Raicevic v. Geraci CA4/1 ( 2015 )

Filed 8/19/15 Raicevic v. Geraci CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
VLADIMIR RAICEVIC et al., D065629
Plaintiffs and Respondents,
v. (Super. Ct. No. GIC881930)
ALAN L. GERACI,
Defendant and Appellant.
APPEAL from a judgment of the Superior Court of San Diego County, Timothy
B. Taylor, Judge. Reversed and remanded for further proceedings.
Care Law Group, Alan L. Geraci; Kirby Noonan Lance & Hoge and Charles T.
Hoge for Defendant and Appellant.
Law Offices of Jerry D. Cluff and Jerry D. Cluff for Plaintiffs and Respondents.
Defendant Alan L. Geraci appeals an amended judgment entered after the trial
court granted plaintiffs' (Vladimir Raicevic and Imelda Raicevic, individually and as
trustees of their respective family trusts (together the Raicevics)) motion to add him as a
judgment debtor in their successful fraud action against defendants Stephen F. Lopez and
the law firm of Geraci & Lopez, a general partnership (Partnership). On appeal, Geraci
contends: (1) the trial court abused its discretion under Code of Civil Procedure1 section
187 by adding him as a judgment debtor because it misconstrued applicable law (e.g.,
that a general partner cannot be held liable for a partnership's judgment debt unless
named as a defendant in the complaint); (2) he was denied due process of law; and (3) the
court erred by inadequately considering his objections to the Raicevics' evidence.
FACTUAL AND PROCEDURAL BACKGROUND2
In 2007, the Raicevics filed the instant action against Lopez, the Partnership, and
other defendants alleging causes of action for intentional and negligent
misrepresentations they allegedly made in 2004. After the trial court granted a motion
for summary judgment in favor of Lopez and the Partnership, we reversed the summary
judgment in a prior appeal (Andjelka Raicevic, Individually and as Trustee, etc. et al. v.
Stephen F. Lopez et al. (Aug. 18, 2010, D055002) [nonpub. opn.] (Raicevic I)). On
remand, following trial, the jury returned special verdicts finding Lopez and the
Partnership liable for intentional and negligent misrepresentation and awarding the
Raicevics $588,000 in compensatory damages. In November 2011, the trial court entered
judgment in favor of the Raicevics. In Raicevic II, we reversed the trial court's award of
1 All statutory references are to the Code of Civil Procedure unless otherwise
specified.
2 For a more detailed description of the factual and procedural background of the
Raicevics' action against Lopez and the Partnership, refer to our opinion in Vladimir
Raicevic, Individually and as Trustee, etc., et al. v. Stephen F. Lopez et al. (Jan. 23, 2015,
D061253) [nonpub. opn.] (Raicevic II).
2
attorney fees to the Raicevics, but affirmed the judgment against Lopez and the
Partnership in all other respects.
In July 2013, the Raicevics filed a motion to amend the judgment to add Geraci as
a judgment debtor. They argued that section 187 authorized the trial court to amend the
judgment to add Geraci as an additional judgment debtor on grounds of alter ego liability,
successor entity liability, and Corporations Code section 16807 liability. Geraci opposed
the motion, arguing that: (1) neither he nor his professional corporation, as a general
partner of the Partnership, could be held liable for the Partnership's judgment debt unless
named as a defendant in the complaint; (2) he could not be added as a judgment debtor
under Corporations Code section 16807; and (3) the Raicevics had not submitted any
evidence showing he was the alter ego of his professional corporation (or of the
Partnership). After hearing arguments of counsel, the trial court granted the Raicevics'
motion and entered an amended judgment adding Geraci as a judgment debtor. Geraci
filed a notice of appeal.
On September 2, 2014, Geraci filed a request for judicial notice of or, in the
alternative, to augment the record with, certain exhibits. We previously granted his
motion in part and augmented the record with Exhibit 1 to his motion. We now grant his
request to take judicial notice of our prior opinion in Raicevic I (exh. 2 to his motion), but
deny his request to augment the record with, or take judicial notice of, the remaining
exhibits (i.e., exhs. 3-6 to his motion).
3
On June 12, 2015, the Raicevics filed a request to further augment the record with
the second amended judgment in this case (i.e., an amended judgment after trial by jury
and after decision on appeal), which the trial court entered on June 11, 2015, following
our opinion in Raicevic II. We now grant their request to further augment the record with
that second amended judgment.
