Cohen v. E. Robert Wallach, P.C.

Filed 12/10/07 Cohen v. E. Robert Wallach, P.C. CA1/4

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FOUR

Appellant e. robert wallach, a Professional Corporation, appeals from an order amending a judgment in favor of respondents to add it as a judgment debtor pursuant to Code of Civil Procedure section 187.[1] Appellant claims that the record does not support the trial courts determination that it was the alter ego of the original judgment debtor. We disagree and affirm.

I.
Factual and Procedural
Background

In March 1992, a judgment was entered against e. robert wallach (Wallach) in Washington, D.C., for $120,000 plus interest. The judgment was assigned later that year to respondents S. Robert Cohen and Estelle S. Gelman, trustees of the Norman G. Cohen Childrens Trust.

On January 30, 1995, Wallach formed appellant e. robert wallach, A Professional Corporation. Records filed with the Secretary of State show that as of December 14, 2005, Wallach was the chief executive officer, chief financial officer, and sole director of appellant. (Glenda Wallach was the secretary.) The business of appellant was described as practice of law. Wallach, who represented appellant below, stated at the hearing on the motion to amend the judgment that appellant corporation was created when Wallach resumed the practice of law after he returned to California.[2] This was consistent with the statement in appellants opposition to the motion to amend the judgment that appellant was created as the vehicle through which [Wallach] would resume his practice.[3]

On December 1, 1995, respondents obtained a judgment in California pursuant to section 1710.10 et sequitur (enforcing money judgments from sister states) against Wallach. The trial court issued a writ of execution against Wallach on August 4, 2003.

Various April 2005 news accounts that were submitted to the trial court described Wallach as the general counsel of The Sharper Image. On January 26, 2006, the trial court issued an assignment order that directed the State Bar of California, the University of San Francisco School of Law, and The Sharper Image Corp. to pay respondents any royalty payments due to Wallach or appellant to satisfy the judgment against Wallach.

On January 4, 2007, the trial court granted a motion brought by Wallach to modify the January 26, 2006, assignment order to delete any reference to appellant, because the corporation had not been named as a judgment debtor in the case. Respondents filed a motion pursuant to section 187 to amend their judgment against Wallach to name appellant as an additional judgment debtor. The basis for the motion was respondents allegation that appellant and Wallach were alter egos of one another. Respondents argued in their moving papers (without citation to any supporting evidence) that they had served the trial courts previous assignment order on The Sharper Image, but that the company had responded that it did not employ Wallach, while avoiding making representations as to appellant corporation.

Appellant filed an opposition to the motion to amend the judgment less than a week before the hearing. Appellant filed a memorandum of points and authorities, but provided no supporting evidence. The trial court read the late-filed opposition, but also struck it.

The trial court granted the motion to amend the judgment on January 22, 2007, concluding that respondents had presented sufficient evidence to show unity of interest and that an injustice would result if the judgment were not amended to include the professional corporation through which its sole shareholder, officer and director conducts his business. Appellant was added as a judgment debtor. Appellant timely appealed from the amended judgment that was entered on February 9, 2007.

II.
Discussion

A.     Order Amending Judgment Supported by Substantial Evidence.

Courts have authority pursuant to section 187[4] to amend a judgment to add additional judgment debtors. (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778.) 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. [Citations.] 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. [Citations.] 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. [Citation.] In other words, [if] the claim of individual liability is made at some later stage in the action, the judgment can be made individually binding on a person associated with the corporation only if the individual to be charged, personally or through a representative, had control of the litigation and occasion to conduct it with a diligence corresponding to the risk of personal liability that was involved. [Citation.] (Id. at pp. 778-779.) We review the trial courts order to determine whether it is supported by substantial evidence. (Id. at p. 777; Wollersheim v. Church of Scientology (1999) 69 Cal.App.4th 1012, 1017.)

