REBECCA WATERS v. FIDELITY CAPITAL MORTGAGE BROKERS (2011)

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

Plaintiff Rebecca Waters obtained a default judgment against Fidelity Capital Mortgage Brokers in the amount of $100,000.   On appeal, Waters contends the award was unconscionable and without evidentiary justification.   She asks that we amend the judgment to award her $888,751, the amount she requested below.   We affirm.

BACKGROUND

A. Pleadings

Waters was recruited to work for Fidelity in mid-January 2007, by George Zioni, Fidelity's owner and managing agent, and Mayer Dallal, one of the company's officers.   Fidelity was incorporated approximately one month later, in February 2007.   Plaintiff alleges she worked for Zioni and Dallal until the company was incorporated, and for all three parties thereafter until her employment was terminated in mid-October 2007.

In September 2008, Waters filed an amended complaint against Fidelity, Zioni, and Dallal.   She alleged several unethical or illegal practices occurred under Zioni's and Dallal's leadership:  falsification of incorporation documents, loan fraud, falsification of company records, employment of undocumented workers, Labor Code violations, unlicensed brokers, bribery, computer hacking, and racism.   When Waters complained about and refused to participate in the activity, defendants retaliated by micromanaging her activities, demoting her, and reducing her duties, salary and commissions.   The complaint asserted 11 causes of action against each of the three defendants, including retaliation in violation of the Fair Employment and Housing Act (FEHA) and public policy, wrongful termination, violation of the Labor Code and Civil Code, intentional infliction of emotional distress, and breach of contract.   Waters alleged Zioni and Dallal were promoters of Fidelity and her “supervisors and employers.”

In her cause of action for breach of contract Waters alleged defendants agreed to pay her a base salary of $45,000 per year and steer business toward her that would entitle her to earn $15,000 per month in loan commissions.   They failed to give her the opportunity to earn $15,000 per month in commissions or to timely pay her wages.

The bulk of the complaint alleged facts only against Dallal, Waters's immediate supervisor.   As to Zioni, the allegations were sparse.   In addition to being her supervisor and employer, Waters alleged Zioni was a promoter of Fidelity, its owner and managing agent, and the chairman of its board of directors.   Waters alleged four specific actions by Zioni:  He asked her to have her husband hack into a competitor's computer, told her (through an interpreter) that he wanted her fired, ordered her to be at work from 11:00 a.m. to 9:00 p.m. and to remain on call, and said she was “out” (i.e., no longer to be employed with Fidelity).   Waters alleged generically that each of the defendants “was at certain relevant times the agent, employee, or representative of the remaining Defendants,” acted “within the course and scope of such agency and employment,” knew of, participated in, and exercised control over the wrongs alleged and ratified, authorized, and directed the actions of the other defendants.

Waters alleged she lost wages, salary, unspecified “additional amounts of money” and benefits and suffered humiliation, degradation, mental anguish, emotional distress and bodily injury.   She sought economic damages, restitution, emotional distress damages, punitive damages, penalties, interest, unpaid wages, injunctions, costs and attorney fees.

B. Default

Plaintiff settled with Dallal and dismissed him from the lawsuit.   Fidelity never responded to the complaint.   Its default was entered on May 27, 2009.

Zioni demurred to the first amended complaint on the ground that he was not Waters's employer, but was instead only an individual supervisory employee, and therefore could not be held liable for retaliation, wrongful termination, or any other cause of action alleged.   The trial court overruled the demurrer, finding Zioni was potentially liable “at least for the period between Waters's hiring and Fidelity's incorporation.”   The court ordered Zioni to file an answer within 20 days of the ruling.   Zioni never answered, and his default was entered on May 13, 2009.

On June 17, 2009, Waters filed a request for default judgment by the court as to Fidelity and Zioni in the amount of $883,751.   Waters's theory of relief was that because she repeatedly complained about illegal and unethical practices, Fidelity and Zioni retaliated against her by stripping her of her duties and office, failing to pay promised compensation, and terminating her employment.   She listed her damages in four line items, as follows:  (1) $100,000 for pain, suffering and inconvenience;  (2) $250,000 for emotional distress;  (3) $433,751 for past lost earnings;  and (4) $100,000 for future lost earnings.   (Waters originally sought $200,000 in punitive damages but later abandoned the claim.)

