Judge: Richard Y. Lee, Case: 30-2019-01116891, Date: 2023-06-15 Tentative Ruling
Defendant Brandy Carrillo (“Defendant” or “Carrillo”) demurs to the Third Amended Complaint of Plaintiff Iconic Engine, Inc. (“Plaintiff”) and each of the causes of action alleged against Defendant (the 2nd through 7th causes of action) for failure to state facts sufficient to constitute any causes of action and uncertainty.
Defendant contends that the allegations against her in the TAC are vague, conclusory, uncertain, and lack any ultimate facts sufficient to support an alter ego theory of liability.
Plaintiff argues that the ultimate facts regarding alter ego liability alleged in the TAC are sufficient to support all causes of action against Defendant and that Defendant has failed to address the partnership, employment, and independent contractor theories of liability, thereby conceding the same.
The Court previously sustained Defendant’s demurrer to the SAC on the grounds that the alter ego allegations and agency and employment allegations were insufficiently pleaded and unsupported by any facts. (ROA 191.) The Court held that the mere fact that Carrillo is a member of Ridiculous is not sufficient to impose alter ego liability and there are no facts alleged as to why she should be liable for Ridiculous’ wrongdoing.
This action arises out of allegations that several of the Defendants, who were hired as independent contractors for Plaintiff, used Plaintiff’s confidential trade secrets to complete with Plaintiff and shared that trade secret information with Ridiculous. (TAC ¶¶ 44, 46, 54.) Carrillo was not part of the group hired by Plaintiff. The 2nd through 7th causes of action are brought against her under the theories of alter ego and agency. The TAC alleges that Defendant, along with Defendant Jeremy Airey, is a member of Defendant Ridiculous, LLC (“Ridiculous”) and together they owned, controlled, and operated Ridiculous such that a unity of interest existed and any separateness never existed or ceased. (TAC ¶¶ 3, 25.) It further alleges that Carrillo and Airey carried on their personal business affairs in the name of Ridiculous, conducted their business operations out of their residence, used Ridiculous as a mere shell for their personal business, intermingled the assets of each other to suit their convenience, failed to adhere to the formalities of corporate existence and carried out operations without approvals and proper documentation, diverted Ridiculous funds, undercapitalized Ridiculous, and used Ridiculous as a vehicle to perpetrate fraud and deceit. (TAC ¶ 25.) Plaintiff alleges that if the separateness between Carrillo and Ridiculous is adhered to, an inadequate result will follow because Carrillo will retain monies improperly acquired by Ridiculous. (TAC ¶ 26.)
“To recover on an alter ego theory, a plaintiff need not use the words “alter ego,” but must allege sufficient facts to show a unity of interest and ownership, and an unjust result if the corporation is treated as the sole actor.” (Leek v. Cooper (2011) 194 Cal.App.4th 399, 415.)
“The first requirement for disregarding the corporate entity under the alter ego doctrine—whether there is sufficient unity of interest and ownership that the separate personalities of the individual and the corporation no longer exist—encompasses a series of factors. Among the many factors to be considered in applying the doctrine are one individual's ownership of all stock in a corporation; use of the same office or business location; commingling of funds and other assets of the individual and the corporation; an individual holding out that he is personally liable for debts of the corporation; identical directors and officers; failure to maintain minutes or adequate corporate records; disregard of corporate formalities; absence of corporate assets and inadequate capitalization; and the use of a corporation as a mere shell, instrumentality or conduit for the business of an individual. [Citation.] This list of factors is not exhaustive, and these enumerated factors may be considered with others under the particular circumstances of each case.” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1073.)
As with the SAC, the TAC fails to allege any concrete facts against Carrillo to show that she participated in the violation of any trade secrets or should otherwise be held liable for the alleged misconduct of Ridiculous. Plaintiff’s alter ego allegations are conclusory and unsupported by any facts. Instead, they constitute a parroting of the factors for the alter ego doctrine found in the case law. Plaintiff is correct that “the courts have followed a liberal policy of applying the alter ego doctrine where the equities and justice of the situation appear to call for it rather than restricting it to the technical niceties depending upon pleading and procedure.” (First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 915.) However, here, based on all the allegations against Carrillo, the equities and justice of the situation do not appear to call for application of the alter ego doctrine against her. Instead, it appears that Plaintiff has sued Carrillo based solely on her status as a member of the LLC, and not on any actual acts undertaken by her.
To the extent Plaintiff believes Ridiculous may be unable to satisfy any judgment Plaintiff may obtain against it, such circumstances alone could not result in the liability of Carrillo. The potential difficulty in collecting a judgment is not an inequitable result that warrants application of the alter ego doctrine. (See Sonora Diamond Corp. v. Superior Ct. (2000) 83 Cal.App.4th 523, 539 [“The alter ego doctrine does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form. Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard.”].)
Thus, the Court SUSTAINS the Demurrer on the ground that the TAC fails to adequately allege any alter ego theory of liability against Carrillo.
Plaintiff also alleges that each of the defendants acted as Ridiculous and Carrillo’s agent and conspired with Carrillo to misappropriate Plaintiff’s trade secrets. (TAC ¶ 74.) It further alleges that Carrillo benefitted from the wrongdoings of the other defendants as alleged in the TAC. (TAC ¶ 28.)
Again, there are no alleged facts showing that Carrillo should be held liable for the wrongdoing of Ridiculous. Aside from the conclusory allegations, the only fact alleged against Carrillo is that she is a member of Ridiculous. This is insufficient to impose liability on Carrillo for the allegations against Ridiculous. (See Leek, supra, 194 Cal.App.4th at p. 415 [“although plaintiffs alleged Cooper was the employer, the complaint contains no allegations that he should be held liable for the corporation’s wrongdoing.”]; see also Corp. Code § 17703.04(a)(2) [stating that all debts, obligations, or other liabilities of a limited liability company are solely those of the limited liability company and do not become the debts, obligations, or other liabilities of a member solely by reason of the member acting as a member for the limited liability company].)
As for the employee allegations, Plaintiff alleges on information and belief that each defendant is the employee of the other. (TAC ¶ 22.) “Where factual allegations are based on information and belief, the plaintiff must allege ‘information that ‘leads the plaintiff to believe that the allegations are true.’” (Brown v. USA Taekwondo (2019) 40 Cal.App.5th 1077, 1106.) As with the SAC, Plaintiff has not alleged any additional information that leads it to believe that Carrillo was the employer of any of the other defendants. Thus, the allegations are insufficient to impose any liability against Carrillo as an employer.
Accordingly, Defendant’s Demurrer as to the 2nd through 7th causes of action as alleged against her is SUSTAINED. As Plaintiff has had one opportunity to resolve the deficiencies of its pleading against Carrillo and it has been unable to do so, and Plaintiff sets forth no additional facts that it could amend its pleading with to support a cause of action against Carrillo, leave to amend is DENIED. (See Hendy v. Losse (1991) 54 Cal.3d 723, 742.)
The Case Management Conference is continued to July 13, 2023 at 1:30 p.m.
Defendant to give notice.