Judge: Kevin C. Brazile, Case: 21STCV20014, Date: 2023-02-10 Tentative Ruling

Hearing Date: February 10, 2023

Case Name: Triton Pacific Capital Partners, LLC v. Cenegenics, LLC

Case No.: 18STCV03423

Matter: Motions to Amend Judgment to Add Alter Egos (2x)

Moving Party: Plaintiff Triton Pacific Capital Partners, LLC

Responding Party: Kristy Berry and BestLife Holdings, Inc. 

Notice: OK

Ruling: The Motions are denied.

Moving party to give notice.

If counsel do not submit on the tentative, they are strongly 

encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic. 

On October 1, 2020, the Court entered judgment in favor of Plaintiff Triton Pacific Capital Partners, LLC  and against Defendant Cenegenics, LLC.

On August 29, 2022, Plaintiff filed a memorandum of costs stating that the total judgment was then approximately $1.5 million.

Plaintiff now seeks to amend the judgment to add John E. Adams, Kristy Berry, and BestLife Holdings, Inc. (“BestLife”) as alter egos and/or successors of Defendant Cenegenics, LLC.  Plaintiff contends that after it obtained the judgment against Defendant, defense counsel stated, for the first time, that Defendant was a mere shell with no assets.  Plaintiff contends that Adams, Berry, and BestLife orchestrated a scheme to ultimately transfer Defendant’s assets to BestLife for inadequate consideration so as to escape the judgment herein.

1. Adams

Adams died since the Motion was filed, and no opposition was filed on his behalf.

“A pending action or proceeding does not abate by reason of a party's death if the cause of action survives.  CCP § 377.21. Except as otherwise provided by statute, all causes of action for or against a party survive the party's death subject to the applicable limitations period. CCP § 377.20(a).”  (Cal. Judges Benchbook Civ. Proc. Before Trial § 10.98.)

“[J]udgment cannot be rendered for or against a decedent, nor for or against a personal representative of a decedent's estate until the representative has been made a party by substitution.”  (Sacks v. FSR Brokerage, Inc. (1992) 7 Cal.App.4th 950, 957.)

This is a somewhat unusual situation as Adams is currently a non-party.  But, at bottom, Plaintiff seeks for the Court to enter judgment against Adams, as a deceased defendant, when Adams’ personal representative has not been served.  This is impermissible.  

2. Successor Liability

Plaintiff contends that BestLife is a successor of Defendant Cenegenics, LLC. “Modification of a judgment may also be proper under the successor corporation theory. (McClellan, supra, 89 Cal.App.4th at pp. 753, 754–756, 107 Cal.Rptr.2d 702, italics omitted.) According to that theory, when a corporation sells or transfers all of its assets to another corporation constituting its mere continuation, the latter is also liable for the former's debts and liabilities. (Id. at p. 754, fn. 4, 107 Cal.Rptr.2d 702, quoting Ray v. Alad Corp. (1977) 19 Cal.3d 22, 29, 136 Cal.Rptr. 574, 560 P.2d 3.) Generally, California decisions holding that a corporation acquiring the assets of another corporation is the latter's mere continuation and therefore liable for its debts have imposed such liability only upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor corporation's assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both corporations.”  (Wolf Metals Inc. v. Rand Pac. Sales, Inc. (2016) 4 Cal. App. 5th 698, 704–05 (internal quotation marks omitted).) 

Here, the “mere continuation” doctrine does not apply because Defendant’s assets were not directly sold to BestLife.  Rather, as Plaintiff acknowledges, Oaktree Specialty Lending Corporation (“Oaktree”) was a creditor of Defendant.  Oaktree sold Defendant’s debt to AgeWell Partners, LLC (“AgeWell”) for $2 million.  AgeWell then foreclosed on Defendant’s assets, and subsequently transferred those assets to BestLife.  Indeed, “a mere continuation contemplates a direct sale of assets from the predecessor corporation to the successor corporation, not a sale from a creditor of the predecessor corporation which has taken over its assets.”  (Maloney v. Am. Pharm. Co. (1988) 207 Cal.App.3d 282, 288.)  