In support of the request for default judgment Waters submitted declarations from herself, her attorney and her husband;  one “salary” check in the amount of $1,875, made out to her and signed by Dallal;  three unintelligible documents dated February 1, February 24, and March 8, 2007 that bear only plaintiff's name and the name “Green Farm Mortgage Funding,” and reference amounts of $5,000, $5,000 and $1,875 (possibly these are receipts or checks drawn on an unidentified account);  Fidelity's articles of incorporation (which list Dallal as an officer but not Zioni);  and a Securities and Exchange Commission order making findings about and imposing sanctions against Dallal.   Waters submitted no employment contract, work records, payment records, or financial statements.

Substantively, Waters's declaration tracked the allegations in the complaint:  Dallal retaliated against her because she made several complaints about illegal or unethical conduct at Fidelity.   As in the complaint, the allegations regarding Zioni were scant.   As to him, Waters declared:  (1) Zioni acted as a promoter of Fidelity when he recruited her in January 2007 and promised her the compensation discussed above;  once Fidelity was established, both Zioni and Fidelity were her employers;  Dallal informed her that Zioni was one of Fidelity's owners;  she “discovered and/or had reasonable belief” that “defendants” engaged in unethical and illegal practices;  she “observed ․ Defendants' deceptive and illegal practices”;  “defendants” retaliated against her;  Dallal told her that Zioni objected to her keeping her office door closed;  “the Zionis” were present when Dallal asked her to break the law;  Zioni requested that she ask her husband to hack into a competitor's computer;  Dallal told her that Zioni made the decisions to violate the law;  and Dallal told her that Zioni wanted her fired.

Waters declared that in January 2007 she left a job paying $114,895 per year to work for Fidelity “based on the promises” Dallal and Zioni made to her.   She declared Zioni and Fidelity had promised her a base salary of $45,000 per year for 2007, to be increased to $72,000 in 2008, plus a minimum loan commission of $15,000 per month.   She was thus promised $215,625 for the portion of 2007 she would have worked had she stayed the entire year, $252,000 for all of 2008, and $63,000 for January through March 2009, for a total of $530,625.   She actually earned only $96,874, resulting in lost earnings of $433,751.

Waters declared that after her employment with Fidelity was terminated she worked at various other jobs from October 2007 through March 2009, earning a total of $23,149.   As a result of defendants' conduct she suffered insomnia, upset stomach, “irregular bowels”, gastro-esophageal reflux, severe fatigue, muscular pain, inability to concentrate, and feelings of anxiety, depression, uselessness, timidity, and fear, and has been prescribed Nortriptyline and Trazodone.

At the January 7, 2010 hearing on Waters's request for a default judgment the trial court stated it found no evidence indicating how Waters was entitled to $350,000 in pain and suffering damages, $433,751 in past lost wages, or any future lost wages.   The court observed there was no evidence of “any agreement that would have entitled her to salary and commissions from the time of her termination.”   The trial court also found it unclear how Zioni could be personally liable—as it did not appear from plaintiff's evidence that he personally retaliated against her, terminated her, or inflicted emotional distress upon her.

C. Judgment

On February 24, 2010, the trial court entered default judgment against Fidelity on all causes of action, awarding Waters $100,000 in compensatory damages for “[p]ain, suffering and inconvenience.”   The court crossed out most references in the proposed judgment to Zioni, emotional distress damages, and lost earnings.  (Apparently through inadvertence, a reference in the proposed judgment to $883,751 in total damages and two references to Zioni were not crossed out.)   Also crossed out was a reference to Waters's entitlement to costs and attorney fees.   The court gave no explanation for its ruling.

On April 19, 2010, the trial court denied Waters's ex parte motion to clarify the judgment, stating it found “no need to ․ bring [the motion] on an ex parte basis.”

Waters appealed.   Neither Fidelity nor Zioni has filed a brief on appeal.

DISCUSSION

Waters challenges the trial court's implied findings that she failed to provide sufficient evidence to support Zioni's liability or her claims for emotional distress damages or lost wages.   She contends the evidence established a prima facie case for such damages and Zioni's liability.   She also contends the trial court erred when it precluded her from moving for attorney fees and costs.

