Case Number: 16K02322 Hearing Date: May 29, 2018 Dept: 94

Assignee Mark Bailman’s motion to amend the judgment is DENIED.

Background

Plaintiff FKB Inc. (“Plaintiff”) filed its complaint against Defendants Rajinder Adlakha dba Pronto Market and dba Pomona Liquor (“Defendants”). Defendants failed to file an answer to the summons and default was entered on June 23, 2016. Default was entered against Defendants on December 21, 2016. On December 30, 2016, Plaintiff assigned the judgment to Assignee Mark Bailman (“Assignee”). On September 6, 2017, Defendants filed an ex parte motion to set aside default judgment, which the Court denied.

On March 23, 2018, Assignee filed the instant motion for order to amend judgment to add the Rajinder Adlakha Revocable Living Trust (the “Trust”) as a judgment debtor on alter ego theory. On April 4, 2018, the Court continued the hearing for the instant motion to March 29, 2018. On May 3, 2018, Assignee re-submitted his moving papers for the instant motion.

Standard

Under Code of Civil Procedure § 187,

“[w]hen 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.”

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.)

Discussion

The Trust is Not a Legal Entity

First, the motion should be denied because Assignee has brought the instant motion to add the Trust, not Defendant as a trustee. While technical, no authority exists to add a trust as a debtor since a trust “ ‘[u]nlike a corporation, a trust is not a legal entity. Legal title to property owned by a trust is held by the trustee….’ ‘ “A… trust… is simply a collection of assets and liabilities. As such, it has no capacity to sue or be sued, or to defend an action.” ’ ” (Stoltenberg v. Newman (2009) 179 Cal.App.4th 287, 293.) Therefore, the proper party to amend the judgment against is the trustee of the trust, which is apparently Defendant. (Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 522.) This reason alone is enough to deny the motion. However, the motion is defective for further reasons.

Insufficient Evidence of Alter Ego

There are two general requirements for piercing the corporate veil: (1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow. (Greenspan, supra, 191 Cal.App.4th at 511.) Whether the evidence has established that the corporate veil should be ignored is primarily a question of fact which should not be disturbed when supported by substantial evidence.” (Id. at 512; quoting Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1248.)

“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. (Zoran Corp. v. Chen (2010) 185 Cal. App. 4th 799, 811-12.) This list of factors is not exhaustive, and these enumerated factors may be considered with others under the particular circumstances of each case. “ ‘No single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.’ ” (Id. at 812.).” (Misik, supra, 197 Cal.App.4th at 1072-1073.)

“The second requirement for application of the alter ego doctrine is a finding that the facts are such that adherence to the fiction of the separate existence of the corporation would sanction a fraud or promote injustice. (Wood v. Elling Corp. (1977) 20 Cal.3d 353, 365, fn. 9.) The test for this requirement is that if the acts are treated as those of the corporation alone, it will produce an unjust or inequitable result. (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.” (Ibid.)

Additionally, the amendment lies only if the nonparty alter ego controlled the underlying litigation. Absent such control, the alter ego is a true nonparty. (Minton v. Cavaney (1961) 56 Cal.2d 576, 581; Greenspan, supra, 191 Cal.App.4th 486, 517 [a trustee and affiliated companies, through manager of judgment debtor LLCs who was party to underlying litigation, had sufficient control of underlying litigation to be added as judgment debtors under alter ego theory].) “[S]ection 187 applies only if the parties to be added as judgment debtors had control of the underlying litigation and were virtually represented.” (Ibid.) The judgment creditor should establish by a preponderance of the evidence that the alter ego controlled the litigation (e.g., by deposition testimony, declarations from the judgment creditor, corporate defendant and their attorneys, or testimony from a debtor examination). (Wollersheim v. Church of Scientology Int’l (1999) 69 Cal.App.4th 1012, 1017.)

Here, Assignee fails to proffer sufficient evidence that would establish the unity of interest between Defendant and the Trust. Assignee’s mere “opinion that [Defendant] and [the Trust] are indeed alter egos of each other” is of no consequence. (Balmain Decl. ¶ 6.) The only evidentiary facts established by Assignee are 1) he has only levied the personal bank account of Defendant for $2,166.77; and 2) Assignee discovered that the bulk of Defendant’s assets are held in the Trust. (Balmain Decl. ¶¶ 4-5.) At best, this weakly suggests that adherence to the fiction of the separate existence of the Trust would promote injustice. This, however, does not establish any of the factors for unity of interest or control of litigation. Strangely, the evidence does not even establish that Defendant controls the Trust, though the Court may potentially infer this from the names. (See Balmain Decl. ¶¶ 1-6.) Additionally, Assignee attaches several documents to his declaration without explanation, or authentication. (See Balmain Decl. Exhibit A.) The documents appear to be print outs of internet searches related to the Trust. What exactly the Court is supposed to glean from these exhibits is unclear. If the Court were to consider them, these documents may establish that the Trust has real property in it, but nothing further.

Assignee has not established that the Trust and Defendant are alter egos of each other. For the reasons discussed above, Assignee’s motion is also DENIED.

Successor Corporation

Modification of a judgment may also be proper under the “successor corporation” theory. (Wolf Metals Inc. v. Rand Pacific Sales, Inc. (2016) 4 Cal.App.5th 698, 704–705; McClellan v. Northridge Park Townhome Owners Ass’n, Inc. (2001) 89 Cal.App.4th 746, 753–756.) According to that theory, when a corporation sells or transfers all of its assets to another corporation constituting its “ ‘mere continuation,’ ” the latter is also liable for the former’s debts and liabilities. (Wolf Metals Inc., supra, 4 Cal.App.5th at 704–705.) “Generally, California decisions holding that a corporation acquiring the assets of another corporation is the latter’s mere continuation and therefore liable for its debts have imposed such liability only upon a showing of one or both of the following factual elements: (1) no adequate consideration was given for the predecessor corporation’s assets and made available for meeting the claims of its unsecured creditors; (2) one or more persons were officers, directors, or stockholders of both corporations.” (Ibid. [internal citations and quotations omitted].)

Assignee also raises the “successor corporation” theory, but similarly supplies no facts as to this theory. (Mot. p. 3:15-27.) First, the Court would question the applicability of the doctrine to an individual’s trust. Assignee cites no authority that would suggest this doctrine would be applicable. Second, Assignee only argues about the alter ego theory and does not significantly discuss the successor corporation theory he initially raised. (Mot. pp. 8-9.) Even if he were, the evidence supplied does not established the required elements. As discussed above, Assignee fails to authenticate or explain the documents attached to his declaration.

Accordingly, Assignee’s motion to amend the judgment is DENIED.