Carmona v. Preston Waters Corp. CA2/3 (2014) · DecisionDepot
Carmona v. Preston Waters Corp. CA2/3
California Court of Appeal Jul 8, 2014 No. B251637Unpublished
Filed 7/8/14 Carmona v. Preston Waters Corp. CA2/3 NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
BRENDA CARMONA et al., B251637
Plaintiffs and Appellants, (Los Angeles County Super. Ct. No. BC490190) v.
PRESTON WATERS CORPORATION et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County,
William F. Fahey, Judge. Affirmed in part and reversed in part, with directions.
Egerman Law Group and Lee A. Egerman for Plaintiffs and Appellants.
No Reply Brief for Defendants and Respondents.
_______________________________________
The plaintiffs Brenda Carmona et al.1 appeal from the trial court’s denial of their
request for entry of default judgment against the defendants Preston Waters Corporation
(PWC), Preston Waters Entertainment, Inc. (PW Entertainment), and Nicholas
Mussolini. The plaintiffs contend that default judgment should have been entered
because they had presented sufficient evidence supporting their breach of contract
causes of action. We reverse, in part, on the ground that the trial court improperly
required the plaintiffs to present evidence of the defendants’ liability in support of the
request for default judgment. The trial court should have evaluated whether the
plaintiffs had presented prima facie evidence of damages as to all properly pled causes
of action in the complaint. However, we affirm, in part, on the ground that the plaintiffs
sought default judgment based on evidence that directly contradicted the complaint’s
allegations establishing liability.
FACTUAL AND PROCEDURAL BACKGROUND
1. The Complaint
On August 14, 2012, the plaintiffs filed a complaint against the defendants with
multiple causes of action for breach of contract, among other causes of action.2 The
complaint’s first cause of action for breach of contract alleged that, on February 15,
2012, Carmona entered into a written contract with PWC whereby PWC agreed to
employ Carmona as “President of Film and Television” and pay her over $2 million for
1 The plaintiffs in this action are Brenda Carmona, Bennett McCord, Charles Wachtel, Liron Artzi, Jesse McCullum, Max Lugavere, and Alexcy Aranguren. 2 This appeal only concerns the plaintiffs’ breach of contract causes of action.
2
“past due” debts as well as $300,000 in annual salary and a 3.5% commission on any
film project funded by PWC.
The contract was attached to the complaint and provided that the contract’s
“terms” would “commence” when PWC “ha[d] in its corporate accounts . . . in excess of
$10,000,000.00,” and that the “past due” debts would be paid “according to [] time
frames” commencing on the date of the “compan[y’s] capital accumulation.” The
complaint further alleged that the defendants had “obtained funding in excess of
Fifty Million Dollars” and that “[p]ursuant to the [] written contract, Carmona became
President of Film and Television for PWC” at some unspecified time. PWC allegedly
breached the contract by failing to pay Carmona the amounts due under the contract and
by terminating her employment on June 1, 2012. The cause of action was alleged
against all of the defendants and “each of the Defendants” was alleged to be “an alter
ego of each of the other Defendants.”
The complaint also alleged a cause of action for breach of oral contract based on
two oral contracts between Carmona and PWC: (1) in November 2011, “PWC hired
Carmona to do work on behalf of the PWC and agreed to compensate Carmona for that
work,” and (2) in February 2012, “PWC and Carmona entered into a second oral
agreement . . . containing the same terms as the [] Written Contract, except that the
obligations PWC owed Carmona were not conditional.” PWC allegedly breached these
agreements by failing to pay Carmona amounts owed under these contracts, and by
terminating her employment.
3
With respect to the other plaintiffs (co-employee plaintiffs), the complaint
alleged causes of action for breach of written contract and breach of oral contract based
on their respective contracts with PW Entertainment. Each co-employee plaintiff
allegedly entered into written employment contracts with PW Entertainment. The
written contracts were attached to the complaint and each provided that the co-employee
plaintiffs could be terminated without cause. Each agreement was signed by Carmona
in her capacity as a representative of PW Entertainment. PW Entertainment also
allegedly entered into oral contracts “containing the same terms” as those written
contracts with the additional promise that the co-employee plaintiffs would not be
terminated “except for cause.” PW Entertainment allegedly breached these written and
oral agreements by failing to pay “amounts owed” under the contracts and terminating
the employment of the co-employee plaintiffs in June 2012.
2. The Defendants’ Default
The defendants were served with the complaint on August 21, 2012. Mussolini
answered on September 21, 2012, but his answer was later “voided” for nonpayment of
fees. On October 11, 2012, default was entered against all of the defendants. On
April 15, 2013, the plaintiffs requested that the trial court enter default judgment against
the corporate defendants, and Mussolini as the alter ego of those corporations, with
respect to the breach of contract causes of action.
