Judge: Michael E. Whitaker, Case: 22SMCV01293, Date: 2023-12-07 Tentative Ruling

Case Number: 22SMCV01293    Hearing Date: December 7, 2023    Dept: 207

TENTATIVE RULING

DEFENDANT’S MOVING PAPERS:

1. Notice of Motion and Motion for Summary Judgment, or in the Alternative, Summary Adjudication; Memorandum of Points and Authorities
2. Declaration of Thomas M. Padian
3. Declaration of Stephen Robert Brown
4. Declaration of Outline Studios LLC
5. Declaration of Ashley Wendell
6. Request for Judicial Notice
7. Separate Statement of Undisputed Material Facts

PLAINTIFFS’ OPPOSITION PAPERS:

1. Plaintiffs’ Opposition to Defendant’s Motion for Summary Judgment/Adjudication; Memorandum of Points and Authorities
2. Index of Evidence
3. Declaration of Stefan Wrobel
4. Request for Judicial Notice
5. Plaintiffs’ Objections to Evidence
6. Plaintiffs’ Separate Statement of Undisputed Material Facts

DEFENDANT’S REPLY PAPERS:

1. Reply in Support of Motion for Summary Judgment/Adjudication
2. Response to Separate Statement of Additional Undisputed Material Facts
3. Declaration of Michael K. Murray[1]
4. Declaration of Ashley Wendell

BACKGROUND

Plaintiffs Stefan Wrobel (“Wrobel”) and Melissa Pena (“Pena”) (collectively, “Plaintiffs”) sued Defendants Hazel & Oak Construction, LLC (“H&O”); Stephen Robert Brown (“Brown”); and Ashley Wendell (“Wendell” or “Defendant”) (collectively, “Defendants”) stemming from two agreements between Plaintiffs and H&O for H&O to perform construction services on Plaintiffs’ two residential properties, located at 27 Buccaneer Street (“27 property”) and 29 Buccaneer Street (“29 property”), in Marina Del Rey, California.  There is a separate agreement for each property.

The first amended complaint alleges seven causes of action: (1) breach of written contract; (2) statutory disgorgement (B&P code §7031); (3) fraud; (4) negligent misrepresentation; (5) negligence; (6) alter ego; and (7) constructive trust. 

Although the contracts at issue are between Plaintiffs and H&O, signed by Brown on behalf of H&O, Plaintiffs seek to hold Wendell liable on a theory of alter ego liability.  Plaintiffs also seek a constructive trust, alleging H&O transferred funds to Wendell that should rightfully have been transferred to Plaintiffs instead.

Defendant Ashley Wendell moves for summary judgment, or in the alternative, adjudication, on the basis that Plaintiffs cannot establish the elements of their claims as to Wendell.  Wendell contends that although Plaintiffs hired her company, Outline Studios, to do the interior design work for the projects, and although she is in a romantic relationship and lives with Defendant Brown, principal of Defendant H&O, which Plaintiffs hired to do the construction work on the projects, Wendell is not affiliated with H&O, and therefore cannot be held liable for the alleged unsatisfactory construction work of H&O.

 Plaintiffs oppose, arguing there are disputed triable issues of material fact regarding Wendell’s official connections to H&O and its finances, as well as to Brown.  Wendell has replied. 

LEGAL STANDARDS – SUMMARY JUDGMENT/ADJUDICATIION

“[T]he party moving for summary judgment bears the burden of persuasion that there is no triable issue of material fact and that he is entitled to judgment as a matter of law[.] There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 850.) “[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact.” (Ibid.)

“On a summary judgment motion, the court must therefore consider what inferences favoring the opposing party a factfinder could reasonably draw from the evidence. While viewing the evidence in this manner, the court must bear in mind that its primary function is to identify issues rather than to determine issues. Only when the inferences are indisputable may the court decide the issues as a matter of law. If the evidence is in conflict, the factual issues must be resolved by trial.” (Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 839 [cleaned up].) Further, “the trial court may not weigh the evidence in the manner of a factfinder to determine whose version is more likely true. Nor may the trial court grant summary judgment based on the court's evaluation of credibility.” (Id. at p. 840 [cleaned up]; see also Weiss v. People ex rel. Department of Transportation (2020) 9 Cal.5th 840, 864 [“Courts deciding motions for summary judgment or summary adjudication may not weigh the evidence but must instead view it in the light most favorable to the opposing party and draw all reasonable inferences in favor of that party”].)

EVIDENCE

1.      Wendell’s Request for Judicial Notice

Wendell requests the Court take Judicial Notice of the operative first amended complaint.  Defendants have not opposed.

Judicial notice may be taken of records of any court in this state.  (Evid. Code, § 452, subd. (d)(1).)  Because the first amended complaint is part of the Court’s record for this case, the Court may take judicial notice of it.  (Ibid.)   However, “while courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files.  Courts may not take judicial notice of allegations in affidavits, declarations and probation reports in court records because such matters are reasonably subject to dispute and therefore require formal proof.”  (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 [cleaned up].)  Accordingly, the Court takes judicial notice of the existence of the first amended complaint filed in this matter as a court record, but not the truth of the allegations contained therein.

