Zafra v. Salient Security Services CA2/6

Filed 3/15/23 Zafra v. Salient Security Services CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
CATHERINE ZAFRA et al., 2d Civil No. B315310
(Super. Ct. No. 56-2015-
Plaintiffs and Appellants, 00467666-CU-OE-VTA)
(Ventura County)
v.
SALIENT SECURITY
SERVICES, INC., et al.,
Defendants and Respondents.
Appellants Catherine Zafra, Stephanie Garner, and Hayley
Dickinson are former employees of respondent Salient Security
Services, Inc. (Salient). Respondent Adrian Chavez (Adrian) was
the chief executive officer, president, and director of Salient. He
owned 50 percent of its shares. His brother, Aaron Chavez
(Aaron), owned the other 50 percent. Aaron was Salient’s vice
president, secretary, and chief financial officer.
Appellants sued Salient and Adrian (respondents) for
violations of wage and hour laws and for other wrongful acts.
After a court trial, judgment was rendered in favor of appellants
and against only Salient on the wage and hour violations, but
against both respondents on the other wrongful acts. In 2017
Salient filed for bankruptcy. At the time of trial, it had no assets.
Appellants claim that the trial court erroneously ruled that
Adrian is not personally liable for the wage and hour violations.
They advance two theories in support of his personal liability.
The first is that, pursuant to case law and wage orders of the
Industrial Welfare Commission (IWC), Adrian qualified as
appellants’ employer. The second theory is that Adrian was
Salient’s alter ego. We affirm.
Adrian Is Not Personally Liable for Salient’s Wage and
Hour Violations under Case Law and IWC Wage Orders
The trial court’s amended final statement of decision
(statement of decision) and amended judgment set forth in detail
Salient’s wage and hour violations. We need not repeat them
here.
In the trial court appellants claimed that, pursuant to
Labor Code section 558.1, Adrian is personally liable for the wage
and hour violations.1 The statute provides in relevant part: “(a)
Any employer or other person acting on behalf of an employer,
who violates, or causes to be violated, any provision regulating
minimum wages or hours and days of work in any order of the
Industrial Welfare Commission . . . may be held liable as the
employer for such violation. [¶] (b) For purposes of this section,
the term ‘other person acting on behalf of an employer’ is limited
to a natural person who is an owner, director, officer, or
managing agent of the employer . . . .”
Section 558.1 was added to the Labor Code by Senate Bill
No. 588, which became effective on January 1, 2016. (Stats.2015,
1 All statutory references are to the Labor Code.
2
ch. 803, § 10.) Appellants were employed by Salient before, but
not after, the effective date. The trial court ruled that section
558.1 is inapplicable because appellants’ “wage and hour claims
arose prior to the effective date of section 558.1 and there is
nothing in the statute that indicates legislative intent to apply it
retroactively.”
We agree with the trial court. “[S]ection 558.1 is
not retroactive. In California, ‘[a] statute is presumed to operate
prospectively unless there is “an express declaration of
retrospectivity or a clear indication” that the Legislature
intended otherwise.’ [Citation.] [Appellants] have not identified
any express declaration or clear indication from the Legislature
that it intended section 558.1 to operate retrospectively. Nor are
we aware of such intent. Therefore, we conclude it is only
prospective in application.” (Seviour-Iloff v. LaPaille (2022) 80
Cal.App.5th 427, 445, review granted 10/26/2022, S275848.)2 In
their reply brief appellants concede “that Labor Code section
558.1 is not retroactive.”
Appellants argue that the “timing” of the effective date of
Senate Bill No. 588 “does not save [Adrian] from liability for
appellants’ wage and hour damages” because “Labor Code § 558.1
simply restated prior court decisions and made that liability
crystal clear.” Thus, “[Adrian] was legally liable for appellants’
2 In its order granting review, the California Supreme
Court specified the issues to be briefed and argued. The specified
issues do not include the retroactivity of section 558.1. The
Supreme Court said, “Pending review, the opinion of the Court of
Appeal . . . may be cited . . . for its persuasive value . . . .”
(Seviour-Iloff v. LaPaille (Oct. 26, 2022) No. S275848, 2022 WL
15050274, at *1.)