A. Standard of Proof

A defaulting defendant confesses the material allegations of the complaint.   (Johnson v. Stanhiser (1999) 72 Cal.App.4th 357, 361.)  “ ‘[W]here a cause of action is stated in the complaint and evidence is introduced to establish a prima facie case the trial court may not disregard the same, but must hear the evidence offered by the plaintiff and must render judgment in his favor for such sum ․ as appears from the evidence to be just.  [Citations.]’  [Citation.]”  (Id. at pp. 361–362, italics omitted.)

A plaintiff must prove her right to relief by introducing sufficient evidence to support her claims.   Courts may accept declarations in lieu of personal testimony at a default prove-up hearing, but the declarations must state facts “with particularity,” must be based on the personal knowledge of the declarant, and must affirmatively show that the declarant is competent to testify to such facts.  (Code Civ. Proc., § 585, subd. (d).)  If the plaintiff fails to submit evidence supporting her claims, the trial court may refuse to grant default judgment or award the amount requested, even though the defendant is in default and is not present to contest the evidence.  (Taliaferro v. Hoogs (1963) 219 Cal.App.2d 559, 560.)

A plaintiff who has requested default judgment may appeal from the judgment.   (Johnson v. Stanhiser, supra, 72 Cal.App.4th at p. 361.)   We interfere with the trial court's default judgment only if the damages award is “ ‘totally unconscionable and without evidentiary justification.’ ”  (Ibid.)

B. Zioni's Liability

The trial court impliedly concluded that Waters provided insufficient evidence of Zioni's liability on any cause of action.

Waters alleged 11 causes of action:  (1) Retaliation in violation of public policy;  (2) wrongful termination in violation of public policy;  (3) retaliation in violation of subdivision (h) of Government Code section 12940 [prohibiting an employer or any person from discharging or discriminating against an employee because he or she has opposed racial discrimination];  (4) violation of subdivision (i) of Government Code section 12940 [prohibiting the aiding or abetting of a violation of section 12940];  (5) violation of Labor Code section 1102.5 [prohibiting an employer from retaliating against an employee for refusing to participate in illegal activity];  (6) violation of Labor Code sections 201, 203, 221 and 226 [requiring an employer to pay wages timely and provide itemized statements];  (7) violation of Business and Professions Code section 17200;  (8) violation of Labor Code sections 226, 432, 1174 and 1198.5 [requiring an employer to maintain and make available certain employment records];  (9) violation of Civil Code section 52.1 [prohibiting the interference by threats, intimidation or coercion, with the exercise of statutory or constitutional rights];  (10) intentional infliction of emotional distress;  and (11) breach of the employment agreement.

Although Waters argues she presented evidence sufficient to support “a prima facie case against Zioni,” she does not indicate what cause of action has been established.   She does not argue, for example, that Zioni individually violated any of the code sections listed in the complaint, inflicted emotional distress upon her, or breached any contract with her.   Waters argues only that Zioni is liable—as her employer, as Fidelity's alter ego, or as the company's promoter—for Fidelity's firing her in retaliation for her complaints about illegal conduct.

Only an employer can be liable for wrongful discharge in violation of public policy or for violation of FEHA's provisions against discriminatory employment acts.  (Reno v. Baird (1998) 18 Cal.4th 640, 663–664.)   An employer is “[e]very person ․ which has any natural person in service.”  (Lab.Code, § 3300, subd. (c).)

As evidence of her employment relationship with Zioni, Waters declared she commenced employment on January 14, 2007, with Zioni and Dallal in their capacity as Fidelity's promoters and continued her employment jointly with them and Fidelity after the company was formed.   She declared all defendants were her joint employers until her mid-October 2007 termination.   Although she declared she performed extensive services for Fidelity and was paid by Dallal, Waters presented no evidence that she performed services for Zioni or was paid by him.   Therefore, the trial court's conclusion that only Fidelity was Waters's employer had evidentiary justification.

