Opinion
F049803
6-7-2007
MITCHELL BROWN GENERAL ENGINEERING, INC., Plaintiff and Respondent, v. RUNE KRAFT et al., Defendants and Appellants.
Ericksen, Arbuthnot, Kilduff, Day & Lindstrom, Inc., Michael D. Ott and David J. Frankenberger for Defendants and Appellants. Law Offices of Robert Krase and Robert Krase for Plaintiff and Respondent.
NOT TO BE PUBLISHED
An individual and corporation appeal from an order granting a motion to add them as judgment debtors. The judgment creditor claimed the individual and corporation were the alter egos of the original judgment debtor. The superior court agreed.
On appeal, the individual and corporation contend (1) the superior court lacked jurisdiction because of improper service, (2) the superior court applied an incorrect standard of law, (3) the superior court improperly took judicial notice of certain materials, and (4) the evidence submitted was insufficient to support the superior courts findings under the alter ego doctrine.
We make the following conclusions of law. First, the superior court had jurisdiction of the person over the individual and corporation as a result of their general appearance. Second, the superior court did not commit error by applying the wrong legal standards to the disputed matters. Third, the findings of fact (both express and implied) were supported by substantial evidence. Accordingly, the judgment is affirmed.
FACTS AND PROCEEDINGS
Parties
Respondent Mitchell Brown General Engineering, Inc. (MB Engineering) is the judgment creditor that moved to add judgment debtors. MB Engineering sells concrete aggregate, road base aggregate, sand, and gravel. MB Engineering obtained the original judgment in this matter against The Artesia Companies, Inc. (Artesia) based on Artesias failure to pay the balance owed on its account.
The individual and corporation that MB Engineering sought to add as judgment debtors are appellants Rune Kraft and Kraft Americas Holdings, Inc., a Delaware corporation (Kraft Holdings).
Underlying Litigation
Artesia was incorporated as a Delaware corporation in late 2000 and became qualified to do business in California as a foreign corporation on March 1, 2001.
In March 2001, Artesia leased real estate from MB Engineering to use as a location for operating a mobile concrete batch plant. Artesia also became a customer of MB Engineering. Artesia sent trucks to MB Engineerings rock plant and picked up material. MB Engineering weighed the truck, created a ticket that showed the weight of the material, and generated and mailed a statement to Artesia at the end of the month. Artesia did not pay all of the statements that MB Engineering sent to Artesia, which led to this lawsuit.
On October 14, 2003, MB Engineering filed a complaint against Artesia, Larry Oliver and Does 1 to 50 alleging causes of action for breach of contract, open account, and fraud. The complaint alleged that in April or May 2003, Artesia and MB Engineering agreed that MB Engineering would continue to sell material to Artesia as Artesia paid down its account by paying more on the account than it received in materials. The complaint also alleged that on September 13, 2003, Artesia promised to provide collateral in the form of a piece of equipment that was free from liens and worth approximately $40,000. Based on this promise, MB Engineering released approximately $27,000 worth of material to Artesia. Artesia subsequently refused to provide the equipment as collateral or pay down the $40,000.
Larry Oliver held several different positions with Artesia and was its president for about four months. He was fired after disagreeing with Mr. Kraft over Artesias responses to interrogatories in another lawsuit. Larry Olivers interests are adverse to those of Mr. Kraft and are a basis for discrediting his testimony that is detrimental to Mr. Kraft.
In November 2003, MB Engineering obtained a writ of attachment and filed a notice of attachment lien concerning a concrete batch plant, serial No. C6643L (batch plant), and related equipment that were used by Artesia at its place of business in Porterville, California.
Between the time the lawsuit was filed and the trial was held, MB Engineering conducted discovery by propounding interrogatories, requesting documents, and taking depositions. In October 2004, counsel for MB Engineering made two appearances before the superior court seeking to compel Artesia to provide discovery responses. The superior court awarded monetary sanctions against Artesia in connection with the motions to compel and for Artesias failure to appear at a settlement conference.