3
wage and hour damages . . . under . . . the state of the law before
[section 558.1] was enacted.” This is a legal issue that we review
de novo. (Topanga & Victory Partners v. Toghia (2002) 103
Cal.App.4th 775, 779-780.)
Appellants’ argument is contrary to Reynolds v. Bement
(2005) 36 Cal.4th 1075 (Reynolds). There, the California
Supreme Court held that “plaintiff cannot state a section 1194
cause of action [for recovery of unpaid overtime compensation]
against the individual defendants” because they, like Adrian,
were officers or directors and shareholders of the corporation that
had employed plaintiff and therefore were not liable under the
common law. (Id. at pp. 1087-1088.)
But appellants claim that “[t]he trial court’s decision
clearly holds that [Adrian] satisfied the definition of an ‘employer’
[subsequently] adopted by the Supreme Court in Martinez v.
Combs [(2010) 49 Cal.4th 35 (Martinez)].” There, agricultural
workers sued their bankrupt employer and produce merchants to
which their employer had sold strawberries picked by the
workers. Plaintiffs claimed that defendants were liable for
unpaid minimum wages pursuant to section 1194, which applies
only to employers. The issue was “how employment should be
defined in actions brought under section 1194.” (Martinez, at p.
50.) The Supreme Court disapproved its prior decision in
Reynolds to the extent the decision “looked to the common law
rather than the applicable wage order to define employment in an
action under section 1194 seeking to hold a corporation’s
directors and officers personally liable for its employees’ unpaid
overtime compensation.” (Id. at p. 62.) The court concluded that
IWC “Wage Order No. 14, and not the common law, properly
4
defines the employment relationship in this action under section
1194.” (Ibid.)
The Martinez court limited its prior holding in Reynolds:
“The opinion in Reynolds, supra, 36 Cal.4th 1075, properly holds
that the IWC's definition of ‘employer’ does not impose liability
on individual corporate agents acting within the scope of their
agency. [Citation.] The opinion should not be read more broadly
than that.” (Martinez, supra, 49 Cal.4th at p. 66.)
Appellants have not referred us to evidence in the record
showing that Adrian’s acts concerning wage and hour violations
were outside the scope of his agency as director, president, chief
executive officer, and 50 percent shareholder of Salient.
Therefore, under the Reynolds holding as limited by Martinez,
supra, 49 Cal.4th at p. 66, Adrian is not personally liable for
Salient’s wage and hour violations. (See Atempa v. Pedrazzani
(2018) 27 Cal.App.5th 809, 823, fn. 9 [“As a general rule, a
corporate employer’s officers/agents are not personally liable for
the employer’s failure to pay employees contractual or statutory
wages, overtime compensation, vested vacation time, or
unreimbursed business expenses”]; Espinoza v. Hepta Run, Inc.
(2022) 74 Cal.App.5th 44, 58 [“Prior to the enactment of section
558.1 an employee could generally not recover damages for wage
and hour violations from an individual owner or officer of the
employer unless the employee could prove some other legal basis
for liability such as alter ego liability. . . . [¶] In response to this
problem, section 558.1 was intended by the Legislature to expand
liability for wage and hour violations and ‘discourage business
owners from rolling up their operations and walking away from
their debts to workers and starting a new company’”].)
5
The Trial Court Did Not Err in Concluding
that Adrian Was Not Salient’s Alter Ego
“‘“Ordinarily, a corporation is regarded as a legal entity,
separate and distinct from its stockholders, officers and directors,
with separate and distinct liabilities and obligations. . . .”’”
(Eleanor Licensing LLC v. Classic Recreations LLC (2018) 21
Cal.App.5th 599, 615.) “The alter ego doctrine arises when a
plaintiff comes into court claiming that an opposing party is
using the corporate form unjustly and in derogation of the
plaintiff's interests. [Citation.] In certain circumstances the
court will disregard the corporate entity and will hold the
individual shareholders liable for the actions of the
corporation . . . .” (Mesler v. Bragg Management Co. (1985) 39
Cal.3d 290, 300 (Mesler).) “‘Alter ego is an extreme remedy,
sparingly used. . . .’” (Hasso v. Hapke (2014) 227 Cal.App.4th
107, 155.)
