Ebasco Trading Corporation v. Canvas Specialty, Inc., et al.

DEFENDANT GREGORY NAIMAN’S MOTION FOR SUMMARY JUDGMENT, OR IN THE ALTERNATIVE, SUMMARY ADJUDICATION

 

MOVING PARTY: Gregory Naiman

RESPONDING PARTY(S): Plaintiff Ebasco Trading Corporation

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

This is a contract dispute.  Plaintiff Ebasco Trading Corporation (“Ebasco”) was to replace an outdoor canopy at the U.S. Embassy in Liberia.  (SAC ¶ 16.)  In September 2019, Plaintiff alleges it contracted with Defendants to provide the canopy panels for the Embassy, to be shipped within 45 days. (Id. ¶ 18.)  Plaintiff further alleges Defendants have failed to ship or provide the goods as agreed and have not issued a refund.  (Id. ¶ 29.)

Plaintiff brings eight causes of action against Defendants for: (1) Breach of Contract, (2) Promissory Estoppel, (3) Conversion, (4) Negligent Misrepresentation, (5) Intentional Misrepresentation, (6) Unjust Enrichment, and (7) Fraudulent Transfer.

Individual Defendants Gregory Naiman and Deborah Naiman each separately moved for summary judgment, or in alternative, summary adjudication. On December 22, 2023, this court granted Defendant Deborah Naiman’s motion for summary judgment. (See 12/22/23 Minute Order and Final Ruling.) However, it granted Plaintiff’s request for a CCP § 473c(h) continuance as to Defendant Gregory Naiman only, and ordered Defendant Gregory submit himself to a deposition on or before January 31, 2024. (See id.) The court has now read and considered Plaintiff’s February 29, 2024, supplemental opposition papers, as well as Defendant Gregory’s March 08, 2024, reply thereto, and now rules as follows.

TENTATIVE RULING:

Defendant Gregory Naiman’s Motion for Summary Judgment is DENIED.

Plaintiff is ordered to give notice, unless waived.

DISCUSSION:

Defendant Gregory Naiman’s Motion for Summary Judgment, or in the alternative, Summary Adjudication

I. Judicial Notice

Pursuant to Defendant’s request, the Court takes judicial notice of Exhibits 1 and 2.

II. Evidentiary Objections

Pursuant to CCP § 437c(q), this court rules only on objections material to the disposition of this motion, as follows:

Plaintiff’s objections numbered 1 through 7 are OVERRULED. 

Plaintiff’s supplemental objection number 1 is OVERRULED.

III. Legal Standard

The function of a motion for summary judgment or adjudication is to allow a determination as to whether an opposing party cannot show evidentiary support for a pleading or claim and to enable an order of summary dismissal without the need for trial. Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843. In analyzing motions for summary judgment, courts must apply a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent's claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.” Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.  Thus, summary judgment is granted when, after the Court’s consideration of the evidence set forth in the papers and all reasonable inferences accordingly, no triable issues of fact exist and the moving party is entitled to judgment as a matter of law.  Code Civ. Proc. § 437c(c); Villa v. McFarren (1995) 35 Cal.App.4th 733, 741. 

As to each claim as framed by the Complaint, the defendant moving for summary judgment must satisfy the initial burden of proof by presenting facts to negate an essential element, or to establish a defense. Scalf v. D. B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1520. Courts “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party.” Dore v. Arnold Worldwide, Inc.¿(2006) 39 Cal.4th 384, 389. A defendant has met its burden of showing that a cause of action has no merit if it demonstrates the absence of any single essential element of plaintiff’s case or a complete defense to plaintiff’s action.  Code Civ. Proc. § 437c(o)(2); Bacon v. Southern Cal. Edison Co. (1997) 53 Cal.App.4th 854, 858.  Once the defendant moving party has met the burden, the burden shifts to the plaintiff to show via specific facts that a triable issue of material facts exists as to a cause of action or a defense thereto.  § 437c(o)(2). 

IV. Analysis

A. Moving Party’s Burden

Defendant Gregory Naiman moves for summary judgment or adjudication. Gregory [FN 1] contends the “undisputed facts establish that Plaintiff cannot, as a matter of law, prove the elements necessary to maintain any its causes of action against Gregory or prove its claim to hold Gregory liable for Canvas’ and/or US Cover’s debt pursuant to the alter ego doctrine.” (Mtn. 8: 2-4.) 

