Opinion
NOT TO BE PUBLISHED
Appeal from a post-judgment order of the Superior Court of Los Angeles County, No. BS103523 Judith C. Chirlin, Judge.
Sonnett & Associates, Anthony E. Sonnett and Trevor J. Ingold for Defendants and Appellants.
Law Offices of H. Michael Soroy and H. Michael Soroy for Plaintiff and Respondent.
CROSKEY, J.
A plaintiff obtained entry of judgment against a Pennsylvania corporation. Thereafter, on the plaintiff’s motion, the trial court amended the judgment to name as additional judgment debtors a California corporation and an individual who controlled both corporations, on an alter ego theory. The California corporation and the individual appeal from the post-judgment order, arguing that the evidence is insufficient to support the findings of alter ego. The individual also asserts that the plaintiff is estopped from seeking judgment against him, and that the judgment violates his right to due process. We disagree and affirm.
FACTUAL AND PROCEDURAL BACKGROUND
This appeal arises out of a dispute between members of the Baldinger family. The family patriarch, Joseph, established a successful business, Baldinger Insurance Group, Inc. (hereafter “BIG”). At some point, Joseph’s son, Sanford, became president of BIG. In 1986 an agreement was executed between Joseph and BIG providing that, in exchange for certain consideration, BIG agreed to make monthly payments to Joseph’s wife (and Sanford’s mother), Rae, upon Joseph’s death. The agreement was signed by Sanford on behalf of BIG.
As all of the individuals involved have the same last name, we refer to them by their first names. No disrespect is intended.
In 1997, Sanford established Baldinger Insurance Services, Ltd., a Pennsylvania corporation (hereafter “BIS-PA”). It is undisputed that BIS-PA is a successor corporation or alter ego of BIG. Sanford had possessed full control of BIG, and it can be inferred that he also had full control of BIS-PA, its successor or alter ego.
In their opening brief on appeal, Sanford and BIS-CA concede that Sanford was the “sole or controlling shareholder” of BIS-PA.
After Joseph’s death in 2002, Rae did not receive the agreed-upon payments. In 2004, pursuant to an arbitration clause in the agreement, Rae brought an arbitration, seeking the unpaid amounts. What is not entirely clear from the record is the identity of the party against whom Rae brought the arbitration. A letter from the American Arbitration Association to both parties indicates that the matter was “Rae Baldinger [v.] San[ford] Baldinger,” yet Rae’s arbitration brief is captioned with BIS-PA as the respondent.
Rae was represented by counsel different from the attorney representing her in this appeal.
An administrative conference call was scheduled in the arbitration for June 4, 2004. That day, the arbitration case manager sent a letter to both parties confirming that the conference call took place “with the parties.” The letter indicated the respondent was “San[ford] Baldinger,” and it was mailed to him at BIS-PA. Subsequently, the case manager sent a similarly captioned and addressed notice of hearing to the parties, setting the case for hearing on December 27, 2004.
The arbitration hearing was held as noticed, and Sanford failed to appear. It would later be revealed that, on January 3, 2005, Sanford formed a new corporation in California, called Baldinger Insurance Services, Inc. (hereafter “BIS-CA”). When it was incorporated, BIS-CA’s location was identified as Sanford’s home address in Malibu.
On March 29, 2005, the arbitrator entered an award in favor of Rae, in the then-unpaid amount of $35,000. The award also indicated that the written contract created an ongoing obligation, and that, when judgment would subsequently be entered on the award, Rae could move to amend the award to reflect the actual amount due at that time. The caption of the award indicated the respondent was Sanford. In the award itself, the arbitrator expressly found that BIS-PA “is a successor company or alter ego of” BIG.
On July 1, 2005, Rae sought confirmation of the award in New Jersey Superior Court. Rae’s pleading was captioned with BIS-PA as the defendant. BIS-PA sought to dismiss the proceeding, on the basis that the respondent in the arbitration had been Sanford, not BIS-PA. Rae responded that the arbitration had actually proceeded against BIS-PA, and that BIS-PA knew this.
The appellate record does not contain BIS-PA’s motion to dismiss. The court’s ruling on that motion, however, indicates that BIS-PA “argues that plaintiff has failed to state a cause of action because she named BIS[-PA], which was not a party to the underlying arbitration, as the defendant in this action.”