“There is no litmus test to determine when the corporate
veil will be pierced; rather the result will depend on the
circumstances of each particular case. There are, nevertheless,
two general requirements: ‘(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.’” (Mesler, supra, 39 Cal.3d at p. 300.) A “heavy
burden rests on the shoulders of the party seeking to pierce the
corporate veil.” (Santa Clarita Organization for Planning &
Environment v. Castaic Lake Water Agency (2016) 1 Cal.App.5th
1084, 1105.)
In its statement of decision, the trial court listed 13 factors
that courts have considered in determining whether to apply the
6
alter ego doctrine.3 It noted that “[c]ourts have found ‘inadequate
capitalization, commingling of assets, [and] disregard of corporate
formalities’ to be especially ‘critical.’ [Citations.]” The court
concluded that the “above factors [do not] support application of
the alter ego doctrine in this case.” “[T]here is not such a unity of
interest and ownership between Salient and Adrian Chavez . . .
that application of the alter ego doctrine should apply. The fact
that Salient is insolvent is not sufficient grounds to invoke the
alter ego doctrine and the weight of the factors militate against
its application in this case.”
“Whether the evidence has established that the corporate
veil should be [pierced] is primarily a question of fact which
should not be disturbed when supported by substantial
evidence.” (Las Palmas Associates v. Las Palmas Center
Associates (1991) 235 Cal.App.3d 1220, 1248.) However,
3 The court listed the following factors: “(1) the
commingling of assets; (2) the treatment by an individual of
corporate assets as his own; (3) the failure to obtain authority to
issue stock; (4) the holding out by an individual that he is
personally liable for the corporation's debts; (5) the failure to
maintain minutes or adequate corporate records, or the confusion
of the records of separate entities; (6) an identity of equitable
owners, directors, or officers of multiple entities; (7) the sole
ownership of all stock by one individual or the members of a
family; (8) the use of the same office or business location for
multiple entities; (9) the employment of the same employees or
attorneys; (10) undercapitalization; (11) the disregard of legal
formalities; (12) the use of a corporation as a mere shell or
conduit for a single venture or the business of an individual or
other entity; and (13) the contracting with another with intent to
avoid performance by use of a corporate entity to shield against
personal liability.”
7
appellants contend that the proper standard of review here is de
novo review: “The relevant standard of review regarding a lower
court’s erroneous application of law and facts regarding the
imposition of alter ego liability on the officers and directors of a
defunct corporation would typically be the substantial evidence
test but the trial court erroneously applied the law regarding
alter ego liability so the proper standard of review should be de
novo.” Appellants argue that the court “focused on only a few of
the many factors courts have over the years used to impose alter
ego liability and not the ones that actually apply in this lawsuit.
In doing so, the trial court ignored the law . . . .”
We presume the trial court properly considered the
relevant factors listed in its statement of decision. “‘“‘All
intendments and presumptions are indulged to support [the
judgment] on matters as to which the record is silent, and error
must be affirmatively shown.’” [Citation.]’ In the absence of
evidence to the contrary, we presume that the trial court
considered the relevant factors.” (Gorman v. Tassajara
Development Corp. (2009) 178 Cal.App.4th 44, 67.) Accordingly,
the de novo standard of review is inappropriate.
The trial court determined that appellants had “failed to
meet their burden to support application of the alter ego
doctrine.” “‘In the case where the trier of fact has expressly or
implicitly concluded that the party with the burden of proof did
not carry the burden and that party appeals, it is misleading to
characterize the failure-of-proof issue as whether substantial
evidence supports the judgment. . . . [¶] Thus, where the issue on
appeal turns on a failure of proof at trial, the question for a
reviewing court becomes whether the evidence compels a finding
in favor of the appellant as a matter of law. [Citations.]
8
Specifically, the question becomes whether the appellant's
evidence was (1) “uncontradicted and unimpeached” and (2) “of
such a character and weight as to leave no room for a judicial
determination that it was insufficient to support a finding.”
[Citation.]’ [Citation.] The appellate court cannot substitute its
factual determinations for those of the trial court; it must view all
factual matters most favorably to the prevailing party and in
support of the judgment. [Citation.] ‘“All conflicts, therefore,
must be resolved in favor of the respondent.” . . .’” (Dreyer’s
Grand Ice Cream, Inc. v. County of Kern (2013) 218 Cal.App.4th
828, 838 (Dreyer’s Grand Ice Cream).)
