Opinion
No. C-03-2168 SC.
July 30, 2004
ORDER DENYING U.S. BANK NATIONAL ASSOCIATION'S THIRD-PARTY CLAIM OF SECURITY INTEREST
Before the Court is U.S. Bank National Association's ("U.S. Bank") Third-Party Claim of Security Interest by which U.S. Bank claims a security interest in certain property levied upon Petitioner Eastman Kodak Company ("Kodak") under a writ of execution issued by this Court. Also before the Court is U.S. Bank's Undertaking to Release the same property, filed pursuant to Cal. Civ. Code § 720.610. Because both the third-party claim and the undertaking are premised on an impermissible extension of this Court's March 30, 2004 Order, the Court HEREBY DENIES U.S. Bank's third-party claim and dismisses the undertaking as improper. I. Parties' Claims of Security Interest in Property
Beginning in or around 2001, U.S. Bank made several loans to Moses S. Joseph, LLC ("MSJ LLC") and Anila.org, Inc. ("Anila"). To secure those loans, U.S. Bank obtained guarantees and a pledge of collateral from Moses S. Joseph ("Joseph") in his personal capacity. It appears that MSJ LLC and/or Anila defaulted on those loans, and U.S. Bank's third-party claim seeks to establish that — in relation to Kodak — it has a priority security interest in, and thus a superior claim to, the property of MSJ LLC, Anila and/or Joseph.
Kodak's claim to this property is based on several recent Orders from this Court. On July 16, 2003, this Court entered judgment against Anila in favor of Kodak in the amount of $6,529,672.19. On March 30, 2004, we granted Kodak's motion to amend the Original Judgment to add Joseph and MSJ LLC as additional judgment-debtors because we determined that "Moses S. Joseph and Moses S. Joseph LLC are the alter egos of Anila.org, Inc.". Amended Order at 16. On April 27, 2004, the Court issued a Writ enabling Kodak to enforce the Amended Judgment, and on May 17, 2004, Kodak levied under the Writ upon shares issued by YesVideo, Inc. which are registered to MSJ LLC.
II. Discussion
California Code of Civil Procedure § 720.210(a) provides:
Where personal property has been levied upon under a writ of attachment, a writ of execution, a prejudgment or postjudgment writ of possession, or a writ of sale, a third person claiming a security interest in or lien on the personal property may make a third-party claim under this chapter if the security interest or lien claimed is superior to the creditor's lien on the property.
Cal. Code Civ. Pro. 720.210(a). Pursuant to this section, U.S. Bank claims an interest in the YesVideo Shares levied upon by Kodak. Kodak maintains that U.S. Bank does not have a security interest in these shares because the shares are registered to MSJ LLC, and U.S. Bank only has a grant of security in the assets of Joseph in his personal capacity. U.S. Bank counters that this Court's earlier determination that MSJ LLC and Joseph are alter egos of Anila establishes that these three can be treated as "one entity," and therefore, "a grant of security from Mr. Joseph in Collateral is also a grant of security in the assets of Moses S. Joseph LLC and Anila.org." U.S. Bank Verified Claim at ¶ 4. U.S. Bank's position, which fails to understand the limited, equitable nature of the alter ego doctrine, must be rejected.
The alter ego determination is made on a case by case basis. "When considering the application of the alter ego doctrine to a particular situation, it must be remembered that it is an equitable doctrine and, though courts have justified its application through consideration of many factors, their basic motivation is to assure a just and equitable result." NEC Electronics, Inc. v. Hurt, 256 Cal. Rptr.208 Cal.App.3d 772, 777 (1989) citing Alexander v. Abbey of the Chimes, 104 Cal.App.3d 39, 48 (1980). California courts faced with an alleged alter ego situation consider an extensive list of factors "in arriving at the ultimate questions of whether the requisite unity of interest and inequitable result are present in a given case."Trans-World Int'l, Inc. v. Smith-Hemion Productions, Inc., 972 F.Supp. 1275, 1295 (C.D. Cal. 1997) (italics added). "The 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." Jack Farenbaugh and Son v. Belmont Const., Inc., 194 Cal.App.3d 1023, 1033 (1987). "[T]he issue is not whether the corporate entity should be disregarded for all purposes" but, "`whether in the particular case presented and for the purpose of such case justice and equity can best be accomplished and fraud and unfairness defeated by a disregard of the distinct entity of the corporate form.'" 9 Witkin, Summary of Cal. Law (9th ed. 1989) Corporations, § 12, pp. 524-525, citing Kohn v. Kohn, 95 Cal.App.2d 708, 718 (1950).
This Court deemed Joseph and MSJ LLC to be alter egos of Anila in the context of Anila's relationship with Kodak. U.S. Bank attempts to "deduce" from that limited determination that Joseph and MSJ LLC are alter egos of each other for every purpose which serves U.S. Bank's interests. U.S. Bank's Response at 3. However, U.S. Bank cannot ride into this Court on the coattails of Kodak's litigation, for the simple reason that Joseph and MSJ LLC have never been adjudged to be alter egos of one another vis-á-vis their dealings with U.S. Bank. If U.S. Bank believes it so, U.S. Bank must prove it to a court of law.
However, not this Court. In the event the Court finds that it has "not yet made a determination that Mr. Joseph and Moses S. Joseph LLC are alter egos," U.S. Bank informs the Court that the findings of fact issued in the Amended Order provide "sufficient basis" for the Court to make such a ruling here. U.S. Bank's Response at 4. Such an outcome would be indefensible. As explained above, "the conditions under which the corporate entity may be disregarded vary according to the circumstances in each case . . ." Jack Farenbaugh and Son v. Belmont Const., Inc., 194 Cal.App.3d 1023, 1033 (1987). Our determination that Joseph and MSJ LLC were alter egos of Anila necessarily focused on the relationship and dealings of Joseph and Anila and the relationship and dealings of MSJ LLC and Anila. This Court will not recontextualize the findings of fact from a case involving different parties to provide U.S. Bank with an end-run around due process.
The only property currently at issue are the YesVideo Shares, which we now rule are unavailable for an undertaking by U.S. Bank based on guarantees made by Joseph, because the shares are registered solely to MSJ LLC. This Court offers no opinion on the validity of U.S. Bank's third-party claim as to property owned solely by Mr. Joseph. III. Conclusion
U.S. Bank's claim to entitlement in the YesVideo stock certificates registered to MSJ LLC is HEREBY DENIED.
IT IS SO ORDERED.