Opinion
C080331 C080339
12-21-2017
MACKAY & SOMPS, CIVIL ENGINEERS, INC., Plaintiff and Appellant, v. SIDNEY B. DUNMORE, Defendant and Respondent.
NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published,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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 34-2007-00883577-CU-CO-GDS) (Super. Ct. No. 34-2008-0001226-CU-CL-GDS)
A prelude: In two cases dating back 10 years, plaintiff MacKay & Somps, Civil Engineers, Inc. (MacKay), sought to recover its contractual fees for civil engineering and other services provided for two real estate developments in the City of Sacramento. The "Panhandle" project (case No. 34-2007-00883577-CU-CO-GDS) was in North Natomas, and the "Stone-Boswell" project (case No. 34-2008-0001226-CU-CL-GDS) was in Meadowview; an entwined pair of defendant real estate entities had undertaken the projects. MacKay filed "virtually identical" complaints respectively in December 2007 and January 2008, and the cases proceeded "in parallel fashion" (but not apparently in formal consolidation). In September 2009, MacKay unsuccessfully moved to amend the complaints to name Sidney B. Dunmore as a defendant under a theory of alter ego; the trial court denied the motions as failing to demonstrate good cause for bringing them on the eve of trial. The cases were tried together in October 2009, and the trial court entered judgments in January 2010 against defendant Dunmore Land for almost $950,000 in damages in the 2007 case, and for almost $72,000 in damages in the 2008 case. Neither party appealed from the judgments.
The complaints originally named both Dunmore Homes, Inc. (Dunmore Homes)—also known as DHI Development—and Dunmore Land Company, LLC (Dunmore Land) as defendants, along with other non-Dunmore defendants.
As the trial court noted in its judgments in these two cases (the Panhandle project and the Stone-Boswell project), MacKay had dismissed all defendants other than Dunmore Land prior to trial (though the judgment titles were not amended to reflect this).
This brings us to the present. MacKay moved in April 2015 to amend the two judgments in the Sacramento County litigation to add Sidney B. Dunmore as an individual defendant on the ground of alter ego, based on the outcome of Placer County litigation that MacKay brought for unpaid fees in connection with the Whispering Pines development project in Lincoln, in which Mr. Dunmore was held liable as an alter ego of the Dunmore entities involved. The trial court denied the motions, as detailed below. MacKay appeals from this ruling in both cases. We have consolidated the appeals for purposes of briefing and disposition; briefing was completed in February 2017.
We have coordinated our resolution of Mr. Dunmore's appeal in the Placer County litigation (MacKay & Somps Civil Engineers, Inc. v. Dunmore (Aug. 28, 2017, C079173) [nonpub. opn.] (Dunmore)) with the present appeals, to make sure that our recently filed opinion—which affirmed the judgment—would precede the disposition of the present appeals. This moots MacKay's argument that we should not affirm the present judgments if the Placer County appeal is still pending.
Dunmore Land dissolved and ceased to do business in May 2010. Consequently, the only party appearing as a respondent is Mr. Dunmore, opponent to the motions at issue. We shall therefore refer only to Mr. Dunmore as "defendant," even though he was not a named party below (see, e.g., Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 272 [designating on appeal alter ego opponent to motion in capacity of original real party in interest] (Highland Springs)), and have made the appropriate adjustments to the titles we inherited from the trial court.
MacKay contends the trial court abused its discretion because its ruling was not in accord with the liberal allowance of amendments in the furtherance of justice, did not have evidence to support its conclusions that defendant Dunmore did not exercise control or have a unity of interest with Dunmore Land in defending the present actions, and did not find the necessary prejudice to warrant denial on the basis of delay. MacKay also argues the Placer County record provides sufficient evidence to support a finding of alter ego in the present cases, and the judgment should be given preclusive effect. We shall reverse the joint minute order with directions to grant the motions to amend the judgments.
FACTUAL AND PROCEDURAL BACKGROUND
The Present Actions
Given the nature of these appeals, the evidence underlying the two judgments is of limited relevance. We provide a précis for context drawn from the statements of decision on which the judgments rest (neither party claiming that there is any inaccuracy in their factual recitations).
