Judge William A. Crowfoot, Case Number: 21GDCV00218, Date: 2025-06-05 Tentative Ruling

Judge: William A. Crowfoot, Case: 21GDCV00218, Date: 2025-06-05 Tentative Ruling

On May 9, 2025, plaintiffs Eric A. Ferraco and Andrea V. Ferraco as Co-Trustees of the Ferraco Family Trust dated 4/19/2000 (“Plaintiffs” or “Ferraco Trust”) filed a motion to amend the judgment entered on October 19, 2023 and post-judgment award of costs and attorneys’ fees entered on March 6, 2024 (collectively, “Judgment”) to add the following parties as judgment debtors pursuant to Code of Civil Procedure section 187: Brian M. Cronin (“Cronin”), Ferraco Inc., ARC-IV, LLC (“ARC-IV”), and ARC-V, Inc. (“ARC-V”) (collectively referred to as the “Cronin Entities”). Plaintiff contends that the Judgment should be amended to add the Cronin Entities as judgment debtors since they are alter egos of defendant Human Designs Prosthetic and Orthotic Laboratory, Inc. (“HD Inc.”).

Assuming the Judgment is amended as requested, Plaintiffs also move for an order assigning to Plaintiffs the interests of ARC-V and ARC-IV under two promissory notes (“Promissory Notes”) entered into with Hanger Prosthetics & Orthotics, Inc. (“Hanger”), and all rights to payment, to the extent necessary to pay the Amended Judgment, including accrued interest. Plaintiffs also move for an order restraining ARC-V and ARC-IV, and any person in active concert and participating with them, from encumbering, assigning, disposing of, or spending payments on the Promissory Notes and all rights to payment thereunder.

The motions were electronically served on HD, Inc.’s counsel and served personally served on Cronin, individually and as the agent of service of process for the Cronin Entities. No opposition briefs have been filed.

Code of Civil Procedure § 187 gives the trial court the discretion to create its own reasonable procedure in the exercise of its jurisdiction where the law provides no specific procedure; this authority includes the power to amend a judgment to add a person or entity as an alter ego of the original judgment debtor. (Triyar Hospitality Management, LLC v. WSI (II) - HWP, LLC (2020) 57 Cal.App.5th 636, 641.) 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. (Ibid.) The court is not required to hold an evidentiary hearing on a motion to amend a judgment but may rule on the motion based solely on declarations and other written evidence. (Wells Fargo Bank, N.A. v. Weinberg¿(2014) 227 Cal.App.4th 1, 9.)

A court may order the judgment debtor to assign rights to payments due. (Code Civ. Proc., § 708.510.) The court has broad discretion in determining whether to order an assignment, and in fixing the amount to be assigned, and may take into consideration all relevant factors, including: (1) the reasonable requirements of a judgment debtor who is a natural person and of persons supported in whole or in part by the judgment debtor; (2) payments the judgment debtor is required to make or that are deducted in satisfaction of other judgments and wage assignments, including earnings assignment orders for support; (3) the amount remaining due on the money judgment, and (4) the amount being or to be received in satisfaction of the right to payment that may be assigned. (Code Civ. Proc., § 708.510, subd. (c).)

When a motion for assignment order is made, or anytime thereafter, the judgment creditor may apply for an order restraining the judgment debtor from assigning or otherwise disposing of or encumbering the right to payment sought to be assigned. (Id., § 708.520, subd. (a).)

The Court GRANTS Plaintiff’s request for judicial notice in its entirety pursuant to Evidence Code section 452(c) and (d).

Plaintiffs obtained a trial judgment for $166,212.33 that was entered on Oct. 19, 2023, and on March 6, 2024, Plaintiffs were awarded fees and costs totaling another $768,666.77 (all, collectively, the “Judgment”). Plaintiffs explain that this motion is necessary because HD Inc. has paid nothing on the Judgment and has effectively voided itself of assets since Cronin has appropriated money for himself and his wife Natalie Cronin (“Natalie”).