In Reply, Plaintiff contends, “Maloney involved a legitimate, arms-length creditor, i.e., a national banking institution. Maloney did not involve the successor’s formation of an entity, i.e., AgeWell, operated by the same principals, to masquerade as a faux-creditor for the sole purpose of funneling the predecessor’s assets to the successor, for no consideration whatsoever. Stated differently, the ‘direct sale’ element of Maloney could only apply here if Oaktree, the legitimate secured lender of Cenegenics, had (1) called the $42 million note and liquidated Cenegenics’ assets; (2) sold most of the liquidated assets to disinterested third parties; and then (3) sold the remaining 10% of liquidated assets to BestLife for adequate consideration. No such events occurred here. BestLife’s attempt to equate AgeWell, its holding company, with FPBTC, a national bank at the time, is patently disingenuous.”

Plaintiff makes a number of distinctions that don’t have any bearing on the legal principle at play.  At bottom, Defendant did not sell the assets in question to BestLife.  Plaintiff admits Oaktree was a legitimate lender that had a collateral interest in Defendant’s assets and could sell Defendant’s debt.  It was only after this debt was first sold that AgeWell could have any property interest in Defendant’s assets.  AgeWell did not then “purchase” the property as it conducted a foreclosure.  

If Oaktree had foreclosed on the assets and then sold those assets to AgeWell, that would certainly fall within the rule of Maloney that there was no direct sale.  It cannot be that Maloney does not apply because the debt was first sold and AgeWell did the actual foreclosing.  The Court concludes that successor liability does not apply because there was never a direct sale of Defendant’s assets to AgeWell or BestLife.

3. Alter Egos

Plaintiff contends that Berry, Adams, and BestLife are also alter egos of Defendant Cenegenics.

“The authority of a court to amend a judgment to add a nonparty alter ego as a judgment debtor has long been recognized.  (See Mirabito v. San Francisco Dairy Co. (1935) 8 Cal.App.2d 54, 60, 47 P.2d 530.)  ‘The ability under [Code Civ. Proc. §] 187 to amend a judgment to add a defendant, thereby imposing liability on the new defendant without trial, requires both (1) that the new party be the alter ego of the old party and (2) that the new party had controlled the litigation, thereby having had the opportunity to litigate, in order to satisfy due process concerns’ ”  (Toho-Towa Co. Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1106.)

The alter ego doctrine is a rationale for disregarding a corporation’s separate legal existence.  The general formulation consists of two components—a unity of interest and ownership between the corporation and individual such that the corporation’s separate personality no longer exists, and an inequitable result if the individual were not held liable.  “Before a corporation’s obligations can be recognized as those of a particular person, the requisite unity of interest and inequitable result must be shown.”  (Leek v. Cooper (2011) 194 Cal.App.4th 399, 411.)  To analyze alter ego liability, courts consider a number of factors, including the commingling of funds and other assets, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership, use of the same offices and employees, use of one as a mere shell or conduit for the affairs of the other, inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers.  (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538-539.)  

In attempting to show a unity of interest between the parties, the main argument by Plaintiff is that Berry, Adams, and BestLife pursued a conspiracy in which they intentionally diverted all of Defendant’s assets to BestLife.

The question really is whether AgeWell basically handed Defendant—with a new name—its assets back.

1. Undercapitalization 

Defendant has no significant assets, as former defense counsel stated several times that Defendant is a mere shell.  It is also undisputed that Defendant’s assets were lost through a foreclosure months before the Court entered summary judgment against Defendant. 

2. Commingling of Funds 

Defendant’s assets moved to AgeWell, then BestLife.  BestLife provided a $15 million note to AgeWell.  AgeWell canceled the loan and instead took equity in BestLife.  

Defendant was rightfully stripped of its assets through a foreclosure, as AgeWell purchased Defendant’s debt for $2 million.  It was Oaktree’s prerogative to sell its $42 million note for $2 million, and there is nothing to show that this was not an arms-length transaction.

BestLife ultimately gave only equity to receive Defendant’s assets from AgeWell.  The value of this equity is unclear.  