A jury trial was scheduled for November 8, 2004. No attorney appeared at the trial on behalf of Artesia, although Tammy Gahart, an officer and employee of Artesia, attended the courts proceedings that day. The superior court handled the matter as if it were a default and required MB Engineering to present proof that Artesia owed the account receivable and was liable for attorney fees.
MB Engineering recovered a judgment against Artesia for damages of $184,870.98, attorney fees of $48,071, costs of $2,753.10, and sanctions of $4,400.50. The judgment totaled $240,095.58.
MB Engineering attempted to collect on the judgment by executing on the batch plant and equipment that were subject to its writ of attachment. Concreteworks, Inc. filed a third party claim in which it asserted that it held a superior claim to the equipment by virtue of its purchase of the equipment from Kraft Holdings. Concreteworks, Inc. claimed it owned the batch plant and equipment and had leased it to Artesia.
Concreteworks, Inc. supported its claim to the batch plant and equipment by submitting declarations of the people who had personal knowledge about the history of the batch plant and equipment and the history of the companies that owned, leased, or transferred interests in the batch plant and equipment.
The declarations of Mike Kalmink, Doug Fuller, and Ken McAfee stated that they were employed by Artesia and by Artesia Ready Mix Concrete, Inc. The declaration of Mike Kalmink stated that Artesia Ready Mix Concrete, Inc. agreed to lease the batch plant and equipment from Dave Humphrey Enterprises, Inc. on January 2, 2001. The lease agreement provided that Artesia Ready Mix Concrete, Inc. could purchase the batch plant and equipment by applying 85 percent of the rent payments to the purchase price.
The declaration of Tammy Gahart stated that she was employed by Artesia and that Artesia leased the batch plant and related equipment (1) from Artesia Ready Mix Concrete, Inc. from March 1, 2001, to August 31, 2002, (2) from Kraft Holdings from September 1, 2002, to August 31, 2003, and (3) from Concreteworks, Inc. from September 1, 2003, to August 31, 2013.
It appears that Concreteworks, Inc. financed its purchase by receiving a loan from Kraft Holdings. As collateral for the loan, Kraft Holdings retained a security interest in the batch plant and related equipment. Kraft Holdings did not file a financing statement to perfect its lien in the batch plant and related equipment until February 9, 2005.
The superior court denied the third party claim of Concreteworks, Inc. The assets subject to the writ of attachment were sold and produced less recovery than anticipated by counsel for MB Engineering.
Motion to Add Judgment Debtors
In September 2005, MB Engineering filed a motion to add Mr. Kraft and Kraft Holdings as judgment debtors on the grounds that they were the alter egos of Artesia. The motion was supported by a declaration of the attorney representing MB Engineering. The declaration attached excerpts from the depositions of Larry Oliver, Tammy Gahart, Mike Kalmink and Ken McAfee. The depositions were taken in August, September, and October of 2004. The depositions included testimony regarding the degree of control that Mr. Kraft asserted over Artesia.
On November 9, 2005, attorneys retained by Mr. Kraft and Kraft Holdings filed a notice of retention of counsel and request for continuance of the hearing on MB Engineerings motion. A week later, the attorney filed an opposition to the motion to add Mr. Kraft and Kraft Holdings
The opposition was supported by the declaration of an attorney representing Mr. Kraft and Kraft Holdings and by the declarations of Mike Kalmink, Ken McAfee, Tammy Gahart, and Anita Vance. Generally, the declarations addressed the formal relationships between Artesia and Mr. Kraft. (See part IV.A.2, post.)
The attorneys declaration included attachments that purported to be share certificates Nos. 1 and 2 of Artesia. Certificate No. 1 was issued to Kraft Holdings on December 7, 2000, in the amount of 1,000 shares and was surrendered for transfer of those shares to Tammy Gahart on May 1, 2002. Certificate No. 2 in the amount of 1,000 shares was issued to Tammy Gahart on May 1, 2002.
