E-Band Communications v. Nexxcom Wireless CA4/1 ( 2021 )

Filed 1/15/21 E-Band Communications v. Nexxcom Wireless 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NOT TO BE PUBLISHED IN OFFICIAL REPORTS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
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 This opinion has not been certified for publication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.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
E-BAND COMMUNICATIONS, LLC, D075868
Plaintiff and Respondent,
v. (Super. Ct. No. 37-2015-
00011220-CU-CL-CTL)
NEXXCOM WIRELESS, LLC,
Defendant,
SALVATORE S. BENTIVEGNA et al.,
Defendants and Appellants.
APPEAL from a judgment of the Superior Court of San Diego County,
Kenneth J. Medel, Judge. Affirmed.
Behmer & Blackford, Timothy S. Blackford; Law Offices of Mary A.
Lehman and Mary A. Lehman, for Defendant and Appellant Salvatore S.
Bentivegna.
Samuel Jay Lawrence, in pro. per., for Defendant and Appellant
Samuel Jay Lawrence.
Tatro & Lopez, Timothy J. Tatro, Julie Lopez; Williams Iagmin and Jon
R. Williams, for Plaintiff and Respondent.
Salvatore S. Bentivegna and Samuel Jay Lawrence appeal an amended
judgment naming them as additional judgment debtors after the trial court
found that they were alter egos of the original judgment debtor, defendant
NexxCom Wireless, LLC (NexxCom). Bentivegna and Lawrence were
NexxCom’s sole owners. Bentivegna was its founder and chairman.
Lawrence was its chief executive officer.
Bentivegna contends the amendment violated his constitutional right
to procedural due process because the original judgment against NexxCom
was based on its default. Lawrence joins Bentivegna’s contention.
We affirm. It is undisputed on appeal that Bentivegna and Lawrence
were NexxCom’s alter egos; NexxCom had no separate existence apart from
them. Bentivegna and Lawrence directed NexxCom’s years-long defense of
the underlying litigation and were virtually represented therein. The
amendment did not violate their due process rights.
FACTUAL AND PROCEDURAL BACKGROUND
“Following the well-established rule of appellate review, we recite the
facts in the light most favorable to the judgment.” (Hoffman v. Superior
Ready Mix Concrete, L.P. (2018) 30 Cal.App.5th 474, 478.) Additional facts
will be discussed where relevant in the following section.
In its operative complaint, plaintiff E-Band Communications, LLC
(E-Band) alleged that it entered into a written contract with NexxCom to
supply high-speed wireless networking equipment for NexxCom to install at
various customer locations, including the London Stock Exchange. After
E-Band delivered the equipment, NexxCom did not pay E-Band as promised.
NexxCom falsely told E-Band it would have the ability to pay in the future.
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Based on this misrepresentation, E-Band continued to provide technical
support and ship additional equipment.
In April 2015, after NexxCom still did not pay, E-Band filed the
underlying lawsuit. It alleged causes of action for breach of contract, fraud,
negligent misrepresentation, breach of the covenant of good faith and fair
dealing, unjust enrichment, open book account, and account stated. It sought
compensatory damages of approximately $500,000, as well as consequential
damages, punitive damages, interest, and attorney fees and costs.
NexxCom answered E-Band’s complaint and filed a cross-complaint
against E-Band and a related entity. NexxCom alleged that E-Band’s
equipment was mislabeled, did not operate as represented, and did not meet
required specifications, among other things. The cross-complaint included
causes of action for breach of contract, breach of the implied warranty of
merchantability, breach of the implied warranty of fitness for a particular
purpose, and negligent misrepresentation. NexxCom sought compensatory
damages of approximately $1.4 million, as well as attorney fees and costs.
After more than a year of litigation, the parties stipulated to a
discovery referee. They spent the next ten months litigating various
discovery disputes, including nine hearings before the discovery referee. The
discovery referee repeatedly ordered NexxCom to collect and produce relevant
electronically-stored information (ESI), but NexxCom did not do so.
E-Band sought sanctions for NexxCom’s noncompliance with the
discovery referee’s orders. After several “interim” sanctions orders, the
discovery referee gave NexxCom a final opportunity to explain its ESI
collection efforts, after which he would issue a final ruling on E-Band’s
motion for sanctions.