Appellant argues that respondents failed to make even a prima facie showing of the established prerequisites for an alter ego finding. We disagree. There are two general requirements for disregarding the corporate entity. First, there must be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist. [Citation.] Second, it must be demonstrated that if the acts are treated as those of the corporation alone, an inequitable result will follow. [Citation.] When considering the application of the alter ego doctrine to a particular situation, it must be remembered that it is an equitable doctrine and, though courts have justified its application through consideration of many factors, their basic motivation is to assure a just and equitable result. [Citation.] (NEC Electronics Inc. v. Hurt, supra, 208 Cal.App.3d at p. 777.)

As to whether there was a unity of interest and ownership between Wallach and appellant such that the separate personalities of the corporation and the individual cease to exist, appellant does not dispute that judgment debtor Wallach was the chief executive officer, chief financial officer, and sole director of appellant, or that appellant corporation was formed as a vehicle through which Wallach resumed the practice of law after returning from another state. Appellant claims that the plain and innocuous meaning of that statement is that a sole proprietor was forming a professional corporationas California law expressly permits. Appellant does not, however, identify what additional evidence respondents were required to present in order to demonstrate that there was a unity of interest between Wallach and appellant.

As to whether treating appellant separately would lead to an inequitable result, appellant argues that there was no evidence that Wallach manipulated, underfunded or otherwise misused his [corporation] to anyones detriment or failed to maintain and honor its separate identity. This argument is misplaced. Appellant distinguishes the cases cited by respondents below by arguing that in those cases, the court looked to whether there was substantial evidence that the corporate entity should be disregarded because of some underlying wrongdoing with respect to the corporation. What this argument fails to recognize is that in each of those cases, parties were attempting to amend judgments originally entered against corporations to add either individuals or additional corporations as judgment debtors. (NEC Electronics Inc. v. Hurt, supra, 208 Cal.App.3d at pp. 775-776 [plaintiff filed motion to amend judgment against corporation to add companys sole shareholder and chief executive officer as judgment debtor]; Jack Farenbaugh & Son v. Belmont Construction, Inc. (1987) 194 Cal.App.3d 1023, 1026 [plaintiff amended judgment against corporate defendant to add individual as judgment debtor]; Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144, 146 [plaintiff filed motion to amend judgment against corporation to add individual and corporation as additional judgment debtors]; Mirabito v. San Francisco Dairy Co. (1935) 8 Cal.App.2d 54, 56-57 [plaintiff amended judgment against corporation to add another corporation which had received all assets and property of original judgment debtor].)[5]

Here, by contrast, the trial court considered whether a judgment against an individual should be amended to add a corporation. Respondents were essentially asking the trial court to treat Wallach and his corporation as the same entity. As respondents counsel stated at the hearing on the motion to amend the judgment, We are not asking you to or did not ask you to destroy the corporation in any way. The corporation I think, even with this order signed, is still perfectly intact and will serve whatever purpose it may serve legitimately. Instead, respondents were trying to reach the assets of the corporation, apparently because they were having trouble collecting on their money judgment from Wallach.

It is well settled, as respondents argued to the trial court,[6] that a court may disregard a corporate entity where the corporate form is being used to evade individual liability to third parties. (Taylor v. Newton (1953) 117 Cal.App.2d 752, 756-759 [corporation jointly and severally liable to plaintiff for debt or judgment against individual defendant, where individual established corporation to do business in order to avoid debt owed to plaintiff]; 9 Witkin, Summary of Cal. Law (9th ed. 2005) Corporations,  11, pp. 789-790.)  A corporation may be but the mere instrumentality through which, for their convenience, the individuals who own all the capital stock transact their business. Looking to substance rather than to form the law and equity will hold the corporation obligated for the acts of the sole owners of its stock.  (Taylor, supra, at p. 760.)  The issue is not so much whether, for all purposes, the corporation is the alter ego of its stockholders or officers, nor whether the very purpose of the organization of the corporation was to defraud the individual who is now in court complaining, as it is an issue of whether in the particular case presented and for the purposes of such case justice and equity can best be accomplished and fraud and unfairness defeated by a disregard of the distinct entity of the corporate form.  (Id. at p. 758.) Thus it has been held that where a corporation was but the instrumentality through which an individual for convenience transacted his business, all of the authorities . . . would hold such a corporation bound as the owner of the corporation might be bound. (Mirabito v. San Francisco Dairy Co., supra, 8 Cal.App.2d at p. 59.)