On December 2, 2005, MB Engineering filed written objections to these stock certificates and related transfer records based on the lack of foundation and the lack of authentication. The superior court sustained MB Engineerings evidentiary objections. Mr. Kraft and Kraft Holdings have not challenged this ruling.
The failure to provide the proper foundation and authentication was unusual in that the opposition was accompanied by declarations of Tammy Gahart, the person shown as the owner of certificate No. 2, and Anita Vance, the person who signed both certificates as secretary of Artesia. Thus, it appears that either Tammy Gahart or Anita Vance could have authenticated the certificates and corresponding transfer records.
On December 7, 2005, the superior court held a hearing on the motion to add judgment debtors. Based on the deposition testimony of Larry Oliver, Tammy Gahart, Mike Kalmink, and Ken McAfee, and other evidence about the amount of control that Mr. Kraft asserted over Artesia, the superior court found that the individuals appointed to fill positions of authority at Artesia were "complete figureheads."
The superior court granted the motion. The reasoning of the superior court is reflected in its tentative ruling and the reporters transcript of the hearing.
An amended judgment including the two new judgment debtors was filed. Mr. Kraft and Kraft Holdings subsequently filed a timely notice of appeal.
DISCUSSION
I. Validity of Service and Jurisdiction
A. Contentions of the Parties
Mr. Kraft argues the superior court never gained jurisdiction over him because of ineffective service. He challenges (1) the manner in which documents were delivered to him and (2) the completeness of the documents delivered. Specifically, he contends he was not personally served and the attempts at substitute service were invalid. In addition, Mr. Kraft and Kraft Holdings contend that the documents delivered should have included a copy of the complaint upon which the judgment was based.
MB Engineering argues that any purported defects in service are irrelevant because Mr. Kraft and Kraft Holding made a general appearance before the superior court. (See Code Civ. Proc., § 410.50 [general appearance is equivalent of personal service of summons].)
In response, Mr. Kraft and Kraft Holdings contend they made a special appearance and, in any event, a general appearance does not cure the failure to serve the complaint with the summons.
B. General Versus Special Appearance
Issue: Did Mr. Kraft and Kraft Holdings make a special or general appearance in the superior court? Answer: General appearance.
1. Relevant facts
On November 9, 2005, attorneys retained by Mr. Kraft and Kraft Holdings filed in the superior court a document titled "Notice of Retention of Counsel for Rune Kraft and Kraft America Holdings, Inc.; Request for Continuation of Motion Hearing; and Comments Regarding Motion to Amend Judgment to Add Additional Debtors; Declaration of Adam Sullivan." (Unnecessary capitalization omitted.) One week later, the attorneys retained by Mr. Kraft and Kraft Holdings filed an opposition to the motion to add additional judgment debtors. After MB Engineering filed a reply to the opposition, the attorneys for Mr. Kraft and Kraft Holdings filed a sur-reply.
None of these three filings on behalf of Mr. Kraft and Kraft Holdings stated that Mr. Kraft and Kraft Holdings were specially appearing to contest jurisdiction. Although a partys designation is not controlling (2 Witkin, Cal. Procedure (4th ed. 1996) Jurisdiction, § 199, pp. 764-766), the failure to state that the only purpose of the appearance was to contest jurisdiction is consistent with our determination that Mr. Kraft and Kraft Holdings made an appearance in which they contested the merits of the alter ego claim.
The papers filed on behalf of Mr. Kraft and Kraft Holdings contended that the court lacked jurisdiction. The papers also addressed the merits of the underlying theory of liability asserted by MB Engineering. For instance, the opposition stated that the alter ego "claim has no merit. There is no basis whatsoever to pierce two corporate veils, or for a finding of alter ego. Further, this Court has no jurisdiction over Mr. Kraft or Kraft Holdings." This quoted language establishes that Mr. Kraft and Kraft Holdings used their papers to challenge both the merits of the claim against them and the courts jurisdiction.