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In the final ruling, the discovery referee recounted the history of the
parties’ discovery disputes. In October 2016, the discovery referee issued the
first of several orders compelling NexxCom to collect and preserve relevant
ESI. Two weeks later, the discovery referee found that NexxCom had failed
to retain relevant evidence and ordered it to describe its efforts to preserve
and collect ESI. In response, Bentivegna submitted a declaration describing
NexxCom’s efforts. The discovery referee found these efforts inadequate and
again ordered NexxCom to collect and preserve relevant ESI. Bentivegna
submitted another declaration in an attempt to explain why NexxCom still
had not complied. Unsatisfied, E-Band filed its motion for sanctions.
Bentivegna filed a third declaration in opposition to E-Band’s motion. He
again described NexxCom’s discovery efforts. At a hearing, the discovery
referee informed NexxCom it was considering issue and evidentiary
sanctions. The discovery referee ordered NexxCom to provide further detail
regarding its efforts to collect and preserve ESI and, if no preservation
measures were taken, “to state this fact.” Bentivegna submitted a fourth
declaration. In a follow-up hearing, the discovery referee again found
NexxCom’s efforts inadequate. He found that E-Band had made a prima
facie showing that NexxCom had lost or destroyed potentially relevant
evidence. The discovery referee issued another order regarding preservation
and allowed E-Band to take limited depositions of two NexxCom employees.
This time, Lawrence submitted a declaration regarding NexxCom’s efforts.
In his final ruling, the discovery referee confirmed E-Band had shown
that NexxCom had despoiled relevant evidence. He found that “NexxCom
allowed evidence to be destroyed through gross negligence tantamount to bad
faith.” The evidence “[went] to the very heart of the lawsuit; it is not
tangential or conjectural.” Even after the discovery referee’s involvement,
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“NexxCom was extremely dilatory and half-hearted in complying despite
repeated warnings of the adverse consequences of non-compliance. Most, if
not all, of the destroyed evidence was available when [E-Band’s] complaint
was filed on April 2, 2015. Certainly it was available in January 2014, by
which date NexxCom had to have known that it might itself file suit against
E-Band, even if E-Band did not file suit.”
As to the remedy, the discovery referee found that striking NexxCom’s
answer and dismissing its cross-complaint would be “too drastic a remedy for
the evidence spoliation.” Instead, the discovery referee imposed the following
issue and evidentiary sanctions: (1) six NexxCom-affiliated witnesses would
be barred from testifying on NexxCom’s behalf; (2) NexxCom would not be
allowed to offer or rely on any actions, statements, emails, or other
documents performed or authored by these witnesses; (3) the court should
instruct the jury that “the despoiled evidence should be deemed to have been
helpful to E-Band’s claims and defenses and injurious to NexxCom’s claims
and defenses”; and (4) NexxCom should be required to pay E-Band’s
reasonable attorney fees in connection with the various discovery motions.
The discovery referee also ordered NexxCom to “turn over its ESI
immediately to E-Band . . . in its native format with a detailed written and
verified description of what is being produced.”
After the orders and hearings described above, but prior to the
discovery referee’s final ruling, NexxCom filed a “Substitution of Attorney”
form, in which it purported to discharge its retained attorney and represent
itself. Bentivegna signed the form on NexxCom’s behalf and listed himself as
its new legal representative. Apparently at the request of the discovery
referee, the trial court issued an “Order to Show Cause Re: Legal
Representation” to NexxCom. The order noted that NexxCom purported to
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represent itself, contrary to California law. It found that NexxCom’s action
had “essentially brought this litigation to a standstill. Trial has already been
continued twice in order to allow NexxCom additional time and opportunities
to comply with the Discovery Referee’s numerous Orders to provide discovery
to E-Band. The Discovery Referee ultimately determined that NexxCom had
destroyed key evidence in this matter, and awarded sanctions against
NexxCom. [Citation.] Now, NexxCom’s course of action in relieving its
counsel and failing to name substitute counsel has further prejudiced E-Band
in that trial is imminently approaching, and E-Band is unable to proceed
with the remaining discovery in this case. Key documents have yet to be
produced by NexxCom, several percipient witnesses need to be deposed, and
no expert discovery has been completed, despite E-Band’s best efforts.
