Butler v. Lyons & Wolivar CA4/3 ( 2014 )

Filed 4/3/14 Butler v. Lyons & Wolivar CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION THREE
STEVEN S. BUTLER,
Plaintiff and Respondent, G047766
v. (Super. Ct. No. 30-2009-00120252)
LYONS & WOLIVAR, INC., et al., OPINION
Defendants and Appellants.
Appeal from a judgment of the Superior Court of Orange County,
James Di Cesare, Judge. Affirmed.
Daniel J. Koes for Defendants and Appellants.
Lapidus & Lapidus and Daniel C. Lapidus for Plaintiff and Respondent.
* * *
INTRODUCTION
Following a contractual arbitration proceeding, judgment was entered in
favor of Steven S. Butler, and against Lyons & Wolivar, Inc., doing business as Lyons &
Wolivar Investigations (Lyons). Pursuant to Code of Civil Procedure section 187, Butler
successfully moved to amend the judgment to add LWI, Inc. (LWI), as an additional
party against whom the judgment was entered. (All further statutory references are to the
Code of Civil Procedure.) Lyons and LWI appeal, contending the trial court erred in
amending the judgment. We disagree, and affirm the judgment. Substantial evidence
supports the trial court’s finding that LWI was the successor corporation of Lyons; LWI
was therefore appropriately added to the judgment as an additional judgment debtor.
STATEMENT OF FACTS AND PROCEDURAL HISTORY
Lyons is a franchisor of private investigation services. In August 2005,
Butler entered into a franchise agreement with Lyons. Lyons terminated the franchise in
May 2009, due to Butler’s failure to pay royalties.
Butler sued Lyons for various causes of action, all relating to alleged
misrepresentations regarding the franchise and to Lyons’s alleged breach of the franchise
agreement and violations of California law. Lyons’s petition to compel arbitration was
granted. Lyons filed a demand for arbitration, claiming unpaid royalties and other costs.
Butler filed a counterclaim in arbitration, alleging, for the most part, the same claims
asserted in his complaint.
In September 2011, the arbitrator issued a final award, awarding Lyons
$1,727 from Butler and awarding Butler $513,971.67 from Lyons, for a net award of
$512,244.67 to Butler. Later that month, Butler filed a petition to confirm the arbitration
award against both Lyons and LWI. The trial court refused to confirm the award against
LWI because the arbitration award did not mention that separate entity. The court
2
continued the hearing on the petition to confirm to allow Butler to file a motion for
clarification before the arbitrator.
The arbitrator denied Butler’s request for clarification: “Butler’s Request,
dated November 9, 2011, relates to the Final Award issued September 6, 2011 and is
therefore late under JAMS’ [(Judicial Arbitration and Mediation Services)] Rule 24. As a
result, the Arbitrator lost any power to modify the Final Award, and the Request must
therefore be denied. The Arbitrator takes no position as to whether relief might be
available under CCP 187 to amend the judgment.” The trial court then granted the
petition “to confirm the arbitration award as written but denies the petition to the extent it
seeks to add LWI, Inc. as a party to the award.” The court noted that its ruling was
“without prejudice to any other procedural remedies available to [Butler].” The trial
court entered judgment in favor of Butler, and against Lyons, in the amount of
$512,244.67, plus interest, with $3,565 in attorney fees and costs also being awarded to
Butler.
Butler filed a motion to amend the judgment, pursuant to section 187,1 to
include LWI. The trial court granted the motion, and an amended judgment was entered
in favor of Butler and against Lyons and LWI. Lyons and LWI timely appealed.
DISCUSSION
“Under section 187, the court has the authority to amend a judgment to add
additional judgment debtors.” (NEC Electronics Inc. v. Hurt (1989) 208 Cal. App. 3d 772,
778.) A judgment may be amended to add an additional judgment debtor on the ground
1
“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.” (§ 187.)