Waters also alleged and declared that Zioni was liable as Fidelity's alter ego.  “The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff's interests.  [Citation.]  In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation․”  (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300.)   Generally, for the alter ego doctrine to apply there must be such a unity of interest and ownership between the corporation and the individual controlling it that their separate personalities no longer exist and it must be shown that failure to disregard the corporate entity would sanction a fraud or promote injustice.  (Ibid.) “The doctrine is applicable where some innocent party attacks the corporate form as an injury to that party's interests.   The issue is not so much whether the corporate entity should be disregarded for all purposes or whether its very purpose was to defraud the innocent party, as it is whether in the particular case presented, justice and equity can best be accomplished and fraud and unfairness defeated by disregarding the distinct entity of the corporate form.”  (Communist Party v. 522 Valencia, Inc. (1995) 35 Cal.App.4th 980, 993.)   To determine whether the alter ego doctrine should be applied the court considers a number of factors, including:  commingling of funds, identical equitable ownership, personal use of corporate offices, personal services performed for the principal by corporate employees, disregard of corporate formalities, and use of the corporation as a mere shell or conduit for the principal's affairs.   (Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69 Cal.App.4th 223, 249–250.)

Waters presented no evidence addressing any of these factors or establishing that failure to disregard Fidelity's corporate status would sanction fraud or injustice.   Her only evidence that Zioni was Fidelity's alter ego was her declaration that it was so.   The trial court's conclusion that she failed to make a prima facie showing of Zioni's alter ego status was therefore not totally unconscionable and without evidentiary justification.

Next, Waters argues Zioni was liable as Fidelity's promoter.   A corporate promoter undertakes “to form a corporation, to procure for it the rights, instrumentalities and capital to effectuate the purposes specified in its charter, and to establish it as fully able to do business.”  (9 Witkin, Summary of Cal. Law (10th ed.   2005) Corporations, § 52, p. 829.)   A corporate promoter may be liable to subscribers under some circumstances and may be personally bound by some preincorporation contracts.  (See MacDonald v. Arrowhead Hot Springs Co. (1931) 114 Cal.App. 496, 499–500.)

Waters does not explain how Zioni is liable as Fidelity's promoter other than to quote Shell Oil Co. v. Hanchett (1936) 18 Cal.App.2d 240 as follows:  “The rule seems to be well settled that a promoter, though he may assume to act on behalf of a projected corporation and not for himself, cannot be treated as an agent of the corporation, for it is not yet in existence;  and he would be personally liable․”  (Id. at p. 243.)   Apparently keying on the phrase “personally liable,” Waters appears to argue promoters are liable for their corporation's torts or statutory violations.   But the remainder of the sentence quoted completes the rule:  A promoter “․ would be personally liable on his contract unless there was an agreement to look to the new company, when formed, for payment.”  (Ibid., italics added.)   Waters did not argue or prove that Zioni breached any contractual obligation to her.

We conclude the trial court's default judgment awarding plaintiff nothing against Zioni was not totally unconscionable or without evidentiary justification.

C. Emotional Damages

Waters sought damages in the amount of $100,000 for “[p]ain, suffering and inconvenience” and $250,000 for “[e]motional distress.”   The trial court awarded $100,000 only for pain, suffering and inconvenience.   Waters contends the trial court refused to award damages for emotional distress or lost wages, which was unconscionable and without evidentiary justification.   We disagree.

We believe the trial court did, in fact, award Waters damages for emotional distress.   Waters declared that as a result of defendants' conduct she suffered insomnia, upset stomach, irregular bowels, gastro-esophageal reflux, severe fatigue, muscular pain, inability to concentrate, and feelings of anxiety, depression, uselessness, timidity, and fear.   Because Waters suffered no precipitating physical trauma, the only possible source of her maladies was mental or emotional.   Plaintiff's pain and suffering and emotional distress line items therefore described the same injury.   In awarding $100,000 the trial court did not choose between two different injuries—there was no choice to make.   It merely awarded the lesser amount for plaintiff's unified injury.   As plaintiff presented no evidence that would enable a fact finder to value her maladies, and as such valuation would be highly subjective in any event, we cannot say that the amount awarded was unconscionable or without evidentiary justification.

D. Economic Damages

Waters contends the trial court's refusal to award economic damages was unconscionable and without evidentiary support.   We disagree.

Waters declared that Zioni and Dallal promised her a base salary of $45,000 per year (equating to $3,750 per month) and promised to steer loans to her that would enable her to earn $15,000 per month in commissions.  (Each processed loan earned a commission of $1,000.)   She worked for Fidelity for nine months, from mid-January to mid-October 2007.   During that time, she declared, she was demoted, her administrative duties were reduced, and she was “denied access to loan leads.”   Defendants failed to pay her in a timely manner, “drastically reduced the loans given to [her]” (increasing those given to another employee), and “reduced [her] compensation.”   Waters sought $433,751 for lost “past” earnings through March 2009 and $100,000 in lost future earnings “for the next three or more years.”

