Disposed - Judgment Entered
Contract - Other Contract
BARBARA M. SCHEPER
PERLA GLOBAL CAPITAL ADVISORS LLC
DOES 1 TO 30
KASSIE SMITH LIFESTYLE GROUP LLC
HUGHES KEVIN D. ESQ.
SWARTZ CHARLES A. ESQ.
LAUREA L. BLUMENSTEIN
8/7/2017: General Denial
1/30/2018: DECLARATION OF LAURA L. AND RE: ATTORNEYS FEES FOR PLAINTIFF AND CROSS DEFENDANT, ETC.
2/6/2018: NOTICE OF APPEARANCE
2/13/2018: Minute Order
3/6/2018: SUBSTITUTION OF ATTORNEY
5/30/2018: NOTICE OF MOTION AND MOTION TO BE RELIEVED.AS COUNSEL-CIVIL
6/13/2018: NOTICE OF MOTION AND MOTION TO BE RELIEVED AS COUNSEL-CIVIL
6/13/2018: DECLARATION IN SUPPORT OF ATTORNEY'S MOTION TO BE RELIEVED AS COUNSEL- CIVIL
6/13/2018: PROOF OF SERVICE RE NOTICE OF MOTION AND MOTION TO BE RELIEVED AS COUNSEL AND DECLARATION IN SUPPORT THEREOF
6/27/2018: ORDER GRANTING ATRORNEY'S MOTION TO BE RELIEVED AS COUNSEL?CIVIL
6/27/2018: Minute Order
7/3/2018: PROOF OF SERVICE OP MOTION TO B RELIEVED AS COUNSEL
7/13/2018: Minute Order
7/16/2018: NOTICE OF MOTION AND MOTION TO BE RELIEVED AS COUNSEL?CIVIL
7/16/2018: PROOF OF SERVICE RE NOTICE OF MOTION AND MOTION TO BE RELIEVED AS COUNSEL, DECLARATION IN SUPPORT THEREOF, AND ORDER
7/16/2018: DECLARATION IN SUPPORT OF ATTORNEY'S MOTION TO BE RELIEVED AS COUNSEL?CIVIL
7/26/2018: NOTICE RE: HEARING
8/8/2018: Minute Order
Docketat 08:30 AM in Department 30, Barbara M. Scheper, Presiding; Order to Show Cause Re: (Re Entry of Default Judgment) - Not Held - Advanced and Vacated[+] Read More [-] Read Less
Docketat 1:52 PM in Department 30, Barbara M. Scheper, Presiding; Court Order[+] Read More [-] Read Less
DocketCertificate of Mailing for (Minute Order (Court Order Re Judgment;) of 03/08/2019); Filed by Clerk[+] Read More [-] Read Less
DocketJudgment (- Default Judgment By Court - Before Trial - 03/08/2019 entered for Plaintiff Perla Global Capital Advisors LLC against Defendant Kassie Smith Lifestyle Group LLC.); Filed by Clerk[+] Read More [-] Read Less
DocketMinute Order ( (Court Order Re Judgment;)); Filed by Clerk[+] Read More [-] Read Less
DocketDeclaration (OF CHARLES A. SWARTZ IN SUPPORT OF JUDGMENT IN FAVOR OF PLAINTIFF PERLA CAPITAL ADVISORS, LLC); Filed by Perla Global Capital Advisors LLC (Plaintiff)[+] Read More [-] Read Less
DocketDeclaration (AMENDED AND SUPPLEMENTAL DECLARATION OF FERNANDO SERRANO IN SUPPORT OF JUDGMENT IN FAVOR OF PLAINTIFF PERLA CAPITAL ADVISORS, LLC); Filed by Perla Global Capital Advisors LLC (Plaintiff)[+] Read More [-] Read Less
Docketat 08:30 AM in Department 30, Barbara M. Scheper, Presiding; Order to Show Cause Re: (Re Entry of Default Judgment) - Held - Continued[+] Read More [-] Read Less
DocketMinute Order ( (Order to Show Cause Re: Re Entry of Default Judgment)); Filed by Clerk[+] Read More [-] Read Less
DocketNotice of Change of Address or Other Contact Information; Filed by Perla Global Capital Advisors LLC (Plaintiff)[+] Read More [-] Read Less
DocketCIVIL CASE COVER SHEET[+] Read More [-] Read Less
DocketCROSS COMPLAINT FOR DAMAGES FOR: FRAUD; RESCISSION AND RESTITUTION; SEC VIOLATION FOR ACTING AS A BROKER/FINDER[+] Read More [-] Read Less
DocketSUMMONS GENERAL DENIAL AND SCHEDULE OF AFFIRMATIVE DEFENSES DEMAND FOR JURY TRIAL[+] Read More [-] Read Less
DocketSUMMONS[+] Read More [-] Read Less
DocketPROOF OF SERVICE[+] Read More [-] Read Less
DocketNOTICE OF CASE MANAGEMENT CONFERENCE[+] Read More [-] Read Less
DocketNotice of Case Management Conference; Filed by Clerk[+] Read More [-] Read Less
DocketCOMPLAINT FOR BREACH OF CONTRACT JURY TRIAL. DEMAND[+] Read More [-] Read Less
DocketSUMMONS[+] Read More [-] Read Less
DocketComplaint; Filed by Perla Global Capital Advisors LLC (Plaintiff)[+] Read More [-] Read Less
Case Number: ****7524 Hearing Date: September 11, 2020 Dept: 30
Perla Global Capital Advisors LLC vs Kassie Smith Lifestyle Group, LLC, et.al., Case No. ****7524
Tentative Ruling re: Plaintiff’s Motion to Add Kathryn W. Smith as Judgment Debtor
Plaintiff seeks an order adding Kathryn W. Smith (Smith) as a judgment debtor on grounds that KSLG is the alter ego of Smith. The motion is denied.
