Triyar Hospitality Management v. WSI (II) ? HWP

Filed 10/22/20; Modified and certified for publication 11/20/20 (order attached)
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
TRIYAR HOSPITALITY 2d Civ. No. B301158
MANAGEMENT, LLC, (Super. Ct. No. 56-2015-
00462600-CU-BC-VTA)
Plaintiff; (Ventura County)
STEVEN YARI et al.,
Appellants,
v.
WSI (II) - HWP, LLC,
Defendant and Respondent.
This is an appeal from an order amending a judgment to
add alter ego judgment debtors. We affirm.
FACTS
Underlying Litigation
Triyar Hospitality Management, LLC (Triyar) entered into
a contract to purchase a hotel property from WSI (II) – HWP,
LLC (WSI) for $39 million. The purchase contract was expressly
subject to a hotel management agreement in favor of Hyatt
Corporation (Hyatt). The purchase contract gave Triyar a period
in which to investigate the purchase. Unknown to Triyar, during
this period Hyatt’s operating agreement terminated when it
failed to exercise an option to renew. Triyar decided not to go
forward with the purchase and allowed the purchase contract to
expire by its own terms. After the purchase contract expired,
Triyar learned that Hyatt’s management agreement had
terminated. Triyar claimed that Hyatt’s management agreement
was so burdensome that its termination increased the value of
the hotel property by $11 million.
Triyar sued WSI for causes of action including fraud and
specific performance. Triyar dismissed the other causes of action
and only the action for specific performance went to trial.
The trial court found that WSI had not breached the
contract. Triyar’s failure to learn of the Hyatt agreement’s
termination was due to Triyar’s fault in failing to conduct a
sufficient investigation. The court gave judgment to WSI.
Pursuant to an attorney fee clause in the purchase agreement,
the court awarded WSI $2,172,615 in attorney fees and costs.
Triyar appealed. We affirmed the judgment. (Triyar
Hospitality Management, LLC v. WSI (II) – HWP, LLC (Jan. 15,
2019, B276243) [nonpub. opn.].) After the appeal, the trial court
awarded an additional $193,273.20 in fees and costs. WSI has
been unable to collect any amount of the judgment.
Motion to Amend Judgment
WSI made a motion to amend the judgment to add brothers
Steven Yari and Shawn Yari (collectively “the Yaris”) to the
judgment. The Yaris own and control Triyar, as well as a
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number of other entities through which the Yaris conduct
business. Many of these entities contain “Triyar” in their names.
In the underlying specific performance action, Triyar had to
prove it had the financial ability to complete the purchase.
(Gaggero v. Yura (2003) 108 Cal. App. 4th 884, 890.) Triyar itself
lacked that ability. Steven Yari testified that his family had the
cash on hand to complete the purchase even, if necessary, in the
absence of financing. The Yaris introduced their personal
financial statements, as well as the financial statements of a
number of entities owned and controlled by the Yari family. The
statements showed the Yari family and the entities they own and
control had over $52 million in available cash. Steven Yari
testified that included in the family funds was his and his
brother’s “personal cash.” Steven Yari testified that these funds
were available to make the purchase and that he approved the
transaction to close with family funds.
When asked about his ability to withdraw cash from family
entities, Steven Yari said, “It’s not as formal as, you know,
having to abide by some operating [document] — these are family
entities that — and once again, we borrow from these family
entities quiet often and repay.” (Emphasis omitted.)
All of the Yaris’ entities have the same address. Triyar and
other Yaris-controlled entities have employees in common.
Triyar has received funds for managing hotel properties.
But those funds have been paid over to other Yaris-controlled
properties.
The Yaris personally funded the underlying litigation
against WSI. They do not contest that they were virtually
represented in that action.
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Ruling
The trial court found that Triyar is not capitalized for
buying major hotels. Thus, finding the Yaris to be alter egos is a
fair outcome.
The trial court also found that even if the alter ego doctrine
does not strictly apply, the inequities are such that an exception
can be made.
The trial court ordered that the judgment be amended to
add the Yaris as judgment debtors.
DISCUSSION
I.
