05CC04985
Motion to Amend Judgment

The court GRANTS the motion of Judgment Creditors RICHARD BROADWAY and JEANNE L. SCOTT BROADWAY to amend the judgment to add NU RELIANCE as the true Defendant on the ground that it is merely the alter ego of judgment debtor Sentry Medical Products Inc. (CCP 187; Jack Farenbaugh & Son v. Belmont Construction (1987) 194 Cal.App.3d 1023, 1029-1031; NEC Electronics v. Hurt (1989) 208 Cal.App.3d 772.)

“Generally speaking, there are two requirements for disregarding the corporate entity: “… (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.” (Jack Farenbaugh & Son v. Belmont Construction (1987) 194 Cal.App.3d 1023, 1029-1031.)

“The general rule of successor liability is that a corporation that purchases all of the assets of another corporation is not liable for the former corporation’s liabilities unless, among other theories, the purchasing corporation is a mere continuation of the selling corporation.” (Katzir’s Floor and Home Design Inc. v. M-MLS.com (9th Cir. 2004) 394 F.3d 1143, 1150-1151.)

“To be a mere continuation, California courts require evidence of one or both of the following factual elements: (1) a lack of adequate consideration for acquisition of the former corporation’s assets to be made available to creditors, or (2) one or more persons were officers, directors, or shareholders of both corporations.” (Ibid.)

Judgment Creditors make a prima facie showing that Sentry and Nu Reliance are alter egos of one another and of Edwin Novak, that Nu Reliance paid inadequate consideration for Sentry’s assets, and that both corporations shared the same officers and directors, at least for a time.

On 5/01/08, some 2 months before entry of judgment, Edwin Novak and his wife Nancy Novak, President and Vice-President of Sentry, transferred all of Sentry’s assets to Nu Radiance. Edwin Novak admitted this in a 12/15/10 deposition. (Ex. D.)

Little or no cash was exchanged in return for these assets, but according to Edwin Novak Nu Radiance assumed an obligation and supposedly made future payments on it. (Ex. J, Bill of Sale.)

Sentry is currently out of business while Nu Radiance operates in the same location as Sentry once did (795 Coronis Way, Green Bay, Wisconsin 54303), using the same phone and fax numbers, producing substantially the same products. Nu Radiance has its own website but also owns and operates Sentry’s former website, which directs business to Nu Radiance. Sentry’s website accepts orders online and lists Nu Radiance inventory for sale.

In 2010, Edwin Novak was still the owner of Nu Radiance and exercised substantial control over it, entering into a $600,000 real estate transaction, traveling to China for product development, and traveling to New York to show products. At present, the ten owners of Nu Radiance are Novak’s brother and his nine children and step-children.

In Opposition, Nu Reliance fails to present credible evidence that it paid adequate consideration for Sentry’s assets.

The court finds that it does have jurisdiction over Sentry and Nu Reliance and jurisdiction to amend its own judgment, because Sentry was a party to this lawsuit and because Nu Reliance is an alter ego of Sentry.

The fact that Edwin and Nancy Novak may have declared bankruptcy in 2010 is irrelevant, because Judgment Creditors do not seek to add their names to the judgment.

Nu Reliance has failed to cite controlling authority to prove that the motion is somehow time-barred. (Alexander v. Abbey of the Chimes (1980) 104 Cal.App.3d 39 [motion untimely due to 7-year delay].) Alexander is distinguishable because therein the moving party knew at the time of entry of judgment that there was an alter-ego relationship, but waited 7 years. (Cf. with Thompson v. L.C. Roney & Co. (1952) 112 Cal.App.2d 420 [motion timely brought upon discovery of alter ego relationship, some two years after entry of final judgment], cited by the court of appeal in Alexander.)

In this case, the delay was only 2 years from the date of discovery of the alter-ego relationship. Judgment Creditors, who reside out of state, testify that they only learned of the Sentry/Nu Reliance subterfuge some two years ago, and needed time to find suitable counsel.

Finally, this court retains jurisdiction to amend its own judgment, and the judgment remains enforceable for a period of 10 years from the date of entry. (CCP 337.5 (b); 683.020.)

Judgment Creditors shall serve notice of this ruling.