest, and a
significant issue needing clarification or development of the law. Ark. Sup. Ct. R. 1-2(b)(1),
(4), and (5). The Arkansas Supreme Court declined to accept certification.
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owed to the plaintiff under the circumstances surrounding them. Marlar, supra. Experts

cannot create a duty of care that the law does not otherwise recognize. Bedell v. Williams,

2012 Ark. 75, 386 S.W.3d 493; Young v. Gastro-Intestinal Ctr., Inc., 361 Ark. 209, 205

S.W.3d 741 (2005). A company’s practice or policies do not translate into a duty at law.

Kroger Co. v. Smith, 93 Ark. App. 270, 218 S.W.3d 359 (2005). Questions of law are

reviewed de novo on appeal. Holt v. McCastlain, 357 Ark. 455, 182 S.W.3d 112 (2004).

       The salient facts brought out at trial and material to the trial court’s ruling are as

follows. On November 10, 2010, appellant’s father, Edward Randolph, entered into a

“Residency and Service Agreement” with a retirement community called Apple Blossom

in Rogers, Arkansas, operated by appellee Harvest. In that agreement, which was six pages

long, Randolph contracted for a month-to-month apartment rental of Unit 110. Monthly

rent included payment of utilities, as well as certain “board, activities, and services as

described” in the contract. The contract specified that Apple Blossom would provide three

meals per day in the community dining room, and it would provide weekly housekeeping,

consisting of light cleaning of the Unit, changing of the bed linens, and laundering of the

linens and towels. This cleaning service did not include cleaning that would require moving

the personal property of the resident. Nor did the cleaning service include laundering of

the resident’s personal clothing; community laundry equipment was available for residents

to use. The contract specified that Apple Blossom would provide a variety of additional

services that would include social events, exercise classes, community activities, and

scheduled transportation. Apple Blossom reserved the right to enter each Unit for purposes

of cleaning, maintenance and repairs, enforcement of the terms of the contract, and response

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to emergencies. Each Unit had in it a pull cord for summoning emergency assistance at any

time.

        Important to this case, the Residency and Service Agreement provided in paragraph

ten as follows:

        A. Your Capacity for Apartment Living. The Community [Apple Blossom]
           supports your right to live in the housing of your choice. You should be aware,
           however, that the Community, its managers, and staff, are not licensed providers
           of any health care or personal care services. The Community is not authorized
           to provide, nor does it provide, any health care or personal care services. If you
           need health care or personal care services, you have the right to secure such
           services from an outside provider. Any outside providers of health care or
           personal care services must comply with all of the Community’s rules, policies
           and guidelines (as they may be amended). . . .
        B. Release from Responsibility for Your Care. It is your responsibility to provide
           for your health and personal care needs while living at the Community. You
           hereby agree to indemnify, hold harmless and release the Community, Harvest
           Facility Holdings LP, its subsidiaries and affiliates, and its directors, agents and
           employees, from any liability, cost, or responsibility for injury and damage,
           including attorneys’ fees, arising from your failure to obtain (or the failure of
           others to furnish) appropriate health or personal care services, and from all injury
           and damage which could have been avoided or reduced if such services had been
           obtained or furnished.

        Randolph entered into a separate addendum to the Residency and Service

Agreement to permit him to have his dog in his Unit. The addendum noted that Randolph

would be responsible for his pet’s personal needs such as exercise, feeding, and

collection/disposal of any pet waste in and about the Unit and on the community property.

The addendum further recited that if Randolph became unable to care for his pet’s personal

needs, then he would be required to find alternative housing and accommodations for his

dog.

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       Randolph was a long-time smoker and an Army veteran who served in the Vietnam

War. Randolph was routinely treated at the VA in Fayetteville, and he retained his own

truck to drive himself to and from doctor appointments. He was diagnosed with post-

traumatic-stress disorder, depression, and chronic pain due to traumatic injuries to his feet.

Randolph was overweight, and he used a cane when he walked. His medical records

indicated that he was urged by his doctor to quit smoking although Randolph was not ready

to quit, and the doctor tried to control his high blood pressure with oral medications. He

was also prescribed antidepressant and high-cholesterol medication.

       Randolph requested the nurse of his primary care physician, Dr. Marlan L. Rhame,

to fill out a form stating a reason why he needed help with meal preparation at his new

apartment. Dr. Rhame filled out the form, indicating that Randolph needed a cane to walk;

that he could feed himself, bathe himself, and tend to his own other hygiene needs; that he

was not bedridden; that he was able to sit up; that he was not blind; that he was able to

travel and leave home without assistance, including driving up to sixty miles to see his

doctor; but that he required assisted living care in preparing meals because he was unable to

stand to cook. The final question on the form asked, “In your opinion, are there other

pertinent facts which would show [Randolph’s] need for aid and attendance of another

person, e.g., inability to protect oneself from the hazards of environment, properly dress

oneself (buttons, zippers, socks), poor balance, memory loss, confusion, psychiatric

impairment, atrophy, contractor, prosthesis, etc.?” In response, Dr. Rhame wrote that

Randolph had chronic bilateral foot pain that limited his ability to ambulate and stand for

any length of time, such as for preparing meals.

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       Randolph moved into Unit 110 on or about December 6, 2010. Randolph was

characterized by one of Apple Blossom’s employees as seeming depressed and lonely,

although Randolph occasionally walked his dog and joined other people to smoke.

Randolph was seen coming and going from Apple Blossom in his truck. As a sixty-two-

year-old man, Randolph was much younger than most of the other residents at Apple

Blossom, who were typically over the age of eighty.

       On December 26, 2010, Randolph was found dead, seated in a chair, in his

apartment. Randolph was found by a manager of Apple Blossom, who was attempting to

discover the source of an unpleasant odor emanating from the apartment. The last time

Randolph had been seen by any staff of Apple Blossom was on the evening of December

24 when a housekeeper came by Randolph’s apartment. The housekeeper said that she did

not observe anything to lead her to believe that Randolph could not live independently; if

she had, she would have reported it to management. Medical professionals estimated

that Randolph had been dead for about forty-eight hours when he was found. Randolph’s

dog, also in the apartment, was still alive. The probable cause of Randolph’s death was

determined to be a cardiovascular accident—a stroke. There were clear indicators that

Randolph was noncompliant in taking his oral blood-pressure medications.

      At trial, there were competing medical opinions as to whether Randolph was an

appropriate candidate for independent living at Apple Blossom. There was no opinion

offered, however, that Randolph lacked capacity to make his own decisions or to enter into

any contract. An Apple Blossom representative testified that there was no formal assessment

of prospective residents other than observation at the time of sign-in and informal

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observation of the residents as they were seen living in the retirement community.

However, there was evidence that Apple Blossom representatives did ask questions

regarding the appellant’s medical condition and required services. 3

       Appellant’s attorney asserted that Apple Blossom owed a duty to its residents of

exercising reasonable care in determining whether residents were appropriate candidates to

live there independently. Appellant argued that absent an actual evaluation by Apple

Blossom of each person’s ability to live independently without risk of injury to him or

herself, this constituted negligence. At the close of the plaintiff’s case in chief, Apple

Blossom’s attorney moved for a directed verdict on the basis that there was no duty owed

by Apple Blossom to Randolph other than that owed by a landlord to its tenant or created

in the residency agreement. Apple Blossom contended that with no duty to conduct a

“fitness” evaluation, there could be no breach and no negligence. Viewing the evidence in

the light most favorable to appellant, the trial court granted the defense’s motion, finding

that there was no legal duty to evaluate, assess, and/or monitor Randolph. This appeal

resulted.

       Appellant argues on appeal that Apple Blossom owed a duty to Randolph to perform

an evaluation to determine Randolph’s capacity to live safely in his apartment at Apple

Blossom, and if he were not deemed able, to have him execute waivers of liability.

Appellant points to no statutory or regulatory law that imposes on a retirement community

such as Apple Blossom a duty to screen or monitor potential residents for the ability to live

       3
         While the record indicates that Apple Blossom may have voluntarily assumed a duty
by its conduct, appellant did not raise this issue before the trial court or the appellate court;
therefore, we decline to address it.
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independently. In fact, appellant asserts in her appellate brief that Arkansas’ landlord-tenant

statutes are not applicable. There is no such statutory duty imposed by our legislature in

this circumstance and our supreme court declined our invitation for certification; therefore,

we will not judicially impose such a duty here. See Young, supra. The contract between

Randolph and Apple Blossom explicitly provides that Apple Blossom is not a medical

provider, it is not qualified as such, and it does not provide for medical assistance. There is

simply no contractual undertaking of a duty to prescreen residential applicants to determine

suitability to live independently or a duty to monitor those residents after they have moved

onto the property. As prudent as such a screening process might be, there is no such duty

as a matter of law in these circumstances. See Lovell v. St. Paul Fire & Marine Ins. Co., 310

Ark. 791, 839 S.W.2d 222 (1992); Emerson v. Adult Cmty. Total Servs., Inc., 842 F. Supp.

152 (E.D. Pa. 1994). The trial court did not err in granting a directed verdict and dismissing

appellant’s cause of action against Apple Blossom because there was no duty at law owed by

Apple Blossom to Mr. Randolph. See Mans v. Peoples Bank of Imboden, 340 Ark. 518, 10

S.W.3d 885 (2000); Kroger Co., supra.

       Affirmed.

       VIRDEN and BROWN, JJ., agree.

       The Sorey Law Firm, PLLC, by: R. Daniel Sorey, for appellant.

       Hardin, Jesson & Terry, PLC, by: Kirkman T. Dougherty, Jeffery W. Hatfield, and Kynda

Almefty, for appellee.

                                              8


337 F.3d 1373
NIPPON STEEL CORPORATION, Plaintiff-Appellee,v.UNITED STATES, Defendant-Appellant,v.Bethlehem Steel Corporation and U.S. Steel Group (a Unit of USX Corporation), Defendants-Appellants, andISPAT Inland Inc., LTV Steel Company, Inc., Gallatin Steel, Ipsco Steel, Inc., Steel Dynamics, Inc., and Weirton Steel Corporation, Defendants.
No. 02-1266.
No. 02-1267.
United States Court of Appeals, Federal Circuit.
August 8, 2003.