Dunmore Land did not dispute that MacKay provided satisfactory professional services in connection with the development of the two projects without receiving full compensation. Rather, Dunmore Land asserted that it was not the party responsible for payment, contending that the bankrupt Dunmore Homes (dismissed from the action on that basis) was MacKay's sole recourse.
As a result, it was not a subject of dispute that MacKay began to provide its professional services for the Panhandle project in May 2003 and for the Stone-Boswell project in October 2005, for which MacKay received compensation until payments stopped in January 2007 for invoices dated October 2006. Based on assurances from defendant Dunmore and others, MacKay continued to provide its services through September 2007, being told Dunmore Land would be responsible for payment.
MacKay had been sending its invoices to "Dunmore Homes" as a generic term for the various Dunmore entities, never having been instructed to specify a particular entity. A Dunmore Homes executive would decide whether Dunmore Homes or Dunmore Land would issue payment. In the "Dunmore business model," Dunmore Land would hold title to development properties through the approval process, at which point it would transfer title to Dunmore Homes for the construction process. Both projects at issue—Panhandle and Stone-Boswell—were still in the approval process, and thus were under the aegis of Dunmore Land.
Based on facts not pertinent to these appeals, the trial court concluded that MacKay's services were not provided pursuant to any express contract. Nonetheless, Dunmore Land had approved the invoices, and received a benefit from them. Accordingly, MacKay was entitled to judgment against Dunmore Land on the basis of quantum meruit and unjust enrichment. In a supporting declaration to the present motions to amend, MacKay's counsel stated that "[d]espite several [unspecified] attempts, MacKay has not been able to collect th[ese] judgment[s]."
The Placer County Litigation
MacKay also initiated the Placer County litigation in December 2007. Dunmore Homes having filed for bankruptcy the previous month, the Placer County proceedings were stayed. At the same time that MacKay unsuccessfully moved in September 2009 to amend its complaints in the present actions to add defendant Dunmore, it also filed an unopposed motion to this effect in the Placer County action, which the court granted.
In this regard, we grant MacKay's motion for judicial notice of the motion, order, and second amended complaint naming defendant Dunmore in the Placer County action (case No. S-CV-22173).
After the bankruptcy stay ended in August 2013, trial was set for the first available date in September 2014. Following trial, the Placer County court issued a judgment (the findings and conclusions of which we will detail in the Discussion, post) in which it found defendant Dunmore liable to MacKay for over $200,000 in damages for breach of contract, quantum meruit, and deceit as the alter ego of Dunmore Homes and nonparty Dunmore Land. Shortly afterward, MacKay filed the motions to amend the judgments that are the subject of the present appeals.
The Motions to Amend
Asking the trial court to take judicial notice of the "entire file" in the Placer County litigation, MacKay based its motions to amend the judgments to add defendant Dunmore as the alter ego of Dunmore Land on the evidence in that record, and on the alter ego findings in the Placer County judgment. MacKay noted that defendant Dunmore accepted service on behalf of Dunmore Land, verified the answers in the present actions as president of Dunmore Land, authorized the withdrawal of Dunmore Land's counsel and the substitution of the new lawyer (who was also the lawyer who represented him in the Placer County litigation and in his opposition to the motions in these cases), and both attended the trial in these actions and appeared as a witness for Dunmore Land. MacKay contended this demonstrated that defendant Dunmore controlled the present actions, particularly in the absence of any evidence of anyone else controlling the litigation.
We point out that this is not the proper vehicle for submitting the file as evidence in support of the motion, because judicial notice is limited to the existence of extrajudicial documents; only the contents of judicial filings such as findings of fact, conclusions of law, orders, and judgments can be judicially noticed as evidence. (Bach v. McNelis (1989) 207 Cal.App.3d 852, 864-865.) The record does not reflect an express ruling on the motion. As defendant Dunmore has never disputed the evidence underlying the judgment in the Placer County case, it will suffice for our purposes to take judicial notice on appeal on our own motion of our prior judgment and opinion in Dunmore, supra, C079173. (Evid. Code, § 452, subd. (d).)
