MAHIM KHAN VS HOLOGRAM USA INC ET AL

Tentative Rulings

Case Number: ****4017 Hearing Date: February 21, 2023 Dept: 74

Superior Court of California

County of Los Angeles – CENTRAL District

Department 74

MOVING PARTY: Plaintiff/Judgment Creditor Mahim Kahn

RESPONDING PARTY: Nonparty Harmonia Malibu LLC

JOINDER: Nonparties Alexander David and Andrew David

Motion to Amend Judgment

The court considered the moving papers, opposition, and reply papers filed in connection with this motion.

BACKGROUND

On March 14, 2017, Plaintiff Mahim Khan brought this action against Defendants Hologram USA, Inc., Alki David Productions, Inc., FilmOn TV, Inc., and Alkiviades David (“Defendants”), asserting causes of action for: (1) employment discrimination – sex harassment; (2) violation of the California Ralph Act – freedom from violence or intimidation (Civ. Code 51.7); (3) constructive termination; (4) sexual battery; (5) battery; and (6) wrongful constructive termination in violation of public policy.

On November 26, 2019, a jury returned a special verdict in favor of Ms. Kahn (“Judgment Creditor”), awarding $3,000,000 in past non-economic loss, $5,000,000 in future non-economic loss, $40,000 in lost earnings, $80,000 in future lost earnings, and $130,000 in medical expenses. On December 2, 2019, the jury awarded Judgment Creditor $50,000,000 in punitive damages against Alkiviades David (“David”) individually. On May 27, 2022, the Court of Appeal for the Second District affirmed the judgment.

Judgment Creditor now brings a motion to amend the judgment to add Harmonia Malibu LLC as a Judgment Debtor.

LEGAL STANDARD

Pursuant to Code of Civil Procedure, section 187, a trial court has jurisdiction to modify a judgment to add additional Judgment Debtors. Section 187 grants every court the power to use all means to carry its jurisdiction into effect, even if those processes are not set out in the code.

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.” (Code. Civ. Proc., 187.)

Under section 187, judgments are typically “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.’” (See NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778; see also Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 508.)

REQUESTS FOR JUDICIAL NOTICE

Judgment Creditor makes the following 17 requests for judicial notice:

1. Exhibit A, a copy of the Amended Judgment entered on September 10, 2020 in Reeves v. Hologram USA, Inc., et al., Case No. BC643099;

2. Exhibit B, a copy of the Amended Judgment on Special Verdict upon Acceptance of Remittitur entered on September 26, 2019 in Jones v. Alkiviades David, et al., Case No. BC649025;

3. Exhibit C, a copy of the Corrected Amended Judgment entered on February 3, 2021 in this case;

4. Exhibit D, a copy of the California Court of Appeal, Second Appellate District’s decision dated May 27, 2022, which affirmed this Court’s Judgment in this case;

5. Exhibit E, a copy of the Declaration of Joseph Chora filed in support of judgment creditor Chastity Jones’ (“Ms. Jones”) Motion to Amend Judgment to Add Harmonia Malibu LLC, a California Limited Liability Company as a Judgment Debtor on September 29, 2022 in Jones v. Alkiviades David, et al., Case No. BC649025;

6. Exhibit F, a copy of the Order dated November 9, 2022 granting Ms. Jones’ Motion to Amend Judgment to Add Harmonia Malibu LLC, a California Limited Liability Company as a Judgment Debtor in Jones v. Alkiviades David, et al., Case No. BC649025;

7. Exhibit G, a copy of Harmonia Malibu’s Notice of Appeal dated December 5, 2022 regarding the Judgment Amendment Order in Jones v. Alkiviades David, et al., Case No. BC649025;

8. Exhibit H, a copy of the Amended Order for Sale of Dwelling Commonly Known as 23768 Malibu Road, Malibu, California 90265 dated December 28, 2022 in Jones v. Alkiviades David, et al., Case No. BC649025;

