Judge: Ashfaq G. Chowdhury, Case: 20GDCV00609, Date: 2024-11-01 Tentative Ruling
Case Number: 20GDCV00609 Hearing Date: November 1, 2024 Dept: E
Tentative Ruling
HEARING DATE: 11/1/2024-10am TRIAL
DATE: UNSET
CASE: Lidd Enterprises
Inc., et al. v. Auto Buyline Systems Inc., et al.
CASE NO.: 20GDCV00609
MOTION
FOR SUMMARY JUDGMENT
MOVING PARTY: Defendant/Cross-Complainant
Auto Buyline Systems, Inc., (dba ABS Auto Auctions); and Defendants Thomas
Harmon, Annette Harmon, Digital Auctions LLC, and E Inc.
RESPONDING PARTY: Plaintiffs/Cross-Defendants Lidd
Enterprises Inc., Danny Lao, and Bessie Lao.
SERVICE: OK – Filed on
01/04/2024
RELIEF
REQUESTED: Grant summary judgment and dismissal of case
Moving
Papers: Notice/Motion; Separate
Statement; Annette Harmon Decl.; Thomas Harmon Decl.; Robert McConkey Decl.;
Notice of Lodgment; Proof of Service;
Opposition
Papers: Memorandum; Combined
Declarations of Danny Lao, Dan Bacani, Michael Rhee, Richard Meaglia, and
Barbara Luna; List of Exhibits; Separate Statement; Evidentiary Objections to
Thomas Harmon; Evidentiary Objections to McConkey; Order on Plaintiff’s
Evidentiary Objections to McConkey; Order on Evidentiary Objections to Thomas
Harmon; Order on Evidentiary Objections to Annette Harmon; Evidentiary
Objections to Annette Harmon;
Reply
Papers: Reply; Objections to
Plaintiff’s Evidence
Sur
Reply: Request for Judicial Notice;
Supplemental Brief
Additional
Reply: Supplemental Reply Brief by
Movants
TENTATIVE RULING –
Moving Defendants Motion for
Summary Judgment, or in the alternative, Summary Adjudication is DENIED.
BACKGROUND
This case
arises out of a dispute for the lease (“Lease”) of property located at 110 E.
Holly Street, Pasadena, California 91103 (“Property”). Lidd Enterprises, Inc.;
Danny Lao and Bessie Lao, individually and as Trustees of the Danny and Bessie
Lao Family Trust Dated May 5, 2005 (“Plaintiffs”) filed a third amended
complaint (“TAC”) on August 11, 2022, alleging eleven causes of action for (1)
breach of contract, (2) waste, (3) negligence, (4) common count, (5) breach of
oral agreement, (6) promissory estoppel, (7) conversion, (8) reformation, (9)
fraudulent conveyance, (10) fraudulent conveyance, and (11) aiding and
abetting. A First Amended Cross-Complaint (FACC) was filed on May 10, 2021. The
TAC was filed against several defendants: Auto Buyline Systems, Inc.; ABS Auto
Auctions; Remarkertims Inc.; Opentrade Inc.; Clearmarket Inc.; Auctionlane
Inc.; ABS Opentrade Inc.; Digital Auctions LLC; E Inc.; Kevin Azzouz; Mike
Rhee; Lennart Mengwall; Thomas Harmon; and Annette Harmon.
The dispute
stems from a lease Plaintiff Lidd entered into on November 7, 2017 with Auto
Buyline Systems Inc. dba ABS Auto Auctions Inc. (TAC, ¶12.) After entering the
agreement, Auto Buyline Systems Inc. made payments from November 17 through May
2019. (TAC, ¶ 12.1.) Thereafter, Doe Defendants made payments from June 2019
through February 2020. (Id.) The Lease was in Auto Buyline Systems
Inc.’s name and the president of the company – Thomas Harmon – signed the
Lease. (TAC, ¶ 12.2.) Possession was then given to Auto Buyline Systems Inc. (Id.)
The Lease came with several terms, the dispute began when rental charges were
not received on and after March 1, 2020. (TAC, ¶ 17.) Additionally, certain
alterations and improvements on the premises were made without the consent of
Plaintiff Lidd’s approval. (Id.) Plaintiffs then filed suit.