3
that a person or entity is the alter ego of the original judgment debtor (id. at pp. 778-779)
or that the person or entity is a successor corporation (McClellan v. Northridge Park
Townhome Owners Assn. (2001) 89 Cal. App. 4th 746, 753 (McClellan)). “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.”
(NEC Electronics, Inc. v. Hurt, supra, at p. 778.) Whether to grant a motion under
section 187 to add an additional judgment debtor is a matter reserved to the trial court’s
discretion. (Greenspan v. LADT LLC (2010) 191 Cal. App. 4th 486, 508.) “‘“The greatest
liberality is to be encouraged in the allowance of such amendments in order to see that
justice is done.”’ [Citation.]” (Ibid.)
As the moving party, Butler had the burden of proving the essential facts by
a preponderance of the evidence. (Wollersheim v. Church of Scientology (1999) 69
Cal. App. 4th 1012, 1017; Maloney v. American Pharmaceutical Co. (1988) 207
Cal. App. 3d 282, 288 & fn. 3.) We review the findings underlying the trial court’s order
granting the motion to amend the judgment to name an additional judgment debtor under
the substantial evidence standard. (McClellan, supra, 89 Cal.App.4th at pp. 751-752.)
A judgment entered following the confirmation of an arbitration award “has
the same force and effect as, and is subject to all the provisions of law relating to, a
judgment in a civil action of the same jurisdictional classification.” (§ 1287.4.) Courts of
this state have frequently found a judgment entered after an arbitration proceeding may
be amended pursuant to section 187 in the same manner as any other judgment.
(Greenspan v. LADT LLC, supra, 191 Cal.App.4th at p. 508; McClellan, supra, 89
Cal.App.4th at p. 757; Hall, Goodhue, Haisley & Barker, Inc. v. Marconi Conf. Center
Bd. (1996) 41 Cal. App. 4th 1551, 1555.)
In his motion to amend the judgment, Butler argued both that LWI was a
successor corporation of Lyons and that LWI was the alter ego of Lyons. The trial court
found Butler had established by substantial evidence that LWI was the successor
4
corporation of Lyons because it was a mere continuation of the predecessor corporation.
“If a corporation organizes another corporation with practically the same shareholders
and directors, transfers all the assets but does not pay all the first corporation’s debts, and
continues to carry on the same business, the separate entities may be disregarded and the
new corporation held liable for the obligations of the old. [Citations.]” (9 Witkin,
Summary of Cal. Law (10th ed. 2005) Corporations, § 16, pp. 794-795.) “The general
rule is ‘where one corporation sells or transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the former unless (1) the purchaser
expressly or impliedly agrees to such assumption, (2) the transaction amounts to a
consolidation or merger of the two corporations, (3) the purchasing corporation is merely
a continuation of the selling corporation, or (4) the transaction is entered into
fraudulently to escape liability for debts. [Citations.]’ [Citations.]” (McClellan, supra,
89 Cal.App.4th at pp. 753-754.)
In its second amended arbitration claim, Lyons alleged its corporate status
to be as follows: “Lyons & Wolivar, Inc. (‘Claimant’) is, and at all times mentioned
herein was, a California corporation which merged into a Nevada corporation, and is now
known as LWI, Inc. and is a Franchisor of private investigation agencies.” Neil Lyons,
the chief executive officer of Lyons, was deposed during the arbitration proceedings, at
which time he testified as follows:
“Q Okay. At some point L&W, Lyons & Wolivar, Inc., was a California
corporation?
“A Correct.
“Q And at some point, it merged out into—same corporation, just under a
different name in the State of California; is that right?
“A No.
“Q Okay.
“A That’s not right.
5
“Q What happened?
“A L&W—or I’m sorry—Lyons & Wolivar was a California corporation,
that’s correct.
“Q Uh-huh.
“A It merged into LWI, Inc., okay, which is a Nevada corporation, that is
correct.
“Q Okay. And you’ve already told us today that you have a—that the
L&W license for investigative services here in the State of California is in your name as a
qualified manager?
“A Well, no, it’s LWI, Inc., it’s a corporate license.
“Q Uh-huh.