Standard of Review
The Yaris concede that the trial court’s findings of fact are
reviewed under the substantial evidence rule. Under the
substantial evidence rule, we review the evidence in a light most
favorable to the judgment or order. (Estate of McPherson (1949)
94 Cal. App. 2d 906, 909.) We discard evidence unfavorable to the
prevailing party as not having sufficient verity to be accepted by
the trier of fact. (GHK Associates v. Mayer Group, Inc. (1990) 224
Cal. App. 3d 856, 872.) Where the trial court or jury has drawn
reasonable inferences from the evidence, we have no power to
draw different inferences, even though different inferences may
also be reasonable. (McIntyre v. Doe & Roe (1954) 125
Cal. App. 2d 285, 287.) The trier of fact is not required to believe
even uncontradicted evidence. (Sprague v. Equifax, Inc. (1985)
166 Cal. App. 3d 1012, 1028.)
The Yaris contend, however, that in the application of the
facts to the law, the standard of review is de novo. But is it well
settled that the standard of review of an order amending the
judgment adding alter ego parties is abuse of discretion.
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(Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership
(2013) 222 Cal. App. 4th 811, 815 (Relentless).
In any event, the question whether the standard of review
is de novo or abuse of discretion is academic in this case. Under
either standard, the result is the same.
II.
Alter Egos
Code of Civil Procedure section 187 gives the trial court the
discretion to create its own reasonable procedure in the exercise
of its jurisdiction where the law provides no specific procedure.
The authority provided to the courts by Code of Civil Procedure
section 187 includes the power to add a judgment debtor where a
person or entity is an alter ego of the original judgment debtor.
(Dow Jones Co. v. Avenel (1984) 151 Cal. App. 3d 144, 148.) In
doing so, the court is amending the judgment to add the real
judgment debtor. (Id. at p. 149.) In order to prevail in a motion
to add judgment debtors, WSI must show 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. (Relentless, supra, 222 Cal.App.4th at pp. 815-
816.)
(1) Virtual Representation
The Yaris concede that they had control of the underlying
litigation and were virtually represented in that proceeding.
They challenge only the second and third elements.
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(2) Unity of Interest and Ownership
The Yaris own and control Triyar. During the underlying
litigation, they made it abundantly clear that they could fund
Triyar or not as they please. They were willing and able to use
their own money to fund the purchase if necessary. The trial
court could reasonably conclude from Steven Yari’s testimony
that the Yaris had complete control over the hotel purchase
transaction from beginning to end, including the litigation that
resulted in the judgment against Triyar. There is simply no
significant difference between the Yaris and Triyar.
The Yaris argue the evidence shows that Triyar is an entity
separate from themselves. They acknowledge that our review of
the trial court’s findings of fact is under the substantial evidence
test. Yet their argument is based on nothing more than a view of
the evidence in a light most favorable to themselves. The Yaris’
attempt to portray Triyar as a fully independent business entity
is belied by Steven Yari’s testimony: “It’s not as formal as, you
know, having to abide by some operating [document] — there are
family entities that — once again, we borrow from these family
entities quite often and repay.” (Emphasis omitted.)
Steven Yari’s testimony shows the Yaris were willing and
able to disregard corporate formalities in order to purchase the
hotel. Steven Yari made it clear that the Yaris could freely
transfer funds among their legal entities and commingle their
own funds with the funds of their entities to accomplish whatever
purpose they wish. (See Greenspan v. LADT LLC (2010) 191
Cal. App. 4th 486, 512-513 [alter ego finding supported by
disregard of legal formalities, failure to maintain an arm’s-length
relationship among legal entities, manipulation of assets, and
commingling of funds].)
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The Yaris argue that infusing a legal entity with capital
does not make them alter egos of that entity. (Citing
Erkenbrecher v. Grant (1921) 187 Cal. 7, 10-11.) But no one is
suggesting the Yaris are alter egos of Triyar because they infused
it with capital. In fact, it is undisputed that the Yaris never
infused Triyar with capital. That is the problem. Triyar has
never had sufficient capital to purchase the hotel, or, for that
matter, to pay the judgment. An important factor in imposing
alter ego liability is that a legal entity is so undercapitalized that
it is likely to have no sufficient assets to meet its debts.
(Automotriz Del Golfo de California S. A. de C. V. v. Resnick
(1957) 47 Cal. 2d 792, 796-797.) That is the case here.
The Yaris argue that they never held themselves out to be
personally liable for Triyar’s debts. But they agreed to do exactly
that. Steven Yari testified that if necessary the Yaris’ “personal
cash” would be among the assets available to purchase the hotel.
There is overwhelming evidence of a unity of interest and
ownership such that the separate personalities of the entity and
the owners do not exist.
(3) Inequitable Result
The Yaris contend the required unjust result is missing.
The Yaris argue that there must be some conduct
amounting to bad faith that makes it inequitable to hide behind
the corporate form. (Citing Leek v. Cooper (2011) 194
Cal. App. 4th 399, 418.) We rejected that argument in Relentless.
