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discussing § 187 and explaining that the alter ego doctrine is grounded in equity that requires the movant to act with "due diligence"
Summary of this case from Cadence Design Sys., Inc. v. Pounce Consulting, Inc.Opinion
F052934
4-24-2008
CORREA PALLET, INC., Plaintiff and Respondent, v. MICHELLE LAMBETH, Defendant and Appellant.
Frederick C. Kumpel for Defendant and Appellant. Carl W. Hart, Jr.; and Kathryn M. Fox for Plaintiff and Respondent.
NOT TO BE PUBLISHED
STATEMENT OF THE CASE
On February 9, 2004, respondent Correa Pallet, Inc., a California corporation, (Correa) filed a complaint for breach of contract against Star Staffing Solutions, Inc., at the time an active California corporation (Star). Correa alleged Star failed to provide workers compensation insurance for employees subject to a 2003 staffing contract and prayed for damages according to proof.
On May 4, 2004, Star filed a cross-complaint for breach of contract and general negligence, alleging Correa misrepresented material terms of and information underlying the contract.
On the same date, Star filed an answer generally denying the material allegations of Correas complaint and setting forth 18 affirmative defenses.
On June 7, 2004, Correa filed an answer generally denying the material allegations of Stars cross-complaint and setting forth 18 affirmative defenses.
On June 30, 2004, Star filed a case management statement.
On January 18, 2005, the clerk of the superior court entered a dismissal of the cross-complaint upon Stars request.
On January 31, 2005, Correa filed an original notice of settlement reflecting an unconditional "Stipulation for Entry of Judgment."
On March 2, 2005, Correa filed a stipulation for entry of judgment and order in favor of Correa in the sum of $103,000 plus interest at the legal rate, with each party bearing its respective attorney fees.
On September 22 and December 6, 2005, Correa filed applications and orders for appearance and examination of the judgment debtor. Both applications and orders were directed to "Michelle Lambeth, Owner of Star Staffing Solutions, Inc."
On January 9, 2007, Correa filed a motion to amend the judgment to include Michelle and Robert Lambeth, Star shareholders, as joint and several judgment debtors of Star.
On February 9, 2007, Star filed written opposition to Correas motion to amend the judgment to include the two shareholders as judgment debtors.
On February 21, 2007, Correa filed a reply brief.
On February 26, 2007, the court conducted a hearing, heard the arguments of counsel, and filed a minute order granting Correas motion to amend the judgment.
On March 8, 26, and 27, 2007, Star and Michelle Lambeth filed written objections to the courts tentative order, order at hearing, and proposed order.
On April 18, 2007, the court filed a formal order amending the judgment to include shareholder Michelle Lambeth as a judgment debtor.
On May 17, 2007, Michelle Lambeth filed a timely notice of appeal.
The opening brief on appeal does not appear to include a statement of appealability. (Cal. Rules of Court, rule 8.204(a)(2)(B).) Michelle Lambeth appealed from the April 18, 2007, order amending judgment. A judgment is the final determination of the rights of the parties to an action or proceeding. (Code Civ. Proc., § 577.) To be appealable, a judgment must be a final judgment. Under older case law, if an amendment materially and in a substantial respect affects the judgment and the rights of a party against whom it is rendered, and a party desires relief therefrom, he or she must appeal from the corrected judgment within the time allowed after entry thereof. (George v. Bekins Van & Storage Co. (1948) 83 Cal.App.2d 478, 481-482.) More recently, appellate courts have deemed an order clarifying the judgment to be appealable. (Lezine v. Security Pacific Fin. Services, Inc. (1996) 14 Cal.4th 56, 62, citing Code Civ. Proc, § 904.1, subd. (a)(2).)
STATEMENT OF FACTS
On January 4, 1996, Robert R. Lambeth and his wife, appellant Michelle D. Lambeth incorporated Star Staffing Solutions, Inc., a California corporation (Corp. No. 1899835). The business of Star was to provide temporary workers to oilfield, agricultural, and other businesses who needed laborers. Michelle Lambeth served as the initial president, secretary, and treasurer of the corporate board of directors and Robert Lambeth served as the initial vice-president. Star eventually established offices in Bakersfield, Porterville, Visalia, San Bernardino, and Redlands, and had more than 250 people on its payroll.
At an August 15, 2006, deposition pursuant to an order for examination of judgment debtor, Michelle Lambeth testified the corporation had 100,000 authorized and 60,000 issued shares of stock. She also testified that she and her husband jointly held the 60,000 issued shares.
According to Robert Lambeth, Star dispatched temporary workers to oilfields and jobsites, handled workers payroll documentation, provided safety and other training for workers, and paid for workers compensation insurance for these temporary workers. Robert Lambeth stated in a declaration: "Star charged customers based on the skill level, type, and number of workers being used at any given time."
In 2003, Correa, a Delano-based business, made contact with the Visalia office of Star. Julie Petterson, branch manager of the Visalia office, prepared a proposal and presented it to Correa on or about July 22, 2003. The proposal stated in relevant part:
"Thank you for choosing Star Staffing. Below I have listed your hourly rates for all employees.
"Pay Rate Your Rate $7.00 Hr $9.80 Hr
"WE PAY FOR ALL TAXES AND WORKERS COMP INSURANCE [¶]...[¶]
"Note: Employee pay rates stated above are approximate and may vary per employee. Your rates may change with pay changes. Employees are paid based on length of service, past performance and willingness. Star is responsible for determining employee pay rates." (Italics in original.)
Petterson signed the proposal on July 22, 2003 and Martin Correa, a principal of Correa, signed the proposal on August 12, 2003. On January 13, 2004, State Compensation Insurance Fund wrote to Martin Correa, stating in relevant part:
"You have provided our office with a proposal from Star Staffing Solutions, Inc., indicating that you have chosen Star Staffing Solutions, Inc. to handle your taxes and workers compensation insurance for your employees. Please be advised, State Compensation Insurance Fund does not insure Star Staffing Solutions, Inc.
"However, the certificate of insurance we received shows employee outsourcing is provided by JCS Ventures, dba Star Office Staffing, a State Fund insured. Under State Compensation Insurance Funds Rate filing of 1/1/03, Correa Pallets cannot be covered by the workers compensation policy for JCS Ventures, dba Star Office Staffing, but must be insured as an experience rated risk under a separate policy. Compounding the infractions listed above, the certificate of insurance is not a valid document issued by State Compensation Insurance Fund."
On February 9, 2004, Correa filed a breach of contract action against Star, alleging Star failed to pay for workers compensation insurance for the employees who worked at Correa, Correa became liable for the cost of such insurance, and Correa sustained an estimated $123,000 in damages arising from the breach. On May 4, 2004, Star filed a cross-complaint for breach of contract and negligence against Correa. Star alleged (a) Correa misrepresented the total number of employees working at its locations at the time of the agreement; (b) Star was required to provide a larger percentage of workers than originally anticipated; (c) the larger percentage would have necessitated an employee leasing policy with workers compensation insurance; and (d) such a policy would have entailed a higher rate of premium for each worker. In a case management statement filed June 30, 2004, Star explained: "Stars rate for the workers was based on information provided by Correa which included the percentage of over-all workers at Correa Pallet which, in turn, impacted on workers compensation co[v]erage. Star would have charged a much higher rate if Star had in fact known what the actual percentage of workers was at Correa Pallet."
