Jinnie Chao v. Ardeshir Salem

Case Name: Chao v. Salem, et al.

 

Case No.: 1-12-CV-217465

 

Plaintiff Jinnie Chao moves for an order adding Defendant Ardeshir Salem (Defendant Individual) as a judgment debtor on the judgment entered on May 16, 2014 against Defendant A. Salem, D.D.S., Inc. (Defendant Corporation).  Plaintiff moves on the grounds that Defendant Individual is the alter ego of Defendant Corporation, and equity requires that he be bound by the acts of his corporation.  Defendants oppose on the grounds that Plaintiff has failed to meet her burden to show that the alter ego theory should apply to this case.  Defendants also object to Plaintiff’s evidence. Plaintiff responds that Defendants’ arguments do not address the issue in front of the Court. Plaintiff has presented a Declaration from Plaintiff authenticating the documents and responses to the objections.

 

I.  Evidence

 

Plaintiff seeks judicial notice of documents filed with the Secretary of State of the State of California pursuant to Evid. Code 452(c). Those documents are judicially noticed.

 

Defendants’ objection to the Declaration of Jinnie Chao is sustained.  It does not follow from Plaintiff’s status as primary custodian of Defendant Corporation’s business records that she had access to and was knowledgeable about all corporate records such as shareholder status.  Defendants’ objections to the Declaration of Bruce Janke are sustained.  Counsel is not competent to authenticate and opine about documents produced in discovery.

 

On July 25, 2014—four court days before the hearing–Plaintiff filed a “Supplemental Declaration and Memorandum of Points and Authorities”.  This was filed a week after Defendants’ opposition was filed on July 18, 2014, and after Plaintiff filed a reply on July 22, 2014.  The filing relates to an event that occurred on July 16, 2014—before the opposition was filed and long before the reply was filed.  The court has considered these papers.

 

A different ruling on the objections or the supplemental filing would not change the result.

 

II.  Analysis

 

Defendant Individual hired Plaintiff to be the office manager for his dental practice in June 2007.  (Chao Decl. ¶ 2.)  Defendant Individual gave Plaintiff responsibility to pay Defendant Individual’s business and personal expenses.  (Chao Decl. ¶¶ 3-4; Chao Reply Decl. Exs. 5-6.)  Plaintiff has not seen share certificates, a stock issuance register, bylaws, minutes, or other corporate materials.  (Chao Decl. ¶ 5.)  Plaintiff claims that Defendant Individual instructed her to list herself as the CEO, Secretary, and CFO of the corporation in 2008.  (Chao Decl. ¶ 6; Janke Decl. Tab 6.)  Defendant Individual disputes that claim and asserts that between 2010 and 2012, Plaintiff listed herself in those positions without his knowledge. (Salem Decl. ¶ 10.) Plaintiff did not attend a meeting of officers, nor was she ever informed or notified that such a meeting was scheduled. (Chao Decl. ¶ 7.) Defendant Corporation does business in a building owned by Defendant Individual, and the building is secured by a mortgage loan, which Defendant Individual is the mortgagor. (Chao Decl. ¶ 8.)  Defendant Corporation did not make rent payments of $4,250 per month as it should have and Defendant Individual told Plaintiff to make the mortgage payment directly from the corporate checking account.  (Ibid.)  These payments were reported to the IRS as 1099 income to the mortgagee, not to Defendant Individual. (Ibid.)  Defendant Individual directed Plaintiff to pay Defendant Individual’s personal and household bills from Defendant Corporation’s checking account.  (Chao Decl. ¶ 9.) Defendant Individual trusted Plaintiff to handle the finances of the Corporation, but asserts that he was unaware that Plaintiff was using corporate money to pay his personal bills. (Salem Decl. ¶ 12.)  Defendant Individual asserts that he was unaware that Plaintiff had a great deal of access to the records and files of his dental practice. (Salem Decl. ¶ 6.)

 

Plaintiff argues that Code of Civil Procedure section 187 grants the Court the power to use all means to carry its jurisdiction into effect, even if those means are not set out in the code. Plaintiff argues that the two Defendants are alter egos because the two routinely commingle their finances and fail to maintain arms’ length transactions, and Defendant Salem is the sole shareholder, officer, and director of the corporation, exercises complete dominion and control over it, and has no regard for corporate formalities.

