Opinion
D070097
04-14-2017
WINGERT GREBING BRUBAKER & JUSKIE, LLP, Plaintiff and Respondent, v. MARY LOU CAMPBELL, Defendant and Appellant.
Mary Lou Campbell, in pro. per.; The Armenta Law Firm and M. Cris Armenta for Defendant and Appellant. Wingert Grebing Brubaker & Juskie, Stephen C. Grebing, Andrew A. Servais and Ian R. Friedman for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2013-00080631-CU-CO-CTL) APPEAL from a judgment and order of the Superior Court of San Diego County, John S. Meyer, Judge. Affirmed. Mary Lou Campbell, in pro. per.; The Armenta Law Firm and M. Cris Armenta for Defendant and Appellant. Wingert Grebing Brubaker & Juskie, Stephen C. Grebing, Andrew A. Servais and Ian R. Friedman for Plaintiff and Respondent.
Following a bench trial, the trial court entered judgment in favor of Wingert Grebing Brubaker & Juskie, LLP (Wingert) and against Leon E. Campbell (Husband) for approximately $50,000 in past due legal bills. Through collection proceedings, Wingert learned that Husband had previously transferred almost all of his community and separate property into a trust—the "Declaration of Trust of Leon E. Campbell and Mary Lou Campbell" dated August 15, 1983 (Trust)—and that Husband's wife, Mary Lou Campbell (Wife), the Trust's trustee and beneficiary, paid for virtually all of Husband's living and business expenses. Based on an alter ego theory, Wingert moved to amend the judgment to designate an additional judgment debtor: Mary Lou Campbell as trustee of the Trust (Trustee). The court granted Wingert's motion under Code of Civil Procedure section 187.
Further unspecified statutory references are to the Code of Civil Procedure.
Wife challenges the sufficiency of evidence to support the trial court's order and amended judgment. She argues that neither individually nor in her capacity as Trustee was she Husband's alter ego, Trustee did not control the litigation, and Wife was deprived of her constitutional right of due process. For reasons we explain, the trial court did not err in amending the judgment and, accordingly, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Wingert initiated an action against Husband to collect past due legal fees for its work in representing him. In 2015, following a bench trial and posttrial motions, Wingert obtained judgment for $50,047.93.
To collect on its judgment, Wingert sought to understand Husband's financial arrangements. It requested and Husband ultimately produced documents relating to his assets and finances. Wingert also conducted two judgment debtor examinations of Husband. During these proceedings, Husband asserted that he was "judgment proof" and did not hold legal title to any of a number of significant Trust assets. Supposedly the Trust benefited only Wife. Regarding the Trust's bank accounts, Husband maintained he did not own the accounts and had no power over how the accounts were invested.
Husband and Wife's Financial Arrangements
Husband and Wife were married in 1954; he began a profitable legal practice in La Jolla, California in 1958. In August 1983, Husband and Wife created the Trust as co-trustors; Husband was the trustee. Husband and Wife transferred community property into the Trust, and the Trust's income paid their living expenses. Article II, paragraph 7 of the Trust provided that "[a]ny Trustor who is not acting from time to time as a Trustee hereunder shall be an authorized signatory in any bank accounts maintained by the trust."
In 1986, Husband assigned all of his "right, title and interest" in any assets in which he had an interest, including community property, to Wife as her sole and separate property, except for his current and future interest in his legal practice. According to Husband, the reason for the assignment was that his legal malpractice insurance carrier had left California and he wanted to make himself "judgment proof" in the event he became liable for legal malpractice. Husband believed Wife would support him as needed.
In furtherance of Husband's goal to remain judgment proof, in 1993 Husband and Wife amended the Trust to (1) remove Husband as a "Trustor" with respect to Articles III and IV of the Trust, (2) grant Wife the right to direct the trustee on any Trust affairs or to revoke the Trust entirely, and (3) designate Wife as Trustee. Husband concurrently resigned as trustee of the Trust. In 1996, Wife as trustor amended the Trust so that it would distribute income "to or for the benefit of [Wife] during her lifetime." In the event that Husband survived Wife, Husband would be the trustee and sole income beneficiary. Through 2015, Wife made several more amendments to the Trust, none of which purported to remove Husband as an authorized signatory in Trust bank accounts or modify his contingent beneficial interest in the Trust.
