Opinion
B314734
10-18-2022
3 G.I. CORPORATION, Plaintiff, v. CHARLES I. SHEEN, Defendant and Respondent; ITAMAR GELBMAN, Appellant.
Lurie & Kramer, Barak Lurie and Brent A. Kramer for Appellant. Bernard & Bernard, Stephen Bernard and Alena Klimianok, The Ehrlich Law Firm, Jeffrey I. Ehrlich and Reid M. Ehrlich-Quinn for Defendant and Respondent.
NOT TO BE PUBLISHED
APPEAL from an order and judgment of the Superior Court of Los Angeles County No. BC643943, Robert S. Draper, Judge. Affirmed.
Lurie & Kramer, Barak Lurie and Brent A. Kramer for Appellant.
Bernard & Bernard, Stephen Bernard and Alena Klimianok, The Ehrlich Law Firm, Jeffrey I. Ehrlich and Reid M. Ehrlich-Quinn for Defendant and Respondent.
CURREY, J.
INTRODUCTION
3 G.I. Corporation (3 G.I.) sued Charles I. Sheen for breach of contract. After a bench trial, the trial court entered judgment in favor of Sheen. The court also granted Sheen's motion for attorneys' fees, and entered an amended judgment, awarding Sheen $128,712.20 in attorneys' fees and costs.
Sheen then moved to amend the judgment to add Itar Gelbman, 3 G.I.'s sole shareholder, as a judgment debtor. Sheen argued Gelbman was 3 G.I.'s alter ego. The trial court granted the motion, concluding the requirements for an alter ego finding were satisfied, and failure to recognize Gelbman as an alter ego of 3 G.I. would inequitably prevent Sheen from collecting on the judgment.
On appeal, Gelbman contends the trial court abused its discretion by amending the judgment because the trial court's alter ego finding is not supported by substantial evidence. For the reasons discussed below, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
The following facts are largely taken from the trial court's final Statement of Decision, issued after a three-day bench trial.
On August 29, 2014, Gelbman met with Sheen and Sheen's attorney, Martin Singer, to discuss replacing Sheen's then current security team. Singer advised Gelbman that all persons employed by Sheen worked under "at will" contracts, meaning that their services were terminable at any time. Singer then had a private meeting with Gelbman where he informed Gelbman that Sheen was in a state of chronic inebriation, would not be able to understand or agree to any contract, and that all contracts with Sheen had to be approved by Singer before they would be valid. After this conversation, Singer provided Gelbman with a written agreement, which stated Gelbman's employment was "at will" and could be terminated at any time. Gelbman signed the agreement.
Later that day and the following day, Gelbman set up his security team at Sheen's house. While at Sheen's house, Gelbman printed a new agreement, placed it in an envelope, and handed it to Sheen. This new agreement purported to be between Sheen and 3 G.I., not Gelbman, and provided for a one-year term of employment. Gelbman did not discuss any of the terms of the new agreement with Sheen.
Later that day, Gelbman sent an e-mail to Sheen's business manager attaching the "business terms" of his employment relationship with Sheen. The e-mail stated: "Enclosed please find the temporary agreed contract with Charlie. As the lawyers didn't have a chance to go through the services contract this will be temporarily [sic] until a service contract will be signed." Gelbman never sent the new agreement to Singer, despite having Singer's contact information.
On September 4, 2014, Gelbman had Sheen sign the new agreement. Under the new agreement, 3 G.I. was to provide Sheen with security services from September 1, 2014 through August 31, 2015.
Sheen terminated Gelbman's security services on December 15, 2014.
Following this termination, Gelbman's corporation, 3 G.I., sued Sheen for allegedly terminating their contract without cause and in breach of the one-year employment provision in the new agreement.
A bench trial began on October 22, 2019. The court heard testimony from five witnesses, including Gelbman and Singer. The trial court entered judgment for Sheen on February 4, 2020. 3 G.I. was to receive nothing from Sheen, while Sheen's recovery from 3 G.I. was to be determined by a pending motion for attorneys' fees.
Following the entry of judgment, the trial court issued its final Statement of Decision. The trial court held the only valid agreement was the original contract that Gelbman signed on August 29, 2014, and the new agreement between 3 G.I. and Sheen (signed on September 4, 2014) was void and of no force or effect. It explained: "The evidence established that Gelbman knew that as a result of Sheen's then chronic intoxication Sheen did not have the capacity to understand the nature and consequences of the document he was signing. The evidence also establishes [ ] that Gelbman intentionally concealed the contract from Sheen's lawyers so that he could take advantage of this incapacity." In reaching these findings, the court observed that the "issue of credibility" in this case was "critical" because there appeared to be "two totally irreconcilable versions of reality[.]" In that regard, the court found the "testimony of Gelbman on every important issue is neither credible nor true" and Gelbman was "dramatically altering the facts."