“A And the qualifying manager, and then I am the officer.” (Boldface
omitted.)
A franchise disclosure document filed by LWI with the former California
Department of Corporations states, in relevant part: “Our parent is LWI, Inc., a Nevada
corporation incorporated on December 1, 2008. . . . On December 1, 2008, LWI, Inc.
acquired Lyons & Wolivar, Inc., a California corporation. [¶] Our predecessor is
Lyons & Wolivar, Inc., a California corporation incorporated on September 11, 2002.”
Corporate filings from Massachusetts showed that Lyons and LWI shared
at least one officer—Neal Lyons—and at least two directors—Neal Lyons and Scott
Crowell. Printouts from the California Secretary of State’s business entity database
showed Lyons was “merged out” (capitalization omitted), and LWI was an active
corporation as of the date the searches were run.
Lyons’s counsel represented to the trial court that LWI, not Lyons, was
doing business in California, and that judgment debtor examinations of Lyons’s president
and vice-president were therefore improper.
6
Notably, neither Lyons nor LWI filed an opposition to, or challenged any
of, the foregoing evidence submitted in support of the motion to amend the judgment.
Lyons and LWI first argue that LWI could not be added to the judgment as
an additional judgment debtor pursuant to section 187 because it was a party to the
underlying action, and had been found not liable by the arbitrator. Initially, Butler’s
complaint was filed against “Lyons & Wolivar, Inc. dba Lyons & Wolivar Investigations,
a California corporation,” as well as several individuals. During the arbitration
proceeding, Butler filed a second amended cross-claim, in which he named LWI as a
cross-respondent. In the second amended cross-claim, Butler alleged: “LWI, Inc.
(‘LWI’) is a Nevada corporation based in Westborough, Massachusetts. It has, at all
relevant times, conducted business in California. Butler is informed and believes, and on
that basis alleges that LWI, Inc. is an agent, employee, and/or alter ego of each of the
other Cross-Respondents, and is or was responsible in some degree or manner for the
damages that Butler has sustained, as alleged in his Counter-Claim.” (Some
capitalization omitted.)
Nothing in the appellate record, however, shows whether LWI’s liability
was arbitrated. Because we do not have a complete copy of the second amended
cross-claim, we cannot determine whether LWI was alleged to be liable for any cause of
action asserted by Butler, much less that its liability (or lack thereof) was resolved.
Indeed, given that LWI did not exist at the time the causes of action alleged in the
complaint arose, it seems unlikely that LWI’s liability was ever at issue in the arbitration.
To the contrary, the relevant documents in the appellate record suggest that
LWI’s liability was not adjudged in the arbitration. The final arbitration award says that
Lyons’s objections to Butler’s second amended cross-claim (which first identified LWI
as a cross-respondent) were overruled. Neither the objections nor the arbitrator’s order is
in the appellate record. The caption of the final award lists only Lyons as the claimant
and defendant. In the text of the award, the arbitrator addressed counterclaims against
7
“individual defendants,” but nowhere mentioned LWI or any corporate defendant other
than Lyons. The overwhelming weight of the evidence supports a conclusion that LWI
was not a party whose liability was addressed in the arbitration.
Lyons and LWI also argue there was not substantial evidence that LWI was
a successor corporation to Lyons. Lyons and LWI cite Katzir’s Floor & Home Design,
Inc. v. M-MLS.com (9th Cir. 2004) 394 F.3d 1143, 1150, for the proposition that
“[i]nadequate consideration is an ‘essential ingredient’ to a finding that one entity is a
mere continuation of another.” Katzir’s, however, is so factually distinguishable that it
has no bearing on the present case. The federal district court (applying section 187,
pursuant to Federal Rules of Civil Procedure, rule 69(a) (28 U.S.C.)) added M-MLS.com
to a judgment as an additional judgment debtor; the original default judgment had been
entered against M-MLS, Inc. (Katzir’s Floor & Home Design, Inc. v. M-MLS.com,
supra, at p. 1147.) About the same time the default judgment was entered, M-MLS, Inc.,
was placed in receivership in Canada. (Ibid.) The M-MLS, Inc., assets were appraised,
and sold to Scamper Enterprises, Inc. (Scamper). (Ibid.) Scamper allowed M-MLS.com
to use the M-MLS Web site Scamper had acquired as part of M-MLS, Inc.’s assets.