DISCUSSION
I
Standards of Review
A trial court's decision to amend a judgment to add a judgment debtor is reviewed
on appeal for abuse of discretion. (Carolina Casualty Ins. Co. v. L.M. Ross Law Group,
LLP (2012) 212 Cal. App. 4th 1181, 1189 (Carolina Casualty).) We also review a trial
court's evidentiary rulings for abuse of discretion. (Pannu v. Land Rover North America,
Inc. (2011) 191 Cal. App. 4th 1298, 1317.) It is an abuse of discretion for a trial court to
fail to exercise discretion vested in it. (Fletcher v. Superior Court (2002) 100
Cal. App. 4th 386, 392.)
We review a trial court's factual findings for substantial evidence to support them.
(Carolina Casualty, supra, 212 Cal.App.4th at p. 1189.) We review de novo, or
independently, questions of law, including whether a party has been denied procedural
due process. (Nasha v. City of Los Angeles (2004) 125 Cal. App. 4th 470, 482; Clark v.
City of Hermosa Beach (1996) 48 Cal. App. 4th 1152, 1169-1170.) Furthermore, "[t]he
question of whether a trial court applied the correct legal standard to an issue in
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exercising its discretion is a question of law [citation] requiring de novo review
[citation]." (Eneaji v. Ubboe (2014) 229 Cal. App. 4th 1457, 1463.)
II
Section 187 and Amendments to Judgments Generally
"Under section 187, the trial court is authorized to amend a judgment to add
additional judgment debtors. [Citations.] As a general rule, 'a court may amend its
judgment at any time so that the judgment will properly designate the real defendants.'
[Citations.] Judgments may be amended to add additional judgment debtors on the
ground that a person or entity is the alter ego of the original judgment debtor. [Citations.]
'Amendment of a judgment to add an alter ego "is an equitable procedure based on the
theory that the court is not amending the judgment to add a new defendant but is merely
inserting the correct name of the real defendant. . . .' " (Hall, Goodhue, Haisley &
Barker, Inc. v. Marconi Conf. Center Bd. (1996) 41 Cal. App. 4th 1551, 1554-1555, fn.
omitted.) Section 187 provides:
"Where jurisdiction is, by the Constitution or this Code, or by any
other statute, conferred on a Court or judicial officer, all the means
necessary to carry it into effect are also given; and in the exercise of
this jurisdiction, if the course of proceeding be not specifically
pointed out by this Code or the statute, any suitable process or mode
of proceeding may be adopted which may appear most conformable
to the spirit of this code."
"The court may exercise its authority [under section 187] to impose liability upon an alter
ego who had control of the litigation, and was therefore represented in it. [Citation.] The
addition of a new party as judgment debtor stems from the concept of the alter ego
5
doctrine, which is that an identity exists between the new party and the original party,
whose participation in the trial leading to the judgment represented the newly added
party." (Misik v. D'Arco (2011) 197 Cal. App. 4th 1065, 1072.) "In addition, even if all
the formal elements necessary to establish alter ego liability are not present, an unnamed
party may be included as a judgment debtor if 'the equities overwhelmingly favor' the
amendment and it is necessary to prevent an injustice." (Carolina Casualty, supra, 212
Cal.App.4th at pp. 1188-1189.)
"In order to see that justice is done, great liberality is encouraged in the allowance
of amendments brought pursuant to . . . section 187." (Misik v. D'Arco, supra, 197
Cal.App.4th at p. 1073.) Accordingly, "[t]he trial court's decision to amend a judgment to
add a judgment debtor is reviewed for abuse of discretion." (Carolina Casualty, supra,
212 Cal.App.4th at p. 1189.)
III
Legal Standard Applied by the Trial Court
Geraci contends the trial court abused its discretion under section 187 by
amending the judgment to add him as a judgment debtor because it misconstrued
applicable law (e.g., that a general partner cannot be held liable for a partnership's
judgment debt unless named as a defendant in the complaint). Geraci was not named as a
defendant in the Raicevics' complaint. In support of his argument, he cites Fazzi v.
Peters (1968) 68 Cal. 2d 590 (Fazzi).
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A
In moving for an amendment of the judgment to add Geraci as a judgment debtor,
the Raicevics argued that section 187 authorized the trial court to amend the judgment to
add him as an additional judgment debtor on grounds of alter ego liability, successor
entity liability, and Corporations Code section 16807 liability. Geraci disagreed and
argued the court could not add him as a judgment debtor because, citing Fazzi, neither he
nor his professional corporation was named as a defendant in the action. The trial court
granted the motion to add Geraci as a judgment debtor, stating:
"Geraci clearly participated in and controlled the litigation. The
court agrees with the [Raicevics] that Carolina Casualty controls
here, and this court is duty bound to follow it unless and until
another rule is announced by higher courts. Auto Equity Sales[, Inc.]
v. Superior Court [(1962) 57 Cal. 2d 450, 455].
