Judge: H. Jay Ford, III, Case: 19SMCV02117, Date: 2023-05-18 Tentative Ruling

Case Number: 19SMCV02117    Hearing Date: May 18, 2023    Dept: O

  Case Name:  Global Media Properties, Inc. v. Hannibal Classics, Inc.

SUBJECT:                MOTION FOR SUMMARY ADJUDICATION

MOVING PARTY:   Plaintiffs Global Media Properties, Inc.

RESP. PARTY:         Defendant Richard Rionda Del Castro

TENTATIVE RULING

            Plaintiff Global Media Properties, Inc.’s Motion for Summary Adjudication of the 1^st cause of action for unjust enrichment and 2^nd cause of action for money had and received is DENIED. 

            Both Plaintiff’s and Defendant Requests for Judicial Notice is GRANTED. The Court takes judicial notice of the existence of the records of the Secretary of State and in the Superior Court and their legal effect.  The Court does not take judicial notice of the facts stated therein unless those statements are otherwise admissible.

            Plaintiff’s objection to paragraphs 25 and 27 the declaration of Rionda Del Castro (filed May 11, 2023. are SUSTAINED and the remaining are OVERRULED.

            “Global” and “Plaintiff” shall be used to reference Plaintiff Global Media Properties and its predecessor in interest Global Media Distribution, Inc.

I.  Law of Alter Ego Liability         

            “To succeed on their alter ego claim, plaintiffs must be able to show: (1) such a unity of interest and ownership between the corporation and its equitable owner that no separation actually exists, and (2) an inequitable result if the acts in question are treated as those of the corporation alone.”  Leek v. Cooper (2011) 194 Cal.App.4^th 399, 417. 

            “Several factors are to be considered in applying the doctrine; among them are: commingling of funds and other assets…the treatment by an individual of the assets of the corporation as his own…sole ownership of all of the stock in a corporation by one individual or the members of a family; the failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization; the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation…the disregard of legal formalities and the failure to maintain arm's length relationships among related entities…the diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors…the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions…This long list of factors is not exhaustive. The enumerated factors may be considered among others under the particular circumstances of each case.”  Id. at 417–418. 

            “Critically, no single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.  There is no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case.  Because it is founded on equitable principles, application of the alter ego is not made to depend upon prior decisions involving factual situations which appear to be similar.  It is the general rule that the conditions under which a corporate entity may be disregarded vary according to the circumstances of each case.”  JPV I L.P. v. Koetting (2023) 88 Cal.App.5th 172, 195.  The “alter EGO inquiry may, in appropriate circumstances, focus narrowly on certain inequitable uses of the corporate from for specific purposes.”  Id.

            In determining whether to apply alter ego, the court must consider “all the circumstances relevant to the alter ego inquiry.”  Id. at 196.  This includes arbitral findings that are entitled to collateral estoppel effect.  Id. 

            Alter ego does not require a showing that the use of the corporate form was a “sham, in bad faith, or intended to defraud.”  Id. at 199.  “[C]ourts may ignore the corporate entity under the alter ego doctrine “when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose.”  Id.  The mere fact that a corporate entity is a “real business with real purpose and assets and not a sham corporate entity formed for the purpose of committing a fraud or other misdeeds” does not preclude application of alter ego.  Such a “narrow formulation of the doctrine based on the purposes of the corporate entity’s formation” is a “misunderstanding of the applicable law.”  Id. 

            The “inequitable result” prong of alter ego requires a “finding that the facts are such that adherence to the fiction of the separate existence of the corporation would sanction a fraud or promote injustice.  The test for this requirement is that if the acts are treated as those of the corporation alone, it will produce an unjust or inequitable result.  An inequitable result does not require a wrongful intent.”  Id. at 200.  While inability to collect alone does not satisfy the inequitable result prong, “inability to collect combined with other factors indicating inequitable uses of the corporate form, may justify the unjust result element for alter ego liability.”  Id.

            “The conditions under which the corporate entity may be disregarded vary according to the circumstances in each case and the matter is particularly within the province of the trial court.”  Misik v. D'Arco (2011) 197 Cal.App.4th 1065, 1071–1072.  “Whether a party is liable under an alter ego theory is a question of fact.”  Leek, supra, 194 Cal.App.4th at 418. 

