Case Number: KC066203 Hearing Date: May 07, 2014 Dept: J

Re: HMA, Inc., etc. v. Allan J. Hardy, etc., et al. (KC066203)

MOTION FOR SUMMARY ADJUDICATION OF ISSUES

Moving Party: Plaintiff HMA, Inc.

Respondents: Defendants Allan J. Hardy and Hargan Investments, Inc.; Joinder by Defendant Gemini Aluminum Corporation

POS: Moving OK; Opposing OK; Reply OK; Joinder OK

This is an action to impose alter ego liability, to avoid and annul fraudulent transfer under the Uniform Fraudulent Transfer Act, and to recover improper corporate distributions. The Complaint, filed on 7/26/13, asserts causes of action for:

1. Imposition of Alter Ego Liability
2. Avoidance of Fraudulent Transfer
3. Improper Corporate Distributions

Trial is set for 8/26/14.

Plaintiff HMA, Inc. (“HMA”) moves for summary adjudication of the following issues in its complaint against Defendants Allan J. Hardy (“Hardy”), Gemini Aluminum Corporation (“Gemini”) and Hargan Investments, Inc. (“Hargan”) (collectively “Defendants”) on grounds that there exist no triable issues of material fact, and Plaintiff is entitled to judgment as a matter of law pursuant to CCP 437c(f).

FIRST ISSUE FOR SUMMARY ADJUDICATION: That HMA is entitled to judgment against Hardy on the first cause of action for imposition of alter ego liability because Hardy is the alter ego of Gemini.

SECOND ISSUE FOR SUMMARY ADJUDICATION: That HMA is entitled to judgment against Hargan on the first cause of action for imposition of alter ego liability because Hargan is the alter ego of Gemini.

DEFENDANTS’ EVIDENTIARY OBJECTIONS:

Declaration of Thomas E. Elenbaas:

1. Sustained as to the exhibit, but overruled as to the content of paragraph 2.
2. Sustained. (There is no “official website” exception to the hearsay rule.)
3. Overruled.
4. Overruled.
5. Overruled on the basis of judicial notice.
6. Sustained as the records do not appear to be certified.
7. Overruled.
8. Overruled.
9. Overruled.

Objections to Plaintiff’s Request for Judicial Notice:

1. Overruled.
2-5. Sustained for lack of certification.
6. Overruled.
7. Overruled on the grounds stated.

PLAINTIFF’S EVIDENTIARY OBJECTIONS:

Declaration of Allan J. Hardy:

1. Overruled

Declaration of Peter L. Tripodes:

2. Sustained
3. Sustained

Declaration of David Beringer:

4. Sustained
5. Overruled
6. Sustained
7. Sustained
8. Sustained
9. Sustained

BACKGROUND:
The Complaint alleges that commencing in or about December 2009, Defendants conspired between and among themselves to hinder, delay and defraud Plaintiff in the collection and enforcement of its claim, including a first and second judgment (Complaint ¶ 36); from and after 2007, Plaintiff was and is the holder of a claim against Gemini for the unpaid balance of aluminum sold and delivered to Gemini (Id. ¶ 37); Plaintiff’s claim is in the sum of $1,926,121.00, plus post judgment costs and interest (Ibid.); in or about December 2009, less than two months after the first judgment was entered against Gemini, Gemini and Hargan entered into the Gemini-Hargan Note and Security Agreement, and caused a UCC-1 financing statement to be filed with the office of the Secretary of State, ostensibly creating a lien on all of Gemini’s tangible and intangible assets (Id. ¶ 38); there was no consideration of the Gemini-Hargan Note and Security Agreement and it was done with the intent to hinder, delay or defraud Plaintiff in the collection and enforcement of its claim (Id. ¶¶ 39-40); Plaintiff is entitled to have the Gemini-Hargan Note and Security Agreement, and the UCC-1 financing statement annulled and declared void as to Plaintiff to the extent necessary to satisfy the judgment (Id. ¶ 43); to the extent Hargan has received any property, or the proceeds of any property fraudulently transferred from Gemini, Hargan holds such property in constructive trust for the benefit of Plaintiff (Id. ¶ 44); and that as a result, Plaintiff has been damaged (Id. ¶ 45).

The Complaint alleges that there exists a unity of interest and ownership between Defendants, such that any individuality and separateness between Defendants has ceased, by reason of which Hardy and Hargan are the alter egos of Gemini and are jointly and severally liable for Gemini’s obligations under a judgment (Complaint ¶ 32); Hardy is the sole or controlling shareholder of both Gemini and Hargan, and exercises complete and exclusive dominion and control over both Gemini and Hargan (Id. ¶ 32a); Hardy has withdrawn excessive sums from the operations of Gemini in excess of reasonable compensation and without adequate consideration, leaving Gemini undercapitalized and underfunded for its ongoing business operations (Id. ¶ 32b); since 2007 Hardy has withdrawn, on average, in excess of $1 million per year without leaving sufficient assets in Gemini to meet its debts and obligations, including its obligation to Plaintiff (Ibid.); immediately after the first judgment was entered, Hardy filed UCC-1 liens indicating that Hardy, as creditor, loaned monies to Hargan, as debtor (Id. ¶ 32c); Gemini and Hargan are owned and operated as a common enterprise (Id. ¶ 32d); Hardy caused Hargan to assert a bogus third party claim in order to hinder and deny Plaintiff’s enforcement of the second judgment against Gemini (Id. ¶ 32e); adherence of the separate existence of Defendants would permit an abuse of the corporate privilege and would sanction fraud or promote injustice (Id. ¶ 33); and Defendants have engaged in fraudulent and inequitable conduct, diverting funds from Gemini to Hardy, then to Hargan, which were purportedly loan to Gemini for the purpose of creating a fraudulent lien, all with the intent of defeating Plaintiff’s ability to collect the monies due to it from Gemini (Ibid.).

