McClellan v. Northridge Park Townhone

• Decision Date: 31 May 2001
• Docket Number: No. B139452.,B139452.
• Citation: 107 Cal.Rptr.2d 702,89 Cal.App.4th 746
• Court: California Court of Appeals Court of Appeals
• Parties: Robert E. McCLELLAN, Plaintiff and Respondent, v. NORTHRIDGE PARK TOWNHOME OWNERS ASSOCIATION, INC., Defendant and Appellant.

107 Cal.Rptr.2d 702

89 Cal.App.4th 746

Robert E. McCLELLAN, Plaintiff and Respondent, v. NORTHRIDGE PARK TOWNHOME OWNERS ASSOCIATION, INC., Defendant and Appellant.

No. B139452.

Court of Appeal, Second District, Division 3.

May 31, 2001.

Review Denied August 29, 2001.

Geordan Goebel, Woodland Hills, for Defendant and Appellant.

Fainsbert Mase & Snyder, Warren K. Miller and David G. Halm, Los Angeles, for Plaintiff and Respondent.

KLEIN, P.J.

Defendant and appellant Northridge Park Townhome Owners Association, Inc. (Northridge Park) appeals an amended judgment obtained by plaintiff and respondent Robert E. McClellan dba McClellan Design and Construction (McClellan) naming Northridge Park as an additional judgment debtor.

The essential issue presented is whether substantial evidence supports the trial court's determination naming Northridge Park as a party to the judgment. Because there is substantial evidence of Northridge Park's successor liability as a mere continuation of its predecessor corporation, the trial court properly exercised its jurisdiction under Code of Civil Procedure section 187¹ to add Northridge Park as a party to the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

On October 10, 1996, McClellan, a licensed contractor, entered into a contract with Peppertree North Condominium Association, Inc. (Peppertree) to perform earthquake repair work on Peppertree's 76-unit condominium complex (the complex) located in Northridge, California. Peppertree failed to pay McClellan for the work.

1. McClellan obtains arbitration award and judgment against Peppertree.

McClellan commenced an arbitration proceeding against Peppertree to collect the amount due under the contract. Peppertree filed a $250,000 counterclaim, but failed to appear at the arbitration hearing. The arbitrator awarded McClellan a default arbitration award and denied Peppertree's counterclaim. The arbitrator awarded McClellan damages of $141,000 plus 10 percent interest and attorney fees and costs.

On June 15, 1998, pursuant to McClellan's petition to confirm the award, the superior court entered judgment in the amount of $171,685.56 against Peppertree.

2. Peppertree's formation of Northridge Park as its successor corporation.

On December 17, 1997, at a meeting of Peppertree's board of directors, a bankruptcy attorney recommended to the board that filing bankruptcy and starting a new association was the best course of action, given Peppertree's debts.

On June 2, 1998, the board of directors of Peppertree caused the filing of articles of incorporation for Northridge Park, a new corporation, which immediately became the homeowners association for the complex. In addition, new Covenants, Conditions & Restrictions (CC & Rs) for Northridge Park were recorded with the county recorder.

3. Peppertree files a bankruptcy petition, which is dismissed.

On July 2, 1998, Peppertree filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code to avoid paying the judgment, as well as claims of other creditors.

In response, McClellan filed a motion to dismiss the bankruptcy case, stating the petition had been filed in bad faith. The motion alleged that approximately one month prior to filing the bankruptcy petition, the board of directors of Peppertree formed Northridge Park to collect dues, manage the property, and otherwise act as the same homeowners association, only under a different name.

The bankruptcy trustee recommended dismissal of the case and following a hearing, on April 14, 1999, the bankruptcy court granted McClellan's dismissal motion.²

4. McClellan's motion to amend the judgment to add Northridge Park as a judgment debtor.

Thereafter, McClellan filed a motion in the superior court to amend the judgment to add Northridge Park as a judgment debtor. The motion was made on the grounds that Northridge Park was merely a continuation of Peppertree and was created to hinder, delay and defraud Peppertree's creditors. McClellan presented evidence to show that "aside from the name, there is no difference whatsoever [between] [Peppertree] and Northridge Park. Northridge Park conducts the same business, collects the same revenues, operates through the same Board of Directors, has the same management company and presides over the same Condominiums, as did [Peppertree]."

