Judge: Mark A. Young, Case: SC128428, Date: 2022-08-09 Tentative Ruling
Case Number: SC128428 Hearing Date: August 9, 2022 Dept: M
CASE NAME: The Semler Co./Malibu LP v. Pelissier
CASE NO.: SC128428
MOTION: Motion to Amend Judgment & Issue Sanctions
HEARING DATE: 8/9/2022
Legal Standard
Pursuant to Code of Civil Procedure section 187, a trial court has jurisdiction to modify a judgment to add additional judgment debtors. The Court may use all means to carry its jurisdiction into effect, even if those processes are not set out in the code. “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; e.g., Dow Jones Co. v. Avenel (1984) 151 Cal. App. 3d 144, 148-149.)
“Modification of a judgment may be proper when the newly-named defendant is an existing defendant’s alter ego. ‘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, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons ... actually controlling the corporation, in most instances the equitable owners. The alter ego doctrine prevents individuals ... from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds.” (Wolf Metals Inc. v. Rand Pacific Sales, Inc. (2016) 4 Cal.App.5th 698, 703, internal citations omitted).)
“Before the alter ego doctrine will be invoked in California, two conditions generally must be met. ‘First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.’ While courts have developed a list of factors that may be analyzed in making these determinations, ‘[t]here 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.’” (Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 220–221 internal citations and alterations omitted.)
“The first requirement for disregarding the corporate entity under the alter ego doctrine—whether there is sufficient unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist—encompasses a series of factors. Among the many factors to be considered in applying the doctrine are one individual’s ownership of all stock in a corporation; use of the same office or business location; commingling of funds and other assets of the individual and the corporation; an individual holding out that he is personally liable for debts of the corporation; identical directors and officers; failure to maintain minutes or adequate corporate records; disregard of corporate formalities; absence of corporate assets and inadequate capitalization; and the use of a corporation as a mere shell, instrumentality or conduit for the business of an individual. This list of factors is not exhaustive, and these enumerated factors may be considered with others under the particular circumstances of each case. ‘No single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.’” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1073, internal citations omitted.)
“The second requirement for application of the alter ego doctrine is 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.” (Id. at 1073, internal citation omitted.) “As we have stated, a court has authority to impose liability under a judgment on an alter ego who has control of the litigation. Amendment of a judgment to add an alter ego is a proper procedure where it can be shown that the alter ego of the corporate entity had control of the litigation and was virtually represented in the lawsuit.” (Id. at 1075, internal citation omitted.)
Analysis
Judgment Creditor (JC)’s request for judicial notice is GRANTED. (Evid. Code § 452(d).)
On May 1, 2018, the Judgment was entered in favor of Plaintiff The Semler Co./Malibu LP and against Defendant Pelissier (JD) in the amount of $548,644.92. JC renewed the Judgment on November 18, 2021, and the amount of the Judgment (as of February 23, 2022) is $1,008,033.65.
JC has unsuccessfully attempted to obtain information regarding JD’s assets in order to enforce its judgment. However, Pelissier obstructed Plaintiff from obtaining information regarding her assets. Pelissier is currently in contempt of Court. (See 4/6/21 Minute Order.) Pelissier has failed to appear for the Judgment Debtor Examine and contempt hearings on December 13, 2021, January 20, 2022, March 8, 2022, and June 22, 2022.
JC moves to add Malibu Media, LLC (“Malibu Media”) to the judgment as an alter ego of JD. JC relies on a theory of reverse veil piercing. Outside reverse veil piercing differs from traditional alter ego veil piercing. Outside reverse veil piercing arises when the request for piercing comes from a third party outside the targeted business entity. “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.” (Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 221.) As with traditional veil piercing, there is no precise litmus test. (Id., at 224.) Rather, the key is whether the “ends of justice require disregarding the separate nature” of the LLC under the circumstances. (Ibid.) This requires the court to evaluate the same factors as are employed in a traditional veil piercing case, as well as whether the judgment creditor has any plain, speedy, and adequate remedy at law. (Id. at 224 [judgment creditor was not precluded from reverse piercing to add LLC where judgment debtor held 99 percent interest and debtor's wife held remaining one percent interest; due to community property law, there was no innocent member of LLC who could be affected by reverse piercing].)