Unbeknownst to Rae, in September 2005, while Rae was attempting to obtain confirmation of the award against BIS-PA, Sanford abandoned BIS-PA. He “closed the door, left all the records of the company in there. [He] left the key outside the door and abandoned the location and abandoned the lease.” According to Sanford, he did so because BIS-PA was not profitable and could not meet its financial obligations. Sanford asserted that “a main concern” was rent, although he later admitted BIS-PA also owed an obligation to Rae. A month or two later, BIS-CA began operations.
At Sanford’s judgment debtor examination, he agreed that the judgment to Rae was an additional obligation of BIS-PA when it ceased operations in September 2005, although the arbitration award was not confirmed until October 2005, and the judgment was not entered until December 2005.
On October 11, 2005, while BIS-PA’s motion to dismiss was pending, Rae’s counsel contacted the arbitration case manager and requested “that the caption of the arbitration award be changed to delete San[ford] Baldinger as the defendant and to replace [BIS-PA] as the defendant. The reason for this request is that plaintiff never sought judgment against San[ford] Baldinger individually. Placing San[ford] Baldinger in the caption was an administrative error. All the evidence presented to the arbitrator made a case that [BIS-PA] was liable as a successor corporation to [BIG]. The language of the arbitration award reflects this finding. There is no language in the arbitration award finding San[ford] Baldinger liable individually. [¶] [BIS-PA] has challenged my attempt to confirm the arbitration award on the basis that the caption lists San[ford] Baldinger. Amending the award to reflect what actually happened should resolve this issue.” The record does not indicate whether the award was amended as requested.
On October 26, 2005, the New Jersey court denied the motion to dismiss and confirmed the arbitration award. In resolving the motion to dismiss, the court rejected BIS-PA’s assertion that it was not a party to the arbitration, as follows: “However, San[ford] Baldinger, the president of BIS[-PA], was a party to the arbitration. Furthermore, the underlying agreement was between plaintiff and BIG and . . . BIS[-PA] was determined by the arbitrat[or] to be the successor company of BIG. Accordingly, plaintiff has stated a sufficient cause of action . . . .” On December 13, 2005, judgment was entered against BIS-PA in the amount of $51,600, plus costs.
On June 6, 2006, Rae filed, in California, an application for entry of judgment on sister-state judgment. On June 21, 2006, judgment was duly entered against BIS-PA, in California, in the amount of $52,985.18 (including interest and fees).
As Sanford had abandoned BIS-PA, Rae was unable to collect her judgment. On March 1, 2007, Rae moved to amend the California judgment to name BIS-CA and Sanford as additional judgment debtors, on the basis that BIS-CA is the successor or alter ego of BIS-PA and that Sanford is the alter ego of both corporations.
In support of her motion, Rae submitted documents reflecting the lengthy course of the litigation. She also submitted the transcript of a judgment debtor examination of Sanford, conducted on September 18, 2006. In the course of the examination, Sanford was clearly evasive. For example, although he testified to being the sole individual who did work for either corporation (other than clerical or administrative work) he could not recall a single client of either one. Similarly, although he ran BIS-PA for seven years, he claimed no knowledge of whether the company was ever profitable. Nonetheless, the following evidence emerged at Sanford’s judgment debtor examination: (1) Sanford had been the president of BIS-PA; (2) Sanford had been the sole director of BIS-PA; (3) when he was president of BIS-PA, he was “allocated a salary” by the bookkeeper, who “allocated the salary based on the expenses. Since she handled [Sanford’s] week-to-week expenses, she calculated what [his] allocated salary should be a year”; (4) Sanford could not recall whether he had a personal bank account when running BIS-PA. He had credit cards, and they were “paid by the company”; (5) Sanford currently is the president, secretary, and treasurer of BIS-CA; (6) all shares of BIS-CA are held by the Baldinger Family Trust, an irrevocable trust which Sanford controls for the benefit of his children; (7) the sole director of BIS-CA is Sanford; (8) Sanford controls all aspects of the day-to-day operations of BIS-CA; (9) Sanford does not receive a “salary” from BIS-CA; instead, the accountant will “tell [him] what the financial status of the company is and then [will] decide based on tax considerations and the like how much money [Sanford is] going to take out of the company”; and (10) Sanford used his credit cards to begin operations of BIS-CA.
Sanford was examined in his capacity as president of BIS-PA.
Sanford asserted that the clients of BIS-CA are different from the clients of BIS-PA, and that BIS-CA is a wholesale insurance operation while BIS-PA was a retail insurance agency. Nonetheless, he could not name a single client of either operation.