COPYRIGHT MATERIAL OMITTED COPYRIGHT MATERIAL OMITTED J. Christopher Wood, Gibson, Dunn & Crutcher, LLP, of Washington, DC, argued for plaintiff-appellee. With him on the brief were Daniel J. Plaine and Gracia M. Berg.
Kyle E. Chadwick, Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, of Washington, DC, argued for defendant-appellant United States. With him on the brief were David M. Cohen, Director; and Lucius B. Lau, Assistant Director. Of counsel on the brief were John D. McInerney, Chief Counsel; Elizabeth C. Seastrum, Senior Counsel; and Linda S. Chang, Senior Attorney, Office of Chief Counsel for Import Administration, U.S. Department of Commerce, of Washington, DC.
Jeffrey D. Gerrish, Skadden, Arps, Slate, Meagher & Flom LLP, of Washington, DC, argued for defendants-appellants Bethlehem Steel Corporation, et al. With him on the brief were Robert E. Lighthizer, John J. Mangan, and Ellen Schneider. Of counsel were James C. Hecht and Daniel L. Schneiderman, Skadden, Arps, et al.
Before LOURIE, GAJARSA and LINN, Circuit Judges.
LINN, Circuit Judge.

1
A group of domestic steel producers ("petitioners"), including appellants Bethlehem Steel and U.S. Steel Group (collectively, "Bethlehem"), petitioned the Department of Commerce ("Commerce") to initiate an antidumping investigation of hot-rolled flat-rolled carbon-quality steel products ("hot-rolled steel") from Japan. The United States and Bethlehem separately appeal from a final judgment entered by the United States Court of International Trade, in which the court (1) rejected Commerce's application of partial adverse facts available; (2) invalidated 19 C.F.R. § 351.104(a); (3) ordered the use of a particular weight conversion factor; and (4) affirmed Commerce's starting price for the hot-rolled steel sales at issue. Because Commerce's decision to apply partial adverse facts available to the theoretical weight sales is supported by substantial evidence and is otherwise in accordance with law, we reverse the Court of International Trade's judgment to the contrary. Because Commerce's methodology of calculating the starting price was not in accordance with law, we reverse the Court of International Trade's affirmance of that issue.

BACKGROUND

2
The underlying facts in this case are largely undisputed and are taken from the Court of International Trade's decisions. See Nippon Steel Corp. v. United States, 118 F.Supp.2d 1366, 1369-72 (Ct. Int'l Trade 2000) ("Nippon I"). On September 30, 1998, petitioners filed a petition with Commerce pursuant to section 732(b) of the Tariff Act of 1930, 19 U.S.C. § 1671a(b) (2000), alleging that hot-rolled steel from Japan and other countries was being dumped in the United States, injuring a domestic industry. On October 22, 1998, in response to the information presented in the petition, Commerce published its notice of initiation of the antidumping investigation underlying this litigation. Certain Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil, Japan, and the Russian Federation, 63 Fed. Reg. 56,607 (Dep't Commerce Oct. 22, 1998) ("Initiation of Antidumping Invest.").

3
Commerce issued antidumping questionnaires to six Japanese steel producers identified in the petition. Because Commerce could not examine all six, it selected plaintiff-appellee Nippon Steel Corporation ("NSC") and two other producers as respondents and advised the remaining companies that they need not respond. See Hot-Rolled Flat-Rolled Carbon-Quality Steel Products from Japan, 64 Fed.Reg. 8291, 8292 (Dep't Commerce Feb. 19, 1999) ("Preliminary Results").

4
From November 16, 1998, through January 25, 1999, Commerce received responses to initial and supplemental questionnaires. Questionnaire section B requested, among other things, figures that Commerce could use to convert sales made at actual and theoretical weights, respectively, to a common basis ("conversion factor data"). NSC, in a response dated December 21, 1998, did not provide that data, asserting instead that Commerce did not need a "uniform quantity of measure" because "all NSC quantity types are consistent within the product type." In its January 25, 1999 response to a supplemental request, NSC stated that steel sheet sold at theoretical weight (i.e., estimated weight, based upon dimensions) "are never actually weighed" and, thus, NSC had "no way of calculating the requested theoretical-to-actual weight conversion factor." NSC later admitted that, contrary to its initial and supplemental responses, "the actual weight can be calculated."

5
NSC timely reported its gross unit prices for U.S. sales in dollars. It also reported net prices in yen for each sale, which NSC and its customers derived by discounting the invoiced dollar amount by the standard discount rate, then converting to yen at the exchange rate applicable on the ninth day after shipment. NSC's invoices reflect both the gross dollar price and the net yen price. Commerce verified that NSC received payments in yen, and that NSC internally recorded the accounts receivable in yen.

6
On February 19, 1999, Commerce published its preliminary dumping determination. Preliminary Results, 64 Fed.Reg. at 8291. Among other findings, Commerce preliminarily assigned an adverse (highest calculated) margin to sales made by NSC upon a theoretical weight basis because "NSC did not provide conversion factors for these U.S. sales upon [Commerce's] request...." Id. at 8298. Three days later, on February 22, 1999, NSC submitted a theoretical-to-actual weight conversion factor with no explanation for its lateness. On March 2, 1999, NSC submitted preverification changes and raw backup data supporting a corrected conversion factor. NSC stated that its prior "misstatement" that actual weights were unavailable was "based on a factual misunderstanding on the part of the NSC staff responsible for the preparation of NSC's responses in the instant investigation." Because NSC had not timely provided weight conversion data, Commerce informed NSC at verification that it would not accept or verify the conversion factor or supporting data. See Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Japan, 64 Fed.Reg. 24,329, 24,361 (Dep't Commerce May 6, 1999) ("Final Results").

7
In its May 6, 1999 final determination, Commerce reached a number of conclusions, two of which are pertinent to this appeal. First, Commerce used the yen value listed on NSC's invoices as the starting point for determining NSC's U.S. prices, upon the ground that the yen figure was "the value which is invoiced and paid by NSC's customers." Id. at 24,345. Commerce converted this value to dollars at the exchange rate effective on the shipment date. See id. Second, Commerce confirmed its rejection of NSC's conversion factor data and assigned a margin to the affected sales based upon facts available. See id. at 24,360-61. Finding that NSC had failed to act to the best of its ability with respect to the conversion factor data because NSC could have provided it when originally requested, Commerce drew an adverse inference in assigning that margin. See id. at 24,362.

8
Bethlehem and NSC timely filed actions before the Court of International Trade contesting Commerce's final determination pursuant to 19 U.S.C. § 1516a(a)(2). The Court of International Trade remanded the case to Commerce three times before entering final judgment. See Nippon Steel Corp. v. United States, 118 F.Supp.2d 1366, (Ct. Int'l Trade 2000) ("Nippon I"); Nippon Steel Corp. v. United States, 146 F.Supp.2d 835 (Ct. Int'l Trade 2001) ("Nippon II"); Nippon Steel Corp. v. United States, No. 01-122 (Ct. Int'l Trade Oct. 12, 2001) ("Nippon III"); Nippon Steel Corp. v. United States, No. 01-152 (Ct. Int'l Trade Dec. 27, 2001) ("Nippon IV"). In Nippon I, the court vacated Commerce's decision to use adverse facts available against NSC and remanded the matter to determine whether the failure to timely produce the conversion factor data was "an excusable inadvertence on NSC's part or a demonstration of a lack of due regard for its responsibilities in the investigation." 118 F.Supp.2d at 1378-79. The court also affirmed Commerce's use of the invoiced yen price as the starting price in its export price calculations. Id. at 1380-81. In Nippon II, the court held that Commerce's decision to apply adverse facts available on remand was not supported by substantial evidence because Commerce failed to "cite factors beyond NSC's failure to respond correctly to the agency's two requests for the weight conversion factor." 146 F.Supp.2d at 838. The court also held that 19 C.F.R. § 351.104(a) was not in accordance with law to the extent that it prohibited Commerce from considering the untimely conversion factor data when evaluating the impact on NSC's dumping margins. Id. at 843-44. That regulation precludes the inclusion of material returned to a submitter in the official record of proceedings. The case was remanded for Commerce to determine the dumping margin without using adverse facts available. Id. at 845. In Nippon III, the court again remanded, holding that Commerce's calculations using neutral facts available resulted in an implausible conversion factor. Nippon III, slip op. at 11. Finally, in Nippon IV, the court found that "Commerce has not meaningfully changed its methodology as ordered." Nippon IV, slip op. at 4. Instead of remanding a fourth time, the court "refuse[d] to further extend litigation by reopening the issue" and ordered Commerce to use NSC's suggested weight conversion factor. Id. at 6.

9
Bethlehem and the government separately appeal to this court. Both appellants argue that the Court of International Trade erred by rejecting Commerce's original determination to apply partial adverse facts available because Commerce's determination was supported by substantial evidence. Both appellants also argue that the court erred in its conclusion that 19 C.F.R. § 351.104 is invalid because Commerce's interpretation of that regulation is in accordance with law and entitled to deference. Bethlehem separately argues that the court erred by holding that Commerce's determination of the "starting price" to be used for NSC's U.S. sales was supported by substantial evidence.

10
This court has jurisdiction under 28 U.S.C. § 1295(a)(5).

DISCUSSION
A. Standard Of Review

11
We review a decision of the Court of International Trade evaluating an antidumping determination by Commerce by reapplying the statutory standard of review that the Court of International Trade applied in reviewing the administrative record. Ta Chen Stainless Steel Pipe, Inc. v. United States, 298 F.3d 1330, 1335 (Fed.Cir.2002) cert. denied, ___ U.S. ___, 123 S.Ct. 2073, 155 L.Ed.2d 1059 (2003) (No. 02-1141). Commerce's special expertise in administering the anti-dumping law entitles its decisions to deference from the courts. See, e.g., Micron Tech., Inc. v. United States, 117 F.3d 1386, 1394 (Fed. Cir.1997); Torrington Co. v. United States, 68 F.3d 1347, 1350-51 (Fed.Cir. 1995); see also Chevron USA, Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). We will uphold Commerce's determination unless it is "unsupported by substantial evidence on the record, or otherwise not in accordance with law." 19 U.S.C. § 1516a(b)(1)(B)(i) (2000); Micron Tech., 117 F.3d at 1393. "Substantial evidence" has been defined as "more than a mere scintilla," as "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consol. Edison Co. v. NLRB, 305 U.S. 197, 229, 59 S.Ct. 206, 83 L.Ed. 126 (1938). To determine if substantial evidence exists, we review the record as a whole, including evidence that supports as well as evidence that "fairly detracts from the substantiality of the evidence." Atl. Sugar, Ltd. v. United States, 744 F.2d 1556, 1562 (Fed. Cir.1984).