On September 17, 2004, the Secretary of State filed a certificate of dissolution of the Star corporation. On January 18, 2005, the clerk of court entered a dismissal of the cross-complaint on Stars request. The following day, the parties, their counsel, and mediator Howard Broadman executed a settlement agreement in favor of Correa. On March 2, 2005, the superior court entered a judgment in favor of Correa upon the following stipulation:
The signature lines of the settlement agreement incorrectly list the year as "2004" rather than 2005.
"IT IS HEREBY STIPULATED by and between plaintiff, CORREA PALLET, INC., and defendant, STAR STAFFING SOLUTIONS, INC., through their respective counsel, that Judgment shall be entered in favor of the plaintiff and against the defendants in the sum of One Hundred Three Thousand and No/100 Dollars ($103,000.00), plus interest at the legal rate from January 1, 2004, plus costs of suit...."
To enforce the judgment, Correas counsel deposed Michelle Lambeth on August 15, 2006, pursuant to an application and order for appearance and examination. In that deposition, Correas counsel reviewed a variety of corporation documents with Michelle Lambeth. These documents included: (a) the articles of incorporation for Star; (b) the certificate of dissolution for Star; (c) bank account statements for Star; (d) minutes of the first directors meeting and subsequent directors meetings of Star; and (e) resolutions relating to (i) the Star presidents authority to make purchases, (ii) authorizing reimbursement to corporate officer, (iii) changing of corporate address, (iv) borrowing on accounts receivable, (v) leasing corporate offices, (vi) changing officers salaries, and (vii) authorizing of presidents expense accounts.
At the deposition, Michelle Lambeth testified that Star borrowed $600,000 from several funding companies that worked with staffing companies. She explained that Star did not receive a $600,000 check. Rather, she said: "There are companies out there that work with staffing companies, and basically they bill out to all of your clients for you. [L]ets say its $100,000. Then they forward me the $100,000 to pay my employees, and then when the clients pay, the money goes directly to that company. And they, you know, keep a percentage." Later in her testimony, Michelle Lambeth said Star sent out its own invoices and collected its own receipts at various points in its corporate existence.
Correas counsel questioned Lambeth about a minute entry she signed on February 13, 2004 in her capacity as Stars president. That entry read:
"Due to cancellation of Stars workmans compensation policy, effective at the end of business day, February 23, 2004, Star Staffing will lay off all employees. Star will continue to operate at the corporate level only, to complete all payroll, bookkeeping and misc. tasks. This operation will continue through the end of 2004, and will be evaluated at that point regarding further operation. Officers salaries will continue until business closing."
Michelle Lambeth testified at deposition that she and her husband jointly held the 60,000 shares of Star until the corporation was dissolved. The certificate of dissolution filed with the Secretary of State provided: "The corporations known debts and liabilities have been paid as far as its assets permitted." According to Michelle Lambeth "there werent any assets or liabilities when we were done." In that same deposition, Michelle Lambeth said she did the books for Star and prepared and filed the corporate tax returns.
On January 9, 2007, Correa moved to amend the judgment to include Michelle and Robert Lambeth as judgment debtors on the ground that each was the alter ego of Star and that the judgment as rendered contained a misnomer by failing to include the names of the Lambeths. On February 9, 2007, Star and the Lambeths filed written opposition to the motion to amend judgment. The Lambeths maintained: (a) the motion was another attempt by Correa to extract money "for Correas failure to carry workers compensation insurance"; (b) amending the judgment would be a violation of due process; (c) grounds for piercing the corporate veil did not exist; and (d) Correa was estopped to pierce the corporate veil because it did not act with due diligence after learning of the status of Star corporation. On February 21, 2007, Correa filed a reply brief noting that the Lambeths had never challenged the underlying agreement in the case, that grounds existed for piercing the corporate veil, and that Correa had used due diligence in bringing its motion to amend.
On February 26, 2007, the Honorable Melinda Reed, judge of the superior court, conducted a hearing on the motion. She heard the arguments of counsel, adopted a tentative ruling, and amended the judgment to include Michelle Lambeth (but not Robert Lambeth) as a judgment debtor. The court stated: "... I am persuaded that the points stated by defendant concerning the corporation and the individuals involvement in that corporation do establish the primary prongs necessary to pierce a corporate veil."
On April 18, 2007, the court filed a formal order amending the judgment to include shareholder Michelle Lambeth as a judgment debtor. The order stated in relevant part:
"The court finds that the Code of Civil Procedure section 187 allows the judgment to be amended to add Michelle Lambeth as an additional judgment debtor. Such a procedure is an appropriate and complete method by which to bind a new individual defendant where it can be demonstrated that in her capacity as alter ego of the corporation she in fact had control of the previous litigation, and thus was virtually represented in the lawsuit. [See NEC Electronics, Inc. v. Hurt (1989) 208 Cal.App.3d 772.]
"Plaintiff has listed the following violations of the corporate entity to establish the alter ego status of Michelle Lambeth as an additional judgment debtor:
"1. The commingling of funds and other assets, the failure to segregate funds of the corporation, and the unauthorized diversion of corporate funds or assets to other than corporate uses;
"2. The treatment by Michelle Lambeth of the assets of the corporation as her own;
"3. The failure to maintain minutes or adequate corporate records and the confusion of the records of the corporation with Michelle Lambeths personal records;
"4. The equitable ownership of the corporation by Michelle Lambeth;
"5. The domination and control of the corporation by Michelle Lambeth;
"6. The directors and officers of the corporation are also responsible for supervision and management;
"7. The failure to adequately capitalize the corporation;
"8. The absence of corporate assets, and undercapitalization;
"9. The use of the corporation as a mere shell, instrumentality, or conduit for the business of Michelle Lambeth;
"10. The disregard of legal formalities and the failure to maintain arms length relationships between the corporation and Michelle Lambeth;
"11. The use of the corporate entity to procure labor, services, or merchandise for another person or entity;
"12. The diversion of assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors, or the manipulation of assets and liabilities of the corporation; and
"13. The contracting with another with intent to avoid performance by use of a corporation as a subterfuge for illegal transactions.
"Additionally, Plaintiff has shown that Michelle Lambeth appeared at all stages of the litigation and is one of only two shareholders and corporate officers of Star Staffing Solutions, Inc. Thus, Michelle Lambeth had the opportunity to control the litigation and Michelle Lambeth signed the settlement agreement. Cases involving a default judgment cited by defendants are distinguishable as the individuals did not have an opportunity to defend the action. Such is not the case herein. An injustice would be served if the plaintiff were not allowed to name the additional judgment debtor under the facts presented.