(Ibid.) The appellate court concluded M-MLS.com was not a successor corporation of
M-MLS, Inc., for purposes of liability on the judgment because (1) the transfer of assets
was made to Scamper, an intervening entity, not directly to M-MLS.com; (2) there was
no evidence that the transfer to Scamper involved inadequate consideration; and (3) it
was the discharge of M-MLS, Inc.’s assets in bankruptcy, rather than their acquisition by
a successor corporation for less than full consideration, that deprived the plaintiff of a
remedy against the original judgment debtor. (Id. at p. 1151.)
In this case, Lyons and LWI made many admissions that LWI had
succeeded to and replaced Lyons, which would be sufficient to prove successor
corporation liability in the absence of any other evidence. The evidence of the parties’
corporate filings provided further support for the trial court’s finding that LWI was the
8
successor corporation to Lyons, and that LWI was therefore properly added as a
judgment debtor in the amended judgment.
Butler also sought leave to amend the judgment under section 187 to add
LWI as an additional judgment debtor on an alter ego theory. The trial court did not
address this issue in granting the motion, basing its decision only on the successor
corporation theory. “There is perhaps no rule of review more firmly established than the
principle that a ruling or decision correct in law will not be disturbed on appeal merely
because it was given for the wrong reason. If correct upon any theory of law applicable
to the case, the judgment will be sustained regardless of the considerations that moved
the lower court to its conclusion.” (Belair v. Riverside County Flood Control Dist.
(1988) 47 Cal. 3d 550, 568.)
“A court may also disregard the corporate form in order to hold one
corporation liable for the debts of another affiliated corporation when the latter ‘“‘is so
organized and controlled, and its affairs are so conducted, as to make it merely an
instrumentality, agency, conduit, or adjunct of another corporation.’”’ [Citation.] . . . [¶]
. . . Because it is founded on equitable principles, application of the alter ego ‘“is not
made to depend upon prior decisions involving factual situations which appear to be
similar. . . . ‘It is the general rule that the conditions under which a corporate entity may
be disregarded vary according to the circumstances of each case.’” [Citations.] Whether
the evidence has established that the corporate veil should be ignored is primarily a
question of fact which should not be disturbed when supported by substantial evidence.
[Citation.]’ [Citation.] [¶] ‘Factors for the trial court to consider include the
commingling of funds and assets of the two entities, identical equitable ownership in the
two entities, use of the same offices and employees, disregard of corporate formalities,
identical directors and officers, and use of one as a mere shell or conduit for the affairs of
the other. [Citation.] “No one characteristic governs, but the courts must look at all the
circumstances to determine whether the doctrine should be applied. [Citation.]”
9
[Citation.]’ [Citations.]” (Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc.
(2013) 217 Cal. App. 4th 1096, 1107-1109.)
The addition of LWI as an additional judgment debtor in the amended
judgment on an alter ego theory would be supported by substantial evidence.
Neal Lyons’s deposition testimony, Lyons’s judicial admissions in its arbitration filings,
and the various corporate filings by both Lyons and LWI included in the appellate record
all support a finding that LWI has fully supplanted Lyons, and is, in fact, the alter ego of
Lyons.
We note that Lyons and LWI correctly set forth in their appellate briefs the
law regarding judicial review of arbitration awards. However, this case does not present
an issue of judicial review of an arbitration award. As discussed ante, we are reviewing
the correctness of the trial court’s order amending the judgment to add an additional
judgment debtor.
DISPOSITION
The judgment is affirmed. Respondent to recover costs on appeal.
FYBEL, J.
WE CONCUR:
RYLAARSDAM, ACTING P. J.
ARONSON, J.
10