II.        Plaintiff’s Separate Statement and Defendant’s Response.

            Plaintiff’s Amended Separate Statement identifies 45 undisputed facts.  Defendant disputes 21 of those facts albeit for most, Defendant just argues Plaintiff’s evidence fails to establish that fact and does not offer any opposing evidence.  Not all of Plaintiff’s proposed undisputed facts are necessarily material to the resolution of this motion.  To resolve this motion the court addresses the follow asserted facts that are material to Plaintiff meeting its burden to show, as an issue of law, that (1) there is such a unity of interest and ownership between the Hannibal Classics, Inc. and Del Castro that no separation actually exists:

(1) Del Castro was the CEO, CFO, Secretary, agent for service of process and a director of Hannibal Classics “at relevant times.”  SSUFM No. 6.—UNDISPUTED

            Plaintiff’s Exhibit 6 is cited in support of this material fact.  Plaintiff’s Exhibit 6 consists of Hannibal’s Articles of Incorporation filed on 9-3-10, wherein Patricia Rionda Del Castro is listed as the agent for service of process.  See Plaintiff’s Amended Exhibit List, Ex. 6.  Exhibit 6 also includes Hannibal’s Statement of Information filed on 9-23-19, wherein Richard Del Castro is listed as the CEO, Secretary, CFO, Director and Agent for Service of Process.  Id.  Hannibal’s Statement of Information filed on 7-16-20 is also attached as Exhibit 6 and lists Richard Del Castro as the CEO, Secretary, CFO and Director.  Id. 

            Defendant Del Castro only disputes that the documents establish Del Castro was the agent for service of process at all times, given that the Articles of Incorporation list Patricia as the agent for service of process.  He does not dispute that he held the CEO, CFO, Secretary and Director position at relevant times.  Del Castro fails to raise a triable issue of material fact as to SSUMF No. 6. 

(2) Del Castro was the sole shareholder of Hannibal Classics, Inc. after April 2017.  SSUMF No. 12.—UNDISPUTED

            Plaintiff’s Ex. 33 is a transcript of a court proceeding in which Richard Del Castro’s deposition testimony was read back in court, admitting that he was the sole shareholder in Hannibal Classics, Inc. after he and his wife, Patricia Eberle, divorced.  See Plaintiff’s Amended Exhibit List, Ex. 33.  Plaintiff’s Ex. 23 is a copy of the martial dissolution judgment, which states that all of Patricia’s interest in Hannibal Classics, Inc. would go to Richard.  Id. at Ex. 26. 

            Defendant argues Plaintiff’s cited evidence does not support SSUMF No. 12.  The Court disagrees.  The evidence cited supports a finding that after the April 2017 divorce, Richard was the sole shareholder of Hannibal Classics.

(3) Hannibal Classics never had any employees.  SSUMF No. 13—DISPUTED 

            Plaintiff relies on the deposition testimony of Patricia Eberle from BC681300 to establish this fact.  However, Defendant objects based on Evidence Code §1291.  Defendant’s objection based on Evidence Code §1291 is sustained.  There is no showing that Patricia Eberle is “unavailable as a witness.”  Her deposition testimony in BC681300 is therefore hearsay.

            Plaintiff fails to establish with admissible evidence that Hannibal Classics never had any employees.

(4)  Hannibal Classics only had a Wells Fargo Checking Account and Del Castro was the only signatory after his divorce from Patricia.  SSUMF No. 14.—UNDISPUTED

            Plaintiff relies on the testimony of Patricia Eberle and Del Castro from BC681300.  Defendant Del Castro does not dispute this fact.

(5)  Del Castro instructed Hannibal Classics to prepare invoices directing distributors of “Vengeance: A Love Story” to make delivery payments due under their applicable distribution agreements to the Hannibal Classics Wells Fargo Account.  SSUMF No. 27.—UNDISPUTED

            Plaintiff submits Del Castro’s testimony from BC681300, the testimony of Lindsey Roth of Hannibal Classics from BC681300 and Michael Mendelson, the managing member of the entities from whom Hannibal Classics diverted distributors’ payments.  See Plaintiff’s Amended Exhibit List, Exs. 31, 32 and 33. 