In analyzing motions for summary judgment, courts must apply a three-step analysis: “(1) identify the issues framed by the pleadings; (2) determine whether the moving party has negated the opponent's claims; and (3) determine whether the opposition has demonstrated the existence of a triable, material factual issue.” (Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 294.)

Plaintiff Ebasco Trading, a procurement specialist, contracted with Defendants Canvas and U.S. Cover for the procurement of an outdoor canopy for the U.S. Embassy in Liberia. (Id. ¶¶ 15, 16.) On or around September 2, 2018, Plaintiff sent an email to Defendant Gregory Naiman requesting price quotes for the replacement fabric panels. (Id. ¶ 17.) The parties negotiated a price and agreed on shipment details. (Id. ¶ 18.) Plaintiff represented to Defendant that the project was time sensitive. (Id. ¶ 21.) In September of 2018, Gregory confirmed twice that that lead time was 45-days from receipt of order and deposit or cash payment. (Id. ¶ 19.)

Plaintiff alleges it submitted full payment on December 20, 2018. (Id. ¶ 22.) What followed was a series of delays and alleged misrepresentations by Defendant Gregory Naiman regarding the status of the order. (Id. ¶ 23-25.) By July of 2019, Plaintiff had still not received the product and demanded a refund. (Id. ¶ 27.) At the time of filing this suit, Plaintiff had not received the product, and no refund had been issued. (Id. ¶ 28.) 

As to the individual Defendants, Plaintiff alleges that “Defendants Canvas and U.S. Cover were the alter-egos of Defendants Gregory and Deborah Naiman, and there exists, and at all times herein mentioned has existed, a unity of interest and ownership between Defendants such that any separateness between them has ceased to exist in that Defendant Gregory Naiman and Deborah Naiman completely controlled, dominated, managed, and operated the other Defendants.” (Id. ¶ 12.) Plaintiff further alleges that Defendant Gregory Naiman “controlled the business and affairs of Canvas and U.S. Cover; commingled funds and assets of corporate entities and diverted corporate funds and assets to himself, Deborah Naiman, and into the Naiman Trust; thereby disregarding legal formalities.” (Id. ¶ 13.) It is alleged that “Defendants Canvas and U.S. Cover were controlled and governed by Defendant Gregory Naiman, and such a unity of interest and ownership has existed, and the facts are such that an adherence to the fiction of separate existence of these entities would sanction fraud or fail to promote justice.” (Id. ¶ 14.) 

Defendant Gregory is alleged to be “an officer of the managing member of, and owner/president of” Defendants Canvas and U.S. Cover. (Id. ¶ 5.) Both Gregory and Deborah are alleged to be trustees of the Naiman Trust, the entity that received proceeds from the subject transaction. (Id. ¶ 6.) 

As a general rule, “the corporation is an insulator from liability on claims of creditors.” (Greenspan v. LADT, LLC (2010) 191 Cal. App. 4th 486, 510.) However, “[i]n certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation.” (Id.) To succeed on an “alter ego” claim, a plaintiff must be able to show: “(1) such a unity of interest and ownership between the corporation and its equitable owner that no separation actually exists, and (2) an inequitable result if the acts in question are treated as those of the corporation alone.” (Leek v. Cooper (2011)194 Cal. App. 4th 399, 417.) The inquiry is highly fact-specific, as courts must consider a “long list of factors” which includes, but is not limited to:

“ ‘[c]ommingling of funds and other assets, failure to segregate funds of the separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses; ... the treatment by an individual of the assets of the corporation as his own; ... the failure to obtain authority to issue stock or to subscribe to or issue the same; ... the holding out by an individual that he is personally liable for the debts of the corporation; ... the failure to maintain minutes or adequate corporate records ...; sole ownership of all of the stock in a corporation by one individual or the members of a family; ... the failure to adequately capitalize a corporation; the total absence of corporate assets, and undercapitalization; ... 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; ... the concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities; ... the disregard of legal formalities and the failure to maintain arm's length relationships among related entities; ... the use of the corporate entity to procure labor, services or merchandise for another person or entity; ... 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; ... 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 the formation and use of a corporation to transfer to it the existing liability of another person or entity.’”