B. Imposition of Adverse Inference

12
The first issue before us is whether Commerce's initial decision to apply an adverse inference in selecting facts available was supported by substantial evidence. Appellants argue that Commerce acted within its discretion because NSC had the ability to provide the conversion factor data requested in a timely manner and simply failed to comply. Appellants contend that under the circumstances of this case, 19 U.S.C. § 1677e allows Commerce to apply an adverse inference against respondents who fail to act to the best of their ability in complying with department requests. To the extent that the Court of International Trade required Commerce to show that the failure to provide information was not "inadvertence" or "a simple mistake," appellants complain that the court injected an element of intent not found in the statute.

13
NSC argues that the Court of International Trade properly rejected Commerce's interpretation of section 1677e. Specifically, NSC supports the court's conclusion and contends that the inquiry into whether a respondent has acted to the best of its ability requires a determination whether the respondent showed a "lack of due regard for its responsibilities in the investigation." See Nippon I, 188 F.Supp.2d at 1379. NSC argues that Commerce's interpretation of the statute amounts to a requirement that responses to inquiries be perfectly compliant and that "punishing" respondents for inadvertent errors serves no legitimate purpose under the antidumping laws.

14
The parties frame the issue in this case as a dispute over the scope of the "best of its ability" standard in section 1677e. When evaluating an interpretation of a statutory scheme that an agency is charged to administer, we apply the familiar two-part inquiry to determine whether to sustain an agency's interpretation of that statute. See Chevron, 467 U.S. at 842-44, 104 S.Ct. 2778. First, the court must determine "whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress." Id. at 842-43, 104 S.Ct. 2778. However, "if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute." Id. at 843, 104 S.Ct. 2778.

15
Turning to the words themselves, section 1677e provides:

16
If —

17
(a) In general

18
* * *

19
(2) an interested party or any other person —

20
(B) fails to provide such information by the deadlines for submission of the information or in the form and manner requested, subject to subsections (c)(1) and (e) of section 1677m of this title,

21
* * *

22
the administering authority and the Commission shall, subject to section 1677m(d) of this title, use the facts otherwise available in reaching the applicable determination under this subtitle.

23
(b) Adverse inferences

24
If the administering authority or the Commission (as the case may be) finds that an interested party has failed to cooperate by not acting to the best of its ability to comply with a request for information from the administering authority or the Commission, the administering authority or the Commission (as the case may be), in reaching the applicable determination under this subtitle, may use an inference that is adverse to the interests of that party in selecting from among the facts otherwise available.

25
19 U.S.C. § 1677e (2000). The statute has two distinct parts respectively addressing two distinct circumstances under which Commerce has received less than the full and complete facts needed to make a determination. Under subsection (a), if a respondent "fails to provide [requested] information by the deadlines for submission," Commerce shall fill in the gaps with "facts otherwise available." The focus of subsection (a) is respondent's failure to provide information. The reason for the failure is of no moment. The mere failure of a respondent to furnish requested information — for any reason — requires Commerce to resort to other sources of information to complete the factual record on which it makes its determination. As a separate matter, subsection (b) permits Commerce to "use an inference that is adverse to the interests of [a respondent] in selecting from among the facts otherwise available," only if Commerce makes the separate determination that the respondent "has failed to cooperate by not acting to the best of its ability to comply." The focus of subsection (b) is respondent's failure to cooperate to the best of its ability, not its failure to provide requested information.

26
The legislative history found in the Statement of Administrative Action ("SAA") accompanying the Uruguay Round Agreements Act, Pub.L. No. 103-465, 108 Stat. 4809 (1994) ("URAA"), confirms the distinction between the two sections. Prior to the adoption of the URAA, the Tariff Act mandated the use of the "best information available" if a respondent refused or was unable to produce information in a timely manner or in the form requested by Commerce. In adopting the URAA, Congress changed the terminology and noted:

27
New section [1677e(a)] requires Commerce and the Commission to make determinations on the basis of facts available where the requested information is missing from the record or cannot be used because, for example, it has not been provided, it was provided late, or Commerce could not verify the information.

28
* * *

29
[N]ew section [1677e(b)] permits Commerce and the Commission to draw an adverse inference where a party has not cooperated in a proceeding. A party is uncooperative if it has not acted to the best of its ability to comply with requests for necessary information. Where a party has not cooperated, Commerce and the Commission may employ adverse inferences about the information to ensure that the party does not obtain a more favorable result by failing to cooperate than if it had cooperated fully.

30
SAA at 869-70, reprinted in 1994 U.S.C.C.A.N. 4040, 4198-99. Thus, the legislative history mirrors the language in the statute by recognizing that: (1) Commerce must use facts otherwise available when requested information is missing and (2) Commerce may impose an adverse inference after determining that a respondent has not been fully cooperative or has failed to act to the best of its ability in gathering information.

31
The statute does not provide an express definition of "the best of its ability." None of the parties argue that the language is ambiguous. Rather, they each dispute the plain meaning of the phrase. Appellants argue that the statute requires Commerce to determine (1) "the best of [the respondent's] ability" and (2) whether the respondent has met that standard. NSC criticizes that test, claiming that it amounts to a "perfection standard." We disagree. The ordinary meaning of "best" means "one's maximum effort," as in "do your best." Webster's New Collegiate Dictionary 104 (1981). "Ability" refers to "the quality or state of being able," especially "physical, mental, or legal power to perform." Id. at 2. Thus, the statutory mandate that a respondent act to "the best of its ability" requires the respondent to do the maximum it is able to do.

32
Before making an adverse inference, Commerce must examine respondent's actions and assess the extent of respondent's abilities, efforts, and cooperation in responding to Commerce's requests for information. Compliance with the "best of its ability" standard is determined by assessing whether respondent has put forth its maximum effort to provide Commerce with full and complete answers to all inquiries in an investigation. While the standard does not require perfection and recognizes that mistakes sometimes occur, it does not condone inattentiveness, carelessness, or inadequate record keeping. It assumes that importers are familiar with the rules and regulations that apply to the import activities undertaken and requires that importers, to avoid a risk of an adverse inference determination in responding to Commerce's inquiries: (a) take reasonable steps to keep and maintain full and complete records documenting the information that a reasonable importer should anticipate being called upon to produce; (b) have familiarity with all of the records it maintains in its possession, custody, or control; and (c) conduct prompt, careful, and comprehensive investigations of all relevant records that refer or relate to the imports in question to the full extent of the importers' ability to do so.

33
The Court of International Trade concluded that "[t]he fact that NSC did not make appropriately timely submissions as a result of inadequate inquiries ... only provides sufficient basis for the use of facts available pursuant to 19 U.S.C. § 1677e(a)(2)(B)." Nippon II, 146 F.Supp.2d at 839. We disagree with that interpretation because it is predicated on an unduly stringent interpretation of 1677e(b) and, thus, fails to appreciate the proofs needed to trigger an adverse inference. To conclude that an importer has not cooperated to the best of its ability and to draw an adverse inference under section 1677e(b), Commerce need only make two showings. First, it must make an objective showing that a reasonable and responsible importer would have known that the requested information was required to be kept and maintained under the applicable statutes, rules, and regulations. See Ta Chen, 298 F.3d at 1336 (holding that Commerce reasonably expected importer to preserve records of accused antidumping activity). Second, Commerce must then make a subjective showing that the respondent under investigation not only has failed to promptly produce the requested information, but further that the failure to fully respond is the result of the respondent's lack of cooperation in either: (a) failing to keep and maintain all required records, or (b) failing to put forth its maximum efforts to investigate and obtain the requested information from its records. An adverse inference may not be drawn merely from a failure to respond, but only under circumstances in which it is reasonable for Commerce to expect that more forthcoming responses should have been made; i.e., under circumstances in which it is reasonable to conclude that less than full cooperation has been shown. While intentional conduct, such as deliberate concealment or inaccurate reporting, surely evinces a failure to cooperate, the statute does not contain an intent element. "Inadequate inquiries" may suffice. The statutory trigger for Commerce's consideration of an adverse inference is simply a failure to cooperate to the best of respondent's ability, regardless of motivation or intent.

34
The Court of International Trade's requirement that Commerce show that NSC made more than "a simple mistake" or exercised a "lack of due regard for its responsibilities in the investigation" is likewise not supported by the statute. NSC suggests that under the facts of this case, Commerce should have evaluated NSC's overall pattern of behavior, examined the reasons for the initial mistake and subsequent correction, considered the "inordinate pressures placed on NSC by Commerce's accelerated investigation schedule," and permitted NSC to explain the extenuating circumstances related to its initial response. Commerce certainly could have done that; however, section 1677e(b) does not by its terms set a "willfulness" or "reasonable respondent" standard, nor does it require findings of motivation or intent. Simply put, there is no mens rea component to the section 1677e(b) inquiry. Rather, the statute requires a factual assessment of the extent to which a respondent keeps and maintains reasonable records and the degree to which the respondent cooperates in investigating those records and in providing Commerce with the requested information. In preparing a response to an inquiry from Commerce, it is presumed that respondents are familiar with their own records. It is not an excuse that the employee assigned to prepare a response does not know what files exist, or where they are kept, or did not think—through inadvertence, neglect, or otherwise to look beyond the files immediately available.