 

Defendants argue that Plaintiff has not met its burden to show that there is a unity of interest between the two Defendants because if Plaintiff had power to pay Defendant Individual’s personal bills, then Plaintiff was the one who caused Defendant Individual’s personal bills to be paid by the Corporate Entity.  Defendants find it disingenuous for Plaintiff to claim there is a unity of interest when it was Plaintiff who was writing the checks and controlling the finances.  Defendant Individual also disputes that he directed Plaintiff to execute the corporation’s documents to become the CEO, Secretary, and CFO, and that she was the one who used the monies from the corporation to pay the water bills.

 

Defendants also argue that if Defendant Individual is added as a judgment debtor, then Defendant Individual will immediately file a motion to stay enforcement under CCP 918.5. Defendant Individual argues that he has claims against Plaintiff, and that adding Defendant Individual as a judgment debtor would be an exercise in futility because other equitable principles require that his cross-claims be heard before enforcement of judgment can occur.

 

Plaintiff responds that Defendants’ arguments have already been adjudicated and are irrelevant to the issue of whether Defendant Individual is the alter ego of his corporation. Plaintiff contends that Plaintiff has brought forward abundant evidence proving the alter ego theory, and that the burden shifts to Defendants to refute it. Plaintiff argues that Defendant Individual failed to produce a document showing that he did not commingle his personal funds and assets with his corporation, that he did not disregard corporate formalities, that he did not treat the corporation’s assets as his own, and that he did not fail to maintain arms’ length transactions between the two entities.

 

“When jurisdiction is […] 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 […] any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of the Code.”  (Cal. Code Civ. Proc., § 187.)  Under CCP section 187, the court has the authority to amend a judgment to add additional judgment debtors.  (Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144, p. 148.)  “Judgments are often amended to add additional judgment debtors on the grounds that a person or entity is the alter ego of the original judgment debtor. This is an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant.  Such a procedure is an appropriate and complete method by which to bind new individual defendants where it can be demonstrated that in their capacity as alter ego of the corporation they in fact had control of the previous litigation, and thus were virtually represented in the lawsuit.”  (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, p. 778.)

 

There are two requirements for disregarding the corporate entity: first, that there is sufficient unity of interest and ownership between the corporation and the individual or organization controlling it that the separate personalities of the individual and the corporation no longer exist; and second, that an inequitable result will follow if the acts are treated as those of the corporation alone. (Webber v. Inland Empire Investments, Inc. (1999) 74 Cal.App.4th 884, p. 899.)  The purpose of the alter ego doctrine “is whether in the particular case presented, justice and equity can best be accomplished and fraud and unfairness defeated by disregarding the distinct entity of the corporate form.”  (Ibid. at p. 900.)  “Alter ego is used to prevent a corporation from using its statutory separate corporate form as a shield from liability only where to recognize its corporate status would defeat the rights and equities of third parties […] Alter ego is a limited doctrine, invoked only where recognition of the corporate form would work an injustice to a third person.”  (Ibid. at p. 901.)  Courts have set forth various factors for the trial court to consider in determining whether an individual is the alter ego of a corporation: (1) commingling of funds and assets of the corporation and the individual; (2) sole ownership of the corporation by the individual; (3) disregard of corporate formalities; (4) use of the corporation as a shell or conduit for the affairs of the individual; (5) treating the corporation’s assets as those of the individual; (6) the individual’s dominion and control over the corporation; and (7) failure to maintain arms’ length transactions between the two entities. (Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, p. 1342.) “No one characteristic governs, but the court must look to all the circumstances to determine whether the doctrine should be applied.” (Ibid.)

 

Even if Plaintiff established by admissible evidence that there is a unity of interest between Defendant Corporation and Defendant Individual, Plaintiff has not met her burden to show that an inequitable result will follow if alter ego theory is not imposed.  Plaintiff has not shown that either Defendant is using the corporate status to shield the other from liability. Plaintiff has her rights to recover from Defendant Individual in the upcoming trial. Plaintiff has not shown why she cannot recover her judgment from Defendant Corporation, and that alter ego theory must be imposed to prevent an inequitable result to her.

 

Therefore, the motion to add Defendant Individual as a judgment debtor is DENIED.

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