Less than a month after the court issued its final Statement of Decision, Gelbman dissolved 3 G.I.
The trial court subsequently granted Sheen's motion for attorneys' fees. It entered an amended judgment on December 7, 2020, which stated Sheen was to recover $9,022.20 in costs and $119,690 in attorneys' fees from 3 G.I.
Sheen then moved to add Gelbman as a judgment debtor. Sheen argued Gelbman was the alter ego of 3 G.I. based on a unity of interest between Gelbman and 3 G.I., and Gelbman dissolved 3 G.I. after losing at trial to thwart Sheen's collection of the judgment.
The trial court granted Sheen's motion. The court explained that Gelbman was the sole shareholder of his self-described "small one-man corporation" and served as its Chief Executive Officer, Secretary, Chief Financial Officer, and President. The court also found that Gelbman conceded he managed the litigation by making decisions and assuming responsibility in responding to the discovery on behalf of 3 G.I. It therefore concluded "an inequitable result would follow [if the court failed to add Gelbman as a judgment debtor] because Sheen ha[d] presented sufficient evidence that Gelbman has/had sole control over 3 G.I. and then dissolved the corporation upon losing in the trial in this action."
The trial court entered a second amended judgment, adding Gelbman as an additional judgment debtor. Gelbman appeals from the order granting Sheen's motion to amend the judgment and the second amended judgment.
DISCUSSION
A. Governing Legal Principles and Standard of Review
Under Code of Civil Procedure section 187, the trial court is authorized to amend a judgment to add additional judgment debtors. (See Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 508 (Greenspan).) "'"Amendment of a judgment to add an alter ego 'is an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant. . . ."' [Citations.]" (Ibid.)
Code of Civil Procedure section 187 provides: "When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this Code."
To prevail on a motion to amend a judgment on the theory of alter ego, the moving party is required to demonstrate: (1) A unity of interest and ownership between the corporation and its equitable owner such that the separate personalities of the corporation and shareholder do not in reality exist; (2) The alter ego of the corporate entity had control of the litigation and was virtually represented in the lawsuit; and (3) Recognition of the privilege of separate existence would sanction fraud, or promote injustice or bring about an inequitable result. (See Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 221; see also Misik v. D'Arco (2011) 197 Cal.App.4th 1065, 1072-1073 (Misik).)
A trial court's decision to amend a judgment to add a judgment debtor is reviewed for abuse of discretion. (See Misik, supra, 197 Cal.App.4th at pp. 1071-1072 ["'[T]he conditions under which the corporate entity may be disregarded vary according to the circumstances in each case and the matter is particularly within the province of the trial court.' [Citations.]"]; see also Greenspan, supra, 191 Cal.App.4th at p. 508 ["'The decision to grant an amendment in such circumstances lies in the sound discretion of the trial court. "The greatest liberality is to be encouraged in the allowance of such amendments in order to see that justice is done."'"].)
Factual findings necessary to the court's decision to add a judgment debtor are reviewed for substantial evidence. (Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP (2012) 212 Cal.App.4th 1181, 1189.) "When conducting a substantial evidence review, we must review the entire record in the light most favorable to the prevailing party, resolve all conflicts in the evidence in favor of the ruling or judgment being reviewed, and indulge all reasonable inferences in support of the [trial] court's findings. [Citation.] The [trial] court's resolution of conflicts in the evidence and credibility assessments are binding on this court." (Shneer v. Llaurado (2015) 242 Cal.App.4th 1276, 1286-1287.)
B. The Trial Court Did Not Abuse Its Discretion By Adding Gelbman as a Judgment Debtor
Gelbman contends the trial court abused its discretion by adding Gelbman as a judgment debtor because the trial court's alter ego finding is not supported by substantial evidence. We disagree.
1. Unity of Interest and Ownership
"The first requirement for disregarding the corporate entity under the alter ego doctrine-whether there is sufficient unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist-encompasses a series of factors." (Misik, supra, 197 Cal.App.4th at p. 1073.) These factors include "the commingling of funds and other assets; the failure to segregate funds of the individual and the corporation; the unauthorized diversion of corporate funds to other than corporate purposes; the treatment by an individual of corporate assets as his own; . . . the representation by an individual that he is personally liable for corporate debts; the failure to maintain adequate corporate minutes or records; the intermingling of the individual and corporate records; . . . the concealment of the ownership of the corporation; the disregard of formalities and the failure to maintain arm's-length transactions with the corporation; and the attempts to segregate liabilities to the corporation." (Mid-Century Insurance Co. v. Gardner (1992) 9 Cal.App.4th 1205, 1213, fn. 3 [summarizing factors set forth in Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 838-840 (Associated Vendors)].) "No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied." (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539.)
