1997. The date of default was after September 24, 2008, and the amount owing was
$57,075.51, plus interest and attorney’s fees. The first, second, and third causes of action
were against the law corporation. The fourth cause of action was against Weinberg on a
guaranty.
A. The Demurrers and Summary Judgment
The law corporation filed a verified answer and Weinberg filed a demurrer to the
fourth cause of action on the grounds there was no writing memorializing the guaranty.
(Civ. Code, § 1624.) Wells Fargo opposed the demurrer, arguing that a transcription of a
tape recording of Weinberg’s oral agreement constitutes the necessary writing (Evid.
Code, § 250; Darley v. Ward (1980) 28 Cal.3d 257, 261) and that an exception exists for
an oral guaranty that benefits the guarantor. (Civ. Code, § 2794, subd. (4).)
After the court sustained the demurrer with leave to amend, Wells Fargo filed an
2
amended complaint, adding new allegations to its fourth cause of action, specifically that
“under the Line of Credit, Defendants agreed in a telephonic application which was
electronically stored, and which electronic storage acts as the written guaranty promise,
to pay Wells Fargo the amount equal to all funds advanced by Wells Fargo to said
borrower under the Line of Credit.” The court again sustained Weinberg’s demurrer with
leave to amend.
After further proceedings, Weinberg successfully demurred to the fourth cause of
action of the second amended complaint. The court entered judgment in Weinberg’s
favor and against Wells Fargo in May 2010. After Wells Fargo prevailed on a summary
judgment against the law corporation, the court entered a judgment in the amount of
$57,075.51.
B. Alter Ego Liability
In April 2011, Wells Fargo filed a motion to amend the judgment and add
Weinberg as a judgment debtor as an alter ego of the law corporation. (Code Civ. Proc.,
§ 187; Misik v. D’Arco (2011) 197 Cal.App.4th 1065, 1072, 1074-1075, citing NEC
Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 777.) Wells Fargo asserted that
Weinberg had drained the assets of the law corporation before dissolving it in June 2009.
Then, under the name of “Steven J. Weinberg a Trial Lawyer,” he continued to practice
law at the same location as Steven J. Weinberg, a professional law corporation. A
supporting declaration by Douglas A. Frymer described a debtor’s examination
conducted in January 2011, in which Weinberg and his wife could not explain 200 checks
3
identified as “loan repayments” from the law corporation to the Weinbergs. The amount
of the checks disbursed between December 14, 2006, and August 7, 2008, was
$420,981.78. The law corporation closed its account with Wells Fargo in the summer of
2008. The law corporation was dissolved in June 2009 but Weinberg continued to
conduct the same practice as a trial lawyer. The Weinbergs did not produce any
corporate documents, such as minutes or resolutions at the debtor’s examination.
In his opposition to Wells Fargo’s motion to amend, Weinberg argued the motion
was barred by res judicata and alter ego liability did not apply. Weinberg submitted a
supporting declaration, attaching articles of incorporation for the law corporation, filed
on October 26, 1981, and a shareholder’s agreement dated November 1, 1981. Weinberg
stated that, between 2003 and August 2008, he and his wife had loaned the law
corporation $815,964. In August and September 2008, when the law corporation ceased
doing business, it still owed Weinberg $155,000. Weinberg’s wife, Stephanie A.
Weinberg, also submitted a supporting declaration, claiming that the law corporation
made loan repayments to Weinberg but functioned as a separate corporate entity.
At a hearing on May 25, 2011, the court denied the motion but granted Wells
Fargo leave to amend its complaint to add an alter ego allegation. Then, on its own
motion, the court vacated the order of May 25, 2011, and set the matter for further
hearing, including further briefing on Greenspan v. LADT LLC (2010) 191 Cal.App.4th
486, and the issue of “whether the appropriate procedure would be to conduct an
evidentiary hearing on the motion at which each side could call and cross-examine
4
witnesses.” Both parties submitted additional briefing.1
At the continued hearing on June 23, 2011, the court ruled that the doctrines of res
judicata and collateral estoppel did not apply. The court found the evidence showed that
Weinberg was the alter ego of his professional corporation “[b]ecause it looks to me that
you did a fairly obvious thing. You starved the corporation of revenue, continued your
practice, and left, arguably, yourself, and your wife, and Wells Fargo holding the bag.”
