Schultz v. Fulton Associates, B197266 (Cal. App. 11/9/2007)

Decision Date09 November 2007
Docket NumberB197266,B197270
PartiesMARTIN M. SCHULTZ, Cross-Complainant and Appellant, v. FULTON ASSOCIATES, et al., Cross-Defendants and Respondents. ALAN B. CHERMAN, Plaintiff and Appellant, v. FULTON ASOCIATES et al., Defendants and Respondents.
CourtCalifornia Court of Appeals Court of Appeals

Appeals from orders of the Superior Court of Los Angeles County, Nos. C547248 c/w C554554, C555888 c/w C555889, William F. Highberger, Judge. Affirmed in part; dismissed in part.

Katherine Butts Warwick for Cross-Complainant, Plaintiff and Appellants.

Ervin, Cohen & Jessup LLP, Barry MacNaughton and Randall S. Leff for Cross-Defendants, Defendants and Respondents.



Martin M. Schultz appeals from: a December 12, 2006 order in Fulton Associates v. SMC Real Corp. (Super. Ct. L.A. County, 1996, Nos. C547248/C554554) (Fulton Associates) denying his motion to amend the judgment in his favor on his cross-complaint to add judgment debtors; and a February 7, 2007 order denying reconsideration of the December 12, 2006 order. We affirm the order denying the motion to amend the judgment. We find there is no appeal from the reconsideration order. Mr. Schultz and Alan B. Cherman appeal from a February 2, 2007 order in Grill v. Fulton Associates (Super. Ct. L.A. County, 1993, Nos. C555888/C555889) (Grill) denying a motion to enter a final judgment. We conclude Mr. Schultz has no standing to appeal from the order. We affirm as to Mr. Cherman.


These consolidated appeals arise out of investments in real estate limited partnerships. Fulton Associates held the general partnership interest in eight California limited partnerships: 7125 Fulton, Ltd.; 8920 Orion, Ltd.; 8025 Reseda, Ltd.; 8039 Reseda Ltd.; 8123 Sepulveda, Ltd.; 9027 Tobias II; and Chase II, Ltd. Fulton Associates was wholly owned by Cordary, Inc. Cordary, Inc. was wholly owned by two lawyers, Jay C. Miller (now deceased) and his son, Michael D. Miller.1 Fulton Associates acquired the general partnership interest from SMC Real Corp. Mr. Schultz and Mr. Cherman had financial interests in the partnerships.

A. The Schultz v. Fulton Associates Cross-Complaint in Fulton Associates
1. The Motion To Amend The Judgment

On July 7, 2006, Mr. Schultz filed a motion to amend a March 8, 1996 judgment in Fulton Associates. The judgment was entered in his favor on his cross-complaint and against Fulton Associates. Mr. Schultz sought to add Fulton Associates' alleged alter egos, Jay and Cordary, Inc., as judgment debtors, by offensive application of the collateral estoppel doctrine. (Code Civ. Proc., § 187.) In addition, Mr. Schultz sought to add Michael as a judgment debtor on alter ego grounds.

a. Code of Civil Procedure section 187

Pursuant to Code of Civil Procedure section 187, a California court may use "all the means necessary" to carry its jurisdiction into effect: "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." (See Daily Journal Corp. v. Superior Court (1999) 20 Cal.4th 1117, 1130; Kaufman v. Court of Appeal (1982) 31 Cal.3d 933, 939.) Section 187 grants the trial court the authority to amend a judgment to add additional judgment debtors on alter ego grounds. (NEC Electronics, Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778; Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144, 148.) The underlying theory is that the amendment does not add a new party but merely names the real actor, the original defendant's alter ego. (McClellan v. Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 752; Tokio Marine & Fire Ins. Corp. v. Western Pac. Roofing Corp. (1999) 75 Cal.App.4th 110, 116; Triplett v. Farmers Ins. Exchange (1994) 24 Cal.App.4th 1415, 1420; NEC Electronics, Inc. v. Hurt, supra, 208 Cal.App.3d at p. 778.)

To obtain a section 187 order adding an alter ego as an additional judgment debtor, the moving party must show by a preponderance of the evidence that two requirements are both satisfied. First, the moving party must demonstrate the new judgment debtor is the alter ego of the original defendant. Second, as a due process matter, the moving party must demonstrate the new judgment debtor controlled the litigation. (McClellan v. Northridge Park Townhome Owners Assn., supra, 89 Cal.App.4th at p. 752; Triplett v. Farmers Ins. Exchange, supra, 24 Cal.App.4th at p. 1421.) The Court of Appeal has explained: "`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." [Citation.]' [Citations.]" (McClellan v. Northridge Park Townhome Owners Assn., supra, 89 Cal.App.4th at p. 752; see Dow Jones Co. v. Avenel, supra, 151 Cal.App.3d at pp. 148-149.)

b. Collateral estoppel as to Jay and Cordary, Inc.