In support of this request, the plaintiffs submitted their own declarations, copies
of each of the written contracts, and additional evidence. In Carmona’s declaration, she
stated that she, in fact, had not become “President of the Television & Film Division of
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PWC,” but instead her contract had been “modified” and she had been appointed
president of PW Entertainment. Carmona further stated in her declaration that “all
claims that PWC had secured funding . . . are false.”
3. The Trial Court Dismissed the Case
On June 25, 2013, the trial court denied the plaintiffs’ request for default
judgment on the following grounds: (1) “the evidence submitted by plaintiffs shows
that Carmona never had a written contract with PWC”; (2) Carmona’s written
employment contract only “commence[d] on ‘the date of capital accumulation by the
company’ . . . ‘in excess of $10,000,000.00 USD’ ” and there was no evidence PWC
had ever raised this capital; (3) Carmona “did not have the authority to enter into
employment contracts, purportedly on behalf of PWC and/or PW [Entertainment], with
the other plaintiffs”; (4) the plaintiffs’ breach of oral contract claims fail because the
plaintiffs did not provide “admissible evidence . . . on these claims;” and (5) “the claim
that Mussolini is the alter ego of the corporate entities is not supported by competent
evidence.” The plaintiffs timely appealed.
CONTENTIONS
The plaintiffs contend that the trial court erred in denying their request for
default judgment because the evidence established that (1) Carmona had a written
contract with PWC, (2) the $10 million “capital accumulation” condition to Carmona’s
employment contract had been waived by the defendants, (3) Carmona had the authority
to enter into employment contracts on behalf of PW Entertainment, and (4) Mussolini
was the alter ego of the corporate defendants.
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DISCUSSION
1. Applicable Law
“ ‘[J]udgment by default is said to “confess” the material facts alleged by the
plaintiff, i.e., the defendant’s failure to answer has the same effect as an express
admission of the matters well pleaded in the complaint. . . . [Citation.]’ ”
(Steven M. Garber & Associates v. Eskandarian (2007) 150 Cal.App.4th 813, 823.)
“Because the default confesses those properly pleaded facts, a plaintiff has no
responsibility to provide the court with sufficient evidence to prove them—they are
treated as true for purposes of obtaining a default judgment. [Citation.]” (Kim v.
Westmoore Partners, Inc. (2011) 201 Cal.App.4th 267, 281.) “And if the well-pleaded
allegations of the complaint do not state any proper cause of action, the default
judgment in the plaintiff’s favor cannot stand.” (Id. at p. 282; Falahati v. Kondo (2005)
127 Cal.App.4th 823, 829 [a default judgment cannot be based on a complaint that fails
to state a cause of action against the defaulting party.])
Accordingly, where a cause of action is stated in the complaint, the plaintiff need
not prove liability of a defaulting defendant. (Ostling v. Loring (1994) 27 Cal.App.4th
1731, 1745 (Ostling).) However, the plaintiff must prove the amount of damages and is
required to present evidence establishing a prima facie case of those damages. (Johnson
v. Stanhiser (1999) 72 Cal.App.4th 357, 361.) The trial court, in turn, must hear the
evidence offered by the plaintiff and render judgment “ ‘in [its] favor for such sum, not
exceeding the amount stated in the complaint, or for such relief, not exceeding that
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demanded in the complaint, as appears from the evidence to be just. [Citations.]’ ”
(Id. at p. 362.)
2. The Trial Court Erred in Requiring the Plaintiffs to Prove Liability
Here, the trial court improperly required the plaintiffs to present evidence of the
defendants’ liability in support of the request for default judgment. As stated above,
a defendant who defaults admits the truth of properly pled causes of action in the
complaint and no further proof of liability with respect to those claims is required.
Accordingly, to the extent the plaintiffs properly pled certain causes of action, the trial
court should have evaluated whether the plaintiffs had presented a prima facie case on
the issue of damages as to those claims. However, in doing so, the trial court was not
required to ignore evidence volunteered by the plaintiffs that directly contradicted
allegations in the complaint.
a. The Breach of Written Contract Cause of Action With Respect to Carmona
The complaint adequately alleges facts stating a cause of action for breach of
contract with respect to the written contract between PWC and Carmona. “A cause of
action for breach of contract requires pleading of a contract, plaintiff’s performance or
excuse for failure to perform, defendant’s breach and damage to plaintiff resulting
therefrom. [Citation.]” (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th
1457, 1489.) “ ‘ “Ordinarily, a written contract is sufficiently pleaded if it is set out in
full or its terms alleged according to their legal effect. . . . ” ’ [Citations.]” (Beck v.
