Judge: Jon R. Takasugi, Case: BC705147, Date: 2022-11-14 Tentative Ruling

Case Number: BC705147    Hearing Date: November 14, 2022    Dept: 17

Superior Court of California

County of Los Angeles

DEPARTMENT 17

TENTATIVE RULING

On 5/4/2018, Plaintiff California Department of Education (Plaintiff) filed suit against Golden Day Schools, Inc. and Clark Parker, alleging breach of contract and declaratory judgment.

            On 8/8/2022, the Court issued its Proposed Statement of Decision.

            Now, the Court considers objections to the Proposed Statement of Decision.

Discussion of Plaintiff’s Objections

            Plaintiff raises two objections: (1) The Court should clarify that the ruling applies to all the years at issue in the Partially Consolidated Case; (2) The Court should clarify the issues regarding Control of the Hearings before the OAH. 

I.                   First Objection: Years at Issue

Plaintiff argues that the Proposed Statement of Decision is unclear as to which Defendants have alter-ego liability in which years:

The Proposed Statement of Decision is somewhat unclear as to which defendants have alter ego liability in which years. At one point the Court says, “The CDE is seeking reimbursement based upon performance audits done for fiscal years 2006-07 and 2007-08.” (Statement of Decision at p. 2:3-4.) This is true, but incomplete. As noted above, the Department is also seeking reimbursement for the four subsequent fiscal years: 2008-09, 2009-10, 2010-11 and 2011-12.

            (Objection, 13: 3-8.)

            Plaintiff contends that the following sentence be added to clarify that the Parkers are “liable” as alter egos and would indicate the years for which Clark and Jeanette Parker should be liable:

Clark Parker has alter ego liability for the debts (if any) that Golden Day owes Plaintiff Department of Education for the childcare services contracts that Golden Day entered into for the 2006-07 and 2007-08 fiscal years; Clark Parker, as an individual, and Clark and Jeanette Parker, as trustees, have alter ego liability for the debts (if any) that Golden Day owes Plaintiff Department of Education for childcare services and nutrition contracts that Golden Day entered into for the 2008-09, 2009-10, 2010-11, and 2011-12 fiscal years.

            The Court agrees with Plaintiff’s proposed amendment. Tami Pierson presented evidence of the Parkers’ improper influence on Golden Day from the Department’s audit of the first two fiscal years, while Chris (Chandar) Prasad and Robert Kurokawa presented evidence of the Parkers’ improper influence on Golden Day from the State Controller’s audit of the other years. Moreover, the Parkers presented no evidence that Golden Day’s operations changed in the years at issue. Accordingly, the analysis that led the Court to determine that Golden Day was the Parkers’ alter-ego applies equally to all of the fiscal years at issue.

II.               Second: Control of OAH Hearings

Plaintiff argues that the Proposed Statement of Decision should make clear whether or not Clark Parker exercised control of the proceedings before the OAH.

 If a court pierces an entity’s corporate veil, liable individuals can re-litigate the alter-ego entity’s debts only if due process requires it. (Lopez v. Escamilla (2022) 79 Cal.App.5th 646, 654, review denied (Sept. 14, 2022).)

Plaintiff argues that the Parkers here “had control of the underlying litigation and were virtually represented” such that they received adequate due process  and they should not be able to re-litigate the debts determined in the OAH Proceedings. (Relentless Air Racing, LLC v. Airborne Turbine Ltd. P’ship (2013) 222 Cal.App.4th 811, 815-816.)

In determining whether the Parkers were virtually represented in the OAH proceeding, the standard is whether either of them “directed the defense” of the proceeding. (Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 509; Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1110.) “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.” (1A Ballantine & Sterling, California Corporation Laws (4th ed.) § 299.04, p. 14–45, fn. omitted.)

Plaintiff argues that it has established the Parkers’ control of the OAH proceeding and their domination of Golden Day:

(1) the Department showed that Clark Parker designated himself the “personal representative” of Golden Day in all those proceedings. (Trial Ex. 85 & 86). Clark Parker acknowledged that he listed himself as client representative in the OAH Appeals in his testimony at trial. (2/8 RT at pp. 101:15 – 103:15);

(2) the Department presented testimony that Clark Parker served as Golden Day’s client representative every day for the evidentiary hearings in those proceedings. (2/8 RT at p. 7:16-22; id. at pp. 101:15 – 103:15; id. at p. 12:15-17.)

(3) Golden Day’s attorney in the OAH Appeals, Greg Doll at Doll, Amir & Elly, was actually the Parkers’ personal attorney. (2/8 RT at pp. 6:17 – 7:12) Greg Doll never saw the supposed Golden Day board of directors and they never prevented him or Clark Parker from pursuing their preferred litigation strategy. (2/8 RT at pp. 50:21 – 51:4.)

(4) Golden Day’s attorney for those cases took instruction from Clark Parker in making strategic decisions in those cases unimpeded by the Golden Day board. (2/8 RT at p. 19:17-20:17) Golden Day’s attorney in the OAH Appeals testified that “if [he] needed to make a decision in that proceeding, [he] would ask Clark Parker.” (2/8 RT at p. 20:14-17.)

