Judge: Daniel S. Murphy, Case: 24STCV01615, Date: 2024-06-07 Tentative Ruling

Case Number: 24STCV01615    Hearing Date: June 7, 2024    Dept: 32

BACKGROUND

On November 9, 2018, Plaintiffs Hero Dogs Season One LLC (HDS1) and Nuriya Entertainment LLC (Nuriya) commenced this action against Defendants Dean A. Avedon, Bemel, Ross & Avedon, LLP, David Beitchman, and Beitchman & Zekian, a Professional Law Corporation. The operative First Amended Complaint was filed June 11, 2019. The matter came on for a bench trial on October 31, 2022. The Court found in favor of Defendants and entered judgment accordingly on December 6, 2022. Plaintiffs then appealed the judgment, but the appeal has since been dismissed.  

            On May 1, 2024, Defendants filed the instant motion to amend the judgment to add Melinda Lee as a judgment debtor.

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

I. Control of Litigation

“Control of the litigation sufficient to overcome due process objections may consist of a combination of factors, usually including the financing of the litigation, the hiring of attorneys, and control over the course of the litigation.” (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 781.)

Ms. Lee has been the “sole manager” of Plaintiffs since she “took control in November 2017.” (Def.’s Ex. 19 (03/16/23 Lee Decl.) ¶¶ 1, 9.) Ms. Lee “filed this lawsuit on behalf of” Plaintiffs. (Id., ¶ 5.) She has “paid the remainder of the Entities expenses from [her] own bank account.” (Id., ¶ 11.) Ms. Lee has confirmed that “discovery was drafted by [her] and merely proofed by” counsel. (Def.’s Ex. 18 (07/12/21 Lee Decl.) ¶¶ 8-9.) Ms. Lee repeatedly referred to this litigation as “my case” and referenced her counsel as “represent[ing] me in this matter.” (Id., ¶¶ 3, 20, 21.) This sufficiently shows that Ms. Lee controlled and was virtually represented in the litigation.   

II. 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 . . . 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.)

“The alter ego test encompasses a host of factors,” and “[t]his long list of factors is not exhaustive.” (Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 812.) “No single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.” (Ibid.) Some factors to consider include: 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.)  

a. Unity of Interest

Ms. Lee has sole control of the Plaintiff entities. She has been the “sole manager” of Plaintiffs since she “took control in November 2017.” (Def.’s Ex. 19 (03/16/23 Lee Decl.) ¶¶ 1, 9.) The bankruptcy filings list only Ms. Lee as an officer, director, managing member, general partner, member in control, controlling shareholder, or other person in control. (Def.’s Ex. 9, 10.) On this motion, Ms. Lee further confirms that she is the “sole manager” of Plaintiffs, having been “granted control” through a settlement agreement. (05/24/24 Lee Decl. ¶¶ 1, 14.) Additionally, as discussed above, Ms. Lee made the decision to file this lawsuit in Plaintiffs’ name and controlled the litigation. Therefore, there is a sufficient unity of interest between Ms. Lee and the Plaintiff entities.   

            b. Inequitable Result

“[T]here is no likelihood that . . . Defendants will ever be paid by the Entities.” (Def.’s Ex. 19 (03/16/23 Lee Decl.) ¶ 15.) The Plaintiff entities are undercapitalized. They have been insolvent since 2017, before this lawsuit was filed. (Id., ¶ 4.) It has been known “throughout the lawsuit” that “the Entities neither have the assets nor cash to pay litigation costs.” (Id., ¶ 10.) Ms. Lee has “paid the remainder of the Entities expenses from [her] own bank account.” (Id., ¶ 11.) Bankruptcy filings confirm that Plaintiffs have total assets of $8.00 and $0.00, respectively. (Def.’s Ex. 11, 12.)  

An inequitable result would follow from treating Ms. Lee and Plaintiffs as separate because Ms. Lee has sole control of Plaintiffs and filed this action on Plaintiffs’ behalf knowing that Plaintiffs were insolvent. If Plaintiffs had prevailed, Ms. Lee would have benefitted from the monetary recovery as the sole manager. It would be inequitable to allow Ms. Lee to escape liability for an unfavorable result, considering she solely initiated and controlled the litigation. Having hailed the Defendants into court and caused them to incur substantial costs defending the action, Ms. Lee cannot now hide behind the Plaintiff entities to avoid the consequences of an unsuccessful litigation. Ms. Lee filed this action knowing that Plaintiffs had no assets and would not be able to pay in the event they lost. Defendants should not be left without recourse. Therefore, application of alter ego is warranted under the facts of this case.

CONCLUSION

            Defendants’ motion to amend judgment is GRANTED.