Case Number: BC671051 Hearing Date: April 04, 2018 Dept: 47

Lorena Lara, et al. v. J.H. Richardson Chiropractic, et al.

DEMURRER TO SECOND AMENDED COMPLAINT

MOVING PARTY: Defendant James H. Richardson, Jr.

RESPONDING PARTY(S): Plaintiffs Lorena Lara and Andrea Tran

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiffs allege that Defendant James H. Richardson, Jr. engaged in sexual harassment and assault and battery against Plaintiffs while they were working for Defendant.

Defendant James H. Richardson, Jr. demurs to the second amended complaint.

TENTATIVE RULING:

Defendant James H. Richardson, Jr.’s demurrer to the second amended complaint is OVERRULED as to the first through seventh causes of action.

Defendant is ordered to answer the second amended complaint within 20 days.

DISCUSSION:

Demurrer

Meet and Confer

The Declaration of Corbett H. Williams reflects that the meet and confer requirement set forth in CCP § 430.41 was satisfied.

1. First Cause of Action (Harassment Based on Sex—Hostile Work Environment—In Violation of Gov. Code § 12940(j); (2) Second Cause of Action (Discrimination In Violation of Gov. Code § 12940(a); (3) Third Cause of Action (Failure to Prevent Harassment and Discrimination In Violation of Gov. Code § 12940(k); (4) Wrongful Constructive Termination In Violation of Gov. Code § 12940(k); (5) Intentional Infliction of Emotional Distress; (6) Sexual Assault and Battery In Violation of Civil Code § 1708.5; (7) Assault and Battery

Defendant James H. Richardson, Jr. demurs to all causes of action on the ground that the alter ego allegations against him as trustee are insufficiently pled.

It is appropriate to plead a trustee, as an alter ego of a Defendant, because a trust is not a legal entity which can be sued:

“Because a trust is not an entity, it’s impossible for a trust to be anybody’s alter ego. That’s because alter ego theory, which is simply one of the grounds to ‘pierce the corporate veil,’ is inescapably linked to the notion that one person or entity exercises undue control over another person or entity. However, a trust’s status as a non-entity logically precludes a trust from being an alter ego.” (Nenno & Sullivan, Planning and Defending Domestic Asset-Protection Trusts, Planning Techniques for Large Estates, supra, SRO34 ALI-ABA at p. 1870, fn. omitted.) But “[w]hile applying alter ego doctrine to trusts is conceptually unsound, applying the doctrine to trustees is a different proposition. Trustees are real persons, either natural or artificial, and, as a conceptual matter, it’s entirely reasonable to ask whether a trustee is the alter ego of a defendant who made a transfer into [the] trust. Alter-ego doctrine can therefore provide a viable legal theory for creditors vis-à-vis trustees.” (Id. at p. 1871, italics added.)

As recognized in California: “ ‘Unlike 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 [101 Cal. Rptr. 3d 606].) “[T]he proper procedure for one who wishes to ensure that trust property will be available to satisfy a judgment … [is to] sue the trustee in his or her representative capacity.” (Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1349 [7 Cal. Rptr. 3d 178].)

Thus, in the present case, Greenspan properly sought to add Moti Shai, the trustee of the Shy Trust, as a judgment debtor. If Moti Shai is the alter ego of Barry Shy, then Barry may be considered the owner of the Shy Trust’s assets for purposes of satisfying the judgment. The trial court erred in concluding that the alter ego doctrine could not be used to reach the assets of a trust.

Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 521-22.

Alter ego allegations may be pled generally and the principal factors for piercing the corporate veil—individual dominated the affairs of the corporation, unity of interest and ownership, corporation is a mere shell, diversion of income, inadequate capitalization, failure to issue stock and observe corporate formalities, adherence to fiction of separate corporate existence would work an injustice—may be alleged in conclusory terms and plaintiff may be given an opportunity to present evidence to support these allegations. First Western Bank & Trust Co. v. Bookasta (1968) 267 Cal.App.2d 910, 914-16.

It is sufficient that refusal to recognize unity of corporation and individual “will bring about inequitable results” (citation omitted). All that is required is a showing that it would be unjust to persist in recognition of the separate entity of the corporation (Citation omitted).

Claremont Press Publishing Co. v. Barksdale (1960) 187 Cal.App.2d 813, 817.

However:

The alter ego doctrine does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form. Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard. (Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal. App. 2d at p. 842; Alberto v. Diversified Group, Inc., supra, 55 F.3d at p. 207; Lowell Staats Min. Co. v. Pioneer Uravan, Inc. (10th Cir. 1989) 878 F.2d 1259.)

Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539.