"[The Raicevics] offer substantial evidence, not refuted by Geraci,
that efforts are being made to shift assets among entities for purposes
of evading the [P]artnership's judgment debt. The very recent
[Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217
Cal. App. 4th 1096] case and the [Phillips, Spallas & Angstadt, LLP
v. Fotouhi (2011) 197 Cal. App. 4th 1132] case from 2011 discussed
in the moving papers make clear the policy of the courts that this sort
of 'merry chase' conduct not be countenanced."
The court entered an amended judgment adding Geraci as a judgment debtor.
B
Geraci argues the trial court misconstrued applicable law by not following Fazzi's
holding that a general partner of a partnership cannot be held liable under a judgment
against the partnership unless that partner was named as a defendant in the action. In
Fazzi, the California Supreme Court "simply reaffirm[ed] the seemingly self-evident
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proposition that a judgment in personam may not be entered against one not a party to the
action." (Fazzi, supra, 68 Cal.2d at p. 591.) The court cited the legislative history of
former Code of Civil Procedure section 3883 that "manifest[ed] a continuing legislative
effort to permit efficient enforcement of claims against the joint property of partnerships
while facilitating concurrent enforcement of claims against the individual property of
partners joined as defendants." (Fazzi, at p. 595.) It cited the general rule that "the
judgment in an action [against a partnership] brought under such a statute bound only the
partnership property and was not enforceable against the individual property of partners
not joined as individual defendants and served with process as such." (Ibid.) Fazzi
reversed a default judgment against a partner who had not been named as a defendant in
the action against the partnership. (Id. at p. 598.)
Although we agree with the general proposition under Fazzi that a partner is not
personally liable under a judgment in an action against a partnership unless that partner
was individually named as a defendant in the action, Fazzi's facts did not involve a
motion to amend the judgment to add a judgment debtor under section 187. Because
3 Former Code of Civil Procedure section 388 then stated: "When two or more
persons, associated in any business, transact such business under a common name,
whether it comprises the names of such persons or not, the associates may be sued by
such common name, the summons in such cases being served on one or more of the
associates; and the judgment in the action shall bind the joint property of all the
associates, and the individual property of the party or parties served with process, in the
same manner as if all had been named defendants and had been sued upon their joint
liability." (Fazzi, supra, 68 Cal.2d at p. 592, italics omitted.) That section has been
replaced by section 369.5. (Cal. Law Revision Com. com., 14 West's Ann. Corp. Code
(2004 ed.) foll. § 369.5, p. 43.)
8
Fazzi did not involve facts relating to, or otherwise address the question of, whether
section 187 allows an amendment of a judgment against a partnership to add a partner as
a judgment debtor, Fazzi does not stand for the proposition that Geraci now claims,
which is that a partner can never be added as a judgment debtor under section 187 unless
that partner was named as a defendant in the action. "Language used in any opinion is of
course to be understood in the light of the facts and the issue then before the court, and an
opinion is not authority for a proposition not therein considered." (Ginns v. Savage
(1964) 61 Cal. 2d 520, 524, fn. 2.) Furthermore, "[a]n appellate decision is not authority
for everything said in the court's opinion but only 'for the points actually involved and
actually decided.' " (Santisas v. Goodin (1998) 17 Cal. 4th 599, 620; see also Harris v.
Capital Growth Investors XIV (1991) 52 Cal. 3d 1142, 1157.) Accordingly, we are not
persuaded by Geraci's assertions that a partner cannot, as a matter of law, be added as a
judgment debtor by amendment of the judgment under section 187, and the trial court
misconstrued that principle of law in applying section 187 to add him as a judgment
debtor.
C
Despite our rejection of Geraci's specific assertion above, we nevertheless agree
with his general assertions that the trial court appeared to misconstrue applicable law and
did not exercise its discretion under section 187. In its order granting the Raicevics'
section 187 motion, the court stated: "Carolina Casualty controls here, and this court is
duty bound to follow it unless and until another rule is announced by higher courts. " In
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so doing, the court appeared to express its belief it had no discretion under section 187 to
make a decision different from that set forth in Carolina Casualty. In Carolina Casualty,
a judgment was entered against a law firm that was organized as a limited liability
partnership (LLP). (Carolina Casualty, supra, 212 Cal.App.4th at pp. 1183, 1186.)
However, the LLP subsequently refused to satisfy the judgment, asserting it had ceased
operations three years before the judgment was entered and had no assets. (Id. at pp.
1186-1187.) The judgment creditor then moved to amend the judgment to add the LLP's
sole equity partner, Leonard M. Ross, and other entities as judgment debtors on the
ground they were the real defendants and real parties in interest. (Id. at pp. 1187, 1192.)