McClellan relied, inter alia, on Peppertree's CC & Rs to show the purported formation of Northridge Park did not comply with the governing CC & Rs, and therefore Northridge Park was merely a "shell" and was liable to Peppertree's creditors.

On January 14, 2000, following a hearing, the trial court granted the motion to amend the judgment. Based upon the evidence presented in the moving papers, the trial court found Northridge Park was the successor corporation to Peppertree and that good cause existed to grant the motion to amend.

The amended judgment was entered on February 4, 2000. On February 22, 2000, Northridge Park filed notice of appeal.

CONTENTIONS

Northridge Park contends: the trial court's amendment of the judgment to impose liability on an entity that was never a party to the action is clearly erroneous; no alter ego liability should attach because Northridge Park did not control the underlying litigation, and had no incentive to control the litigation if it could have; and McClellan's motion sought an improper remedy and was incompetently supported by inadmissible evidence.

DISCUSSION

1. Appealability.

As a preliminary matter, McClellan contends the appeal should be dismissed because the notice of appeal states the appeal is from the order granting the motion to amend the judgment, rather than from the amended judgment. McClellan argues that an order modifying a judgment, entered before judgment, is not a final and appealable order. The contention does not detain us.

The amended judgment was filed February 4, 2000. The notice of appeal was filed February 22, 2000. We construe the notice of appeal from the January 14, 2000 order granting the motion to amend the judgment as referring to the subsequent February 4, 2000 amended judgment (Conservatorship of Starr (1989) 215 Cal. App.3d 1390, 1393-1394, 264 Cal.Rptr. 80), and proceed to address the merits of the appeal.

2. Standard of review.

The parties agree that in reviewing a trial court's order amending a judgment by naming an additional judgment debtor, an appellate court must consider whether the trial court's findings are supported by substantial evidence. (NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 776-777, 256 Cal.Rptr. 441.)

3. Trial court's jurisdiction to amend judgment to name additional judgment debtor. a. Section 187 statutory remedy and case law authorize amendment of judgment to add judgment debtor.

Pursuant to section 187, a trial court has jurisdiction to modify a judgment to add additional judgment debtors. (NEC Electronics Inc., supra, 208 Cal. App.3d at p. 778, 256 Cal.Rptr. 441.) Section 187 grants to every court the power to use all means to carry its jurisdiction into effect, even if those processes are not set out in the code. (Ibid.) 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."

Utilizing section 187, judgments are typically "amended to add additional judgment debtors on the grounds that a person or entity is the alter ego of the original judgment debtor. [Citations.] This is an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant. [Citations.] `Such a procedure is an appropriate and complete method by which to bind new individual defendants where it can be demonstrated that in their capacity as alter ego of the corporation they in fact had control of the previous litigation, and thus were virtually represented in the lawsuit.' (1A Ballantine & Sterling, Cal. Corporation Laws (4th ed.) § 299.04, p. 14-15.)" (NEC Electronics Inc., supra, 208 Cal.App.3d at p. 778, 256 Cal.Rptr. 441; see, e.g., Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144, 148-149, 198 Cal.Rptr. 457 [amending judgment by way of section 187 to add alter egos as judgment debtors].)

b. Trial court may "disregard the corporate entity" as a means of exercising its jurisdiction.

It is well settled that when a corporation "is used by an individual or individuals, or by another corporation, to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, a court may disregard the corporate entity and treat the acts as if they were done by the individuals themselves or by the controlling corporation ... the court will disregard the `fiction' of corporate entity[.]" (9 Witkin, Summary of Cal. Law (9th ed.1989) Corporations, § 12, p. 524.)

Although Northridge Park contends no alter ego liability should attach because McClellan did not specifically invoke that theory in his motion to amend the judgment and the issue was not before the trial court, the doctrine of disregarding the corporate entity in appropriate situations is not that narrowly drawn.

Whether the theory relied on by the moving party and the trial court is alter ego, piercing the corporate veil, or some other challenge to the fiction of the corporate entity, the doctrine "limits the exercise of the corporate privilege to prevent its abuse. [Citations.]" (9 Witkin, Summary of Cal. Law, supra, Corporations, § 12, p. 524.)

c. "Successor corporation" theory also available.

Here, McClellan invoked section 187 to seek inclusion of Northridge Park as a judgment...