Further:

There also must be some conduct amounting to bad faith that makes it inequitable for Cooper to hide behind the corporate form. (Ibid.)

. . . There is no evidence regarding the corporation’s financial situation, or the amount or nature of corporate assets, or whether the corporation is adequately capitalized. There is no evidence the corporation was a mere sham or shell. There is no evidence Cooper has diverted assets from the corporation to avoid paying creditors. In short, there is nothing to indicate that plaintiffs, if successful against the corporation, will not be able to collect on any judgment against the corporation. Absent such evidence, plaintiffs cannot show that the result will be inequitable, and have not stated the second element of an alter ego claim. The trial court acted within its discretion when it denied the motion to amend.

Leek v. Cooper (2011) 194 Cal.App.4th 399, 417-18 (bold emphasis added).

Here, ¶¶ 4 – 7, 42 – 46 of the 2AC allege that Defendant James H. Richardson, Jr. is trustee and beneficiary of the James H. Richardson Sr., irrevocable trust, the James H. Richardson Sr. Family Irrevocable Insurance Trust, the James and Gloria Richardson Trust and Robert P. Reid and James H. Richardson Trust. ¶¶ 47 and 48 allege that Defendant Richardson has commingled assets between the Trusts and his personal and corporate banking accounts. Notably, the 2AC alleges that substantially all of Defendant Richardon’s assets are held in trust, including those of the now defunct Richardson Chiropractic, through a scheme designed to deprive Richardson Chiropractic’s creditors of any recourse. ¶ 63. Richardson Chiropractic is allegedly inadequately capitalized and is no longer in practice. ¶ 66. On September 30, 2017—after the 1AC was filed in this action—Defendant Richardson voluntarily surrendered his chiropractic license in lieu of suspension. ¶ 70. Richardson Chiropractic P.C. is no longer in operation and what is left of the corporation is inadequately capitalized. ¶ 71. These facts are sufficient to permit Plaintiffs to conduct discovery as to whether Richardson transferred assets from his practice to the Trusts to avoid liability to potential creditors, such as Plaintiffs herein. This suggests a bad faith attempt to evade creditors which would lead to an inequitable result.

Further, as between Richardson, the individual, and Richardson Chiropractic, P.C., Plaintiffs allege that the corporation is inadequately capitalized, Richardson failed to issue stock and to observe corporate formalities, does not hold annual meetings or issue periodic reports, and has commingled corporate funds, and used such funds for personal expenses. ¶¶ 66, 67, 69. This is sufficient to form the basis of a link for alter ego liability between Defendant J.H. Richardson Chiropractic, P.C. and Richardson for purposes of finding an employer relationship with Plaintiff and Richardson as Trustee of the various trusts as to the causes of action for discrimination, failure to prevent discrimination and harassment, and wrongful constructive termination.

Plaintiffs have sufficiently alleged alter ego to enable them to conduct alter ego discovery, which may be conducted before trial. See Flora Crane Service, Inc. v. Superior Court of San Francisco (1965) 234 Cal. App. 2d 767, 778-79:

Read against the pleadings, interrogatory 5 is also reasonably calculated to lead to the discovery of admissible evidence on the alter ego issue. In essence the theory of petitioner’s complaint is that Maccon has been used by Eustace to accomplish an unjust and inequitable purpose and that its corporate entity should be disregarded. In order to establish that the acts and obligations of Maccon are legally those of Eustace, and vice versa, it must be shown “that the corporation is not only influenced and governed by that person, but that there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased; . . .” (Citations omitted.) Automotriz, supra, points out “that the conditions under which a corporate entity may be disregarded vary according to the circumstances in each case.” In Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 838-840 [26 Cal.Rptr. 806], we noted the following, among a variety of, factors bringing the doctrine into play: “[The] failure to adequately capitalize a corporation; the total absence of corporate assets, and under-capitalization [citations]; the use of a corporation as a mere shell, instrumentality or conduit for a single venture or the business of an individual or another corporation [citations]; . . .” (P. 839). It is self-evident that balance sheet information is relevant to the alter ego issue and that Maccon’s objection on the grounds of relevancy is not well taken.

Flora Crane Service, Inc. v. Superior Court of San Francisco (1965) 234 Cal.App.2d 767, 773-75 (bold emphasis added).

Accordingly, the demurrer to the first through seventh causes of action is OVERRULED.

Defendant James H. Richardson, Jr. is ordered to answer the second amended complaint within 20 days.

Plaintiffs to give notice, unless waived.

IT IS SO ORDERED.

Dated: April 4, 2018 ___________________________________

Randolph M. Hammock

Judge of the Superior Court