"On proof made to the satisfaction of the court that defendant Michelle Lambeth is the alter ego of Star Staffing Solutions, Inc., and that judgment rendered in this case should be amended to add defendant Michelle Lambeth as a judgment debtor:
"IT IS ORDERED that the judgment heretofore rendered in this action be amended as follows:
"That portion of the judgment which reads as follows: `Judgment shall be entered in favor of the plaintiff and against the defendant be amended to read: `Judgment shall be entered in favor of the plaintiff and against defendants STAR STAFFING SOLUTIONS, INC. and MICHELLE LAMBETH, jointly and severally[.]
"There being no evidence that Robert Lambeth participated in the litigation, he shall not be added as a judgment debtor."
DISCUSSION
On appeal appellant Michelle Lambeth contends that in various respects the trial court violated due process by piercing the corporate veil and imposing alter ego liability upon her. She submits the contract was made between two corporate entities and the corporations limited liability should "insulate Star as the sole judgment debtor."
Although Michelle Lambeth set forth five issues in her opening brief on appeal, the thrust of each contention is whether the trial court violated due process by piercing the corporate veil and imposing alter ego liability upon Michelle Lambeth. For administrative efficiency and to conserve precious judicial resources, we will address appellant Michelle Lambeths issues as subsidiary points under this umbrella contention.
A. Applicable Law
Corporations Code section 2010 states in relevant part:
"(a) A corporation which is dissolved nevertheless continues to exist for the purpose of winding up its affairs, prosecuting and defending actions by or against it ....
"(b) No action or proceeding to which a corporation is a party abates by the dissolution of the corporation or by reason of proceedings for winding up and dissolution thereof."
Code of Civil Procedure 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."
In Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538-539 (Sonora), this court set forth the fundamental principles of Californias alter ego doctrine:
"Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. [Citations.] A corporate identity may be disregarded—the `corporate veil pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation. [Citation.] Under the alter ego doctrine, then, 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 corporations acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners. [Citations.] 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.]
"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. [Citation.] Alter ego is an extreme remedy, sparingly used. [Citation.]"
With respect to the inequitable result element, this court also observed that difficulty in enforcing a judgment, by itself, does not constitute an inequity that the alter ego doctrine was designed to prevent. Rather, the alter ego doctrine applies "where some conduct amounting to bad faith makes it inequitable for the [alter ego] to hide behind the corporate form." (Sonora, supra, 83 Cal.App.4th at p. 539.)
In sum, alter ego is a limited doctrine, invoked only where recognition of the corporate form would work an injustice to a third person. (Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 995.) Control of the litigation sufficient to overcome due process objections may consist of a combination of factors. These factors usually include the financing of the litigation, the hiring of attorneys, and control over the course of the litigation. Clearly, some active defense of the underlying claim is contemplated. (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 781 (NEC Electronics).)
B. Alleged Violation of Due Process
Michelle Lambeth initially frames her first issue in terms of due process but then proceeds to a discussion of the evidence supporting the two-pronged test for piercing the corporate veil and establishing alter ego liability. For sake of clarity, we address these topics separately.
Michelle Lambeth contends the trial court violated her right to due process because she and her husband had no "opportunity to defend themselves as due process requires."
In framing her contention, Michelle Lambeth challenges "the lower courts order" as violative of due process. Lambeth presumably refers to the courts April 18, 2007, formal order amending the judgment to include shareholder Michelle Lambeth as a judgment debtor.
She specifically argues:
"... The courts have uniformly held that a prior judgment against a corporation can be made individually binding on a person associated with the corporation only if two conditions are both met:
"(1.) the individual to be charged had control of the litigation; and,
"(2.) occasion to conduct it with a diligence corresponding to the risk of personal liability that was involved. See also NEC Elecs. Inc. v. Hurt (1989).
"The courts order simply ignores the second condition while giving undue weight to the first condition. The original minute order cites NEC for the proposition that the individuals had to have been `virtually represented in the lawsuit. That original Minute Order was changed when the court ruled that only Michelle Lambeth was to be added to the judgment. Robert Lambeth was not to be added because he had no role in the control of the litigation.
"The lower court focused exclusively on the control prong of these requirements and ignored the critical due process requirement. The lower court ruled that because Michelle Lambeth `controlled the litigation in her position as the corporate officer and representative, that she was subject to alter ego liability. At the hearing, the court made it clear that the control prong was the only factor that the court was focused upon. ... The court abused its discretion as to the due process requirements as to additional judgment debtors. The court also abused its discretion in concluding that Lambeth is an alter ego of Star. The appellant is entitled to protection of the corporate privilege because she had no occasion to consider or participate in the action with the risk of her own personal liability in mind. ... [T]he alter ego finding is unsupported and suspect."
In setting forth the foregoing contention, appellant does not cite to specific portions of the reporters transcript. Rather, she simply cites: "See Reporters Transcript" at several points in her contention. When an appellants brief makes no reference to the pages of the record where a point can be found, an appellate court need not search through the record in an effort to discover the point purportedly being made. (In re S.C. (2006) 138 Cal.App.4th 396, 406.) Moreover, record citations in the "factual background" at the beginning of a brief doe not cure a failure to include pertinent record citations in the "argument" portion of the brief. (City of Lincoln v. Barringer (2002) 102 Cal.App.4th 1211, 1239.) Assuming arguendo that appellant has complied with these essential briefing requirements, we will examine her claim of a due process violation.
The Fourteenth Amendment of the United States 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 or her defenses. (Motores de Mexicali, S.A. v. Superior Court (1958) 51 Cal.2d 172, 176.) Due process is not a technical conception with a fixed content unrelated to time, place, and circumstances. Rather, due process is flexible and calls for such procedural protections as the particular situation demands. (Gilbert v. City of Sunnyvale (2005) 130 Cal.App.4th 1264, 1276.) The key elements of procedural due process are notice and an opportunity to be heard. The notice must be reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections. (Garamendi v. Golden Eagle Ins. Co. (2004) 116 Cal.App.4th 694, 706.) While the opportunity to be heard is a fundamental requirement of due process, there is no precise manner of hearing that must be afforded. Rather, the particular interests at issue must be considered in determining what kind of hearing is appropriate A formal hearing, with full rights of confrontation and cross-examination, is not necessarily required. What must be afforded is a reasonable opportunity to be heard. (Burt v. County of Orange (2004) 120 Cal.App.4th 273, 286.)
California due process constitutional analysis differs from that conducted pursuant to the federal due process clause in that the claimant need not establish a property or liberty interest as a prerequisite to invoking due process protection. Procedural due process under the California Constitution is focused on the individuals due process liberty interest to be free from arbitrary adjudicative procedures. Although an aggrieved party need not establish a protected property interest, he or she must nevertheless identify a statutorily conferred benefit or interest of which he or she has been deprived to trigger procedural due process under the California Constitution. Once triggered, the extent to which procedural due process is available depends on a weighing of private and governmental interests involved. (Gresher v. Anderson (2005) 127 Cal.App.4th 88, 104-105.)
