Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County, Super. Ct. No. BC368015, Kenneth R. Freeman, Judge.
Chang & Cote and Rodney W. Bell for Defendant and Appellant.
Law Offices of Martin F. Goldman and Martin F. Goldman for Plaintiff and Respondent.
Judge of the Orange County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Respondent Creative Labs, Inc. obtained a default judgment on an open book account against Systems Hardware, Inc. (which is not a party to this appeal). Unable to enforce the default judgment against Systems Hardware, however, Creative Labs sued Max Group Corporation on an alter ego theory. The trial court entered judgment in favor of Creative Labs, finding Max Group is the alter ego of Systems Hardware and holding Max Group liable for the default judgment, plus interest and costs, in the total amount of $178,755.86. Max Group appealed the judgment on the ground that Creative Labs failed to meet its burden of proving System Hardware’s underlying obligation on the open book account.
We conclude that the judgment is supported by substantial evidence of the underlying debt. Accordingly, we affirm.
Background
Systems Hardware sold information technology products. It was a distributor for, and its main product line came from, Creative Labs. In the course of its distributor relationship with Creative Labs, Systems Hardware became indebted to Creative Labs for approximately $1 million. Although Systems Hardware paid down a portion of that debt, Systems Hardware never fully paid its debt to Creative Labs. Accordingly, Creative Labs sued Systems Hardware to collect the remainder of the debt. That lawsuit resulted in a default judgment against Systems Hardware in the amount of $151,572.41.
Creative Labs unsuccessfully tried to enforce that default judgment against Systems Hardware. Eventually, Creative Labs sued Max Group, as Systems Hardware’s alter ego, to collect the unpaid default judgment. Following a two-day court trial, the trial court found that Max Group was the alter ego of Systems Hardware. Creative Labs prepared a proposed judgment, which included an award of damages to Creative Labs. Creative Labs calculated the damages award by adding interest and costs to the default judgment against Systems Hardware. Max Group objected to the proposed judgment on the ground that the trial court had not decided that Max Group owed Creative Labs anything. After further briefing on whether the trial court’s alter ego finding supported the money judgment against Max Group, the trial court signed the proposed judgment.
The evidence presented at trial is discussed in detail below.
Max Group appealed.
Discussion
Max Group does not challenge the trial court’s finding that Max Group is the alter ego of Systems Hardware. Similarly, Max Group does not dispute the existence or amount of the default judgment against Systems Hardware. The only issue before us is whether there is substantial evidence of the underlying debt against Systems Hardware to support the judgment entered against its alter ego Max Group. (See Minton v. Cavaney (1961) 56 Cal.2d 576 (Minton).)
In Minton, the plaintiff judgment creditors had previously recovered damages against a corporation for the wrongful death of their daughter. (Id. at p. 578.) Unable to satisfy the judgment, the judgment creditors sued the then-defunct corporation’s alter ego seeking to enforce against the alter ego the judgment that had previously been entered against the corporation. Our Supreme Court refused to enforce against the alter ego the earlier judgment because the plaintiffs “did not allege or present any evidence on the issue of [the corporation’s] negligence or on the amount of damages sustained by plaintiffs. They relied solely on the judgment against [the corporation].” (Id. at p. 581 [italics added].) The Court agreed that the alter ego could not “be held liable for the debts of [the corporation] without an opportunity to relitigate these issues.” (Ibid.)
Here, Max Group asserts that Creative Labs’s case fails because, like the plaintiffs in Minton, Creative Labs relied solely on the default judgment to prove the underlying issue, i.e., Systems Hardware’s unpaid debt. Max Group argues that Creative Labs was required to present further proof of that underlying debt.
We agree with Max Group that, under Minton, Creative Labs could not “rely solely” on the default judgment to prove its open book account claim against Max Group. We disagree with Max Group, however, on the issue of whether Creative Labs violated the Minton rule. In our view, Creative Labs did not “rely solely” on the default judgment. In addition to the default judgment, Creative Labs presented substantial evidence on the issue of a debt owed and on the amount of damages sustained. (Foreman & Clark Corp. v. Fallon (1971) 3 Cal.3d 875, 881 [factual findings reviewed for substantial evidence].)
An open book account is “a detailed statement which constitutes the principal record of one or more transactions between a debtor and a creditor arising out of a contract or some fiduciary relation, and shows the debits and credits in connection therewith, and against whom and in favor of whom entries are made, is entered in the regular course of business as conducted by such creditor or fiduciary, and is kept in a reasonably permanent form and manner.” (Code Civ. Proc., § 337a.)