35
In this case, it is undisputed that NSC triggered section 1677e(a) by failing to timely provide the conversion factor data to Commerce. The issue is whether NSC triggered section 1677e(b). Under the proper standard, substantial evidence supports Commerce's conclusion that NSC failed to act to the best of its ability in acquiring the conversion factor data. Commerce asked NSC for the data, and NSC responded that the information was not necessary for the investigation. Commerce asked again, and NSC responded that the information did not exist. Commerce concluded that NSC failed to act to the best of its ability and assigned an adverse margin to sales made by NSC upon a theoretical weight. Three days after assigning the adverse margin, NSC produced the information Commerce requested. NSC later explained that it never asked the actual factories for the information, and once it did, it was able to provide that information to Commerce.

36
Following the first remand in this case, Commerce set forth its opinion as to what efforts NSC could have put forth to comply with the "best of its ability standard" and concluded that NSC did not meet that standard in this case.

37
A "reasonable respondent," acting to the "best of its ability" to comply with the Department's request for such [conversion factor data], would minimally have contacted the factory, where the steel coils were produced and where weighing was most likely to take place, to determine whether they were weighed and the weight data maintained. A "reasonable respondent" would have attempted to obtain the data when it was first requested, or at least when it was requested for the second time, rather than telling the Department, without any factual basis to support such a claim, that the respondent did not believe the Department needed the information. With respect to this issue, NSC was not acting as a "reasonable respondent" nor was it acting "to the best of its ability," as required by the statute.

38
Final Results of Redetermination Pursuant to Court Remand at 5 (Dec. 8, 2000). The second step of the test we set forth is subjective. While Commerce framed its response as an objective inquiry, Commerce's opinion of the level of cooperation this "reasonable respondent" provided was clearly a subjective assessment of NSC's abilities. The response refers to NSC's failure to look for the information at the factories and its initial insistence that Commerce did not actually need the requested information. Using different language, Commerce made the two showings required by the statute. First, Commerce showed, and NSC has not disputed, that the requested conversion factor data is the type of information required to be kept. Second, Commerce determined that NSC was able, but failed to fully investigate and obtain the requested information from the records kept by NSC at the factories where the steel was made.

39
Because Commerce properly concluded that NSC failed to act to the best of its ability, Commerce's decision to apply an adverse inference was in accordance with law. 19 U.S.C. § 1677e(b). Commerce properly returned the untimely conversion factor data to NSC. See 19 C.F.R. § 351.302(d)(1) (1999) ("[T]he Secretary will not consider or retain in the official record of the proceeding ... [u]ntimely filed factual information...."). We need not reach the issue of whether, on remand, Commerce was precluded from evaluating the effects of the missing data because of the prohibition of using factual information returned to the respondent under 19 C.F.R. § 351.104. Thus, we vacate as moot the Court of International Trade's holding that 19 C.F.R. § 351.104(a) is not in accordance with law.

40
C. Use of Yen as the Starting Price for U.S. Sales

41
The next issue is whether Commerce's calculation of the "starting price" of NSC's U.S. sales is supported by substantial evidence and otherwise in accordance with law. Unlike the adverse inference issue, Commerce is aligned with NSC rather than Bethlehem on this issue. Bethlehem argues that the correct "starting price" is the gross price stated in U.S. dollars on NSC's sales invoices. Commerce argues, and NSC agrees, that the "starting price" should be calculated by taking the net yen price actually received by NSC and converting it to dollars at the exchange rate effective on the shipment date. We hold that Commerce's methodology was not in accordance with law.

42
The starting price is a component of the export price, which is explicitly defined in 19 U.S.C. § 1677a(a):

43
The term "export price" means the price at which the subject merchandise is first sold (or agreed to be sold) before the date of importation by the producer or exporter of the subject merchandise outside of the United States to an unaffiliated purchaser in the United States or to an unaffiliated purchaser for exportation to the United States, as adjusted under subsection (c) of this section.

44
If the starting price is not in U.S. dollars, then Commerce is required to convert the starting price to dollars "using the exchange rate in effect on the date of sale of the subject merchandise...." 19 U.S.C. § 1677b-1(a) (2000). Under the facts of this case, Commerce's methodology conflicts with the plain language of the statute.

45
NSC and its customers agreed to a sales price in U.S. dollars. On the date of sale (the day the merchandise was shipped), the only price agreed to by the buyer and seller was the U.S. dollar price. The U.S. customer then paid NSC an amount of yen equal to the agreed upon U.S. net price based on the exchange rate in effect on the ninth day following shipment. Depending on the direction of exchange rate fluctuations between the shipping date and nine days following that, either the buyer or seller would benefit from the change, but the sales price in U.S. dollars remained constant.

46
The methodology employed by Commerce requires that the agreed U.S. dollar sales price be converted twice. The first conversion used by Commerce is the conversion from the U.S. dollar sales price to yen at the exchange rate effective on the ninth day following shipping. The second conversion is the conversion from yen back to U.S. dollars at the exchange rate effective on the day of shipment. Commerce argues that its methodology is a better reflection of what NSC actually charges for steel. The net yen amount found on the invoices is the amount of money actually received from the customer. We are sympathetic to Commerce's position. As a policy matter, Commerce's interpretation is appealing. However, because the language of the statute is unambiguous, this is not an area where the agency is afforded deference for its interpretation of the statute. The only "price at which the subject merchandise is first sold (or agreed to be sold) before the date of importation" is the U.S. dollar price found on the invoice. Commerce's methodology uses a price determined nine days after the merchandise is first sold. The unambiguous language of the statute does not allow that, and the Court of International Trade erred by affirming Commerce's methodology.

CONCLUSION

47
Commerce's decision to apply partial adverse facts available upon NSC for its failure to timely submit the weight conversion data is supported by substantial evidence and is otherwise in accordance with law. Commerce's methodology of calculating the starting price is not in accordance with law. To the extent that the Court of International Trade held the opposite on those issues, we reverse. We vacate as moot the Court of International Trade's holding that 19 C.F.R. § 351.104(a) is invalid. The case is remanded for further proceedings not inconsistent with this opinion.

48

REVERSED-IN-PART, VACATED-IN-PART, AND REMANDED

COSTS

49
No costs.


212 Cal.App.3d 1383 (1989)
261 Cal. Rptr. 240
PARVIS AMID, Plaintiff and Appellant,
v.
HAWTHORNE COMMUNITY MEDICAL GROUP, INC., et al., Defendants and Respondents.
Docket No. B034096.
Court of Appeals of California, Second District, Division Seven.
August 9, 1989.
*1386 COUNSEL
Frankovich & Seligman and James R. McGrath for Plaintiff and Appellant.
Rexon, Freedman & Klepetar, Debby R. Hambleton, Tobin, Lucks & Goldman, Edwin J. Lucks and Darrin F. Meyer for Defendants and Respondents.
OPINION
WOODS (Fred), J.
A general demurrer to appellant's fourth amended complaint (FAC) was sustained without leave to amend, an order of dismissal entered, and appellant appealed from the judgment.
Appellant was a surgeon employed by respondent[1] hospital. The hospital's board of directors adopted a peer review committee's evaluation of appellant's medical performance and sent a copy of the report's recommendations to an affiliated health insurer. Appellant's five causes of action (breach of contract, intentional breach of confidential relationship, negligent breach of confidential relationship, interference with prospective business advantage, and negligence) are based upon respondents' disclosure of this report to the health insurer.
We hold that the demurrer to appellant's FAC was properly sustained without leave to amend.

DISCUSSION

1. Standard of Review

(1) In reviewing the sustaining of a demurrer without leave to amend we apply these well settled rules: the factual allegations of the complaint are *1387 deemed true (Perdue v. Crocker National Bank (1985) 38 Cal.3d 913, 922 [216 Cal. Rptr. 345, 702 P.2d 503]), difficulty of proof is irrelevant (ibid.), the complaint should be liberally (Krawitz v. Rusch (1989) 209 Cal. App.3d 957, 962 [257 Cal. Rptr. 610]) but reasonably construed (Dale v. City of Mountain View (1976) 55 Cal. App.3d 101, 105 [127 Cal. Rptr. 520]), and appellant need only plead facts showing he is entitled to some relief. (Ibid.)
(2) "While a demurrer admits all material and issuable facts, properly pleaded, it does not admit contentions, deductions or conclusions of law." (Ibid.) And "where an allegation is contrary to law or to a fact of which a court may take judicial notice, it is to be treated as a nullity." (Ibid.) The court may take judicial notice of such records as appellant's affidavits (Del E. Webb Corp. v. Structural Materials Co. (1981) 123 Cal. App.3d 593, 604 [176 Cal. Rptr. 824]) and prior complaints in the same action ((Perdue v. Crocker National Bank, supra, 38 Cal.3d 913, 923, fn. 5).
(3) Although "[g]enerally, after an amended pleading has been filed, courts will disregard the original pleading" (Kenworthy v. Brown (1967) 248 Cal. App.2d 298, 302 [56 Cal. Rptr. 461]), they will not do so "where an amended complaint attempts to avoid defects set forth in a prior complaint by ignoring them. The court may examine the prior complaint to ascertain whether the amended complaint is merely a sham." (Ibid.)
In assessing whether or not the central cause of action, breach of contract, in the FAC is a sham we make no search for inadvertently misstated facts or legal misinterpretations. (Hill Trans. Co. v. Southwest Forest Industries, Inc. (1968) 266 Cal. App.2d 702, 709 [72 Cal. Rptr. 441].) Nor do we consider factual matters asserted by respondents. We only evaluate appellant's pleadings, exhibits, legal memoranda, and other parts of the record (available to the three superior court judges who on four occasions sustained demurrers) on appeal.