Plaintiff offers no theory under which she would be entitled to damages for lost future wages nor comprehensible calculation as to what those wages would be.  (Though plaintiff repeatedly argues she suffered $433,751 in lost “past” earnings, any sums that would have been paid to plaintiff from November 2007 to March 2009 would constitute future, not past earnings, as her employment ended in October 2007.)   If plaintiff seeks future lost wages on a contract theory, “[t]he general rule is that the measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon for the period of service․”  (Parker v. Twentieth Century–Fox Film Corp. (1970) 3 Cal.3d 176, 181.)   But plaintiff offered no evidence of any agreed upon period of service.   Zioni's and Dallal's agreement to pay her a certain amount for the first year and increasing amounts for subsequent years does not amount to a guarantee by Fidelity of employment through those years.   If plaintiff seeks damages for lost future wages on a tort or statutory theory (see Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 170 [wrongfully discharged employee “may maintain a tort action and recover damages traditionally available in such actions”];  Commodore Home Systems, Inc. v. Superior Court (1982) 32 Cal.3d 211, 221 [“in a civil action under the FEHA, all relief generally available in noncontractual actions, including punitive damages, may be obtained”] ), she offered no evidence establishing how long she might have worked for Fidelity had she not been fired or how much she would have earned.   Plaintiff offered no evidence, e.g., paystubs or financial statements, that Fidelity could or ever did pay her anything.   The only evidence of payment was that Dallal paid her $5,000 on one occasion.

Therefore, the trial court's ruling denying plaintiff lost future wages was not unconscionable.

Regarding lost past wages, plaintiff declared defendants agreed to pay her a base salary of $45,000 per year ($3,750 monthly) and steer business her way that would be worth $15,000 per month in commissions.   At the prove-up hearing plaintiff presented no evidence of the amount she was paid (by Fidelity or anyone else) from January to October, 2007.   She declared only that she made $96,874 “through March 2009,” $23,149 of which was earned from employers other than Fidelity.   We can extrapolate that she was paid $73,725 over her nine-month employment, which equates to the agreed monthly salary of $3,750 plus approximately $4,442 per month in commissions.   Ostensibly, plaintiff would therefore be entitled to an additional $10,558 per month in commissions, or $95,025.   But plaintiff was not guaranteed a minimum commission payment, she was promised only that a minimum of 15 loans would be steered her way every month, each offering the opportunity to earn a $1,000 commission.   Other than her general declaration that defendants “drastically reduced the loans” given to her, plaintiff offered no evidence regarding how many loans Fidelity processed, how many she was offered, or how many were diverted to other loan officers.   Lacking a particularized record of her earnings and opportunities, the trial court could not know what commissions were denied plaintiff in retaliation for her complaints.

Therefore, the court's award of no economic damages was not unconscionable or without evidentiary justification.

E. Attorney Fees and Costs

Waters included in the proposed judgment a paragraph describing her entitlement to recover costs and attorney fees, with the line for the amount sought left blank.   The trial court crossed out the paragraph when it adopted the proposed judgment.   Waters contends the court “in effect den[ied her] the right to seek such fees and costs before the time had expired for her to seek such fees and costs.”   We disagree.

A party seeking prejudgment attorney fees must file a motion for fees within the time to appeal.  (Cal. Rules of Court, rule 3.1702(b)(1).)   A party claiming costs on default “must request costs on the Request for Entry of Default (Application to Enter Default) (form CIV–100) at the time of applying for the judgment.”  (Cal Rules of Court, rule 3.1700(a)(2).)

When Waters filed her proposed judgment she did not seek attorney fees or costs, apparently believing she was supposed to do so only after the judgment was entered.   As to costs, she was incorrect.   The memorandum of costs should have been filed with the request for entry of default.   As for attorney fees, the trial court's crossing out the fees paragraph did not preclude plaintiff from moving for fees later.   Plaintiff still could have moved for fees within the time for appeal.

DISPOSITION

The judgment is affirmed.

NOT TO BE PUBLISHED.

CHANEY, J.

We concur:

MALLANO, P. J.

JOHNSON, J.