Judge: Theresa M. Traber, Case: BC642412, Date: 2025-01-29 Tentative Ruling

Case Number: BC642412    Hearing Date: January 29, 2025    Dept: 47

Tentative Ruling

Judge Theresa M. Traber, Department 47

HEARING DATE:     January 29, 2025                   JUDGMENT:  July 30, 2018 and February 6, 2020

CASE:                         James Salamon, et al. v. Harold Greenberg

CASE NO.:                 BC642412

MOTION TO AMEND JUDGMENT TO ADD JUDGMENT DEBTORS

MOVING PARTY:               Defendant/Cross-Complainant Harold Greenberg;

RESPONDING PARTY(S): Non-Parties 2651 South Manhattan Place, LLC, et al. (8 LLC non-parties)

CASE HISTORY:

• 12/01/16: Complaint filed.
• 01/19/17: Cross-Complaint filed by Harold Greenberg.
• 07/23/18: Plaintiffs’ Cross-Complaint and First Amended Answer filed.
• 07/30/18: Plaintiffs’ Cross-Complaint and First Amended Answer stricken.
• 07/30/18: Judgment entered on Complaint on summary judgment.
• 12/02/19: Cross-Complaint (to the Cross-Complaint) filed by Jeanne Salamon.
• 12/17/19: Cross-Complaint of Jeanne Salamon stricken pursuant to stipulation.
• 02/06/20: Judgment entered on Cross-Complaint after bench trial.

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

            Plaintiffs alleged that Defendant attorney represented that if Plaintiffs settled in the underlying action, Defendant would represent Plaintiffs on a contingency basis in other cases that would yield large damage awards in Plaintiffs’ favor. Defendant filed a cross-complaint alleging that Plaintiffs have failed to pay attorney’s fees owed. Defendant prevailed on the complaint on summary judgment in July 2018 and on his cross-complaint on February 6, 2020, following a bench trial.

            Defendant now moves to amend the judgment to name eight limited liability companies as alter ego judgment debtors on the Cross-Complaint.

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TENTATIVE RULING:

Defendant/Cross-Complainant’s Motion to Amend Judgment is DENIED.

DISCUSSION:

Defendant/Cross-Complainant Harold Greenberg moves to amend the judgment to name eight limited liability corporations as alter ego judgment debtors.

Request for Judicial Notice

Cross-Complainant requests that the Court take judicial notice of (1) the July 6, 2020 Abstracts of Judgment in this action; (2) a series of unpublished appellate opinions; (3) a set of bankruptcy filings and dockets, and (4) the Complaint in the underlying action. These materials are not relevant to the Court’s ruling for the reasons stated below, and, therefore, Cross-Complainant’s requests are DENIED. (Gbur v. Cohen (1979) 93 Cal.App.3d 296, 301 [“[J]udicial notice . . . is always confined to those matters which are relevant to the issue at hand.”].) 

Analysis

Cross-Complainant moves for amendment under Code of Civil Procedure section 187. This code section is a catch-all provision which states:

When jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; ¿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.

(Code Civ. Proc. § 187.) Cross-Complainant seeks to name 2651 South Manhattan Place LLC, 14735 Blythe Street LLC, 3333 James M Wood LLC; 338 North New Hampshire Ave, LLC, 600 South Highland Ave, LLC, 136 North New Hampshire Ave, LLC, 166 North Mansfield Ave, LLC and 932 South Mariposa Ave. as judgment debtors. Cross-Complainant argues that these corporate entities are alter egos of the individual Cross-Defendants, James and Jeanne Salamon, against whom judgment was entered on February 6, 2020.