2. Applicable rule of law and analysis
A special appearance is a method of appearing before the court for the sole purpose of objecting to the lack of jurisdiction of the person without submitting to the jurisdiction of the court. (Severdia v. Alaimo (1974) 41 Cal.App.3d 881, 890; 2 Witkin, Cal. Procedure, supra, Jurisdiction, § 197, p. 763.)
The documents filed on behalf of Mr. Kraft and Kraft Holdings clearly established that they did not appear for the sole purpose of objecting to the lack of jurisdiction. Consequently, we conclude that they made a general appearance, not a special appearance. (See Firemans Fund Ins. Co. v. Sparks Construction, Inc. (2004) 114 Cal.App.4th 1135, 1145 [appearance is general if merits are contested]; Severdia v. Alaimo, supra, 41 Cal.App.3d at p. 890; see generally 2 Witkin, Cal. Procedure, supra, Jurisdiction, §§ 197-199, pp. 763-766.)
C. General Appearance and Summons Served Without the Complaint
Issue: Does a general appearance confer jurisdiction of the person on the superior court even if the summons was served without a copy of the complaint? Answer: Yes.
Code of Civil Procedure section 410.50 addresses when a general appearance is the equivalent of personal service of a summons. Subdivision (a) of that section provides in full: "Except as otherwise provided by statute, the court in which an action is pending has jurisdiction over a party from the time summons is served on him as provided by Chapter 4 (commencing with Section 413.10). A general appearance by a party is equivalent to personal service of summons on such party."
In Firemans Fund Ins. Co. v. Sparks Construction, Inc., supra, 114 Cal.App.4th at page 1145, the court interpreted Code of Civil Procedure section 410.50, subdivision (a) to mean that a general appearance dispensed with the requirement of service of process and cured any defects in service. Here, Mr. Kraft and Kraft Holdings request that we adopt a more restrictive statutory interpretation. They argue that the provision should be interpreted to mean that a general appearance does not cure the failure to include a copy of the complaint with the summons. They have cited no case law or legislative history that supports this interpretation. They have provided no compelling policy considerations for rejecting the reasoning of another district of the Court of Appeal. (See Nabors v. Workers Comp. Appeals Bd. (2006) 140 Cal.App.4th 217, 226 [ordinarily the decisions of other districts are followed unless compelling reason for disagreement is presented].) Accordingly, we will follow the interpretation adopted in Firemans Fund Ins. Co. v. Sparks Construction, Inc. and apply it to the facts of this case.
We conclude that the general appearance of Mr. Kraft and Kraft Holdings cured any defects in the service of process, including the purported defect of failing to include a copy of the complaint in the materials served with the summons. As a result of their general appearance, the superior court had jurisdiction of the person over them.
Mr. Kraft and Kraft Holdings have not challenged jurisdiction on the grounds that they did not have sufficient "minimum contacts" with California. Their appellants reply brief specifically asserted that they "have not advanced a `minimum contacts argument" and that, as a result, they need not respond to MB Engineerings arguments on that subject.
II. Liberality and Granting an Amendment to Add Judgment Debtors
Issue: Did the superior court use an incorrect standard to view the evidence presented in support of the motion to add judgment debtors? Answer: No.
A. Contentions of the Parties
Mr. Kraft and Kraft Holdings contend that the superior court committed serious and reversible error by confusing the "greatest liberality" standard with the standard that should have been applied to a motion to add judgment debtors. They assert that "the Superior Court here, acting with the `greatest liberality, simply assumed the pertinent facts to be true, rather than making MB [Engineering] carry its evidentiary burden."