2. Sham Pleading: Breach of Contract

Appellant's initial complaint alleged a "contractual relationship" with Hawthorne Community Medical Group, Inc. (HCMG), breach of that contract by HCMG's disclosure of the peer group evaluation report (report),[2] and proximately caused damage.
*1388 As respondents' demurrer and accompanying points and authorities pointed out, appellant had not stated whether the alleged contract was written, oral, or implied, what its terms were, and whether there was a no disclosure term.
The hearing on this demurrer was put off calendar by the filing of appellant's first amended complaint. However, the first amended complaint left the breach of contract cause of action unchanged.
The clerk's minutes reflect these sustaining of the demurrer comments by the trial court: "Was the contract oral or written? When was it entered? What are its essential terms? Who are the parties to it?" Appellant was given 20 days leave to amend.
In the second amended complaint appellant alleged "Plaintiff entered into written employment contracts with the defendants in June 1981 and June 1983. In addition, the contractual relationship between the parties was further modified by oral agreement thereafter. Pursuant to the terms of the contract, plaintiff provided professional services to the defendant, which consisted largely of rendering diagnosis, care and treatment to Maxicare subscribers, in exchange for compensation."
Respondents, in their demurrer to this complaint, again cited appellant's failure to set out the terms of the alleged contract or to allege that nondisclosure of the report was one of those terms. Respondents, in their memorandum of points and authorities accompanying their demurrer, stated, "[i]t should be noted that this is not a technical failure on the part of plaintiff. The plaintiff is not alleging that an implied contract existed by virtue of the alleged fiduciary duty owed by defendants to plaintiff. Instead, the plaintiff is specifically alleging that the written employment contract as orally modified, between plaintiff and HCMG, was breached by the alleged act of the defendant in revealing the `Risk Management Committee Report' [report] to Maxicare."
Appellant's response to this increasingly focused pleading attack, viz., that appellant was relying upon an express contract, not an implied one, but had failed to allege that it contained the essential nondisclosure term, is revealing. He stated[3] "[t]he question here is not whether the written employment contract had any provisions specifically relating to disclosure of the Risk Management Committee Report [report], but rather, whether the parties contemplated that such conduct would be permissible under the terms of the employment relationship, and the duties arising therefrom. It is clear *1389 that breach of a confidential duty by parties to an employment contract which will intentionally and/or foreseeably ruin the career of another party to the contract violates the covenant of good faith and fair dealing.... [¶] Accordingly, plaintiff has properly pled a cause of action for breach of contract."
Thus appellant, despite having pleaded an express contract and not having pleaded an implied contract, now stated that his breach of contract cause of action was based upon an implied contract (covenants of good faith and fair dealing) and not based on any express contract, either written or oral.
A second superior court judge, in sustaining the demurrer with 30 days leave to amend, commented "[t]he disclosure of the RMCR [report] does not appear to be actionable."
In his third amended complaint appellant made two changes to his breach of contract cause of action. He, for the first time, alleged that pursuant to their contractual relationship respondents "owed to plaintiff a duty of good faith and fair dealing" and that respondents "breached the contract with plaintiff, including the implied covenant of good faith and fair dealing" by disclosing the report.
To respondents' demurrer and continued attack that appellant had still failed to allege what term of the written or oral contract was breached and that appellant was not alleging an implied contract, appellant's entire rejoinder was the following: "Contrary to defendants' assertion Plaintiff does set forth the contractual duty of good faith and fair dealing in paragraph 32 of the Third Amended Complaint. It is further alleged that the defendants breached this contractual duty by arbitrarily disclosing the Risk Management Committee report to Maxicare. This constitutes a breach of the implied covenant of good faith and fair dealing.
"It is clear that intentional breach of a confidential duty by parties to an employment contract which will foreseeably ruin the career of another party to the contract violates the covenant of good faith and fair dealing. In sum, plaintiff has properly pled a cause of action for breach of contract."
Appellant had thus made his position clear. His cause of action, labelled "breach of contract," was not based upon any express term of nondisclosure, either written or oral. In four pleadings he had alleged no such term. Instead, it was based upon an implied contract, covenants of good faith and fair dealing.
*1390 As the court stated in sustaining the demurrer, again allowing leave to amend: "Although titled as a cause of action for breach of contract, this sounds more like a cause of action for breach of an implied covenant of good faith and fair dealing. Make up your mind. If it is breach of contract, what provision of the contract was breached? If it is a breach of an implied covenant, what is the special relationship? What is the legal rationale for this cause of action on these facts? [¶] Judge Munoz will have this case after January 1, not me, but I'll tell you that as far as I'm concerned, this is the final opportunity to amend."
In his FAC filed almost two years after his initial complaint, having failed to allege an express nondisclosure term in four earlier complaints and having adopted a position in his prior complaint that there was no such express nondisclosure term, appellant alleged an explicit oral contract of nondisclosure. He alleged, "[i]n or about August 1984, Defendant, HCMG, by and through its Medical Director, Defendant, IVAN J. KAMIL, M.D., orally agreed with plaintiff that all aspects of, including any reports, writings, transcripts, or memoranda pertaining to the Risk Management Committee evaluation of plaintiff would remain confidential, and would not be distributed to, discussed with, or in any way revealed to any person or entity outside HCMG. Plaintiff agreed to participate in and cooperate with the Risk Management Committee evaluation specifically based upon said representation of complete confidentiality by defendants."
Omitted from this FAC was any mention of good faith or fair dealing covenants.
Appellant's abrupt and contradictory change of position is similar to Owens v. Kings Supermarket (1988) 198 Cal. App.3d 379 [243 Cal. Rptr. 627]. There the plaintiff initially alleged that he was injured, in a roadway, used as a parking area, adjacent to the sidewalk at the front of defendants' market. When defendants' demurrers were sustained because they had no duty towards plaintiff regarding property, the roadway, they didn't own, plaintiff finally added "an allegation that plaintiff was on defendants' premises when he was injured." (Id., at p. 383.)
The Owens trial court, in sustaining the demurrer to this amended complaint, properly disregarded this belated allegation. The Court of Appeal stated "the policy against sham pleading permits the court to take judicial notice of the prior pleadings and requires that the pleader explain the inconsistency. If he fails to do so the court may disregard the inconsistent allegations." (198 Cal. App.3d at p. 384.)
(4) Here, as in Owens v. Kings Supermarket, no explanation for this pleading inconsistency having been offered, the trial court was entitled to *1391 conclude that appellant's breach of contract cause of action was a sham. "A court has inherent power by summary means to prevent an abuse of its process and peremptorily to dispose of sham causes of action." Kessler v. Lauretz (1974) 39 Cal. App.3d 441, 446-447 [114 Cal. Rptr. 42]. See also Kiseskey v. Carpenters' Trust for So. California (1983) 144 Cal. App.3d 222, 228-229 [192 Cal. Rptr. 492].)
We hold that the court properly sustained without leave to amend the demurrer to appellant's "breach of contract" cause of action.[4]

3. Intentional Breach of Confidential Relationship

(5) Appellant cites five bases for the alleged confidential relationship: 1. the oral contract; 2. his employee-employer relationship; 3. his shareholder status with respondent hospital; 4. his having placed trust and confidence in respondents; and 5. the confidential nature of his physician-patient relationship.
None of these bases will support the alleged confidential relationship. The sham oral contract has already been discussed. A bare employee-employer relationship does not create a confidential relationship (Odorizzi v. Bloomfield School Dist. (1966) 246 Cal. App.2d 123, 129 [54 Cal. Rptr. 533]); appellant's shareholder status was irrelevant to the peer evaluation of his competence as a doctor and was extraneous to the report and its disclosure to an affiliated health insurer; appellant's "mere placing of a trust in another person does not create a fiduciary relationship" (Zumbrun v. University of Southern California (1972) 25 Cal. App.3d 1, 13 [101 Cal. Rptr. 499, 51 A.L.R.3d 991]); and the disclosed report contained no patient information nor statements by appellant. Although participants in peer review evaluations cannot be forced to disclose review contents (Evid. Code, § 1157) those contents are not privileged. (West Covina Hospital v. Superior Court (1986) 41 Cal.3d 846 [226 Cal. Rptr. 132, 718 P.2d 119, 60 A.L.R.4th 1257].)
The court properly sustained the demurrer to this cause of action.

4. Negligent Breach of Confidential Relationship

A fortiori appellant failed to sufficiently allege a cause of action for negligent breach of confidential relationship.

*1392 5. Interference With Prospective Business Advantage

(6) The elements of this tort are: "1) an economic relationship between the plaintiff and some third person containing the probability of future economic benefit to the plaintiff; 2) knowledge by the defendant of the existence of the relationship; 3) intentional acts on the part of defendant designed to disrupt the relationship; 4) actual disruption of the relationship; and 5) damages proximately caused by the acts of defendant." (Asia Investment Co. v. Borowski (1982) 133 Cal. App.3d 832, 840-841 [184 Cal. Rptr. 317, 30 A.L.R.4th 561].)
(7) Among the elements appellant failed to sufficiently plead was an economic relationship with a third party. The trial court, in sustaining the demurrer to this cause of action, properly found appellant's references to "his medical practice, and in his right of employment with individual patients that he evaluated and treated, and that he might evaluate and treat in the future" inadequate. (See also Buckaloo v. Johnson (1975) 14 Cal.3d 815 [122 Cal. Rptr. 745, 537 P.2d 865]; Seaman's Direct Buying Service Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 766 [206 Cal. Rptr. 354, 686 P.2d 1158].)

6. Negligence

(8) Although a contract may create a duty whose breach is a tort (Eads v. Marks (1952) 39 Cal.2d 807, 810 [249 P.2d 257]), the contract between appellant and respondents imposed no duty upon respondents to keep secret the report. Its disclosure to an affiliated health insurer breached no duty and therefore constituted no tort. The court properly sustained the demurrer to this cause of action.

DISPOSITION
The judgment is affirmed. Costs on appeal are awarded to respondents.
Lillie, P.J., and Johnson, J., concurred.
NOTES
[1]  Ivan J. Kamil, M.D., the hospital's managing director, and Ivan J. Kamil, M.D., Inc., are also respondents.
[2]  Five HCMG doctors prepared an evaluation of four cases handled by appellant and recommended he be placed on probationary observation for one year subject to various conditions. The hospital's board of directors adopted their recommendations, and in a two-page document containing no patient information, statements by appellant, or other evidence, specified the terms of appellant's probationary observation. It is this two-page document which is the "report."
[3]  In his opposition to the demurrer.
[4]  We need not consider such alternative grounds for the court's order as: the oral contract was without consideration (Civ. Code, § 1605); the written contract was integrated and any oral promise was barred by the parol evidence rule (Masterson v. Sine (1968) 68 Cal.2d 222, 225 [65 Cal. Rptr. 545, 436 P.2d 561]; Hanrahan-Wilcox Corp. v. Jenison M. Co. (1937) 23 Cal. App.2d 642, 646 [73 P.2d 1241]); and the oral contract violated the statute of frauds (Civ. Code, § 1624; Summerhays v. Scheu (1935) 10 Cal. App.2d 574, 577 [52 P.2d 512].)