Additionally, the court found that “when the corporation needed money, you wrote a
check to the corporation and when you needed money, the corporation wrote you back a
check.” The court took the matter under submission.
Next Weinberg made an ex parte application to file additional evidence. The court
took the application under submission and denied it.
On August 5, 2012, the court issued its written ruling granting Wells Fargo’s
motion to amend the judgment:
“Of course, plaintiff bears the burden of showing that Weinberg failed to keep his
personal and professional corporation’s affairs separate so that he should be held to pay
the corporation’s debts. Plaintiff must show (1) that there is such a 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
1 We revise our order of January 11, 2013, and grant the request to augment as to exhibit 5. We disregard the handwritten comments on the document.
5
result will follow.[] Jack Farenbaugh & Son v. Belmont Construction[,] Inc. (1987) 194
Cal.App.3d 1023, 1032. Here, plaintiff offers evidence that Weinberg, who owned his
professional corporation, stopped its operation, but continued to practice law as a sole
proprietor using the same name, in the same location, using the same equipment. Further,
in the last 18 months of the corporation’s existence, plaintiff argues, Weinberg paid
himself and other family members $420,981.78 from the corporation.
“In opposition to the motion, Weinberg argued at length that the motion was
barred by res judicata because the complaint included a cause of action against him to
which the Court sustained a demurrer without leave to amend. However, that cause of
action was based upon an alleged guarantee and not on an alter ego theory; this is the first
time that the alter ego theory has been litigated and, just as discussed in Greenspan, there
is no issue or claim preclusion. Next, Weinberg argued, that there is no factual basis for
alter ego, that formation of a one-person corporation is not enough to create alter ego
liability, that there is no evidence of a failure to disclose to third parties of the existence
of the corporation and that there was no abuse or bad faith in the exercise of corporate
control. Indeed, argues Weinberg, he, like plaintiff, loaned money to the professional
corporation and was not repaid all that he loaned. [¶] . . . [¶]
“. . . There is sufficient evidence that Weinberg failed to observe corporate
formalities and to keep his personal and business expenses and funds separate. [¶]
Weinberg contends that the professional corporation was losing money, so he shut it
down after paying as much of its debts as it could pay and that the professional
6
corporation is not under a duty to pay other creditors before it pays its shareholder. [¶]
Weinberg does not address the contention that he starved the professional corporation of
business by diverting to himself new cases as he closed the professional corporation.
This is, in the Court’s view, the decisive factor and is the one that would make it unjust
for the Court to treat Weinberg and his professional corporation as separate.”
Weinberg objected to the entry of judgment nunc pro tunc and filed a motion to
vacate the judgment. The court denied the motion. Weinberg again filed objections.
After taking the matter under submission, the court again overruled his objections and
ordered the amended judgment to be entered on March 2, 2012. Weinberg appealed.
III
RES JUDICATA
Weinberg’s primary argument is that res judicata bars Wells Fargo’s amendment
of the judgment because the trial court’s ruling sustaining Weinberg’s demurrer without
leave to amend determined as a matter of law that Weinberg was not liable for the law
corporation’s debts on any theory—including alter ego— that could have been raised in
the complaint. We disagree that res judicata applies.
Weinberg persistently argues that Wells Fargo alleged alter ego liability in its
complaint and that it knew or should have known there were grounds to assert alter ego
liability. The only reference to alter ego liability occurs in paragraph 5 in which Wells
Fargo makes the boilerplate allegation that every defendant is the “agent, partner, joint
venture, alter ego, servant or employee” of the other defendants. There is no effort made
7
to plead a claim based on the elements of alter ego liability. The issue of alter ego
liability was not addressed in the demurrers. Wells Fargo had no reason to believe that
the alter ego doctrine might apply. It was not litigated before judgment was entered
against the corporation. Res judicata is not a bar to claims that arise after the initial
complaint is filed. The lower court properly held that res judicata or claim preclusion did
not apply.