            Defendant admits that Plaintiff’s cited evidence establishes that he instructed Roth to instruct distributors to pay money into a Hannibal Classics account for “Vengeance:  A Love Story.”  However, he claims there was no executed Collective Account Management Agreement, even if there was a collection account.  Defendant’s point regarding the lack of a CAMA does not raise a triable issue as to whether he controlled Hannibal Classics and he personally instructed Roth to prepare invoices directing distributors to deposit payments into Hannibal Classics’ bank account.  Defendant fails to dispute SSUMF No. 27. 

(6) Between January 2016 and August 2021, Hannibal Classics paid about $163,790 in personal expenses of Del Castro.  SSUMF No. 40.—DISPUTED

            Plaintiff relies on the declaration and analysis of Blair Mitchell, a CPA and an experienced forensic accountant, to establish that Del Castro used Hannibal Classics’ bank account to pay personal expenses.  See Motion, Dec. of B. Mitchell, ¶¶2, Ex. 36, p. 36-14.  Mitchell testifies that from 2016 to 2021, Del Castro paid for his personal expenses in the amount of $163,790 from Hannibal Classics’ Wells Fargo account. 

            Mitchell’s analysis is based on his review of monthly statements from 1-1-16 through 8-31-21 of Hannibal Classics’ Wells Fargo Business Checking Account and its Market Rate Savings Account.  Id. at ¶3.  However, Plaintiff does not submit those records for the Court’s review.  As such, Mitchell’s analysis that Del Castro paid $163,790 of his personal expenses from Hannibal Classics’ bank accounts lacks foundation.  There is therefore no admissible evidence presented that Del Castro’s personal expenses were ever paid from Hannibal Classics’ bank accounts.  Plaintiff’s declarations and evidence will be strictly construed in determining whether they satisfy their burden and “any evidentiary doubts or ambiguities” must be resolved in Defendant’s favor.  See Johnson v. American Standard, Inc. (2008) 43 Cal.4th 56, 64. 

            In addition, Defendant Del Castro disputes SSUMF No.  Del Castro testifies, “Also, I never used any of Hannibal Classics’ corporate monies to pay for any of my personal debts.”  See Dec. of R. Del Castro, ¶16.  The paragraph references footnote 2 but footnote 2 does not dispute any of the facts or the line items identified by Mitchell in his expert declaration.  However, on summary judgment the Court may not judge credibility, nor may it weigh the evidence.  See Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 840 (“The trial court may not weigh the evidence in the manner of a fact finder to determine whose version is more likely true.  Nor may the trial court grant summary judgment based on the court's evaluation of credibility.”)

(7) Del Castro received payments of about $727,660 from Hannibal Classics as salary.  SSUMF No. 41.—DISPUTED

            Plaintiff relies on the declaration of Mitchell for this fact.  See Plaintiff’s SSUMF No. 41.  As discussed in connection with SSUMF No. 40, the underlying bank account records cited by Mitchell in his declaration were not submitted as evidence.  Mitchell’s declaration is therefore inadmissible on SSUMF No. 41 and Plaintiff fails to satisfy its burden on this fact. 

            In addition, payment of a salary to a corporate officer alone does not weigh in favor of finding a unity of interest between the officer and the corporation.  If, however, Plaintiff presented evidence that the salary payments were not in fact salary payments but straight withdrawals for Del Castro’s personal benefit and use, the payments would be indicative of a unity of interest. 

(8) The Del Castros allegedly loaned Hannibal Classics $757,000 in December 2017, and they made a claim against the Hannibal Classics bankruptcy estate for that amount.  The banking records do not reflect that the Del Castros ever made such a loan. SSUMF Nos. 42-43.—DISPUTED

            Plaintiff relies on the promissory note executed by Hannibal Classics in favor of the Del Castros in December 2017.  See Plaintiff’s Amended Exhibits, Ex. 27.  Plaintiff relies on Hannibal Classics’ bank records from December 2017 and January 2017 to demonstrate the absence of any such loan.  Id. at Ex. 28. 

            Plaintiff’s evidence fails to establish that the loan memorialized in the Promissory Note was fraudulent or nonexistent.  The mere fact that the loan is not reflected in Hannibal Classics’ bank account statements from December 2017 and January 2017 does not establish that the loan never occurred.  In addition, Defendant testifies that the funds were loaned in October and November 2017.  See Dec. of R. Del Castro, ¶16, fn. 2. 