Further, without licensed counsel, NexxCom may take no action to present
evidence or argument regarding its alleged claims or defenses.” It therefore
ordered NexxCom to appear and show cause “why NexxCom’s operative
pleadings should not be stricken from the case record in their entirety with
prejudice and judgment entered in favor of E-Band on the entire action, with
a prove-up hearing scheduled for E-Band to submit evidence of the amount of
its damages.”
After discharging its counsel, NexxCom ceased participating in the
litigation. It failed to respond to correspondence and discovery requests
served by E-Band. It failed to appear at the discovery referee’s final hearing
on E-Band’s motion for sanctions. And, despite service of the order, it failed
to appear at the court’s hearing on its order to show cause regarding
NexxCom’s legal representation. The court therefore issued a minute order
striking NexxCom’s answer and cross-complaint. It directed E-Band’s
counsel “to proceed with default.”
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E-Band submitted a request for entry of default, including
approximately $500,000 in compensatory damages, $340,000 in interest, and
$625,000 in attorney fees. It served the request by mail on NexxCom. The
clerk of the trial court entered NexxCom’s default as requested.
Several months later, the court held a default prove-up hearing. It
entered a default judgment in favor of E-Band and against NexxCom for
approximately $1.5 million. E-Band served the judgment on Bentivegna and
Lawrence.
Bentivegna and Lawrence appeared for judgment debtor examinations
on behalf of NexxCom. E-Band discovered that NexxCom was defunct, it had
no assets, and it planned to file for bankruptcy as soon as a federal tax audit
was concluded.
E-Band filed a motion to amend the judgment to add Bentivegna and
Lawrence as judgment debtors on the theory that they were NexxCom’s alter
egos. E-Band argued that (1) Bentivegna and Lawrence ignored the separate
corporate existence of NexxCom, (2) it would promote injustice to allow
Bentivegna and Lawrence to take advantage of the corporate form,
(3) Bentivegna and Lawrence had control over the underlying litigation, and
(4) the judgment against NexxCom was based on terminating sanctions after
two years of active litigation, and not a true default, so due process did not
preclude the requested amendment.
E-Band submitted evidence from a certified public accountant who
examined NexxCom’s records. She observed that Bentivegna and Lawrence
commingled personal and corporate funds, used corporate funds to pay
personal expenses, extracted over $1 million from NexxCom as it suffered
increasing debt, failed to keep adequate records, and did not maintain
various NexxCom-related entities as separate corporations. The accountant
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concluded there were “numerous indicia of alter ego relationships” between
and among NexxCom, another NexxCom entity, Bentivegna, and Lawrence,
including “financial dependence, confusion about corporate identity, lack of
separateness and dominion and control[.]”
In a declaration, E-Band’s counsel recounted NexxCom’s participation
in the litigation: “[NexxCom] appeared and argued at more than a half dozen
Court hearings, including two pleading challenges, several ex parte hearings,
several telephonic discovery hearings, a hearing on its (denied) motion to
quash, a case management conference, a hearing on its suspended corporate
status, two hearings requesting trial continuances, and several depositions of
former [NexxCom] employees. [NexxCom] hired [two] attorneys, engaged in
settlement discussions, hired an outside ESI forensic expert, retained five
outside expert witnesses, produced its bank and financial information, and
filed more than 300 pages of briefing with [the discovery referee].”
Bentivegna and Lawrence opposed the motion to amend. They
contended they could not be added to the judgment because it was taken by
default. They disputed E-Band’s “ ‘indicia’ of alter ego” and denied taking
any unearned compensation. They argued that NexxCom ran out of money to
pay its attorney, which prompted its substitution of counsel. They
maintained that it was NexxCom’s failure to retain counsel—not terminating
sanctions—that led to its default.
After hearing argument, the court granted E-Band’s motion to amend.
It determined that Bentivegna and Lawrence were NexxCom’s alter egos
based on evidence of commingling of funds, use of corporate funds for
personal expenses, improper distributions in excess of $1 million while
NexxCom was becoming insolvent, and failure to observe corporate
formalities. The court found that Bentivegna and Lawrence controlled the
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underlying litigation and were virtually represented therein. Their personal
involvement was substantial: They submitted five separate declarations in
connection with discovery motions, they were percipient witnesses and were
designated as expert witnesses for trial, they executed 13 discovery
verifications, and they personally reviewed and approved the litigation
protective order governing confidentiality. In the substitution of attorney
form, Bentivegna designated himself as NexxCom’s legal representative. The
court concluded, under these circumstances, that “[t]his is not a case where a
‘default’ raises due process concerns. Such due process concerns arise only
when the underlying matter is truly not litigated—when [the] judgment is
entered just weeks after a complaint is filed or where no litigation efforts are
undertaken.”