(5) The sum total of the evidence presented at trial showed that the Parkers dominated Golden Day and no other person had meaningful control over it. Clark Parker testified on executive compensation that he performed all meaningful executive functions. (2/7 RT at pp. 100:28-101:17.) Thus, Clark Parker had to control – there was no one else who could have controlled the litigation. (Lopez, supra, 79 Cal.App.5th at p. 653 [“‘Who else was interested in the fate of the corporation? If not [the alter ego], who else?’”].) Erbie Phillips testified that the board delegated to Clark Parker authority to control the audits and the OAH proceedings. (2/15 RT at pp. 64:9-17, 70:16-23.) Clark Parker was the only person with authority to sign the checks necessary to finance Golden Day’s appeals at OAH. (2/8 RT at p. 57:3-16.)

            In opposition, the Parkers argue that Dr. Parker did not have adequate due process because “he had no warning, and no reason to believe that he might be personally liable if Golden Day lost before the OAH.” (Opp., 5: 18-19.)  They argue that this, in turn, “dramatically affected Dr. Parker’s actions in connection with the OAH proceeding, as follows. Dr. Parker attended the OAH proceedings only as the designated representative of Golden Day. Dr. Parker did not seek to intervene in the proceeding to defend Golden Day’s position. Golden Day’s limited resources were inadequate to properly defend the OAH proceeding. Among other things, this lack of resources prevented Golden Day from bringing more witnesses to Sacramento and ultimately led to a default. Had he known that he might be subject to personal liability, Dr. Parker would have used his personal resources to hire separate counsel and to bring additional witnesses to Sacramento.” (Opp., 6: 2-10.)

            However, due process does not demand that a defense be presented. Rather, it demands that there be “reasonable notice and an opportunity to be heard.” (Mohilef v. Janovici (1996) 51 Cal.App.4th 267, 286.) Here, the evidence at trial showed that the Parkers received adequate due process for all contract years, even before the OAH hearings started: (i) the Parkers were provided advance notice that the Department and the State Controller’s Office would be conducting the two audits and that a liability could result (E.g., Trial Ex. 101); (ii) the Parkers participated in the audit processes, by directing Golden Day’s and Today’s Fresh Start’s responses to the respective auditors requests for documentation (e.g., Trial Ex. 248); (iii) the Parkers received the draft audit reports (Trial Ex. 256); (iv) Clark Parker prepared and signed a 45-page and 76-page response to the 2006-08 audit and the 2008-12 audits, respectively (Trial Ex. 5, pp. 79-124; Trial Ex. 4, at pp. 58-133); and (v) the Parkers received a copy of the CDE notice of action and statement of administrative decision based on the findings of the draft audit reports (e.g., Trial Ex. 4.1) Then, as the evidence set forth above shows, the Parkers controlled/were virtually represented in the administrative process, and knew that Plaintiff was pursuing them as alter egos.

Based on the foregoing, the Court finds that Plaintiff’s proposed clarification should be made, i.e., that Clark Parker or Clark and Jeanette Parker controlled or were virtually represented in the OAH proceedings, either by virtue of their actual control of the proceedings or by their domination of Golden Day.

Discussion of the Parkers’ Objections

The Parkers raise two objections: (1) the Court should clarify that Jeanette Parker is not an alter ego of Golden Day in her personal capacity, but only in her capacity as a trustee of the Parker Trust; and (2) the Court’s conclusion that the $169,340.87 and the $600,000 were transfers to the Parkers and therefore should have been disclosed as insider transfers made within one year of bankruptcy is not supported by the evidence.

As for the first objection, the Court agrees that Jeanette Parker was not sued in her individual capacity or in any capacity case no. BC705147. Plaintiff confirmed that this statement was accurate in opposition. To make this clear, the Court finds the Proposed Statement should include the following language:

Clark Parker has alter ego liability for the debts (if any) that Golden Day owes Plaintiff Department of Education for the childcare services and nutrition contracts that Golden Day entered into for the 2006-07 and 2007-08 fiscal years; Clark Parker, as an individual, and Clark and Jeanette Parker, as trustees, have alter ego liability for the debts (if any) that Golden Day owes Plaintiff Department of Education for childcare services and nutrition contracts that Golden Day entered into for the 2008-09, 2009-10, 2010-11, and 2011-12 fiscal years.

As for the second objection, the Court disagrees. As noted by Plaintiff, the documents that the Parkers attach to their objection support the Court’s findings:

-          The documents that the Parkers attached to their objections show that the $600,000 transfer, on February 2, 2017 was a “customer withdrawal.” It was made using a counter withdrawal slip with Clark Parker’s signature on it. February 2, 2017 is less than two years before Golden Day’s first bankruptcy, which was filed in October 2017. (See Trial Ex. 88, p. 30.)

-          The Parkers’ contention that the $169,340.87 was sent to Golden Day’s retirement account is not supported by a document in evidence. (Compare Objection Ex. A to Exhibit 99.2.) Clark Parker was given a chance to explain the transfer during the trial, but he could not do so. (See 2/9 RT 84:-89:8 [Clark Parker’s testimony re the transfers].)

Accordingly, the Court finds its conclusion to be adequately supported by evidence.

It is so ordered.

Dated:  November    , 2022

   Hon. Jon R. Takasugi
   Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the court at smcdept17@lacourt.org by 4 p.m. the day prior as directed by the instructions provided on the court website at www.lacourt.org.  If a party submits on the tentative, the party’s email must include the case number and must identify the party submitting on the tentative.  If all parties to a motion submit, the court will adopt this tentative as the final order.  If the department does not receive an email indicating the parties are submitting on the tentative and there are no appearances at the hearing, the motion may be placed off calendar. 

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