Judge: Mark H. Epstein, Case: 24SMCV00137, Date: 2025-02-18 Tentative Ruling

Case Number: 24SMCV00137    Hearing Date: February 18, 2025    Dept: I

The motion to amend the judgment is CONTINUED.  The court has insufficient evidence that the new parties are truly alter egos of the judgment debtor.  It is the judgment creditor’s burden to prove the elements of alter ego by competent evidence; that was not fully done here, although plaintiff has gone a long way towards making the showing.  The court is also concerned as to the service of the parties to be added.  They must be served properly.  That said, the proofs of service do seem to make at least a prima facie case for proper service.

If it is worth doing, it is worth doing right.  The court also notes that this sort of amendment can be unfair.  The newly added parties had no opportunity to defend in the litigation.  That is not a problem where the new party is truly an alter ego.  In that case, the new party did have an opportunity to defend and simply chose not to do so hoping that the corporate veil would not be pierced.  But that is why the creditor must make a good alter ego showing.

The new parties state that judgment creditor’s counsel’s declaration is not admissible evidence.  The court is not so sure.  Counsel can testify as to what the underlying lease says once it is authenticated, the validity of the settlement agreement, and what Cozart told him.  He can also attest as to Cozart’s involvement in the case.  Frankly, the court thinks that a prima facie showing has been made.  In opposition papers—filed Thursday, February 13, 2025—Cozart and Icon (the parties to be added) claim that Cozart did not control the litigation and that Icon and Integrated are not aligned.  Cozart submitted a declaration.  He states that the judgment debtor is a medical corporation, but he cannot legally own it because he is not a doctor.    He states that he did not make the final decisions for the debtor, rather Dr. Robinson did so and Cozart was but a middleman.  He also declares that Icon had nothing to do with anything.  He denies comingling of funds or assets and also that Icon and the debtor have different ownership and management.  Finally, he notes that there was collateral for the judgment debt that has value in excess of the settlement, so there is no inequitable result absent an alter ego finding.  Further, the new parties claim that they did not get proper service.  However, the proof of service indicates that it was served on January 10, 2025.  It could be that the missing declarations establish the impropriety of the service.

Plaintiff must understand that alter ego law is hard to apply from one entity to another.  It is a way to make the owner of a jural entity liable for the debts of the entity, but it usually does not then go to sister-entities.  That might get to Cozart, but it would not easily get to Icon.  It is true that there are a handful of cases in which the alter ego doctrine is used to make a cluster of sibling entities jointly liable where there is common ownership.  But while that is pled in almost every case the court has seen, it has been upheld in less than a half dozen reported California cases (the court believes).  What plaintiff might really be claiming as to Icon is successor liability, but if so, then plaintiff needs to make that showing.  It might also be that plaintiff is trying to claim a voidable transfer—what people used to call a fraudulent transfer, which is where an insolvent debtor unloads assets for inadequate consideration to a third party, often to hide the asset although sometimes to favor one creditor over another.  But if that is the argument, plaintiff needs to make it appropriately, and it is not clear that such an argument can be made by way of a motion to amend the judgment.

In any event, the court will give plaintiff an opportunity to file a reply.  The court will discuss timing with the parties.

If plaintiff wants to submit additional evidence to bolster the allegations or assert a new theory, though, the better way to do it is in a new motion following additional discovery.  And this is a case where one would think that Cozart’s factual statements will need to be addressed with new evidence.  For example, plaintiff might want to examine the books and records of the judgment debtor and Icon to see how the money flows.  And Cozart’s financials also will likely not be off limits for thorough discovery.  If such is the case, the court would advise the new parties to buckle up because plaintiff will likely undertake a relatively detailed dive.