Case Number: 13K13044 Hearing Date: May 29, 2018 Dept: 94

Assignee Richard G. Hyppa’s motion to amend judgment to add judgment debtor Jennifer Reuting as an alter ego of Owl Territory, Inc. dba Docrun is GRANTED.

Background

On July 30, 2013, the Labor Commissioner of the State of California awarded Andrew Barcello (“Barcello”) $14,649.94 in damages against Owl Territory, Inc. dba Docrun (“Docrun” or “Defendant Corporation”). On September 20, 2013, the court clerk entered judgment against Docrun (the “Judgment”) based on the Labor Commissioner’s Award (the “Award”). On April 28, 2017, Barcello assigned his Judgment to Richard G. Hyppa (“Hyppa” or “Assignee”).

On April 28, 2017, Assignee filed a Motion to Amend Judgment to Add Judgment Debtor Jennifer Reuting (“Reuting”) as an alter ego of Docrun. On July 21, 2017, the court granted the unopposed motion. However, on November 30, 2017, Reuting filed a motion to set aside default. On January 9, 2018, the court denied Reuting’s motion to set aside, but the court exercised its inherent powers to allow for a reconsideration of the motion to add her as a judgment debtor given the lack of notice and improper service.

On March 23, 2018, Assignee refiled the instant motion. On May 15, 2018, Reuting filed a response to the motion, with a declaration and attached exhibits.

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.)

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.)

Discussion

Service of the Instant Motion and Reuting’s Inability to Obtain Counsel

As a preliminary discussion, Reuting appears to dispute the service of the instant motion in her opposition. CCP § 1005 requires that sixteen court days plus five calendar days’ notice if sent by mail. Reuting complains that she was served on May 3, 2018 at a place Assignee knew not to be her address. (See Reuting Decl. p. 1.) The instant motion is set for hearing on March 29, 2018, which would require service by April 29, 2018 (16 court days plus 5 calendar days). However, Reuting was served at the same address she gave at the motion to vacate, 2701 Fire Water Ct. Las Vegas NV 89117. (See 3/23/2018 Proof of Service of Notice to the instant motion; See also 11/30/17 Mot. to Set Aside Default p. 1.) This is the same address that Assignee served her with the opposition to the Motion to Set Aside. (See 12/22/2017 Proof of Service.) Reuting did not file a change of address with the court since that motion was heard on January 9, 2018. She has also not demonstrated that Assignee knew of any other address, besides her bare assertion to the contrary.

She also has not explained why this would have affected her ability to retain counsel since she has had notice of this issue since at least January 9, 2018, the date where the court generously granted a rehearing of the instant motion. (See 1/9/2018 Minute Order.) Further, she brought the motion to set aside in pro per in November 2017. She has had at least 6 months to retain counsel. If Reuting was interested in retaining counsel, she should have prudently done so by now. Additionally, she also has not explained why service of the complaint is relevant to the instant motion. (See Reuting Decl. p. 1.) Thus, the court can only conclude that service of the instant motion was proper, and that Reuting has not been prejudiced by her alleged inability to retain counsel.

On the other hand, the Court notes that no proof of service was filed in connection with Reuting’s opposition. The Court therefore at its discretion could decline to consider the opposition or continue the hearing to allow for the filing. (See CCP § 1005; CRC Rule 3.3100.) As analyzed below, Assignee is not prejudiced by Reuting’s apparent failure to serve the opposition. The motion will therefore go forward and the Court will consider the opposition.

Alter Ego Analysis

Based on the evidence presented in the moving papers, several factors weigh in favor of amending the judgment to add Reuting on an alter ego basis. Assignee offers three declarations in support of his motion which establish several pertinent facts to the alter ego theory. These documents establish that Docrun was a Delaware corporation which did business in California. (Hyppa Decl. Exs. B-C.) Reuting is the founder, CEO, and apparently sole officer of Docrun. (Hyppa Decl. ¶ 5, Ex. E; Barcello Decl. ¶ 2) Reuting solely controlled the day to day operations of Docrun as well as the underlying litigation. (Barcello Decl. ¶¶ 2-3, 5.) Reuting did not comply with corporate formalities, such as filing statements of information, having shareholder meetings, despite knowledge of such requirements. (Barcello Decl. ¶¶ 3-4.) Reuting co-mingled Docrun’s funds for her own personal use, including personal gas, car, pet sitting and grooming, and other personal expenses without reimbursing the company. (Barcello Decl. ¶ 6; Hyppa Decl. Exs. F2-F8.) For example, this also includes Reuting reimbursing herself through shell corporations to her mother, her alleged boyfriend, and a payment to the Nevada Department of Motor Vehicles. (Hyppa Decl. F2-F4, F7.) Docrun has also not repaid other investors, nor informed them of its move to Colorado. (Hirshland Decl. ¶¶ 2-3; Hyppa Decl. Exs. G, H.)

Further, Reuting was the only person who submitted testimony and documents on behalf of

Docrun during hearings with the Labor Commissioner who entered a judgment against Docrun. (Barcello Decl. ¶ 3.) This suggests that Reuting dominated the actions and affairs of Docrun during litigation. (See generally Commons v. Schine (1973) 35 Cal.App.3d 141, 143 [finding that respondent who was the principal shareholder, an officer, and director of a corporation, dominated and controlled that corporation].) Despite this control and participation, the judgment remains wholly unpaid. (Barcello Decl. ¶ 3.)

These exhibits also show that Docrun’s corporate status was forfeited by the California Franchise Tax Board for failure to pay taxes, and that Docrun never filed any statement of information with the Secretary of State’s office. (Hyppa Decl. ¶¶ 1-3; Ex. B.) The documents further show that Docrun failed to file annual reports to the Delaware Secretary of State and that Docrun’s tax liability was $188,373.62 as of March 28, 2017. (Hyppa Decl. Ex. D.)