In Plaintiffs’ moving papers, Plaintiffs detail Cronin’s control over this lawsuit as well as HD Inc. and the other Cronin Entities so that the Cronin Entities were virtually represented in this action. Plaintiffs also argue that the Cronin Entities are HD Inc.’s alter egos and provide evidence of commingled assets, undercapitalization, and a disregard of corporate formalities. Plaintiffs submit a “separate statement” with evidence supporting every material fact set forth in its memorandum of points and authorities. The Court refers to these material facts (“MF”) in its discussion of this motion.

First, Plaintiffs establish that Cronin and the Cronin Entities were virtually represented in this action. (Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 815–816.) Cronin was a Director, Secretary and CFO of HD Inc. but Cronin made every decision in this action without Natalie, who was nominally the CEO and Chairperson of the Board of HD Inc., Ferraco Inc., and ARC-V but disavowed knowledge of their corporate structure and activities. [MF#7] Throughout HD, Inc. and the Cronin Entities’ dealings with Ferraco Trust, Cronin personally participated in every event, including signing and breaching the leases at issue. [MF#8] Cronin also attended every day of the trial. [MF#3]

Plaintiffs detail Cronin’s control of ARC-V, ARC-IV, and their subsidiaries by explaining that Cronin created ARC-V as a holding company to acquire HD Inc. and Ferraco Inc. from Plaintiffs. [MF # 16-17.] ARC-V entered into the leases involved in this lawsuit in order to operate HD Inc. and Ferraco Inc. under the name “Human Designs.” [MF#28-29.] ARC-V also contracted with Eric Ferraco and others to provide professional Orthopedic/Prosthetic (“O/P”) services to ARC-V, HD Inc., and Ferraco Inc. under Human Designs name. (Ibid.) Plaintiffs contend ARC-V, HD Inc., and Ferraco Inc. were so interwoven that they had consolidated financial statements, corporate meetings, and minutes. [MF#19, 139.]

In addition to creating ARC-V, Cronin also created ARC-IV to acquire and operate ARC-V’s additional subsidiaries which operated under the Human Designs name: InHouse Orthopedics, Inc. (“InHouse”), OrthoPros, Inc., Stellar Prosthetics and Orthotics (“Stellar”), and Vogue Prosthetic and Orthotic Center, Inc. (“Vogue”). [MF#30] These businesses were acquired under ARC-IV but with ARC-V’s capital. ARC-IV’s filings with the California Secretary of State show ARC-V as its managing member but Cronin has made conflicting assertions about: (1) his role as ARC-IV’s sole member and sole managing member and (2) ARC-V’s interest in ARC-IV. [MF # 35.] Cronin first denied ARC-V’s involvement in managing ARC-IV but later testified that ARC-V had “transitionally owned” ARC-IV before Cronin became ARC-IV’s “sole unit holder.” [MF#36.] Yet, there are no records (either on file with the Secretary of State or in ARC-IV’s meeting minutes) of any transfer of ownership or management from ARC-V to Cronin. [MF# 37-43.] Cronin also claimed he personally “contributed the capital prior to ARC-IV purchasing any companies.” [MF#36.] But ARC-IV’s only reported capital is $125,000 that ARC-V directly transferred to ARC-IV. [MF#31-33.]