Gelbman argues the evidence in the record is limited to the following: Gelbman was the sole officer, shareholder, and director of 3 G.I. and Gelbman dissolved the company. Our review of the record, however, demonstrates more. First, not only was Gelbman the sole shareholder, but he was 3 G.I.'s sole employee and the only person who ever interacted with Sheen while 3 G.I. was providing security services. Second, Gelbman failed to maintain adequate corporate records for 3 G.I. In support of his motion to amend the judgment, Sheen's trial counsel declared: "A review of the records of the California Secretary of State reveal that 3 G.I. filed only one Statement of Information" in 2017. Moreover, while Gelbman stated in his declaration he kept corporate minutes, he failed to attach to his declaration any records to that effect.
Corporations Code section 1502 requires corporations to file annual Statements of Information. In his reply brief, Gelbman argues he filed a second Statement of Information in 2019. Gelbman fails to produce the purported document, or point to any evidence in the record, however, to support his contention.
Finally, the record contains ample evidence of Gelbman contracting with Sheen with the intent to use 3 G.I. as a shield against personal liability. (See Associated Vendors, supra, 210 Cal.App.2d at p. 840 [in determining whether the alter-ego doctrine applies, one factor is "contracting with another with intent" to use a corporate entity "as a shield against personal liability."].) As discussed above, Gelbman originally signed a written agreement in his individual capacity, which stated Gelbman's employment for Sheen was "at will." The following day, however, Gelbman provided Sheen with a new contract, which purported to be between Sheen and 3 G.I. Gelbman did this despite knowing that Sheen was in a state of chronic inebriation, would not be able to understand or agree to any contract, and that all contracts with Sheen had to be approved by Singer before they would be valid. The trial court therefore found Gelbman induced Sheen to sign a new agreement between Sheen and 3 G.I., which Sheen did not have the capacity to understand due to his chronic inebriation. This finding supports the inference that Gelbman sought to shield himself from potential liability by inducing Sheen to sign a contract with 3 G.I. and, as the trial court stated, "intentionally [take] advantage of [Sheen's chronic inebriation]."
We note that, on appeal, Gelbman ignores the evidence presented at trial. We agree with Sheen that this evidence is relevant to the trial court's decision to add Gelbman as a judgment debtor. (See, e.g., Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 281 ["No single factor governs; courts must consider all of the circumstances of the case in determining whether it would be equitable to impose alter ego liability."].)
Accordingly, we conclude substantial evidence supports the trial court's alter ego finding.
2. Control of the Litigation
The next requirement for adding a judgment debtor under the alter ego doctrine is that the alter ego of the corporate entity had control of the litigation and was virtually represented in the lawsuit. (Misik, supra, 197 Cal.App.4th at p. 1075.) "'Control of the litigation sufficient to overcome due process objections may consist of a combination of factors, usually including the financing of the litigation, the hiring of attorneys, and control over the course of the litigation.' [Citation.] Clearly some active defense of the underlying claim is contemplated." (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 781 (NEC E lectronics).)
Here, Gelbman had the opportunity to litigate the underlying case. Gelbman testified at trial on his own behalf. Moreover, in support of his motion to amend the judgment, Sheen's trial attorney declared Gelbman was present every day at trial, and instructed 3 G.I.'s attorney how to proceed during trial. And, as the trial court noted, Gelbman admitted to managing the underlying litigation by making decisions and responding to discovery.
Based on this record, Gelbman was not a "'passive participant'" in the trial. (See NEC Electronics, supra, 208 Cal.App.3d at p. 779.) His intimate involvement in the trial, therefore, satisfies any due process concerns.
3. Inequitable Result
Finally, Gelbman argues there was no evidence before the trial court of any wrongdoing or injustice flowing from the recognition of 3 G.I. as a separate corporate identity. We disagree for two reasons.
First, as previously noted, Gelbman fails to discuss any of the evidence presented at trial of Gelbman's "wrongdoing," which included Gelbman taking advantage of Sheen's incapacity to procure his signature on a contract between Sheen and 3 G.I. (even though a contract for security services had already been fully executed between Sheen and Gelbman).
Second, Gelbman claims that even though 3 G.I. has been dissolved, Sheen is not prevented from collecting on the judgment during the corporation's winding-up process. But 3 G.I.'s Certificate of Dissolution states "[t]he known debts and liabilities have been actually paid or paid as far as its assets permitted"; 3 G.I., therefore, purportedly had nothing to "wind-up." Thus, despite knowing there was a pending motion for attorneys' fees against 3 G.I., Gelbman dissolved his corporation without allocating resources to satisfy Sheen's judgment.
Accordingly, we conclude substantial evidence supports the trial court's finding that if the court failed "to acknowledge that 3 G.I. is/was an alter ego of Gelbman, Sheen would be prevented from collecting on his judgment" and "[s]uch injustice is precisely the type that the alter ego doctrine is designed to prevent."
DISPOSITION
The order and second amended judgment are affirmed. Sheen is awarded his costs on appeal.
We concur: MANELLA, P.J., COLLINS, J.