Opinion
B223437
08-17-2011
ENCORE ELECTRONICS, INC., Plaintiff and Appellant, v. AMAPEX, INC., et al., Defendants and Respondents.
Law Offices of Vincent Y. Lin and Vincent Y. Lin for Plaintiff and Appellant. No appearance for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8 .1115.
(Los Angeles County Super. Ct. No. KC053478)
APPEAL from a judgment of the Superior Court of Los Angeles County. Peter Joseph Meeka, Judge. Affirmed.
Law Offices of Vincent Y. Lin and Vincent Y. Lin for Plaintiff and Appellant.
No appearance for Defendants and Respondents.
Plaintiff Encore Electronics, Inc. (Encore) prevailed on its contract-based claims against defendants Kaion Corporation, Amapex Corporation, and Jason Pae arising from a sales agreement, and the trial court awarded it $1,307,349. Encore contends the trial court erred in failing to enter judgment against a defaulted defendant, Kaivest Corporation, and in failing to find defendant Allen Kim was the alter ego of the corporate defendants. We affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Encore buys and sells electronic computer components. Amapex, Inc. (Amapex) bought computer and electronic parts from Encore and sold them to an entity known as RJ International, Inc. (RJ) in Paraguay. Jason Pae (Pae) and Allen Kim (Kim), acting on behalf of Amapex and its predecessor corporations, including Kaion, unsuccessfully sought to obtain an exclusive distributorship agreement with RJ for Encore products in Paraguay. In July 2008, after it was unable to obtain this agreement and RJ stopped making payments, defendants in turn refused to pay Encore for product they had purchased from it.
1. Pretrial Proceedings.
Encore's operative first amended complaint alleged that in 2008, Encore entered into a series of oral agreements for the sale of goods to Amapex in the total amount of $1,316,903.48. Pae and Kim, acting on behalf of Amapex, delivered checks to Encore for payment of the goods, but defendants Pae and Kim stopped payment on the checks before Encore could negotiate the checks. Encore alleged defendants did so to coerce Encore into the exclusive distribution agreement. Encore's First Amended Complaint stated claims against Kaion Corporation (Kaion), Kaivest Corporation (Kaivest), Amapex, Pae and Kim based on deceit, negligent misrepresentation, breach of contract, goods sold and delivered, quantum valebant, open book account, account stated, and negligence, and sought punitive damages. Liability was also premised on the theory that Kim and Pae were the alter egos of the three defendant corporations.
The first amended complaint stated claims against for deceit, negligent misrepresentation, breach of contract, goods sold and delivered, quantum meruit, open book account, account stated, and negligence, and sought punitive damages. Although Amapex answered the First Amended Complaint, its answer is not part of the record.
Amapex cross-complained against Encore, alleging that Encore, through its president Austin Huang, agreed in connection with the sale of electronic equipment to defendants, that Encore would give RJ the exclusive distribution rights of Encore merchandise in Paraguay. Amapex sought $1,348,960 in damages.
On September 1, 2009, Encore applied for entry of default and obtained defaults against defendants Kaion Corporation and Kaivest Corporation. This left the matter pending against Amapex, Pae, and Kim.
On December 17, 2009, the trial court granted summary judgment in favor of Encore on its third, fourth and fifth causes of action (for breach of contract, goods sold and delivered, and quantum valebant) against Amapex and Pae on a theory of alter ego liability, and denied summary adjudication on the issue of whether Kim was the alter ego of Amapex. The court granted Encore's unopposed motion for summary adjudication on Amapex's cross-complaint, disposing of Amapex's cross-claims. Encore dismissed the second, sixth, seventh and eighth causes of action.
2. Trial, Default Prove-Up and Judgment.
Trial commenced January 19, 2010 on the remaining first cause of action for fraud against Amapex, Pae, and Kim. Simultaneously and by supplemental bench trial, plaintiffs sought to establish that Kim was the alter ego of Amapex on those claims where Encore had obtained summary judgment in its favor. Encore also put on evidence for its default prove-up hearings against Kaion and Kaivest.
The evidence at trial established Pae formed Amapex in February 2008 and was the president and sole owner. Amapex operated out of a house in San Jose. Pae also operated Kaion and Kaivest out of the same house. Kaion is a semiconductor business formed by Daniel Kim, who was no relation to defendant Allen Kim.