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.”
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 (NEC); see also Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 508.)
Plaintiff seeks an order adding Kathryn W. Smith (Smith) as a judgment debtor on grounds that KSLG and Smith are alter egos.
A request for a judgment to be amended to add a judgment debtor as being the same party, an alter ego, or a successor corporation, must be supported by substantial evidence. (McClellan v. Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 751; Baize v. Eastridge Companies, LLC (2006) 142 Cal.App.4th 293, 302.)
“Under the alter ego doctrine, ... when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation's acts to be those of the persons ... actually controlling the corporation, in most instances the equitable owners. [Citations.] The alter ego doctrine prevents individuals ... from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. [Citation.]” (Wolf Metals Inc. v. Rand Pacific Sales, Inc. (2016) 4 Cal.App.5th 698, 703 (Wolf Metals).
Generally, “[m]odification of a judgment may be proper when the newly-named defendant is an existing defendant’s alter ego.” (Wolf Metals, supra, 4 Cal.App.5th at 703.) “In the case of default judgments, the application of the alter ego doctrine is subject to a limitation arising from considerations of due process.” (Ibid.) “Under Code of Civil Procedure section 187, ‘to amend a judgment to add a defendant, thereby imposing liability on the new defendant without trial, requires both (1) that the new party be the alter ego of the old party and (2) that the new party . . . controlled the litigation, thereby having had the opportunity to litigate, in order to satisfy due process concerns. The due process considerations are in addition to, not in lieu of, the threshold alter ego issues.’” (Id. [quoting Triplett v. Farmers Ins. Exchange (1994) 24 Cal.App.4th 1415, 1421] [emphasis in original].)
In Motores De Mexicali, S. A. v. Superior Court In and For Los Angeles County (1958) 51 Cal.2d 172, 176 (Motores), our Supreme Court found that it was improper to modify a default judgment to include individuals as judgment debtors on an alter ego theory because such an amendment would constitute a denial of due process. (Ibid.) The Motores Court found that the Fourteenth Amendment of the U.S. Constitution “guarantees that any person against whom a claim is asserted in a judicial proceeding shall have the opportunity to be heard and to present his defense” and that “[t]o summarily add [individuals who were controlling and managing the corporation] to the judgment heretofore running only against [the corporation] without allowing them to litigate any questions beyond their relation to the allegedly alter ego corporation would patently violate this constitutional safeguard.” (Ibid; see also Wolf Metals, supra, 4 Cal.App.5th at 703-704.)
The court in NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772 (NEC), reached a similar conclusion. In NEC, the defendant corporation’s chief executive officer, who was also its sole shareholder, had discussed the corporation’s potential bankruptcy and reorganization with the plaintiff prior to trial. (Id. at p. 775.) The corporation gave notice shortly before the trial that it would not appear for trial. (Id. at pp. 775–776.) “After the plaintiff presented its evidence at trial, a judgment was entered in [plaintiff’s] favor against the corporation, which filed a bankruptcy petition.” (Id. at p. 776.) After the bankruptcy proceeding closed, the trial court granted the plaintiff’s petition to add the corporation’s chief executive officer as a judgment debtor, reasoning that he knew of the lawsuit and was involved in the corporation’s decisions regarding it. (Ibid.) Relying on Motores, the appellate court in NEC Electronics Inc. reversed the trial court’s decision because the chief executive officer neither shared the corporation’s interests nor controlled its defense when no further proceedings were conducted after the corporation filed its general denial. Thus, there was no defense for the chief executive officer to control. (Ibid.)