The trial court granted the motion to add Ross as a judgment debtor, finding he had
actively participated in and controlled the litigation and amending the judgment was
equitably justified to specify the true identity of the culpable party. (Id. at pp. 1187-
1188.) The trial court found Ross had directed the litigation, permitted the suit to
advance against a nonentity with no funds (i.e., the LLP), and encouraged dispositive
cross-motions for summary judgment. (Id. at p. 1188.)
On appeal, Carolina Casualty concluded the trial court properly exercised its
section 187 discretion to add Ross as a judgment debtor based on its findings the LLP had
been dissolved and ceased to exist prior to the litigation and Ross had actively
participated in and controlled the litigation against the LLP, knowing it was a dissolved,
inactive entity with no funds. (Carolina Casualty, supra, 212 Cal.App.4th at pp. 1193-
1194.) It was only after the judgment was entered against the LLP that Ross disclosed it
10
had been dissolved before the litigation. (Id. at pp. 1187, 1194.) Carolina Casualty
therefore affirmed the amended judgment adding Ross, the equity partner, as a judgment
debtor. (Id. at p. 1198.)
By stating it was bound to follow Carolina Casualty's holding and, based on that
holding, granting the Raicevics' motion to add Geraci as a judgment debtor, the trial court
in this case presumably did not exercise its discretion under section 187 and simply made
the same decision the trial court did in Carolina Casualty (i.e., it granted the motion to
add a partner as a judgment debtor). In so doing, it misconstrued applicable law and did
not exercise its discretion to decide the section 187 motion based on the particular facts
and circumstances in this case. "[A] ruling otherwise within the trial court's power will
nonetheless be set aside where it appears from the record that in issuing the ruling the
court failed to exercise the discretion vested in it by law." (People v. Penoli (1996) 46
Cal. App. 4th 298, 302.) "Failure to exercise a discretion conferred and compelled by law
constitutes a denial of a fair hearing and a deprivation of fundamental procedural rights,
and thus requires reversal." (Id. at p. 306.)
Alternatively, assuming arguendo the trial court exercised its discretion by adding
Geraci as a judgment debtor, it nevertheless appeared to misconstrue applicable law.
When a trial court's exercise of discretion is based on an erroneous understanding of the
law, the judgment must be reversed and the matter remanded for an informed
determination. (People v. Downey (2000) 82 Cal. App. 4th 899, 912.) Based on the record
in this case, it appears the trial court not only did not understand it had discretion under
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section 187 and was not compelled to make the same decision as in Carolina Casualty,
but it also cited factors showing it misunderstood applicable law in amending a judgment
to add a judgment debtor under section 187. The court cited Geraci's participation and
control of the litigation.4 That factor, in and of itself, is an insufficient basis on which to
amend a judgment to add a judgment debtor as an alter ego of an original judgment
debtor. Rather, that factor must be considered with all of the other circumstances in a
case. In determining whether a person is the alter ego of an entity, a court must consider
all of the circumstances and no single factor is determinative. (Zoran Corp. v. Chen
(2010) 185 Cal. App. 4th 799, 811-812; Greenspan v. LADT LLC (2010) 191 Cal. App. 4th
486, 512-513.)
The record shows the trial court in this case apparently did not consider all of the
circumstances in implicitly finding Geraci was the alter ego of the Partnership and
amending the judgment to add him as a judgment debtor. Therefore, we must reverse the
amended judgment and remand the matter for an informed exercise of the trial court's
discretion under section 187. (People v. Downey, supra, 82 Cal.App.4th at p. 912.) In
exercising that discretion, the court shall consider all of the circumstances in this case,
including any relevant factors listed in controlling case law. (See, e.g., Zoran Corp. v.
4 To the extent the trial court also cited evidence that assets were shifted among
various entities to evade payment of the Partnership's judgment debt, it apparently did not
rely on that factor in finding Geraci was the alter ego of the Partnership. Although the
Raicevics argue the successor entity liability doctrine should apply to make Geraci liable
as an additional judgment debtor (see, e.g., Phillips, Spallas & Angstadt, LLP v. Fotouhi,
supra, 197 Cal. App. 4th 1132), the record does not show the court relied on that doctrine
in adding Geraci as an additional judgment debtor.
12
Chen, supra, 185 Cal.App.4th at pp. 811-812; Misik v. D'Arco, supra, 197 Cal.App.4th at
p. 1073; Greenspan v. LADT LLC, supra, 191 Cal.App.4th at pp. 510-514; Toho-Towa
Co., Ltd. v. Morgan Creek Productions, Inc., supra, 217 Cal.App.4th at pp. 1106-1110;
Troyk v. Farmers Group, Inc. (2009) 171 Cal. App. 4th 1305, 1341-1342; Carr v.
