Judge David J. Cowan, Case Number: BC711642, Date: 2024-12-20 Tentative Ruling

TENTATIVE RULING ON DEFENDANTS’ MOTION TO FURTHER BIFURCATE BIFURCATED ALTER EGO PHASE OF TRIAL

Delis v. Montecito Financial Services, et al., and related cross-actions, Case No. BC711642

On November 16, 2022, November 30, 2022 and January 23, 2023, the Hon. Bruce G. Iwasaki - who was previously assigned to hear this case - entered separate rulings each denying motions for summary adjudication brought by different sets of the some-twenty defendants in this case.

The first ruling concerned the motion of Pacific Auto Recycling Center, Inc. (“PARC”), Cordova Investments, Inc. (CA), Cordova Investments, Inc. (NV), Coral Keswick, LLC (“Keswick”) and 300 W. Glenoaks, LLC (“Glenoaks”).

The second ruling concerned the motion of Stephen Hall and the so-called Borrower Defendants.

The third motion concerned the motion of Robert Hall and Robert Hall & Associates (“RH&A”).

On October 4, 2024, at an initial status conference before the undersigned - assigned to hear this long-cause trial - the parties stipulated to bifurcate the alter ego claims of Plaintiffs from other causes of action, including Plaintiffs’ fraud claims that would be heard by a jury. The parties agreed further that the alter ego phase would be heard by the Court before the jury phase.

In their motion, filed November 26, 2024, Defendants seek to bifurcate the already bifurcated alter ego phase of trial. They would limit the first phase of the alter ego phase to Robert Hall, the Cordova entities, Keswick, Glenoaks and PARC. In turn, the second phase of the alter ego trial would be limited to RH&A, Stephen Hall, the Borrower Defendants, the Non-Borrower Defendants, Brad Weidmann (“Wiedmann”) and OROCK. They also propose that the alleged fraudulent transfers be determined as part of the alter ego phase of trial. According to the motion, the parties disagree about Judge Iwasaki’s rulings vis-à-vis whether to bifurcate the alter ego phase. Plaintiffs seek to prove that all the entity defendants should be found to be the alter ego of the three individual defendants as part of a “single enterprise.” Defendants collectively assert three reasons the Court should grant the motion:

First, the Third Amended Complaint (“TAC”) does not assert a “single enterprise” theory. Even if the Court construes that it does, Plaintiffs cannot prove that the Cordova entities, Keswick, Glenoaks and PARC were part of a single enterprise with the Borrower Defendants and other entity defendants.

Second, Plaintiffs will not be able to prove that many of the entities were alter egos of all three individual defendants – which is also inconsistent with the allegations of the TAC as to which entities are the alter ego of Robert Hall (as opposed to of Stephen Hall and or Wiedmann.)

Third, Plaintiffs misconstrue Judge Iwasaki’s rulings to infer the Court concluded there was substantial evidence to support alter ego and single enterprise liability as to all defendants. The Court found merely that there were triable issues of material fact. In fact, to the extent alter ego liability is asserted here based on certain alleged fraudulent transfers, most of the transfers in question were as against those parties which Defendants contend should be made the proposed second phase of the alter ego phase of trial.

In their Opposition filed December 9, 2024, Plaintiffs contend that they have alleged from the outset that all defendants are the alter ego of each other and that there is overlap of ownership and control of the defendants in the proposed two phases of the alter ego phase of trial such that they cannot be separated – consistent with Judge Iwasaki’s rulings (various findings of which they summarize.) Plaintiffs also provide an initial explanation of how the different defendants are connected as far as Plaintiffs’ investment of over $3.6 million that is at issue, as well as a chart showing the equity interests of different Hall family members in each of the entities. In addition, Plaintiffs contend that at least eleven witnesses would have to testify twice and that the proposed bifurcation would be inefficient and unduly prejudicial to Plaintiffs. For example, the defendants - not parties to any first phase of the alter ego phase of trial - might not then be bound for purposes of the second phase.

Plaintiffs also dispute the reasons Defendants advanced in support of the motion: Pp. 26-31 of the FAC is proof they alleged a single enterprise theory. Judge Iwasaki’s rulings confirm that the entity defendants were the alter ego of the three individuals. Defendants miss the point as to Judge Iwasaki’s rulings; He may not have been able to conclude as a matter of law that Plaintiffs prevail but that is not to say he did not find evidence that supported their case. Consideration of which defendants were involved in the alleged fraudulent transfers is only one piece of evidence that needs to be considered in assessing alter ego liability.