In arguing that Adrian was Salient’s alter ego, appellants
primarily rely on three factors. The first is that “[i]n 2015,
[Adrian] and his brother stripped Salient of all assets and moved
them to 2 new Nevada corporations. Their conduct left Salient
broke and unable to pay its creditors, including appellants.” The
evidence as to this factor is largely based on testimony by Adrian
and Aaron at an October 13, 2017 creditor’s meeting in Salient’s
bankruptcy proceeding. One of the brothers testified that Salient
had stopped doing business because “[w]e actually moved to Las
Vegas, Nevada, and split the business into two different
businesses.” Each of the two businesses was a separate
corporation.
As to the disposition of Salient’s assets, the evidence is
conflicting. The bankruptcy trustee asked the brothers whether
any of Salient’s assets was “transferred” to the two new Nevada
corporations. One of the brothers answered, “No.” The reporter’s
transcript does not identify which brother answered the question.
Aaron was then questioned regarding his prior deposition
testimony in August 2015. Aaron acknowledged testifying that
9
he, not he and his brother, had taken “tens of thousands of
dollars[] worth of physical assets from Oxnard,” where Salient
was located, and had “moved them to Nevada” for use by one of
the new corporations. Aaron did not testify that he had “stripped
Salient of all assets.”4
The second factor in support of appellants’ alter ego
argument is that Adrian and Aaron “commingled Salient funds
and assets with their own” by using Salient’s bank accounts as
“their own personal piggybank.” But the trial court apparently
credited Adrian’s testimony to the contrary. In its statement of
decision the court noted: “According to Adrian, he and Aaron took
their income by paying some of their expenses through Salient,
but they reported all of it and paid taxes on the said amounts.
Adrian testified that while he would use one of Salient’s accounts
for personal bills, their CPA who would do their taxes would
show and report those sums as Adrian's income at the end of the
year and such payments were his salary.”
Adrian testified: “The way it would work is at the end of the
year, our taxes would be done by our CPA, and he would expense
it and take it over. And . . . that would be my salary, because at
the time, we didn’t take salary as a pay check. It was just, you
know, as we could afford taking money out of the business.”
4 Aaron’s deposition testimony was as follows: “‘“Question.
So you took tens of thousands of dollars[] worth of physical assets
from Oxnard, you moved them to Nevada, and now you're using
them for Salient Arms International, Incorporated. Correct? [¶]
‘“Answer. Correct.”’” “‘“Question. So you’ve taken assets from
one pocket, and you put them into another. [¶] ‘“Answer. Not
officially. We have not documented that yet, but that has to be
documented because they are assets.”’”
10
(Italics added.) Adrian’s counsel asked, “So all of that personal
spending that [appellant] Hayley [Dickinson] testified to, that
was then taken as personal income to you?” Adrian responded:
“Yes. It was shown as income at the end of the year.”
The third factor is that Adrian and Aaron “ignored
corporate formalities in their operation of Salient.” But
appellants do not refer us to evidence in the record supporting
this factor.
The above three factors do not demonstrate that Adrian
was Salient’s alter ego. By concentrating on these factors,
appellants overlooked the other factors considered by the trial
court. “The first requirement for disregarding the corporate
entity under the alter ego doctrine—whether there is sufficient
unity of interest and ownership that the separate personalities of
the individual and the corporation no longer exist—encompasses
a series of factors. . . . ‘“No single factor is determinative, and
instead a court must examine all the circumstances to determine
whether to apply the doctrine.”’” (Misik v. D’Arco (2011) 197
Cal.App.4th 1065, 1073.)
Appellants have failed to carry their burden of showing
that the evidence, when viewed in the light most favorable to
Adrian, “‘“leave[s] no room [as a matter of law] for a judicial
determination that it was insufficient to support a finding”’” that
Adrian was not Salient’s alter ego. (Dreyer’s Grand Ice Cream,
supra, 218 Cal.App.4th at p. 838.)
Disposition
The judgment is affirmed. Respondents shall recover their
costs on appeal.
11
NOT TO BE PUBLISHED
YEGAN, J.
We concur:
GILBERT, P. J.
BALTODANO, J.
12
Kevin DeNoce, Judge
Superior Court County of Ventura
______________________________
Michael A. Morrow, for Plaintiffs and Appellants.
Thomas Gennaro, for Defendants and Respondents.