In contrast, MB Engineering contends that the superior court used the correct standard of proof in determining whether Mr. Kraft and Kraft Holdings should be added as judgment debtors and that substantial evidence supports its findings. MB Engineering also contends that the hearing transcript shows the superior court was not confused about the standards applicable to a motion to add judgment debtors.
In their appellants reply brief, Mr. Kraft and Kraft Holdings contend that MB Engineering completely missed the point of the problem with the "greatest liberality" standard used by the superior court. Mr. Kraft and Kraft Holdings assert: "It is true that the `great liberality terminology utilized by the Superior Court is not a matter of the burden proof [sic ]. However, it is a matter of how the Court viewed the evidence which was presented in this matter." Mr. Kraft and Kraft Holdings summarized their argument as follows: "The contention of [Mr.] Kraft and [Kraft Holdings] on this appeal is that MB [Engineering] should have been required to prove its claims, rather than being provided a leg up by the Superior Court, which viewed MB [Engineering]s evidence under a `great liberality standard."
B. Relevant Facts
The superior court granted the motion to add Mr. Kraft and Kraft Holdings as additional judgment debtors and adopted its tentative ruling as the order of the court. The superior courts actions are reflected in minutes dated December 7, 2005, which set forth the following text from the tentative ruling: "In a motion to add additional judgment debtors, the `greatest liberality is encouraged in the interest of justice. See Carr v. Barnabeys Hotel Corp. (1994) 23 Cal.App.4th 14."
The superior courts use of the term "greatest liberality" was clarified at the December 7, 2005, hearing. Near the start of the hearing, counsel for Mr. Kraft and Kraft Holdings expressed concern over the use of the term "greatest liberality" in the tentative ruling. Counsel argued that the notion that there should be liberality in allowing amendments did not support the conclusion "that there must be liberality in the quantum of proof thats required to get to alter ego." The superior court stated: "Im not taking that position. Thats not what we did. You dont need to dwell on that."
C. Analysis
The superior courts statement during the December 2005 hearing shows that it was not confused by the phrase "greatest liberality" or how that concept related to a motion to add judgment debtors. There is nothing in the record to show that the superior court viewed the evidence under a standard of great liberality towards MB Engineering. Specifically, the record does not establish that the superior court based its credibility findings or resolved conflicts in the evidence by being liberal towards MB Engineerings side of those conflicts. At most, the superior court liberally exercised its discretion to add judgment debtors only after it required MB Engineering to prove its alter ego theory of liability.
We note that application of the "greatest liberality" standard usually will result in the granting of a motion to add judgment debtors where the judgment creditor has carried its burden of proving that the additional judgment debtors (1) are alter egos of the original judgment debtor and (2) controlled the underlying litigation. The issues presented by this appeal do not require us to define the circumstances where a superior court properly may exercise its discretion to deny such a motion after the judgment creditor has carried its burden of proof.
The assertion of Mr. Kraft and Kraft Holding that the superior court simply assumed pertinent facts were true and did not make MB Engineering carry its evidentiary burden is not supported by the record. Therefore, we conclude the superior court did not commit reversible error in the way it viewed the evidence or in selecting the standard for granting a motion to add judgment debtors.
III. Judicial Notice and Procedural Due Process
A. Contentions
Mr. Kraft and Kraft Holdings contend that their due process rights "have been literally trampled in this case, with the complicity of the Superior Court." Their contention is based on the combination of lack of jurisdiction (improper service) and the superior courts taking of judicial notice of material previously filed in this lawsuit.
The contentions regarding improper service have been addressed and rejected in part I, ante. Therefore, those contentions do not support the alleged due process violation.
As to the materials (declarations and depositions) that were the subject of MB Engineerings request for judicial notice, we consider whether the purported defects in the procedures followed in the superior court constitute error of constitutional dimension.
B. Relevant Facts
1. Declarations
The November 16, 2005, opposition to the motion to add judgment debtors asserted that MB Engineering "claims that some document contains the signature of Rune Kraft, as secretary for Kraft [Holdings]. However, [MB Engineering] has not identified this alleged document."