9. Exhibit I, a copy of a complaint filed on January 22, 2021 in the United States District Court for the District of Delaware;

10. Exhibit J, a copy of a Schedule 13D submission by Mr. David to the United States Securities and Exchange Commission;

11. Exhibit K, a copy of Harmonia Malibu’s Articles of Organization dated February 19, 2019 on file with the California Secretary of State;

12. Exhibit L, a copy of Harmonia Malibu’s Statement of Information dated January 25, 2021 on file with the California Secretary of State;

13. Exhibit M, a copy of Hologram USA Inc.’s Statement and Designation by Foreign Corporation dated January 3, 2020 on file with the California Secretary of State;

14. Exhibit N, a copy of Alki David Productions, Inc.’s Statement of Information dated August 28, 2021 on file with the California Secretary of State;

15. Exhibit O, a copy of FilmOn.TV Networks Inc.’s Statement of Information dated September 15, 2020 on file with the California Secretary of State;

16. Exhibit P, a screenshot taken on January 20, 2023 of Inside Edition’s website featuring its video interview of David at the Malibu Residence on December 3, 2019; and

17. Exhibit Q, a screenshot taken on January 20, 2023 of a video on SwissX Malibu.com.

“Judicial notice may not be taken of any matter unless authorized or required by law.” (Evid. Code 450.) “Judicial notice may be taken of the following matters…

(b) Regulations and legislative enactments issued by or under the authority of the United States or any public entity in the United States.

(c) Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.

(d) Records of (1) any court of this state or (2) any court of record of the United States or of any state of the United States…” (Id., 452.)

Requests 1-15 are GRANTED. Requests 16-17 are DENIED.

EVIDENTIARY OBJECTIONS

Harmonia Malibu raises 8 objections. The court overrules Objections 1-3, and sustains Objections 4-8.

Judgment Creditor objects to the Declaration of Ryan Rudolph in its entirety, which the court overrules. Judgment Creditor raises 11 objections to the Declaration of Douglas Mikkonen. The court overrules Objections 1-9 and sustains Objections 10 and 11.

DISCUSSION

Judgment Creditor seeks to add Harmonia Malibu as a Judgment Debtor on the grounds that David has tried to make himself judgment proof through an asset protection scheme resulting in his corporate alter ego, Harmonia Malibu, holding title to David’s home located at 23768 Malibu Road, Malibu, California 90265 (the “Malibu Residence”).

To prevail on the motion, the Judgment Creditor must show, by a preponderance of the evidence, that: “(1) the parties to be added as Judgment Debtors had control of the underlying litigation and were virtually represented in that proceeding; (2) there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist; and (3) an inequitable result will follow if the acts are treated as those of the entity alone.” (Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 815–816.) The decision to grant or deny the motion lies within the sound discretion of the trial court and will not be disturbed on appeal if there is a legal basis for the decision and substantial evidence supports the same. (Id., at 815; see People ex rel. Harris v. Sarpas (2014) 225 Cal.App.4th 1539, 1552.)

A. Control over the underlying litigation, virtual representation, and unification of interests

To satisfy the first two elements of Relentless Air Racing—that Harmonia Malibu LLC had control of the underlying litigation and was virtually represented, and that there is a unity of interest and ownership between Harmonia Malibu LLC and Judgment Debtor David—Judgment Creditor argues that Harmonia Malibu LLC is the alter ego of David. There is no dispute that David controlled the underlying litigation and was represented in the litigation, as he was a named Defendant in this action. Thus, if Judgment Creditor can show Harmonia Malibu LLC is the alter ego of David, Judgment Creditor will have indeed shown that Harmonia Malibu LLC controlled the underlying litigation and was represented in the litigation, and that separate personalities of Harmonia Malibu LLC and David no longer exist. (See Relentless Air Racing, 222 Cal.App.4th at 815–816.)