Amapex is a successor to two prior corporations, Interage and Kaion, that had dealings with RJ. Prior to 2005, Pae and Kim worked for Interage, which had about 20 employees. Pae was not a shareholder or officer of Interage, although Kim was the president. Andrew Jeong "opened" (incorporated) Amapex for Pae.
From 2006 through the end of 2007, Pae worked for Kaion. While working for Kaion, Pae, who was not an officer, received a salary, but did not do any accounting work for Kaion. Kim did the accounting work and signed checks for Kaion, but was not an officer of the corporation. The Statement by Domestic Stock corporation for Kaion, however, was signed by Pae as president.
Pae was not an officer of Kaivest, although he invested in it and worked for it from 2004 to 2007. Pae acquired an ownership interest in Kaivest in 2006 that he sold in 2008.
In early 2008, Pae consulted with Kim about forming Amapex. Pae had been servicing the RJ account through Kaion for 12 years, and wanted to release Kaion from the financial burden of the account. After Amapex was formed, Kaion continued to engage in business, but no longer operated in Paraguay.
Pae met Tommy Huang of Encore in 1996, and started business with Encore the same year.
Encore never sold directly to RJ. In early 2008, RJ had begun to complain about Encore. Pae and Kim decided to spin off Amapex to take care of the RJ business, and told Encore of their plans in January 2008. Pae intended to capitalize it with $400,000. Kim helped him out financially when invoices came due if he did not have sufficient funds, although Amapex would solely be Pae's company.
In Pae's opinion, Encore understood the relationship and changes with Interage, Kaion, and Amapex. In 2004, Interage did about $100 million in business, and Encore's portion was about 10 percent of that. Interage had a judgment against it and had to shut down.
Amapex's first order from Encore was in February 2008. It took one to two weeks to ship from Hong Kong, and 60 days from factory to the final destination. The terms of payment to Encore permitted Amapex to pay with a 75-day postdated check that it would provide within seven days of a shipment leaving Encore. Kaion and Interage, on the other hand, paid Amapex on a 60-to-90-day basis, and were not late with payments.
Amapex ordered approximately $500,000 worth of components from Encore that it paid for without any disputes arising between the parties. Pae stopped payment on subsequent checks for goods already shipped because, according to Pae, Encore had verbally agreed to give Amapex an exclusive distributorship agreement in Paraguay. Furthermore, Amapex had learned that RJ was not going to pay them for goods because RJ wanted to be the exclusive distributor because they carried a large amount of Encore product in Paraguay.
At trial, the following checks were introduced as exhibits:
Amapex checks totaling $55,000 written to Pae during July, August and September 2008. Pae claimed these were his draws as a shareholder.
Those checks were: exhibit 14/5, $10,000 check from Amapex to Pae dated July 30, 2008, signed by Pae; exhibit 14/6, $10,000 check from Amapex to Pae dated August 8, 2008, signed by Pae; exhibit 14/7, $10,000 check from Amapex to Pae dated August 7, 2008, signed by Pae; exhibit 14/8, $5,000 check from Amapex to Pae dated August 27, 2008, signed by Pae; exhibit 14/9, $10,000 check from Amapex to Pae dated September 4, 2008, signed by Pae; and exhibit 14/10, $10,000 from Amapex to Pae dated September 16, 2008, signed by Pae.
Kaion checks totaling $105,000 written to Pae during January, March and April 2008. Pae testified that a $90,000 check was for a loan.
Those checks were: exhibit 18/31, $5,000 Kaion check to Pae dated January 5, 2008, signed by Pae; exhibit 18/32, $10,000 Kaion check to Pae dated March 27, 2008, signed by Kim; and exhibit 18/32, $90,000 Kaion check to Pae dated April 11, 2008, signed by Kim. This last check Pae believed to be for a loan.
Kaion checks totaling $105,000 written to Amapex in February and June 2008.Pae explained that these checks were loans, but that the Kaion checks written to him were a separate loan. All checks written on behalf of Kaion were at Kim's direction.
These checks were: exhibit 19/1, $100,000 Kaion check to Amapex dated June 30, 2008, signed by Kim for a loan, and exhibit 19/2, $5,000 check from Kaion to Amapex dated February 2, 2008, signed by Kim for a loan.