149 Cal.App.3d 732 (1983)
197 Cal. Rptr. 327
ROGER BROWN, Plaintiff and Respondent,
v.
LINDA J. RIDGEWAY, Defendant and Appellant; SAFECO TITLE INSURANCE COMPANY, Real Party in Interest and Appellant.
Docket No. 67792.
Court of Appeals of California, Second District, Division Five.
December 12, 1983.
*733 COUNSEL
Fizzolio, Fizzolio & McLeod and Stephen R. McLeod for Defendant and Appellant.
Diller, Freedman & Neiter and Baird A. Brown for Real Party in Interest and Appellant.
*734 Hovanesian & Hovanesian and Ara Hovanesian for Plaintiff and Respondent.
OPINION
FEINERMAN, P.J.
Defendant, Linda Ridgeway (defendant), appeals from a November 10, 1981, judgment by court after default. Another appeal from the same judgment was filed by Safeco Title Insurance Company (Safeco) on May 7, 1982. Safeco was not a party to the lawsuit, but claims, nevertheless, to be an aggrieved party with standing to prosecute an appeal because it acquired an interest in the real property, which is the subject of this lawsuit, as the holder of a promissory note, issued by defendant, and secured by a deed of trust on the subject property. (See Butterfield v. Tietz (1966) 247 Cal. App.2d 483, 484-485 [55 Cal. Rptr. 577].)

FACTS
A complaint was filed in this matter by Roger Brown (plaintiff) on August 26, 1977. Plaintiff sought specific performance, damages for breach of contract, and declaratory relief, alleging that on June 2, 1977, Linda and Harry Ridgeway[1] entered into a written agreement to sell the subject property to plaintiff. On November 23, 1977, defendant filed an answer and cross-complaint in one document. Plaintiff filed a motion to strike the answer and cross-complaint which was granted on August 3, 1978. At that time, the trial court gave defendant 30 days to file an amended answer and an amended cross-complaint. The record shows that defendant and her attorney, Susan Guberman, were present at the time the court made its ruling on the motion to strike.
The record also indicates that on July 27, 1978, defendant's attorney had presented a motion to withdraw as counsel for defendant as well as an application for order shortening time to file such a motion. There is no indication that the motion was ever accepted for filing or that the trial court ever ruled on the motion to withdraw.
No amended responsive pleadings having been filed by defendant in the 30 days allowed by the trial court, on September 14, 1978, defendant's default was duly entered.
*735 The matter was set for default prove-up on August 1, 1979, then continued to September 5, 1979, and then to October 1, 1979. On October 1, the matter was taken off calendar because of plaintiff's nonappearance.
On October 8, 1981, defendant filed a motion to expunge lis pendens and a motion to dismiss pursuant to Code of Civil Procedure section 581a, subdivision (c), on the ground that plaintiff had failed to have a judgment entered within three years after service of summons.
On October 28, 1981, the trial court denied defendant's motions to dismiss and to expunge lis pendens. On November 10, 1981, the trial court rendered a judgment ordering specific performance of the agreement to sell the subject property to plaintiff, based on defendant's default.

DISCUSSION
Defendant contends that the trial court should have granted her motion to dismiss pursuant to Code of Civil Procedure section 581a, subdivision (c) which, at the time here pertinent, provided as follows: "All actions, heretofore or hereafter commenced, shall be dismissed by the court in which the same may be pending, on its own motion, or on the motion of any party interested therein, if no answer has been filed after either service has been made or the defendant has made a general appearance, if plaintiff fails, or has failed, to have judgment entered within three years after service has been made or such appearance by the defendant, except where the parties have filed a stipulation in writing that the time may be extended." (Italics added.)
(1) "Subdivision (c) penalizes a plaintiff who fails to obtain default judgment within the prescribed period by requiring dismissal. Like the service requirement of subdivision (a) and five-year trial requirement of Code of Civil Procedure section 583, it is designed to encourage diligence in the prosecution of an action once it has been filed." (General Ins. Co. v. Superior Court (1975) 15 Cal.3d 449, 454 [124 Cal. Rptr. 745, 541 P.2d 289].)
However, by its very terms, Code of Civil Procedure section 581a, subdivision (c) is not applicable in cases where defendant has filed an answer which, respondent claims, was done in this case. We have found only one case which is somewhat similar to the facts involved here. In Mustalo v. Mustalo (1974) 37 Cal. App.3d 580 [112 Cal. Rptr. 594], the wife filed an action for divorce on May 4, 1965. Summons and complaint were served on the husband on May 6, 1965. On May 14, 1965, the parties signed and filed a stipulation regarding custody, temporary support, etc., which also contained a provision that the default of the husband could be entered. The *736 wife did not take husband's default, and on May 6, 1972, husband filed a "Response" to the complaint. The case was set for trial sometime thereafter, and, on that day, the trial court, on its own motion, dismissed the action based on the provisions of subdivision (c) of Code of Civil Procedure section 581a. The appellate court reversed the order of dismissal stating (37 Cal. App.3d 580, at p. 585): "Counsel have not cited to us, and we have not found, any case directly in point. In Schultz v. Schultz (1945) 70 Cal. App.2d 293 [161 P.2d 36], relied on by the husband, no answer had been filed at the time the order of dismissal was made. However, in the case at bench, an answer was on file, and had been for over five months, before the trial court, on its motion, dismissed the action. We regard the filing of the `Response' as making subdivision (c) inapplicable. It is well settled that a defendant may file an answer, even after the time to answer has expired, unless a default has previously been entered. It follows that, on September 12, 1972, the case was at issue and the wife no longer had, and after May 16th had not had, the right to proceed to judgment." (Fns. omitted.)
Our case is slightly different than Mustalo v. Mustalo, supra, 37 Cal. App.3d 580. In Mustalo the answer had not been stricken, the case was at issue, and both parties were ready for trial when the trial court, on its own motion, dismissed the complaint. In the case before us, the answer had been stricken. The effect of an order striking a pleading was discussed in Forbes v. Cameron Petroleums, Inc. (1978) 83 Cal. App.3d 257 at page 262 [147 Cal. Rptr. 766]. In that case the court held that a court order striking an unauthorized demurrer eliminated it as a general appearance.
If the effect of an order striking a pleading is to nullify the pleading as though it had never been filed, then in the case before us, defendant's answer having been stricken, application of subdivision (c) of section 581 would seem to be appropriate. Striking of the answer was the basis of plaintiff's right to entry of a default judgment. Code of Civil Procedure section 586, subdivision 5 provides that a default judgment shall be rendered "as if the defendant had failed to answer" if a demurrer to an answer is sustained and the defendant "fails to amend the answer within the time allowed by the court."
The facts in the case at bench, however, reveal an additional impediment. (2) At the time defendant filed her motion to dismiss pursuant to section 581, subdivision (c), her default had already been taken. She had no standing to file the motion without first obtaining relief from the default. (See Christerson v. French (1919) 180 Cal. 523, 525 [182 P. 27]; A & B Metal Products v. MacArthur Properties, Inc. (1970) 11 Cal. App.3d 642, 647 [89 Cal. Rptr. 873]; Remainders, Inc. v. Superior Court (1961) 192 Cal. App.2d *737 411, 412 [13 Cal. Rptr. 221]; Jones v. Moers (1928) 91 Cal. App. 65, 69-70 [266 P. 821].) The defendant's lack of standing was sufficient reason for the trial court to deny the motion to dismiss.
The question remains whether the trial court had authority to then enter the default judgment more than three years after service of summons. (3) "It is well settled that a trial court has jurisdiction to render a default judgment more than `three years after service of summons' (Code Civ. Proc., § 581a) although such a judgment is erroneous and subject to direct attack upon an appeal from it. [Citations.]" (Phillips v. Trusheim (1945) 25 Cal.2d 913, 916 [156 P.2d 25], Taintor v. Superior Court (1949) 95 Cal. App.2d 346, 348 [213 P.2d 42].) While it has been held that the court has jurisdiction, still, such a default judgment is erroneous and should be reversed where an appeal from the judgment is properly taken. In Lynch v. Bencini (1941) 17 Cal.2d 521 [110 P.2d 662], the complaint was filed on February 8, 1934. Defendant, Wright, was served on January 10, 1936. The return of service was filed on August 4, 1936, and Wright's default was entered that same day. However, default judgment was not entered against Wright until June 29, 1939, more than three years after he was served. The Supreme Court considered the validity of the default judgment in light of the mandatory provisions of Code of Civil Procedure section 581a and reversed the judgment, stating (17 Cal.2d at pp. 530-533): "`... This question involves the effect of the last paragraph of section 581a, which was added by amendment in 1933. This paragraph reads:
"`"All actions, heretofore or hereafter commenced, must be dismissed by the court in which the same may be pending, on its own motion, or on the motion of any party interested therein, if summons has been served, and no answer has been filed, if plaintiff fails, or has failed, to have judgment entered within three years after service of summons."
"`.... .... .... .... .... .... .
"`The respondents contend that the word "must" in section 581a does not indicate any curtailment of jurisdiction to enter judgment under subdivision 1 of section 585. While this may be true, the last paragraph of section 581a, taken as a whole, imposes a duty upon the plaintiff and imposes a duty on the court to dismiss the action if the plaintiff fails to perform that duty. While formerly the only duty in such a case was one resting upon the clerk, with no penalty for his delay, it is now made the duty of the plaintiff to "have judgment entered" within the prescribed time, in other words to take affirmative steps to that end.
"`When the plaintiff fails to perform that duty his rights are affected and a benefit is conferred upon the defendant by the provision that the court *738 must dismiss the action. The duty thus imposed on the court, however, is not confined to where such action is requested by the defendant but is one which the court is required to exercise "on its own motion." This statutory provision is clearly intended to apply to cases where the defendant is not yet taking any steps for his own protection. Clearly, under the statute, it is error for the court to fail to perform this duty directly imposed upon it. While a judgment so entered may not be void for lack of jurisdiction the court's error in failing to perform that duty is one which may be corrected on appeal from the judgment, if taken within the statutory time. The duties and rights of the parties are still affected by the last paragraph of section 581a and the judgment itself is still subject to review on a direct and timely appeal. Assuming that the clerk had here a duty to perform in his ministerial capacity, and that he had no power to pass upon the effect of the last paragraph of section 581a, the court had both the power and the duty to do so, the matter was directly presented to it on timely motions after judgment, and the matter is now properly here for review. Under such circumstances the error may be corrected and the judgment, entered and allowed to stand in disregard of the provisions of section 581a, should be reversed.'"
(4) Having determined that the effect of the order striking defendant's answer was to render the pleading a nullity, we hold that Code of Civil Procedure section 581a, subdivision (c), was applicable here, and that while the trial court had jurisdiction to enter the default judgment more than three years after service of summons, it was error to do so, and, following Lynch v. Bencini, supra, 17 Cal.2d 521, the judgment must be reversed on appeal.
The judgment is reversed and the trial court is directed to dismiss plaintiff's action on its own motion in conformity with the provisions of Code of Civil Procedure section 581a, subdivision (c).
Ashby, J., and Hastings, J., concurred.
A petition for a rehearing was denied January 10, 1984, and respondent's petition for a hearing by the Supreme Court was denied February 15, 1984.
NOTES
[1]  Harry Ridgeway, the ex-husband of Linda Ridgeway, is not a party to this appeal and, hence, any reference hereinafter to defendant is to Linda Ridgeway.