The motion now before the Court is a Motion
for Summary Judgment or in the Alternative a Motion for Summary Adjudication
filed by Defendant/Cross-Complainant Auto Buyline Systems, Inc., (dba ABS Auto
Auctions, hereinafter ABS); and Defendants Thomas Harmon, Annette Harmon,
Digital Auctions LLC, and E Inc (Moving Defendants). Plaintiffs Lidd
Enterprises Inc., Danny Lao, and Bessie Lao (Responding Plaintiffs) filed an
opposition. Movants filed a Reply. Plaintiffs filed a sur-reply.
OBJECTIONS TO EVIDENCE
Concurrently
filed with their opposition papers, Responding Plaintiffs file three
objections: first to the Declaration of Annette Harmon, second to the
Declaration of Thomas Harmon, and finally to the Declaration of Robert
McConkey. Plaintiffs’ objections are overruled.
In Reply, Movants submitted objections to Plaintiffs’
evidence; however, the Court is not ruling on those objections. Plaintiffs’
objections are not material because the Court was able to come to its ruling
without relying on the evidence that Plaintiffs objected to.
“ In granting or denying a motion for summary judgment
or summary adjudication, the court need rule only on those objections to
evidence that it deems material to its disposition of the motion. Objections to
evidence that are not ruled on for purposes of the motion shall be preserved
for appellate review.” (CCP § 437c(q).)
LEGAL STANDARD
The
function of a motion for summary judgment or adjudication is to allow a
determination as to whether an opposing party cannot show evidentiary support
for a pleading or claim and to enable an order of summary dismissal without the
need for trial. (Aguilar v. Atlantic
Richfield Co. (2001) 25 Cal.4th 826, 843.) CCP Section 437c(c) “requires
the trial judge to grant summary judgment if all the evidence submitted, and
‘all inferences reasonably deducible from the evidence’ and uncontradicted by
other inferences or evidence, show that there is no triable issue as to any
material fact and that the moving party is entitled to judgment as a matter of
law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110,
1119.)
“The
function of the pleadings in a motion for summary judgment is to delimit the
scope of the issues; the function of the affidavits or declarations is to
disclose whether there is any triable issue of fact within the issues delimited
by the pleadings.” (Juge v. County of
Sacramento (1993) 12 Cal.App.4th 59, 67, citing FPI Development, Inc. v. Nakashima (1991) 231 Cal. App. 3d 367,
381-382.)
As to each
claim as framed by the complaint, the defendant moving for summary judgment
must satisfy the initial burden of proof by presenting facts to negate an
essential element, or to establish a defense. (CCP § 437c(p)(2); Scalf v. D. B. Log Homes, Inc. (2005)
128 Cal.App.4th 1510, 1520.) Courts “liberally construe the evidence in support
of the party opposing summary judgment and resolve doubts concerning the
evidence in favor of that party.” (Dore
v. Arnold Worldwide, Inc. (2006) 39 Cal.4th 384, 389.)
Once the
defendant has met that burden, the burden shifts to the plaintiff to show that
a triable issue of one or more material facts exists as to that cause of action
or a defense thereto.
To establish a triable issue of material fact, the party
opposing the motion must produce substantial responsive evidence. (Sangster v. Paetkau (1998) 68
Cal.App.4th 151, 166.)
DISCUSSION
The principal contention between the parties upon summary judgment is
whether there is a triable issue of fact as to the alter-ego allegations.
Moving Defendants argue that (1) ABS is not an alter ego of the Harmons
(2) that the Harmons cannot be liable for any Lease obligations because they
are not party to the lease (3) that the waste, negligence, common count, and
conversion claims fail because ABS and the Harmons never took possession of the
property and (4) the fraudulent transfer and aiding and abetting claims have no
merit.