Determination of the dictates of due process generally requires consideration of four factors: (1) the private interest that will be affected by the individual action; (2) the risk of an erroneous deprivation of this interest through the procedures used and the probable value, if any, of additional or substitute safeguards; (3) the dignitary interest of informing individuals of the nature, grounds, and consequences of the action and of enabling them to present their side of the story before a responsible governmental official; and (4) the government interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirements would entail. What safeguards comport with due process or what due process requires under specific circumstances varies, as not every context requires the same procedure. The primary purpose of procedural due process is to provide affected parties with the right to be heard at a meaningful time and in a meaningful manner. (Gresher v. Anderson, supra, 127 Cal.App.4th at p. 106.)
Here, Correa filed a motion to amend the judgment on January 9, 2007. The motion was accompanied by a written notice of a February 26 hearing date, the declaration of Correas counsel, supporting exhibits, and a memorandum of points and authorities. Star and Lambeth responded on February 9, 2007, by filing written opposition to the motion to amend, a memorandum of points and authorities in opposition to the motion, the declarations of Michelle and Robert Lambeth in opposition to the motion, and a variety of exhibits. Correa filed a reply brief on its motion on February 21, 2007. The court issued a tentative decision prior to the scheduled February 26 hearing date. On the scheduled hearing date, the court heard the respective arguments of counsel, took a brief recess to examine some authorities, particularly the case of NEC Electronics, supra, 208 Cal.App.3d 772, and adopted the tentative ruling as to Michelle Lambeth, stating in relevant part:
"I will say that I am persuaded that the points stated by defendant concerning the corporation and the individuals involvement in that corporation do establish the primary prongs necessary to pierce a corporate veil."
Whatever disagreement there may be as to the scope of the phrase "due process of law," courts have held that it minimally contemplates the opportunity to be fully and fairly heard before an impartial decisionmaker. (Hall v. Harker (1999) 69 Cal.App.4th 836, 841, disapproved on another point in Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 349.) On appeal, Michelle Lambeth submits "she had no occasion to consider or participate in the action with the risk of her own personal liability in mind." Lambeths argument is predicated on section 59 of the Restatement Second of Judgments, which states in pertinent part:
"... When that conclusion [that a corporation is the alter ego of those who control it] is reached under the governing law of corporations, however, the consequence under the rules governing judgments is that a judgment nominally against the corporation creates a binding obligation upon those who have acted in corporate dress. The judgment is thus binding only on those individuals associated with the corporation who personally, or through some representative, had adequate opportunity to participate in the litigation leading to the judgment. If at the outset of the litigation the opposing party has manifested an intention to bind individually the persons associated with the corporation, and effects service of process addressed to those persons individually, adequate opportunity is afforded them to defend against the asserted liability. On the other hand, 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." (Rest.2d Judgments, § 59, com. g, pp. 101-102, italics added.)
Michelle Lambeth submits the record is devoid of any instance in which her individual interests were represented and she had no incentive to—and in fact did not—defend any of her rights as the case proceeded to settlement. Although NEC Electronics upon which Lambeth relies, does reference section 59 of the Restatement Second of Judgments, that case does not expressly adopt section 59 as the controlling standard for alter ego liability. Rather, the NEC Electronics court focused on (a) the unity of interest and ownership between the corporation and individual and (b) the inequity that would result if the acts were treated as those of the corporation alone. (NEC Electronics, supra, 208 Cal.App.3d at p. 777.) Here, the superior court could have reasonably concluded that treatment of the acts as those of the Star Staffing corporation alone would have been inequitable because Correa would have been foreclosed from any sort of monetary recovery despite a formal settlement agreement.
Even if we assume that section 59 of the Restatement Second of Judgments is applicable to situations such as the instant one, the reporters notes to comment g to the Restatement provision clearly state:
"The significant element introduced by the concept of corporate alter ego is that the stockholder not only can be precluded as to issues litigated but also can be held to personal liability for obligations of the corporation. The focus is not on the stockholders participation in the litigation, although the manner in which he participated may itself manifest a disregard of the corporate form, but on the manner in which the pre-litigation transactions of the corporation were conducted." (Rest.2d Judgments, § 59, reporters notes to com. g, p. 105.)
Lambeth does not specifically cite to the foregoing reporters notes to comment g. Nevertheless, her argument on appeal essentially addresses the content of that comment. She notes that: (1) Star had at least three offices with staff and employees at each location and as many as 250 employees on payroll; (2) she had no dealings with Correa until the latter refused to pay Stars bill; (3) she provided corporate records and minutes; (4) she had information backed up on a computer disk and that she had been looking for that disk; and (5) Star was not a "`Mom and Pop Shop" run without regard for corporate accounts, records, and formalities.
These contentions raise questions as to the sufficiency of the evidence and will be dealt with in part C. below.
In our view, Michelle Lambeth was not subjected to arbitrary adjudicative procedures in the instant case and no violation of due process of law occurred.
C. Sufficiency of Evidence
Appellant Michelle Lambeth contend the court erred by applying only one prong of the two-prong test established in such cases as NEC Electronics.
She argues:
"... The courts have uniformly held that a prior judgment against a corporation can be made individually binding on a person associated with the corporation only if two conditions are both met:
"(1.) the individual to be charged had control of the litigation; and,
"(2.) occasion to conduct it with a diligence corresponding to the risk of personal liability that was involved.... [¶]... [¶]
"The lower court focused exclusively on the control prong of these requirements and ignored the critical due process requirement. The lower court ruled that because Michelle Lambeth `controlled the litigation in her position as the corporate officer and representative, that she was subject to alter ego liability. At the hearing, the court made it clear that the control prong was the only factor that the court was focused upon. ... The court abused its discretion as to the due process requirements as to additional judgment debtors. The court also abused its discretion in concluding that Lambeth is an alter ego of Star. The appellant is entitled to protection of the corporate privilege because she had no occasion to consider or participate in the action with the risk of her own personal liability in mind.... [¶] ... [¶]
"In this action, Correa went to Stars Visalia office and dealt with an individual named Julie Petterson. Michelle Lambeth was not located at the Visalia office. Michelle Lambeth points out in her declaration that `Neither Robert Lambeth nor myself have ever been apprised that we have any personal liability exposure in this matter. We have never been named individuals in the contracts or suits in this litigation. The record is devoid of any instance in which Michelle Lambeths (individual) interests were represented and Michelle Lambeth had no incentive to and in fact did not defend any of her rights as the case proceeded to settlement. Michelle Lambeth was not named in the suit. No attempt was ever made to name her in the suit. Michelle Lambeth had no duty to intervene or personally assume any liability in the action.... To the contrary, Star was out of business, allegedly as a result of Stars contention that Correa had caused Star to lose the workers compensation coverage which was vital to Stars business. The contract was made between two corporate entities — and the corporations limited liability should protect [and] insulate Star as the sole judgment debtor."
In California, the authority of the court may be exercised under Code of Civil Procedure section 187 to impose liability under a judgment upon the alter ego who has had control of the litigation. In deciding to impose such liability, the court is not limited to evidence testified to at a trial. In some cases, no testimony may have been offered in the original action to establish a relationship between the corporation and the individual sought to be charged with liability as an alter ego. Nevertheless, the court may, on the hearing of a motion to amend judgment, admit extrinsic evidence, on proper notice to the adversary party, to make the judgment speak the truth. (Jack Farenbaugh & Son v. Belmont Construction, Inc. (1987) 194 Cal.App.3d 1023, 1029-1030.)