Plaintiffs contend that Cronin controlled ARC-V and ARC-IV and operated its O/P subsidiary businesses under the general umbrella name of “Human Designs”, an abbreviation of HD Inc’s corporate name. The entities were so intertwined that Natalie testified, “I don’t know anything about the corporate structure of ARC-IV or ARC-V,” but only understood that she was “CEO of Human Designs.” [MF#45-49.] ARC-V even paid bonuses to Eric Ferraco, an ARC-V employee, for ARC-IV’s acquisitions of InHous, Vogue, and Stellar. [MF# 50-51.] Plaintiffs contend that in daily operations, the umbrella name of “Human Designs” was comprised of ARC-V (which included HD Inc. and Ferraco Inc.) and ARC-IV (which included Stellar, InHous, Orthopros, and Vogue). (Motion, p. 11.) Plaintiffs refer to the Human Designs businesses’ shared branding and signage, along with shared office space, personnel, medical and fabrication facilities, in addition to a corporate organization chart with a single Operations Officer having overall responsibility for all the combined entities. [MF#52-54, 56-58.] The companies shared a single website, www.humandesigns.com and the “Head of Merger Integration for Human Designs” even circulated universal Work Orders to direct patient services without discrimination among practitioners of the various ARC-V and ARC-IV entities. [MF#56-58, 177.] Cronin and Natalie also did not distinguish entities when they signed broker contracts to sell the collective assets of ARC-V and ARC-IV and their subsidiaries for $14.75 million. ARC-V and Natalie are identified as “Seller” and their broker testified that he only “dealt with Brian [Cronin] representing Human Designs, the company.” [MF# 66.] Plaintiffs note that the Secretary of State records for ARC-V, ARC-IV, and its subsidiaries are “remarkably uniform” and with a minor exception of a filing in 2023, Cronin and Natalie are listed as the only officers and directors along with their same business address; Cronin is also always named as the agent for service of process. [MF#68.] (Sonora Diamond Corp. v. Superior Ct. (2000) 83 Cal.App.4th 523, 539 [substantial identity of directors and officers of the subject entities is another alter ego factor].)

Further evidence that Cronin and the Cronin Entities are HD Inc.’s alter egos can be found in the fact that ARC-V transferred $28,300 transfers to Cronin in multiple payments, some of which were characterized as a “Shareholder Distribution”, even though Cronin was not a shareholder of ARC-V or it’s subsidiaries. [MF#100.] In comparison, Natalie, a purported 72% shareholder of ARC-V, did not receive any shareholder distributions at the same time or at the same rate; Cronin, a non-shareholder, distributed to himself ten times the amount that Natalie received. [MF#106.] On another occasion, Cronin also took $306,208.72 from ARC-V’s Morgan Stanley account without any stated reason. [MF# 106.]

Plaintiffs additionally refer to corporate records to argue that the Cronin Entities are HD Inc.’s alter egos. (Katzir’s Floor and Home Design, Inc. v. M-MLS.com (9th Cir. 2004) 394 F.3d 1143, 1149 [disregard of corporate formalities another factor towards alter ego liability].) ARC-V’s ownership has never been documented through any share ledger or share certificates and Cronin’s claims of ownership are inconsistent with its incorporation documents, tax returns, and loan applications. [MF#119-121.] ARC-V’s corporate meeting minutes were also combined with those of its subsidiaries HD Inc. and Ferraco Inc. and attribute comments to Natalie, despite her testimony that she has never attended a shareholder or director meeting of ARC-V. [MF# 138-142.] The minutes do not refer to any shareholders and there are no records of meetings or resolutions of shareholders of ARC-V nor elections for directors or officers. [MF#140-142.] Similarly, ARC-IV’s minutes are also incomplete and unreliable because they omit any reference to ARC-IV’s participation in the ARC Case or its settlement. [MF# 147-150.] ARC-V and ARC-IV have also been undercapitalized and ARC-V’s 2018, 2019 and 2020 tax returns report that the total value of the “Capital Stock” of ARC-V is $24,773, which is the same Capital Stock figure consistently reported in ARC-V’s 2018, 2019 and 2020 Consolidated Financial Statements. [MF#189] With its $24,773 in reported capital, in 2018 ARC-V took on the obligation to purchase the HD Inc. and Ferraco Inc. businesses for $5,450,000, funded almost entirely by a $3.6 million loan from Celtic Bank, plus another $1,090,000 in debt incurred to Ferraco Trust and additional debt to Ron Merritt and others. [MF#194] Thus, ARC-V’s $24,773 capitalization was only about 0.05% of the approximately $4.8 million in debt ARC-V incurred at its formation, which is nowhere near enough to service the debt. As for ARC-IV, it only showed $125,000 in capital for the acquisition of InHous with no addition of any capital for its acquisitions of Stellar, Vogue or OrthoPros. [MF#37-40].

