Stodd v. Goldberger

• Decision Date: 30 September 1977
• Citation: 141 Cal.Rptr. 67,73 Cal.App.3d 827
• Court: California Court of Appeals Court of Appeals
• Parties: John STODD, Plaintiff and Appellant, v. Harry GOLDBERGER, L. Kenneth Heuler, G. Barton Heuler, Goldco, a limited partnership, and M.I.I. Corporation, a California Corporation dba The Mission Inn Hotel, Defendants and Respondents. Civ. 17506.

Page 67

141 Cal.Rptr. 67

73 Cal.App.3d 827

John STODD, Plaintiff and Appellant, v. Harry GOLDBERGER, L. Kenneth Heuler, G. Barton Heuler, Goldco, a limited partnership, and M.I.I. Corporation, a California Corporation dba The Mission Inn Hotel, Defendants and Respondents.

Civ. 17506.

Court of Appeal, Fourth District, Division 2, California.

Sept. 30, 1977.

Hearing Denied Dec. 8, 1977.

Buchalter, Nemer, Fields & Savitch and John A. Dito, Los Angeles, for plaintiff and appellant.

Sulmeyer, Kupetz, Bauman & Rothman, Los Angeles, and Roy S. Giordano, Santa Ana, for defendants and respondents.

OPINION

KAUFMAN, Associate Justice.

The trial court granted defendants' motions for judgment on the pleadings, and plaintiff appeals.

The facts are derived from the allegations of plaintiff's first amended complaint which are taken as true for purposes of this appeal.

Plaintiff is the trustee in bankruptcy of M.I.I. Corporation (M.I.I.), a California corporation.

On August 31, 1967, M.I.I. entered into a written joint venture agreement with Goldco, a limited partnership, for the ownership and operation of the Mission Inn Hotel in Riverside. The general partners of Goldco are Harry Goldberger, L. Kenneth Heuler, and G. Barton Heuler.

The joint venture agreement allocated to Goldco all income and profits and losses from the joint venture along with all depreciation deductions and all investment credits. Allegedly, the sole benefit to accrue to M.I.I. was that, upon a sale of the hotel at a profit, after repaying Goldco its $300,000 cash capital contribution, the gain on the sale would be divided equally.

On March 27, 1969, M.I.I. filed a petition for an arrangement under section 322 of Chapter XI of the Bankruptcy Act. The bankruptcy claims register incorporated by reference into the first amended complaint discloses approximately 279 corporate creditors whose claims exceed $2,542,000. None of these claims have been paid, and the corporation has no assets.

The first amended complaint names as defendants, among others, Goldco and its three individual general partners. It contains two counts. In the first count, plaintiff seeks to disregard M.I.I.'s corporate existence and, on the theory of alter ego, establish defendants' personal liability for all of M.I.I.'s debts and recover from defendants " . . . damages in the approximate sum of $2,542,000.00, in accordance with said claims filed in said bankruptcy proceeding. . . . " To support the alter ego doctrine it is alleged that there is a unity of ownership between defendants and M.I.I., that defendants dominated and controlled M.I.I., that M.I.I. was created and operated by defendants pursuant to a fraudulent scheme to defraud M.I.I.'s creditors and that adherence to the friction of M.I.I.'s separate existence would sanction a fraud and promote injustice.

In the second count it is alleged on information and belief that " . . . trade creditors and other creditors of the joint venture between . . . M.I.I. . . . and GOLDCO . . . were and are included . . . " among the creditors of M.I.I. as listed in the bankruptcy claims register, and plaintiff seeks "contribution" from Goldco and its general partners for one-half of the joint venture debts in the approximate amount of $1,300,000.

For purposes of identification we shall refer to the first count as the alter ego cause of action and the second count as the cause of action for contribution.

In granting defendants' motions for judgment on the pleading as to the alter ego cause of action, the trial court granted plaintiff 15 days' leave to amend, noting: "A liberal construction of the allegations contained in (the first amended complaint) suggests the possibility of amendment which would permit proof by the plaintiff that corporate assets were converted, transferred and dealt with to the injury of the corporation and its creditors." Plaintiff declined to avail himself of the opportunity to amend.

The Alter Ego Cause of Action

Plaintiff contends that allegations that corporate assets were converted or transferred to the injury of the corporation are not necessary to invoke the alter ego doctrine. In this plaintiff is correct. "It is the general rule that the conditions under which a corporate entity may be disregarded vary according to the circumstances in each case. (See H.A.S. Loan Service, Inc. v. McColgan, 21 Cal.2d 518, 523, 133 P.2d 391, 145 A.L.R. 349; Stark v. Coker, 20 Cal.2d 839, 846, 129 P.2d 390.) It has been stated that the two requirements for application of this doctrine are (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. (Citations.)" (Automotriz etc. De California v. Resnick, 47 Cal.2d 792, 796, 306 P.2d 1, 3; accord: Stark v. Coker, 20 Cal.2d 839, 846, 129 P.2d 390; Watson v. Commonwealth Ins. Co., 8 Cal.2d 61, 68, 63 P.2d 295; see 6 Witkin, Summary of Cal. Law (8th ed. 1974) Corporations, § 6, p. 4318; 1A Ballentine & Sterling, Cal.Corp. Laws (4th ed. 1977) Litigation, § 299.01(1), p. 14-40.)