As of September 30, 2015, the Trust contained the following assets: a 3,872-square-foot, single family home in La Jolla valued at around $2.7 million dollars; the furniture and furnishings located in the home; a Merrill Lynch investment/bank account valued at $537,001; an Emerson Equity investment/bank account valued at $21,441; a Las Vegas condominium with a stated value of $95,000; two 1998 Mercedes Benz vehicles of unknown values; and 140,000 common shares of Household Finance, Inc.
In connection with his legal practice, Husband deposited the funds he received from clients into an attorney-client trust account. He would then transfer funds from the attorney-client trust account to Wife as she "directed" or that "belong[ed]" to her. Furthermore, as Husband needed, Wife used her personal bank account to pay Husband's credit cards, legal practice expenses, and living expenses. Husband freely used the Trust's assets, e.g., he lived in the La Jolla home, drove the Mercedes Benz vehicles, and used the Las Vegas condominium. According to Husband, everything that Wife/Trustee provided to him for his work and life were "gifts." Husband supposedly controlled only one personal bank account into which his social security checks were deposited.
Husband did not explain why "funds received as receivables" from his legal practice would "belong" to Wife or why she "directed" him to transfer his firm's funds to her. As we will discuss, the court could reasonably infer that improper commingling of funds occurred.
Motion to Amend the Judgment
In January 2016, Wingert filed a motion to amend the judgment to add Trustee as a judgment debtor under section 187. Wingert's motion was based on an alter ego theory, i.e., that Trustee was Husband's alter ego. Wingert submitted evidence of Husband's testimony during his judgment debtor examinations, Trust documents, and the value of Trust assets. Husband opposed the motion and attached his own declaration.
The trial court held a hearing on Wingert's motion in which Husband represented himself. After considering the parties' arguments, the court granted the motion to amend the judgment, noting specific facts to support its finding that Trustee was Husband's alter ego:
"Defendant admits that he has transferred all of his community and separate interest property (excluding his law corporation) to his wife, the Trustee, so that he can be judgment proof. Defendant admits that he does not directly receive any wages for the work he performs. His income is paid from his clients' trust account and directly to the Trust. The Trustee then 'pays from her personal bank account to me funds necessary for my practice and for credit cards which I have used to incur . . . reasonable living expenses.' [Citation.] Defendant asserts that the only personal bank account he has control over is a checking account in which his Social Security checks are deposited. In the meantime, defendant lives in a multi-million[-]dollar home in La Jolla, drives Mercedes-Benz vehicles, and has use of a $95,000 condominium in Las Vegas."
The court further found that Husband continued as an authorized signatory on the Trust's bank accounts; that the Trust had "sufficient control" of the underlying litigation through Husband, who controlled the litigation; and that Trustee could not have asserted any separate defenses to prevent the judgment's enforcement. Finally, the court found the equities overwhelmingly favored Wingert and an amended judgment was necessary to prevent an injustice. Given the paltry funds in Husband's name, the court reasoned that either he never intended to pay his incurred legal fees or he intended that Trust assets be used to pay them.
Wife filed a timely appeal of the court's order and amended judgment.
Wife appears to have filed this appeal in her individual capacity since she has not indicated in any way that she is appealing as Trustee of the Trust. As a beneficiary of the Trust, Wife would be sufficiently aggrieved by the amended judgment to confer standing to appeal in her individual capacity. (See Bridgeman v. Allen (2013) 219 Cal.App.4th 288, 293.) According to the parties' briefs, Husband died during the pendency of this appeal.
DISCUSSION
Section 187 authorizes a trial court to amend a judgment to add judgment debtors. (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778 (NEC Electronics).) "Judgments are often amended to add additional judgment debtors on the grounds that a person or entity is the alter ego of the original judgment debtor." (Ibid.)
The alter ego doctrine traditionally "arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff's interests." (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300 (Mesler).) There is "no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case." (Ibid.) There are "two general requirements: '(1) that there be such 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.' [Citation.] And 'only a difference in wording is used in stating the same concept where the entity sought to be held liable is another corporation instead of an individual.' " (Ibid.)
