Filed 8/28/17 MacKay & Somps, Civil Engineers, Inc. v. Dunmore CA3

NOT TO BE PUBLISHED

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

THIRD APPELLATE DISTRICT

(Placer)

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In a case dating back 10 years, plaintiff MacKay & Somps Civil Engineers, Inc. (MacKay), sought to recover its contractual fees for civil engineering and other services provided for a real estate development project that an entwined set of defendant entities had undertaken; in addition to these defendant entities, MacKay proceeded against individual defendant Sidney B. Dunmore as their alter ego.[1] In its statement of decision, the trial court found that defendant Dunmore was personally liable for the defaults of his various entities on their obligations to MacKay, as well as for quantum meruit and deceit.

Defendant Dunmore filed his notice of appeal from a March 2015 judgment against him in May 2015; briefing was completed in November 2016. We ordered the present matter consolidated with two consolidated Sacramento cases (C080331, C080339) solely for the purpose of consideration to ensure that we resolved this appeal before deciding the other appeals, because those cases invoke the doctrine of issue preclusion premised on the present case.[2]

Defendant Dunmore, having extracted the assets of the defendant entities in the mid-aughts and left the empty shells to respond to the claims of vendors providing services in good faith, continues to drain the scarce judicial resources of this state in contesting on appeal a rightful debt of $200,000-plus (with interest). Utterly without merit are his arguments that (1) an absent Dunmore entity (Dunmore Land) was an indispensable party, which precluded the trial court from awarding any relief; (2) a provision in the agreement between the parties immunizing any individual for personal liability under the agreement precludes application of the doctrine of alter ego; and (3) unclean hands precludes MacKay from the recovery of any damages. Fortunately for defendant Dunmore, MacKay does not seek sanctions for a frivolous appeal, and we generally do not impose them sua sponte. The judgment is affirmed.

FACTUAL AND PROCEDURAL BACKGROUND

Defendant Dunmore does not dispute the sufficiency of the evidence to support the judgment, which is just as well. His statement of facts is so deficient that we would have deemed him to have forfeited any such challenge. (Western Aggregates, Inc. v. County of Yuba (2002) 101 Cal.App.4th 278, 291.) Accordingly, we draw such facts as are pertinent to the legal issues primarily from the statement of decision (the accuracy of which defendant Dunmore did not challenge either in the trial court or on appeal).

MacKay provided its professional engineering services to Dunmore Homes and various Dunmore entities issuing letters of authorization under the Master Agreement; although ultimately immaterial, it is not clear from the record whether there is a specific subauthorization for the Whispering Oaks development at issue in this appeal. Under a provision for limitation of liability, the Master Agreement states “in no event shall any of the officers, directors, employees, members, or general partners of [Dunmore Homes and entities issuing authorizations] have any personal liability . . . for any obligation under the Master Agreement. The sole recourse . . . shall be limited to the net equity of the legal entity that issues a Letter of Authorization for a particular Project.”

Dunmore Homes, formed in 1987, was a development company that acquired real property, built homes, and sold them to consumers. Defendant Dunmore was its sole shareholder. Dunmore Land (not a party), formed in 2004, acquired real property and held it through the public permitting process, at which point it would transfer the property to Dunmore Homes for construction and sale. Again, defendant Dunmore was its sole shareholder. Dunmore Fullerton Ranch, LLC, was one of numerous entities formed to facilitate bank financing in connection with a particular project (here, Whispering Oaks).

The exact relationship between Dunmore Homes and Dunmore Land was never spelled out to MacKay (or to the trial court). MacKay, which worked on a number of projects for assorted Dunmore entities from the late 1990’s, had invoices paid variously by either of those two entities, as well as the LLC’s formed for various projects.

Beginning in 2007, MacKay made efforts to recover payment on a substantial amount of unpaid Dunmore invoices while continuing to provide services. In face-to-face meetings, defendant Dunmore repeatedly assured MacKay representatives that the accounts would be brought current. Defendant Dunmore failed to inform MacKay that a month after assuring MacKay of imminent payment, the Dunmore entities issued and then voided three checks in July 2007 that would have brought all the accounts with MacKay current. In a September 2007 meeting, defendant Dunmore did not disclose to MacKay that he had sold Dunmore Homes, and MacKay continued to provide crucial services through November 2007. Had MacKay been aware of either fact, it would have suspended the provision of services.

