Toho-Towa Co. v. Morgan Creek Prods., Inc.

• Decision Date: 01 January 2013
• Docket Number: B242095
• Citation: 159 Cal.Rptr.3d 469,217 Cal.App.4th 1096
• Court: California Court of Appeals Court of Appeals
• Parties: TOHO–TOWA CO., LTD., Plaintiff and Respondent, v. MORGAN CREEK PRODUCTIONS, INC., Defendant and Appellant.

217 Cal.App.4th 1096

159 Cal.Rptr.3d 469

TOHO–TOWA CO., LTD., Plaintiff and Respondent,

v.MORGAN CREEK PRODUCTIONS, INC., Defendant and Appellant.

B242095

Court of Appeal, Second District, Division 5, California.

Filed 7/11/2013

See 8 Witkin, Cal. Procedure (5th ed. 2008) Attack on Judgment in Trial Court, § 144 et seq.

APPEAL from an order of the Superior Court of Los Angeles County. Debre Katz Weintraub, Judge. Affirmed. (Los Angeles County Super. Ct. No. BS131357).

Glaser Weil Fink Jacobs Howard Avchen & Shapiro, Patricia L. Glaser, Joel N. Klevens, Los Angeles, for Defendant and Appellant.

Greenberg Glusker Fields Claman & Machtinger, Charles N. Shephard, Los Angeles, for Plaintiff and Respondent.

O'NEILL, J. ^*

Morgan Creek Productions, Inc. (“MCP”), a Delaware corporation with its principal place of business in Los Angeles, appeals the trial court's order adding it to a judgment for more than $5.7 million which Toho–Towa Co., Ltd., a Japanese company (“Toho–Towa”) was awarded against two MCP-affiliated companies, Morgan Creek International B.V., a Netherlands company (“B.V.”) and Morgan Creek International Ltd., a Bermuda corporation (“Ltd.”). MCP maintains that the trial court erred in ruling that the three business entities constituted a single business enterprise for purposes of imposing alter ego liability on MCP for the debts of B.V. and Ltd. We conclude that the ruling is supported by substantial evidence. MCP also contends that the trial court abused its discretion in failing to set aside its ruling pursuant to Code of Civil Procedure,¹section 473, subdivision (b). We see no abuse of discretion. Consequently, we affirm the order.

FACTUAL AND PROCEDURAL BACKGROUND ²

In 2005, Toho–Towa negotiated with MCP to acquire Japanese distribution rights to the MCP-produced motion picture The Good Shepherd(the “Picture”). After the parties had reached agreement as to the terms of the distribution deal, Howard Kaplan, MCP's then general counsel, told Toho–Towa that B.V., rather than MCP, would grant Toho–Towa the distribution rights under the agreement, and that a third entity, Ltd., would guarantee B.V.'s contractual obligations to Toho–Towa. Mr. Kaplan indicated to Toho–Towa that this was the structure MCP used for its international distribution deals. Mr. Kaplan assured Toho–Towa that B.V. and Ltd. would have sufficient assets to meet any financial obligations Toho–Towa might be owed with respect to the Picture. As a consequence of these assurances, Toho–Towa entered into a written agreement with B.V. to distribute the Picture in Japan. The obligations of B.V. under the agreement were guaranteed by Ltd.

Pursuant to the terms of the distribution agreement, by the end of October 2008, B.V. owed Toho–Towa approximately $4.5 million in connection with expenses it had advanced to distribute the Picture. On October 31, 2008, Toho–Towa submitted its invoice to B.V. requesting payment of this amount. On November 13, 2008, Toho–Towa's invoice to B.V. was forwarded to MCP's chief financial officer, Gary Stutman. On December 3, 2008, Mr. Stutman advised Toho–Towa by email that he was “speaking with our owner, Mr. Jim Robinson, re the payment date.” The invoice was never paid.

On April 22, 2009, Toho–Towa initiated a JAMS arbitration against B.V. and Ltd., based on B.V.'s failure to pay the reimbursable costs represented in the October 31, 2008 invoice. MCP's in-house counsel, Don Hardison, retained attorney Alan Gutman to represent B.V. and Ltd. in the arbitration. Mr. Hardison reviewed the pleadings, consulted with Mr. Gutman on strategy, reviewed and approved Mr. Gutman's bills, and forwarded them to MCP's chief financial officer for payment.

The arbitrator entered a final arbitration award in favor of Toho–Towa against B.V. and Ltd. in the amount of $5,233,386. A three-judge JAMS appellate panel unanimously affirmed the arbitration award. On Toho–Towa's motion, the award was confirmed as a judgment on June 23, 2011. With interest and attorneys' fees, the amount of the judgment was $5,741,536.

Neither B.V. nor Ltd. satisfied the judgment entered against them.