Here, the trial court found that an injustice would result if the judgment were not amended to include the professional corporation through which its sole shareholder, officer and director conducts his business. Appellant claims that the only evidence of nefarious activity was that Wallach was practicing law through a professional corporation. We disagree with this characterization of the evidence. Respondents presented the trial court with evidence that (1) a judgment was entered against Wallach in 1992 in Washington, D.C., and later assigned to respondents, (2) in January 1995 (around the time he returned from another state), Wallach formed appellant, a California corporation, through which he would practice law, and (3) respondents received a judgment in California against Wallach, pursuant to section 1710.10 et sequitur (to enforce a money judgment from a sister state) on December 1, 1995. Although it is true that there was no direct evidence presented to the trial court that respondents were having trouble collecting on their judgment against Wallach, or that appellant was formed in order to avoid the judgment against Wallach, the trial court could have inferred that the timing of the creation of appellant was designed to avoid payment of the 1992 judgment against Wallach. (Schoenberg v. Romike Properties (1967) 251 Cal.App.2d 154, 167-168 [inferring alter ego liability for purposes of amending a judgment where appellants failed to make sufficient showing to contrary].) Appellant points to the fact that it was created 11 months before respondents obtained a judgment in California; however, it was created nearly three years after judgment against Wallach was originally entered in 1992 in Washington, D.C.

Mindful that [t]he order of the lower court is  presumed to be correct on appeal, and all intendments and presumptions are indulged in favor of its correctness   (State Farm Fire & Casualty Co. v. Pietak (2001) 90 Cal.App.4th 600, 610), we conclude that substantial evidence supports the trial courts order.

B.     No Basis To Award Sanctions.

Respondents have filed a motion for sanctions pursuant to California Rules of Court, rule 8.276(e), claiming that appellants appeal is utterly without merit and was taken solely for the purpose of causing expense and additional delay. We deny respondents motion, concluding that the motion itself is utterly without merit.

Respondents argue in their sanctions motion that they never invoked a theory of alter ego liability in the lower court and that theory comprised no part of the trial courts order granting the relief requested. This assertion is directly contradicted by respondents moving papers below, which argued that appellant was the alter ego of Wallach, that judgments are often amended to add additional judgment debtors that are the alter ego of the original judgment debtor, that appellant and Wallach were alter egos of each[]other, and that respondents had shown by substantial, documentary evidence that this was the case. (Original italics, unnecessary capitalization removed.) Although they stated that they were not attempting to pierce the corporate veil in order to fasten liability on individual stockholders, respondents did acknowledge that they were asking the trial court to disregard the corporate entity. Although the trial courts order did not use the term alter ego, it stated that respondents had presented sufficient evidence of the two elements of alter ego liability (that there was a unity of interest between appellant and Wallach, and that an inequitable result would follow if appellant were not added as a judgment debtor). (NEC Electronics Inc. v. Hurt, supra, 208 Cal.App.3d at p. 777.)

On appeal, respondents argue, without any further explanation or citation to any authority, that the common term alter ego [[]Latin: other self[]] is not the same as the legal doctrine of alter ego liability.  The fact is that [c]ases which have used section 187 to add new parties as additional judgment debtors have always been rooted in the alter ego concept that the original party and the new party were one and the same. (Triplett v. Farmers Ins. Exchange (1994) 24 Cal.App.4th 1415, 1420; cf. Carr v. Barnabeys Hotel Corp. (1994) 23 Cal.App.4th 14, 21-23 [affirming the amendment of a judgment absent sufficient evidence of alter ego, because equitable principles supported amendment].)