ALTER EGO:

“ ‘Ordinarily, a corporation is regarded as a legal entity separate and distinct from its stockholders, officers and directors. Under the alter ego doctrine, however, where a corporation is used by an individual or individuals, or by another corporation, to perpetrate fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the corporation’s acts as if they were done by the persons actually controlling the corporation.’ ” (Robbins v. Blecher (1997) 52 Cal.App.4th 886, 892.) “Under the alter ego doctrine…, when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.” (Sonora Diamond Corp. v. Sup. Ct. (2000) 83 Cal. App. 4th 523, 538.)

To establish alter ego, plaintiff must prove a unity of interest and ownership such that the separate personalities of the corporation and individuals do not exist, and that an inequity will result if the corporate entity is treated as the sole actor. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285.) “The factors for the trial court to consider include the commingling of funds and assets of the two entities, identical equitable ownership in the two entities, use of the same office and employees, disregard of corporate formalities, identical directors and officers, and use of one as a mere shell or conduit for the affairs of the other. No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied.” (Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1108-1109.) The factors for determining an alter ego relationship are not exhaustive, but may be considered with the particular circumstances of the case. (Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 511-13.) The single enterprise doctrine “is premised on the theory that the person in charge of a single enterprise consisting of several alter ego entities is typically concerned with the total amount of his assets held by all entities, not with the specific amount held by any particular one.” (Greenspan, at 510).

Here, Plaintiff seeks adjudication that both Hardy and Hargan are the alter egos of Gemini. Thus, each of the factors discussed above is applied to the facts of this case to determine if there exists a triable issue of material fact.

COMMINGLING OF FUNDS AND ASSETS:

HMA contends that commingling is evident in Hardy’s attitude toward the debts his entities owe to him and each other. It is undisputed that Gemini owes Hargan over $2.5 million in accrued rent on its premises (RJN, Ex. 16, p. 187), and that as of 7/18/13 Gemini owed Hargan over $6.1 million (id. at p. 186) on a credit line that was contemplated to be for the “maximum amount of” $3 million. (RJN Ex. 10, at p. 145).

Further, Plaintiff claims that commingling is shown by a series of fraudulent liens created by Hardy between himself, Gemini and Hargan. On 12/03/09, Gemini’s lawyer prepared “promissory note and security agreement templates” for the corporation (RJN, Ex. 4, p. 104), and a day later filed a series of UCC-1 financing statements naming Gemini a debtor to Hargan as the secured party, and Hargan as debtor to Hardy as the secured party (RJN, Ex. 7, 8). Plaintiff argues that the fraud arises from the timing of the transaction, just after Plaintiff’s November 2009 net judgment against Gemini for over $1.3 million. However, the court sustained objections to these exhibits on the grounds that they are not certified.

Defendants, in opposition, attempt to show that the entities keep separate books, and Gemini has not commingled its assets . (Decl of David Beringer, and Ex. O and P). HMA argues that the accounting shown in Exhibit “O” shows that Hargan collects money for Gemini, and releases it to Gemini only as needed to enable it to pay its operating expenses, and that is commingling. However, that fact is not apparent to a layperson reading the accounting, and there is no expert declaration by an accountant submitted by HMA to support this fact. The court finds that there is a triable issue as to commingling. (Decl. of Beringer, Exs. O and P).

IDENTICAL EQUITABLE OWNERSHIP IN THE TWO ENTITIES:

This issue involves the question of whether Hardy owns Gemini and Hargan. Hardy is the sole shareholder of Gemini (Hardy Depo., Ex. C, 30:4-10). Thus, the Hardy and Gemini ownerships are identical.

As to Hargan, it is undisputed that Hardy and his wife are the only shareholders. Thus, Hardy is not the sole shareholder of Hargan, although there is an inference that Hardy controls the ownership of Hargan. (There is no evidence that Hardy’s wife does not share her husband’s views regarding the corporation, or that she votes her shares differently.)

In addition, Hardy admitted that Hargan was the alter ego to Gemini in an official government certificate. (Request for Judicial Notice (“RJN”), Ex. 19). Defendants dispute this on grounds that the term “alter ego” was not meant to be construed broadly, but rather narrowly for purposes of obtaining a bank loan. However, they offer no legal authority for such an interpretation.

USE OF THE SAME OFFICE AND EMPLOYEES:
Although Hargan and Gemini may have the same offices at the same address (3255 Pomona Blvd., Pomona, CA 91768), the court has sustained the objection to the printout from the Secretary of State’s website, Ex. B to Decl. of Thomas E. Elenbass). It is undisputed that Hargan rents a portion of the premises to Gemini. (Decl of Hardy, para. 3).

DISREGARD OF CORPORATE FORMALITIES:
Hargan and Gemini “each keep separate sets of books, maintain appropriate corporate records, and comply with required corporate formalities.” (Decl. of Peter L. Tripodes). The court finds that there is a triable issue of fact.

IDENTICAL DIRECTORS AND OFFICERS:

See Equitable Ownership, above.

USE OF ONE AS A MERE SHELL OR CONDUIT FOR THE AFFAIRS OF THE OTHER:

See Commingling of Assets, above.

In sum, the court finds that there exists triable issues of material fact as to the issues regarding alter ego. The motion for summary adjudication of issues is denied.