JC has demonstrated that Malibu Media exists as Pelissier’s main vessel to conceal her assets from creditors, and other factors in favor of reverse veil piercing. Pelissier is the sole owner, managing member, and agent for service of process of Malibu Media. (Bardo Decl., ¶¶ 5-7, Exs. A, B.) Thus, she apparently has complete ownership and control of Malibu Media. Pelissier made it clear that the monies from her “LLCs” were available for her personal use, stating “I can’t have any personal money transferred to myself. I have to get anything I need paid for by my husband or paid for by a company.” (ID. Ex. E.)
JC demonstrates that Malibu Media does not adhere to corporate formalities. Pelissier stated that she is the only member of Malibu Media and that Malibu Media, as “single-member limited liability companies . . . are pass-through or ‘disregarded entities’ who do not file their own tax return.” (Bardo Decl., Ex. B [B-2, ¶ 3].) Pelissier also claimed that she is not in possession custody or control of documents that show her ownership of Malibu Media. (Bardo Decl., Ex. B [B-2, ¶ 3].) Pelissier (on behalf of Malibu Media) has stated in another action that she “is not in possession, custody, or control of” any statements of account for the last 3 years, bankbooks, passbooks, or checkbooks for any type of financial account in which Malibu Media has any interest and is maintained by or for Malibu Media in a bank, savings and loan, securities firm, brokerage firm, or any other financial institution. (RJN, Ex. 6 [Pg. 20 of 23].) Pelissier (on behalf of Malibu Media) stated that it “has not filed state or federal tax returns for the last 3 years.” (RJN, Ex. 6 [Pg. 20 of 23].) Additionally, Pelissier (on behalf of Malibu Media) stated that it has no financial statements, whether audited or unaudited, for the last 3 years and no general ledgers or accounting records for the last 3 years. (RJN, Ex. 6 [Pg. 20 of 23].) Finally, Pelissier (on behalf of Malibu Media) stated that it has no listing of accounts receivable, listing of real or personal property, safety deposit boxes, promissory notes or other records due to Malibu Media, title to motor vehicles or other titled personal property, title to real estate, or any other documents which may contain information concerning Malibu Media’s property, income, or indebtedness owed to Malibu Media. (RJN, Ex. 6 [Pg. 20 of 23].)
JD considered funds in the accounts of her “LLCs” as available for her personal use. (Bardo Decl., Ex. E.) For instance, Pelissier claimed that funds from her LLCs were available to pay a mortgage on a property in the name of Pelissier and her husband. (Bardo Decl., Ex. E [Pg. E-9-11, 13, 17, 19].)
As such, there is no usual separation that exists between the LLC and Pelissier. JC has thereby demonstrated that a unity of interest and ownership between the two such that separate personalities do not in reality exist. Therefore, the ends of justice require disregarding the separate nature of the LLC.
JC has also demonstrated, by its attempts to enforce its judgment through customary methods of collection, that there would be no adequate alternative remedy.
Accordingly, JC’s motion is GRANTED.
Sanctions
JC seeks issue sanctions against Pelissier where she is prevented from presenting any opposition or objection to Plaintiff’s attempts to add individuals or business entities to the Judgment, and that various entities be declared alter egos.
The requested issue sanctions do not seem appropriate. Plaintiff demonstrates that there is some logical connection between the requested discovery, and the specific issue sanctions requested. Plaintiff requested information regarding JD’s assets, including interests in such LLCs, and JD refused to cooperate. That said, the issue sanctions statute only pertains to designating facts as established or supporting/opposing claims or defenses on the merits. (See CCP § 2023.030(b).) The issuance of a discovery sanction here would bring third parties into the case without evidence of liability or alter ego. As such, the issue sanctions would allow JC to ignore the requirements for amending the judgment under Code of Civil Procedure section 187.
Moreover, JC failed to provide the required separate statement. (CRC Rule 3.1345.)
Accordingly, JC’s motion for sanctions is DENIED.