As noted above, there are two requirements for disregarding the corporate entity: (1) a unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow. The conditions under which the corporate entity may be disregarded vary according to the circumstances in each case and the matter is particularly within the province of the trial court. The determination as to whether or not these requirements have been established by the evidence is primarily one for the trial court and is not a question of law. The conclusion of the trier of fact will not be disturbed if it is supported by substantial evidence. (Jack Farenbaugh & Son v. Belmont Construction, Inc., supra, 194 Cal.App.3d at pp. 1032-1033.)
Michelle Lambeth initially submits that "the control prong was the only factor that the court was focused upon." Although appellant refers to the "See Reporters Transcript," she does not cite to the precise page or pages supporting that proposition. In any event, her contention is belied by the concluding statements of the court on February 26, 2007: "I will say that I am persuaded that the points stated by defendant concerning the corporation and the individuals involvement in that corporation do establish the primary prongs necessary to pierce a corporate veil." (Italics added.)
Michelle Lambeth goes on to contend that the court abused its discretion in finding alter ego liability because "she had no occasion to consider or participate in the action with the risk of her own personal liability in mind." She submits:
"... The record is devoid of any instance in which Michelle Lambeths (individual) interests were represented and Michelle Lambeth had no incentive to and in fact did not defend any of her rights as the case proceeded to settlement. Michelle Lambeth was not named in the suit. No attempt was ever made to name her in the suit. Michelle Lambeth had no duty to intervene or personally assume any liability in the action.... To the contrary, Star was out of business, allegedly as a result of Stars contention that Correa had caused Star to lose the workers compensation coverage which was vital to Stars business. The contract was made between two corporate entities — and the corporations limited liability should protect [Michelle Lambeth and] insulate Star as the sole judgment debtor."
In a declaration in support of the motion to amend judgment, Correas counsel stated in relevant part:
"16. Additional documentation related to the purported dissolution of the corporation which was requested but not produced is as follow:
"q. Assumption by Shareholders of Debts and Liabilities; [¶] ... [¶]
"These documents are required to be produced and filed for corporations which elect to dissolve, pursuant to the California Corporations Code.
"17. Ms. Lambeth indicated in her examination (page 40, lines 2-6) that the corporation never owned any assets.
"18. Documents indicate that Michelle Lambeth and Robert Lambeth were the sole owners of all of the shares of the corporation.
"19. Documents indicate that Michelle Lambeth leased her own personal property to the corporation for compensation.
"20. Documents indicate that Michelle Lambeth and Robert Lambeth continued to receive salaries from the corporation after all employees were laid off and an election was made to dissolve the corporation. The corporation was not able to produce documents indicating the amount of salary paid to Michelle Lambeth and Robert Lambeth, however.
"21. The corporation was not able to produce any corporate income tax returns for the corporation.
"22. The corporation was not able to produce any profit and loss statements for the corporation.
"23. Records indicate that Michelle Lambeth and Robert Lambeth received all of the accounts receivable of the corporation in the way of salaries after the decision to dissolve the corporation."
In a declaration in opposition to the motion to amend, Michelle Lambeth stated in relevant part:
"3. I have served as an employee, officer, and board member for Star Staffing Solutions, Inc. [`Star]. At all times, Star maintained Stars own accounts. All corporate formalities were met, from the issuance of shares to maintenance of corporate minutes. Star maintained multiple offices in different cities including Bakersfield, Porterville, Visalia, and San Bernardino. The business of Star was to provide temporary workers to oilfield, agricultural, and other businesses who needed laborers. [¶] ... [¶]
"15. Exhibit E is a true and correct copy of the `Settlement Agreement abstract Judge Broadman asked the parties to sign when Star settled the case. I was present when Judge Broadman repeatedly told both Correa and Correas lawyer that Star was dissolved. Correa and Correas lawyer signed the `Settlement Agreement abstract. I signed as (former) president of Star.
"16. Attached as Exhibit F is a true and correct copy of the Notice of Settlement filed in this case. At no time did Correa ever mention or indicate that it would try and include me or Robert Lambeth in the case as individuals. Neither Robert Lambeth nor myself have any notice from Correa that there was any risk to us as individuals. [¶]... [¶]
"19. Neither Robert Lambeth nor myself have ever been apprised that we have any personal liability exposure in this matter. We have never been named individuals in the contracts or suits in this litigation.
"20. Star employees worked on the Correa contract in the Visalia office. My only contact with Correa was by phone when Correa needed to pay Correas bill."
The testimony of witnesses is taken in three modes in California: (1) by affidavit; (2) by deposition; and (3) by oral examination. (Code Civ. Proc., § 2002.) An affidavit is a written declaration under oath, made without notice to the adverse party. (Code Civ. Proc., § 2003.) An affidavit may be used to obtain the examination of a witness. (Code Civ. Proc., § 2009.) Whenever a matter is required or permitted to be proved by affidavit, such matter may with like force and effect be proved by a declaration under penalty of perjury. (Code Civ. Proc., § 2015.5.) The purpose of permitting a declaration under penalty of perjury, in lieu of a sworn statement, is to help ensure that declarations contain a truthful factual representation and are made in good faith. (In re Marriage of Reese & Guy (1999) 73 Cal.App.4th 1214, 1223.) An appellate court should defer to factual determinations made by the trial court when the evidence is in conflict. This is true whether the trial courts ruling is based on oral testimony or declarations. (Shamblin v. Brattain (1988) 44 Cal.3d 474, 479.)
In the instant case, the court was faced with conflicting declarations and resolved them in favor of the respondent, Correa. Credibility is an issue for the factfinder. We do not reweigh evidence or reassess the credibility of witnesses. An appellate court has no power to judge the effect or value of the evidence, to weigh the evidence, to consider the credibility of witnesses, or to resolve conflicts in the evidence or in the reasonable inferences that may be drawn therefrom. When, as here, the evidence gives rise to conflicting reasonable inferences, one of which supports the findings of the trial court, the trial courts finding is conclusive on appeal. (Johnson v. Pratt & Whitney Canada, Inc. (1994) 28 Cal.App.4th 613, 622-623.)
We also note that Corporations Code section 2011 states in relevant part:
"(a)(1) Causes of action against a dissolved corporation, whether arising before or after the dissolution of the corporation, may be enforced against any of the following:
"(A) Against the dissolved corporation, to the extent of its undistributed assets, including, without limitation, any insurance assets held by the corporation that may be available to satisfy claims.
"(B) If any of the assets of the dissolved corporation have been distributed to shareholders, against shareholders of the dissolved corporation to the extent of their pro rata share of the claim or to the extent of the corporate assets distributed to them upon dissolution of the corporation, whichever is less.
"A shareholders total liability under this section may not exceed the total amount of assets of the dissolved corporation distributed to the shareholder upon dissolution of the corporation."
