APEX MEAT CO INC v. WATSON XX (1984)

INTRODUCTION

Plaintiff Apex Meat Company (Apex) appeals from an order of the trial court denying its motion to amend the judgment in the underlying action in order to include Albert Watson and Watson Meat Company, Inc. as additional judgment debtors.

STATEMENT OF FACTS

Plaintiff filed the underlying action, for damages on an open-book account and an account stated in writing between Apex and defendants Albert Watson (Watson) and Ideal Meat Company, Inc. (Ideal).  Following a court trial, plaintiff was awarded a judgment on the complaint against Ideal for the sum of $63,500 plus interest and costs;  as to Watson, plaintiff took nothing.   The judgment was entered on April 13, 1981.

An order for appearance of judgment debtor was obtained by plaintiff;  the judgment debtor examination of Watson, as president of Ideal, took place on October 8, 1981.   On the basis of information obtained at the judgment debtor examination, plaintiff filed and served a notice of motion and motion for an order amending the judgment to include Watson and Watson Meat Company, Inc. (Watson Meat) as additional judgment debtor;  plaintiff's motion was based on the theory that both Watson and Watson Meat were at all times the alter ego of Ideal.

The motion was argued and denied on October 6, 1982.   Plaintiff's appeal from the denial of that motion was timely filed.

CONTENTION

Plaintiff contends the trial court abused its discretion by denying plaintiff's motion to amend the judgment.

DISCUSSION

Plaintiff asserts that the court's refusal to add Watson and Watson Meat Company to the judgment as judgment debtors on the theory they were the alter ego of Ideal was an abuse of the court's discretion.   We disagree.

Initially, we note the applicable standard of review.   Exercise of the trial court's discretion is to be guided by fixed legal principles.  (Bailey v. Taaffe (1866) 29 Cal. 423, 424;  Martin v. Cook (1977) 68 Cal.App.3d 799, 807, 137 Cal.Rptr. 434.)  “ ‘An appellate tribunal is neither authorized nor warranted in substituting its judgment for the judgment of the trial judge.   To be entitled to relief on appeal from the result of an abuse of discretion, it must clearly appear that the injury resulting from such wrong is sufficiently grave to amount to a manifest miscarriage of justice ․’ ”  (Ford v. State of California (1981) 116 Cal.App.3d 507, 516, 172 Cal.Rptr. 162;  quoting from Brown v. Newby (1940) 39 Cal.App.2d 615, 618, 103 P.2d 1018.)   The facts of this case do not attest to a miscarriage of justice;  to the contrary, the trial court's ruling is well founded.

Plaintiff seeks to amend the judgment on the premise that such an amendment is mandated where alter ego liability is established and the person or entity of the alter ego actually exercised control over the underlying litigation.   To support this position, plaintiff relies on Alexander v. Abbey of the Chimes (1980) 104 Cal.App.3d 39, 163 Cal.Rptr. 377;  Thomson v. L.C. Roney and Co. (1952) 112 Cal.App.2d 420, 246 P.2d 1017, and Mirabito v. San Francisco Dairy Co. (1935) 8 Cal.App.2d 54, 47 P.2d 530.   Plaintiff's reliance, however, is misplaced, as in none of these cases was the alleged alter ego a named defendant in the underlying action.  (See, e.g. Motores de Mexicali v. Superior Court (1958) 51 Cal.2d 172, 331 P.2d 1;  Schoenberg v. Romike Properties (1967) 251 Cal.App.2d 154, 168, 59 Cal.Rptr. 359.)   The distinction is fatal to plaintiff's cause.

The general rule does authorize a court “ ‘to impose liability under a judgment upon the alter ego who has had control of the litigation.’ ”   (Alexander v. Abbey of the Chimes, supra, 104 Cal.App.3d 39, 45, 163 Cal.Rptr. 377;  quoting from Schoenberg v. Romike Properties, supra, 251 Cal.App.2d 154, 168, 59 Cal.Rptr. 359;  emphasis original.)   However, the central issue in Abbey of the Chimes serves to focus the inapplicability of the general rule to the facts of this case.   The issue there was whether a judgment may “be entered against a person who [was] not a party to the action.”  (Alexander v. Abbey of the Chimes, supra, 104 Cal.App.3d 39, 44, 163 Cal.Rptr. 377;  emphasis added.)   An analysis of Mirabito v. San Francisco Dairy Co., supra, 8 Cal.App.2d 54, 47 P.2d 530, upon which the Abbey of the Chimes court relied, reveals why the presence of the alleged alter ego as a named party in the underlying action precludes the amendment sought by plaintiff.

The judgment in Mirabito was amended to add the name of a parent company as a judgment debtor on the theory that the parent company was the alter ego of its subsidiary, the original judgment debtor.   The parent company had not been a named defendant in the underlying action.   The court ruled amendment was proper in order to “correctly designate the parties actually involved ․”  (Id., at p. 60, 47 P.2d 530);  however, there the correction would make no difference in the judgment.   Absent any indication the alter ego's presence at trial could have resulted in its vindication, the court approved imposition of liability on the alter ego on the basis of the alter ego's actual involvement in the litigation.   Here we need not concern ourselves with the question of whether Watson would have been able to vindicate himself had he been present at trial, for he was not only present at trial, but did actually vindicate himself.