Sanford testified that he was unaware as to whether there were other directors. In their opening brief on appeal, Sanford and BIS-CA concede that Sanford was the sole director of both BIS-PA and BIS-CA.
Sanford clearly testified that the BIS-PA bookkeeper “handled my week-to-week expenses,” despite his later assertion that BIS-PA did not pay his bills.
In support of her motion, Rae also submitted the declaration of Marlene Baldinger, Sanford’s sister. Objections to the great bulk of Marlene’s declaration were sustained, and Rae does not argue that the trial court erred in its ruling on any of the objections. All that remains of Marlene’s declaration is her assertion that, “I have spoken with San[ford] many times about paying what is due to my mother. He has claimed that he will never pay and once stated that he would ‘wipe his ass’ with the judgment.”
BIS-CA and Sanford opposed the motion on the basis that Rae could not establish by a preponderance of the evidence a unity of interest and ownership between them and BIS-PA. Sanford further argued that Rae was estopped from asserting he was liable for the New Jersey judgment, in that Rae had specifically requested that he be removed from the caption in the arbitration award.
This issue was raised in Sanford’s “response” to Rae’s reply in support of her motion to amend the judgment. The response states that Sanford “reasonably rel[ied]” on the letter from Rae’s counsel to the arbitration case manager, which indicated that Rae did not intend to pursue Sanford for the judgment. However, Sanford submitted no declaration indicating any actions he took, or did not take, in reliance on that letter. At the hearing on the motion to amend the judgment, Sanford’s counsel was questioned as to how Sanford had relied on that letter to his detriment. Sanford’s counsel replied, “He didn’t participate.” It appears that Sanford’s counsel took the position that, in reliance on the letter, Sanford chose not to oppose entry of judgment in New Jersey or California. As to the New Jersey judgment, Sanford’s opposition – via BIS-PA – is what prompted Rae’s counsel to draft the letter in the first place. In any event, the trial court concluded that Sanford’s failure to oppose entry of judgment was not due to reliance on the letter, but “because [Sanford] thought he could wiggle out of it by creating . . . yet another corporate entity.”
A hearing was held. The trial court concluded that the evidence established a unity of interest between BIS-PA, BIS-CA, and Sanford. The court also noted that Sanford has gone to great lengths to avoid paying the sums due to Rae. The motion to amend the judgment was granted. BIS-CA and Sanford filed a timely notice of appeal.
CONTENTIONS OF THE PARTIES
On appeal, BIS-CA and Sanford contend the evidence is insufficient to support the trial court’s findings of alter ego. Sanford further contends that Rae’s removal of Sanford from the caption of the arbitration award estops her from pursuing him now, and that amending the judgment to include him under these circumstances violates his constitutional right of due process.
DISCUSSION
1. Standard of Review
Code of Civil Procedure section 187 provides that when a court has jurisdiction over a matter, the court also possesses “all means necessary to carry it into effect.” This section has been interpreted to give trial courts the jurisdiction to modify a judgment to add additional judgment debtors. (McClellan v. Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 752.) This is typically accomplished via alter ego, on the equitable basis that the court is not adding a new defendant, but merely adding the true name of the real defendant. (Ibid.) Such amendment is only permissible when it is established that the newly named judgment debtor had de facto control of the defense of the litigation, and was therefore virtually represented. (Ibid.) This is necessary to satisfy the requirements of due process. (Minton v. Cavaney (1961) 56 Cal.2d 576, 581.)
When a plaintiff files a post-trial motion to add an alleged alter ego of the defendant as an additional judgment debtor, the plaintiff must establish the existence of the alter ego relationship by a preponderance of the evidence. (Wollersheim v. Church of Scientology (1999) 69 Cal.App.4th 1012, 1013-1014.) We review the trial court’s determination for substantial evidence. (Id. at p. 1017.)
In their opening brief on appeal, Sanford and BIS-CA rely on a federal case to argue that trial court’s order must be reversed due to its failure to include specific findings. Appellants cite no authority for the proposition that specific findings must be included in such an order in California courts.
2. Law of Alter Ego
“The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff’s interests. [Citation.] In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation: ‘As the separate personality of the corporation is a statutory privilege, it must be used for legitimate business purposes and must not be perverted. When it is abused it will be disregarded and the corporation looked at as a collection or association of individuals, so that the corporation will be liable for acts of the stockholders or the stockholders liable for acts done in the name of the corporation.’ [Citation.]” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.)