Defendant Dunmore asserted a lack of diligence on the part of MacKay, having delivered 11 boxes of documents "relating to the finances" of Dunmore Land in October 2010 to MacKay. Notably, however, defendant Dunmore did not produce any evidence of prejudice from the delay while the issue of alter ego was being actively litigated in Placer County. Defendant Dunmore also asserted that even if he controlled the litigation, he was not at risk of personal liability (the motion to add him as an alter ego having been denied) and therefore could not be said to have a unity of interest with Dunmore Land in defending these actions actively, as required by due process. Defendant Dunmore made the additional claims that the facts of these cases did not establish his status as an alter ego of Dunmore Land, and the trial court's denial of the motion to amend the complaints foreclosed the motions to amend the judgments.
In its July 2015 ruling, the trial court found that MacKay was "untimely" in bringing the motions (although it noted at the hearing that it was not finding any lack of due diligence on MacKay's part), as it was not reasonable to have awaited the outcome of the Placer County litigation. (The trial court did not identify any prejudice to defendant Dunmore resulting from this delay.) It also found that MacKay had not met the burden of establishing that defendant Dunmore controlled the present litigation, because alter ego was not an issue in the present cases after the denial of the motions to add him, which meant he did not have a unity of interest with Dunmore Land in defending the actions. The court was "not persuaded" that the Placer County judgment had any preclusive effect, because the evidence and issues at trial in the present cases were not identical with the Placer County litigation.
DISCUSSION
1.0 Legal Principles
Highland Springs, a case involving a similar procedural context, provides a handy compendium of the pertinent law. (Highland Springs, supra, 244 Cal.App.4th 267.) Every court has the authority to amend a judgment to add an alter ego of an original judgment debtor (Code Civ. Proc., § 187; hereafter section 187), an equitable procedure premised on the theory that a court is not adding a new party but is merely adding the correct name of the party liable. (Highland Springs, supra, at p. 280.) The court proceeds on a noticed motion, for which only a declaration or other written evidence is necessary. (Ibid.) A party is not limited to the evidence underlying the judgment; evidence dehors the record is freely admissible "to make the judgment speak the truth" that an alter ego has concealed. (Thomson v. L. C. Roney & Co. (1952) 112 Cal.App.2d 420, 427.) A party need not even have alleged or proven any facts that establish alter ego in the case before judgment. (Misik v. D'Arco (2011) 197 Cal.App.4th 1065, 1069, 1074-1075.)
While the doctrine of alter ego itself is a drastic remedy employed only sparingly as a basis for an original judgment (Highland Springs, supra, 244 Cal.App.4th at p. 281), a court may still amend a judgment to include a party even if all of the formal elements for liability as an alter ego are not present, if the equities favor the prevention of injustice (Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP (2012) 212 Cal.App.4th 1181, 1188-1189; Cal. Judges Benchbook: Civil Proceedings After Trial (CJER 2d ed. 2014) Other Postjudgment Proceedings, § 3.89, p. 231). Moreover, where an alter ego exists, a court exercises its discretion to amend a judgment with the greatest liberality toward the end of doing justice. (Highland Springs, supra, 244 Cal.App.4th at p. 281; Danko v. O'Reilly (2014) 232 Cal.App.4th 732, 736; Cal. Judges Benchbook: Civil Proceedings After Trial, op. cit. supra, § 3.89, p. 232 [judges are "encouraged to be liberal" in allowing amendments "to ensure . . . justice is done"].)
In addition to finding the unity of interest and ownership that permits the piercing of the corporate veil, to satisfy due process a court must find that the alter ego had control of the litigation and thus had virtual representation through the named defendant on the issue of liability, and also find that an inequitable result will follow from failing to amend the judgment. (Highland Springs, supra, 244 Cal.App.4th at p. 280; Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096, 1110 (Toho-Towa).)