"The essence of the alter ego doctrine is that justice be done. 'What the formula comes down to, once shorn of verbiage about control, instrumentality, agency, and corporate entity, is that liability is imposed to reach an equitable result.' " (Mesler, supra, 39 Cal.3d at p. 301 [holding that a parent corporation's liability as alter ego of its subsidiary corporation continued after settlement with the subsidiary; "[t]o hold otherwise would be to defeat the policy of promoting justice that lies behind the alter ego doctrine"].)
Alter ego liability may be applied to a trustee. (Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 522 (Greenspan) [" 'Trustees are real persons . . . and, as a conceptual matter, [it is] entirely reasonable to ask whether a trustee is the alter ego of a defendant who made a transfer into [the] trust.' "].) If a trustee is the alter ego of an individual, then the individual "may be considered the owner of the [trust's] assets for purposes of satisfying the judgment." (Ibid.; cf. Wood v. Elling Corp. (1977) 20 Cal.3d 353, 365-366 [allegations that corporate defendants were alter egos of individual defendants were barred by statute of limitations on fraudulent conveyance cause of action, but plaintiff should have been allowed to amend his complaint, because "[i]f it were alleged and proven that the two trusts in question [that owned the corporate defendants] were themselves alter egos of the [individuals], those trusts would essentially drop out as independent legal entities"].)
To prevail on a motion to amend under section 187, the judgment creditor must show, by a preponderance of the evidence, that: (1) there is such a unity of interest and ownership that the separate personalities of the defendant and purported alter ego no longer exist; (2) the party to be added as judgment debtor had control of the underlying litigation and was virtually represented in that proceeding; and (3) an inequitable result will follow if the acts are treated as those of the defendant alone. (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 280.)
" 'The decision to grant an amendment . . . lies in the sound discretion of the trial court. "The greatest liberality is to be encouraged in the allowance of such amendments in order to see that justice is done." ' " (Greenspan, supra, 191 Cal.App.4th at p. 508.) We review the trial court's fact findings on alter ego for substantial evidence. (Wells Fargo Bank, N.A. v. Weinberg (2014) 227 Cal.App.4th 1, 8.)
1. Unity of interest and ownership
Wife challenges the sufficiency of evidence to support the court's finding of alter ego. She argues the court erred in considering Husband's signature authority and ignored other factors commonly used to analyze alter ego liability in the corporate context.
The trial court did not err in its analysis, and substantial evidence supports its alter ego finding. This case does not involve an individual and a corporation; thus, the trial court had no reason to discuss factors applicable only to corporations. (See, e.g., Misik v. D'Arco (2011) 197 Cal.App.4th 1065, 1073 [factors include inadequate capitalization, failure to issue stock, failure to maintain corporate minutes, etc.].) Based on our review of the record, we are satisfied the trial court properly considered the extent that Husband's interests aligned with the Trust and the degree of control he wielded over Trust assets. (See Greenspan, supra, 191 Cal.App.4th at pp. 518-520 [reviewing cases, which looked at the purposes for and uses of the trust in question].) Contrary to Wife's contention, the court considered a number of particular factual circumstances, not merely Husband's signature authority. The court was aware that, on paper, Husband did not currently hold title to the Trust's assets, having transferred virtually all of his community and separate property to the Trust and Wife. On paper, Husband had no income and depended on the generosity of Trustee/Wife for nearly everything, including the payment of his legal practice expenses.
Nevertheless, substantial evidence supports alter ego liability and that Husband viewed his, Wife's, and the Trust's assets as a "unitary enterprise." (Greenspan, supra, 191 Cal.App.4th at p. 510 ["The alter ego doctrine is premised on the theory that the person in charge of a single enterprise consisting of several alter ego entities is typically concerned with the total amount of his assets held by all entities, not with the specific amount held by any particular one."].) Husband created the Trust and caused Wife to be Trustee to protect himself from legal malpractice claims, eliminate insurance premiums, and be "judgment proof." Then, for many years, Husband diverted his legal practice income to Wife/Trustee, who in turn paid his business and living expenses. Husband continued to benefit from the Trust's assets, e.g., the home, furnishings, condominium, cars, and income, and he possessed a longstanding contingent beneficial interest in the Trust. Since 1996, the Trust named Husband as the trustee and income beneficiary in the event he survived Wife. He also retained signature authority on the Trust's bank accounts. From all of this evidence, the court could reasonably infer that Husband and Wife/Trustee commingled their funds and shared assets, and that Husband effectively controlled the Trust "notwithstanding his absence of legal title." (In re Marriage of Dick (1993) 15 Cal.App.4th 144, 163 ["husband controlled ownership of [property] through the fiction of a trust"]; see also In re Schwarzkopf (9th Cir. 2010) 626 F.3d 1032, 1039-1040.)