717 F.Supp. 157 (1989)
MOTHER BERTHA MUSIC, INC., Plaintiff,
v.
TRIO MUSIC CO., INC., Defendant.
No. 88 Civ. 8577 (JMW).
United States District Court, S.D. New York.
July 7, 1989.
Donald S. Zakarin and Tina C. Kremenezky, Pryor, Cashman, Sherman & Flynn, New York City, for plaintiff.
Leonard M. Marks and Jane G. Stevens, Gold, Farrell & Marks, New York City, for defendant.

MEMORANDUM ORDER
WALKER, District Judge:

I. Introduction
This dispute concerns control over the rights to twenty-five classic songs written in the 1960s, including such favorites as "Chapel of Love" and "Da Do Run Run." Plaintiff Mother Bertha Music, Inc., a recently formed California corporation owned by songwriter and producer Phil Spector ("Spector"), has brought suit against defendant Trio Music Co. ("Trio"), a New York-based music publishing concern owned by Jerry Leiber ("Leiber") and Mike Stoller ("Stoller"). Plaintiff claims that *158 Trio withheld royalty payments owed to Mother Bertha Music, Inc. under a 1972 co-publishing agreement between the two companies; plaintiff seeks a declaratory judgment terminating the 1972 Agreement as well as actual and punitive damages. Defendant has moved for dismissal under Fed.R.Civ.P. 12(b)(6) or 12(b)(1) on the grounds that plaintiff was not actually a party to the 1972 Agreement but was created solely to establish federal diversity jurisdiction; alternatively, defendant asks for summary judgment in its favor under Fed.R.Civ.P. 56. Both parties seek sanctions under Fed.R.Civ.P. 11. For the reasons discussed below, defendant's motions for dismissal and judgment on the pleadings are denied; both parties motions for sanctions under Rule 11 are also denied.

II. Background
In contrast to the title of Spector's song "There's No Other (Like My Baby)," there has been more than one "Mother Bertha Music, Inc." over the past twenty-five years. The name "Mother Bertha Music, Inc." has been used in connection with two distinct corporations at different times; in addition, the name has been used loosely and sporadically by Spector in his business dealings. Understandably, this has spawned considerable confusion as to the identity and interests of the plaintiff Mother Bertha Music, Inc., as explained below.
In or about 1960, Stoller and Leiber formed Trio to engage in music publishing. Around the same time, they began to work with Spector, who was then beginning a career in song-writing and publishing. In 1963, Spector formed Mother Bertha Music, Inc. ("Mother Bertha (N.Y.)"), as a New York corporation. During the early 1960s, Spector and Mother Bertha (N.Y.) cooperated with Trio to produce a number of songs together; some of these songs, such as "Why Don't They Let Us Fall In Love" and "Da Do Run Run," have, to some extent, retained their popularity over the years and continue to generate significant copyright royalties.
In December 1968, effective May 1969, Spector dissolved Mother Bertha (N.Y.) as a New York corporation. Under law, its assets became vested in its sole shareholder, Spector, a California citizen. Early in 1970, Spector conveyed his rights to these assets to a California Short-Term Trust ("1970 Trust"), established under the law of that state. See Gore Aff., Exh. A.[1] Until recently, Trio was not aware of the dissolution of Mother Bertha (N.Y.). D.Mem. at 9.
During the early 1970s, Spector, whether intentionally or inadvertently, continued to do business occasionally under the name of Mother Bertha Music, Inc.a company which had been formally dissolved several years earlier. By 1972, a dispute had arisen between Spector's businesses and Trio concerning the interests of the two parties in twenty-five compositions co-written by Spector, Ellie Greenwich, and Jeff Barry. Stoller and Leiber continued to believe that they were dealing with Mother Bertha Music, Inc., the New York corporation. In December 1972, Trio, Spector, and an entity known as Mother Bertha Music, Inc.[2] entered into an agreement (the "1972 Agreement"). This agreement provided that the disputed copyrights would be registered in the joint names of Trio and Mother Bertha; that Trio would administer these copyrights; and that Trio would pay Mother Bertha certain royalties on the different songs. The 1972 Agreement referred in a number of places to "Spector and Mother Bertha Music, Inc.," and was signed by three different partiesTrio, Spector, and "Mother Bertha"; Spector signed on behalf of Mother Bertha as well as for himself. D.Exh., App. at 6. A year later, in November 1973, Spector and "Mother Bertha" entered with Trio into another agreement (the "1973 Agreement") which ratified and confirmed the 1972 Agreement. Again, Spector signed for *159 both himself and Mother Bertha.[3] The arrangement established by the two agreements worked for over a decade. Around 1985, however, both parties began to suspect that the other was not accurately accounting for its share of the royalties.
Meanwhile, back in California, the 1970 Trust, limited by California law to ten years, expired in 1980. The rights were transferred to a successor short-term trust ("1980 Trust"). See Gore Aff., Exh. B. According to plaintiff, in mid-1988, Spector and his advisors began to explore "how Mr. Spector's business structure could be reorganized to more efficiently deal with his entertainment industry activities" especially in light of changes in the tax laws. Gore Aff., ¶ 9. The 1980 Trust would expire in 1990 and, under the 1986 Tax Code, could not be renewed. Id.
This reorganization of Spector's business structure led to the formation of Mother Bertha Music, Inc., a California corporation ("Mother Bertha (Cal.)") on November 30, 1988. On December 1, the 1980 Trust beneficiaries renounced their rights, and the Trust dissolved. These rights again vested in Spector. The next day, Spector assigned all his rights in musical compositions, including the twenty-five songs covered by the 1972 Agreement, to Mother Bertha (Cal.). That same day, December 2, 1988, Mother Bertha (Cal.) filed this suit against Trio.
In its complaint, Mother Bertha (Cal.) claims that Trio has withheld royalties owed to Mother Bertha (Cal.) under the 1972 Agreement as well as violated other provisions of that agreement. Mother Bertha (Cal.) asks for declaratory judgment terminating the Agreementeffectively giving Mother Bertha (Cal.) greater control over the rights to the twenty-five songs along with actual damages of about $250,000 and punitive damages of two million dollars. Defendant now seeks dismissal under Fed.R.Civ.P. 12(b)(6) and 12(b)(1) or summary judgment under Fed.R.Civ.P. 56.

III. Discussion

A. Defendant's Substantive Motions
Defendant's motions under Fed.R.Civ.P. 12(b)(6) and 12(b)(1) essentially rest upon two related arguments: first, that Mother Bertha (Cal.) was created at the eleventh hour solely to create otherwise absent federal diversity jurisdiction; and, second, that Mother Bertha (Cal.) has no right to sue since it was not a party, third party beneficiary, or even successor-in-interest to a party to the 1972 Agreement.

1. Subject Matter Jurisdiction
The creation of a diverse plaintiff shortly before a suit is filed may create a suspicion of collusiveness, in violation of 28 U.S.C. § 1359. This section provides:
A district court shall not have jurisdiction of a civil action in which any party, by assignment or otherwise, has been improperly or collusively made or joined to involve the jurisdiction of such court.
See, e.g., Prudential Oil Corp. v. Phillips Petroleum Co., 546 F.2d 469, 476 (2d Cir. 1976); and Drexel Burnham Lambert Group Inc. v. Galadari, 610 F.Supp 114, 117 (S.D.N.Y.1985).
As discussed further below, defendant argues that the song rights at issue in this suit continued to reside in a New York entity even after the 1969 dissolution. Therefore, defendant maintains that Mother Bertha (Cal.) was created in 1988 only to create a diverse plaintiff. In Prudential Oil Corp v. Phillips Petroleum Co., the Second Circuit explained that:
we hold that where it is shown that a non-diverse parent corporation has assigned a claim to its wholly owned diverse subsidiary engaged in no business other than the prosecution of that claim, the assignment must be treated as presumptively improper and as having been undertaken for the purpose of attempting to manufacture diversity jurisdiction. Thereupon, the assignee-plaintiff may rebut or meet the presumption by offering *160 evidence that the transfer was made for a legitimate business purpose unconnected with the creation of diversity jurisdiction. See Federal Rules of Evidence, § 301.
546 F.2d at 476 (footnote omitted). While Prudential dealt with an assignment, analogous reasoning can be applied to the incorporation of a diverse plaintiff.
Here, plaintiff has asserted some facially valid reasons for incorporating Mother Bertha (Cal.). Gore Aff. ¶¶ 9-12. According to Spector's accountant, Mother Bertha (Cal.) was established "as part of Mr. Spector's overall business reorganization and tax planning that had been under discussion for the previous six months." Gore Aff., ¶ 13. Upon review of the present record, the Court finds plaintiff's actions to be prompted by business reasons other than the creation of diversity jurisdiction.
Moreover, as discussed further below, the available evidence lends support to plaintiff's contention that "[a]ll of the rights at issue in this lawsuit have belonged to California persons and/or entities continuously since 1969." P. 3(g), ¶ 13. When Mother Bertha (N.Y.) was formally dissolved in 1969, its rights and assets passed by law to Spector, its sole shareholder and a citizen of California. These rights were subsequently assigned to the two California trusts and then to Mother Bertha (Cal.). Thus, diversity jurisdiction would presumably have been available had either the 1980 Trustor, had that Trust been dissolved, Spector himselfbrought suit against Trio. See Gore Aff. ¶ 14; and P. 3(g) ¶ 13.
During discovery, facts may come to light suggesting that Mother Bertha (Cal.) was created solely to fabricate diversity jurisdiction. If so, with or without motion by defendant, this Court would dismiss plaintiff's claim under 28 U.S.C. § 1359 for lack of subject matter jurisdiction. See, e.g., Hughes v. Patrolmen's Benevolent Association of the City of New York, Inc., 850 F.2d 876, 881 (2d Cir.1988); Fed.R. Civ.P. 12(h)(3). And at that point, the Court would entertain appropriate motions for sanctions. As in all cases, this Court will not tolerate collusive behavior. At the present time, however, the Court cannot find that plaintiff's behavior comes within the scope of 28 U.S.C. § 1359.

