Judge: Nathan Vu, Case: 2014-00747376, Date: 2022-09-12 Tentative Ruling

Motion to Amend Amended Judgment

The motion to amend the Amended Judgment entered 10/18/2019 is DENIED in part and GRANTED in part.

The court GRANTS leave to amend the Amended Judgment entered 10/18/2109 to add AdoptionNetwork.com, LLC as a judgment debtor, and denies as to all other proposed judgment debtors.

Defendants Nathan Gwilliam, Crystal Gwilliam, Aracaju, Inc., and Elevati, Inc., shall submit a proposed amended judgment consistent with this decision.

Defendants Nathan Gwilliam, Crystal Gwilliam, Aracaju, Inc., and Elevati, Inc., (collectively, Judgment Creditors) move to amend the Amended Judgment entered 10/18/2019 to add Adoption Pro, Inc., Elite Marketing LP, and AdoptionNetwork.com, LLC (collectively, the “Proposed Judgment Debtors”) as judgment debtors.

Over-Length Brief

Proposed Judgment Debtors assert that the Judgment Creditors violated the page limits by disguising their arguments in footnotes totaling 32 lines. The court finds that the Judgment Creditors’ use of footnotes is not excessive and the memorandum of points and authorities is otherwise within the allotted 15 pages. The court denies the request to strike the memorandum of points and authorities.

Bankruptcy Stay

Proposed Judgment Debtors next argue that Judgment Creditors seek to add two legal entities owned directly or indirectly by Allan Gindi (Gindi) – Elite Marketing, LP, (Elite Marketing) and AdoptionNetwork.com, LLC (AdoptionNetwork) – and Alan Gindi has filed for bankruptcy protection. Thus, these proceedings should be denied or stayed due to the automatic stay of 11 U.S.C. section 362.

Elite Marketing is owned by general partner Marketing Masters, Inc., (1%) and the AK Rollover Retirement Trust (Retirement Trust) (99%). (Hatch Decl., Exh. B [ProMedia’s Interrog. Resp.] at p. 5:6.) The AdoptionNetwork is owned entirely by the Retirement Trust. (See Hatch Decl., Exh. K [2015 Voluntary Surrender of Collateral Agreement].) Gindi is the trustee of the Retirement Trust and the beneficiary and/or ultimate owner of the assets of Elite Marketing and AdoptionNetwork.

Whether the assets in the Retirement Trust are implicated in Gindi’s bankruptcy proceeding depends on whether it is a revocable or irrevocable trust. (See In re Irwin (E.D. Cal. 2006) 338 B.R. 839, 852-853 [property placed in revocable trust constitutes property of bankruptcy estate].) Unfortunately, neither party addresses this issue.

However, even if the court assumes the Retirement Trust is a revocable trust, the bankruptcy stay would not reach Elite Marketing or AdoptionNetwork. Both are separate legal entities with separate assets and liabilities. The bankruptcy of a natural person who has an interest in either entity would not cause the stay to apply to the entities if the entities had not filed for bankruptcy themselves. (See Ingersoll-Rand Financial Corp. v. Miller Mining Co., Inc. (9th Cir. 1987) 817 F.2d 1424, 1427 [“[I]n the absence of special circumstances, stays pursuant to section 362(a) are limited to debtors and do not include non-bankrupt co-defendants.”].)

At best, the bankruptcy estate would include only Gindi’s ownership interest in or rights to distributions from Elite Marketing and AdoptionNetwork. (See Matter of Newman (8th Cir. 1989) 875 F.2d 668, 671 [holding that bankruptcy trustee’s only interest in debtor’s partnership property was right to demand partner’s share of distribution]; Corporations Code, § 17706.02, subd. (g) [member is disassociated from a member-managed limited liability company upon becoming debtor in bankruptcy]; Corporations Code, § 17706.03, subd. (a)(3) [upon disassociation, member becomes transferee with respect to member’s transferable interest (i.e., right to distributions made by limited liability company)].)

Amending Judgment to Add Judgment Debtors

The court has jurisdiction to modify a judgment to add additional judgment debtors. Code of Civil Procedure section 187 provides to this court “all the means necessary to carry [its jurisdiction] into effect . . . ; 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.” Granting or denying a motion to amend the judgment lies within the discretion of the trial court, and any review of the trial court’s decision is based on substantial evidence. (McClellan v. Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 752.)

Case law provides that a successor corporation constituting a “mere continuation” of a judgment debtor’s business is liable for the debtor’s debts and liabilities. (See Wolf Metals Inc. v. Rand Pacific Sales, Inc. (2016) 4 Cal.App.5th 698, 705; McClellan v. Northridge Park Townhome Owner’s Ass’n. (2001) 89 Cal.App.4th 746, 749; Blank v. Olcovich Shoe Corp. (1937) 20 Cal.App.2d 456, 461.)