Barnabey's Hotel Corp. (1994) 23 Cal. App. 4th 14, 20-23; Carolina Casualty, supra, 212
Cal.App.4th at pp. 1188-1189 [finding equity partner of limited liability partnership liable
as its alter ego].)5 On remand, the trial court should allow the parties to present evidence
at an evidentiary hearing on the Raicevics' motion to amend the judgment and, in ruling
on that motion, should make specific findings of fact and explain its reasoning in finding
whether or not Geraci was, directly or indirectly (e.g., through his professional
corporation), the alter ego of the Partnership and exercising its discretion under section
187 whether to amend the judgment to add him as a judgment debtor.
D
For purposes of providing guidance to the trial court on remand, we address the
Raicevics' argument that the trial court can rely on Corporations Code section 16807 to
amend a judgment against a partnership to add a partner as a judgment debtor.
5 Contrary to Geraci's assertion, although the alter ego doctrine is most commonly
applied to hold shareholders liable as alter egos of corporations, he does not cite, nor are
we aware of, any authority restricting the application of the alter ego doctrine to
corporations and their shareholders. We believe there is no logical reason to so restrict
the application of that doctrine and conclude, as Carolina Casualty implicitly did, that a
partner of a partnership may be held liable as the alter ego of the partnership. (Carolina
Casualty, supra, 212 Cal.App.4th at pp. 1192-1194.)
13
Corporations Code section 16807 deals with the winding up of a partnership's business,
stating in relevant part:
"(b) Each partner is entitled to a settlement of all partnership
accounts upon winding up the partnership business. In settling
accounts among the partners, the profits and losses that result from
the liquidation of the partnership assets shall be credited and charged
to the partners' accounts. The partnership shall make a distribution
to a partner in an amount equal to any excess of the credits over the
charges in the partner's account. Except for registered limited
liability partnerships and foreign limited liability partnerships, a
partner shall contribute to the partnership an amount equal to any
excess of the charges over the credits in the partner's account.
"(c) If a partner fails to contribute the full amount that the partner
is obligated to contribute under subdivision (b), all of the other
partners shall contribute, in the proportions in which those partners
share partnership losses, the additional amount necessary to satisfy
the partnership obligations for which they are liable under Section
16306. A partner or partner's legal representative may recover from
the other partners any contributions the partner makes to the extent
the amount contributed exceeds that partner's share of the
partnership obligations for which the partner is personally liable
under Section 16306."6 (Italics added.)
The Raicevics argue, without any supporting authority, that the trial court had discretion
under section 187 to add Geraci as a judgment debtor by creating a procedure under
Corporations Code section 16807 allowing judgment creditors to enforce a judgment
against a partnership that has insufficient assets to pay the judgment by moving to amend
the judgment to add partners as additional judgment debtors. However, we conclude
section 187 does not allow a trial court to create and employ such a new procedure to add
6 Corporations Code section 16306, subdivision (a), generally provides: "[A]ll
partners are liable jointly and severally for all obligations of the partnership unless
otherwise agreed by the claimant or provided by law."
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partners as judgment debtors in addition to the original partnership judgment debtor. Had
the Legislature intended to allow judgment creditors to obtain amended judgments
making partners liable in this manner, it would have expressly so provided in
Corporations Code section 16807 or another statute. The Raicevics do not carry their
burden on appeal to persuade us to reach a contrary conclusion.
IV
Due Process of Law
Geraci contends that he was denied due process of law when the trial court granted
the Raicevics' motion to amend the judgment to add him as a judgment debtor. However,
because we reverse the judgment and remand for further proceedings, we need not
address, and do not decide, whether Geraci was denied due process of law. Nevertheless,
if we had addressed that issue, it is likely we would have concluded Geraci received
notice of, and an opportunity to be heard on, the Raicevics' motion and therefore was not
denied due process of law.
V
Geraci's Objections to Evidence
Geraci also contends that in granting the Raicevics' motion to amend the judgment
to add him as a judgment debtor, the trial court did not adequately consider his objections
to the evidence they submitted in support of their motion. However, because we reverse
the judgment and remand for further proceedings, we need not address, and do not
decide, whether the court did not adequately consider his objections to that evidence.
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DISPOSITION
The judgment is reversed and the matter is remanded for further proceedings
consistent with this opinion. The parties shall bear their own costs on appeal.
McDONALD, J.
WE CONCUR:
NARES, Acting P. J.
AARON, J.
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