Michelle Lambeths claim that she had "no occasion to consider or participate in the action with the risk of her own personal liability in mind" is somewhat suspect given the statutory liability imposed by Corporations Code section 2011 upon shareholders of a dissolved corporation. Moreover, control of the litigation sufficient to overcome due process objections may consist of a combination of factors. These usually include the financing of the litigation, the hiring of attorneys, and control over the course of the litigation. Clearly, some active defense of the underlying claim is contemplated. (NEC Electronics, supra, 208 Cal.App.3d at p. 781.)
During the course of the February 26, 2007, hearing on motion to amend judgment, the court reviewed the NEC Electronics case and noted it was "the persuasive case on the issue in the Courts mind having to do with new individual defendants participating in the lawsuit against the corporation and controlling the litigation and thus being virtually represented in the lawsuit." In its minute order filed that same date, the court noted that the Michelle Lambeth appeared at all stages of the litigation, had the opportunity to control the litigation, and that Michelle Lambeth signed the settlement agreement. Although Lambeth signed the agreement as "(Former) Pres" of Star Staffing Solutions, Inc., the court could have reasonably concluded that her active defense of the underlying claim satisfied the requisites of due process and overcame any obstacles to the piercing of the corporate veil.
D. Application of Federal Law
Michelle Lambeth contends the amendment of the stipulated judgment violated due process under Katzirs Floor and Home Design, Inc. v. M-MLS.COM (9th Cir. 2004) 394 F.3d 1143, 1150 (Katzirs Floor).
In Katzirs Floor, M-MLS, Inc., a Canadian corporation owned by one Peter Sommer, sold a woodworking machine to Katzirs Floor in an "as is" condition. The machine never worked properly and Katzirs Floor sued M-MLS, Inc. in California state court. The action was removed to federal court on the basis of diversity. M-MLS, Inc. initially defended the suit, developed financial difficulties, and borrowed money from its former accountant, one Fromstein. M-MLS, Inc. gave Fromstein a secured interest in all of its corporate assets. M-MLS, Inc. later ceased defending the lawsuit and Katzirs Floor obtained a default judgment of $1.638 million. At about that same time, Sommer formed another Canadian corporation called M-MLS.com to broker new and used working machinery on the Internet. M-MLS, Inc. was unable to pay Fromstein and the latter initiated private involuntary receivership proceedings under Canadian law. The appointed receiver eventually sold all of the assets of M-MLS, Inc. to Scamper Enterprises, a separate corporation wholly owned by Sommers wife. The receivers bill of sale included the right to use the name "M-MLS" and all intellectual property associated with that name. Katzirs Floor was aware of the receivership proceedings and sale. After Scamper bought the assets of M-MLS, Inc., Scamper allowed M-MLS.com to use the MLS website that Scamper had acquired in the receivership sale. One year later, Katzirs Floor moved to modify the default judgment to include Sommer and M-MLS.com as additional judgment debtors. The district court granted the motion on the grounds that Sommer was the alter ego of M-MLS, Inc. and M-MLS.com was the successor corporation of M-MLS, Inc. Sommer and M-MLS.com appealed from the amended judgment and the Ninth Circuit Court of Appeals reversed. (Katzirs Floor, supra, 394 F.3d at pp. 1146-1147.)
As to Peter Sommer, the Ninth Circuit initially noted that it had approved the use of Code of Civil Procedure section 187 in federal court pursuant to Federal Rule of Civil Procedure 69(a). The United States District Court found that Sommer was the alter ego of M-MLS, Inc. because he was the sole officer and director of the corporation and the evidence reflected his complete control of M-MLS, Inc. The District Court further held the corporate veil should be pierced to reach Sommer because he formed M-MLS.com to continue the same business he had with M-MLS, Inc. and to escape the judgment. (Katzirs Floor, supra, 394 F.3d at pp. 1148-1149.)
The Ninth Circuit ruled that the District Court erred in finding Sommer to be the alter ego of M-MLS, Inc. solely based on control. Alter ego is a limited doctrine, invoked only where recognition of the corporate form would work an injustice to a third person. The injustice that allows a corporate veil to be pierced is not a general notice of injustice; rather, it is the injustice that results only when corporate separateness is illusory. Critical facts must be shown to establish that it would be inequitable to respect separate corporate identities. Such critical facts include inadequate capitalization, commingling of assets, and disregard of corporate formalities. The District Court made none of these critical findings before piercing the corporate veil in the Katzirs case. Had the District Court done so, the only evidence in the record would have supported a finding that the corporation was indeed a separate entity. M-MLS, Inc. maintained separate bank accounts from Sommer, Sommer never commingled funds with M-MLS, Inc., and Sommer never used its assets as his own. The mere fact of sole ownership and control did not eviscerate the separate corporate identity that is the foundation of corporate law. (Katzirs Floor, supra, 394 F.3d at pp. 1148-1149.)
The Ninth Circuit further held the District Court erred by adding Sommer to the judgment without finding that his interests were protected in the underlying action. The district court noted the second requirement of Code of Civil Procedure section 187 that the new party had to have controlled the litigation such that it was virtually represented. However, the District Court failed to address that prong in its discussion as it applied to Sommer. Citing the NEC Electronics case, the Ninth Circuit noted that Sommer was not named individually, knew M-MLS, Inc. was on the verge of dissolution in Canada, and he had no personal duty to defend the underlying lawsuit. The federal appellate court concluded it would patently violate due process to summarily add a corporate shareholder to the judgment without allowing him to litigate any questions beyond his relation to the allegedly alter ego corporation. (Katzirs Floor, supra, 394 F.3d at pp. 1149-1150.)
Michelle Lambeth maintains the instant case is analogous to Katzirs Floor in the following respects: (1) the individual added to the judgment was originally not named individually; (2) Star was no longer in business and Michelle Lambeths interests were not represented prior to entry of the stipulated judgment; (3) Star was being dissolved after no longer being able to operate; (4) Michelle Lambeth had no personal duty to defend Correas lawsuit; and (5) the corporate parties, Correa and Star, at no time alleged alter ego prior to entry of judgment.
Although the two cases bear certain similarities, the Katzirs Floor case is a federal decision on matters of California law. While such decisions are entitled to respect and careful consideration, they are not binding or conclusive on the courts of this state. (Bank of Italy etc. Assn. v. Bentley (1933) 217 Cal. 644, 653.) The Katzirs Floor case entailed a default judgment entered after the M-MLS, Inc. discharged its attorneys, failed to secure new counsel, and ceased defending the underlying lawsuit. Here, Star and Michelle Lambeth were represented by counsel and actively participated in the lawsuit throughout the trial court proceedings. In our view, Michelle Lambeths due process rights were protected under the procedural setting of the instant case and reversal is not required.
E. Delay in Establishing Alter Ego
Michelle Lambeth contends:
"Correa has done nothing to try and bring in individual parties except file a belated motion to amend to name a shareholder whose due process rights are trampled upon by the lower courts ruling. There is no explanation and no excuse offered by Correa[.] To the contrary, there is every reason to question whether the motion is not abusive and subject to sanctions. Allowing Michelle Lambeth to be named in the amended judgment is an abuse of discretion. The error is particularly egregious in light of the complete absence of any effort whatsoever to allege alter ego or otherwise respect Lambeths due process rights prior to filing the motion to amend the judgment. Correa knew or should have known that appellant was allegedly the alter ego before filing the complaint, at the time of the filing of the original complaint, or shortly thereafter.... Correas failure to diligently prosecute the matter as to Michelle Lambeth requires reversing the lower courts order."