The court entered an amended judgment naming Bentivegna and
Lawrence as judgment debtors, along with NexxCom. Bentivegna and
Lawrence appeal.
DISCUSSION
“Section 187 of the Code of Civil Procedure [(section 187)] grants to
every court the power to use all means to carry its jurisdiction into effect,
even if those means are not set out in the code. [Citation.] Under
section 187, the court has the authority to amend a judgment to add
additional judgment debtors.” (NEC Electronics Inc. v. Hurt (1989)
208 Cal.App.3d 772, 778 (NEC), fn. omitted.)
“Judgments are often amended to add additional judgment debtors on
the grounds that a person or entity is the alter ego of the original judgment
debtor. [Citations.] This 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. [Citations.] ‘Such a
9
procedure is an appropriate and complete method by which to bind new
individual defendants where it can be demonstrated that in their capacity as
alter ego of the corporation they in fact had control of the previous litigation,
and thus were virtually represented in the lawsuit.’ ” (NEC, supra,
208 Cal.App.3d at p. 778.)
“In light of the requirements that the proposed judgment debtors have
had control of the underlying litigation and have been virtually represented,
it is something of a misnomer to say that section 187 provides a ‘ “method by
which to bind new . . . defendants [to the judgment].” ’ [Citations.] More
accurately, the statute ‘ “properly designate[s] the real defendants.” ’
[Citations.] Simply put, section 187 recognizes ‘the inherent authority of a
court to make its records speak the truth.’ ” (Greenspan v. LADT, LLC (2010)
191 Cal.App.4th 486, 509.)
Our Supreme Court has recognized that this use of section 187 may
raise due process concerns under certain circumstances. In Motores
de Mexicali, S.A. v. Superior Court of Los Angeles County (1958) 51 Cal.2d
172, 173 (Motores), the Supreme Court considered whether the trial court
erred by refusing to add three individuals to a default judgment. In the
underlying action, the plaintiff filed suit against Erbel, Inc., to recover
several unpaid debts. (Ibid.) Sixteen days later, the plaintiff obtained a
default judgment against Erbel. (Ibid.) Shortly thereafter, Erbel filed for
bankruptcy protection, and the plaintiff was unable to obtain satisfaction of
its judgment. (Ibid.) The plaintiff subsequently filed a petition to amend the
judgment to add three individuals, whom the plaintiff alleged were alter egos
of Erbel. (Id. at pp. 173-174.)
The Supreme Court acknowledged prior alter ego authorities, but it
concluded that the amendment was inappropriate because it would deny the
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individuals due process of law. “Unlike the corporations added to the
judgments in those two [prior] cases, [the individuals here] in no way
participated in the defense of the basic action against Erbel, Inc. Those three
did not have attorneys subsidized by them appearing and defending the
action against the corporation now alleged to be their alter ego. Instead, the
judgment was entered against Erbel, Inc., strictly by default.” (Motores,
supra, 51 Cal.2d at pp. 175-176.) “Further, the same facts which serve to
distinguish the cited cases also indicate that an amendment to the judgment
here to include [the individuals] would constitute a denial of due process of
law. [Citation.] That constitutional provision guarantees that any person
against whom a claim is asserted in a judicial proceeding shall have the
opportunity to be heard and to present his defenses. [Citations.] To
summarily add [the individuals] to the judgment heretofore running only
against Erbel, Inc., without allowing them to litigate any questions beyond
their relation to the allegedly alter ego corporation would patently violate this
constitutional safeguard.” (Id. at p. 176.)
Thus, to prevail on a motion to amend under section 187 and overcome
any due process concerns, “the judgment creditor must show, by a
preponderance of the evidence, that: ‘(1) the parties to be added as judgment
debtors had control of the underlying litigation and were virtually
represented in that proceeding; (2) there is such a unity of interest and
ownership that the separate personalities of the entity and the owners no
longer exist; and (3) an inequitable result will follow if the acts are treated as
those of the entity alone.’ [Citation.] The decision to grant or deny the
motion lies within the sound discretion of the trial court [citation] and will
not be disturbed on appeal if there is a legal basis for the decision and
substantial evidence supports it.” (Highland Springs Conference & Training
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Center v. City of Banning (2016) 244 Cal.App.4th 267, 280 (Highland
Springs).)
