Judge: Michael Small, Case: 20STCV00088, Date: 2023-07-10 Tentative Ruling

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Case Number: 20STCV00088    Hearing Date: July 10, 2023    Dept: 57

In January 2021, Ark Brothers, LLC (“Ark Brothers”) obtained a judgment confirming an arbitration award in its favor and against Montecristo International Entertainment LLC (“Montecristo”).  Ark Brothers has yet to collect on the judgment.  Pending before the Court is Ark Brothers’ motion to amend the judgment confirming the arbitration award by adding Cindy R. Nelson-Mullen and Michael Taverna as alter egos of Montecristo (“the Motion to Amend”).  During the time frame of the events giving rise to the arbitration and extending until a month before the Motion to Amend was filed in January 2023, Nelson-Mullen and Taverna were Montecristo’s two members.  Nelson-Mullen's membership was terminated in December 2022.  The Motion to Amend also sought to add Montecristo Fund LLC and Montecristo Media as alter egos of Montecristo, but in its reply brief in support of the Motion to Amend, Ark Brothers indicated that it is only seeking to add Nelson-Mullen and Taverna.  

Based on the evidence presented, the Court finds that Nelson-Mullen and Taverna are alter egos of Montecristo.  Accordingly, the Motion to Amend is granted. 

Trial courts have inherent power to use “all the means necessary to carry [its jurisdiction] into effect.” (Code Civ. Proc., § 187.)  This power encompasses “an amendment adding a judgment debtor liable for the original defendant’s obligations on an alter ego theory.” (Oyakawa v. Gillett (1992) 8 Cal.App.4th 628, 631; see also Hall v. Marconi Conf. Center Bd. (1996) 41 Cal.App.4th 1551, 1555.)  Amending a judgment on this basis is an equitable procedure, which is based on the notion that the amendment does not actually add a defendant but rather “insert[s] the correct name of the real defendant.”  (Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 815.)   

Normally, the formation of a corporation insulates directors, officers, and shareholders from liability on claims of creditors of the corporation.   In certain circumstances, however, a court can disregard the corporate form and hold directors, officers, and shareholders liable as alter egos of the corporation.  (Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 510.)  Those circumstances are limited, however.  That is because piercing the corporate veil on an alter ego “is an extreme remedy, sparingly used.”  (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 281.)  The standard for amending a judgment to add judgment debtors on an alter ego theory requires evidence that the following elements are present: “(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.”  (JPV 1, LLC v. Koetting (2023) 88 Cal.App.5th 172, 194, citation omitted.)  The judgment creditor must show the presence of these elements by the preponderance of the evidence.  (Wollersham v. Church of Scientology (1999) 69 Cal.App.4th 1012, 1017.)  In the Court’s view, Ark Brothers has met the alter ego standard here.

First, Ark Brothers showed that Nelson-Mullen and Taverna controlled Montecristo’s participation in the underlying proceeding here, which was the arbitration that resulted in the award in Ark Brothers’ favor.  That showing is not all that surprising, given that Montecristo is a small, family-run business.  In their opposition to the Motion to Amend, Nelson-Mullen and Taverna did not contest their control over the arbitration for Montecristo. 

Second, Ark Brothers presented sufficient evidence of the unity of interest and ownership between Nelson-Mullen and Taverna, on the one hand, and Montecristo, on the other hand, that justifies disregarding the corporate formalities here.  Among the factors that speak to this element of the standard for piercing the corporate veil on an alter ego basis are “use of the same office or business; commingling of funds and other assets of the individual and the corporation; . . . failure to maintain minutes or adequate corporate records; disregard of corporate formalities; [and the] absence of corporate assets and inadequate capitalization. . .” (JPV I, supra, 88 Cal.App.5th at pp. 194-195; see also Highland Springs, supra, 244 Cal.App.4th at pp. 280-281;  Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1073.)   The excerpts of the transcript of the judgment debtor examination of Nelson-Mullen that Ark Brothers submitted with the Motion to Amend reveal that Montecristo’s address was the same as the address of the private residence of Nelson-Mullen and Taverna; Nelson-Mullen and Taverna commingled their personal funds with Montecristo’s funds; the adequacy of the corporate records was questionable; corporate formalities were not meaningfully observed; and Montecristo, which remains an ongoing business, is severely undercapitalized.  Taverna submitted a declaration along with the opposition to the Motion to Amend.   His declaration, however, failed to negate the evidentiary force of the excerpts from Nelson-Mullen’s deposition.

Third, Ark Brothers demonstrated an inequitable result will follow here if the actions of Montecristo are treated as its alone, and not as the actions of Nelson-Mullen and Taverna.  For purposes of the inequitable result factor, wrongful intent on the part of alleged alter egos of a corporation is not necessary.  (Relentless, supra, 222 Cal.4th at p. 813.)   To be sure, this factor is not met based solely on problems encountered by the judgment creditor in enforcing the judgment and collecting on the debt from the judgment debtor.  (JPV I, supra, 88 Cal.App.5th at p. 199.)  But there is more than just that here.  Taverna touted in his declaration that Montecristo is an ongoing concern, still conducting business.  And yet, the evidence that Ark Brothers submitted shows that, as it continues to operate, Montecristo’s bank account is woefully underfunded -- and routinely so.  Under these circumstances, it would be inequitable to treat Montecristo as separate from Nelson-Mullen and Taverna.  (See Relentless, supra, 222 Cal.App.4th at p. 813 [“Relentless cannot collect its judgment because Airborne is insolvent. Under the circumstances here, this is an inequitable result as a matter of law”].) 

The main argument of Nelson-Mullen and Taverna in their opposition to the Motion to Amend is that the evidence on which Ark Brothers relies is irrelevant to the alter ego inquiry because that evidence centers on the post-judgment relationship between Nelson-Mullen and Taverna, on the one hand, and Montecristo, on the other hand, and alter ego law requires the focus to be directed at the relationship between a corporation and its putative alter egos during the period of the conduct that gave rise to the underlying proceeding.  Nelson-Mullen and Taverna cited only federal case law as support for this proposition.  They cite no California state court precedent, and this Court has not identified any.  In any event, Nelson-Mullen and Taverna overstate their point.  It is not clear that the evidence on which Ark Brothers relies is purely post-judgment.

In sum, the Court finds that this is a case in which a corporation’s veil can be pierced on an alter ego theory. The evidence shows that Nelson-Mullen and Taverna are the alter egos of Montecristo.  Accordingly, the Motion to Amend is granted.