As an equitable remedy, a motion to amend a judgment is subject to the defense of laches, which requires not only delay but also a showing of prejudice to the alter ego resulting from the delay; the burden is on the alter ego to establish this prejudice, which is never presumed. (Highland Springs, supra, 244 Cal.App.4th at pp. 282-283, 288 [reversing trial court which denied motion solely on basis of delay without sufficient evidence of prejudice]; 2 Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2016) ¶ 18:522.4, pp. 18-146 to 18-147.) Highland Springs analyzed at length the manner in which a decision to the contrary was an anomaly that was contrary to settled law. (Highland Springs, supra, at pp. 284-287.) Highland Springs found that Alexander v. Abbey of the Chimes (1980) 104 Cal.App.3d 39 (Alexander) did not even consider the doctrine of laches or its element of actual prejudice, and thus its holding premised on delay alone amounted to establishing a statute of limitation by judicial fiat, which a court may not do where—as with the statutory grant of the power to amend judgments in section 187—the Legislature has chosen not to impose a statute of limitations. (Highland Springs, supra, 244 Cal.App.4th at pp. 286-287.)
The trial court's ruling in this matter runs afoul of these legal principles. A fortiori, the court abused its discretion in denying the motions to amend the judgments. We explain the failings in turn.
2.0 The Ruling Does Not Appear to Be an Informed Exercise of Discretion
The trial court does not at any point in its ruling acknowledge its broad discretion to grant the motions even if the formal elements of alter ego are not completely satisfied, or analyze the interests of justice or the balance of equities in a matter in which defendant Dunmore has enriched himself to the detriment of a creditor who had provided satisfactory services in good faith. Indeed, at the hearing, the court stated the exact opposite: "I think the Court has to be very judicious and cautious in the circumstances about where the [section] 187 procedure can be used."
This would almost be sufficient on its own to convince us to remand for the trial court to exercise its discretion in the first instance (City of Pasadena v. Cohen (2014) 228 Cal.App.4th 1461, 1467-1468 & fn. 10) with the proper standard of liberal allowance of amendment in the furtherance of justice in mind. However, on the undisputed facts in this matter on the substantive criteria to be considered, it would be unreasonable to exercise discretion to deny the motions (as we subsequently demonstrate), so a remand is unnecessary.
3.0 The Evidence as a Matter of Law Establishes the Status of Alter Ego
We dismiss at the outset of this issue defendant Dunmore's untenable assertion that the denial as untimely of MacKay's motions to amend the pleadings to allege alter ego has any effect whatsoever on the resolution of the question in the context of the motions to amend the judgments. The trial court did not even rule on this claim in the motions under review, beyond noting that defendant Dunmore raised it. To the extent this pretrial ruling has any preclusive effect, it is solely on the lack of good cause to introduce a theory of alter ego on the eve of trial. The pretrial ruling did not address in any respect the substantive issue of liability as an alter ego. It simply precluded MacKay from raising the issue at trial, which as noted above does not prevent raising the issue after judgment. The failure to appeal the judgments is accordingly not of any significance.
As we noted in our prior opinion, the evidence on which the Placer County court relied in its ruling on defendant Dunmore's status as the alter ego of both Dunmore Homes and Dunmore Land was undisputed, and defendant Dunmore did not even attempt in his appeal to contest the basis for that trial court's factual findings. (Dunmore, supra, C079173.) To reiterate the findings of the Placer County court, it concluded that defendant Dunmore had completely disregarded any separation among the various Dunmore entities and between his personal finances and the Dunmore entities, of which he was the sole shareholder after 2004. His transactions with the entities were not at arm's length, and the entities funded extensive personal expenses. He received in excess of $130 million in distributions from the entities between 2004 and 2006, for which he was not accountable to anyone, and which were in derogation of multiple creditors including MacKay. He had complete and unequivocal control of the operations of all Dunmore entities. As a result, the trial court concluded that "Sid Dunmore used Dunmore Homes and Dunmore Land as his personal bank, and operated the companies in a manner which was detrimental to creditors[,] including [MacKay]," for which reason it found him liable as the alter ego of the Dunmore entities.
Even if the trial court were correct in failing to give any preclusive effect to the findings of the Placer County court (a MacKay argument we ultimately do not need to address), the evidence in the Placer County litigation—which it could have considered as exhibits to the declaration of MacKay's counsel in support of the motion, rather than take judicial notice of it—completely belies any conclusion other than defendant Dunmore's status as the alter ego of Dunmore Land. It is not material that alter ego was obviously not an issue underlying the present judgments, the trial court having excluded it; the entire point of a motion to amend a judgment is the consideration of extrajudicial evidence to make the judgment speak the truth. The trial court consequently abused its discretion in failing to consider this evidence, or rule on whether MacKay had established that defendant Dunmore was the alter ego of Dunmore Land. However, given that this undisputed evidence does not admit of any discretionary resolution other than a finding of alter ego, we will not remand for the trial court to consider it in the first instance.
