Judge: Layne H. Melzer, Case: 2021-01227906, Date: 2022-10-13 Tentative Ruling

PLT Scott W Wellman; PLT Wellman & Warren, LLP, PLT Anabella Q Bonfa

Motion for Leave to Amend

The motion by Petitioners Wellman & Warren, LLP, Scott Wellman, Anabella Bonfa (collectively, “Law Firm”), to amend the judgment to add Steven P. Nero (“Nero”) as an additional judgment debtor (alter ego) under CCP § 187, is denied.

Law Firm contends it is entitled, under CCP section 187, to amend the Judgment entered on or about May 10, 2022, (ROA 23), to add Nero as a judgment debtor, because Nero is allegedly PNR’s “alter ego.”

The Court declines to consider the opposition by Respondent PNR Marketing Solutions, LLC (“PNR”), because there is no dispute that PNR is currently a “suspended” entity; and, there is no evidence that it has been “revived.” (See Rev. & Tax. Code, § 23301; Casiopea Bovet, LLC v. Chiang (2017) 12 Cal.App.5th 656, 662.) Nevertheless, the Court considers the opposing papers to the extent they were brought on behalf of “interested party,” Nero, who Law Firm seeks to add as a judgment debtor.

Where a court has jurisdiction, CCP section 187 confers “all the means necessary to carry it into effect,” if  “the course of proceeding be not specifically pointed out by this Code or the statute.” (Code Civ. Proc., § 187.) Section 187 may be used to amend a judgment to add additional judgment debtors on the grounds that a person or entity is the “alter ego” of the original judgment debtor. (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 280; McClellan v. Northridge Park Townhome Owners Ass'n, Inc. (2001) 89 Cal.App.4th 746, 752.) “The purpose of the doctrine is not to protect every unsatisfied creditor, but rather to afford him protection, where some conduct amounting to bad faith makes it inequitable, under the applicable rule above cited, for the equitable owner of a corporation to hide behind its corporate veil.” (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 842.)

To utilize this “equitable” procedure, two requirements must be satisfied. First, the court must find that “the new party must be the alter ego of the old party.” In making this determination, the court may consider factors including, but not limited to: “the commingling of funds and assets of the two entities”; “identical equitable ownership in the two entities”; “use of the same offices and employees”; “disregard of corporate formalities”; “identical directors and officers”; “use of one as a mere shell or conduit for the affairs of the other”; and, “inadequate capitalization of the original judgment debtor.” “No single factor governs; courts must consider all of the circumstances of the case in determining whether it would be equitable to impose alter ego liability.” (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 281.) Second, “in order to satisfy due process concerns, the new party must have controlled the litigation. Absent such control, the alter ego is a true nonparty.” (Cal. Civ. Prac. Business Litigation § 5:29, citations omitted.)

Here, Law Firm has proffered evidence that Nero “controlled” the underlying arbitration, by which Law Firm obtained an arbitration award against PNR, which was ultimately reduced to the Judgment. (ROA 32—Bonfa Decl. at ¶¶ 11, 13-14. 17.) Nero has not disputed this “control.”

Nevertheless, Nero argues that Law Firm has not proffered evidence that there would be an “inequitable result,” or some kind of conduct that amounts to “bad faith,” unless the “corporate veil is pierced.” The Court agrees that Law Firm has not met its burden in this regard. The fact that Law Firm remains unpaid is not dispositive, nor is Nero’s alleged “control” over PNR sufficient reason to find that their “separation” has ceased to exist. (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 842; see also In re L. Scott Apparel, Inc. (C.D. Cal. 2020) 615 B.R. 881, 893 [applying California law] [Bankruptcy Court did not err in finding that there was “insufficient evidence” to find that “separateness” of judgment debtor-corporation and its majority owner ceased to exist, even if owner “controlled the resources” the debtor gave to owner’s new corporation].)

Conversely, Nero has proffered uncontroverted evidence that PNR maintained its own bank account and employees; that PNR’s revenues and expenses were not commingled with Nero’s or any other business entities that Nero was involved with; and that Nero was not a “payee” in the settlement of the underlying litigation, in which Law Firm represented PNR. Nero further attests that PNR “entered into a joint venture agreement in August 2018,” (i.e., one year before the settlement), with two Texas-based businesses, whereby PNR agreed to sell most of its assets in exchange for minority interests in the Texas-based businesses. (Nero Decl. at ¶ 10.) Law Firm was allegedly aware of the transfer, and discussed the same with Nero. (Nero Decl. at ¶ 11.)

In sum, Law Firm has not proffered sufficient evidence for the Court to find that the requested amendment is proper.

Nero shall give notice of the ruling.