Courts, following Motores, have refused to allow an amendment under
section 187 where the original defendant failed to offer any defense in the
underlying litigation. In NEC, the plaintiff filed suit against a corporation,
Ph Components. (NEC, supra, 208 Cal.App.3d at p. 775.) Ph filed a general
denial, but no further proceedings were conducted and neither party engaged
in discovery. (Id. at pp. 775, 781.) Ph was under financial stress and
considering bankruptcy. (Id. at p. 775.) The day before trial, Ph told the
plaintiff it would not appear. (Ibid.) The trial took place nonetheless, and
the court entered judgment against Ph. (Id. at pp. 775-776.) Ph filed for
bankruptcy protection six weeks later. (Id. at p. 776.) The plaintiff
subsequently sought to amend the judgment to add Ph’s sole shareholder as
an additional judgment debtor. (Ibid.) The trial court granted the motion to
amend, and the shareholder appealed. (Ibid.)
The NEC court reversed. (NEC, supra, 208 Cal.App.3d at p. 778.)
Relying on Motores, the court found (1) Ph made no attempt to defend the
lawsuit, so the shareholder’s interests were not represented; (2) the interests
of Ph and the shareholder were not the same; and (3) the shareholder did not
control the defense of the litigation (indeed, “[t]here was no defense for [the
shareholder] to control”). (Id. at pp. 780-781.) The court explained, “ ‘Control
of the litigation sufficient to overcome due process objections may consist of a
combination of factors, usually including the financing of the litigation, the
hiring of attorneys, and control over the course of the litigation.’ [Citation.]
Clearly, some active defense of the underlying claim is contemplated.
[Citation.] In this case, [the shareholder] delegated responsibility for the
claim to [a corporate officer]. [They] did attempt to satisfy the creditors of Ph
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but were never actively involved in defending the [plaintiff’s] lawsuit. As a
result, we do not believe that there is substantial evidence to support the
trial court’s conclusion that [the shareholder] controlled the action between
[the plaintiff] and Ph.” (Id. at p. 781.)
More recently, in Wolf Metals Inc. v. Rand Pacific Sales, Inc. (2016)
4 Cal.App.5th 698, 708 (Wolf Metals), the court reversed an order amending a
judgment under circumstances “materially identical” to Motores. In Wolf
Metals, a plaintiff filed the underlying lawsuit to obtain payment for certain
goods sold. (Id. at p. 701.) The defendant, RPS, answered the complaint but
filed for bankruptcy several months later. (Ibid.) The next year, RPS
emerged from bankruptcy protection without discharge. (Ibid.) The
underlying litigation resumed, but RPS’s counsel failed to appear at
scheduled hearings. (Id. at pp. 701-702.) The trial court struck RPS’s answer
and entered a default judgment. (Id. at p. 702.) The plaintiff filed a motion
to amend the judgment to add an individual whose family trust was RPS’s
sole shareholder. (Id. at p. 706.) The trial court found that the individual
was RPS’s alter ego and granted the motion. (Id. at p. 707.)
In reversing, the Wolf Metals court explained, “Like the defendant
corporation in Motores, RPS offered no evidence-based defense in the
underlying action, and the judgment against RPS was entered by default.
Although [the individual] dominated RPS and knew of [the plaintiff’s] suit
against RPS, his circumstances do not differ from the individuals who
dominated the defendant corporation in Motores. Because Motores held that
the latter individuals were improperly added as judgment debtors, it
precludes the inclusion of [the individual here] as judgment debtor on an
alter ego theory.” (Wolf Metals, supra, 4 Cal.App.5th at pp. 708-709,
fns. omitted.) “RPS offered no defense to [the plaintiff’s] suit, and the
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judgment against it was entered by default. Accordingly, the trial court erred
in amending the default judgment to include appellants as judgment debtors
on the basis of an ‘alter ego’ theory.” (Id. at p. 709.)