 A full expression of the general rule concerning imposition of liability upon the alter ego should, therefore, limit imposition of liability to those instances wherein the amendment does not change the substance of the judgment by imposing liability upon a party previously vindicated.   Such is not the case here, where the alleged alter ego was a named defendant who was vindicated at trial.   This conclusion is consistent with the well established rule that a judgment may not be amended to “express anything not embraced in [its] decision, even though the proposed amendment contains matters which ought to have been so pronounced.”  (Felton Chemical Co. v. Superior Court (1939) 33 Cal.App.2d 622, 627, 92 P.2d 684.)   Moreover, an amendment which does not bring the judgment into conformity with the decision previously rendered by the court lacks legal force;  the court may not enlarge upon its original judgment.  (Estate of Eckstrom (1960) 54 Cal.2d 540, 544, 7 Cal.Rptr. 124, 354 P.2d 652.)

Inasmuch as Watson was vindicated at trial, imposition of liability against him on any theory would serve to enlarge the original judgment.   Denial of plaintiff's motion was, therefore, mandated by the applicable principles of law.

Plaintiff also seeks to impose liability on Watson Meat on the theory that Watson Meat was Ideal's alter ego.   Absent concrete evidence Watson Meat was a party to the underlying action, we progress to a discussion of whether it could be characterized as Ideal's alter ego.   The two basic requirements for disregarding Ideal's corporate status are “ ‘․ (1) that there be such 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 result will follow.’ ”   (Alexander v. Abbey of the Chimes, supra, 104 Cal.App.3d 39, 46–47, 163 Cal.Rptr. 377;  quoting from Automotriz etc. De California v. Resnick (1957) 47 Cal.2d 792, 796, 306 P.2d 1.)

 Inasmuch as this determination is a question of fact, it is primarily within the province of the trial court and will not be disturbed where supported by substantial evidence.  (Alexander v. Abbey of the Chimes, supra, 104 Cal.App.3d 39, 47, 163 Cal.Rptr. 377.)   Thus, the question before the reviewing court is limited to whether there is substantial evidence, either contradicted or uncontradicted, which will support the trial court's finding.   All conflicts in the evidence will be resolved in favor of the respondent, and all reasonable inferences will be drawn to uphold the trial court's conclusion.  (Thayer v. Pacific Elec. Ry. Co. (1961) 55 Cal.2d 430, 438, 11 Cal.Rptr. 560, 360 P.2d 56;  Arnold v. Browne (1972) 27 Cal.App.3d 386, 393, 103 Cal.Rptr. 775, overruled on other grounds in Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 158 Cal.Rptr. 1, 599 P.2d 83.)   Essentially, bad faith is the underlying element which will justify disregarding the corporate entity.  (Pearl v. Shore (1971) 17 Cal.App.3d 608, 616, 95 Cal.Rptr. 157;  McKee v. Peterson (1963) 214 Cal.App.2d 515, 531, 29 Cal.Rptr. 742.)

 Among the factors which may be pertinent to the determination are:  commingling of funds or assets, failure to segregate the funds of each entity, and the unauthorized diversion of corporate assets to noncorporate purposes;  an individual's treatment of corporate assets as his own;  failure to obtain authority to issue or to actually issue stock;  an individual holding out that he is personally liable for corporate debts;  failure to maintain minutes or adequate corporate records;  commingling or confusion of records of separate entities;  the identical equitable ownership of two entities;  the unity of identification of directors and officers of two entities in the responsible supervision and management;  inadequate capitalization;  the concealment or misrepresentation of the identity of the responsible ownership, management and financial interest;  the disregard of legal formalities;  and the manipulation of assets among entities.  (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 838–840, 26 Cal.Rptr. 806.)

 Having reviewed the transcript of the judgment debtor examination held October 8, 1981, we find sufficient evidence to support the trial court's refusal to amend the judgment, negating thereby Watson Meat's liability as Ideal's alter ego.   That evidence establishes Watson Meat owned no interest in Ideal and, conversely, Ideal owned no interest in Watson Meat;  both Watson Meat and Ideal maintained separate bank accounts;  funds were not commingled;  Watson Meat did not operate any business out of premises used by Ideal and Watson Meat received no income from Ideal during 1977, the year in which Ideal incurred its indebtedness to Apex.   Thus, it is apparent that sufficient indicia of the unity of identification which would warrant penetrating the protection afforded Watson Meat by virtue of its corporate status is lacking.   As we have concluded Watson Meat's activities do not warrant its characterization as Ideal's alter ego, it is also apparent the judgment need not have been amended to establish Watson Meat's liability.   In view of the sufficiency of the evidence supporting the trial court's determination, we find no abuse of its discretion.

The judgment is affirmed.

SPENCER, Presiding Justice.

LILLIE and GUTIERREZ,* JJ., concur.