4.0 The Evidence as a Matter of Law Establishes Control of the Litigation
The evidence in the Placer County litigation established that defendant Dunmore is the sole shareholder in Dunmore Land, having complete and unequivocal control over its operations. The present record established that defendant Dunmore accepted service of the complaints, verified the answers as Dunmore Land's president, consented to the withdrawal and substitution of counsel (the latter of whom represented him personally in the Placer County litigation and in opposing the present motions as well), was present for trial, and testified on behalf of Dunmore Land. " 'There was no showing below, and there is not the slightest suggestion in [defendant Dunmore's brief], that anyone, other than [defendant Dunmore], had control of the litigation. Who else had authority to employ attorneys and provide for the expense? Who else was interested in the fate of [Dunmore Land]? If not [defendant Dunmore], who else? . . . Manifestly, [defendant Dunmore] had control of the defense of the action by [Dunmore Land].' " (Toho-Towa, supra, 217 Cal.App.4th at p. 1110, quoting Schoenberg v. Romike Properties (1967) 251 Cal.App.2d 154, 168.)
The trial court's ruling did not focus on this obvious control defendant Dunmore exercised over the litigation (nor does defendant Dunmore provide any cogent response to this undisputed evidence on appeal). Rather, the trial court found a lack of a unity of interest between defendant Dunmore and Dunmore Land in defending the action, because its pretrial ruling removed the question of defendant Dunmore's personal liability as an alter ego from trial. This, however, is not a reasonable conclusion to draw from the circumstances of this case. At all times during trial, the pretrial ruling was subject to reversal and remand on appeal from the judgment (even though MacKay ultimately chose not to take that course), and thus defendant Dunmore did not have any guaranty that he would escape personal liability in his conduct of the defense of Dunmore Land in this matter. Moreover, defendant Dunmore was also aware that his personal liability as an alter ego was going to be the subject of the trial in the Placer County litigation, with potential preclusive effects in subsequent motions to amend the present judgments if Dunmore Land were held liable. The present litigation was not tantamount to a default judgment, and therefore the authority defendant Dunmore cites in support of the trial court's ruling is inapposite.
Given the undisputed evidence to the contrary, it was an abuse of discretion to conclude that defendant did not actively control the defense of the present litigation in a unity of interest with Dunmore Land. As the evidence does not admit of any other reasonable exercise of discretion on the issue, we will not remand for the trial court to reconsider its discretion in the first instance.
5.0 Delay Without Prejudice Is Not a Basis to Deny the Motion
As we have explained above, delay without prejudice does not establish the defense of laches. Alexander, supra, 104 Cal.App.3d 39, which the trial court cited in its ruling (and on which defendant Dunmore relies on appeal), is not a correct statement of the law. Defendant Dunmore did not satisfy his duty of producing evidence of prejudice, nor does he contend on appeal that any exists. Thus, the "delay" in this matter while the issue of alter ego was litigated elsewhere (as opposed to duplicative litigation in the present case) is not a proper basis for denying the motions.
Defendant Dunmore's sole other authority in support of delay as a basis for the denial of the motions is completely inapposite. McIntire v. Superior Court (1975) 52 Cal.App.3d 717, 720-721 involved an effort to file an amended complaint substituting new defendants for fictitious defendants after the dismissal of all fictitious defendants before trial and a settlement of the action at trial. We therefore reject Dunmore's arguments in support of the ruling denying MacKay's motions to amend the judgments.
DISPOSITION
Plaintiff MacKay's motion for judicial notice is granted. The joint minute order denying the motions to amend the judgments is reversed and the matter is remanded with directions to enter a new order granting the motions. Plaintiff MacKay is awarded its costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
BUTZ, J. We concur: RAYE, P. J. MURRAY, J.