“’[I]t is generally stated that in order to prevail on an alter-ego theory, the plaintiff must show that “(1) there is such a unity of interest that the separate personalities of the corporations no longer exist; and (2) inequitable results will follow if the corporate separateness is respected.’ [Citation.]” (Zoran Corp. v. Chen (2010) 185 Cal.App.4th 799, 811.) The alter ego test encompasses a variety of factors including:

(1) Commingling of funds and other assets, failure to segregate funds of the separate entities, and the unauthorized diversion of corporate funds or assets to other than corporate uses;

(2) The treatment by an individual of the assets of the corporation as his own;

(3) The failure to obtain authority to issue stock or to subscribe to or issue the same;

(4) The holding out by an individual that he is personally liable for the debts of the corporation; the failure to maintain minutes or adequate corporate records, and the confusion of the records of the separate entities;

(5) The identical equitable ownership in the two entities; the identification of the equitable owners thereof with the domination and control of the two entities; identification of the directors and officers of the two entities in the responsible supervision and management; sole ownership of all the stock in a corporation by one individual or the members of a family;

(6) The use of the same office or business location; the employment of the same employees and/or attorney;

(7) The failure to adequately capitalize a corporation, the total absence of corporate assets, and undercapitalization;

(8) 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;

(9) The concealment and misrepresentation of the identity of the responsible ownership, management and financial interest, or concealment of personal business activities;

(10) The disregard of legal formalities and the failure to maintain arm's length relationships among related entities;

(11) The use of the corporate entity to procure labor, services or merchandise for another person or entity;

(12) The diversion of assets from a corporation by or to a stockholder or other person or entity, to the detriment of creditors, or the manipulation of assets and liabilities between entities to concentrate the assets in one and the liabilities in another;

(13) The contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability, or the use of a corporation as a subterfuge of illegal transactions; and

(14) The formation and use of a corporation to transfer to it the existing liability of another person or entity.

(See Greenspan, supra, 191 Cal.App.4th at 512–513.)

“This long list of factors is not exhaustive. The enumerated factors may be considered among others under the particular circumstances of each case. No single factor is determinative, and instead a court must examine all the circumstances to determine whether to apply the doctrine.” (Zoran Corp., supra, 185 Cal.App.4th at 812, internal citations and quotations omitted.)

As evidence of alter ego, Judgment Creditor establishes the following chain of control for Harmonia Malibu LLC:

a. Harmonia Malibu LLC holds title to the Malibu Property (Usitalo Decl., Ex. 26);

b. Harmonia Malibu LLC only has two members—Harmonia Trust D and Harmonia Trust (collectively, the “Harmonia Trusts”) (RJN, Exs. H, I);

c. Investment Adviser, AD Advisers, instructs Harmonia Trust D (Usitalo Decl., Ex. 3);

d. Investment Adviser, AD Advisers, instructs Harmonia Trust (Id., Ex. 5);

e. David is appointed as the sole member of AD Advisers’ Investment Committee (Id., Ex. 6); and

f. David’s appointment grants him the authority to exert control over the Harmonia Trusts, the only trusts for which AD Advisers acts as Investment Adviser (Id., Exs. 1, 3, 5, 6).

To summarize, Judgment Creditor offers credible evidence that: David has sole control over the Harmonia Trusts investment decisions, the Harmonia Trusts hold Harmonia Malibu LLC, Harmonia Malibu LLC holds title to the Malibu Residence, and David uses the Malibu residence as his personal residence. With the chain of control established, we turn to the Greenspan factors.

Factor 2 weighs heavily in favor of Harmonia Malibu LLC being the alter ego of David. The parties do not dispute that the primary asset of Harmonia Malibu LCC is the Malibu residence. David resides at the Malibu residence, and David has listed the Malibu residence as his residence on public filings. (See RJN, Exs. I, J.) The evidence shows David is treating the assets of Harmonia Malibu LLC as his own.