To justify the addition of new defendants, a plaintiff must have acted with due diligence to bring them in as parties. When considering the application of the later ego doctrine to a particular situation, it must be remembered that it is an equitable doctrine. Although courts have justified application of the doctrine through consideration of many factors, their basic motivation is to assure a just and equitable result. Equitable relief from a judgment may be refused to a party if (a) before or after the judgment was rendered, the complainant or a person representing the complainants interests failed to use care to protect his or her interests or (b) after ascertaining the facts, the complainant failed promptly to seek redress. In determining whether the delay in seeking relief has been unreasonable, many circumstances are to be considered. Length of time in itself is not a bar. Nevertheless, the length of time which has elapsed from the time when the complainant knew or should have known of the facts is an important element where no reason is suggested for the delay. (Alexander v. Abbey of the Chimes (1980) 104 Cal.App.3d 39, 48 (Alexander ).)
In Alexander, plaintiff filed two suits in 1966 to recover on a promissory note executed by Abbey of the Chimes, a California corporation, and on an assignment of commissions alleged to be owing for the sale of cemetery plots. Both obligations were incurred by Abbey prior to the time that defendant Samuel McCormac became a shareholder in the corporation. In 1971, monetary judgments were entered against Abbey. In 1977, plaintiff moved to amend the judgments to add McCormac as a judgment debtor. The Solano County Superior Court amended the judgments and added McCormac as a judgment debtor. The appellate court disagreed and reversed. The appellate court held the plaintiff knew or should have known that McCormac was the alter ego of Abbey either at the time of the original proceedings or shortly thereafter. The appellate court concluded "in the absence of any reasonable explanation for nearly a seven-year delay in moving for amendment, the trial court abused its discretion in granting this belated motion for amendment of the judgment." (Alexander, supra, 104 Cal.App.3d at pp. 42-43, 48-49.)
The instant case is factually distinguishable from Alexander. In Alexander, the plaintiff allowed approximately seven years to elapse between the time of the original judgment and the time of the motion to amend. In the instant case, approximately two years elapsed between the entry of judgment and the filing of the motion to amend. In a declaration in support of motion to amend, Correas counsel outlined extensive efforts to ultimately arrange and conduct a debtors examination of Michelle Lambeth. In conjunction with those efforts, counsel noted that numerous corporate documents had been requested but were not produced by Michelle Lambeth for the August 15, 2006, examination. Counsels declaration reflected Correas significant efforts to inquire into the relationship between Star and Michelle Lambeth during the last quarter of calendar year 2005 and the first three quarters of calendar year 2006.
In view of these facts and circumstances, the trial court could reasonably conclude that Correa acted with due diligence in seeking to amend the judgment.
F. Grounds for Piercing the Corporate Veil
Appellant Michelle Lambeth contend there were insufficient grounds to pierce the corporate veil.
In Associated Vendors, Inc. v. Oakland Meat Co., Inc. (1962) 210 Cal.App.2d 825, 838-840 (Associated Vendors), the court listed a variety of factors pertinent to a determination of alter ego liability: Commingling of funds and other assets; failure to segregate funds of separate entities; unauthorized diversion of corporate funds or assets to other than corporate uses; treatment by an individual of the assets of the corporation as his or her own; failure to obtain authority to issue stock or to subscribe to or issue the same; holding out by an individual that he or she is personally liable for the debts of the corporation; failure to maintain minutes or adequate corporate records; confusion of the records of separate entities; identical equitable ownership in two entities; sole ownership of all of the stock of a corporation by one individual or members of a family; use of the same office or business location; employment of the same employees and/or attorney; failure to adequately capitalize a corporation; total absence of corporate assets; use of the corporation as a mere shell, instrumentality, or conduit for a single venture or the business of an individual or another corporation; concealment and misrepresentation of the responsible ownership; disregard of legal formalities and the failure to maintain arms length relationship among related entities; use of corporate entity to procure labor, services, or merchandize for another person or entity; 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; contracting with another with intent to avoid performance by use of a corporate entity as a shield against personal liability or use of a corporation as a subterfuge of illegal transactions; and formation and use of a corporation to transfer to it the existing liability of another person or entity.
In points and authorities supporting its motion to amend, Correa asserted that each of the factors set forth in Associated Vendors could be applied in the instant case. Correa contended: The Lambeths commingled corporate funds with their own funds to their financial gain; Michelle Lambeth leased her office equipment and supplies to the corporation for an unspecified sum; a June 20, 1998 shareholders resolution authorized the corporation to borrow approximately $600,000 on terms and conditions set forth in a promissory note and pledge instruments but no such documents were attached to the minutes or located by Star; Star failed to maintain adequate minutes or corporate records; as sole shareholders and directors, the Lambeths were the equitable owners of Star with the domination and control of the corporation; Star was not adequately capitalized, had no assets at time of dissolution according to Michelle Lambeth, and any assets were transferred to the Lambeths in the form of salaries after the decision to voluntarily dissolve the corporation; and the Lambeths used Star as a mere shell, instrumentality, or conduit for a single venture or business of themselves as individuals.
In a memorandum of points and authorities in opposition to the motion, Star and the Lambeths maintained: There was no commingling of assets because Star had separate accounts; there was no treatment of corporate assets as belonging to the Lambeths; Star issued shares of stock; neither shareholder ever represented that he or she was personally liable for Stars debts; Star produced corporate minutes and documented meetings through the time of dissolution; there was no identical equitable ownership because Star ran as a distinct entity with separate offices, employees, and its own accounts and business assets; there was no sole identification as between the shareholders and Star because a separateness had been maintained; there was no identification of the shareholders in the operation and management of Stars business; the corporation was adequately capitalized, the bills were paid, and a legal and proper distribution was made to shareholders upon dissolution; Star was never used as a mere shell, instrumentality or conduit for a single venture; Star and its shareholders never concealed the identity of responsible ownership; the Star corporate entity was never used to procure labor, services, or merchandise for another entity except as consistent with Stars temporary worker business; the record established no diversion or manipulation of assets to the detriment of any creditor; and no evidence showed that Star made contracts to avoid performance or that Star engaged in any legal transaction.
On or about March 12, 2007, Correa submitted a proposed formal order amending judgment. One portion of the proposed order stated: "Plaintiff has listed numerous violations of the corporate entity to establish the alter ego status of these additional judgment debtors." On March 13, 2007, Judge Reed denied the proposed order without prejudice and annotated the document with the handwritten statement: "Plaintiff needs to make corrections noted & give new notice to defendant prior to resubmitting." Judge Reed circled Correas statement, "Plaintiff has listed numerous violations of the corporate entity," and noted, "list them all!"