In the fall of 2011, Toho–Towa took examinations under oath, pursuant to section 708.110 et seq., of various MCP representatives, including MCP's former chief financial officer Gary Stutman, its vice president Brian Robinson, and its general counsel Don Hardison, to ascertain the relationship between the three Morgan Creek entities. Through these examinations, Toho–Towa learned that the three Morgan Creek entities were owned by a single individual, James Robinson; that the work of B.V. and Ltd. was performed by employees of MCP; and that the companies were operated in such a way that no money flowed to the foreign Morgan Creek entities. Based on this information, Toho–Towa moved, pursuant to section 187, to add MCP to its judgment against B.V. and Ltd., on the theory that MCP was the alter ego of the other two entities (“the section 187 motion”).

Toho–Towa's motion, filed on December 30, 2011, was supported by a memorandum of points and authorities, the declarations of its California counsel Charles Shephard, its Dutch counsel Frederic Verhoeven, its president Hiroyasu Matsuoka, and its employee Yusuke Horiuchi. These declarations form the basis of the evidence presented in support of the motion, the contents of which are discussed below.

MCP filed its opposition to the motion, together with its memorandum of points and authorities, objections to the declarations of Messrs. Shephard, Verhoeven, Matsuoka and Horiuchi, and a request that the court take judicial notice of the fact that MCP is a Delaware corporation, on January 20, 2012. MCP submitted no declarations to counter the evidence provided by Toho–Towa.

On February 3, 2012, the court began the hearing on the motion by announcing its tentative decision to add MCP to the judgment. The court found the following factors relevant to its conclusion that MCP was the alter ego of B.V. and Ltd., based on the declarations Toho–Towa submitted with its motion: ³

(1) The entities were all owned by the same person, James Robinson.

(2) Mr. Robinson was the only person with authority to resolve the dispute with Toho–Towa.

(3) Ltd. had no employees and no bank account.

(4) B.V.'s financial arrangements were structured so that it never received any money. Rather, all of B.V.'s licensing income went directly to Ltd.'s lender.

(5) Employees of MCP negotiated the foreign licensing deals on behalf of the other Morgan Creek entities.

(6) Brian Robinson, the owner's son, sold television rights for the international film library owned by Ltd., even though he was not employed by Ltd. or B.V.

(7) Don Hardison, MCP's general counsel, handled the legal affairs of Ltd. and B.V., including drafting contracts and providing legal consultation, though he was not employed by either of these companies.

(8) Gary Stutman, MCP's chief financial officer, who was not employed by Ltd., provided financial services to Ltd. at least once a month, while MCP's in-house accountants routinely prepared Ltd.'s financial statements.

(9) MCP had control over the underlying arbitration, by selecting counsel, receiving legal bills, reviewing pleadings, consulting on strategy decisions, and designating one of its own officers as the person most knowledgeable as to why B.V. and Ltd. did not pay the money they owed to Toho–Towa.

In response to the court's tentative decision, MCP's counsel complained that Toho–Towa did not raise the “single enterprise” theory as a basis for imposing liability on MCP for the debts of B.V. and Ltd. until its reply papers. Consequently, the trial court granted MCP the opportunity to address the sole issue of the single enterprise theory as a basis for alter ego liability. The hearing on the section 187 motion was continued until March 16, 2012.

MCP filed its supplemental brief addressing the single enterprise form of alter ego liability on February 15, 2012. Again, no evidence was submitted in support of MCP's position.

On March 13, 2012, Mr. Gutman substituted out as MCP's counsel, and its current counsel, Glaser Weil Fink Jacobs Howard Avchen & Shapiro LLP, substituted in. The next day, MCP applied ex parte to continue the hearing on Toho–Towa's motion to add a judgment debtor, and to introduce additional evidence. The declaration of Charles L. Bauermann, MCP's outside accountant, was submitted in support of the ex parte application. Among the matters to which Mr. Bauermann attested were the capitalization, assets, and financial status of Ltd. at the time the distribution agreement was executed; that the three companies had separate board meetings, different directors and officers, performed different businesses and filed separate tax forms, and observed the corporate formalities; and that the entities did not commingle funds. The trial court denied the ex parte application.

At the continued hearing on the section 187 motion, held on March 16, 2012, the court summarized the procedural history of this matter, including the ex parte application, and indicated that it had “considered all the papers and supplemental briefs.” The court quoted from Toho–Towa's original papers filed with its motion: “ ‘The evidence is overwhelming that the three Morgan Creek entities are the alter egos of each other and function as a single, unified enterprise under the ownership and control of a single individual, James G. Robinson.’ ” The court continued, “Also in the papers on page 7, and I quote, ‘Here, the evidence is overwhelming that the various Morgan Creek entities were part of a single enterprise.’ Thus Morgan Creek's claim is not persuasive that it did not know that Toho–Towa's alter ego claim was based on a single enterprise theory.” In short, the court concluded that the supplemental briefing was unwarranted, and did not cause the court to change its tentative decision.

From the evidence before it, the trial court...