Factors 1 and 4 weigh in favor of finding alter ego liability because AXOS Bank looked to David, as an individual, to secure the mortgage on the primary asset owned by Harmonia Malibu LLC—the Malibu residence. (Usitalo Decl., Exs. 11, 12.) David personally signed the loan application. (Id., Ex. 10.) And David represented to AXOS that the money held in Harmonia Trust’s bank account was his personal money—which he pledged as collateral and used to cover closing costs. (Id., Exs, 11, 12.) Finally, Judgment Creditor offers evidence of bank account transfers from the Harmonia Trust to David. (Id., Exs. 27, 28.) David has held himself out to be liable for the debts of Harmonia Malibu LLC, and there has been a commingling of funds between David and the Trusts that hold Harmonia Malibu LLC.

Factor 6 weighs in favor of Harmonia Malibu LLC being the alter ego of David. As explained above, David resides in Harmonia Malibu LLC’s primary asset. Moreover, Harmonia Malibu LLC, AD Advisors, and Bridgeford Trust Company, LLC—the trustee of the Harmonia Trusts—all share the same business address. (Usitalo Decl., Exs. 1-5.)

Factors 8, 11, 12, and 13 weigh in favor of Harmonia Malibu LLC being the alter ego of David. Harmonia Malibu LLC’s Operating Agreement states that its purpose is to “provide protection of family assets from claims of future creditors of the Members.” (Usitalo Decl., Ex. 4, 1.05.) To this extent, David used Harmonia Malibu LLC to purchase the Malibu residence while this litigation was pending. (Id., Exs. 8, 13.) Judgment Creditor offers emails and documents from around the time David purchased the Malibu residence showing that David controlled Harmonia Malibu LLC and AD Advisers, that Harmonia Malibu LLC was created to hold legal title to the Malibu residence, and that David controlled and directed the purchase of the Malibu residence. (Id., Exs. 8-15, 24.) The emails confirm that the parties involved understood that David was in charge. (Id., Exs. 8, 13.) Collectively, the evidence shows that Harmonia Malibu LLC was created to purchase the Malibu residence for David’s personal use after Judgment Creditor brought this action, and currently operates with the purpose of shielding David’s assets from Judgment Creditor.

Harmonia Malibu LLC’s contends Harmonia Malibu LLC is held by the Harmonia Trusts and David is not a beneficiary to the Harmonia Trusts. Harmonia Malibu LLC offers evidence that David’s children are the beneficiaries of the Harmonia Trusts. (Rudolph Decl. 6; Mikkonen Decl. 5.) According to Harmonia Malibu LLC, there are no identical ownership interests. Harmonia Malibu LLC also points out that Bridgeford Trust Company, LLC (“Bridgeford”) serves as the trustee of the Trusts that own Harmonia Malibu LLC—not David. (Mikkonen Decl. 3.) Harmonia Malibu LLC offers the declaration of Douglas Mikkonen, Senior Vice President and Chief Compliance Officer at Bridgeford, who explains the history and structure of the Harmonia Trusts. (See Id., 15.) Harmonia Malibu LLC is essentially arguing that factors 5 and 9 weigh against a finding of alter ego.

The court acknowledges that David is not a beneficiary of the Harmonia Trusts, and Harmonia Malibu LLC no longer appears to be concealing the true nature of its management structure. This does not, however, outweigh the rest of the factors indicating that Harmonia Malibu LLC was created to shield David from judgments in this case and related cases. The court must examine the totality of circumstances to determine whether to apply the alter ego doctrine. (See Zoran Corp., supra, 185 Cal.App.4th at 812.) In total, the evidence shows that David—through his control over the Harmonia Trusts as their sole investment advisor—created Harmonia Malibu LLC to shield his assets after Judgment Creditor initiated this litigation, and Harmonia Malibu LLC is now being used to hold title to the Malibu residence where David lives.

