Judge: Gary Y. Tanaka, Case: 19TRCV00075, Date: 2022-09-13 Tentative Ruling
Case Number: 19TRCV00075 Hearing Date: September 13, 2022 Dept: B
LOS ANGELES SUPERIOR COURT – SOUTHWEST DISTRICT
Honorable Gary Y. Tanaka Tuesday, September 13, 2022
Department B Calendar No. 6
PROCEEDINGS
Parkside Village Homeowners Association v. Jeffrey Johnson, et al.
18TRCV00075
Herman Powells’ Motion to Amend Judgment
TENTATIVE RULING
Herman Powells’ Motion to Amend Judgment is denied.
Background
Plaintiff Parkside Village Homeowners Association filed its Complaint on November 7, 2018. Plaintiff seeks to collect assessments from residents of Parkside Village Homeowners Association (“Parkside” or “HOA”). As against Defendant Herman Powells, Plaintiff also alleged that Powells was a former officer of the HOA, was refusing to return HOA owned property, and that he breached his fiduciary duty as an officer of the HOA. Defendant Powells’ motion for summary judgment was granted. As against Defendants Jeffrey Johnson and Trena Johnson, Plaintiff alleged that they improperly run a business from their home. Plaintiff alleged the following causes of action: 1. Declaratory Relief; 2. Injunctive Relief; 3. Breach of Fiduciary Duty. On August 20, 2020, Plaintiff filed a motion for leave to file a First Amended Complaint. On December 2, 2020, the motion was denied without prejudice. On December 3, 2020, Plaintiff filed another motion for leave to file a First Amended Complaint. That motion was denied on April 13, 2021. On April 19, 2021, Herman Powells’ motion for attorneys’ fees was granted.
Motion to Amend Judgment
A court has inherent power to use “all the means necessary” to carry its jurisdiction into effect. CCP § 187. This inherent authority includes amending a judgment against a corporation to add a nonparty alter ego as a judgment debtor. Hall, Goodhue, Haisley & Barker, Inc. v. Marconi Conference Ctr. Board (1996) 41 Cal.App.4th 1551, 1554-55. The reasoning is 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. “Such a procedure is … appropriate … where it can be demonstrated that [newly proposed debtors] in their capacity as alter ego of the corporation … in fact had control of the previous litigation, and thus were virtually represented in the lawsuit.” NEC Electronics, Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778.
“In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App 4th 523, 538.
Among the factors to be considered in applying the alter ego doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other. See Id. at 538-539. Other factors include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. See Id. at 539. No one characteristic governs. The courts must look at the totality of the circumstances to determine whether the doctrine should be applied. See Id.
“The decision to grant an amendment in such circumstances lies in the sound discretion of the trial court. ‘The greatest liberality is to be encouraged in the allowance of such amendments in order to see that justice is done.’” Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 508.
In addition to adding a new party as a judgment debtor on an alter ego theory, the party may be named as a judgment debtor on a theory that it is merely a successor corporation acting as a mere continuation of the debtor. “It is well settled that when a corporation is used by an individual or individuals, or by another corporation, to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the acts as if they were done by the individuals themselves or by the controlling corporation ... the court will disregard the 'fiction' of corporate entity[.]” McClellan v. Northridge Park Townhome Owners Ass'n, Inc. (2001) 89 Cal.App.4th 746, 752–753. “[I]f a corporation organizes another corporation with practically the same shareholders and directors, transfers all the assets but does not pay all the first corporation's debts, and continues to carry on the same business, the separate entities may be disregarded and the new corporation held liable for the obligations of the old. . . . The general rule is where one corporation sells or transfers all of its assets to another corporation, the latter is not liable for the debts and liabilities of the former unless (1) the purchaser expressly or impliedly agrees to such assumption, (2) the transaction amounts to a consolidation or merger of the two corporations, (3) the purchasing corporation is merely a continuation of the selling corporation, or (4) the transaction is entered into fraudulently to escape liability for debts.” Id. at 753. “Corporations cannot escape liability by a mere change of name or a shift of assets when and where it is shown that the new corporation is, in reality, but a continuation of the old. Especially is this well settled when actual fraud or the rights of creditors are involved, under which circumstances the courts uniformly hold the new corporation liable for the debts of the former corporation.” Id. at 753-54.
Defendant moves, pursuant to Code of Civil Procedure § 187, for an order amending the judgment entered on April 19, 2021, to add Michael Beatty (“Beatty”) and James Jordan (“Jordan”) as judgment debtors. Defendant contends that alter ego liability supports amending the judgment because there is such unity of interest and ownership between Parkside Village Homeowners Association (“Parkside” or “HOA”) and Michael Beatty and James Jordan, that these individuals are the equitable owners, the separate personalities of Parkside and Beatty and Jordan do not exist, and that failure to allow amendment would sanction fraud or promote injustice.
Defendant’s motion is denied. Defendant submitted no competent evidence to support his theory of alter ego liability, or to meet any of the applicable factors to demonstrate alter ego liability. The motion is supported solely by the conclusory declaration of Defendants’ counsel who sums up his findings as follows: “My professional opinion reached after careful review of all the facts in this case is that James Jordan and Michael Beatty are the alter ego of Parkside HOA.” (Decl., Byron A. Donovan, ¶ 7.) Counsel’s opinions do not constitute admissible evidence. Defendant also submitted an exhibit list but failed to provide proper foundation for the documents submitted. In any event, the exhibits submitted by Defendant, which simply consisted of Plaintiff’s motion for leave to amend, attendance records at HOA meetings, HOA board minutes, the deposition of Michael Beatty, and the order granting moving Defendant’s motion for attorneys’ fees, do not provide any evidence to support the factors necessary to a finding of alter ego liability.
The unauthenticated documents simply demonstrate Plaintiff’s litigation activities, as well as acts and statements of the HOA and board members. Even assuming Defendant’s argument (which is not supported with evidence) that the HOA is undercapitalized, there is absolutely no evidence to show that proposed judgment debtors were commingling funds, or to establish any of the other relevant factors of alter ego liability. The purported evidence submitted by Defendant simply demonstrate proposed judgment debtors acting in their role as officers of the HOA. Finally, there is absolutely no showing that there would be an inequitable result if alter ego liability is not imposed upon proposed judgment debtors.
For the foregoing reasons, Defendant Herman Powells’ Motion to Amend Judgment is denied.
Plaintiff is ordered to give notice of this ruling.