Kaion checks totaling $137,000 written to Kaivest during January and February 2008 were introduced as exhibits at trial. Pae explained that Kaion loaned Kaivest $32,000 in January 2008, made another loan in February 2008 for $25,000, and made payments to Kaivest in February 2008 for $60,000 and $20,000. Pae did not know whether the latter two checks were for loans.
Those checks were: exhibit 20/21, $32,000 Kaion check to Kaivest dated January 17, 2008, signed by Pae; exhibit 20/22, $25,000 check from Kaion to Kaivest dated February 5, 2008 signed by Pae; exhibit 20/23, $60,000 check from Kaion to Kaivest dated February 7, 2008, signed by Pae; and exhibit 20/24, $20,000 check from Kaion to Kaivest dated February 27, 2008, signed by Pae.
Kaivest checks totaling $35,875 written to Pae during January through April 2008. Pae claimed that these monies were for dividends. As Pae paid back some of the investment he withdrew from Kaivest to fund Amapex, his dividends increased.
Those checks were: exhibit 21/10, $9,000 check from Kaivest to Pae dated January 24, 2008, for a dividend on Pae's Kaion investment, signed by Kim; exhibit 21/11, $9,000 check from Kaivest to Pae dated February 4, 2008 for a dividend on Pae's Kaion investment, signed by Kim; exhibit 21/12, $5,000 check from Kaivest to Pae dated February 28, 2008 for a dividend on Pae's Kaion investment, signed by Kim; exhibit 21/13, $4,550 check from Kaivest to Pae dated March 13, 2008, for dividend, signed by Kim; and exhibit 21/14, $8,325 from Kaivest to Pae dated April 4, 2008 for dividend, signed by Kim.
Kaivest checks totaling $45,000 written to Amapex during March and April 2008. Pae believed these were for a loan, and that one of them, for $10,000, could either have been a loan or his capital withdrawal to "fulfill Amapex's capital." Pae has never seen accounting records to reconcile the loan with the capitalization of Amapex.
Those checks were: exhibit 22/1, $1,000 check from Kaivest to Amapex dated march 3, 2008, signed by Young Kim; exhibit 22/2, $34,000 check from Kaivest to Amapex dated March 4, 2008, signed by Young Kim for a loan; and exhibit 22/3, $10,000 check from Kaivest to Amapex dated April 30, 2008, signed by Kim.
Kaivest checks to Amapex totaling $388,000 dated May, June and July, 2008.
These checks were: exhibit 22/4, $70,000 check from Kaivest to Amapex dated May 27, 2008 for loan or withdrawal of Pae's capital; exhibit 22/5, $10,000 check from Kaivest to Amapex dated May 29, 2008 for either a loan or withdrawal of capital, signed by Kim; exhibit 22/6, $20,000 check from Kaivest to Amapex dated June 3, 2008; exhibit 22/7, July 1, 2008, $218,000 check from Kaivest to Amapex dated July 1, 2008 for a loan to pay Encore, as authorized by Pae after consultation with Kim; and exhibit 22/8, July 30, 2008, $70,000 check from Kaivest to Amapex dated July 30, 2008 for a capital withdrawal and investment in Amapex.
The money Pae invested in Amapex came from $400,000 he had invested in Kaivest. On numerous occasions, Amapex borrowed money from Kaivest and Kaion, but paid the money back.
Both Kim and Pae were signatories on Amapex's bank account at Wells Fargo. Pae is listed as vice president; Kim is listed as "owner." Kim did accounting and banking for Amapex.
Kim never provided Pae with profit and loss statements, income and expense declarations, or other accounting documents for Amapex. Pae would consult with Kim before he wrote himself checks, but he trusted Kim to do the accounting accurately because of their 30-year relationship. Pae wrote and signed the checks for Amapex, and Kim reconciled the bank account.
Also introduced at trial were unpaid invoices from Encore to Amapex totaling $1,128,714.