Judgment Creditor has established that Harmonia Malibu LLC is the alter ego of David. Judgment Creditor has thus established Harmonia Malibu LLC had control over the underlying litigation, was virtually represented in the underlying litigation, and there is a unity of interests between Harmonia Malibu LLC and David.

B. Inequitable Result

“‘The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds.’ [Citation.] As an equitable doctrine, its ‘essence ... is that justice be done.’ [Citation.]” (Curci Investments, LLC v. Baldwin (2017) 14 Cal.App.5th 214, 221.)

Harmonia Malibu LLC argues that it is owned by the Harmonia Trusts, the beneficiaries of the Harmonia Trusts are David’s children—not David, and therefore adding Harmonia Malibu LLC as a Judgment Debtor would unjustly enforce the judgment against David’s children—not David. Harmonia Malibu LLC offers evidence that the Harmonia Trusts are the remnants of a trust that contained assets for the benefits of David’s children long before this litigation began. (Mikkonen Decl. 5-7.) Mr. Mikkonen also reiterates that David has no ownership interests in the Harmonia Trusts, is not a beneficiary to the Trusts, and has not received distributions from the Trusts.

The argument is not persuasive. Judgment Creditor is not attempting to include the Harmonia Trusts as Judgment Debtors. Judgment Creditor seeks to add Harmonia Malibu LLC as a judgment debtor. Regardless of who owns Harmonia Malibu llc on paper, David controls its investment decisions and uses its primary asset as his lavish residence—while refusing to pay any of the judgment rendered against him by a jury in this case. David’s children may be listed as the beneficiaries of the Trusts that hold title to the Malibu residence, but David is the one benefitting.

Harmonia Malibu LLC also argues that alternatives other than veil piercing exist, such as a charging order against the Judgment Debtor’s interest under Code of Civil Procedure section 708.310. The argument is unavailing because David has failed to pay any portion of the judgment, denies ownership of Harmonia Malibu LLC, and Harmonia Malibu LLC has failed to explain how a charging order will ensure that the Judgment is satisfied. (See Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832, 848 [finding that reverse veil piercing pursuant to CCP section 187 is permissible in the context of a limited liability company because, unlike a corporation, a limited liability company does not issue shares on which a creditor may levy, and creditors do not have sufficient alternative remedies at law.].)

To date, David and the other Judgment Debtors have not paid one cent towards satisfying the judgment. The injustice is Judgment Creditor not being compensated for her injuries. An inequitable result will continue to follow if Harmonia Malibu LLC is not added as a Judgment Debtor.

CONCLUSION

Based on the foregoing, the court grants Mahim Kahn’s motion to add Harmonia Malibu LLC as a judgment debtor.

The court denies Harmonia Malibu LLC’s request for an evidentiary hearing because the record is sufficient for the court to rule.

Moving party is ordered to give notice of this ruling.

IT IS SO ORDERED.

DATED: February 21, 2023

Colin Leis

Judge of the Superior Court

Case Number: ****4017 Hearing Date: February 23, 2022 Dept: 74

****4017 MAHIM KHAN VS HOLOGRAM USA INC

Application For Admission of Stacey A. Bell Pro Hac Vice

TENTATIVE RULING: The motion is GRANTED.

Case Number: ****4017 Hearing Date: January 10, 2022 Dept: 74

****4017 MAHIM KHAN vs HOLOGRAM USA

Application for Admission of Stacey A. Bell Pro Hac Vice

TENTATIVE RULING: The application is DENIED WITHOUT PREJUDICE to re-filing with proof the pro hac vice application was received and approved by the State Bar of California.

b'

Case Number: ****4017 Hearing Date: December 7, 2021 Dept: 74

****4017 MAHIM KHAN VS HOLOGRAM USA INC

Ellyn S. Garafalo’s Motions to be Relived as Counsel for Alkiviades David, Alki David Productions, Inc., Hologram USA, Inc., and FilmOn.TV, Inc.

TENTATIVE RULINGS: The motions are GRANTED.