In their Reply filed December 13, 2024, Defendants argue principally that Plaintiffs have not addressed that to prevail on their alter ego theory they would have to show wrongdoing or bad faith, in addition to the other elements at issue (see Sonora Diamond Corp. (2000) 83 Cal.App.4^th 523, 539, Mid-Century Ins. Co. v. Gardner (1992) 9 Cal.App.4^th 1205, 1213), and that they have not done so.

First, that it had previously found the alter ego allegations sufficient in denying RH&A’s motion to strike by order of Feb. 22, 2022, p. 7.

Second, Defendants’ declarations are “insufficient to show that corporate formalities were observed, the entities were adequately capitalized upon formation, and that each entity “maintained separate personality from each of its principals.”…Moreover, Plaintiffs provide ample rebuttal evidence. For example, neither Wiedmann nor Stephen Hall contributed capital to numerous entities. (Citation omitted) Wiedmann also admitted that Plaintiffs’ investments would not be used for the purposes for which they were invested. (Citation omitted) Other evidence shows that the funds were extensively diverted and commingled with funds in other entities’ bank accounts. (Citations omitted) The Court also incorporates its prior analysis on alter ego on Stephen Hall’s motion for summary adjudication, which raised many of the same arguments. (Order, Nov. 30, 2022, pp. 6-9.) This is enough to create a triable issue of fact.”

Third, “[a]dditionally, this same evidence supports a triable issue of fact on single-enterprise liability, which is a type of alter ego liability that is used to reach the assets between “’sister [or affiliated] companies.’” (Cam-Carson, LLC v. Carson Reclamation Authority (2022) 82 Cal.App.5^th 535, 550.)”

Fourth, “[a]s to inequitable results if the corporate veil is not pierced, the Court previously held that Plaintiffs produced evidence that if Defendants are not found to be an alter ego of the entity Defendants, this would be unjust because many of the entities are insolvent. (Citation omitted); See Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4^th 811, 813) The same holds true here. Accordingly, there is a triable issue of fact as to whether Robert Hall, RH&A, and the entity Defendants are alter egos of each other and the motion is denied as to alter ego liability.”

The Court again found triable issues of fact as to the seventh through ninth causes of action, rejecting Moving Parties’ arguments that there could be no liability.

See also p. 9 of November 16, 2022 ruling (again finding a triable issue as to alter ego liability).

Therefore, in some ways, both Plaintiffs and Defendants are correct. Defendants are correct that the Court ruled only that there were triable issues of fact. It did not make any ultimate findings. On the other hand, Plaintiffs are correct that the foregoing statements rebut the argument made on this motion that Plaintiffs cannot proceed in the way they propose or that there is good cause to further bifurcate the bifurcated alter ego phase of trial. It is apparent that there is at least some evidence to support Plaintiffs proceeding in this way. Plaintiffs are permitted to put on the case they have alleged as to alter ego liability – which encompasses all defendants as part of the alleged “single enterprise” theory. Whether Plaintiffs can prove their case - in whole or in part – after weighing of the evidence which the Court could not do previously - obviously remains to be seen. This evidence seemingly will include transactions alleged to be fraudulent.[1] In summary, that Judge Iwasaki ruled that there were triable issues of fact does not mean that this Court, as trier of fact, will conclude that Plaintiffs prevail.

Relatedly, the Court does not reach the underlying issues that the motion seeks to address as to whether Plaintiffs have a viable claim if their principal argument is merely they will not be able to recover from a judgment proof borrower. This is merely a motion to bifurcate. Moreover, whether there is alter ego liability is fact-specific equitable determination that is driven by a variety of considerations that this Court cannot decide until hearing all the evidence. (Troyk v. Farmers Group (2009) 171 Cal.App.4^th 1305, 1341, Associated Vendors v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 838-840)

Nonetheless, the Court finds, however, that Defendants have not satisfied the requirements of CCP sec. 598 for further bifurcating the later ego phase of trial where (1) Plaintiffs show that to do so is likely to cause inefficiencies and undue expense and (2) the burdens on certain defendants having to participate in what was originally scheduled to be an extremely long trial have been significantly mitigated already by the parties’ agreeing to the Court’s suggestions as to how to break up the trial in this case to reduce the total time needed by addressing certain issues before others. Further, the proposed bifurcation appears to separate defendants whose potential liability may rest on facts related to other defendants. Significantly, the proposal of the motion conflicts with how Judge Iwasaki divided the defendants in ruling on the summary judgment motions.

[1] At the upcoming trial setting conference, Plaintiffs should clarify which causes of action are the basis for their claim of alter ego liability – that will be the subject of the bifurcated alter ego trial - and whether this includes their seventh through ninth causes of action in the TAC related to fraudulent conveyances to the extent that latter supports the former.