3. Equitable Ownership, Directors, Officers, Etc. 

Berry and BestLife contend that the legal owners of Defendant and BestLife are almost totally distinct.

Plaintiff argues that the inquiry also pertains to equitable owners.  This is true; however, evidence of equitable ownership alone is weaker where Berry or Adams could act as legal owners.  (Cf. In re Schwarzkopf (9th Cir. 2010) 626 F.3d 1032, 1039.)  

A managing agent might be an equitable owner.  (see ibid.)  Here, Berry was the Chief Operating Officer of Cenegenics and is the Chief Executive Officer of BestLife.  (Exh. 5 at 16:24 – 17:2; Exh. 44 at 32:6-12.)  Further, Berry was President of Cenegenics and is President of BestLife.  (Exh. 5 at 17:3-13; Exhs. 22, 26-28.)

John Adams was the Chairman and Chief Executive Officer at Cenegenics, and continued to serve as Chairman and Chief Executive Officer after Cenegenics’ assets were transferred to BestLife.  (Exhs. 53 – 117.) 

Cenegenics’ board was comprised of Adams, Berry and an Oaktree representative.  (Exh. 6 at 109:5-15; Exh. 51 at 55:20 - 56:8; Exh. 271 at 16:22-24.)  Adams and Berry also serve on BestLife’s board, with Adams as the Chairman of the Board.  (Exh. 6 at 109:5-15; Exh. 51 at 55:20 - 56:8; Exh. 271 at 16:22-24.) 

4. Employees & Office Locations

High-influence employees in both Defendant and BestLife include Rudy Inaba (Director of Clinical Relations and Corporate Development) [Exh. 329], Roxana Boboescu (Director of Marketing & Analytics) [Exh. 328], Rochelle Abad (Director of Operations) [Exh. 203 at 74:5-14, Exh. 326], and Marina Tettis (Director of Human Resources) [Exh. 203 at 53:4-10, 72:15-19; Exh. 217].

There is evidence that over 50 employees transitioned from Defendant to BestLife.  (See Exh. C.)

BestLife also assumed the majority of Defendant’s leases around the country.  (Exh. 188 at 2; Exh. 159 at 8.)  Further, at least initially, various corporate filings show that Cenegenics and BestLife designated the same principal business location in Las Vegas, before Cenegenics ceased to exist.  (Exhs. 28-29.)

Employees of BestLife were at some point paid through Defendant’s old bank account.  (See Exh. 218.)  

5. Unity of Interest Analysis

While Plaintiff has presented a fair amount of evidence on overlap of control, employees, and office locations, the Court finds that Plaintiff has not shown a unity of interest by a preponderance of the evidence.  This is because the legal owners of BestLife and Defendant are substantially different and Berry only owned 0.7% of Defendant.  Indeed, as Berry and BestLife put it, “Cenegenics’ equity was majority held by the late John Adams, his trusts, and the trusts of his late co-founder Mintz, who collectively owned 87.1% equity (none of these individuals and trusts ever held any equity interest in BestLife Inc.) Kristy Berry owned 0.7% equity interest in Cenegenics. BestLife Inc.’s equity is majority held by AgeWell (100.0% following the 2020 foreclosure process and 63.4% as a result of bringing in new investors into BestLife Inc.)”

Additionally, as discussed, there was nothing seemingly wrongful about the sale of Defendant’s debt and the subsequent 2020 foreclosure given that AgeWell tendered $2 million and Defendant had defaulted on the debt in 2018.  Further, no evidence has been presented on the value of the stock BestLife provided to AgeWell to keep the subject assets.  That is, while it’s clear that Defendant’s assets ultimately moved to BestLife, it’s simply not clear that the transactions in question represented wrongful commingling of funds.

With the tether of alter ego liability to BestLife cut, it’s not clear why Adams only would be liable as an alter ego.  Certainly, no evidence exists that Defendant and Adams, personally, commingled funds.  

In sum, the Motions are denied.  The Requests for Judicial Notice are granted.  The objections are overruled.  

Moving party to give notice.

If counsel do not submit on the tentative, they are strongly encouraged to appear by LACourtConnect rather than in person due to the COVID-19 pandemic.