            Cross-Complainant, as a nonparty to the corporate entities, is seeking to hold these corporate entities liable for the obligations of their putative shareholders. This argument, on its face, is an “outside reverse veil piercing” theory of liability, which the Court of Appeal categorically disallowed in the 2008 opinion Postal Instant Press, Inc. v. Kaswa Corp. The Court of Appeal described this theory and its relation to the traditional alter ego doctrine as follows:

The alter ego doctrine traditionally is applied to pierce the corporate veil so that a shareholder may be held liable for the debts or conduct of the corporation. Some courts recognize the corporate veil may be pierced in reverse so that a corporation may be held liable for the debts or conduct of a shareholder. (See Annot., Acceptance and Application of Reverse Veil-Piercing — Third-Party Claimant (2005) 2 A.L.R.6th 195, § 2.) "The typical `reverse pierce' case involves a corporate insider, or someone claiming through such individual, attempting to pierce the corporate veil from within so that the corporate entity and the individual will be considered one and the same." (1 Fletcher Cyclopedia of the Law of Corporations (2006 rev. vol.) § 41.70, p. 258.) This is sometimes called "[i]nside reverse piercing." ( In re Phillips (Colo. 2006) 139 P.3d 639, 644-645.)

A variant of the reverse piercing theory, sometimes called "outside" or "third party" reverse piercing, occurs when a third party outsider seeks to reach corporate assets to satisfy claims against an individual shareholder. ( In re Phillips, supra, 139 P.3d at p. 645; see 1 Fletcher Cyclopedia of the Law of Corporations, supra, § 41.70; Annot., Acceptance and Application of Reverse Veil-Piercing — Third-Party Claimant, supra, 2 A.L.R.6th 195, § 2.) 

(Postal Instant Press. v. Kaswa Corp. (2008) 162 Cal.App.4th 1510, 1518.) The Court of Appeal in Postal, addressing the issue as a matter of first impression, examined the bulk of cases in other jurisdictions addressing outside reverse piercing, before ultimately siding with those jurisdictions that rejected the doctrine. (Id. at 1518-20.) The Postal court explained its reasoning thus:

Traditional alter ego doctrine and reverse piercing, while having similar goals, advance those goals by addressing very different concerns. When a judgment debtor is a corporation, the judgment creditor cannot reach the assets of the individual shareholders due to limitations on liability imposed by corporate law. Traditional piercing of the corporate veil is justified as an equitable remedy when the shareholders have abused the corporate form to evade individual liability, circumvent a statute, or accomplish a wrongful purpose. [citations]

The same abuse of the corporate form does not exist when the judgment debtor is the shareholder. In that situation, the corporate form is not being used to evade a shareholder's personal liability, because the shareholder did not incur the debt through the corporate guise and misuse that guise to escape personal liability for the debt. The judgment creditor can enforce the judgment against the shareholder's assets, including shares in the corporation. Upon acquiring the shares, the judgment creditor will have whatever rights the shareholder had in the corporation.

The true issue that outside reverse piercing seeks to address is not the misuse of the corporate form to shield the shareholder from personal liability. Rather, the issue addressed by outside reverse piercing is the shareholder's transfer of personal assets to the corporation to shield the assets from collection by a creditor of the shareholder. In other words, outside reverse piercing seeks to protect the judgment creditor from the shareholder's fraudulent transfer of assets to the corporation. But, […] conversion and fraudulent conveyance already afford judgment creditors protection in that situation. Outside reverse piercing, accomplished by the expedient means of a postjudgment motion, is an unacceptable shortcut to pursue those remedies.

(Postal Instant Press, supra, 162 Cal.App.4th at 1522-23 [internal citations omitted].) Cross-Complainant asserts in his reply papers that there is an exception “where the corporation is closely held by one family.” (Reply p. 3:3-4.) No such exception is contemplated by the plain language of Postal, and Cross-Complainant offers no authority in support of his assertion. The Court therefore finds that Cross-Complainant’s position is categorically precluded by this controlling authority.

CONCLUSION:

            Accordingly, Defendant/Cross-Complainant’s Motion to Amend Judgment is DENIED.

            Moving party to give notice, unless waived.

IT IS SO ORDERED.

Dated:   January 29, 2025                                           ___________________________________

                                                                                    Theresa M. Traber

                                                                                    Judge of the Superior Court

            Any party may submit on the tentative ruling by contacting the courtroom via email at  Smcdept47@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.