Judge Randolph M. Hammock, Case 20STCV17338 2023-03-14 Tentative Ruling

Plaintiff Anie Piliguin alleges she entered into a written consulting agreement with Defendants Quantum Management Company, LLC, Daniel Hernandez, and Afrack Vargas. Under the agreement, Defendants were to obtain necessary local licenses and permits for either a grow facility, extraction facility, or a dispensary; Plaintiff paid them a $50,000 retainer fee. Plaintiff alleges Defendants failed to perform under the agreement and refuse to return her retainer. Plaintiff brings causes of action against each Defendant for (1) breach of contract, (2) actual fraud, (3) constructive fraud, (4) intentional misrepresentation of fact, (5) promise made without intention to perform, (6) breach of implied covenant of good faith and fair dealing, (7) conversion, (8) accounting, (9) constructive trust, (10) and unfair business practices.

There are three Defendants in this action: individuals Daniel Hernandez (“Hernandez”) and Afrack Vargas (“Vargas”), and the entity Quantum Management Company, LLC (“Quantum”). The individuals are each alleged to have been “the CEO, a managing member, owner, officer, director and shareholder” of Quantum. (Compl. ¶¶ 4, 5.) On January 27, 2023, a default judgment was entered against Defendants Quantum and Hernandez. Plaintiff now moves to amend the judgment to add Defendant Afrack Vargas as an additional judgment debtor.

Code of Civil Procedure section 187 gives the court authority to amend a judgment to add additional judgment debtors. (See CCP § 187.) The “judgment may be amended to add additional judgment debtors on the ground that a person or entity is the alter ego of the original judgment debtor.” (Relentless Air Racing, LLC v. Airborne Turbine Ltd. P'ship (2013) 222 Cal. App. 4th 811, 815.) Amending the judgment 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.” (Id.) “The decision to grant an amendment lies in the sound discretion of the trial court,” and “[g]reat liberality is allowed in granting such amendments.” (Id.)

In order to prevail in a motion to add judgment debtors, a judgment creditor must show that “(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.” (Id. at 815-816.)

Plaintiff argues the first element is met here because Vargas “was personally involved in the instant litigation from the initial Complaint through demanding a jury trial and filing trial documents at the first final status conference in this case.” (Mtn. 19-21.) While true, this first element appears to contemplate the scenario where the proposed judgment debtor’s chance to defend the action has come and gone, or where he has not appeared at all—not where, as here, the Defendant is actively defending the action.

Indeed, Plaintiff’s motion notably lacks anything beyond a surface-level discussion of the controlling case law. That authority, discussed by Defendant in opposition, demonstrates why Plaintiff’s requested relief is unavailable here. In Motores De Mexicali, S. A. v. Superior Ct. (1958) 51 Cal. 2d 172, 173, Motores de Mexicali, S.A. sued Bi Rite Auto Sales, to recover a debt. The trial court entered default judgment against the defendant after it failed to answer. After failing to recover the amount of the default judgment directly from the defendant, Motores de Mexicali moved to amend the default judgment to add three individuals as judgment debtors, alleging that the defendant was the alter ego of the three individuals. (Id. at 173–174.)

On petition to the Supreme Court for writ of mandate, the Supreme Court concluded that amending the default judgment to add additional judgment debtors on an alter ego theory would unconstitutionally deprive those individuals of due process. (Id. at 175–176.) The Court reasoned that the Fourteenth Amendment guarantees a defendant in a judicial proceeding “the opportunity to be heard and to present ... defenses.” (Id. at 176.) “Summarily add[ing]” the individual defendants to the default judgment “without allowing them to litigate any questions beyond their relation to the allegedly alter ego corporation would patently violate this constitutional safeguard.” (Id.) The Court distinguished previous Court of Appeal decisions that had added parent corporations to judgments against their subsidiaries where the parent corporations had actually litigated the cases, because in Motores the judgment was entered against the corporation “strictly by default.” (Id.) Despite its age, Motores appears to remain good law. (See Lopez v. Escamilla (2022) 79 Cal. App. 5th 646, 652 [discussing but distinguishing Motores].)

Here, Plaintiff, as default judgment creditor, is attempting to enforce that default judgment against a Defendant presently defending the action. While this court is aware of no authority addressing a factually similar case, use of the procedure here would appear to plainly implicate the due process concerns warned against in Motores. Plaintiff essentially attempts to circumvent a trial on the merits through the use of a motion to amend default judgment. Plaintiff’s only argument to distinguish Motores is the assertion that “it involved a California corporation and its shareholders; and not a California limited liability corporation and its managing member as here.” (Reply: 3: 26-28.) But this is a distinction without a difference. It does not remedy the due process concerns raised within.

NEC Elecs. Inc. v. Hurt (1989) 208 Cal. App. 3d 772, is also instructive. There, the Court declined to amend a judgment to add an alter ego creditor where the entity’s and individual’s interests in the litigation “were not the same.” (Id. at 780.) That was because the entity chose to “let the matter proceed uncontested because it planned to file a Chapter 11 bankruptcy petition.” (Id. at 780.) The Court noted that situation “contrast[ed] with the usual scenario where the interests of the corporate defendant and its alter ego are similar so that the trial strategy of the corporate defendant effectively represents the interests of the alter ego.” (Id.)

Here, like in NEC, this is not the “usual scenario” where all named defendants appeared and conducted similar defense strategies. Rather, the other Defendants did not litigate the cause at all, instead “let[ting] the matter proceed uncontested”—hence the default judgment. (Id.) Vargas, in contrast, is presently litigating the action and actually filed a Cross-Complaint seeking recovery and indemnification from Quantum and Hernandez. In that sense, their interests are directly adverse. Finally, although Vargas was likely involved with Defendants at some point in the past, there is no evidence now that Vargas has any control over the other Defendants’ defense (or lack thereof.)

This leaves Defendant Vargas as the sole party mounting a defense in this case—he should have the right to do so. In short, “[t]o summarily add” Defendant Vargas to the judgment “without allowing [him] to litigate any questions beyond [his] relation to the allegedly alter ego corporation would patently violate” due process. (Motores De Mexicali, S. A., supra, 51 Cal. 2d at 176.)

As the relief sought here is plainly inapplicable to the facts of this case, this court need not go farther to address the remaining two elements (i.e., (2) whether the unity of interest and ownership actually exists, and (3) whether an inequitable result will follow if the acts are treated as those of the entity alone). (Relentless Air Racing, LLC, supra, 222 Cal. App. 4th at 815-816.)

Any party may submit on the tentative ruling by contacting the courtroom via email at Smcdept49@lacourt.org by no later than 4:00 p.m. the day before the hearing. All interested parties must be copied on the email. It should be noted that if you submit on a tentative ruling the court will still conduct a hearing if any party appears. By submitting on the tentative you have, in essence, waived your right to be present at the hearing, and you should be aware that the court may not adopt the tentative, and may issue an order which modifies the tentative ruling in whole or in part.