Evidence of Alter Ego
To allege alter
ego, plaintiffs must plead a unity of interest and ownership such that the
separate personalities of the corporation and individuals do not exist, and
that an inequity will result if the corporate entity is treated as the sole
actor. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal. App. 4th 1269,
1285; Vasey v. Cal. Dance Co. (1977) 70 Cal.App.3d 742, 749; Minifie
v. Rowley (1921) 187 Cal. 481, 487.) Plaintiffs can sufficiently allege (1)
a unity of interest, by alleging a corporation was inadequately capitalized,
failed to abide by corporate formalities, and was used by the defendant only as
a shell and conduit, and (2) an adherence to a separate corporation existence
that would promote injustice or lead to inequitable results, by alleging the
use of a corporation to avoid payment obligations. (A.J. Fistes Corp. v. GDL
Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 696-97.) No one test
controls as to the alter-ego doctrine which involves considering all of the
circumstances, which may include: the commingling of funds; identical equitable
ownership; the same offices; identical officers, directors and employees;
disregarding of corporate formalities; and use of one as a mere shell or
conduit for the other’s affairs. (Morrison Knudsen Corp. v. Hancock, Rothert
& Bunshoft, LLP (1999) 69 Cal.App.4th 223, 250.)
Moving
Defendants must present evidence to either negate an element of the cause of
action or establish a defense. As to the alter-ego allegations, Moving
Defendants argue that Responding Plaintiffs cannot satisfy the first prong of
alter ego because ABS was a legitimate company, with no unity of interest, and
adhered to corporate formalities. In support of this contention Moving
Defendants offer the declarations of Thomas Harmon, (Thomas) Annette Harmon
(Annette), and Robert McConkey (Robert). Thomas was the CEO (Thomas Decl., ¶2)
of ABS, Inc., Annette was the secretary (Annette Decl., ¶1), and McConkey was a
managing member of McConkey Real Estate Holdings, LLC (MREH) and MREH was the
registered owner of certain membership interests in Digital Auctions, LLC
(Digital) at the time of an Asset Purchase Agreement that took place on
November 20, 2020. (McConkey Decl., ¶¶1-2.)
However,
Responding Plaintiffs present evidence that ABS may have been inadequately
capitalized. Responding Plaintiffs present the financial statement of ABS which
shows that that total assets amounted to $16,755,151.00 while liabilities were
$22,375,669.00, a deficit of over $5,620,518.00. (Declaration of Barbara Luna,
Exh. B4.) Additionally, Responding Plaintiffs cite to Alexander v. Abbey of
the Chimes (1980) 104 Cal.App.3d 39 (Alexander) to support the
contention that an individual shareholder who takes the profit of the sale of a
business, without satisfying creditors is sufficient for alter ego allegations.
(Alexander, supra, at 47.) The Court can analogize here, where, with ABS
holding a $5 million dollar deficit, Thomas received $4,798,000.00 after the
Asset Purchase Agreement. (Responding Plaintiffs’ Evidence, Exh. 36.) This
evidence is sufficient to demonstrate triable issues of material fact that
preclude summary judgment on the alter ego allegations. Subsequently, it also
permits inquiry into the eleven causes of action based in the Lease.
Additionally, Movants don’t put into issue the second prong
of their arguments with respect to alter-ego allegations. Therefore, Movants
don’t meet their burden in negating the second element of the alter-ego
allegations.
Although Movants argue in their motion that Plaintiffs
cannot satisfy the second prong, Movants cite to UF 23 on page 9 of their moving
papers. As to this, UF 23 in the separate statement doesn’t even relate to what
Movants argued in their moving papers on page 9.
Second, Movants’ Separate Statement labels “Issue 1” as the
argument pertaining to the Harmons not being alter egos of ABS. However, in Issue
1 in the Separate Statement, there isn’t even a UF No 23. Therefore, since
Movants did not put the issue mentioned in their motion into the separate
statement, Movants did not put this issue into question.
“If
made in the alternative, a motion for summary adjudication may make reference
to and depend on the same evidence submitted in support of the summary judgment
motion. If summary adjudication is sought, whether separately or as an
alternative to the motion for summary judgment, the specific cause of action,
affirmative defense, claims for damages, or issues of duty must be stated
specifically in the notice of motion and be repeated, verbatim, in the separate
statement of undisputed material facts.” (Cal. Rules Court, Rule 3.1350(b).)