From 2004 to 2006, defendant Dunmore withdrew $130 million from Dunmore Homes and $11 million on an outstanding unsecured line of credit with the company. As noted, he “sold” Dunmore Homes in September 2007 for $500, paying the buyer $249,500. The company then filed for bankruptcy two months later. Defendant Dunmore received a multimillion-dollar tax refund for selling the business at a loss, which he paid into the bankruptcy proceeding to discharge his loan to the company. MacKay received about $11,000 from the bankruptcy proceeding, which it allocated to its oldest outstanding overall Dunmore invoices for a project other than Whispering Pines. Dunmore Land did not declare bankruptcy; it continued to work on obtaining approvals for two other projects (for which MacKay also provided services through November 2007—the subject of the consolidated Sacramento appeals) until it shut down in 2009 and ceased to do business in May 2010, as we have learned in the Sacramento appeals.

Defendant Dunmore was the sole witness for the defense. He did not provide any forensic accountant opinion testimony in opposition. As the court found, he did not offer any explanation for much of the documentary evidence MacKay introduced against him, nor did he make any “appreciable effort” to produce documents in defense. In the course of his testimony, defendant Dunmore did produce a letter from MacKay’s attorney as an exhibit; he claimed counsel was threatening to report him to tax authorities unless he settled with MacKay for “several million” dollars.[3]

As defendant Dunmore does not challenge the evidence in the trial court’s lengthy recitation of facts relating to the doctrine of alter ego, we will simply note the trial court’s succinct summation that Dunmore “was using the companies like his personal bank, without regard to the genuine financial standing of the corporations or the reliability of the balance sheets. . . . [S]ubstantial distributions to [defendant Dunmore] were made to the detriment of multiple creditors, including [MacKay].” The court therefore found under the well-established factors for piercing the corporate veil (e.g., Associated Vendors, Inc. v. Oakland Meat Company (1962) 210 Cal.App.2d 825, 838-840) that defendant Dunmore was the alter ego of defendant Dunmore Homes (and presumably as a result was the manager of Dunmore Fullerton Ranch, LLC, although it did not discuss this explicitly) and nonparty Dunmore Land, and thus was personally liable for the damages to MacKay for breach of contract. The court further found him liable for deceit in inducing further services from MacKay in promising to bring accounts current and then cancelling checks, and in failing to notify MacKay about the sale of Dunmore Homes. Finally, it found MacKay was entitled to damages in quantum meruit. It rejected defendant Dunmore’s assertion that the Master Agreement precluded his personal liability as “simply ignor[ing] the purpose of the alter ego theory.” The statement of decision did not expressly address the question of Dunmore Land being an indispensable party, or the defense of unclean hands. Defendant Dunmore’s objections to the proposed statement of decision did not make any reference to the defense of unclean hands, but did raise his other two current arguments on appeal. The trial court overruled defendant Dunmore’s objections and issued judgment in MacKay’s behalf solely against defendant Dunmore. It offset a small portion of the bankruptcy proceeds against the debt owed to MacKay.

DISCUSSION

Defendant Dunmore presents arguments premised on general principles of law with little effort to tether them to the circumstances of the present case, nor does he respond to the identified shortcomings in his arguments in MacKay’s briefing. We are therefore not obligated to respond to the particulars of his conclusory assertions (Sourcecorp, Inc. v. Shill (2012) 206 Cal.App.4th 1054, 1061), and will simply explain why his three contentions are inapplicable.

1.0 Dunmore Land Was Not an Indispensable Party

Defendant Dunmore asserts the judgment must be reversed for lack of jurisdiction over Dunmore Land, terming it an indispensable party. Defendant Dunmore, however, never bothers to address the criteria under Code of Civil Procedure section 389 for making such a finding. This contention is completely without merit.

Under Code of Civil Procedure section 389, a trial court has discretion to dismiss an action if it concludes a nonparty is indispensable and cannot be joined. (Deltakeeper v. Oakdale Irrigation Dist. (2001) 94 Cal.App.4th 1092, 1105, 1106 (Deltakeeper); County of San Joaquin v. State Water Resources Control Bd. (1997) 54 Cal.App.4th 1144, 1149; Sierra Club, Inc. v. California Coastal Com. (1979) 95 Cal.App.3d 495, 500.) Generally, “[w]here the plaintiff seeks some type of affirmative relief which, if granted, would injure or affect the interest of a third person not joined, that third person is an indispensable party.” (Sierra Club, Inc., at p. 501, italics added.) There are four relevant criteria to consider on this issue: the extent to which a judgment would prejudice the absent party; the extent to which measures are available to mitigate any prejudice; the ability of the court to address the issues in the absence of the party; and the adequacy of a plaintiff’s alternate remedies if the action is dismissed. (Deltakeeper, supra, 94 Cal.App.4th at pp. 1107-1108). Though no one of these criteria is a sine qua non (County of Imperial v. Superior Court (2007) 152 Cal.App.4th 13, 35), we have stated that potential prejudice to the absent party is “critical” (Tracy Press, Inc. v. Superior Court (2008) 164 Cal.App.4th 1290, 1298; accord, Olszewski v. Scripps Health (2003) 30 Cal.4th 798, 808-809). And even if a party is indispensable, a trial court does not lack jurisdiction to proceed if the equities otherwise do not demand dismissal. (County of Imperial, supra, 152 Cal.App.4th at p. 26.)