Res judicata also does not operate because Weinberg’s alter ego conduct was a
separate and distinct harm from the law corporation’s breach of contract. The motion to
add Weinberg to the judgment sought a remedy, not for breach of contract, but for
Weinberg’s exercise of control over the law corporation that deprived Wells Fargo of the
ability to collect the judgment against the law corporation for breach of contract. These
are separate and distinct wrongs. In Brenelli Amedeo, S.P.A. v. Bakara Furniture, Inc.
(1994) 29 Cal.App.4th 1828, the court considered a judgment against a corporation for
breach of contract followed by suit to enforce judgment against the shareholders as alter
egos. The court held, although both suits involved some of the same factual matters and
concerned the same contractual obligation, the purpose and outcome were not the same.
(Id. at p. 1841.)
In the interests of justice, the “‘“greatest liberality is to be encouraged”’” in the
allowance of amendments brought pursuant to Code of Civil Procedure section 187.
(Greenspan v. LADT LLC, supra, 191 Cal.App.4th at p. 508.) A Code of Civil Procedure
section 187 motion to add a third party to a judgment offers the means to satisfy the
8
original judgment. (Greenspan, at p. 516.) A plaintiff can still “maintain an action upon
the judgment.” (Rest.2d, Judgments, § 18(1).) Even if Wells Fargo could have pursued a
theory of alter ego, there was no bar to doing so after judgment. Code of Civil Procedure
section 187 may be used, “‘at any time so that the judgment will properly designate the
real defendants.’” (Greenspan, at p. 517.)
Res judicata and collateral estoppel did not preclude Wells Fargo from conducting
a judgment debtor examination of Weinberg or from seeking to add him as a judgment
debtor under Code of Civil Procedure section 187 on an alter ego theory: “‘A claim
against a defendant, based on the alter ego theory, is not itself a claim for substantive
relief, e.g., breach of contract . . . , but rather, procedural, i.e., to disregard the corporate
entity as a distinct defendant and to hold the alter ego individuals liable on the obligations
of the corporation where the corporate form is being used by the individuals to escape
personal liability, sanction a fraud, or promote injustice.’” (Greenspan v. LADT LLC,
supra, 191 Cal.App.4th at p. 516, citing Hennessey’s Tavern, Inc. v. American Air Filter
Co. (1988) 204 Cal.App.3d 1351, 1359.) Amending judgments under Code of Civil
Procedure section 187 is an equitable procedure. (McClellan v. Northridge Park
Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 742.) Because Wells Fargo is not
seeking new relief but to enforce its judgment, res judicata does not apply.
IV
SUBSTANTIAL EVIDENCE
In any event, substantial evidence showed that Wells Fargo did not know about the
9
facts supporting alter ego liability until June 2011 when it conducted the judgment debtor
examination. (NEC Electronics Inc. v. Hurt, supra, 208 Cal.App.3d at pp. 776-777.)
Appellate review determines whether there is any substantial evidence, contradicted or
uncontradicted, that supports the trial court’s findings. (Bowers v. Bernards (1984) 150
Cal.App.3d 870.) The appellate court has no power to judge the effect or value of the
evidence, to weigh the evidence, to consider the credibility of witnesses, or to resolve
conflicts in the evidence or in the reasonable inferences that may be drawn from the
conflicts. The appellate court views factual matters most favorably to the prevailing
party. (Orange County Employees Assn. v. County of Orange (1988) 205 Cal.App.3d
1289, 1293.)
In particular, Wells Fargo did not know until January 2011, that after dissolving
the law corporation in June 2009, Weinberg continued doing business as a sole proprietor
under the same name, using the same offices, employees, equipment, website, and phone
number. The building where the law corporation operated was owned by Weinberg and
his wife since 2003. The corporation paid for Weinberg’s vehicle.