Further,
as explained in Schmidlin v. City of Palo Alto:
A motion for summary adjudication tenders only those issues
or causes of action specified in the notice of motion, and may only be granted
as to the matters thus specified. The movant must “state[ ] specifically in the
notice of motion and ... repeat[ ], verbatim, in the separate statement of
undisputed material facts,” “the specific cause of action, affirmative defense,
claims for damages, or issues of duty” as to which summary adjudication is
sought. (Former Cal. Rules of Court, rule 342(b); see now Cal. Rules of
Court, rule 3.1350(b).) The motion must be denied if the movant fails to
establish an entitlement to summary adjudication of the matters thus specified;
the court cannot summarily adjudicate other issues or claims, even if a basis
to do so appears from the papers. (See Gonzales v. Superior Court (1987)
189 Cal.App.3d 1542, 1546, 235 Cal.Rptr. 106 [“ ‘If a party desires
adjudication of particular issues or subissues, that party must make its
intentions clear in the motion....’ [Citation.] There is a sound reason for
this rule: ‘... the opposing party may have decided to raise only one triable
issue of fact in order to defeat the motion, without intending to concede the
other issues. It would be unfair to grant a summary adjudication order unless the
opposing party was on notice that an issue-by-issue adjudication might be
ordered if summary judgment was denied’ ”].)
Here
defendants' separate statement reflects no attempt to comply with this
requirement. That alone precludes a holding that the trial court erred in
denying the motion.
(Schmidlin
v. City of Palo Alto (2007) 157 Cal.App.4th 728, 743-744.)
Further, to the extent that Movants intended to cite to UF
12 under Issue 1 as their evidence to show that the second prong cannot be
established, the Court fails to see how Movants met their burden in
establishing this because UF 12 simply cites to ¶ 42 of the Thomas Harmon
Declaration. All ¶ 42 cites to is the Complaint in this action. Further, to the
extent that the motion cites to ¶ 19 of the Thomas Harmon declaration, the
Court also fails to see how Movants met their burden to show the second prong
cannot be established by citing to ¶ 19. Paragraph 19 of the Thomas Harmon
declaration simply states, “The consideration paid pursuant the Asset
Purchase Agreement included an initial payment of $8,184,074.50 by Digital at
the close of the transaction and transfer of ABS’ assets to Digital, as set
forth in the Closing Statement attached and made part of the Asset Purchase
Agreement.” (T. Harmon Decl. ¶ 19.) The statement to ¶ 19 isn’t even responsive
to the point that Movants are trying to establish. Therefore, Movants did not
meet their burden in showing that Plaintiffs cannot establish the second prong.
Further, Plaintiffs disputed Movants’ UF 12 as indicated in
their Opposition Separate Statement with reference to additional factual issue
7.
Causes
of Action Based on Contract
The
primary contention by Moving Defendants is that neither ABS nor the Harmons are
parties to the Lease agreement, and therefore, cannot be bound by its
obligations. However, there are triable issues of material fact here as well.
First and foremost, Responding Plaintiffs attach the signed Lease between the
two parties which denotes the tenant as “ABS Auto Auctions, Inc.”, and the
tenant’s initials as “TH”. (See generally, Plaintiff’s Evidence, Exh. 6.) While
the Reply argues that Tom Harmon denies ever signing the lease, there is
clearly a dispute of a material fact here.
a)
Causes of Action 1
– 8
The first
eight causes of action are for (1) breach of contract, (2) waste committed on
the property, (3) negligence in caring for the property, (4) common count for
unpaid rent, (5) breach of oral agreement, (6) promissory estoppel, (7)
conversion or property, (8). Moving Defendants argue that because they were not
parties to the lease and never occupied the property, they are not liable for
any of these causes of action. However, as aforementioned, not only is there a
triable issue of material fact as to the alter ego allegations, there is a
triable issue of fact as to whether ABS and the Harmons signed the Lease.
