Judge Gary Y. Tanaka, Case 21TRCP00320 2023-03-06 Tentative Ruling

LOS ANGELES SUPERIOR COURT – SOUTHWEST DISTRICT

Honorable Gary Y. Tanaka Monday, March 6, 2023

Department B Calendar No. 4

Petitioner filed its petition on August 25, 2021. Petitioner alleges the following facts. Respondents breached their obligations pursuant to a written loan agreement. The parties proceeded via arbitration and Petitioner prevailed by obtaining an arbitration award in its favor. Petitioner’s petition to confirm arbitration award was granted on March 8, 2022. On March 24, 2022, judgment was entered against Defendants Naco Enterprises LLC, a California Limited Liability Company d/b/a The Scissors Guys and d/b/a Empire Edgeworks, and Nathaniel Cowan, an individual, jointly and severally, in the total amount of $97,496.43.

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.

Petitioner moves to amend the judgment to add Empire Edgeworks, LLC as an additional judgment debtor. Petitioner alleges that Empire Edgeworks, LLC is the alter ego of Respondents/Judgment Debtors Naco Enterprises LLC, a California Limited Liability Company d/b/a The Scissors Guys and d/b/a Empire Edgeworks (“Naco”) or the successor entity to Naco. Petitioner submitted adequate evidence to support a finding that Empire Edgeworks, LLC is the alter ego and/or continuation of judgment debtor.

Plaintiff submitted evidence to show that Empire Edgeworks, LLC was registered on July 15, 2019, and that Judgment Debtor Nathaniel Cowan totally controls that entity as the owner and manager of Empire Edgeworks. Empire Edgeworks operates at 2711 N. Sepulveda Blvd., Suite 253, Manhattan Beach, CA 90266. (Declaration of Daren M. Schlecter at ¶¶4-5, Exhibit “A.”) The last filing for that entity, which is still active, was on March 3, 2020. (Id.) Judgment Debtor Naco Enterprises, LLC represented at the time of entering into the loan agreement that it was doing business as “Empire Edgeworks.” (Id.) The business address listed on the State of California for both entities is the same: 2711 N. Sepulveda Blvd., Suite 253, Manhattan Beach, CA 90266. (Id.) Both Naco Enterprises, LLC d/b/a Empire Edgeworks and Empire Edgeworks, LLC work in the same industry. (Id.) Naco Enterprises, LLC does business under the same name “Empire Edgeworks.” (Id.)

Thus, Petitioner has met its burden of proof, by a preponderance of the evidence standard, to establish that the alleged alter ego should be added as a judgment debtor. Wollersheim v. Church of Scientology (1999) 69 Cal.App.4th 1012, 1014. Therefore, the judgment is hereby amended to state and include as judgment debtor: “Empire Edgeworks, LLC.”