Commons v. Schine

[143]

Opinion

THOMPSON, J.

This is an appeal from a judgment on the pleadings entered on respondents’, defendants’, motion attacking appellant’s first amended complaint. We reverse the judgment.

Since we deal here with a judgment on the pleadings, the ultimate issue is the sufficiency of appellant’s complaint. In determining that issue, we accept as true the allegations of that pleading.

(Builders’ Control Service of No. Cal., Inc.

v.

North American Title Guar. Co.,

205 Cal.App.2d 68, 73 [22 Cal.Rptr. 712];

Franklin

v.

Municipal Court,

26 Cal.App.3d 884, 900 [103 Cal.Rptr. 354].)

The allegations of appellant’s first amended complaint establish the following for the purpose of this appeal. Pomona Valley Inn Corporation (the corporation) was incorporated in the fall of 1964. G. David Schine was at all times material the sole shareholder, president, and a director of the corporation. He totally dominated and controlled it. Pomona Valley Inn (the bankrupt) is a limited partnership promoted by Schine organized in October 1964 to acquire, develop and operate a motel, restaurant and bar. The corporation is the sole general partner of the bankrupt, and through the corporation Schine was in complete charge of, directed, controlled, dominated, and managed the bankrupt’s affairs. On November 9, 1964, the bankrupt purchased two parcels of real estate, and in January 1965, it commenced business. From the outset, both the corporation and the bankrupt were insolvent in the sense that their income was inadequate to meet debts as they became due. From and after December 31, 1965, the liabilities of the bankrupt and the corporation exceeded their assets.

Schine was at all times material the principal shareholder, an officer, and director of Schine & Co., another corporation dominated and controlled by him. Schine & Co. was a shell which Schine used as a conduit for the transaction of his business. “The business and affairs of [Schine and Schine & Co. were] so mixed and intermingled that the same cannot be reasonably segregated and the same are in inextricable confusion.” Prior to May 1966, Schine and Schine & Co. lent $132,000 to the bankrupt, becoming general creditors of the limited partnership. During May of 1966, the bankrupt had other general creditors. Schine and Schine & Co. possessed financial information about the bankrupt and the corporation which was not known to the other general creditors, including the fact of insolvency.