Applying Motores, supra, the Court of Appeal in Wolf Metals, supra, found that the trial court erred in amending the default judgment against a company to include an individual who was the president, director, and officer of the corporate defendant as a judgment debtor on the basis of an alter ego theory. (Wolf Metals, supra, 4 Cal.App.5th at pp. 706, 708-09.) The Court of Appeal found that, like the defendant corporation in Motores, the defendant corporation in Wolf Metals did not offer an evidence-based defense in the underlying action, and judgment was entered against the defendant corporation by default. (Ibid.) The Court of Appeal noted that, unlike in Motores, the defendant corporation in Wolf Metals filed an answer that was later stricken. (Id. at p. 708, fn. 4.)
However, the Court of Appeal found that that factual difference was not material. The Wolf Metals Court further stated that, although the individual dominated the defendant corporation and knew of the plaintiff’s suit against the defendant corporation, his circumstances did not differ from the individuals who dominated the defendant corporation in Motores. (Wolf Metals, supra, 4 Cal.App.5th at pp. 708-09.) Thus, “[b]ecause Motores held that the latter individuals were improperly added as judgment debtors, it precludes the inclusion of [the individual] as judgment debtor on an ‘alter ego’ theory.” (Ibid.)
Here, default judgment was entered against KSLG after KSLG’s answer was stricken. The “[c]ontrol of the litigation sufficient to overcome due process objections” contemplates “some active defense of the underlying claim.” (NEC, supra, 208 Cal.App.3d at p. 781.) Given that the judgment was entered against the KSLG by default such that KSLG had no opportunity to offer any evidence-based defense, Plaintiff has not shown that Smith had control of the litigation sufficient to satisfy due process. Adding Smith as a judgment debtor to the default judgment based on an alter ego theory would be improper under Motores and Wolf Metals.
Even if it were appropriate to allow an amendment pursuant to Code of Civil Procedure section 187 in this case, Plaintiff has failed to submit sufficient evidence demonstrating that Smith and KSLG are alter egos.
Plaintiff has the burden to demonstrate by a preponderance of the evidence that the alter ego factors support imposing KSLG’s liability on Kathryn Smith personally. (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 280.) The corporate veil may be pierced “where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation.” (Sonora Diamond Corp. v Superior Court (2000) 83 Cal.App.4th 523, 538.) “Under the alter ego doctrine, . . . when the corporate form is used to . . . accomplish some  wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.” (Id.)
In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. [Citations.] “Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other [Citations.]” Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. [Citations.] No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. [Citations.] Alter ego is an extreme remedy, sparingly used. [Citations.]
(Id. at pp. 538-39.)
Plaintiff submits a declaration from its managing principal and director, Fernando Serrano. Serrano states that, to his knowledge, KSLG had no other principals, members, or employees other than Smith. (Serrano Decl., ¶ 5.) This is insufficient evidence that Smith is the sole member of KSLG, especially given that Serrano’s statement appears to be based only on his own interactions with KSLG, which were entirely through Smith. (Ibid.) Serrano also states that the wire transfer Plaintiff received for the initial deposit was initiated from Smith individually, not from an account owned by KSLG. (Id., at ¶ 9.) However, a review of the attached wire transfer demonstrates that, while the originator’s name sets forth “Kathryn W. Smith”, the originator’s information also sets forth “Kassie Smith Lifestyles Group” as the business name. (Id., at ¶ 9, Ex. E.) This is not clear evidence that the funds came from Smith as opposed to KSLG. Nor does this prove that KSLG was undercapitalized. Furthermore, an email from Smith advising Serrano that she was contacting other investors as “her asset” was taking longer than expected is also insufficient to infer that Smith intended to use her own assets to capitalize KSLG. (Id., ¶ 10.) Serrano’s statement that, to his knowledge, KSLG was never capitalized is insufficient to demonstrate KSLG was never actually capitalized. (Ibid.) Serrano also provides evidence that KSLG did not legally exist at the time Smith signed the engagement agreement with Plaintiff. (Serrano Decl., ¶ 7, Ex. D.) The fact that KSLG had yet to be registered with the Secretary of State when Smith signed the contract with Plaintiff does not demonstrate that Smith and KSLG were alter egos.
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