On April 18, 2007, the court signed and filed a final order amending judgment that stated in relevant part:
"Plaintiff has listed the following violations of the corporate entity to establish the alter ego status of Michelle Lambeth as an additional judgment debtor:
"1. The commingling of funds and other assets, the failure to segregate funds of the corporation, and the unauthorized diversion of corporate funds or assets to other than corporate uses;
"2. The treatment by Michelle Lambeth of the assets of the corporation as her own;
"3. The failure to maintain minutes or adequate corporate records and the confusion of the records of the corporation with Michelle Lambeths personal records;
"4. The equitable ownership of the corporation by Michelle Lambeth;
"5. The domination and control of the corporation by Michelle Lambeth;
"6. The directors and officers of the corporation are also responsible for supervision and management;
"7. The failure to adequately capitalize the corporation;
"8. The absence of corporate assets, and undercapitalization;
"9. The use of the corporation as a mere shell, instrumentality, or conduit for the business of Michelle Lambeth;
"10. The disregard of legal formalities and the failure to maintain arms length relationships between the corporation and Michelle Lambeth;
"11. The use of the corporate entity to procure labor, services, or merchandise for another person or entity;
"12. The diversion of assets from the corporation by or to a stockholder or other person or entity to the detriment of creditors, or the manipulation of assets and liabilities of the corporation; and
"13. The contracting with another with intent to avoid performance by use of a corporation as a subterfuge for illegal transactions."
On appeal, Michelle Lambeth contends: "Not one of the criteria for application of the alter ego doctrine is established with facts and, in many cases, Stars corporate records indicate that corporate formalities were met and there are insufficient grounds to pierce the corporate veil." Lambeth goes on to conduct a point-by-point refutation of the various factors set forth in the order of April 18, 2007.
When a trial courts factual determination is attacked on the ground that there is not substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support that determination. So long as there is substantial evidence, the appellate court must affirm and cannot substitute its deductions for those of the trial court. (Rupf v. Yan (2000) 85 Cal.App.4th 411, 429-430, fn. 5.) Expressed another way, when the evidence gives rise to conflicting reasonable inferences, one of which supports the findings of the trial court, the trial courts finding is conclusive on appeal. (Johnson v. Pratt & Whitney Canada, Inc., supra, 28 Cal.App.4th at pp. 622-623.)
An appellate brief is not merely a rehash of arguments unsuccessful at trial; it is instead a carefully honed demonstration of legal error and resulting prejudice. (Guthrey v. State of California (1998) 63 Cal.App.4th 1108, 1115.) To that end, an appellate attack on the evidence without a fair statement of the evidence is entitled to no consideration when it is apparent that a substantial amount of evidence was received on behalf of the respondent. Thus, appellants who challenge the decision of the trial court based upon the absence of substantial evidence to support it are required to set forth in their brief all the material evidence on the point and not merely their own evidence. Unless this is done, the error is deemed waived. (Nwosu v. Uba (2004) 122 Cal.App.4th 1229, 1246; Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881.)
In the instant case, Michelle Lambeth attacks the evidence underlying the order to amend judgment without supplying a fair statement of the evidence received on behalf of the respondent. Lambeth suggests: "Correa simply wrote out a list of the factors and the [trial] court simply signed an order which has little or no support in the record." Lambeth ignores the content of the declaration in support of motion to amend, the documentary exhibits attached to the motion, and the inferences the trial court could reasonably draw from such papers. Under California law, it is well-established that all intendments and presumptions are indulged to support the appealed judgment or order on matters as to which the record is silent. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) Moreover, appellate courts must view the record in the light most favorable to respondent and resolve all evidentiary conflicts and indulge all reasonable inferences in support of the judgment. (Elijah R. v. Superior Court (1998) 66 Cal.App.4th 965, 969.) The appellate court will not substitute its deductions for the inferences actually or presumptively drawn by the trial court. (Howard v. Owens Corning (1999) 72 Cal.App.4th 621, 631.)
The attack on the sufficiency of the evidence underlying the order amending judgment must be deemed waived. Even if the claim has been preserved, the declaration in support of motion to amend and the corporate documents attached to the motion supplied substantial evidence to support the judgment in favor of respondent.
Assuming arguendo a procedurally sufficient substantial evidence argument as to this particular issue, we note the equitable owners of a corporation are personally liable when they provide inadequate capitalization and actively participate in the conduct of corporate affairs. (Minton v. Cavaney (1961) 56 Cal.2d 576, 579.) The trial court could have reasonably drawn such a conclusion based upon the documentary evidence in the instant case. Moreover, in the opposition memorandum of points and authorities, Lambeth maintained: "The bills were paid and a legal and proper distribution made to shareholders upon dissolution." However, Lambeth failed to locate or provide the documentation setting forth the precise nature and extent of that distribution. From that failure, the trial court could reasonably conclude the corporate records were inadequate for purposes of this case and therefore justified a piercing of the corporate veil.
G. Public Policy
Michelle Lambeth lastly contends the failure to reverse the lower court is against public policy and will promote fraud and abuse of the litigation process.
She specifically argues:
"A litigant such as Correa cannot be permitted to engage in dilatory tactics and then seek to add the individual shareholder to a judgment under these circumstances. The trampling of due process rights is inexcusable. The fact that Robert Lambeth was not added to the judgment suggests that the court concentrated solely on the control prong of law with regard to amending the judgment.... The court did not properly consider the due process rights of Michelle Lambeth. The exclusion of Robert Lambeth also suggests that the order and ruling as to alter ego are an abuse of discretion. The law and evidence require that the order amending the judgment to add Michelle Lambeth as an alter ego be reversed.
"There is also a danger here that litigants would misuse the process under CCP Sec. 187 when amending judgment to allege alter ego if the only consideration were control of litigation by an individual. If this were the case, then litigants such as Correa could simply ignore giving notice of claims of alter ego, ignore the due process rights of individuals who control the corporations litigation, and simply amend a judgment by claiming that control, and only control, is the sole criterion through which a judgment can be amended. The likelihood of abuse and failure to respect the corporate privilege under such circumstances is evident...."
To the extent Michelle Lambeth is contending that the alter ego doctrine, in the abstract, is violative of public policy, the contention must be rejected. The alter ego doctrine in California dates back at least 85 years. (Minifie v. Rowley (1921) 187 Cal. 481, 487.) The decisions of the California Supreme Court are binding upon and must be followed by all the state courts of California. (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455.)
To the extent Lambeth is contending that the alter ego doctrine is violative of public policy as applied in the instant case, the contention must be rejected as duplicative of her earlier issues on appeal. Moreover, "public policy" must involve a matter that affects society at large rather than a purely personal or proprietary interest of a party. (See Stevenson v. Superior Court (1997) 16 Cal.4th 880, 889 [public policy in connection with tortious discharge claims].) Amendment of a judgment to add an alter ego 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 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. (Hall, Goodhue, Haisley & Barker, Inc. v. Marconi Conf. Center Bd. (1996) 41 Cal.App.4th 1551, 1554-1555.)
Michelle Lambeths public policy contention must be rejected.
DISPOSITION
The judgment is affirmed. Costs on appeal to respondent.
We concur:
LEVY, J.
GOMES, J.