Rose v. Sharon Care Center

Filed 8/29/06 Rose v. Sharon Care Center CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

APPEAL from a judgment of the Superior Court of Los Angeles County, Andria K. Richey, Judge. Affirmed.

Law Offices of M. Kamionski and M. Kamionski for Plantiff and Appellant.

Wroten & Associates, Kippy L. Wroten, Regina A. Casey and Mary P. Miller for Defendants and Respondents.

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BACKGROUND

Appellant Stephen Rose, individually and as the successor in interest and heir to Shirley S. Stewart, deceased, commenced this action on December 2, 2004, by filing a complaint for damages against respondent Skilled Healthcare Group, Inc., Sharon Care Center, and 200 Does, alleging elder abuse, medical malpractice, unfair business practices, “tort per se,” and wrongful death.[1] Demurrers to the original complaint were sustained with leave to amend, and appellant filed a first amended complaint on March 16, 2005.

Respondent is named only in the first, fourth, and fifth counts of the first amended complaint. In addition to a general demurrer to the first amended complaint as a whole, respondent interposed general and specific demurrers to each count in which it is named, as well as the third count, in which it is not named. In addition, respondent joined in Sharon Care’s motion to strike specified language of the first amended complaint, as well as the entire first, third, fourth, and fifth causes of action, but once the trial court sustained respondent’s general demurrer to the entire first amended complaint without leave to amend, the court deemed the motion moot as it regarded Skilled Healthcare.

Skilled Healthcare was dismissed from the action, but appellant was permitted to file a second amended complaint against Sharon Care. The judgment dismissing Skilled Healthcare from the action was entered July 12, 2005, and appellant filed a timely notice of appeal the same day.[2]

DISCUSSION

On appeal from a judgment of dismissal entered after a general demurrer is sustained, we conduct a de novo review. (Gerawan Farming, Inc. v. Lyons (2000) 24 Cal.4th 468, 515.)[3] The trial court’s denial of leave to amend is reviewed for an abuse of discretion. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) We examine the allegations of the complaint to determine whether they state a cause of action, and if not, whether there is a reasonable possibility that the complaint could be amended to do so. (MacLeod v. Tribune Publishing Co. (1959) 52 Cal.2d 536, 542.) “In the construction of a pleading, for the purpose of determining its effect, its allegations must be liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc., § 452.) “’We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. . . . [W]e give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]” (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)

The first amended complaint is a 26-page pleading containing argument, statutory authority, conclusions, and evidentiary facts. A complaint should consist of a “statement of the facts constituting the cause of action, in ordinary and concise language.” (Code Civ. Proc., § 425.10, subd. (a)(1).) The pleader should avoid evidentiary and argumentative facts, and allege only ultimate facts. (Citizens for Parental Rights v. San Mateo County Bd. of Education (1975) 51 Cal.App.3d 1, 35; see generally, 4 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 344, pp. 443-444.) We disregard, however, any defect in the pleadings that does not affect the substantial rights of the parties. (Sumitomo Bank v. Taurus Developers, Inc. (1986) 185 Cal.App.3d 211, 216.) Thus, we shall limit our discussion, insofar as possible, to the material ultimate facts alleged in the first amended complaint, including only as many of its legal conclusions, argument, and evidentiary facts as are necessary to help us determine whether a cause of action is stated.

In sustaining the demurrer to the original complaint, the trial court ruled that there were insufficient facts to show what respondent did or did not do that caused it to be liable. In ruling on the demurrers to the first amended complaint, the trial court refused leave to amend, because the defects of the original complaint had not been cured. Appellant contends that he sufficiently pleaded ratification and authorization of the acts of employees, or corporate alter ego, and if not, that he should be allowed to amend.

The first amended complaint alleges that Skilled Healthcare hired the managers of Sharon Care, but failed to provide adequate equipment, staff, or training necessary to prevent patients with dementia from wandering out of the facility, knowing that such behavior placed demented patients at risk of injury or death. It also alleges that Sharon Care is a skilled nursing facility providing healthcare in a business form unknown to plaintiff, and that Skilled Healthcare, which is not a licensed healthcare provider, owns and operates Sharon Care and Does 151-200 through its subsidiaries, as the “corporate owners, managers, operators, or business entities or persons responsible for running SHARON CARE in a neglectful manner for profit . . . .”

It may be inferred from the first amended complaint that Skilled Healthcare is a corporation, and that Sharon Care is its subsidiary. Indeed, appellant concedes in his opening brief that Sharon Care is a totally owned subsidiary of Skilled Healthcare. A parent corporation is not liable for the torts of its subsidiary simply because it wholly owns the subsidiary. (Northern Natural Gas Co. v. Superior Court (1976) 64 Cal.App.3d 983, 991.) Liability must be based upon either the breach of a separate duty owed by the parent to the plaintiff, or upon a showing that the subsidiary is the alter ego of the parent, and it would be inequitable to recognize its corporate separateness. (See Roy Supply, Inc. v. Wells Fargo Bank (1995) 39 Cal.App.4th 1051, 1076.)