2.      Plaintiffs’ Request for Judicial Notice

            Plaintiffs request the Court take Judicial notice of three documents:

• Exhibit A – A copy of the completed “LLC Registration – Articles of Organization” form filed with the California Secretary of State on September 23, 2021, for Hazel and Oak Construction Limited Liability Company

• Exhibit B – A copy of the “Short Form Certificate of Cancellation – LLC Termination” form filed with the California Secretary of State on May 11, 2022, for Hazel and Oak Construction Limited Company.

• Exhibit C – A copy of the “Articles of Organization CA Limited Liability” form filed with the California Secretary of State on May 24, 2022, for OZM build group LLC.

Evidence Code section 452, subdivision (c) permits courts to take judicial notice of “Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.” 

Official notices, statements, and certificates made by the Secretary of State and by the Franchise Tax Board are properly the subject of judicial notice as documents reflecting official acts of the executive department of the State of California, pursuant to Evidence Code, section 452, subdivision (c).  (Friends of Shingle Springs Interchange, Inc. v. County of El Dorado (2011) 200 Cal.App.4th 1470, 1483–1484.)            However, “materials prepared by private parties and merely on file with the state agencies” may not be properly judicially noticed as an official act of a legislative, executive, or judicial department of the United States or any state of the United States.  (People v. Thacker (1985) 175 Cal.App.3d 594, 598.)

Because the documents sought to be judicially noticed were all prepared by private parties, as opposed to by the Secretary of State, the court denies Plaintiffs’ request for judicial notice.

3.      Plaintiffs’ Evidentiary Objections

The Court rules as follows on Plaintiffs’ evidentiary objections:

• Brown Decl., at ¶ 5: sustained
• Brown Decl., at ¶ 9: sustained
• Brown Decl., at ¶ 11: overruled
• Brown Decl., at ¶ 12: overruled
• Brown Decl., at ¶ 13: overruled
• Wendell Decl., at ¶ 7: overruled
• Wendell Decl., at ¶ 8: overruled
• Wendell Decl., at ¶ 9: overruled
• Wendell Decl., at ¶ 10: overruled
• Wendell Decl., at ¶ 11 (first): overruled
• Wendell Decl., at ¶ 11 (second): overruled
• Outline Decl., at ¶ 2: overruled
• Outline Decl., at ¶ 6: overruled
• Outline Decl., at ¶ 9: overruled
• Outline Decl., at ¶ 12: overruled

DISCUSSION

Wendell contends that Plaintiffs cannot establish the elements of any of their causes of action, which all arise from H&O’s alleged conduct, against Wendell, because Wendell has no official connection to, or ownership of H&O, its corporate records, or its finances. 

The two general requirements for alter ego liability are: “(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.” (Mesler v. Bragg Mgmt. Co. (1985) 39 Cal.3d 290, 300 (hereafter Mesler).)

Several factors are often considered in applying the doctrine, including but not limited to (1) commingling of funds and other assets; (2) failure to segregate funds of the separate entities; (3)  the unauthorized diversion of corporate funds or assets to other than corporate uses; (4) the treatment by an individual of the assets of the corporation as his own; (5) the failure to obtain authority to issue stock or to subscribe to or issue the same; (6) the holding out by an individual that he is personally liable for the debts of the corporation; (7) the failure to maintain minutes or adequate corporate records; (8) sole ownership of all of the stock in a corporation by one individual or the members of a family; (9) the failure to adequately capitalize a corporation; (10) the total absence of corporate assets, and undercapitalization; (11) the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation; (12) the concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities; (13) the disregard of legal formalities and the failure to maintain arm's length relationships among related entities; (14) the use of the corporate entity to procure labor, services or merchandise for another person or entity; (15) the diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another; (16) the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions; and (17) the formation and use of a corporation to transfer to it the existing liability of another person or entity.  (Leek v. Cooper (2011) 194 Cal.App.4th 399, 417–418.)

Wendell’s Evidence

In support, Wendell has provided the following admissible evidence:

• The two agreements at issue are between Plaintiffs on the one hand, as property owners, and H&O on the other hand, as contractor.  Defendant Brown signed the contracts on behalf of H&O.  (SSUF Nos. 1-3, 6-8.)

• Plaintiffs and Wendell, using the email address ashley@outlinestudios.com, separately negotiated regarding an agreement for Wendell’s company, Outline Studios, LLC (“Outline”), to do the interior design work for the properties, and ultimately hired Outline to do the interior design work for both properties. (SSUF Nos. 4-5; 9-11.)

• Outline performed interior design work for both properties, and invoiced Plaintiffs for interior design work done.  (SSUF Nos. 15-21.)

• H&O is wholly owned and operated by Brown alone.  (Brown Decl. ¶ 10).