In proceeding against defendant Dunmore on a theory of alter ego, the presence of any of his corporate minions as “independent” entities at trial was irrelevant to litigating the issue of his personal liability. None of the named defendant entities nor Dunmore Land is even named in the judgment. Moreover, given defendant Dunmore’s substantial interest in defending this litigation, the defunct Dunmore Land could not possibly establish prejudice. (Deltakeeper, supra, 94 Cal.App.4th at p. 1102.)

Defendant Dunmore utterly fails to explain how the absence of Dunmore Land as a party in these proceedings results in reversible error for an abuse of discretion. We thus reject the contention.

2.0 The Contractual Exculpatory Clause Does Not Prevent Application
of Alter Ego

We initially note that defendant Dunmore completely ignores the fact that the judgment rests not just on breach of contract, but also on quantum meruit. This would render the clause in the Master Agreement precluding his personal liability entirely irrelevant.

Defendant Dunmore does not present a single case standing for the proposition that a party by contract might limit the application of alter ego that can otherwise apply to corporate creatures of statute. The Legislature has expressly declared that “All contracts which have for their object . . . to exempt anyone from responsibility for . . . fraud, or willful injury to . . . another, or violation of law . . . are against the policy of the law.” (Civ. Code, § 1668.) Alter ego is an equitable doctrine premised on a party’s abuse of the corporate form for a wrongful or inequitable purpose. (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.) Indeed, even in the absence of intentional fraud, “the corporate entity may be disregarded if its recognition would permit individuals to evade ordinary contractual obligations.” (9 Witkin, Summary of Cal. Law (10th ed. 2005) Corporations, § 12, p. 790.) Defendant Dunmore of course does not explain how the Master Agreement could therefore allow him to evade the contractual obligations of his entities to MacKay for services provided. Given the dearth of reasoned argument, we reject this contention.

3.0 The Defense of Unclean Hands Is Unavailing

Beyond asserting that the defense of unclean hands is a matter that we should review de novo because it rests on the undisputed contents of the settlement letter that we described above (see fn. 3, ante, at p. 5,), defendant Dunmore does not respond to MacKay’s assertion that hi s claim is circumscribed because he failed to object to the absence of a ruling on this defense in the statement of decision. Given the absence of an objection, we presume the trial court made any necessary implied findings of fact against defendant Dunmore. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134.)

As the unclean hands doctrine has been floridly described, “whenever a party who, as actor, seeks to set judicial machinery in motion and obtain some remedy, has violated conscience, good faith[,] or other equitable principle in his prior conduct, then the doors of the court will be shut against him in limine; the court will refuse to interfere on his behalf to acknowledge his right, or to afford him any remedy.” (Lynn v. Duckel (1956) 46 Cal.2d 845, 850.) “The bar applies only if the inequitable conduct occurred in a transaction directly related to the matter before the court and affects the equitable relationship between the litigants.” (California Satellite Systems, Inc. v. Nichols (1985) 170 Cal.App.3d 56, 70.) The fact a plaintiff might generally conduct its business in less-than-ethical fashion does not preclude its seeking relief from defendants obtaining goods and services from the plaintiff without paying for them. (Ibid.) What is necessary is that the manner of “ ‘ “ ‘dirtying’ ” ’ ” precludes the assertion of rights against an opposing party because it prejudicially affected that party’s rights. (Kendall-Jackson Winery, Ltd. v. Superior Court (1999) 76 Cal.App.4th 970, 979.)

We need not decide whether counsel’s settlement letter crossed the extreme bar set in Flatley v. Mauro (2006) 39 Cal.4th 299, 330, and thus constituted extortion as a matter of law, or was simply an exasperated effort to get defendant Dunmore to honor a debt. The trial court could reasonably have concluded that it did not have any bearing on the central issue at trial—defendant Dunmore’s unity of interest with his purported corporate entities—and did not result in any prejudice to the interests of defendant Dunmore, who did not give any heed to the settlement letter since he blithely believed “I did nothing wrong.” We thus presume the trial court denied the defense on this basis.

DISPOSITION

MacKay’s motion for judicial notice is granted in part as described in the opinion. The judgment is affirmed. MacKay is awarded its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)

BUTZ , J.

We concur:

RAYE , P. J.

MURRAY , J.