Plaintiffs also cite to Cronin’s control of a parallel case filed by ARC-V against Eric Ferraco and Ferraco Trust, captioned ARC-V, Inc. v. Eric A. Ferraco et al., LASC Case No. 20STCV31141 (the “ARC Case”). In response, Eric Ferraco and Ferraco Trust filed a cross-complaint against ARC-V, ARC-IV, HD Inc. and Ferraco Inc. [MF#69-70.] Although Cronin was not personally named in the suit, Cronin controlled the entire ARC Case on behalf of these entities, as demonstrated by his ability to settle the ARC Case over a lunch break and pay the settlement amount from his and Natalie’s personal accounts. [MF#74-77.]

Last, Plaintiffs argue that amending the Judgment is necessary in order to avoid an unjust result. (Motion, p. 23.) HD Inc.’s assets have been sold to Hanger Inc., for $14.75 million, of which over $10 million was paid in cash and $3.75 million was in a five-year promissory note with installments paid annually each August 15. [MF#78-79.] ARC-V and ARC-IV received all of Hanger’s payments and promised future payments, other than set-asides for certain creditors owed money by ARC-IV and ARC-V; Cronin and Natalie were not to receive any funds from the Hanger transaction. [MF#8183] Yet, when the first annual installment came due on August 15, 2024, none of the funds were paid to HD Inc. to satisfy its judgment, and HD Inc. paid nothing to Plaintiff. [MF#84] Therefore, despite serving two levies on banks holding the escrow accounts for the Hanger acquisition and HD Inc.’s historical bank, Plaintiff has received nothing on the Judgment. [MF#89-91]

Also, although Cronin and Natalie were not entitled to anything from the Hanger payments, they tapped those funds to pay the $500,000 ARC Case settlement and declared the escrowed proceeds from the Hanger sale as their own personal funds to do so. [MF#85] Cronin and Natalie later took from the same escrow account: (a) another $200,000 each, (b) another $75,0000 each and (c) $37,500 for tuition for their child’s private school. [MF#86-88.] Thus, Plaintiffs demonstrate that Cronin and Natalie have treated the corporate assets of ARC-V, ARC-IV, Ferraco Inc., and HD Inc. as their own and that failure to apply the alter ego doctrine and amend the Judgment will lead to an inequitable result.

In light of the foregoing, the unopposed motion to amend the Judgment is GRANTED.

As described above, on or about August 15, 2023, substantial assets of ARC-V, Inc. and ARC-IV, LLC, including their subsidiaries, were sold to a third-party purchaser, Hanger. Documents from Hanger regarding the sale disclosed that part of the purchase price, specifically three million seven hundred fifty thousand dollars ($3,750,000.00) was to be paid by two five-year promissory notes payable by Hanger to ARC-V, Inc. and ARC-IV, LLC (“Promissory Notes”). The next annual payment by Hanger to ARC-V, Inc. and ARC-IV is to be paid on August 15, 2025, in the amounts of $306,600.15 and $280,837.44; Hanger is to make recurring annual payments of these amounts each August 15 until 2028. (Bernard Decl., ¶ 5.)

Plaintiffs request an order assigning ARC-V and ARC-IV’s interests in the Promissory Notes’ scheduled payments, in order for the Judgment to be satisfied. Plaintiffs also request the Court issue an order restraining ARC-V and ARC-IV from assigning or otherwise disposing of the right to the payments pursuant to Code of Civil Procedure section 708.520. The motion is unopposed, no claims of exemption were filed, and the Court aware of any known applicable exemptions; accordingly, the motion is GRANTED

William A. Crowfoot

Judge of the Superior Court

Parties who intend to submit on this tentative must send an email to the Court at ALHDEPT3@lacourt.org indicating intention to submit on the tentative as directed by the instructions provided on the court website at www.lacourt.org. Please be advised that if you submit on the tentative and elect not to appear at the hearing, the opposing party may nevertheless appear at the hearing and argue the matter. Unless you receive a submission from all other parties in the matter, you should assume that others might appear at the hearing to argue. If the Court does not receive emails from the parties indicating submission on this tentative ruling and there are no appearances at the hearing, the Court may, at its discretion, adopt the tentative as the final order or place the motion off calendar.