To sum, Assignee has made a prima facie showing of alter ego factors including: the use of a corporation as a mere shell; instrumentality or conduit for a single venture; the use of the corporate entity to procure labor, services or merchandise for another person or entity; the disregard of legal formalities; and the contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability.

Reuting responds to these allegations by Assignee through her own declaration and exhibits. As a general note, Reuting appears to contest the validity and truth of Plaintiff’s underlying claims. (See e.g. Reuting Decl. pp. 4-11.) This is not pertinent to the issue currently before the court, and only obfuscates what exactly Reuting argued.

The declaration details the “burn down” of Docrun. While the relevance of this to the alter ego analysis is not precisely explained by Reuting, the best the Court can surmise is that Reuting contends that she was acting in good faith when she failed to adequately capitalize Docrun, and that the funds simply ran dry. (See Reuting Decl. pp. 5-7; Ex. L.) Reuting further declares that Docrun ran out of money as predicted and was unable to compete with larger tech companies for talent. (Reuting Decl. p. 7 ln. 16-24.) Reuting then details the company’s move to Colorado; the only relevance the court can glean from this is that the move to Colorado was similarly done in good faith and not to avoid investors. (Reuting Decl. pp. 8-9.) Reuting also discusses the complaint in the instant case, but the Court cannot determine any relevance to this discussion beyond explaining why an attorney did not handle the Labor Board hearing. The emails attached as Exhibit R support the argument that Reuting was personally controlling the litigation. (See Reuting Decl. Ex. R.) The tone and character of the email also do not support Reuting’s contention that this was a sudden cancellation by a retained attorney working for Docrun. (Reuting Decl. Ex. R [“Your hearing on May 9 is coming up this Thursday. We are not planning on making an appearance. This makes a lot of sense, especially given the amount of money at stake here.”].)

Reuting does attack some portions of the corporate formalities arguments. Reuting declares that in December 2011, Docrun established a board of directors consisting of Reuting, Michael Hirshland, and Daniel Bliss. (Reuting Decl. p. 6 ln. 7-8; p. 7 ln. 25-28.) Additionally, in spring of 2011, she brought James Kidston as “Chief Legal Officer.” (Reuting Decl. p. 5.) However, no supporting documents as to these fact are submitted. Hirshland’s declaration states that he is a mere investor and the Series A Seed Round Financing Closing Documents state that Hirshland is an investor and founder. (Hirshland Decl. ¶¶ 1-3; Reuting Decl. Ex. H.) No other document can be located by the Court that supports that Bliss or Kidtson were directors. The declaration only states that there was an apparently informal meeting between Bliss, Reuting and later Hirshland on October 23, 2012 that non-technical employees should be laid off. (Reuting Decl. p. 7 ln.26-28.) Reuting admits that there is no evidence of any board resolutions or formal board meetings. (Reuting Decl. p. 9 ln. 20 -25.)

Reuting does dispute Assignee’s declaration regarding corporate formalities and accusations of commingling. Plaintiff’s declaration states that Docrun was not in compliance with corporate formalities and when he was hired, Docrun was already in default on the California Secretary of State website. (Barcello Decl. ¶ 2.) To rebut this, Reuting offers two exhibits: Exhibit C – a Certificate of Good Standing in Delaware dated April 19, 2011 and Exhibit D – a Statement of Qualification for the state of California, dated April 28, 2011. (Exhibit D is the same document attached as Exhibit B to the Hyppa Declaration.) Further, Exhibit E is 2012 Annual Franchise Tax report for Delaware which shows the taxes owed was $350.00. This evidence does not persuasively contradict plaintiff’s declaration, as these exhibits only establish that prior to Plaintiff’s hiring in 2011 that some corporate formalities were recognized. This does not rebut the evidence presented by Assignee regarding the default status, indebtedness, or Docrun’s tax liability past 2012.

As to commingling, Reuting explains that each of those items were used for legitimate company purpsoes, such as stocking the company refrigerator, coffee and snacks. (See Reuting Decl. pp. 11-12.) The vehicle was registered to the business, and was only used for company purposes. (Reuting Decl. p. 12 ln. 1-6.) She also admits that on very rare occasions she or one of the other employees would accidentally use the company card for a personal purchase and that the company accountant would incorporate the expense onto paychecks or as a refund of loan money. (Reuting Decl. p. 12 ln. 8-17.) Reuting states that she has not had the time to support these claims with company records, though she apparently has that ability. Further, she does not explain why the vehicle funds purported used for company purposes were used for a Nevada vehicle, or why such expenses were made at taverns and

While Reuting submits voluminous records in support of her opposition (over 160 pages), the Court cannot find a sufficient evidence to dispute Assignee’s evidence supporting an alter ego finding. The Court notes that glaringly absent from Reuting’s record is any documentary evidence of maintaining corporate formalities such as the annual shareholder meetings, the accidentally co-mingled funds, or board of director meeting minutes or resolutions. Reuting generally complains that she has not had enough time, and could retrieve them if given more time. As explained infra, Reuting has had notice of this litigation for at least 6 months to hire counsel, and notice was mailed to her address as reflected by the court record in compliance with CCP §1005. Thus, the Court is not persuaded that Reuting did not have sufficient time to prepare for the instant motion, especially since the hearing was already continued once before. Further, Reuting’s statute of limitations argument not apply because this is merely altering the true name of the defendant as an alter ego. (See Misik, supra, 197 Cal.App.4th at 1072-1073.)

Accordingly, Assignee’s motion is GRANTED.

Moving party to give notice.