American Health Group Internat., Inc. (1989) 211 Cal.App.3d 1555, 1561.)
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Here, the complaint alleges that (1) Carmona entered into a written contract with
PWC for employment, (2) Carmona performed all of her obligations under the contract
or was excused from performance, (3) PWC breached the contract by terminating her
employment and failing to pay her amounts owed under the contract after she “became
President of Film and Television for PWC,” and (4) Carmona was damaged as a result
of these breaches. In addition, the terms of the written contract were sufficiently set
forth as the contract was attached to the complaint. Although the written contract
provided that it would only go into effect once PWC obtained in excess of $10 million,
it was reasonable to infer that this condition had been satisfied from the complaint’s
allegations that the defendants had “obtained funding in excess of Fifty Million Dollars”
and Carmona had begun her employment under the contract. Accordingly, these
allegations were sufficient to state a cause of action for breach of written contract.
However, in support of the request for default judgment, the plaintiffs submitted
a declaration by Carmona directly contradicting certain of these allegations. In her
declaration, Carmona stated that she had not, in fact, ever been employed as PWC’s
President of Film and Television, and that PWC had never obtained funding. As
Carmona had never been employed pursuant to the written contract, PWC could not
have breached the contract by terminating her employment and failing to pay her salary.
In addition, as PWC had never obtained the “capital accumulation” specified in the
contract, its payment obligations were never triggered. Instead, the plaintiffs argued
that Mussolini waived the “capital accumulation” condition to this written contract.
However, the complaint alleged facts showing that this condition had been fulfilled. In
8
order to rely on the argument that this condition had been waived, the plaintiffs should
have amended their complaint to allege this.
Although by defaulting, the defendants admitted the allegations in this properly
pled cause of action, the plaintiffs sought to prove a different claim at the default
hearing. Their attempt to rely on argument and evidence directly at odds with the
complaint’s allegations constituted a “de facto amendment” to the complaint. (Jackson
v. Bank of America (1986) 188 Cal.App.3d 375, 390 (Jackson) [holding that the
plaintiff’s argument and proof at the default hearing showing that he had incurred
damages after the complaint had been filed through the defendant’s sale of bonds,
constituted a de facto amendment to the complaint that entitled the defendant to be
served anew and then to answer].) “A material amendment to the complaint opens
a default because it permits the plaintiff to prove matters not in issue when the default
was taken, which ‘would materially affect the defendant’s decision not to contest the
action . . . . ’ [Citation.] . . . Unless the plaintiff properly obtains an amendment of his
pleading, the defaulting defendant is not subject to this unfair prospect.” (Ostling,
supra, 27 Cal.App.4th at p. 1744.) (Emphasis added.)
Here, the de facto amendment to the complaint alleging that PWC had never
been funded and Carmona had never been employed in the position provided for by the
written contract was material as these new allegations undercut the basis for PWC’s
liability with respect to Carmona’s breach of written contract cause of action.
Accordingly, the plaintiffs should have formally amended their pleading (and served the
defendants with it) prior to seeking default judgment based on these allegations.
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The Jackson court’s holding that a plaintiff that makes arguments at the default
hearing based on events that occurred after the complaint had been filed effects
a “de facto amendment” to the complaint has been criticized for “impl[ying] that
immaterial evidence and inappropriate argument at a default judgment hearing requires
setting aside a properly obtained default.” (Ostling, supra, 27 Cal.App.4th at p. 1744.)
According to the Ostling court, “[i]f the plaintiff wholly departs from the existing
complaint at a hearing on damages, beyond the limitations of the doctrine of curable
variance, the trial court should hew to the complaint. [Citation.]” (Id. at p. 1745.)
However, the case here is distinguishable from Jackson, and Ostling’s criticism
of Jackson does not apply. In Jackson, “the complaint fail[ed] to state a cause of
action” as no damages were adequately alleged, and the plaintiff attempted to remedy
that error by providing evidence as to damages that occurred only after the complaint
had been filed. (Id. at p. 1746.) The proper remedy in this situation, according to the
Ostling court, was to “hew to the complaint,” and “deny relief or limit relief to that
which is appropriate considering only the evidence which is within this pale.” (Id. at
p. 1745.) The Ostling court’s reasoning was based on the principle that “[p]reserving
the default advances the public interest in the avoidance of unwarranted contested trials
of matters in which a default has lawfully been taken after the time to set aside the
default has passed.” (Id. at p. 1747.)
