Loughran v. Reynolds

WOOD (W. J.), J. In this action, commenced November 13, 1940, appellant named as defendants James E. Reynolds, Anna P. Reynolds and 20th Century Health Institute, a corporation. The action was dismissed as to defendant Anna P. Reynolds. It was also dismissed as to the corporation on August 24, 1942, by order of the court, because of the discharge of the corporation in bankruptcy.

Appellant sought to recover the sum of $1,800 alleged to be due him as accrued salary under the terms of a written contract which he had entered into with the defendant corporation ; also the sum of $39,264 for his alleged wrongful discharge and prevention of the performance of the contract. In separate counts appellant sought judgment for $168, but these [243]counts are of no significance in this appeal. The trial court rendered judgment in favor of James E. Reynolds, respondent herein, after it had sustained a demurrer to appellant’s first amended complaint without leave to amend. An appeal was taken by appellant and the judgment was reversed, the reviewing court holding that appellant’s complaint stated a cause of action as against the individual defendant because of the allegations of “his operations through the agency of a corporation as his alter ego.” (Loughran v. Reynolds, 53 Cal.App.2d 250 [127 P.2d 586].)

A voluntary petition in bankruptcy was filed in the United States District Court by defendant corporation on May 13, 1941. The corporation was thereupon adjudicated a bankrupt. Appellant filed a verified claim in the bankruptcy court against the bankrupt corporation upon the identical causes of action upon which he had sued the corporation and respondent herein. The trustee in bankruptcy and various creditors, including respondent herein, filed objections to the claim. Several hearings on the merits were held by the referee in bankruptcy, who found against appellant on the issues involved and particularly that there had been no anticipatory or other breach by the corporation but that appellant had himself breached the contract. He allowed the claim for $600 for services which had been rendered up to the time of the breach of the contract by appellant and also the sum of $168 above referred to. The order of the referee was affirmed by the United States District Court on September 1,1943, and has become final.

The judgment of the bankruptcy court was pleaded by respondent as a bar to the present action and the- issue thus presented was brought on for trial in the superior court in accordance with the provisions of section 597 of the Code of Civil Procedure. At the trial counsel for appellant stated: “We are attempting to hold Reynolds personally upon the theory and doctrine that he in fact was the alter ego of the corporation. ’ ’ The superior court rendered judgment on February 18, 1944, upholding the defense of res judicata and holding that the judgments and orders of the bankruptcy court were binding as between appellant and the corporation and as between appellant and respondent James E. Reynolds. The court further held that the question whether the corporation was the alter ego of respondent Reynolds was still open and to be determined in further proceedings, but that there