Judge Mark A. Young, Case Number: 19SMCV01208, Date: 2024-05-09 Tentative Ruling

Judge: Mark A. Young, Case: 19SMCV01208, Date: 2024-05-09 Tentative Ruling

Case Number: 19SMCV01208 Hearing Date: May 9, 2024 Dept: M

CASE NAME: Orenberg, et al., v. Strong

CASE NO.: 19SMCV01208

MOTION: Motion to Amend Judgment to Add Judgment Debtor

HEARING DATE: 5/8/2024

Legal Standard

Pursuant to Code of Civil Procedure section 187, a trial court has jurisdiction to modify a judgment to add additional judgment debtors. Section 187 grants every court the power to use all means to carry its jurisdiction into effect, even if those processes are not set out in the code. Section 187 states: “When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this code.” (CCP § 187.)

Judgments are typically “amended to add additional judgment debtors on the grounds that a person or entity is the alter ego of the original judgment debtor. This is an equitable procedure 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 an appropriate and complete method by which to bind new individual defendants where it can be demonstrated that in their capacity as alter ego of the corporation they 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; see also Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 508.)

To prevail on a motion to amend judgment to add an alter ego of an original judgment debtor, the judgment creditor must show, by a preponderance of the evidence, that: (1) the parties to be added as judgment debtors had control of the underlying litigation and were virtually represented in that proceeding; (2) there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist; and (3) an inequitable result will follow if the acts are treated as those of the entity alone. (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 280.)

“In determining whether there is a sufficient unity of interest and ownership, the court considers many factors, including 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, and use of one as a mere shell or conduit for the affairs of the other.” (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 280, internal quotations omitted.) “The court is not required to hold an evidentiary hearing on a motion to amend judgment, but may rule on the motion based solely on declarations and other written evidence.” (Ibid.)

Analysis

Plaintiffs Steve Orenberg and Julie Toman move to amend, nunc pro tunc, the judgment rendered in this action against Defendant/Judgment Debtor Brett Livingstone Strong, by adding as judgment debtors Jackson-Strong Alliance, LLC (“JSA”) and Stason Strong. (CCP section 187.) The motion is unopposed.

Control by third parties has been found in a variety of circumstances. (See Alexander v. Abbey of the Chimes (1980) 104 Cal.App.3d 39, 46 [control found where nonparty alter ego hired counsel for corporation, corporate counsel primarily dealt with alter ego, alter ego was kept fully informed of the suit and where alter ego helped draft documents for the litigation]; Oyakawa v. Gillett (1992) 8 Cal.App.4th 628, 631, [control not found where unnamed wife had no control over the litigation, and the only basis for her liability was community property interest in LLC]; Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1109 [control found where three business entities were a single business enterprise with integrated resources; production company dominated the finances; the affiliated companies had no “mind, will or existence” of their own but were conduits of the production company; all entities were owned by same person who was the sole decisionmaker of the enterprise]; Butler America, LLC v. Aviation Assur. Co., LLC (2020) 55 Cal.App.5th 136, 146-147 [owner controlled the judgment debtor and the related entities, where the companies shared the same office and employees; owner used the intermingled funds between the entities; same entity funded settlement and defense; and the owner did not observe corporate formalities].)

While the Court believes Plaintiffs have established the second and third prongs for amendment, Plaintiffs have not demonstrated that proposed judgment debtors, JSA and Stason Strong, had actual control of the litigation. Plaintiffs attempt to impute all of Defendant Strong’s actions during the litigation onto JSA and Stason Strong. Plaintiffs highlight evidence that Strong had an ability to bind JSA. Even so, Plaintiffs do not cite any evidence that Strong exercises actual control or ownership over JSA, rather than simply being an agent of JSA. More importantly, this type of control is not what needs to be shown. Plaintiffs need to show that Stason Strong or JSA controlled the litigation, not just Defendant Strong’s agency with JSA.

Instead of showing Stason Strong or JSA’s control of the litigation, Plaintiffs focus on Defendant Strong’s control over JSA. For instance, Defendant Strong always claimed to own and control the Artwork, but now claims that he did not own the Artwork--instead JSA owned it and he was only acting as a broker trying to sell it. (RJN, Ex. P at 5:3–17.) This was the first time Defendant Strong made the claim to Plaintiffs that he did not own the Jackson Artwork. (Orenberg Decl. ¶ 13.) Also, Strong had authority to act on behalf of JSA because he regularly signed documents on behalf of JSA, apparently had access to and rights to withdraw and deposit money into JSA bank accounts, and indeed routinely withdrew money for his own personal use from these accounts. (Wolfe Decl. ¶ 6, Ex. 21 [Mr. Strong’s Judgment Debtor Exam] at pp. 34, 97, 117- 18, 143; RJN Ex. D [Mr. Strong’s Jun. 28, 2019 Motion] at pp. 56-58.) For example, Plaintiff was instructed to wire money to Mr. Strong via JSA’s account. (See Ex. 8; cf. RJN Ex. D [Mr. Strong’s Jun. 28, 2019 Motion] at pp. 56, 60.) JD Strong used funds to pay for rent and living expenses (Id. at pp. 88- 89, 118-20), to pay for alimony payments and his ex-wife’s attorney fees (Id. at pp. 49-50; 172-75), to pay for parking tickets (Id. at p. 134), to pay his attorneys, (Id. at pp. 54- 55, 145-48, 150-54, 160-61, 168-69), to make car payments, (Id. at pp. 28-30), and for the Hangar, (Id. at pp. 41-43, 68, 122-31, 145-49, 162-63). Defendant Strong used the same address as JSA, which is the Hangar where they stored the Artwork. (RJN Ex. F [Mr. Strong’s Aug. 9, 2021 Decl.] at 4:1-2.) Strong had apparent control over the Jackson Artwork and the Hangar, both of which are now allegedly owned by JSA LLC. (Orenberg Decl. ¶ 4; RJN Ex. A [Mr. Strong’s Oct. 19, 2016 Decl.] at 15:14–28.) Defendant Strong also had valuations of the Artwork done on behalf of JSA. (Orenberg Decl. ¶ 6, Ex. 6 at p. 1, Ex. 7 at p. 1.)