Respondents accuse appellant of arguing at length in its opening brief about alter ego liability, which amounted to [a]ttacking a non-existent finding of alter ego liability by the lower court. In fact, appellant devoted a significant portion of its brief to distinguishing cases that respondents cited to the trial court regarding whether there is substantial evidence of alter ego liability. (NEC Electronics Inc. v. Hurt, supra, 208 Cal.App.3d at pp. 777-778; Jack Farenbaugh & Son v. Belmont Construction, Inc., supra, 194 Cal.App.3d at pp. 1032-1033; Dow Jones Co. v. Avenel, supra, 151 Cal.App.3d at pp. 147-148; Mirabito v. San Francisco Dairy Co., supra, 8 Cal.App.2d at pp. 58-60.)

Rather than address appellants attempt to distinguish these cases, respondents claim that they were not required to present evidence to the trial court to establish alter ego liability. They instead rely for the first time on appeal on McClellan v. Northridge Park TownhomeOwners Assn. (2001) 89 Cal.App.4th 746, 754-755, which affirmed the amendment of a judgment to add a successor corporation to a judgment. Respondents now claim that [b]y its very structure, Respondents motion [to the trial court] sought to establish successor liability.  Whatever the structure of respondents moving papers below, they did not cite McClellan, and they did not use the terms successor liability or successor corporation. This is not surprising, given the fact that successor liability assumes the continuation of [a] predecessor corporation. (Id. at p. 754.) As discussed above, the trial court here was considering whether a corporation should be treated the same as an individual judgment debtor. We certainly cannot conclude that no reasonable attorney would have considered the appeal meritorious. (Cf. In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650.)

III.
Disposition

The amended judgment is affirmed. Respondents motion for sanctions is denied. Respondents shall recover their costs on appeal.

_________________________

Sepulveda, J.

We concur:

_________________________

Ruvolo, P. J.

_________________________

Rivera, J.

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[1] All statutory references are to the Code of Civil Procedure.

[2] Although no evidence of Wallachs standing with the State Bar of California appears in the record, it is apparently undisputed that Wallach was admitted to the bar in 1959, which is consistent with records available on the bars website (http://members.calbar.ca.gov/search/member_detail.aspx?x=29078 [as of Dec. 7, 2007]).

[3] Wallachs opposition stated, It is also acknowledged that wallach formed [appellant] in 1995 and practiced law through [appellant] thereafter. There is no suggestion that the two events were connected, and in fact they were not. Upon defeating the [unspecified, unrelated] criminal charges [in New York], and thereby ending the automatic interim suspension from wallachs ability to practice law, wallach created [appellant] as the vehicle through which he would resume his practice. Wallach did not present any evidence in support of his opposition. However, [w]hile briefs and argument are outside the record, they are reliable indications of a partys position on the facts as well as the law, and a reviewing court may make use of statements therein as admissions against the party. [Citations.] (Franklin v. Appel (1992) 8 Cal.App.4th 875, 893, fn. 11.)

[4] Section 187 states: When 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.

[5] In their brief to the trial court, respondents also cited Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1248, which did not involve amending a judgment, for the general proposition that   [i]t is the general rule that [the] conditions under which [a] corporate [entity] may be disregarded vary according to the circumstances of each case.   The issue presented in Las Palmas was whether alter ego liability should apply to sister companies. (Id. at pp. 1249-1250.)

[6] Quoting Las Palmas Associates v. Las Palmas Center Associates, supra, 235 Cal.App.3d at page 1249, respondents argued that where  the corporate entity [ . . . ] is so organized and controlled, and its affairs [ . . . ] conducted[] as to make i[t] merely an instrumentality, agency, conduit or adjunct of . . . the party seeking to avoid the penalty of a court judgment, the court has an equitable interest in granting relief to the judgment creditor and a practical interest in giving effect to its own judgments. Respondents also argued that appellant serves as nothing more than a conduit through which [Wallach] receives money that would otherwise be payable to [respondents] pursuant to this Courts assignment order and other methods of judgment enforcement.