CARNEY VS. E & R CONSTRUCTION, INC.

7. CARNEY VS. E & R CONSTRUCTION, INC. 2022-01279849 MOTION FOR LEAVE TO AMEND JUDGMENT Judgment creditor William J. Carney, Jr.’s Motion to Amend Judgment to Add Donna Michele CortØs aka Michele Bustamante-CortØs as a Judgment Debtor is DENIED.

On 4/10/25, the Court entered judgment in favor of Plaintiff and against E&R in the amount of $2,586,000.00 with interest at 10%

per annum together with costs and disbursements (the Judgment). (ROA 139.)

Carney moves to add Donna Michele CortØs aka Michele Bustamante-CortØs as judgment debtor under the Judgment.

Legal Standard

Code of Civil Procedure Section 187 provides: “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.”

“Section 187 grants every court the power and authority to carry its jurisdiction into effect. This includes the authority to amend a judgment to add an alter ego of an original judgment debtor, and thereby make the additional judgment debtor liable on the judgment. Amending a judgment to add an alter ego of an original judgment debtor ‘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.’” (Highland Springs Conf. & Training Ctr. v. City of Banning (2016) 244 Cal.App.4th 267, 280 [cleaned up].)

“To prevail on the motion, the judgment creditor must show, by a preponderance of the 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.’” (Ibid., citation omitted.) “The decision to grant or deny the motion lies within the sound discretion of the trial court and will not be disturbed on appeal if there is a legal basis for the decision and substantial evidence supports it.” (Ibid., citations omitted.)

In determining whether there is a sufficient unity of interest and ownership, the court considers many factors, including “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. Inadequate capitalization of the original judgment debtor is another factor. No single factor governs; courts must consider all of the circumstances of the case in determining whether it would be equitable to impose alter ego liability. (Id. at pp. 280-281 [cleaned up].)

“Alter ego ‘is an extreme remedy, sparingly used.’ ‘The standards for the application of alter ego principles are high, and the imposition of [alter ego] liability . . . is to be exercised reluctantly and cautiously.’ Still, ‘[t]he greatest liberality is to be encouraged’ in allowing judgments to be amended to add the ‘real defendant’ or alter ego of the original judgment debtor, ‘in order to see that justice is done.’ (Id. at p. 281.)

CortØs does not dispute the first element (i.e., control of the underlying litigation) has been satisfied. (Opp. at 5:28-6:3.)

As to the second factor, unity of interest and ownership, Carney focuses primarily on Cortés’ purported undercapitalization of E&R.

Carney contends that at the time Carney retired in 2021 and before CortØs took over, E&R had a gross profit of approximately $2.5 million, almost $6 million in total assets, and over $3 million in stockholders’ equity. (Woollacott Decl., ¶ 9, Exs. 19-22.) Carney contends after Cortés took over E&R was run “into the ground in just a few short years.” (Mtn. at 11:1-2.) Carney contends CortØs failed to capitalize E&R as needed to maintain its operations, leaving the corporation without sufficient capital to operate or pay its debts. (Mtn. at 11:6-10.)

CortØs contends beginning in mid-2022 and continuing into 2023 and early 2024, E&R incurred substantial legal fees relating to the underlying Carney litigation, which contributed to the financial pressure E&R experienced after she took over the company. (CortØs Decl., ¶ 8.) CortØs contends in 2023, E&R suffered substantial losses on two construction projects which caused losses approaching $1 million. (CortØs Decl., ¶ 8.) CortØs contends E&R faced additional financial pressure from vendors, creditors, and taxing authorities, all of which contributed to E&R’s growing financial struggles. (CortØs Decl., ¶ 15.)

CortØs contends she advanced $1,408,000.18 of her personal funds to E&R through dozens of separate loans and contributions to support its operations. (CortØs Decl., ¶¶ 9-12.) CortØs contends as financial obligations accumulated, however, E&R increasingly had to direct available cash to immediate operating needs, including payroll and project completion, which limited its ability to satisfy all vendor and creditor obligations on time. (CortØs Decl., ¶ 18.) Ultimately, CortØs claims that despite her efforts and personal financial support, E&R’s financial condition continued to deteriorate, vendor obligations increased, tax liabilities increased, payroll became harder to meet, and E&R eventually became unable to continue operating. (CortØs Decl., ¶ 19.)

The Court does not find Carney’s contention Cortés undercapitalized E&R demonstrates “there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist.”

As an initial matter, while the analysis typically focuses on whether a corporation was properly capitalized at the outset, Carney does not contend E&R was created with inadequate capitalization. (See Pearl v. Shore (1971) 17 Cal. App. 3d 608, 617 [distinguishing poor management leading to loss of capital from initial capitalization for alter ego analysis]; see also (Lopez v. Escamilla (2022) 79 Cal.App.5th 646, 651 [“Meager capitalization supports an inference [] entities were created to avoid the personal liability of an alter ego.” [Emphasis added].

Ultimately, however, “[i]t is a fundamental rule that ‘[t]he conditions under which the corporate entity may be disregarded, or the corporation be regarded as the alter ego of the stockholders, necessarily vary according to the circumstances in each case. . . .’” (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 836-837.)

Here, Carney contends Cortés’ undercapitalization of E&R once she took over warrants a finding she was its alter ego.

Carney does not demonstrate, however, E&R’s inability to meet its ordinary operating expenses was necessarily due to Cortés’ undercapitalization. Rather, CortØs describes various financial issues E&R was experiencing, such as the underlying litigation, losses from two large projects, and various vendor/creditor obligations, which Carney does not dispute. Thus, the purported undercapitalization does not support a finding it was part of Cortés’ effort to “avoid personal liability,” but appears to be the result of various mounting financial obligations.