(9) Del Castro personally paid for Hannibal Classics’ legal fees in its bankruptcy. SSUMF No. 43—UNDISPUTED

            Defendant does not dispute that he paid for Hannibal Classics’ legal fees. 

(10)  Del Castro personally participated in the arbitration between Plaintiff and Hannibal Classics on behalf of Hannibal Classics.  SSUMF No. 44—DISPUTED

            Plaintiff cites to Exhibit 29 in support of this material fact.  Exhibit 29 is the bankruptcy filing disclosing that Del Castro paid for Hannibal Classics’ legal fees in the bankruptcy proceeding.  Exhibit 29 does not establish that Del Castro personally participated in the arbitration between Plaintiff and Hannibal Classics.  In addition, as Defendant points out, the arbitration award was a default award and Hannibal Classics did not appear or participate in the arbitration proceeding.  See Plaintiff’s Amended Exhibits, Ex. 1.  As such, Plaintiff fails to establish that Del Castro personally participated in the arbitration proceeding or controlled it on Hannibal Classics’ behalf. 

III.  Plaintiff fails to establish a unity of interest between Del Castro and Hannibal Classics, Inc. as an issue of law.

            The Court finds the material facts relied on by Plaintiff that the Court found are undisputed and supported by admissible evidence as identified above are not sufficient to find, as an issue of law, that the required unity of interest exists between Del Castro and Hannibal Classics, Inc.  Namely, (1) during the relevant time period, either Del Castro or Del Castro and his wife were the only shareholders of Hannibal Classics and held all key executive officer positions (SSUMF Nos. 6 and 12); (2) Del Castro and his wife were the only signatories on Hannibal Classics, Inc.’s bank accounts before their divorce and after their divorce, Del Castro was the only signatory (SSUMF No. 14); (3) Del Castro personally instructed Roth to draft invoices requiring the distributors to pay the fees due into Hannibal Classics’ account (SSUMF No. 27); and (4) Del Castro paid for Hannibal Classics’ counsel in its bankruptcy proceeding and also loaned money to Hannibal Classics (SSUMF Nos. 43 and 44). 

            The Court finds the following triable issues of material fact remain as to whether Hannibal Classics had employees (SSUMF No. 13), whether Del Castro used Hannibal Classics’ bank account to pay personal expenses (SSUMF No. 40), whether Del Castro’s salary was a legitimate salary or a means to funnel money to Del Castro (SSUMF No. 41), whether the Del Castros made a loan to Hannibal Classics (SSUMF Nos. 42-43) and whether Del Castro personally participated in the arbitration between Plaintiff and Hannibal Classics (SSUMF No. 44). 

            Defendant Del Castro argues Plaintiff fails to demonstrate Hannibal Classics’ undercapitalization or failure to adhere to corporate formalities.  Whether alter ego applies is ultimately an equitable determination, and no one factor is determinative.  See JPV I L.P., supra, 88 Cal.App.5^th at 195.  The Court must “examine all the circumstances to determine whether to apply the doctrine.  There is no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case.”  Id. 

            Undercapitalization and adherence to corporate formalities are not essential elements of an alter ego claim but only two factors to be weighed in applying the doctrine.  In isolation, Plaintiff’s failure to demonstrate either factor is not determinative.  However, when combined with Plaintiff’s failure to demonstrate any commingling of assets or Del Castro’s use of Hannibal’s assets to pay personal expenses, the Court cannot find as an issue of law that a unity of interest exists between Del Castro and Hannibal Classics.  Ultimately, alter ego is a question of fact and on summary judgment, Plaintiff’s evidence must be construed strictly.  See Johnson v. American Standard, Inc. (2008) 43 Cal.4th 56, 64. 

            Plaintiff submits the Statement of Decision in BC681300, in which the Court found Del Castro liable based on alter ego for the same alleged fraudulent scheme of diverting distribution payments from Justice/UPC to Hannibal Classics.  However, the Court in BC681300 made that finding after court trial, not summary adjudication.  The Court in BC681300 had a much more extensive evidentiary record to base its finding of alter ego.

            Triable issues remain as to whether there was a unity of interest between Del Castro and Hannibal Classics, such that the corporate form should be disregarded.  Plaintiff’s motion for summary adjudication is DENIED.