Appellant contends that the first amended complaint sufficiently alleges that Skilled Healthcare authorized or ratified the acts and omissions of Sharon Care. It is alleged that Skilled Healthcare hired Sharon Care’s managers, but there are no facts showing that Skilled Healthcare had the right to control the details of their day-to-day work. (See Toyota Motor Sales U.S.A., Inc. v. Superior Court (1990) 220 Cal.App.3d 864, 874-875.) Stewart’s injuries were alleged to have been caused by the negligence of Sharon Care’s managers, not Skilled Healthcare, and the only facts which might amount to authorization or ratification are those which allege that Skilled Healthcare devised an inadequate budget for Sharon Care to acquire the equipment, staff, and training necessary for Sharon Care to protect its residents. Mere control of a subsidiary’s budget is not sufficient to impose liability upon the parent, even if it causes the subsidiary to suffer financial hardship. (Waste Management, Inc. v. Superior Court (2004) 119 Cal.App.4th 105, 110.)

Appellant contends that he sufficiently pleaded vicarious liability based upon an alter ego theory. Under that theory, liability may be imposed where the parent controls the subsidiary to such a degree that the subsidiary is merely a conduit for the parent, or is financially dependent on the parent. (Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc. (1981) 116 Cal.App.3d 111, 119.) The issue turns upon facts which necessarily vary according to the circumstances of each case. (Ibid.)

There is no “litmus test” of facts necessary to plead or prove alter ego. (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.) The complaint is sufficient if it alleges facts showing such a unity of interest and ownership that the separate personalities of the parent and subsidiary do not exist, and that inequity will result unless they are treated as a single entity. (See Vasey v. California Dance Co. (1977) 70 Cal.App.3d 742, 749.) We have found no facts, however, and appellant refers to none, which sufficiently allege that Sharon Care and Skilled Healthcare lack separate personalities or that inequity will result unless the two entities are treated as one.

Appellant contends that the furnishing of an inadequate budget amounts to an allegation that Sharon Care was inadequately capitalized. Inadequate capitalization is a strong indicator that the corporate entities are not truly separate. (Automotriz etc. De California v. Resnick (1957) 47 Cal.2d 792, 796-797.) Capital is inadequate if it is likely that the subsidiary will have insufficient assets available to meet its debts; capital should be “’reasonably adequate for its prospective liabilities. If the capital is illusory or trifling compared with the business to be done and the risks of loss, this is a ground for denying the separate entity privilege.’” (Id. at p. 797.)

The first amended complaint alleges that Skilled Healthcare owned and operated Sharon Care, hired and paid its managers, and controlled Sharon Care’s management, budget, and income; that as a strategy for increasing profits, it deliberately refused to provide Sharon Care with a budget adequate to operate the facility safely; and despite its agents’ awareness of the risks posed to Sharon Care’s patients, it did nothing to address the deficiencies or ameliorate the risks. Such facts do not allege inadequate capitalization, and there is no allegation that Sharon Care will be unable to meet its debts or provide for its prospective liabilities.[4] In his reply brief, appellant suggests that he can amend to allege that on December 31, 2003, Sharon Care had cash and cash equivalents worth $2.7 million, but at the end of the first quarter of 2004, it had none. Appellant merely offers to allege that Sharon Care may have been insolvent in 2004, but there are no facts to suggest that Sharon Care’s lack of cash assets in 2004 was the result of inadequate capitalization, or that Sharon Care was ever undercapitalized, or that Sharon Care will be unable to meet its debts or pay a judgment if it should be held liable.

Appellant suggests that the allegation that Skilled Healthcare “’controls and manages’ the business of Sharon Care Center,” is sufficient when considered with the injustice that would result from recognizing Skilled Healthcare’s separate corporate form. Mere ownership and control of a subsidiary is not enough to disregard the corporate form; it must appear that it was “’so organized and controlled and its affairs so managed as to make it “merely an instrumentality, conduit, or adjunct”’” of the parent. (Cleaning & P. Co. v. Hollywood L. Service (1932) 217 Cal. 124, 130.)[5]

It is appellant’s burden to demonstrate on appeal just how his complaint can be amended to state a cause of action against respondent. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.) Further, to satisfy that burden on appeal, appellant must show not only in what manner he can amend his complaint, but also “how that amendment will change the legal effect of his pleading.” (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349.) Appellant has failed to meet his burden. He has not suggested what additional facts he might allege showing that Skilled Healthcare breached a separate duty owed to Stewart, or that Sharon Care was merely the instrumentality or conduit of Skilled Healthcare.

DISPOSITION

The judgment is affirmed. Respondents shall have its costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

MANELLA, J.

We concur:

EPSTEIN, P. J.

WILLHITE, J.

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[1] For convenience, we shall refer to Sharon Care Center simply as Sharon Care, and to Skilled Healthcare Group, Inc., either as Skilled Healthcare or respondent.

[2] We note that appellant’s counsel on appeal was not counsel of record in the trial court and did not sign the complaints.

[3] Respondent suggests that the determination that no cause of action is stated should be reviewed for abuse of discretion. It is mistaken. A de novo review requires that “’we exercise our independent judgment about whether the complaint states a cause of action as a matter of law.’ [Citation.]” (Santa Teresa Citizen Action Group v. State Energy Resources Conservation & Development Com. (2003) 105 Cal.App.4th 1441, 1445.)

[4] “Capitalization” is “[t]he total amount of long-term financing used by a business, including stocks, bonds, retained earnings, and other funds.” (Black’s Law Dict. (8th ed. 2005) p. 175, col. 2.)

[5] At oral argument, appellant’s counsel effectively conceded that the essential elements of an alter ego theory had not been pled.