• Wendell has no interest or ownership in H&O, has never been an H&O employee, manager, member, shareholder, held any position with H&O, performed any work on behalf of H&O, had authority to act on behalf of or bind H&O, or had access to H&O’s bank account(s) or corporate records.  (Wendell Decl. ¶¶ 8, 10; Brown Decl. ¶ 11.)

• Neither Wendell nor anyone in her family are related to H&O’s officers, directors, or shareholders, except that Wendell is in a dating relationship and lives with Brown.  (Wendell Decl. ¶¶ 9, 12; Brown Decl. ¶¶ 11, 14.) 

• Neither Wendell nor Outline were hired to or actually did perform any construction activities on the projects.  (Outline Decl. ¶¶ 6, 9; Wendell Decl. ¶¶ 4, 7.)

• Wendell has not been paid on behalf of H&O, received a paycheck from H&O, received funds from H&O, or comingled H&O funds with her own.  (Wendell Decl. ¶ 9; Brown Decl. ¶¶ 12, 13.)

Therefore, Wendell has met her burden of production and persuasion to establish her prima facie case that there is no basis to hold Wendell liable as an alter ego for H&O or for a constructive trust.

Plaintiffs’ Evidence

            Plaintiffs have provided the following evidence:

• Wendell and Outline are expressly named in the agreement for the 29 property. (Brown Decl. ¶ 6, Ex. 2.)

• H&O and Outline are operated out of the same address, a residential property owned by Wendell.  (Wendell Decl. ¶ 12; Brown Decl. ¶ 14.) [SSUF Nos. 38-39]

• Brown holds out Wendell as being his wife.  (Wrobel Decl. ¶ 3.e. and Ex. C; Howard Decl. ¶ 3 and Ex. A.) [SSUF No. 40.]

• H&O’s bank account records demonstrate the following transfers:

• $600 Zelle Transfer to Wendell on 10/4/21
• $1,774 Zelle Transfer to Wendell on 10/18/21
• $1,774 Zelle Transfer to Wendell on 10/18/21
• $15,000 Zelle Transfer from Outline Studios LLC on 3/31/22
• $5,000 Zelle Transfer from Outline Studios LLC on 4/4/22

(SSUF Nos. 46-49.)

• Outline interacted with Emser Tile for the project (Outline Decl. ¶ 13); Emser issued Outline an “Order Acknowledgment” on December 16, 2021 (Outline Decl. ¶ 16 and Ex. 12) but H&O’s bank records show two transfers to Emser tile related to the project on July 12 and 13, 2021 (Ex. O to Khalifian Decl.) [SSUF Nos. 14, 17, 50.]

• Wendell’s work on the project began prior to the agreement for Outline to provide design services for the project, and continued after the final invoice from Outline.  (SSUF Nos. 10-12; 57-61; 65; 70-73.)

• Brown informed Plaintiffs in May 2022 that Wendell was taking over as “project manager” (Wrobel Decl. ¶ 7; Pena Decl. ¶ 7.)

With regard to the bank account transfers, Wendell has explained on Reply that the account is in the name of “Stephen Robert Brown Sole Prop DBA Hazel and Oak Construction” and Wendell believed this was Brown’s personal account.  The two transfers for $1,774 were for Brown’s half of the couple’s mortgage payment, and the two transfers for $5,000 and $15,000 (totaling $20,000) were to pay Brown back for money he had deposited to Wendell in connection with the anticipated joint purchase of real property with Wendell, but ultimately Brown decided not to purchase the property and Wendell purchased it herself.  (Reply at pp. 10-11.) 

As discussed above, the Court is disinclined to consider reply evidence.  (See fn. 1, supra.)  But even if the Court were to consider the additional evidence Wendell has provided on Reply to explain some of the transfers, the Court notes that the $20,000 is listed as coming from Outline, not from Wendell, and is sent to the bank account for H&O, not Brown’s personal bank account.  Therefore, there remains a disputed issue of material fact regarding comingling of funds among Brown, H&O, Outline, and Wendell, as well as use of corporate funds for personal uses. 

Moreover, the agreement for the 29 property incorporating Outline’s drawings into the construction plan may exceed the scope of an interior designer’s duties, suggesting Wendell may have done work for H&O.  Additionally, there is some disputed evidence that Brown held out Wendell as the “project manager” for the construction project.  Furthermore, there is evidence that Outline performed tasks for H&O, such as coordinating the purchase of the Emser Tile H&O paid for.

Therefore, Plaintiffs have met their burden of production in establishing genuine issues of material fact precluding summary judgment or summary adjudication with respect to Undisputed Material Fact Nos. 6, 14, 24-31, and 36.

CONCLUSION AND ORDER

Because genuine issues of material fact preclude summary judgment on the issue of alter ego liability, Wendell’s Motion for Summary Judgment, or in the alternative, Adjudication is denied as to all Issues 1 through 7. 

Wendell shall provide notice of the Court’s ruling and file a proof of service regarding the same. 

DATED: December 7, 2023                                                   ___________________________

Michael E. Whitaker

                                                                                          Judge of the Superior Court