These invoices were: exhibit 1/9, invoice dated May 12, 2008 from Encore for $241,254; exhibit 1/11, invoice dated May 16, 2008 from Encore for $312,069; exhibit 1/13, invoice dated May 23, 2008 for $68,680 from Encore and exhibit 1/14, sales order dated May 23, 2008 for $68,680 from Encore; exhibit 1/17, invoice dated May 30, 2008 from Encore for $506,711; and exhibit 1/22, invoice dated June 27, 2008 from Encore for $6,355. This exhibit is not part of the record.
Amapex's bank statements for July, August and September showed deposits from RJ totaling $950,453.
Exhibit 11/9, bank statement dated July 2008 showed deposits from RJ of $194,428, $209,285, and $99,240. Exhibit 11/12, bank statement for August 2008 showed a $200,000 deposit from RJ. Exhibit 11/14, bank statement for September 2008, showed $247,500 deposit from RJ.
George Lee testified he was in the sales department of Encore Electronics. The order date on the Encore invoices was the date he received the order from Kaion or Amapex. Pae would send him an order, and Lee would check with the factory to see if there was sufficient inventory. After that he would confirm the order with Pae and prepare an invoice.
Kaion would pay Encore with a 75-day postdated check. Previously, Encore's payment term had been 60 day net with Kaion. Lee believed that "Amapex and Kaion are basically the same company. They are run by the same people, and they are doing the same type of business." In April 24, 2008, the parties changed the payment terms from 60 day net to 75 days postdated check.
Lee was informed by Encore's accounting department that Amapex's payment checks had been returned for insufficient funds. He contacted Pae, who told him the customer in Paraguay was upset because Encore did not follow through on the exclusive distribution agreement, and the customer had stopped paying him. As a result, Pae could not pay Encore.
When Lee took over the Encore account in late 2007, he was told that Encore and Amapex were in negotiations and discussion about a possible exclusive distributorship agreement. Lee was also told that there would be a minimum shipment of two containers every month, and that payment had to be on more secure terms, with a credit limit of $1.2 million. Amapex has not purchased two containers per month.
In early 2008, Encore and Pae continued to discuss the exclusive distributorship agreement, although an agreement was never reached. The last time Lee spoke with Pae was in late July or early August 2008.
Lee testified on the issue of alter ego liability that he believed Amapex and Kaion were one and the same and there was no difference between the two companies. Pae told Lee in February 2008 that there would be a new company named Amapex that would be handling the Paraguay business. Pae did not tell Lee who would be running the new company. Lee was aware Amapex was a separate corporation from Kaion. After he received Amapex's wholesale license on April 24, 2008, Encore no longer invoiced Kaion, and began to invoice Amapex. Lee was told that Pae and Kim were co-owners of the company.
Allen Kim testified on the issue of alter ego liability that aside from the application to open Amapex's bank account at Wells Fargo, he did not tell anyone he was the owner. Kim believed that Pae was the "primary signer" on the account and that he was the secondary. Aside from $14,700 he received from Amapex to pay his personal American Express Card, Kim never received any funds from Amapex.
The jury found against Encore on the fraud claim. In analyzing the alter ego theory, the court stated that "most of the testimony I received was about Mr. Pae's involvement with Encore. . . . [¶] And so Mr. Pae was not a puppet, not being controlled like a robot with the transformer in the hands of Mr. Kim here. But Mr. Pae was a primary mover and shaker. . . . [¶] . . . [¶] . . . I think this corporation, Amapex, was started at the direction of Mr. Pae. [His accountant] never did a very good job in setting up the corporation. . . . [¶] . . . [¶] I don't think there was a conspiracy by Kim, Pae and the corporations to intentionally defraud Encore. . . . [¶] This thing just happened because of the lack of money being available to pay the debt. And it is called a breach of contract." The court found Kim not liable on an alter ego theory.
On the issue of Kaivest's default judgment, the court stated there was no evidence upon which it could hold Kaivest responsible, and stated, "I will fold it into a judgment against Kaion."
The court entered judgment against Kaion on an alter ego theory, and awarded Encore $1,307,349 against Amapex, Pae, and Kaion. The court entered judgment in favor of Kim and Kaivest.
DISCUSSION
Encore contends the trial court erred in (1) failing to enter default judgment against Kaivest based on the allegations of the first amended complaint, defendants' admissions, and the evidence at trial; and (2) failing to find Kim was the alter ego of Amapex.