But plaintiff misreads the message of the trial court. Its ruling was not that allegations of conversion or misappropriation of corporate property is generally a prerequisite to the application of the doctrine of alter ego, but that plaintiff, as trustee in bankruptcy of a bankrupt corporation, cannot maintain an action against defendants on an alter ego theory absent some allegation of injury to the corporation giving rise to a right of action in it against defendants. In the absence of any such allegation, the asserted cause of action belongs to each creditor individually, and plaintiff is not the real party in interest as required by Code of Civil Procedure section 367.

Plaintiff stoutly maintains that a trustee in bankruptcy of a bankrupt corporation may maintain an action against corporate shareholders on an alter ego theory without allegations giving rise to a cause of action in the bankrupt corporation. He relies on and cites Mayo v. Pioneer Bank & Trust Co., CA 5, 274 F.2d 320; Fitzgerald v. Central Bank & Trust Co., CA 10, 257 F.2d 118; Hillebrand v. Sav-Co, D.C.Ill., 353 F.Supp. 19; Long v. McGlon, D.C.S.C., 263 F.Supp. 96; Henderson v. Rounds & Porter Lumber Co., D.C.Ark., 99 F.Supp. 376; and Buckman v. Elm Hill Realty Co. of Peabody (Mass.1942), 312 Mass. 10, 42 N.E.2d 814. Not one of the cited cases supports plaintiff's position.

Buckman v. Elm Hill Realty Co. of Peabody, supra, 42 N.E.2d 814, did not involve application of the doctrine of alter ego and no corporate entity was there disregarded. The court did discuss the control of one Gordon over the bankrupt corporation and the defendant corporation in relation to his fiduciary duty to the bankrupt corporation and the knowledge of the defendant corporation. In any event, the case involved self-dealing by a fiduciary and the trustee was pursuing a cause of action belonging to the bankrupt corporation.

Neither Mayo v. Pioneer Bank & Trust Co., supra, 274 F.2d 320, nor Fitzgerald v. Central Bank & Trust Co., supra, 257 F.2d 118, are in point. Mayo involved an action by a trustee in bankruptcy to set aside an allegedly fraudulent transfer of the bankrupt's property. The court disregarded corporate existence in rejecting the claim of the trustee and denying his application for rehearing. In Fitzgerald, corporate existence was disregarded in allowing a claim in bankruptcy adversely to the position of the trustee where the alleged debt was technically not that of the bankrupt but of a controlled and related business entity.

In every single other case cited, the trustee in bankruptcy was pursuing a right of action belonging to the bankrupt or attempting to recover property of the bankrupt. Hillebrand v. Sav-Co, supra, 353 F.Supp. 19, involved an action by a trustee in bankruptcy to recover assets of the bankrupt by setting aside fraudulent and preferential transfers. Henderson v. Rounds & Porter Lumber Co., supra, 99 F.Supp. 376, involved an action by creditors and a trustee in bankruptcy for conversion by a corporate stockholder of assets of the bankrupt corporation. Long v. McGlon, supra, involved an action by the trustee of a bankrupt corporation against the sole shareholders on an alter ego theory upon allegations that, " . . . defendants deposited corporation funds into their personal bank accounts or that corporation funds were received by the defendants personally . . . ." (263 F.Supp. at p. 97.) As the court there quite correctly observed: "The allegations of the complaint, which are yet subject to amendment, and which even now must be liberally construed would permit proof by the plaintiff that corporate assets were converted to the injury of the corporation and creditors." (Id.) (Emphasis added.) Clearly, injury to the corporation was alleged, and the right of action was that of the bankrupt.

Plaintiff maintains he represents the corporate creditors and that by virtue of section 70 c of the Bankruptcy Act (11 U.S.C. § 110(c)) he has the rights of a creditor and can therefore maintain this action on behalf of the creditors. Again, he relies on Long v. McGlon, supra, 263 F.Supp. 96. It is true that this 2-page opinion of the Federal District Court for the District of South Carolina contains statements to the effect that a trustee in bankruptcy represents the creditors of the bankrupt (263 F.Supp. at p. 96) and that the maintenance of an action by a trustee in bankruptcy to hold shareholders of the bankrupt corporation personally liable for its debts is authorized by section 70 c of the Bankruptcy Act. ¹ (263 F.Supp. at p. 98.)

However, these statements were unnecessary to the decision. The question confronting the court was whether the complaint stated a cause of action. As we have already pointed out and as the court there observed,...