Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. BC343961. Helen I. Bendix, Judge.
Gary Hollingsworth for Defendant and Appellant.
Bander Law Firm and Cathe L. Caraway-Howard for Plaintiff and Respondent.
WOODS, Acting P.J.
INTRODUCTION
This appeal is from a judgment, following a bench trial, determining that the California corporation Lotus Chinese Restaurant, hereafter referred to in this opinion as “Lotus,” was the alter ego of the appellant/defendant, Ming Ying Wu (“Wu”). Respondent/plaintiff, Xiaobin Song is a former employee of Lotus who sued Lotus and others for unpaid wages, penalties, and interest arising from his employment with Lotus. Xiaobin Song is hereafter referred to in this opinion as “Song.” The theory of liability against Wu is generally based on the assertion that there is a unity of interest between Lotus and Wu and equitable considerations justify piercing the corporate veil of Lotus and holding Wu personally liable. At the beginning of the trial a stipulation was reached which allowed a judgment to be entered against Lotus, but not against Wu.
For the reasons hereafter given, we affirm the judgment.
ISSUES ON APPEAL
The issues on appeal are whether substantial evidence supports the judgment of the trial court that Lotus was the alter ego of Wu and equitable considerations justify holding Wu personally liable by piercing the corporate veil of Lotus. As indicated hereafter we find that substantial evidence supports the judgment, leading this court to conclude that the judgment must be affirmed.
STANDARD OF REVIEW
The standard of review is not in contention. The parties agree, as does this court, that substantial evidence must be contained in the record on appeal in support of the judgment of the trial court. Wu correctly states this standard in her “Opening Brief of Defendant/Appellant Ming Ying Wu” as follows: “Whether alter ego liability exists is a question of fact, and the standard of review is whether there exists substantial evidence to support the verdict, Jack Farenbaugh & Son[ ] v. Belmont Construction, Inc. (1987) 194 Cal.App.3d 1023, 1032 . . .; Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 837 . . . . [¶] The standard for finding alter ego liability is by a preponderance of the evidence, Wollersheim v. Church of Scientology Int. (1999) 69 Cal.App.4th 1012, 1014 . . . .”
FACTUAL AND PROCEDURAL SYNOPSIS
Song’s complaint.
On December 5, 2005, Song filed his complaint in the Los Angeles County Superior Court (No. BC343961) entitled as a complaint for “(1) Failure to Pay Minimum Wage in Violation of Labor Code § 1194; (2) Failure to Pay Overtime Compensation in Violation of Labor Code § 1194[;] (3) Failure to Pay Wages at Time of Termination in Violation of Labor Code §§201-203; (4) Failure to Provide Accurate Wage Statements in Violation of Labor Code §226; (5) Failure to Provide Meal and Rest Periods in Violation of Labor Code §226.7; and (6) Unfair Business Practices in Violation of Business & Professions Code §17200.”
In addition to Lotus and Wu (by way of fictitious defendant designation as Doe 1) Song brought suit against David Cheung (“Cheung”) and Longyi Gao (“Gao”), Wu’s husband, individually. The complaint is unclear which defendants were intended to be included within the sixth cause of action and indeed whether the action was ever prosecuted for a purported violation of Business and Professions Code section 17200.
Answer of defendants.
On February 3, 2006, defendants Lotus, Gao and Wu filed their answer to the complaint of Song, generally denying all of the allegations contained therein and asserting four affirmative defenses, namely, that plaintiff breached the contract it had with the defendants, defendants are entitled to an offset, plaintiff is guilty of unclean hands and plaintiff waived any and all claims against defendants.
Presumably Cheung was never served and never appeared in Song’s action.
Trial during the month of April 2007.
The matter was first called for jury trial in Department 18 of the Los Angeles County Superior Court before Helen I. Bendix, judge presiding. Counsel answered ready. A stipulation was placed on the record that the damages, including interest through April 25, 2007, equaled the sum of $51,469.53 and that a judgment could be entered against Lotus only.
It was agreed that the balance of the trial was to proceed by bench trial on the alter ego allegations against Wu. The matter was continued to April 26, 2007.
Bench trial on April 26, 27 and 30, 2007.
The following occurred on April 26, 2007: plaintiff Song dismissed defendant Gao with prejudice; opening statements were made by both sides; Amy Liao, the accountant for Lotus who testified regarding the books and records of Lotus, was called as a witness by plaintiff Song; Wu was called as an adverse witness pursuant to Evidence Code section 776 and examined by plaintiff, Song; Song’s exhibits were marked for identification only and categorized as follows: payroll, employment, and attendance records of employees of Lotus (exhibits 1 through 15), cash receipts disbursement record of Lotus (exhibit 19), corporate records (exhibit 17), bank account records (exhibit 18), tax returns (exhibit 21), and requests for production of documents (exhibit 23). Portions of the deposition of Wu were also read into the record.
The following occurred on April 27: Wu resumed her testimony; exhibit 100 (original check #382-as in exhibit 18) and exhibit 101 (bank statement) were marked for identification only; the matter was continued to April 30.
