Judge Upinder S. Kalra, Case Number: BC706555, Date: 2024-09-10 Tentative Ruling

MOTION TO AMEND JUDGMENT TO ADD AVENATTI & ASSOCIATES, APC AS ADDITIONAL JUDGMENT DEBTOR

1. An Order amending the judgment to add Avenatti & Associates, APC as an additional judgment debtor to the judgment entered in this action on November 20, 2018.

2. Plaintiff to provide a proposed Amended Judgment within 14 days of this order.

On May 16, 2018, Plaintiff Jason Frank Law PLC (Plaintiff) filed a Complaint against Defendant Michael J. Avenatti (Defendant) for breach of contract. In 2018, Plaintiff obtained over $5 million judgment against defendant and has spent the remaining time attempting to enforce the judgment.

On August 14, 2024, Plaintiff filed the instant motion to amend the judgment to add Avenatti & Associates, APC as an additional judgment debtor.

On August 20, 2024, Plaintiff moved ex parte to advance the hearing date from December to September 2024. The court GRANTED Plaintiff’s ex parte application.

“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.) This section empowers the court to “use all the means necessary” to carry its jurisdiction into effect.¿ The court therefore has authority in certain circumstances to amend a judgment against a corporation (or other entity) to add as a judgment debtor the entity's nonparty “alter ego” who controlled the underlying litigation.¿ In effect, “amending a judgment to add an alter ego does not add a new defendant but instead inserts the correct name of the real defendant.” (Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1072-1073 [complaint only named LLC, which was totally controlled by individual].)¿ It is not necessary that alter ego doctrine be alleged or proved in the underlying lawsuit. (Id. at 1074-1075; Danko v. O’Reilly (2014) 232 Cal.App.4th 732, 741.)¿

The court grants Plaintiff’s amended and supplemental request for judicial notice. (Evid. Code § 452(c), (h); See¿Kalnoki v. First American Trustee Servicing Solutions, LLC (2017) 8 Cal.App.5th 23,37.) However, the court only takes judicial notice of the foregoing documents only as to “the existence, content and authenticity of public records and other specified documents”; it does not take judicial notice of the truth of the factual matters asserted in those documents. (Dominguez v. Bonta (2022) 87 Cal. App. 5th 389, 400.)¿¿

Plaintiff seeks to add Avenatti & Associates, APC (AA) as an additional judgment debtor to the judgment entered in this matter on November 20, 2018. Plaintiff contends that they recently identified assets Defendant purchased using AA that will be disposed, that AA is really an alter ego for Defendant, and that no “innocent owners” will be harmed by adding AA as a judgment debtor. Defendant filed a limited opposition indicating there was insufficient time to prepare a robust opposition, that Plaintiff’s delay in adding AA is in bad faith, and that service of the order advancing the hearing date of this motion was defective.[1] Plaintiff replies that Mr. Avenatti cannot represent AA because he is no longer a licensed attorney and that the other arguments raised in the preliminary opposition are disingenuous.

The legal separation between a corporation and the individual members may be disregarded “when [a corporation or LLC] is used [by one or more individuals] to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose.” (Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 221 (Curci). There are two necessary conditions to invoke the alter ego doctrine: “First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone.” (Ibid. [citing Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.])

In reverse veil piercing, a party “seeks to satisfy the debt of an individual through the assets of an entity of which the individual is an insider.” (Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832, 840 (Blizzard); Curci, supra, at p. 221.) “Outside reverse veil piercing arises when the request for piercing comes from a third party outside the targeted business entity.” (Curci, supra, at p. 221.) Before applying reverse veil piercing, “the availability of alternative, adequate remedies must be considered by the trial court.” (Blizzard, supra, at p. 847.)

Relevant factors to this analysis include: “commingling 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 disregard of legal formalities and the failure to maintain arm’s length relationships among related entities.” (Blizzard, supra, at p. 849. [internal citations and bracketing omitted.])

Here, there is evidence of a unity of interest and ownership such that the separate personalities of Mr. Avenatti and AA do not exist. First, Mr. Avenatti owns 100% of the shares of AA. (Frank Decl., Exhibits G & H.) Second, Plaintiff provided evidence that AA spent corporate funds for non-corporate uses. (See, e.g., Frank Decl., Exhibits J & K [child support to Ms. Carlin], Exhibits L & M [remodeling Mr. Avenatti’s home], Exhibits N & P [rent for houses and apartments], Exhibits P & Q [personal care], and Exhibits R & S [hobbies].) This evidence also supports Mr. Avenatti’s use of AA’s corporate assets as his own. Third, Plaintiff provided evidence that AA did not follow corporate formalities or maintain arm’s length relationships between Mr. Avenatti’s related entities. (Frank Decl., Exhibits I, EE; Storie Decl. Exhibit B.)

Accordingly, there is unity of interest and ownership between AA and Mr. Avenatti.

Plaintiff has demonstrated that an inequitable result will follow should the court deny this motion because Mr. Avenatti has consistently evaded paying the judgment and the property at issue now is set to be abandoned. Additionally, Plaintiff provided evidence that it agreed with Ms. Storie, who has a claim to AA, that they will not pursue any debt collection from her personally.

2.Plaintiff to provide a proposed Amended Judgment within 14 days of this order.

[1] Defendant’s counsel indicates they are not filing an opposition on behalf of AA because they only represent Mr. Avenatti individually. The court is not persuaded by any of these assertions. First, Defendant’s counsel indicates they could not confer with their client because he is incarcerated at Terminal Island and has “limited access to phone privileges, email, documents and mail . . . .” (Limited Opp. 1:4-5, 20-22.) Counsel has not indicated an inability to meet with their client in person. Second, Mr. Avenatti is the Agent of AA and appears on all proofs of service filed with this court. (Amended Request for Judicial Notice, Exhibit 1.) Defendant did not dispute this. Plaintiff also includes a paralegal’s email who is involved with Mr. Avenatti’s criminal trials. Defendant did not dispute this either. Third, Plaintiff served notice to Defendant’s counsel of the ex parte application to advance the hearing on the instant motion via email. Defendant’s counsel did not appear at the hearing. (August 20, 2024 Minute Order.) Plaintiff subsequently served notice of the ruling on all parties via U.S. Mail and e-mail. (August 21, 2024 Notice of Ruling.) Defendant had seven days to prepare a “robust” opposition.