However, this evidence demonstrates that Defendant Strong had permission from his son Stason Strong, the member-manager of JSA to withdraw money from the JSA account, and that his son has since ended Defendant Strong’s access to the JSA account. This suggests that Stason Strong actually retains management and control over JSA. This does not suggest that Stason or JSA controlled, or even knew of, this litigation. At best, this demonstrates one indicia of control over the litigation: that JSA apparently paid for defense of this litigation. This fact alone does not show it is more likely than not that JSA actually controlled the litigation. The Court cannot impose liability against Stason Strong absent stronger evidence of JSA/Stason Strong’s control over the litigation. While the court would agree that Defendant Strong has committed fraud, and JSA/Stason Strong apparently aided this fraud, the Court still cannot add a judgment debtor under such circumstances.

As such, the Court is concerned that any amendment adding JSA or Stason Strong to this judgment would be void for lack of due process. (See Motores De Mexicali, S. A. v. Superior Court In and ForLos Angeles County (1958) 51 Cal.2d 172, 175-176 [“[The individual defendants] in no way participated in the defense of the basic action against [the corporation]. [The individual defendants] did not have attorneys subsidized by them appearing and defending the action against the corporation now alleged to be their alter ego. Instead, the judgment was entered against [the corporation] strictly by default…[¶]…To summarily add [the individual defendants] to the judgment heretofore running only against [the corporation], without allowing them to litigate any questions beyond their relation to the allegedly alter ego corporation would patently violate [the Fourteenth Amendment]”]; See also Cal. Prac. Guide Enf. J. & Debt (2023) Amending Judgment to Add Nonparty Alter Egos as Judgment Debtors, Ch. 6G-15; Nelson v. Adams USA, Inc. (2000) 529 US 460, 466-468, 472 [absent notice and proper opportunity to respond, an amendment to a judgment imposing liability on a third party (not alter ego) violates that party's due process rights].)

Even if the Court found that Defendant Strong has control over JSA, and that led to JSA controlling the underlying litigation, Plaintiffs do not show that there is a unity of interest and ownership between JSA and Defendant Strong. Plaintiffs essentially seek to hold JSA liable as an alter ego of Defendant Strong, and then hold Stason Strong liable as an alter ego of JSA. To do so, the Court would have to reverse-pierce the corporate veil to impose Defendant Strong’s liability against JSA, then again pierce the corporate veil to impose JSA’s liability onto Stason Strong as an alter ego.

Reverse veil piercing is similar to traditional veil piercing in that it involves a court disregarding the separation between an individual and a business entity when the ends of justice so require. (Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 221.) “Rather than seeking to hold an individual responsible for the acts of an entity, reverse veil piercing seeks to satisfy the debt of an individual through the assets of an entity of which the individual is an insider.” (Ibid.) As with traditional veil piercing, there is no precise litmus test; the trial court should, at a minimum, evaluate the same factors as are employed in traditional veil piercing, as well as whether the judgment creditor has any plain, speedy, and adequate remedy at law. (Id.; see Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832, 840-841 [trial court added LLC to judgment against 50% member; appellate court reversed and remanded to consider whether adding LLC would be inequitable to judgment debtor's wife, who had other 50% interest, when they had been separated for over 20 years].)

Critically, Plaintiffs does not cite evidence that Defendant Strong has any equitable interest or ownership in JSA. Plaintiffs presents evidence that Defendant Strong owned half of the Jackson Artwork through a different entity, JSA Partnership, which acquired the remaining 50% interest around Michael Jackson’s death in late June 2009. (RJN Ex. B [Mr. Strong’s Jan. 18, 2018 Decl.] at 5:16-21; RJN Ex. E [Mr. Strong’s Jul. 18, 2019 Trial Brief] at 2:11-13, 3:4-5, 5:17, 6:6-7; RJN Ex. D [Mr. Strong’s Jun. 28, 2019 Decl.] at 22:1-9, 2:22-24.) Otherwise, Plaintiffs do not evidence Defendant Strong’s ownership of JSA LLC. Again, Stason Strong is the managing member of JSA LLC and controls JSA. (RJN Ex. H.) Stason Strong was allegedly aware of and sanctioned Defendant Strong’s continued control over and use of the Jackson Artwork to collateralize his personal loans, among other things. (Orenberg Decl., ¶ 8; Wolfe Decl ¶ 4a, Ex. 17.)

The Court would also note that there are adequate remedies at law for recovery against JSA and Stason Strong. Plaintiffs could pursue a separate action against JSA and Stason Strong, either for a statutory fraudulent transfer claim, or other common law cause of action based on conspiracy or aiding and abetting Defendant Strong’s fraud. (See Macedo v. Bosio Revocable Trust (2001) 86 Cal.App.4th 1044, 1051 [voidable conveyance statutes are not exclusive remedy for fraudulent transfer].) Further, post-judgment mechanisms may exist to enforce the judgment against the property without resorting to adding judgment debtors. (See, e.g., Civ. Code § 3439.07(c); Whitehouse v. Six Corp., (1995) 40 Cal. App. 4th 527, 532 [a plaintiff who suspects that the defendant-debtor has fraudulently transferred assets in order to become judgment proof may also enforce its claim against the transferred property by way of a writ of attachment].)

Accordingly, the motion is DENIED.