The following occurred on April 30: Wu continued her testimony. Both sides rested after exhibits 2 through 12, 15, 17, 18, 19, 21--page 70 only, 23, 24, 100 and 101, were admitted into evidence.
Both sides argued and the court gave its oral tentative as indicated in the notes of the court reporter. Both parties were directed to file simultaneous briefs by May 2, 2007, with the matter deemed submitted on arrival of the briefs.
On or about May 2, 2007, Song filed his brief entitled “PLAINTIFF’S TRIAL BRIEF RE: THE ‘INEQUITABLE RESULT’ ELEMENT OF THE ALTER EGO TRIAL OF MING YING WU, SOLE SHAREHOLDER OF LOTUS CHINESE RESTAURANT.”
On May 4, 2007, Wu filed her brief entitled “BRIEF ON ISSUE OF ALTER EGO.”
On or about May 8, 2007, Wu filed her “OBJECTION TO PLAINTIFF’S TRIAL BRIEF ON THE GROUNDS OF MISSTATEMENT OF COURT’S RECORD” which, in essence contends, counsel for Song misrepresented what the court said at the time of trial on the matter pertaining to the first element of the alter ego analysis that Song had satisfied this first element toward piercing the corporate veil. Wu claims that no such indication was made by the trial court.
By minute order dated May 7, 2007, the court announced its tentative statement of decision in favor of Song as indicated in its oral tentative statement of decision on April 30, 2007, under the first prong of the “Sonora Diamond test” and on the second prong of the “Sonora Diamond test” for the reasons set forth in plaintiff’s trial brief dated May 2, 2007. The court noted that Song had requested a written statement of decision which counsel for Song was ordered to lodge with the court as a proposed statement of decision within the timeframe required by the California Rules of Court.
Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 537-538. The decision was cited and relied upon by both plaintiff Song and defendant Wu at time of trial.
On May 17, 2007, Wu filed her “AMENDED REQUEST FOR STATEMENT OF DECISION AND SPECIFICATION OF CONTROVERTED ISSUES: CODE OF CIVIL PROCEDURE SECTION 632 AND RULE OF COURT 3.1590” setting forth 23 controverted issues at trial.
On or about May 22, 2007, Song filed his “PLAINTIFF’S PROPOSED STATEMENT OF DECISION” in accordance with the court’s order, setting forth the law on the alter ego doctrine in relation to the evidence at trial in the form of testimony and admitted exhibits.
On May 23, 2007, Wu filed her “OBJECTION TO PLAINTIFF’S PROPOSED STATEMENT OF DECISION” citing a failure of Song to comply with Code of Civil Procedure section 632.
As indicated in the minute order of the court dated May 30, 2007, the court filed its statement of decision on the alter ego trial which the court incorporated fully into the minute order by reference.
The trial court focused its attention on the broad principles involved in the litigation by noting that no disagreement existed among the parties as to the legal principles involved in piercing the corporate veil. The court set forth the basic rule as stated in Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d 825, 837 as follows: “The basic rule stated by our Supreme Court as a guide in the application of this doctrine is as follows: The two requirements are (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.” The trial court then listed twelve factors mentioned in Associated Vendors, Inc. for use by the trial courts in applying the aforementioned two prong test, as fully set forth in the court’s statement of decision.
On July 31, 2007, the court filed its “Second Amended Judgment” indicating that instead of adjudging Song his right to attorneys’ fees, Song was permitted to seek attorneys’ fees via motion filed separately.
On September 20, 2007, Wu filed a timely notice of appeal.
On November 6, 2007, the trial court filed a “Third Amended Judgment” which awarded attorneys’ fees and costs to Song against Lotus and Wu, pursuant to the uncontested Memorandum of Costs filed by Song. Attorneys’ fees were awarded in the amount of $39,731.30, bringing the total judgment to $98,029.47.
We do not discern that appellant Wu objected to the award of attorneys’ fees and costs in the trial court in response to Song’s memorandum of costs filed in accordance with the court’s second amended judgment. Wu apparently concedes that the award of such items went uncontested in the trial court. Accordingly, failure to make such an objection operates as a waiver of the issue for appellate purposes.
DISCUSSION
We note that the trial court accurately and fully stated the applicable legal principles involved in this litigation as set forth in Associated Vendors, Inc. v. Oakland Meat Co., Inc., supra, 210 Cal.App.2d 825 and with particularity set forth the universe of alternatives for consideration by the trial court in determining whether piercing the corporate veil is applicable in a particular case. Those factors are cited by the trial court as having been delineated in Associated Vendors, Inc. at pages 837-841. The trial court then integrated the evidence at trial with the permissible factors set forth In Associated Vendors, Inc. in reaching its ultimate conclusion. The trial court noted that only two witnesses had testified, namely, Amy Liao and Wu. The trial court’s comments on the testimony of these two witnesses are summarized as follows:
Liao.
Liao was the corporate accountant who set up Lotus; she authenticated the incorporation documents, which indicated Wu was the sole shareholder, officer and director of Lotus as indicated in exhibit 17.