Here, neither Bentivegna nor Lawrence challenges the court’s findings
on the first two elements under section 187, that they controlled the
underlying litigation and were NexxCom’s alter egos. As to the third
element, Bentivegna argues that it is “not inequitable here to preserve the
separate obligations between NexxCom and its corporate officers” but he does
not make any cogent legal argument that the third element was not met
under the applicable standard of review. This argument appears to be
merely supportive of Bentivegna’s main contention, discussed below, and it
does not establish any basis for reversal on its own.
Eschewing the three traditional elements under section 187,
Bentivegna contends the amendment violated his constitutional right to due
process as a matter of law. Lawrence joins Bentivegna’s contention but does
not offer any argument of his own.
We disagree that the amendment violated due process. Due process
requires that the alleged alter ego must control the underlying litigation and
have the opportunity to defend against the plaintiff’s allegations, such that
he was virtually represented therein. (Highland Springs, supra,
244 Cal.App.4th at p. 280; see Minton v. Cavaney (1961) 56 Cal.2d 576, 581
(Minton).) As noted, Bentivegna does not dispute that he controlled the
underlying litigation against E-Band. Nor does he dispute the facts of that
two-year litigation, including NexxCom’s answer, its cross-complaint, its
retention of counsel, its motion practice, its hiring of five outside expert
witnesses and an ESI expert, its failure to comply with its ESI preservation
and collection obligations, its repeated attempts to explain its noncompliance
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(personally led by Bentivegna), and the severe sanctions order against it.
NexxCom had the opportunity to litigate its defenses to E-Band’s claims. In
practice, those defenses were apparently discovery obstruction and evidence
spoliation. When these tactics were unsuccessful, and any substantive
defenses substantially impaired by the discovery referee’s sanctions order,
NexxCom brought the litigation to a halt by attempting to represent itself—
through its chairman Bentivegna. The trial court therefore entered
NexxCom’s default and awarded judgment in favor of E-Band.
Bentivegna relies on Motores, NEC, and Wolf Metals. But in those
cases, there was no litigation to control, no defense presented, and therefore
no virtual representation. Motores considered a judgment “strictly by
default” entered 16 days after the complaint was filed. (Motores, supra,
51 Cal.2d at pp. 173, 176.) NEC considered a judgment after trial where the
defendant answered but there were no further proceedings, no discovery, and
no defense. (NEC, supra, 208 Cal.App.3d at p. 781.) And Wolf Metals also
considered a default judgment where the defendant answered but did not
otherwise participate in the proceedings, which the court described as
“materially identical” to Motores. (Wolf Metals, supra, 4 Cal.App.5th at
pp. 701-702, 708.)
Bentivegna attempts to draw a bright-line rule against amending a
default judgment to add an alter ego as an additional judgment debtor,
regardless of the circumstances. He finds support in a respected practice
guide: “[B]ecause of due process concerns, a default judgment is not subject
to such an amendment [under section 187].” (Ahart, Cal. Practice Guide:
Enforcing Judgments & Debts (The Rutter Group 2020) ¶ 6:1567, citing
Motores, NEC, and Wolf Metals.) Wolf Metals implies such a rule as well, by
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interpreting Motores as requiring presentation of an “evidence-based”
defense. (Wolf Metals, supra, 4 Cal.App.5th at p. 708.)
Such a bright-line rule is not warranted by Motores or general
principles of due process. The Supreme Court in Motores did not imply that
amending any default judgment would violate due process. It held that it
would violate due process to amend a default judgment “without allowing
[the individuals] to litigate any questions beyond their relation to the
allegedly alter ego corporation.” (Motores, supra, 51 Cal.2d at p. 176.) This
holding recognizes that proof of alter ego alone is insufficient; the alleged
alter ego must also have controlled the underlying litigation and therefore
have had the opportunity to defend against the plaintiff’s claims.
(See Minton, supra, 56 Cal.2d at p. 581; Highland Springs, supra,
244 Cal.App.4th at p. 280; see also NEC, supra, 208 Cal.App.3d at p. 781
[“Clearly, some active defense of the underlying claim is contemplated.”].)
