Judge: Daniel S. Murphy, Case: 23STCP03627, Date: 2024-05-03 Tentative Ruling

Case Number: 23STCP03627    Hearing Date: May 3, 2024    Dept: 32

BACKGROUND

            On October 3, 2023, Plaintiff 22nd/Indian School Development LLC filed an application for entry of judgment on sister-state judgment. The case arises from an underlying judgment in Arizona in favor of Plaintiff against Defendant CMS Equity, Inc. Plaintiff’s application was granted on October 3, 2023. Therefore, Plaintiff now has a judgment against Defendant in Los Angeles Superior Court.

            On March 22, 2024, Plaintiff filed the instant motion to amend the judgment to add judgment debtors based on alter ego. Plaintiff seeks to add Christopher Smith, sole owner and member of CMS Equity, as well as ten other corporate entities of which Smith or CMS is the sole owner or member. There is no opposition to the motion.  

LEGAL STANDARD

            “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.” (Code Civ. Proc., § 187.)

“Pursuant to section 187, a trial court has jurisdiction to modify a judgment to add additional judgment debtors.” (McClellan v. Northridge Park Townhome Owners Ass'n (2001) 89 Cal.App.4th 746, 752.) “Judgments are often amended to add additional judgment debtors on the grounds that a person or entity is the alter ego of the original judgment debtor.” (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778.) “This 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.” (Ibid.) “Such a procedure is an appropriate and complete method by which to bind new . . . defendants where it can be demonstrated that in their capacity as alter ego of the [judgment debtor] they in fact had control of the previous litigation, and thus were virtually represented in the lawsuit.” (Ibid.)

DISCUSSION

“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 . . . In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation.” (Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 510.) Establishing alter ego “generally requires the proponent to demonstrate two elements: (1) a unity of interest and ownership such that the separate personalities of the corporation and the individual do not exist; and (2) an inequitable result if the corporate identity is not disregarded.” (JPV I L.P. v. Koetting (2023) 88 Cal.App.5th 172, 189.) “In addition, even if all the formal elements necessary to establish alter ego liability are not present, an unnamed party may be included as a judgment debtor if ‘the equities overwhelmingly favor’ the amendment and it is necessary to prevent an injustice.” (Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP (2012) 212 Cal.App.4th 1181, 1188-1189.)

                        1. Unity of Interest

Courts have found the following factors determinative in applying alter ego: that the individual defendant dominated and controlled the entity defendant; that a unity of interest and ownership existed between the individual defendant and entity defendant; that the entity defendant was a mere shell and conduit for the individual defendant’s affairs; that the entity defendant was inadequately capitalized; that the entity defendant failed to abide by corporate formalities; and that the individual defendant used the entity defendant’s assets as her own. (See Rutherford Holdings, LLC v. Plaza Del Rey (2014) 223 Cal.App.4th 221, 235-36.)

Here, the undisputed evidence shows that Smith wholly owns CMS Equity (Plntf.’s RJN, Ex. E) and has used CMS Equity’s funds for personal expenses (Kintzele Decl., Ex. B.) The evidence further shows that either Smith or CMS solely owns or manages the other entities. (Plntf.’s RJN, Ex. F-M.) Smith freely transfers assets between CMS and his other entities without any of the associated formalities. (See Kintzele Decl., Ex. B.) This evidence sufficiently shows a unity of interest between Smith, CMS, and the other entities.

            2. Inequitable Result

The undisputed inference from the above evidence is that “Smith has shifted and spread his assets among the Proposed Entities which do not have judgments entered against them in an attempt to prevent Plaintiff from collecting on its own judgment against CMS Equity, Inc.” (Mtn. 16:23-25.) CMS’s insolvency renders direct collection against CMS unlikely. Therefore, the Court finds that not treating Smith and the other entities as alter egos would result in injustice by allowing wrongdoers to escape liability. Accordingly, Smith and the other proposed entities should be added as judgment debtors.

CONCLUSION

            Plaintiff’s motion to amend judgment is GRANTED. The following individuals or entities are added as judgment debtors to the judgment of October 3, 2023: Christopher Smith; MRC AZ Rehab Orangewood, LLC; Clarendon 1311, LLC; La Junta Troon LLC; Red Gravity, LLC; McDonald 4141, LLC; M&CS Holdings AZ, LLC; Christopher Smith & Associates LLC; MS Square Construction, LLC; Grace Monroe Legacy Rentals, LLC; and 23rd 4020, LLC.