Additionally, before dissolution, Weinberg disbursed all the corporate assets to
family members and himself. Weinberg withdrew $420,981.78 during the corporation’s
last 18 months of existence and paid it to himself and family members. Weinberg and his
wife claimed they had “no idea” what the monies were for.
The corporation was a mere shell or conduit for Weinberg’s affairs. Corporate
formalities were completely lacking. Weinberg did not produce corporate minutes,
10
resolutions or authorizations for the debtor’s examination. The trial court found that,
“Weinberg hindered discovery of facts relating to his alter ego liability” by objecting to
all of the written discovery and refusing to attend a deposition.
The trial court was in the best position to determine the veracity of Weinberg’s
claims. At hearings in May and September 2011, the court questioned Weinberg closely
about his denial of being an alter ego for the law corporation, the absence of
documentation for the so-called loans from him to the corporation, and how Weinberg
handled his continuing law practice as a corporation and an individual.
After reviewing the evidence and Weinberg’s demeanor, the trial court held that
there was sufficient evidence that Weinberg had failed to observe corporate formalities
and to keep his personal and business expenses and funds separate and that Weinberg had
controlled the law corporation. Viewing this evidence favorably to Wells Fargo, the
judgment must be affirmed.
V
ADDITONAL EVIDENCE
Weinberg contends the trial court unreasonably abused its discretion by not
granting his ex parte application to submit additional evidence in the form of corporate
records and documents. (Monroy v. City of Los Angeles (2008) 164 Cal.App.4th 248,
265.) We disagree.
Code of Civil Procedure section 187 contemplates a noticed motion. The trial
court is not required to hold an evidentiary hearing. (Greenspan v. LADT LLC, supra,
11
191 Cal.App.4th at pp. 507-508.) Evidence in the form of declarations or deposition
testimony is sufficient. The court found this was particularly true where Weinberg had in
his exclusive possession the evidence to show he was not the alter ego of his professional
corporation. Weinberg did not supply such evidence at the debtor’s examination or in his
opposition to the motion to amend. He also resisted Wells Fargo’s discovery efforts. He
only made a belated effort to offer the necessary showing after at least three previous
opportunities to do so. The trial court did not abuse its discretion in denying the ex parte
application.
V
CONCLUSION
Res judicata does not apply and substantial evidence supports the trial court’s
ruling. The trial court properly granted the motion to add Weinberg as a third party to the
judgment. We affirm the judgment.
Wells Fargo, the prevailing party, shall recover its costs on appeal.
CODRINGTON J. We concur:
RICHLI Acting P. J.
KING J.
12
Filed 6/18/14 CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE DISTRICT
DIVISION TWO
WELLS FARGO BANK, NATIONAL E057011
ASSOCIATION,
Plaintiff and Respondent, (Super.Ct.No. INC087958)
v.
STEVEN J. WEINBERG, ORDER
Defendant and Appellant.
IT IS ORDERED that the June 16, 2014, request for publication of the opinion
filed May 28, 2014, is GRANTED. The opinion meets the standard for publication as
specified in California Rules of Court, rule 8.1105(c). CODRINGTON J. RICHLI Acting P. J.
KING J. See attached list
1
AI Brief
AI-generated · verify before citing
Holding. The court held that the trial court properly exercised its jurisdiction under Code of Civil Procedure section 187 to add an individual as a judgment debtor based on an alter ego theory, finding that res judicata did not bar the motion and that substantial evidence supported the alter ego finding.
Issues
Whether res judicata or claim preclusion bars a motion to add a judgment debtor under Code of Civil Procedure section 187 after a prior judgment against the corporation.
Whether substantial evidence supports the trial court's finding that the individual defendant was the alter ego of the professional law corporation.
Disposition. Affirmed.
Quotations verified verbatim against the opinion
“The trial court properly exercised its jurisdiction under Code of Civil Procedure section 187 to add Weinberg as a party to the judgment.”
“Res judicata is not a bar to claims that arise after the initial complaint is filed.”
“There is sufficient evidence that Weinberg failed to observe corporate formalities and to keep his personal and business expenses and funds separate.”