Wife argues that Husband assigned all of his community and separate property interests (except for his law practice) to her, and therefore any signature authority over the Merrill Lynch account did not equate to control of it. Regardless, we conclude the trial court did not err by considering his signature authority, among other facts, as nondispositive indicia of control. "The purpose of the signature [on a check] is to authenticate and effect the instruction, i.e., to authorize and obligate the financial institution to pay out the funds in accordance with the depositor's prior instructions." (Kumaraperu v. Feldsted (2015) 237 Cal.App.4th 60, 67.) Even if Husband did not own the Merrill Lynch funds in title, his ability to order disbursements was relevant to the issue of control and equitable ownership, particularly since he attested that Wife/Trustee historically gave him all the funds he ever needed. We have no basis to disturb the trial court's factual finding.
2. Control of litigation
Wife next argues that Trustee did not exercise control over the underlying litigation concerning liability, for purposes of section 187 and her due process rights. But "control" in this context can be established in more than one way. Section 187 does not require that proposed judgment debtors "themselves, technically [be] given the opportunity to convince the trial court" on liability issues. (Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144, 150.) Due process is satisfied when the proposed judgment debtor, " '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.' " (NEC Electronics, supra, 208 Cal.App.3d at p. 779, italics added, quoting Rest.2d Judgments, § 59, p. 102.) An alter ego's personal presence is not required when "the underlying action was contested and . . . the alter ego's interests were effectively represented by the defense presented by the . . . defendant." (Id. at p. 780; Greenspan, supra, 191 Cal.App.4th at p. 509.)
Here, Trustee was virtually represented in the litigation by Husband, and their interests were aligned. The court found Husband liable after holding a trial. As Wife points out, Husband's interest in his legal practice was at stake, thus assuring his vigorous defense on the issue of liability. The trial court found that Trustee would have no additional defenses regarding Husband's indebtedness, and Wife does not contend otherwise. Further, Trustee arguably "financ[ed]" the litigation to the extent she provided for Husband's business and living expenses. (NEC Electronics, supra, 208 Cal.App.3d at p. 781.) The trial court did not err by finding that Trustee, through Husband, had control of the underlying litigation.
We also reject Wife's suggestion that her individual due process rights were somehow violated because she was not served with the motion to amend the judgment. At no point did Wingert seek to add Wife in her individual capacity as a judgment debtor. Wife cites no authority to support the notion that she was entitled to personal service under the circumstances. For the reasons we have discussed, Trustee was virtually represented by Husband in the underlying litigation.
3. Inequitable result
Finally, Wife contends that the trial court incorrectly balanced the equities in Wingert's favor because Husband created the Trust many years ago and not for the purpose of evading Wingert's bills. "An inequitable result," however, "does not require a wrongful intent." (Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 813.) Moreover, the trial court did not need to find that the original creation of the Trust was inequitable, but rather that Husband's incurring about $50,000 in debt while maintaining that he had no assets or income to repay the debt was inequitable. That said, the record shows that Husband intentionally diverted almost all of his income in a calculated attempt to render himself incapable of satisfying any judgment, yet he maintained effective control of and continued to derive substantial value from the Trust assets. Wingert had no knowledge of Husband's financial arrangements at the time it provided its services. The court reasonably found that Husband's conduct necessitated the amended judgment. (See Relentless Air Racing, at p. 816 [concluding as a matter of law that a judgment creditor's inability to collect a debt due to an alter ego is an inequitable result].)
DISPOSITION
The order amending judgment and the amended judgment are affirmed. Costs on appeal are awarded to Wingert.
DATO, J. WE CONCUR:
BENKE, Acting P. J.
O'ROURKE, J.