2. Fed.R.Civ.P. 12(b)(6)
Relatedly, defendant maintains that Mother Bertha (N.Y.) has continued as a de facto New York corporation since the 1969 dissolution and that it was this corporation which was a party to the 1972 and 1973 Agreements. Since Mother Bertha (N.Y.) has not assigned its rights to Mother Bertha (Cal.), defendant reasons, the California corporation is in no way a party to the 1972 Agreement and therefore cannot bring suit on it.
In support of this argument, defendant points to several factors. First and perhaps foremost, the signatory to the 1972 and 1973 agreements was "Mother Bertha Music, Inc.," with a New York address, even though Mother Bertha (N.Y.) had, unknown to Trio, been formally dissolved in 1969. Second, the corporate form of Mother Bertha continued to be used in other ways after 1969. For example, sheet music published during the 1970s and 1980s continued to bear the names of both Trio and "Mother Bertha Music, Inc.," even though the latter company presumably no longer existed. Second Stoller Aff., Exh. E.
Defendant claims that, "Both prior to and after executing the 1972 Agreement, MB New York [Mother Bertha (N.Y.)] continued to function and hold itself out to Trio and the world as being a New York corporation." D. Mem. at 12. Defendant points to Garzo v. Maid of the Mist Steamboat Co., which held that where "a corporation carries on its affairs and exercises corporate powers as before, it is a de facto corporation ... and ordinarily no one but the state may question its corporate existence." 303 N.Y. 516, 524, 104 N.E.2d 882 (1952). Garzo, however, was quite different, for there "the corporation inadvertently neglected to provide for the extension of its charter during its fifty-year term. There was no thought in anyone's mind of permitting the company to expire or come *161 to an end." Id. at 523, 104 N.E.2d 882. Here, Spector intentionally dissolved the company, though he continued to use the corporate name occasionally.
The record in this case does indicate that Spector and his advisors were careless in their use of the name "Mother Bertha Music, Inc." Plaintiff admits that Spector's New York lawyers inadvertently used the Mother Bertha name in the 1972 Agreement. Plaintiff attempts to explain that in 1972,
Spector and the "Phil Spector 1970 Short-Term Trust," improperly identified as Mother Bertha Music, Inc., entered into an agreement with Trio Music, Co., Inc. with respect to the exploitation of a specified group of 25 musical compositions.... The real party in interest to the 1972 Agreement was not the improperly identified defunct New York Corporation, Mother Bertha Music, Inc. but instead, was the Phil Spector 1970 Short-Term Trust.
P. 3(g), ¶¶ 4, 5. While this ignores the fact that Spector himself signed both the 1968 certificate of dissolution for Mother Bertha (N.Y.) and the 1972 and 1973 agreements on behalf of both himself and Mother Bertha Music, Inc., the appearance of Mother Bertha on the agreements is, in itself, hardly conclusive. Other factors which might indicate corporate existenceincluding, but not limited to, bank records, company minutes, letterheadare all absent here. Compare D & W Central Station Alarm Co., Inc. v. Copymasters, Inc., 122 Misc.2d 453, 471 N.Y.S.2d 464, 466 (Civ.Ct. Queens Co. 1983); In re Gold Depository Unlimited of America, 106 Misc.2d 992, 436 N.Y. S.2d 794 (Sup.Ct.N.Y.Co.1980).
Upon review of the present record, the Court finds that there is insufficient evidence to establish that Mother Bertha (N.Y.) continued to exist as a de facto corporation after 1969.[4] Moreover, at no time has this corporate confusion operated to the disadvantage of Trio. The de facto corporation doctrine is a creation of equity aimed at preventing prejudice to a party's substantive rights. See, e.g., A.A. Sutain, Ltd. v. Montgomery Ward & Company, 22 A.D.2d 607, 257 N.Y.S.2d 724, 727, aff'd 17 N.Y.2d 776, 270 N.Y.S.2d 626, 217 N.E.2d 674 (1st Dept.1965); Bowditch v. 57 Laight Street. Corp., 111 Misc.2d 255, 443 N.Y. S.2d 785, 788 (Sup. Ct. Special Term, N.Y. Co. 1981). Since Spector has apparently acted as if the 1970 and 1980 Trusts were parties to the 1972 Agreement, there is no need to invoke this equitable doctrine when defendant has not suffered by the appearance of a dissolved corporation as a signatory to the 1972 Agreement. See Bowditch, 443 N.Y.S.2d at 788.
The present facts, viewed in favor of the non-moving party, indicate that Mother Bertha (N.Y.) did not continue as a de facto corporation after 1969. Hence, the rights at issue passed to Spector at the 1969 dissolution, and the 1970 Trust (and its successors-in-interest) can be treated as the party to the 1972 Agreement. Mother Bertha (Cal.), then, may bring suit on that agreement. At this stage, plaintiff's suit should not be dismissed under Fed.R.Civ.P. 12(b)(6).[5]

3. Rule 11 Sanctions
Both parties have asked for their attorneys' fees as sanctions under Fed.R. Civ.P. 11. Rule 11, as amended, states:
The signature of an attorney or party constitutes a certificate by the signer that the signer has read the pleading, or other paper; that to the best of the signer's knowledge, information, and belief formed after reasonable inquiry it is well grounded in fact and is warranted by existent law or a good faith argument *162 for extension, modification, or reversal of existing law, and that it is not interposed for any improper purpose, such as to harass or to cause any unnecessary delay or needless increase in the cost of litigation.
Fed.R.Civ.P. 11. "[W]here the scriptures of the rule have been transgressed, it is incumbent upon the district court to fashion proper sanctions." Eastway Construction Corp. v. City of New York, 762 F.2d 243, 254 n. 7 (2d Cir.1985), modified on other grounds, 821 F.2d 121 (2d Cir), cert. denied, 484 U.S. 918, 108 S.Ct. 269, 98 L.Ed.2d 226 (1987).
Of course, Rule 11 is "not intend[ed] to stifle the enthusiasm or chill the creativity that is the very lifeblood of the law," and a court should impose sanctions only when "it is patently clear that a claim has absolutely no chance of success under the existing precedents," or was interposed for an improper purpose. Id. at 254. See also Oliveri v. Thompson, 803 F.2d 1265, 1274 (2d Cir.1986); Nakash v. U.S. Department of Justice, 708 F.Supp. 1354, 1368 (S.D.N. Y.1988).
Under the standard set by Eastway and its progeny, the Court finds that sanctions are unwarranted at this point against either party in the present case. The organizational history of what is now Mother Bertha (Cal.) is more than a little confusing. Until recently, defendant apparently had no reason to believe Mother Bertha (N.Y.) no longer existed. Hence defendant's assertion that Mother Bertha (Cal.) was incorporated simply to create diversity cannot be dismissed as frivolous. Indeed, if additional evidence comes to light in support of their argument, defendants may file another motion to dismiss.
At the same time, plaintiff's pleadings do not merit sanctions. While plaintiff in its complaint misidentified itself as an immediate party to the 1972 Agreement, plaintiff does appear to be a successor-in-interest to parties which, for all intents and purposes, were bound by the 1972 Agreement. As this Court is unconvinced that plaintiff brought this suit for an improper purpose or that defendant's motion to dismiss was unwarranted, sanctions are not appropriate.

IV. Conclusion
For the reasons set forth above, defendant's motion to dismiss is denied. Both parties' motions for sanctions under Rule 11 are denied.
SO ORDERED.
NOTES
[1]  References throughout are as follows: Affidavit ("Aff."); Defendant's Memorandum in Support of Motion to Dismiss ("D.Mem."); Plaintiff's Memorandum in Opposition to Motion to Dismiss ("P.Mem."); Exhibit ("Exh."); Plaintiff's 3(g) Statement ("P. 3(g)"); Complaint ("Comp.").
[2]  The 1972 Agreement listed Mother Bertha's address as in care of its attorneys in New York.
[3]  Again, the 1973 Agreement listed Mother Bertha's address as in care of its attorneys in New York.
[4]  There is as yet no more extensive evidence of the continuing corporate existence of Mother Bertha (N.Y.) during the past twenty years than that mentioned in the text. See P. 3(g), ¶ 6. Defendant points to evidence such as recent royalty statements issued to "Phil Spector 1980 Short Term Trust," which also list "Mother Bertha Music." See Stoller Aff., Exh. F. Since these statements are addressed to the 1980 Trust in Los Angeles, defendant's contention that they indicate the continuing existence of a New York corporation is unpersuasive.
[5]  Similarly, since material issues of fact exist as to the merits of plaintiff's claim, this Court cannot now grant summary judgment.