“[A] corporation acquiring the assets of another corporation is the latter’s mere continuation and therefore liable for its debts have imposed such liability only upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor corporation's assets and made available for meeting the claims of its unsecured creditors; [and/or] (2) one or more persons were officers, directors, or stockholders of both corporations.” (Ray v. Alad Corp. (1977) 19 Cal.3d 22, 29 [citations omitted].)

While most cases involve inadequate consideration, (see Katzir’s Floor & Home Design, Inc. v. M-MLS.com (9th Cir. 2004) 394 F.3d 1143, 1149), no California case has expressly held that inadequacy of consideration is required, (Wolf Metals Inc. v. Rand Pacific Sales, Inc. (2016) 4 Cal.App.5th 698, 710.)

For example, in Wolf Metals Inc. v. Rand Pacific Sales, Inc., the Court of Appeal found the trial court acted within its discretion in amending a default judgment to add a successor corporation where both corporations were run by the same individual; both corporations shared the same president, secretary, treasurer, business location, and agent for service; the successor corporation took possession of all remaining assets; and the successor corporation offered services identical to those provided by the previous employer, using the same employees. (Id. at pp. 709-710.)

Proposed Judgment Debtor Adoption Pro, Inc.

Judgment Creditors fail to show that Adoption Pro, Inc. (Adoption Pro) is a successor to the current judgment debtor ProMedia, Inc. (ProMedia). Adoption Pro is a law firm owned by Laurent Beth Lorber. (Gindi Decl., ¶ 20.) There is no evidence of common ownership or management between ProMedia and Adoption Pro. Judgment Creditors also fail to show that Adoption Pro acquired any assets of ProMedia or continued any business of ProMedia. Finally, Adoption Pro was created 16 months after ProMedia ceased operating. (Gindi Decl., ¶ 7(1).)

The court declines to exercise its discretion to modify the judgment to add proposed judgment debtor Adoption Pro. Inc.

Proposed Debtor Elite Marketing, LP

There is some overlap in ownership and management between ProMedia and Elite Marketing. Elite Marketing is owned by general partner Marketing Masters, Inc., (1%) and the Retirement Trust (99%), of which Gindi is a trustee. (Hatch Decl., Exh. B [ProMedia’s Interrog. Resp.] at p. 5:6).

ProMedia was owned by Carol Gindi, the wife of Allan Gindi. (Gindi Decl., ¶ 11.) Allan Gindi served as the chief financial officer of ProMedia and managed it after 2002. (Gindi Decl. ¶ 20.) In a verified bankruptcy filing, Allan Gindi and Carol Gindi conceded that they collectively “control” Elite Marketing and its general partner. (Hatch Decl., Exh. R at 5:7-10.)

Judgment Creditors, however, fail to show inadequate consideration for ProMedia’s assets. Judgment Creditors rely on a licensing agreement between Elite Marketing and Adoption Pro to support the argument that Elite Marketing “stepped directly into ProMedia’s marketing shoes” and obtained one of ProMedia’s most important revenue streams. (Mot. at 17:13-17.)

However, Adoption Pro was created 16 months after ProMedia ceased operating and after ProMedia had transferred its assets to AdoptionNetwork already. (Gindi Decl., ¶ 7(1).) And as explained above, there is no evidence of common ownership or management between ProMedia and Adoption Pro and no evidence that Adoption Pro acquired any of the assets or business of ProMedia.

The court declines to exercise its discretion to modify the judgment to add proposed judgment debtor Elite Marketing, LP.

Proposed Judgment Debtor AdoptionNetwork.com, LLC

Judgment Creditors are able to establish that ProMedia and AdoptionNetwork have common management. Allan Gindi managed ProMedia, (see Gindi Decl. ¶20), and served as the manager of the AdoptionNetwork, (see Hatch Decl., Exh. L).

Judgment Creditors also showed that AdoptionNetwork acquired the assets, including the intellectual property assets, of ProMedia and paid inadequate consideration for them.

ProMedia and the Proposed Judgment Debtors argue that adequate consideration was paid for these assets because they secured a $470,000 loan. (See Opp’n at p. 15:24-16:4.) However, the loan provided adequate consideration for the Retirement Trust’s acquisition in 2015 of AdoptionNetwork, the relevant transfer is AdoptionNetwork’s acquisition of ProMedia’s assets in 2014. It is undisputed that ProMedia transferred its assets to its then-subsidiary for no consideration. (See Gindi, Decl. ¶ 11.)

The court exercises its discretion to modify the judgment to add AdoptionNetwork.com, LLC, as a judgment debtor.

The evidentiary objections submitted are moot as they were not material to the disposition of this motion.

The court did not consider any new evidence submitted in the reply, and it was not material to the disposition of this motion.

Judgment Creditors shall give notice of this ruling.