Jiang v. Tseng CA1/5

Filed 1/27/23 Jiang v. Tseng CA1/5
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on
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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 This opinion has not been certified for publication or ordered published for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
FIRST APPELLATE DISTRICT
DIVISION FIVE
ZHI CAI JIANG,
Plaintiff and Respondent,
v. A164882
WEI CHIEH TSENG,
Defendant and Appellant. (Alameda County
Super. Ct. No. RG16807600)
Wei Chieh Tseng appeals from an order adding him as a
judgment debtor to a default judgment previously entered
against a corporation. We agree with Tseng that the amended
judgment violates his due process rights and is not supported by
substantial evidence. Accordingly, we reverse.
BACKGROUND
A.
Zhi Cai Jiang was employed by a restaurant known as
England Rose Garden beginning in late 2013. Jiang’s
employment ended, in April 2015, when he was punched by a
coworker and told by Tseng not to call police.
Almost a year later, Jiang filed a lawsuit against England
Rose House, Inc. (England Rose), which included causes of action
for financial elder abuse, wrongful termination, intentional
infliction of emotional distress, and unfair competition (Bus. &
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Prof. Code, § 17200 et seq.), as well as claims for violations of
Labor Code provisions that require accurate record keeping (Lab.
Code, § 226), overtime pay (id., § 510, subd. (a)), and rest periods
(id., § 226.7).
Initially, England Rose was represented by counsel and
answered Jiang’s complaint. However, England Rose later
exhausted its assets, its counsel withdrew, and it became
unrepresented. England Rose’s answer was stricken, its default
was entered, and, in September 2019, the trial court entered
judgment for Jiang, in the amount of $245,918, against England
Rose. (See Merco Constr. Engineers, Inc. v. Municipal Court
(1978) 21 Cal.3d 724, 729-730 [corporation can only appear
through counsel].)
B.
Two years later, Jiang filed a motion to amend the
judgment by adding Tseng as an additional judgment debtor.
Jiang argued that Tseng was England Rose’s alter ego, that
Tseng controlled the litigation against England Rose, and that
amendment was necessary to avoid injustice.
In support of his motion, Jiang submitted his own
declaration and a declaration from his counsel, Ming Ji. Jiang’s
declaration recounted that Tseng exercised exclusive control over
England Rose during Jiang’s employment and admitted being its
owner. Jiang also stated that Tseng personally paid him in cash.
Jiang stated that Tseng “appeared as the owner and officer of
[England Rose]” in the underlying litigation. Jiang’s declaration
also noted that, after entry of the judgment, he learned (from his
attorney) that England Rose had been dissolved in December
2013.
Ji’s declaration attached a copy of England Rose’s
certificate of dissolution, which showed that Tseng signed the
certificate, as its sole director, and assumed England Rose’s
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known debts and liabilities at dissolution. Ji’s declaration also
provided evidence that Tseng was England Rose’s sole
shareholder, and that he served, for the duration of England
Rose’s existence, as its sole director, chief executive officer, chief
financial officer, secretary, and agent for service of process.
Tseng opposed Jiang’s motion to amend, contending that it
would violate his due process rights to add him as a judgment
debtor because Jiang’s complaint did not name him as a
defendant or allow him to fully litigate any claims with diligence
corresponding to the risk of personal liability. Tseng also argued
that Jiang’s motion was not supported by admissible evidence
that Tseng was either England Rose’s alter ego or an active
participant in England Rose’s defense. Tseng’s accompanying
declaration stated that he was “not an owner or shareholder of
defendant [England Rose] in the action” and that he was not
aware of any of Tseng’s claims against England Rose or himself
personally when he signed its certificate of dissolution. Tseng
also filed evidentiary objections to portions of Jiang’s and Ji’s
declarations
C.
After hearing oral argument, the trial court granted the
motion. The trial court found Tseng to be England Rose’s alter
ego and supported its finding by citing the evidence that Tseng
was England Rose’s sole shareholder and director. The court
further found that Tseng “had an opportunity to present a
substantive defense” and controlled the litigation on England
Rose’s behalf before the default judgment was entered, and that
“interests of fairness” were served by amending the default
judgment because Tseng was England Rose’s sole shareholder
and it was Tseng who retained England Rose’s counsel. The
court explained, “If [England Rose’s] counsel had not breached
their legal duty to refrain from appearing to represent a
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[dissolved] corporation,” Jiang would have had an opportunity to
amend his complaint before the entry of judgement.
Accordingly, the trial court entered an amended judgment
that included Tseng as a judgment debtor who was jointly and
severally liable for the full amount of the judgment.
DISCUSSION
A.
We agree with Tseng that his due process rights were
violated by the court’s order adding him as a judgment debtor.
There is no substantial evidence to support the court’s finding
that he controlled the litigation against England Rose.
1.