All the moving party is required to prove is that the alter ego’s
acts caused an inequitable result. (Relentless, supra, 222
Cal.App.4th at p. 816.) In Relentless, we said: “As long as
Airborne is the sole judgment debtor, it is highly unlikely it will
ever have assets with which to satisfy the judgment. Given the
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trial court’s finding that the Fultons, Airborne, ATI, and Paradise
are one and the same, it would be inequitable as a matter of law
to preclude Relentless from collecting its judgment by treating
Airborne as a separate entity.” (Ibid.)
Similarly, here, as long as Triyar is the sole judgment
debtor, it is highly unlikely it will ever have assets to satisfy the
judgment. Given that the trial court found Triyar and the Yaris
are one and the same, it would be inequitable to preclude WSI
from collecting its judgment by treating Triyar as a separate
entity.
Moreover, the equities for imposing alter ego liability here
are even stronger than in Relentless. Here the Yaris represented
that they would be personally liable for Triyar’s debt relating to
the hotel purchase. Now that the bill has come due, they should
not be able to avoid that responsibility.
The Yaris’ reliance on Leek v. Cooper, supra, 194
Cal. App. 4th 399 is misplaced. In Leek, plaintiffs made a pre-trial
motion to amend their complaint to add alter ego defendants.
The trial court denied the motion. The Court of Appeal affirmed,
stating, “In short, there is nothing to indicate that plaintiffs, if
successful against the corporation, will not be able to collect on
any judgment against the corporation. Absent such evidence,
plaintiffs cannot show that the result will be inequitable, and
have not stated the second element of an alter ego claim. The
trial court acted within its discretion when it denied the motion
to amend.” (Id. at p. 418.) Here there is every reason to believe
WSI will not be able to collect its judgment against Triyar.
The Yaris’ counsel succinctly summarized the inequities in
this case. The trial court stated: “We know what would have
happened if the purchase went through, the money would have
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been forthcoming. Is this money going to be forthcoming?” The
Yaris’ counsel replied, “They did agree to personally be on the
hook for the [$]39 million but not for the attorney’s fees.”
DISPOSITION
The judgment (order) is affirmed. Costs are awarded to
respondent.
NOT TO BE PUBLISHED.
GILBERT, P. J.
We concur:
PERREN, J.
TANGEMAN, J.
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Vincent J. O'Neill, Jr., Judge
Superior Court County of Ventura
______________________________
Horvitz & Levy, David M. Axelrad, S. Thomas Todd, Scott
Dixler; Loeb & Loeb, David A. Grossman and Benjamin R. King
for Appellants Steven Yari and Shawn Yari.
Stroock & Stroock & Lavan, Julia B. Strickland, John R.
Loftus, David W. Moon and Ali Fesharaki for Defendant and
Respondent WSI (II) – HWP, LLC.
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Filed 11/20/20
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
TRIYAR HOSPITALITY 2d Civ. No. B301158
MANAGEMENT, LLC, (Super. Ct. No. 56-2015-
00462600-CU-BC-VTA)
Plaintiff; (Ventura County)
STEVEN YARI et al., ORDER MODIFYING
OPINION AND CERTIFYING
Appellants, OPINION FOR PUBLICATION
[NO CHANGE IN
v. JUDGMENT]
WSI (II) - HWP, LLC,
Defendant and Respondent.
THE COURT:
It is ordered that the opinion filed herein on October 22,
2020, be modified as follows
1. On page 1, the following paragraph is inserted as the
first paragraph in the opinion:
There are numerous ways in which an LLC or
corporation is undercapitalized. Here, wealthy
principals of an LLC withdraw or add money at will.
This enviable position does not allow the LLC to become
undercapitalized when its shareholders intend to avoid
liability.
2. On page 1, in the first line under FACTS – Underlying
Litigation, the words “entered into” are deleted and the word
“signed” is inserted in its place.
3. On Page 2, near the bottom of the page, in the first line
under Motion to Amend Judgment, the words “made a motion”
are deleted and the word “moved” is inserted in it place.
4. On page 2, in the third line under Motion to Amend
Judgment, the words “as well as” are deleted and the word “and”
is inserted in its place.
5. On page 5, in the middle of the paragraph under Alter
Egos, the words “In order” are deleted, so the sentence begins,
“To prevail in a motion …”
There is no change in the judgment
The opinion in the above-entitled matter filed on October 22,
2020, was not certified for publication in the Official Reports. For
good cause it now appears that the opinion should be published in
the Official Reports and it is so ordered.
GILBERT, P.J. PERREN, J. TANGEMAN, J.
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