Wu.
The court noted that both sides relied on the testimony of Wu in support of their respective positions. The court noted that significant credibility issues were presented by Wu’s testimony; she changed her testimony several times as to whether exhibit 19, described as the corporate ledger regarding receipts and disbursement, reflects all cash receipts and disbursements or whether there are some “off-the-book transactions”; Wu claimed not to understand English, even as to payroll records that contained numbers based on her own handwritten records; at trial she answered questions before they were interpreted; these questions sometimes contained sophisticated English terms; her verification of discovery responses as reflected in exhibit 23 was false; she indicated that key corporate records do not exist as reflected in exhibit 23, response Nos. 1, 4, 10, 13, 15, and 19, when in fact the documents did exist; she was the only person running the corporation before she sold it after this litigation began; she could have clearly provided accurate discovery responses; her reference to “continuing discovery” is not a reasonable response to discovery; she gave diametrically opposed testimony at her deposition as compared with her trial testimony pertaining to whether she had lent money to Lotus; her testimony at trial was evasive even after this court “cleared up” any purported translating inaccuracies identified by defense counsel at trial.
Unity of interest between Lotus and Wu.
Following the dictates of Associated Vendors, Inc. the court delineated the evidence which established that the first prong (unity of interest) had been established. The evidence referred to by the trial court is summarized as follows: Wu had sole control over the finances of Lotus and its records, as evidenced by exhibit 17; Lotus was a “cash business”; the corporate records did not reflect all financial transactions; relevant to this lawsuit was failure to account for salaries paid to relatives; she had an easy opportunity to divert funds of Lotus to herself and family; Wu was the only one at Lotus vested with such power; Wu and her husband were taking large salaries out of Lotus as compared to the salaries of other employees, as reflected in exhibit 19; Lotus had “razor thin profit margins; no testimony was proffered as to what Wu’s husband did to earn his salary other than an indication that he was a “worker.”
The court further found a lack of confidence that the records of Lotus truly reflected a respect for corporate formalities for reasons summarized as follows: the records were incomplete; the combination of incomplete records combined with large salaries to Wu, her husband and “off the books payments to relatives” led to a lack of confidence in the following of corporate formalities; inferentially, these diverted amounts worked to the detriment of other creditors, particularly with regard to the employees of Lotus who were not paid statutorily required wages, citing as an example the stipulation at the beginning of trial conceding the amount of wages due Song; testimony also indicated there were other creditors, namely Liao for accounting fees and vendors who had delivered supplies to Lotus.
The trial court noted vacillation of Wu’s testimony as to what exhibit 100 (check # 382) represented; the check was made out on the bank account of Lotus supposedly for a repayment of Wu’s loan to Lotus from her personal funds to make payroll payments; she was, however, unable to locate this loan and repayment in the ledger of Lotus, citing exhibit 19 for reference; she testified she made other loans to Lotus, but no apparent documentation in the ledgers of Lotus could be found either by way of reference to the loans or repayment thereof.
The trial court found suspect that the business was sold by Wu during the course of the litigation which appears to have been motivated in part by a desire to avoid liability for unpaid wages to Song; the trial court noted that even though Lotus was transferred to someone else, a restaurant was still being operated at the same location; Wu still works at the restaurant, but testified she has not been paid for nine months for services rendered by her; there is no appearance of an “arms length” transaction; no evidence was adduced that the successor business took over the contingent liabilities or debts of Lotus.
The court further noted that there were no other officers, directors or shareholders other than Wu; no testimony was given that any corporate formality was followed such as a shareholder’s meeting past the initial meeting; the court cited as an example the annual meetings specified in exhibit 17.
The court further observed that Lotus was undercapitalized if one believes in the content of exhibit 19, which Wu indicated did not contain all the corporate transactions. If so, then Lotus had no reserves and had only the thinnest of profit margins.
Piercing the corporate veil to prevent injustice.
In addressing and elaborating on the evidence that necessitated piercing the corporate veil of Lotus under the second prong of Associated Vendors, Inc., the findings of the trial court are summarized as follows: the court commenced its analysis and findings on the second prong by repeating its findings under the first prong which led the court to conclude there was a complete unity of interest between Lotus and Wu; the court then acknowledged that Song had correctly argued the important public policies behind California’s wage and hour laws, citing the California Supreme Court’s decision in Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094; the court then concluded based upon its factual findings under the first prong, it would be inequitable for Wu to hide behind the corporate shield of Lotus in an effort to avoid her financial obligations to her employees; the court then found in favor of Song on the alter ego claim.
CONCLUSION
In accordance with the agreed upon standard of review as stated in this opinion, supra,we have examined the testimony and exhibits contained in the record as reflected in the statement of decision supporting the judgment of the trial court and find such evidence to be substantial. This, of necessity, leads this court to conclude that the judgment should be and is hereafter affirmed.
DISPOSITION
The judgment is affirmed. Respondent to recover costs of appeal.
We concur, ZELON, J., JACKSON, J.