Before Judge William F. Highberger, who issued the orders under review, Mr. Schultz argued Jay and Cordary, Inc. were collaterally estopped to deny they were alter egos of Fulton Associates because a finding to that effect had been entered in Grill, a related action. Mr. Schultz relied on a January 18, 1989 ruling in Grill. A nonjury, evidentiary hearing was held on that date as to the alter ego question. The January 18, 1989 minute order in Grill states, "The Court's tentative ruling is that the acts of Cordary, Miller and Fulton are one and the same." (Italics added.) Judge Highberger denied Mr. Schultz's motion to amend the judgment to add Jay and Cordary, Inc. as judgment debtors. Judge Highberger concluded the alter ego finding in Grill was not sufficiently final to be given collateral estoppel effect. An order denying the motion was entered on December 12, 2006.

On appeal, Mr. Schultz argues Judge Highberger's ruling was error as a matter of law. Our review as to collateral estoppel is de novo. (Tennison v. California Victim Compensation and Government Claims Bd. (2007) 152 Cal.App.4th 1164, 1174; Roos v. Red (2005) 130 Cal.App.4th 870, 878; Groves v. Peterson (2002) 100 Cal.App.4th 659, 667.) We agree with Judge Highberger's well stated collateral estoppel analysis and affirm the order as to Jay and Cordary, Inc.

The Supreme Court has held: "`Collateral estoppel precludes relitigation of issues argued and decided in prior proceedings.' (Lucido v. Superior Court (1990) 51 Cal.3d 335, 341.) The doctrine applies `only if several threshold requirements are fulfilled. First, the issue sought to be precluded from relitigation must be identical to that decided in a former proceeding. Second, this issue must have been actually litigated in the former proceeding. Third, it must have been necessarily decided in the former proceeding. Fourth, the decision in the former proceeding must be final and on the merits. Finally, the party against whom preclusion is sought must be the same as, or in privity with, the party to the former proceeding. [Citations.] The party asserting collateral estoppel bears the burden of establishing these requirements.' (Id. at p. 341.) `Even assuming all the threshold requirements are satisfied, however, our analysis is not at an end. We have repeatedly looked to the public policies underlying the doctrine before concluding that collateral estoppel should be applied in a particular setting.' (Id. at pp. 342-343.)" (Pacific Lumber Co. v. State Water Resources Control Bd. (2006) 37 Cal.4th 921, 943-944, italics added; accord, Coscia v. McKenna & Cuneo (2001) 25 Cal.4th 1194, 1201, fn. 1; Professional Engineers v. Department of Transportation (1997) 15 Cal.4th 543, 568; Gikas v. Zolin (1993) 6 Cal.4th 841, 848-849.)

Finality has been described as a "cornerstone" of the collateral estoppel doctrine. (People v. Cooper (2007) 149 Cal.App.4th 500, 520; People v. Scott (2000) 85 Cal.App.4th 905, 918.) The Restatement Second of Judgments, section 13 provides, "[F]or purposes of issue preclusion (as distinguished from merger and bar), `final judgment' includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect." The Supreme Court and Courts of Appeal have followed the view of the Restatement Second of Judgments. (George Arakelian Farms, Inc. v. Agricultural Labor Relations Bd. (1989) 49 Cal.3d 1279, 1290-1291; Producers Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 911; Border Business Park, Inc. v. City of San Diego (2006) 142 Cal.App.4th 1538, 1564; Franklin & Franklin v. 7-Eleven Owners for Fair Franchising (2000) 85 Cal.App.4th 1168, 1174; People v. Scott, supra, 85 Cal.App.4th at p. 919-920; Western Mutual Ins. Co. v. Yamamoto (1994) 29 Cal.App.4th 1474, 1482-1483; Nash v. Workers' Comp. Appeals Bd. (1994) 24 Cal.App.4th 1793, 1812; Rymer v. Hagler (1989) 211 Cal.App.3d 1171, 1181; Sandoval v. Superior Court (1983) 140 Cal.App.3d 932, 936.) For example, in Border Business Park, Inc. v. City of San Diego, supra, 142 Cal.App.4th at page 1564, the Court of Appeal held, "[F]or purposes of issue preclusion . . . `"final judgment" includes any prior adjudication of an issue in another action that is determined to be sufficiently firm to be accorded conclusive effect.' (Rest. 2d Judgments, § 13, italics added; see Sabek, Inc. v. Engelhard Corp. [(1998)] 65 Cal.App.4th [992,] 998;...

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