As this court has explained, “[t]he ability under section 187 to amend a
judgment to add a defendant, thereby imposing liability on the new
defendant without trial, requires both (1) that the new party be the alter ego
of the old party and (2) that the new party had controlled the litigation,
thereby having had the opportunity to litigate, in order to satisfy due process
concerns. The due process considerations are in addition to, not in lieu of, the
threshold alter ego issues.” (Triplett v. Farmers Ins. Exchange (1994)
24 Cal.App.4th 1415, 1421.)
A default judgment does not necessarily reflect lack of opportunity to
litigate, or a complete failure to defend, as in Motores, NEC, and Wolf Metals.
It may reflect a terminating sanction or, as here, a defendant’s decision not to
contest the merits after attempting what defense it could. In either case, a
trial court may find that an alter ego who controls the litigation may be held
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to the judgment just as an alter ego who presents an evidence-based defense.
A court may reasonably find that the alter ego should not be rewarded for
presenting a non-evidence-based defense that occupied years of contentious
litigation, ultimately resulted in a severe sanction against the defendant, and
led to its abandonment of the proceedings.
While Wolf Metals was undoubtedly correctly decided on the facts
presented, its focus on an “evidence-based” defense was unnecessary and in
our view unsupported. (Wolf Metals, supra, 4 Cal.App.5th at p. 708.) The
defendant in Wolf Metals “offered no defense” to plaintiff’s suit, whether
evidence-based or not. (Id. at p. 709.) It was therefore unnecessary for Wolf
Metals to decide whether an “evidence-based” defense was required, and the
court’s decision on this point is arguably dicta. In any event, on the merits,
Wolf Metals primarily relies on Motores and NEC. (Id. at pp. 708-709 &
fn. 4.) This reliance is unavailing for reasons we have already discussed.
Neither Motores nor NEC stands for the proposition that a defendant must
present an “evidence-based” defense in the underlying litigation to satisfy
due process. Wolf Metals also cites several cases where an amendment was
allowed after the defendant did present an “evidence-based” defense. (Id. at
p. 709.) While Wolf Metals correctly interprets the facts of each case, the
cases do not imply that an “evidence-based” defense is required for due
process purposes. Instead, these cases focus on the alleged alter ego’s control
of the underlying litigation and whether that litigation was contested at all.
(See Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013)
217 Cal.App.4th 1096, 1110 [amendment proper where alter ego controlled
defense of the underlying litigation and the defendant contested the
plaintiff’s claims, even if the defendant “mounted a lackluster defense and
failed to contest the lawsuit effectively”]; Jack Farenbaugh & Son v. Belmont
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Construction, Inc. (1987) 194 Cal.App.3d 1023, 1029-1030 [amendment
proper where alter ego “controlled the litigation”]; Schoenberg v. Romike
Properties (1967) 251 Cal.App.2d 154, 168 [“It is well settled that the
authority of the court will be exercised to impose liability under a judgment
upon the alter ego who has had control of the litigation.”].) These elements
are satisfied here.
As noted, 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.” (NEC, supra, 208 Cal.App.3d at p. 778.) The trial court found
that Bentivegna and Lawrence, through their alter ego NexxCom, litigated
the underlying matter for two years and were therefore virtually represented
in the litigation. The fact that the litigation ended in default, rather than
competing evidentiary presentations, does not as a matter of law eliminate
Bentivegna and Lawrence’s ultimate culpability. Based on their abuse of
NexxCom’s corporate status and their control of NexxCom’s years-long
litigation against E-Band, the trial court could find they were still the “real”
defendants here under established equitable principles. For the same
reasons, it does not violate their due process rights to recognize them as such
by amending the judgment.
“Alter ego ‘is an extreme remedy, sparingly used.’ [Citation.] ‘ “The
standards for the application of alter ego principles are high, and the
imposition of [alter ego] liability . . . is to be exercised reluctantly and
cautiously.” ’ [Citation.] Still, ‘ “[t]he greatest liberality is to be encouraged” ’
in allowing judgments to be amended to add the ‘real defendant,’ or alter ego
of the original judgment debtor, ‘ “in order to see that justice is done.” ’ ”
(Highland Springs, supra, 244 Cal.App.4th at p. 281.) The trial court here
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found that equity required amending the judgment against NexxCom to
name the true defendants, Bentivegna and Lawrence. They have not shown
the court violated due process or abused its discretion by doing so.
DISPOSITION
The judgment is affirmed. E-Band is entitled to its costs on appeal.
GUERRERO, J.
WE CONCUR:
HUFFMAN, Acting P. J.
O’ROURKE, J.
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