II. ALTER EGO.
Two requirements must be met before the corporate form will be disregarded pursuant to the alter ego doctrine. First, "there must be such a unity of interest between the two corporate entities that the separate personalities of such corporations no longer exist"; and second, it would promote injustice to continue to recognize the separateness of the two corporations. (Tomaselli v. Transamerica Ins. Co. (1994) 25 Cal.App.4th 1269, 1285.) Both requirements of the doctrine must be met, as it "does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form." (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 539 (Sonora Diamond Corp.).) The doctrine applies equally to individuals and to corporations—the "alter ego" may be a person or a parent or sister corporation. (Las Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1249 (Las Palmas).)
In determining whether to apply the doctrine, the inquiry is fact-intensive. "There is no litmus test to determine when the corporate veil will be pierced; rather the result will depend upon the circumstances of each particular case." (H.A.S. Loan Service, Inc. v McColgan (1943) 21 Cal.2d 518, 523.) Furthermore, because the inquiry is fact-intensive, we will not overturn the ruling of the trial court if it is supported by substantial evidence. (Jack Farenbaugh & Son v. Belmont Construction (1987) 194 Cal.App.3d 1023, 1032.) A judgment against a corporation and its alter ego is enforceable against each separately. (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 301.)
Numerous factors are considered in determining whether the separateness of the corporate form exists, and include: "inadequate capitalization, commingling of funds and other assets, disregard of corporate formalities" (minutes, stock issuance, election of officers, segregation of corporate records), "identical equitable ownership in the two entities, and identical directors and officers." (Brooklyn Navy Yard Cogeneration Partners v. Superior Court (1997) 60 Cal.App.4th 248, 257-258.) However, "sound public policy dictates that imposition of alter ego liability be approached with caution." (Las Palmas, supra, 235 Cal.App.3d at p. 1249.) Therefore, mere disregard of the corporate form is insufficient to impose alter ego liability. The third-party creditor must show that "some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporation form." (Sonora Diamond Corp., supra, 83 Cal.App.4th at p. 539.)
In particular, the failure to issue stock in the corporation is grounds for piercing the corporate veil, although it is not conclusive in establishing that the corporate form was the mere alter ego of the defendant. (Marr v. Postal Union Life Ins. Co. (1940) 40 Cal.App.2d 673, 682; see also Automotriz etc. de California v. Resnick (1957) 47 Cal.2d 792, 796 (Automotriz).)Lack of capitalization is indicative that the corporation is being used as a mere shell. (Automotriz, at pp. 796-797.) "The attempt to do corporate business without providing any sufficient basis of financial responsibility to creditors is an abuse of the separate entity . . . . [S]hareholders should in good faith put at the risk of the business unencumbered capital reasonably adequate for its prospective liabilities." (Id. at p. 797.) Automotriz concluded that "[i]f the capital is illusory or trifling compared with the business to be done and the risks of loss, this is a ground for denying the separate entity privilege." (Ibid.)
In Automotriz, the shell corporation never issued stock, no bank account was opened for the corporation, although one was opened under a dba, the funds for the purchase of inventory were provided by the individual officers of the corporation, not the corporation, the corporation never held title to the inventory, and sales proceeds were deposited into the dba account for reimbursement to the officers. (47 Cal.2d at p. 795.) In upholding alter ego liability, the court pointed to the failure to issue stock as well as the manner in which the business was run as an extension of the individual directors. (Id. at p. 798.)
In Las Palmas, the buyers of a shopping center claimed the seller corporation executed lease guarantees with no intent to honor them, and sought to hold another corporation liable as the alter ego of the guaranteeing corporation. The two corporations had common directors; the shell corporation had divested itself of its assets, leaving it undercapitalized, and the corporations shared employees, as the guaranteeing corporation had discharged its employees and become "a shell" with the other corporation's employees transacting its business. (Las Palmas, supra, 235 Cal.App.3d at pp. 1232-1234.) The court found these facts justified a finding the two corporations were "combined into a single enterprise to defraud" third parties. (Id. at p. 1251; see also Pan Pacific Sash & Door Co. v. Greendale Park, Inc. (1958) 166 Cal.App.2d 652, 658-659.) Similarly, in Pan Pacific, the corporations (Greendale Park, Inc. and Ralmor, Inc.) had the same stockholders, directors, officers, and occupied the same premises and had common employees. Both corporations were undercapitalized; as the need arose, the corporations made loans to each other. These facts justified alter ego liability, as it would promote injustice and be inequitable for one corporation to avoid an obligation incurred as much for its benefit as for the other corporation. (166 Cal.App.3d at p. 659.)