The default judgment against Systems Hardware was admitted into evidence at trial. That judgment indicates the amount of the underlying debt, plus prejudgment interest and costs. Because Creative Labs is seeking to enforce the default judgment against Max Group, it is not surprising that Creative Labs refers to that judgment in this case. Indeed, it has to in order to state its claim. We do not think it is inappropriate in such a case for the judgment creditor to use the underlying judgment in conjunction with other evidence to prove its case against an alter ego. Minton does not stand for the proposition that the underlying judgment cannot be used in a subsequent case seeking to enforce that judgment against an alter ego. Rather, Minton requires that the judgment creditor do more than “rely solely” on the prior judgment. As is detailed below, Creative Labs satisfied the Minton rule.
At trial, Exhibit 1 was described as the entire court file from Creative Labs’s case against Systems Hardware. In their briefs on appeal, the parties disputed whether the trial court admitted Exhibit 1 into evidence. After filing their briefs, however, the parties stipulated that the trial court “admitted as ‘Exhibit 1’” the default judgment (as well as certain attachments) from that court file.
In addition to the default judgment, Creative Labs introduced into evidence the affidavit of Malou Liscom, Creative Labs’s Credit Manager. In her affidavit, Ms. Liscom explains the nature and amount of the underlying debt and the reasonably permanent form and manner in which Creative Labs’s normal business records tracked and recorded the debt. Although not all of the attachments referenced in her affidavit are attached to the copy in evidence, a table entitled “Systems Hardware, Inc.” is attached. That table summarizes the accrual of the debt and the current amount owed.
Also admitted into evidence were Trial Exhibits 7 through 11 and 203 through 206, which are print-outs of email correspondence between Creative Labs and Max Group. They each reference Systems Hardware’s debt to Creative Labs and various attempts to pay it off. The remaining exhibits relate to the alter ego claim.
At trial, Creative Labs also offered testimony of two witnesses, one of whom was Malou Liscom. Ms. Liscom is familiar with the Creative Labs accounts for both Systems Hardware and Max Group as well as with the issues involved in the lawsuit. She testified as to the business relationship between Creative Labs and Systems Hardware and between Creative Labs and Max Group. She explained how she had worked with Systems Hardware and Max Group to pay down Systems Hardware’s debt. Ms. Liscom also testified that, because Systems Hardware failed to pay off its debt, Creative Labs filed a lawsuit against Systems Hardware to collect that debt. She testified that judgment was entered against Systems Hardware but that Systems Hardware has not made any payments against the judgment. She testified that Systems Hardware owes Creative Labs the balance of the judgment plus any accrued interest.
On cross-examination, Ms. Liscom again testified about the “existing 150-something thousand dollars that’s open on the account.” She explained how that affected the credit limit of Systems Hardware. She also explained that, because Creative Labs hoped to continue working with Max Group, she worked with Max Group to “clos[e] that opened receivable.” Counsel for Max Group asked Ms. Liscom many questions relating to the way in which Systems Hardware paid down its debt. Ms. Liscom explained various “aging reports,” which indicated the debt was being paid-off little by little.
The other witness was Sutzu Tsai, who is a 50% shareholder in Systems Hardware and a 35% shareholder in Max Group. She is also Chief Executive Officer and Chief Financial Officer of Max Group. On cross-examination, counsel for Max group asked Ms. Tsai whether she would continue to pay down the debt incurred by Systems Hardware. She answered: “If they continued to sell us the products I will.” On redirect, she again acknowledged the Systems Hardware debt. She testified as to the arrangement Systems Hardware had with Creative Labs for paying-down the debt: “I would specify the company names so when System Hardware need[s] to get some products, they will prepay Creative Lab for that amount and then Creative Lab will clear some of our debts in the account; and then we’ll get the products.”
Despite Max Group’s claims to the contrary, Creative Labs produced evidence of its business relationship with Systems Hardware, the existence of Systems Hardware’s debt to Creative Labs, and how it tracked and accounted for that debt in the regular course of business and in a reasonably permanent form and manner. Moreover, as noted above, in its trial brief and trial exhibits and through Ms. Tsai’s testimony, Max Group conceded many of these issues.
We conclude that substantial evidence supports the judgment in favor of Creative Labs.
Disposition
The judgment is affirmed.
We concur: MALLANO, P. J. ROTHSCHILD, J.