(Id. at 417–18.)

Gregory presents the following evidence: Canvas Specialty, Inc. is a California C Corporation. (Gregory Decl. ¶ 3.) Gregory attests to be the sole shareholder, officer, and director of Canvas. (Id. ¶¶ 3, 17.) In that role, he is “actively involved in all of Canvas' day-to-day operations.” (Id. ¶ 5) He further attests that “Canvas paid corporate taxes on earnings before distributing its profits to the shareholders in the form of dividends. Individual shareholders were then subject to personal income taxes on the dividends they received.” (Id. ¶ 3.) 

Gregory is also managing member of US Cover, a Delaware limited liability company started by Gregory in 1999. (Id. ¶¶ 4, 17, 20.) Gregory has never concealed his ownership of US Cover. (Id.)

Gregory attests that he “never signed, in [his] individual capacity, any agreement with EBASCO in which [he] personally agreed to be bound by any terms of any agreement with EBASCO.” (Id. ¶ 5.) He further attests that “[a]t all relevant times, Canvas maintained and paid its own employees who were not used for any of my personal affairs, nor did these employees personally work for [him].” (Id. ¶ 21.) He attests that “Canvas and US Cover were adequately capitalized” until their wind-down began. (Id. ¶ 22.) Gregory has “never had a joint account with Canvas and/or US Cover.” (Id. ¶ 23.) At all times, the finances of the entities were kept separate from Gregory’s personal finances. (Id. ¶¶ 23, 24.) 

Considering this evidence, Gregory has demonstrated that Plaintiff cannot establish a unity of interest and ownership between the corporations and Gregory, and therefore, no alter ego liability may be imposed. (See Leek, supra, 194 Cal. App. 4th at 417.) If unrebutted, this defeats all causes of action against Gregory. 

B. Plaintiff’s Burden

This shifts the burden to Plaintiff to establish a triable issue of material fact as to the alter ego question. 

Plaintiff presents evidence of a triangular, at times blurred, arrangement between Defendant Naiman and his two entities, Canvas Specialty and U.S. Cover. Naiman is the sole shareholder and corporate officer for both Canvas Specialty and U.S. Cover. (SSSDMF  24.) [FN 2]   Canvas Specialty and U.S. Cover shared the same offices, equipment, and employees. (Id. 27, 28.) The businesses did not always follow corporate formalities, like in 2018, when Canvas was delinquent with the California Secretary of State for failure to file a statement of information. (Id. 6.) These factors support alter ego liability. 

In addition, money flowed freely between the three. Although U.S. Cover was not involved in the underlying transaction, Naiman instructed Plaintiff to wire money for the project to a bank account for US Cover, not Canvas Specialty. (Id. 10.) Almost immediately upon receipt of the funds into U.S. Cover’s account, Naiman transferred funds to his own personal account and to another in the name of his mother-in-law. (Id. 9.) This commingling of funds is also relevant to the alter ego analysis. 

Moreover, it appears undisputed that Naiman’s businesses went under shortly after the subject transaction fell through, which suggests they may have been undercapitalized. Indeed, at the time U.S. Cover received funds from Plaintiff, its bank account was overdrawn. (Id. 38.) 

In short, this evidence might demonstrate that Naiman and his entities commingled funds and assets, that the entities were undercapitalized, and that Naiman failed to comply with corporate formalities, among other things. (See Leek, supra, 194 Cal. App. 4th at 417.) Taken together—and liberally construing this evidence—Plaintiff has established a triable issue of material fact as to the unity of interest and ownership between the corporations and Gregory, as well as a resulting injustice that would occur if separation of the entities from Naiman is recognized. (See Dore v. Arnold Worldwide, Inc.¿(2006) 39 Cal.4th 384, 389 [In a summary judgment proceeding, courts must “liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party”].) 

Therefore, Plaintiff has established a triable issue material fact on Defendant Gregory’s alter ego liability, which allows all claims against Gregory to proceed. 

Accordingly, Defendant’s Motion for Summary Judgment is DENIED.

Plaintiff is ordered to give notice, unless waived.

IT IS SO ORDERED.

Dated:   March 15, 2024 ___________________________________