However, unlike in Jackson, the complaint in this case did state a cause of action
for breach of written contract with respect to Carmona. The plaintiffs’ argument and
evidence at the default hearing directly contradicted key allegations in this properly pled
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claim. In such a scenario, the trial court should not “hew to the complaint” as doing so
would support the fiction that the complaint’s allegations were true, when the plaintiff
has already admitted they are not. Under these circumstances, “preserving the default”
would lead to an inequitable result, therefore, default judgment on the original
allegations is properly denied.
b. The Breach of Oral Contract Cause of Action With Respect to Carmona
The plaintiffs’ cause of action for breach of oral contract with respect to
contracts between Carmona and PWC is stated in conclusory terms and fails to allege
facts sufficient to state this cause of action. “ ‘Under California law, a contract will be
enforced if it is sufficiently definite (and this is a question of law) for the court to
ascertain the parties’ obligations and to determine whether those obligations have been
performed or breached.’ [Citation.] . . . ‘The terms of a contract are reasonably certain
if they provide a basis for determining the existence of a breach and for giving an
appropriate remedy.’ [Citations.] But ‘[if] . . . a supposed “contract” does not provide
a basis for determining what obligations the parties have agreed to, and hence does not
make possible a determination of whether those agreed obligations have been breached,
there is no contract.’ [Citation.]” (Bustamante v. Intuit, Inc. (2006) 141 Cal.App.4th
199, 209.)
Here, the complaint alleges first that PWC and Carmona “entered into an oral
employment agreement” in November 2011, pursuant to which “PWC hired Carmona to
do work on behalf of [] PWC and agreed to compensate Carmona for that work.” PWC
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and Carmona are also alleged to have entered into a second oral agreement, one that
“contain[ed] the same terms as the [] Written Contract, except that the obligations PWC
owed Carmona were not conditional . . . . ”
These allegations do not set forth sufficient details regarding the parties’
obligations under these agreements. With respect to the first oral agreement, the
complaint does not allege what kind of work Carmona agreed to perform for PWC, how
much PWC agreed to pay Carmona for this work, or when those payments would be
made. With respect to the second oral agreement, the complaint’s allegation that this
agreement contained the terms of the written contract “except” that PWC’s
“obligations” “were not conditional” is excessively vague. There are multiple
conditions in the contract including the condition that commissions would only be
paid once projects were funded and it is unclear which of these this allegation refers
to. In addition, even if, as the plaintiffs argue, this refers to the “capital accumulation”
condition, this renders certain terms of the contract unclear: many of PWC’s payments
to Carmona were to be disbursed according to “time frames” running from when the
company received the “capital accumulation,” thus, it is unclear when those payments
became due under the non-conditional oral agreement.
Accordingly, the complaint did not allege facts stating a cause of action for
breach of Carmona’s alleged oral contracts with PWC. Furthermore, as stated above,
although the complaint adequately alleged that PWC breached the written contract with
Carmona or on an oral contract with the same terms allegations in support of those
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causes of action were directly contradicted by evidence later submitted by the plaintiffs
to the court. Therefore, default judgment on this cause of action would have been
improper.
c. The Co-Employee Plaintiffs’ Causes of Action for Breach of Written Contract
The complaint, however, does adequately allege causes of action for breach of
written contract with respect to the claims of the co-employee plaintiffs. These causes
of action allege that (1) those plaintiffs each entered into individual contracts for
employment with PW Entertainment, (2) PW Entertainment breached those contracts by
“failing to pay amounts owed” and terminating their employment, (3) the co-employee
plaintiffs performed their obligations under the contracts or were excused from
performance, and (4) the co-employee plaintiffs suffered damages as a result. The
terms of the written contracts were adequately set forth as these agreements were
attached to the complaint.
These allegations were sufficient to state a cause of action for breach of contract,
at least with respect to PW Entertainment’s failure to pay the plaintiffs their salary for
work performed. However, the written contracts provided that PW Entertainment could
terminate these plaintiffs without cause, therefore, the complaint did not allege facts
showing that PW Entertainment had breached those contracts by terminating the
co-employee plaintiffs’ employment.