Responding Plaintiffs have provided the signed lease, a critical piece of
evidence which demonstrates that “ABS Auto Auctions, Inc.” was the listed
tenant and Thomas Harmon initialed the Lease. (Id.) This fact alone
precludes summary judgment on the first seven causes of action. Moreover,
Responding Plaintiffs argue that although Thomas asserts that ABS was not the
tenant, the Cross-Complaint states that the ABS attempted to sublease the
Property, which is only possible if they are the tenant. (See Responding
Plaintiffs’ Evidence, Exh. 35.) Moving Defendants present no other arguments in
their moving papers outside of the assertion that they did not sign the Lease;
therefore, summary judgment is denied as to causes of action one through
seven.
b)
Cause of Action 8
The eight
cause of action is for reformation of the contract, however, with the tenant
being listed as “ABS Auto Auctions, Inc.” which is the dba for Auto Buyline
Systems, Inc. as admitted by the movants (see Moving Papers, 1:7), summary
judgment is precluded as to the eighth cause of action against ABS.
c)
Causes of Action
9-11
The final
three causes of action address fraudulent conveyance and aiding and abetting. A fraudulent conveyance is “a transfer by the
debtor of property to a third person undertaken with the intent to prevent a
creditor from reaching that interest to satisfy its claim.” (Yaesu
Electronics Corp. v. Tamura (1994) 28 Cal.App.4th 8, 13, 33 Cal.Rptr.2d
283.) Defendants argue that Plaintiffs cannot
prevail on a fraudulent transfer claim because they must first establish that
the Defendants are debtors. As aforementioned, the unpaid rent due to the
breach of the Lease establishes Defendants as exactly that. Moving Defendants
argument is based on the premise that they did not sign the Lease, however,
summary judgment on that issue has been denied because Responding Plaintiffs
have presented triable issues of material fact that show Moving Defendants may
very well be responsible for the terms in the Lease.
Moving
Defendants next argue that Responding Plaintiffs cannot meet the elements of
Civ Code §3439.04. This section provides: a transfer made, or obligation
incurred by a debtor is fraudulent as to a creditor whose claim arose before
the transfer was made if the debtor made the transfer or incurred the
obligation as follows: (1) with intent to hinder, delay or defraud the creditor
or (2) without receiving a reasonably equivalent value in exchange for the
transfer or obligation.
However,
Responding Plaintiffs show that is exactly what happened. The Lease was signed
in 2017, and Responding Plaintiffs allege the breach occurred on and after
March 1, 2020. (TAC, ¶¶11 and 17a.) The Asset Purchase Agreement was executed
in November of 2020. (McConkey Decl., ¶2.) Clearly the debt arose prior to the
transfer. Responding Plaintiffs next provide evidence that ABS was insolvent
and that a factual dispute exists as to the valuation of goodwill and whether
Thomas received a reasonably equivalent value in exchange for the transfer.
(Declaration of CPA Dr. Barbara Luna.) Additionally, as to the intent to
hinder, delay, and defraud the creditor, Responding Plaintiffs argue that the
transaction with Digital was not conducted at arm’s length because McConkey,
the agent who managed the transaction, did not take into proper account the
creditor’s interest nor how the goodwill was calculated. (Plaintiff’s Evidence,
Exh. 43, pg. 23. Also see Declaration of CPA Dr. Barbara Luna, pgs. 10-21.)
This is sufficient as to preclude summary judgment on the fraudulent conveyance
causes of action as well as the aiding and abetting allegation against the
Harmons.
CONCLUSION
Accordingly,
Moving Defendants Motion for Summary Judgment, or in the alternative, Summary
Adjudication is DENIED.
The Court
notes that this is merely a tentative ruling.
The Court has spent time grappling with the briefs in this matter. Those briefs are, in the Court’s view, not
models of clarity. The welter of
competing claims and arguments makes it extremely difficult to have a clear
view of what claims and facts this case presents.
Sometimes,
in the Court’s experience, cases that linger for years tend to grow and expand
and become denser and less legible to outsiders, like a garden left long
untended.
The Court will expect the parties
at argument to state their positions clearly and succinctly. To some degree, the inability to clearly and
succinctly state why this motion should or should not be granted is telling in
itself.
Plaintiffs’ request for judicial
notice is granted.