“There is no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case. There are, nevertheless, two general requirements: ‘(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.’ ” (Ibid.) “It should also be noted that, while the doctrine does not depend on the presence of actual fraud, it is designed to prevent what would be fraud or injustice, if accomplished. Accordingly, bad faith in one form or another is an underlying consideration and will be found in some form or another in those cases wherein the trial court was justified in disregarding the corporate entity.” (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 838 (hereafter “Associated Vendors”).)
Because a finding of alter ego depends on the specific circumstances of any given case, it is difficult to itemize the factors sufficient to support a finding of alter ego. Nonetheless, the court in Associated Vendors set forth a list of many factors which had been held to be pertinent to a finding of alter ego in prior cases: “Commingling of funds and other assets, failure to segregate funds of the separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses [citations]; the treatment by an individual of the assets of the corporation as his own [citations]; the failure to obtain authority to issue stock or to subscribe to or issue the same [citations]; the holding out by an individual that he is personally liable for the debts of the corporation [citations]; the failure to maintain minutes or adequate corporate records, and the confusion of the records of the separate entities [citations]; the identical equitable ownership in the two entities; the identification of the equitable owners thereof with the domination and control of the two entities; identification of the directors and officers of the two entities in the responsible supervision and management; sole ownership of all of the stock in a corporation by one individual or the members of a family [citations]; the use of the same office or business location; the employment of the same employees and/or attorney [citations]; the failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization [citations]; the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation [citations]; the concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities [citations]; the disregard of legal formalities and the failure to maintain arm’s length relationships among related entities [citations]; the use of the corporate entity to procure labor, services or merchandise for another person or entity [citations]; the diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another [citations]; the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions [citations]; and the formation and use of a corporation to transfer to it the existing liability of another person or entity [citations].” (Associated Vendors, supra, 210 Cal.App.2d at pp. 838-840.) In each case analyzed, “several of the factors mentioned were present.” (Id. at p. 840.)
3. Sufficient Evidence Supports the Trial Court’s Findings of Alter Ego
Within this framework, we consider the trial court’s findings that both Sanford and BIS-CA were alter egos of BIS-PA. We first consider the finding that Sanford was the alter ego of BIS-PA. Several of the factors itemized by the court in Associated Vendors are present in this relationship. Sanford was the president of BIS-PA, the controlling (if not the sole) shareholder, and was the sole director. Sanford contends that these were the only facts supporting the trial court’s finding, and that those facts alone are insufficient to support a finding of alter ego. However, evidence of other factors was present. Specifically, the evidence also indicated BIS-PA was a mere shell for Sanford’s business, and, more importantly, there was commingling of funds and improper diversion of corporate assets to Sanford’s individual benefit. Sanford’s credit cards were paid by BIS-PA. BIS-PA’s bookkeeper handled all of Sanford’s expenses; indeed, Sanford doubted whether he had even possessed a personal account at the time he ran BIS-PA. Sanford was paid a salary based on his expenses – in an amount which left BIS-PA unable to pay its rent and other obligations. This commingling of funds, when combined with evidence of Sanford’s sole control of BIS-PA is sufficient to establish such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist – the first of the two requirements necessary for a finding of alter ego. The second requirement, that an inequitable result will follow if the acts are treated as those of the corporation alone, is also established. The timing of Sanford’s abandonment of BIS-PA just as Rae was seeking to confirm her arbitration award against BIS-PA is suspicious; Rae’s statement to Marlene that he will never pay what is due to Rae gives rise to an inference of bad faith, and the conclusion that Sanford abandoned the corporation in order to avoid paying BIS-PA’s debt to Rae.
Rae argues that the court can infer from Sanford’s “refusal to disclose information and/or his misrepresentations under oath” that evidence adverse to his position exists. On the contrary, “[t]he rejection of a witness’s testimony by the trier of fact has only the effect of removing that testimony from the evidentiary mix. Without more, the disregard or disbelief of the testimony of a witness is not affirmative evidence of a contrary conclusion. [Citations.] In other words, the fact that the trier of fact does not credit a witness’s testimony does not entitle it to adopt an opposite version of the facts which otherwise lacks evidentiary support.” (Beck Development Co. v. Southern Pacific Transportation Co. (1996) 44 Cal.App.4th 1160, 1205.) We therefore limit our analysis to factors affirmatively supported by the evidence.