In support of their request for default judgment, the co-employee plaintiffs each
submitted declarations stating that PW Entertainment failed to pay them any amount for
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the work they performed. At that point, the trial court should have evaluated whether
a prima facie case for damages had been made. The trial court’s analysis of whether the
evidence was sufficient to establish that Carmona had authority to enter into the
employment contracts as a representative of PW Entertainment was improper. By
defaulting to the complaint’s properly pled causes of actions for breach of written
contract, PW Entertainment admitted that it had entered into the written contracts with
the co-employee plaintiffs.
d. The Co-Employee Plaintiffs’ Causes of Action for Breach of Oral Contract
The complaint also adequately alleged causes of action for breach of oral
contract between the co-employee plaintiffs and PW Entertainment. The complaint
alleged that (1) they each had entered into respective oral agreements with PW
Entertainment “containing the same terms” as their respective written contracts with the
additional promise that the co-employee plaintiffs would not be terminated “except for
cause,” (2) the co-employee plaintiffs timely performed their contractual obligations or
were excused from performance, (3) PW Entertainment breached these oral contracts by
“failing to pay the amounts owed” and terminating the co-employee plaintiffs’
employment in June 2012, and (4) they suffered damages as a result.
Although the trial court found that the plaintiffs had not provided “admissible
evidence” of the “nature of” these oral contracts, their terms or duration, PW
Entertainment had already admitted the existence of valid oral agreements with the
co-employee plaintiffs by defaulting to these properly pled causes of action.
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Accordingly, the trial court erred in concluding that the plaintiffs could not “prevail on
these claims,” and in failing to evaluate whether the plaintiffs had provided prima facie
evidence of damages.3
e. The Claim for Alter Ego Liability
With respect to the plaintiffs’ claim for alter ego liability, the complaint alleges
only that “each of the Defendants was an alter ego of each of the other Defendants.”
“ ‘The allegation that a corporation is the alter ego of [] individual[s] is insufficient to
justify the court in disregarding the corporate entity in the absence of allegations of facts
from which it appears that justice cannot otherwise be accomplished. . . . ’ [Citations.]
[¶] The rule is firmly settled that no reliance can be had on th[e] [alter ego] theory in
the absence of pleading that recognition of the corporate entity would sanction a fraud
or promote injustice. [Citations.]” (Meadows v. Emett & Chandler (1950)
99 Cal.App.2d 496, 498-499.) Here, the bare allegation that the defendants were alter
egos of each other without supporting facts showing that it would be equitable to
disregard PWC’s and PW Entertainment’s corporate status, did not meet these
requirements. Therefore, the complaint did not allege facts showing that Mussolini was
3 The complaint also alleged causes of action for “breach of implied-in-fact contract” that are identical to the causes of action for breach of oral contract except that these causes of action refer to “implied-in-fact” rather than “oral” agreements. However, the complaint does not allege any facts as to conduct by the corporate defendants’ representatives that allegedly established these contracts, and therefore, does not succeed in stating a cause of action based on this theory. (Donahue v. United Artists Corp. (1969) 2 Cal.App.3d 794, 808 [in an implied-in-fact contract, “the promise is not expressed in words but is implied from the promisor’s conduct.”])
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the alter ego of the corporate defendants, and default judgment based on this theory
would have been improper.
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DISPOSITION
That portion of the judgment ordering dismissal of the co-employee plaintiffs’
causes of action for breach of written and oral contracts is reversed. In all other respects
the judgment is affirmed. Upon remand, the trial court is directed to reconsider the
issue of damages allegedly sustained by the co-employee plaintiffs in light of the views
expressed in this opinion, and to enter judgment in accordance with its findings on such
evidence as to damages as may be presented by the co-employee plaintiffs. The
co-employee plaintiffs are to recover their costs on appeal. The plaintiff Carmona shall
not recover her costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
CROSKEY, Acting P. J.
WE CONCUR:
KITCHING, J.
ALDRICH, J.
17
AI Brief
AI-generated · verify before citing
Holding. The court held that while a defaulting defendant admits the well-pleaded allegations of a complaint, the trial court correctly denied default judgment where the plaintiffs' own evidence contradicted their complaint's allegations; however, the court erred by requiring the co-employee plaintiffs to prove liability rather than just damages for their properly pleaded claims.
Issues
Whether the trial court erred in requiring plaintiffs to prove liability in a default judgment proceeding.
Whether a plaintiff's evidence that contradicts the complaint's allegations constitutes a de facto amendment requiring the default to be set aside.
Whether the complaint sufficiently alleged alter ego liability to support a default judgment.
Disposition. Affirmed in part and reversed in part.
Quotations verified verbatim against the opinion
“the trial court improperly required the plaintiffs to present evidence of the defendants’ liability in support of the request for default judgment.”
“the plaintiffs sought default judgment based on evidence that directly contradicted the complaint’s allegations establishing liability.”
“The allegation that a corporation is the alter ego of [] individual[s] is insufficient to justify the court in disregarding the corporate entity in the absence of allegations of facts from which it appears that justice cannot otherwise be accomplished.”