Conversely, where a corporation was undercapitalized but the two corporations maintained separate books and records, separate bank accounts, were incorporated at different times, did not share all of the same directors or officers, retained separate counsel, issued stock, had their own employees and kept separate payrolls, maintained corporate formalities, such as minutes and meetings, and did not commingle funds, the facts supported a finding of no alter ego liability. (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 841.)
Lastly, we point out that corporate veil analysis differs where liability is to be founded on contract, rather than tort, and a stronger showing is required because contract claimants have voluntarily dealt with the corporation. Presumably, in a consensual transaction, the third party has had the opportunity to ascertain the corporation's creditworthiness and to obtain guarantees, security agreements, liens, or other means of protecting itself. Therefore, unless there is evidence of commingling, misrepresentation, or diversion of corporate assets, alter ego liability will not be imposed. (Cascade Energy and Metals Corp. v. Banks (10th Cir. 1990) 896 F.2d 1557, 1577-1578.)
A. Default Judgment Against Kaivest Corporation.
Encore contends that the well pleaded allegations of the complaint, as well as the admissions of the parties and trial evidence, establish that Kaivest Corporation was the alter ego of Amapex. Encore points to the fact that the trial court entered default judgment against Kaivest Corporation under essentially the same facts, circumstances, and pleading.
Under Code of Civil Procedure section 585, subdivision (a), a court may enter default judgment in specified circumstances against a defendant who has been served with plaintiff's complaint but has failed to answer. The amount of damages awarded to a plaintiff prevailing on default judgment is limited to the amount alleged in the complaint or the statement of damages. (Code Civ. Proc., § 580; see also Yeung v. Soos (2004) 119 Cal.App.4th 576, 582; Jackson v. Bank of America (1986) 188 Cal.App.3d 375, 387 ["'A default admits the material allegations of the complaint, and no more . . . the relief given to the plaintiff cannot exceed that which the law awards as the legal conclusion from the facts alleged.'"].
A default judgment cannot be based on a complaint that fails to state a cause of action against the defaulting party. (Falahati v. Kondo (2005) 127 Cal.App.4th 823, 829.) By defaulting, the defendant is deemed to admit all material allegations of the complaint that are well pleaded. (Molen v. Friedman (1998) 64 Cal.App.4th 1149, 1156; see also Code Civ. Proc., § 431.20 ["Every material allegation of the complaint . . . not controverted by the answer, shall, for the purposes of the action, be taken as true."]; see also Bristol Convalescent Hosp. v. Stone (1968) 258 Cal.App.2d 848, 859 [defaulting defendant admits "absolute verity" of all allegations of complaint giving rise to liability].) Thus, the plaintiff need not prove liability of a defaulting defendant. By contrast, the plaintiff must prove the amount of damages before an actual entry of default judgment. (See Ostling v. Loring(1994) 27 Cal.App.4th 1731, 1745.) In determining whether the plaintiff is entitled to an award of damages after the defendant has defaulted, the plaintiff is only required to present evidence establishing a prima facie case for damages. (Johnson v. Stanhiser (1999) 72 Cal.App.4th 357, 361-362.) The trial court must hear the evidence offered by the plaintiff and render judgment "'in [its] favor for such sum, not exceeding the amount stated in the complaint, or for such relief, not exceeding that demanded in the complaint, as appears from the evidence to be just. [Citations.]'" (Id. at p. 362.)