Carney further contends CortØs refused to do what Carney did “when times get tough,” which was “fund[ing] revenue shortfalls by infusing new capital into the company, and [not relying] rely on collecting and spending accounts receivable.” (Mtn. at 12:3-5.)

CortØs contends, however, that she advanced $1,408,000.18 of her personal funds to E&R through dozens of separate loans and contributions to support its operations. (CortØs Decl., ¶¶ 9-12.) While Carney disputes the amount of Cortés’ loans to E&R and whether they constitute capital (CortØs refers to the money as both “loans” and “contributions”), this demonstrates an effort to fund E&R’s immediate operating needs rather than allowing those needs to go unmet. (CortØs Decl., ¶ 18.)

Carney’s contention “Cortés used the money she should have paid to me under my agreement to instead operate the company” (Carney Decl., ¶ 4), further indicates Cortés attempted to keep E&R’s operations running.

Finally, even if Cortés’ undercapitalization of E&R was established, “[n]o single factor governs; courts must consider all of the circumstances of the case in determining whether it would be

equitable to impose alter ego liability. (Highland Springs Conf. & Training Ctr., supra, 244 Cal.App.4th 267 at pp. 280-281.)

Carney has not demonstrated any of the other relevant factors in determining unity of interest and ownership apply to support a finding of alter ego liability. For example, Carney has not demonstrated CortØs disregarded corporate formalities, commingled her funds and assets with E&R’s, or that either entity was otherwise used “as a mere shell or conduit for the affairs of the other.”

As to the third factor, “[a]ll the moving party is required to prove is that the alter ego’s acts caused an inequitable result.” (Triyar Hospitality Management, LLC v. WSI (II) – HWP, LLC (2020) 57 Cal.App.5th 636, 642 [citation omitted].)

Carney contends Cortés’ acts rendering E&R insolvent creates an inequitable result as a matter of law. (Mtn. at 13:27-14:2.)

“[I]t is not sufficient to merely show that a creditor will remain unsatisfied if the corporate veil is not pierced, and thus set up such an unhappy circumstance as proof of an ‘inequitable result.’ In almost every instance where a plaintiff has attempted to invoke the doctrine he is an unsatisfied creditor. The purpose of the doctrine is not to protect every unsatisfied creditor, but rather to afford him protection, where some conduct amounting to bad faith makes it inequitable, under the applicable rule above cited, for the equitable owner of a corporation to hide behind its corporate veil. (Associated Vendors, Inc., supra, 210 Cal.App.2d at p. 842.)

Carney relies on Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 813 to argue E&R has been rendered insolvent by CortØs, which is an inequitable result as a matter of law. In Relentless, however, the court founds the result to be inequitable where the individuals and corporations were found to be “one and the same.” (222 Cal.App.4th at p. 816.) Citing to Relentless, the court in Triyar Hospitality Management, LLC reached the same result stating, “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.” (57 Cal.App.5th at p. 716.)

Here, the Court finds there is insufficient evidence to demonstrate Cortés and E&R “are one and the same.”

Carney further argues the result would be inequitable because CortØs caused E&R to stop the payments to Carney and “took that money to operate E&R Construction, Inc., throughout pendency of the case, converting the money that should have been paid to Mr. Carney from cash in his hands to operating capital for the business he sold,

which when reduced to a judgment on the jury’s verdict E&R Construction, Inc., is now unable to pay.” (Mtn. at 14:12-18.)

This contention is essentially the same as the contention that Carney will remain an unsatisfied creditor. Moreover, while Carney argues it is inequitable CortØs used any capital to operate E&R rather than pay Carney, that is also what Carney argues CortØs should have done in light of E&R’s financial struggles as discussed above.

Ultimately, in considering all of the relevant factors, the Court does not find CortØs and E&R to be one and the same for establishing alter ego liability.

Finally, “a judgment debtor may be added if the equities overwhelmingly favor the amendment and it is necessary to prevent an injustice, even if all the formal elements generally necessary to establish alter ego liability are not present.” (Favila v. Pasquarella (2021) 65 Cal.App.5th 934, 949 [citation omitted].)

Carney contends even if alter ego liability is not established, equity requires adding CortØs as a judgment debtor. In doing so, Carney relies on the same arguments in support of the third factor regarding an inequitable result. For the same reasons, the Court does not find the equities “overwhelmingly favor the necessary to amendment” where the formal elements for establishing alter ego liability are not present.

8. LOS COYOTES KOREAN MEMBER ASSOCIATION VS. AG LOS COYOTES LLC 2024-01406947 MOTION FOR ATTORNEY FEES

Defendants AG Los Coyotes, LLC and American Golf Corporation’s motion for attorney fees is GRANTED.

Defendants AG Los Coyotes, LLC and American Golf Corporation (collectively, “Defendants”) move for an award against plaintiff Los Coyotes Korean Member Association (“Plaintiff”) for reasonable attorney fees in the amount of $337,716.25.

The Court declines to rule on Plaintiff’s objections (ROA 122) as immaterial to the ruling but the objections are preserved for purposes of appeal. (See Reid v. Google, Inc. (2010) 50 Cal.4th 512, 526 [“the trial court’s failure to rule expressly on any of Google's evidentiary objections did not waive them on appeal”].)

Entitlement to Fees

Defendants contend they are entitled to recover attorney fees on two independent grounds: (1) as the prevailing party on the contract claims pursuant to Civil Code section 1717; and (2) as the prevailing defendant on the Consumers Legal Remedis Act (“CLRA”) claim pursuant to Civil Code section 1780, subdivision (e).