Pursuant to Code of Civil Procedure section 187,1 a trial
court has jurisdiction to modify a judgment to add additional
judgment debtors, usually when a person or entity is the
successor or alter ego of the original judgment debtor. (McClellan
v. Northridge Park Townhome Owners Assn. (2001) 89
Cal.App.4th 746, 752, 753-754.) We generally review a trial
court’s decision to modify the judgment for abuse of discretion.
The trial court’s factual findings are reviewed for substantial
evidence. (Wolf Metals Inc. v. Rand Pacific Sales Inc. (2016) 4
Cal.App.5th 698, 703 (Wolf Metals).)
However, our Supreme Court has recognized that the use of
section 187 to add alter ego judgment debtors raises due process
concerns in default judgment situations. (Motores de Mexicali,
S.A. v. Superior Court of Los Angeles County (1958) 51 Cal.2d
172, 175-176 (Motores).) Accordingly, to prevail on a motion to
amend under section 187 and overcome any due process concerns,
“the judgment creditor must show, by a preponderance of the
1 Undesignated statutory references are to the Code of
Civil Procedure.
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evidence, that ‘(1) the parties to be added as judgment debtors
had control of the underlying litigation and were virtually
represented in that proceeding; (2) there is such a unity of
interest and ownership that the separate personalities of the
entity and the owners no longer exist; and (3) an inequitable
result will follow if the acts are treated as those of the entity
alone.’ ” (Highland Springs Conference & Training Center v. City
of Banning (2016) 244 Cal.App.4th 267, 280; accord, Greenspan v.
LADT LLC (2010) 191 Cal.App.4th 486, 509.)
“ ‘Control of the litigation sufficient to overcome due
process objections may consist of a combination of factors, usually
including the financing of the litigation, the hiring of attorneys,
and control over the course of the litigation.’ [Citation.] Clearly,
some active defense of the underlying claim is contemplated.”
(NEC Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 781
(NEC Electronics).)
2.
In Motores, supra, 51 Cal.2d 172, our Supreme Court held
that individual owners who were not named as defendants in the
litigation against a corporation could not be added to a default
judgment taken against the corporation. (Id. at pp. 173-176.) In
that case, no answer was filed, there was no evidence that the
individuals subsidized counsel to appear and defend the
corporate defendant, and default judgment was entered 16 days
after the complaint was filed. (Ibid.) Motores observed: “[Due
process] guarantees that any person against whom a claim is
asserted in a judicial proceeding shall have the opportunity to be
heard and to present his defenses. [Citations.] To summarily
add [the individual owners] to the judgment heretofore running
only against [the corporation], without allowing them to litigate
any questions beyond their relation to the allegedly alter ego
corporation would patently violate this constitutional safeguard.”
(Id. at p. 176, italics omitted.)
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After Motores, courts of appeal have extended its reasoning
and rejected amendments on due process grounds where the
corporate defendant filed an answer but otherwise failed to offer
any substantive defense in the underlying litigation. (See Wolf
Metals, supra, 4 Cal.App.5th at pp. 701-702, 708-709 & fn. 4
[default judgment entered when answer stricken after
corporation’s counsel repeatedly failed to attend hearings]; NEC
Electronics, supra, 208 Cal.App.3d at pp. 775-776, 780-781
[judgment entered after corporate defendant failed to appear for
trial at which plaintiff presented uncontested evidence].) When
there are no further proceedings after the filing of an answer,
there is simply no defense for the alleged alter ego to control.
(Wolf Metals, at pp. 708-709; NEC Electronics, at p. 781.)
This case is indistinguishable from NEC Electronics and
Wolf Metals. Although Tseng was apparently aware of and
involved in the litigation against England Rose, he was not
named as a defendant in the suit and thus had no duty to
personally defend the action. (Motores, supra, 51 Cal.2d at p.
176.) Other than making a conclusory statement that Tseng
“appeared as the owner and officer of defendant [England Rose]”
in the litigation, Jiang did not present any evidence detailing
Tseng’s involvement in contesting England Rose’s liability. In
fact, the record shows only that there was no defense. England
Rose filed an answer but the judgment resulted from its default.
Here, just as in Motores, NEC Electronics, and Wolf Metals,
there is no substantial evidence to support the trial court’s
finding that Tseng controlled the litigation against England Rose
and was virtually represented therein. Accordingly, we must
reverse the order adding Tseng as a judgment debtor. We need
not reach the parties’ additional arguments.
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DISPOSITION
Both the amended judgment and the trial court’s order
adding Tseng as an additional judgment debtor are reversed.
Tseng is entitled to his costs on appeal. (Cal. Rules of Court, rule
8.278(a)(2).)
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______________________
BURNS, J.
We concur:
____________________________
SIMONS, ACTING P.J.
____________________________
WISEMAN, J.*
A164882
* Retired Associate Justice of the Court of Appeal, Fifth
Appellate District, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
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