Therefore, we must assess whether Encore's alter ego allegations stated a claim for relief. If so, the trial court should have entered judgment on its default against Kaivest. The first amended complaint alleged that "there exists a unity of interest and ownership between the defendants, Amapex, Inc., Jason Chong Pae, Allen Kim, Kaion Corporation, Kaivest Corporation, and Does 3 through 25, inclusive, such that any individuality and separateness between the parties has ceased, and each is the alter ego of each of the others. Such unity of interest and ownership includes, but is not limited to, failure to comply with corporate formalities, undercapitalization, and commingling of funds. Jason Pae, Allen Kim, Kaion Corporation, Kaivest Corporation, and Does 3 through 25, inclusive, are the owners of Amapex, Inc. Allen Kim and Does 3 through 25, inclusive, also own[] and/or control[] Kaion Corporation, which created Amapex, Inc. to avoid financial obligations to its vendors such as Encore Electronics, Inc. Jason Pae, Allen Kim, and Does 3 through 25, inclusive also own Kaivest Corporation. Each of Amapex, Inc., Jason Chong Pae, Allen Kim, Kaion Corporation, Kaivest Corporation, and Does 3 through 25, inclusive, fails to comply with the applicable formalities, undercapitalizes, and commingles funds. Plaintiff is informed and believes, and thereon alleges, that in fact the commingling of funds is completely widespread such that personal and corporate funds freely transfer from one party to another, and in fact Amapex, Inc. was used to pay personal and business obligations of the other defendants. As a result, adherence to the fiction of the separate existence of Amapex, Inc. as an entity distinct from the other defendants would permit an abuse of any existing corporate privilege that would sanction fraud and promote injustice."
These allegations differ in how they characterize Kaivest's relationship to Amapex and Kaion's relationship to Amapex. Encore alleges that Kim also owns and/or controls Kaion Corporation, which created Amapex, Inc. to avoid financial obligations to its vendors such as Encore; no such allegations are made about Kaivest. Each of Amapex, Pae, Kim, Kaion, and Kaivest failed to comply with the applicable corporate formalities, were undercapitalized, and commingled funds. Although these facts state elements of the alter ego doctrine (disregard of corporate formalities, undercapitalization, and commingling), this is insufficient to state a claim against Kaivest on that theory because nowhere do these allegations state that Kaivest attempted to defraud Encore. Even considering the trial testimony (which we need not do), there was no evidence that Kaivest intended to defraud the creditors of Encore. Thus, the trial court did not err in refusing to enter a default judgment against Kaivest.
B. Allen Kim.
Encore also argues that the trial court erred in failing to find Kim was the alter ego of Amapex based on Pae's testimony that Kim was in complete control and the fact all of the funds of the various entities were commingled. Further, Encore contends the trial court committed legal error when it equated the "manipulated nonpayment" (vis-a-vis Encore, which showed alter ego), with contractual obligation.
We disagree. First, there is no evidence in the record Kim "controlled" Pae or the corporate entities such that alter ego liability should be imposed. Instead, the trial court's assessment of the facts—that Pae was the person in charge—is supported by substantial evidence. Pae set up Amapex for himself; he signed most of the checks to and from Amapex and the related corporate entities; he received dividends, while Kim did not; and Pae made a capital contribution for Amapex from his own funds taken out of Kaivest.
More importantly, while the record reflects that both Kim and Pae signed checks on behalf of the various corporate entities, commingled funds, shuttled funds without adequate records between the various corporate entities, failed to observe corporate formalities (both Pae and Kim were unsure of who ran the companies), there is no evidence that any of these activities were undertaken to defraud Encore. On the contrary, the record establishes that Pae and Kim advised Encore that they were creating Amapex from Kaion in order to split off the business for RJ, and that they believed they could obtain an exclusive distributorship agreement for RJ. When this agreement did not materialize, and as a result RJ did not pay Amapex and it was unable to pay Encore, there is no evidence in the record that Kim (or Pae) moved any of the funds from corporation to corporation for the purpose of defrauding Encore or to engage in a shell game. Rather, Amapex simply refused to pay Encore; merely because in the background its officers were ignoring basic bookkeeping and accounting principles and engaging in sloppy corporate recordkeeping does not, without more, establish alter ego liability. "The alter ego doctrine does not guard every unsatisfied creditor of a corporation but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form." (Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at p. 539.) The trial court's factual finding that there was no evidence of an intent to defraud Encore is supported by substantial evidence, and we see no reason here to set it aside.
DISPOSITION
The judgment of the superior court is affirmed. The parties are to bear their own costs on appeal.
NOT TO BE PUBLISHED.
JOHNSON, J. We concur:
ROTHSCHILD, Action P. J.
CHANEY, J.