We next consider whether sufficient evidence supports the conclusion that BIS-CA is an alter ego of BIS-PA and/or Sanford. Again, Sanford and BIS-CA argue that the sole evidence before the trial court was a unity of ownership and control. We disagree. All of BIS-CA’s stock was owned by Sanford’s family trust; for a time, BIS-CA shared Sanford’s home address; and Sanford used his credit cards (perhaps the same ones which had been paid by BIS-PA) to fund BIS-CA’s operations. This failure to segregate individual from corporate funds again supports the finding of unity of interest and ownership. Similarly, an inequitable result will follow if the acts of BIS-PA and Sanford are not also considered the acts of BIS-CA. In December 2004, a hearing was held in the arbitration. Neither Sanford nor BIS-PA attended the hearing; instead, Sanford had BIS-CA formed. In September 2005, Rae was in the process of confirming the arbitration award against BIS-PA; Sanford responded by abandoning BIS-PA and starting operations at BIS-CA. BIS-CA appears to have been created for the purpose of Sanford continuing the business of BIS-PA under the name of a new corporate entity, conveniently leaving the debts of BIS-PA behind. It would be inequitable to allow Sanford to use the corporate form to shield himself from liability in this manner. The trial court’s findings of alter ego are sufficiently supported by the evidence.
4. There is No Estoppel
Sanford argues that Rae is estopped to obtain judgment against him by the letter written by her attorney to the arbitration case manager which asserted Rae sought judgment against BIS-PA and not Sanford individually. Sanford introduced no evidence of his reliance on the letter. Without detrimental reliance, there can be no estoppel. (Greshko v. County of Los Angeles (1987) 194 Cal.App.3d 822, 829.) Moreover, we note that there is no evidence in the record that Rae’s request to amend the arbitration award was granted. Sanford had no legitimate basis to rely on the letter when there still existed an arbitration award against him personally.
5. Sanford’s Due Process Rights Were Not Violated
Due process is satisfied when a judgment is amended to include an alter ego when it is established that the newly named alter ego had de facto control of the defense of the litigation, and was therefore virtually represented. In this case, it is clear that Sanford controlled the litigation, in both the arbitration and the proceedings in New Jersey to confirm the arbitration award.
Relying on Nelson v. Adams USA, Inc. (2000) 529 U.S. 460, Sanford contends that he was denied due process by being held liable for a judgment when he had been given no opportunity to contest personal liability in the underlying action. But the Supreme Court’s decision in that case was based on an amendment of the judgment to include another party who was not an alter ego of the original defendant. Indeed, the plaintiff had specifically disclaimed reliance on an alter ego theory. (Id. at pp. 470-471.)
6. Conclusion
“The essence of the alter ego doctrine is that justice be done. ‘What the formula comes down to, once shorn of verbiage about control, instrumentality, agency, and corporate entity, is that liability is imposed to reach an equitable result.’ ” (Mesler v. Bragg Management Co., supra, 39 Cal.3d at p. 301.) The dispute in this case had its genesis in 1986, when Joseph gave Sanford his business, BIG, in exchange for a written promise that Sanford would support Rae, with money generated from BIG, after Joseph’s death. Sanford stopped doing business as BIG, and opened its successor business, BIS-PA. After Joseph’s death, Sanford did not make the agreed-upon payments. Rae brought an arbitration to recover the payments. Sanford chose not to defend the arbitration, and instead formed BIS-CA, a California corporation. Sanford allowed entry of an arbitration award against him by default. When Rae attempted to confirm the award in a judgment against BIS-PA, Sanford objected, arguing that the arbitration award was against him individually, rather than BIS-PA. When Rae sought to modify the arbitration award to name BIS-PA, Sanford proceeded to abandon the business of BIS-PA, and start operations as BIS-CA. Once Rae obtained a judgment against BIS-PA and attempted to amend it to include Sanford and BIS-CA, Sanford opposed, arguing that he had not been a party to the underlying action – despite the fact that, under his direction, BIS-PA had initially opposed confirmation of the award on the basis that Sanford had been the respondent in the arbitration.
This course of events, when combined with the facts that Sanford: (1) was the sole director, officer, and income generating employee of both corporations; and (2) commingled his personal funds with corporate funds, demonstrates the existence not of three separate entities, but a single individual attempting to play fast and loose with corporate forms in order to avoid making payments he had agreed to pay. The trial court correctly disregarded the corporate form in order to do justice.
DISPOSITION
The post-judgment order amending the judgment is affirmed. Rae Baldinger is to recover her costs on appeal.
We Concur: KLEIN, P. J., ALDRICH, J.