MB Engineering may have been responding to this assertion when, on December 2, 2005, it filed a request for judicial notice concerning "all of the pleadings, papers and declarations filed in connection with the third party claim of Concreteworks, Inc. in this action ...." This quoted language was not amplified elsewhere in the request. For instance, the request did not identify each declaration and document that MB Engineering considered relevant. Furthermore, MB Engineerings request for judicial notice did not attach copies of the declarations and other documents that were the subject of the request.
On appeal, MB Engineering identified the prior filings covered by its request for judicial notice by citing to pages 29 through 467 of the clerks transcript.
At the hearing held five days after MB Engineering filed its request for judicial notice, counsel for Mr. Kraft and Kraft Holdings did not object (orally or in writing) to MB Engineerings request for judicial notice.
2. Deposition excerpts
The motion to add Mr. Kraft and Kraft Holdings as judgment debtors was served with a declaration of the attorney representing MB Engineering. That declaration attached portions of the depositions of Larry Oliver, Tammy Gahart, Mike Kalmink, and Ken McAfee. The depositions were taken in August, September, and October of 2004. The transcripts of these depositions indicate that no appearance was made on behalf of Artesia or any other defendant.
Mr. Kraft and Kraft Holdings made three separate filings after MB Engineering served its motion to add judgment debtors: (1) a notice of retention of counsel and request for continuance, (2) an opposition to the motion to add judgment debtors, and (3) a sur-reply to MB Engineerings reply to their opposition. The following describes how those three separate filings address the excerpts from the depositions.
First, in their notice of retention of counsel and request for continuance, Mr. Kraft and Kraft Holdings made the general argument that MB Engineering had not presented evidence to support its factual assertions. More specifically, they argued "[t]he exhibits attached to the subject Motion are vague and ambiguous and if carefully read do not seem to support [MB Engineerings] application." Aside from the contention that the depositions were vague and ambiguous, the notice of retention of counsel and request for continuance made no evidentiary objections regarding the depositions.
Second, the opposition of Mr. Kraft and Kraft Holdings to the motion to add judgment debtors reiterated the arguments that (1) MB Engineering had failed to present sufficient evidence to support a finding of alter ego and (2) the exhibits attached to the motion were vague and ambiguous. No other evidentiary objections were set forth in the opposition.
Third, the sur-reply of Mr. Kraft and Kraft Holdings did not set forth any objections to the deposition excerpts. Instead, the sur-reply argued that MB Engineerings reply (1) failed to cite specific passages from the deposition transcripts to support its argument, and (2) made "conclusory statements, poorly paraphrasing the contents of the depositions." The sur-reply also asserted: "The depositions do not provide the evidence that Judgment Debtor [sic] claims, and do not help [MB Engineering] meet its burden of proof." (Italics in original.)
During the hearing on December 7, 2005, counsel for Mr. Kraft and Kraft Holdings emphasized that proving an alter ego claim was difficult and "it requires, you know, the accomplishment of quantum of proof through presentation of concrete, believable, and real evidence, not conclusions, not hearsay, not what ifs, not what may bes." Subsequently, the superior court referred to evidence in which employees stated that they were designated as officers by Mr. Kraft, that they had zero authority, and that Mr. Kraft controlled the details of Artesias business. The following exchange then took place:
"[COUNSEL FOR KRAFT]: Well, thats the—you can call it evidence if youd like. And I mean it is evidence.
"THE COURT: Sworn deposition testimony is generally considered evidence.
"[COUNSEL FOR KRAFT]: Yes, I understand the technical ruling of that, Your Honor. But one must consider the weight of that particular evidence. Each of those individuals had a personal reason to spin it the way they spun it. Thats first."
Later during the hearing the superior court discussed the behavior of Mr. Kraft towards Artesia as follows:
"THE COURT: Hes acting like an owner. Hes perceived to be the owner by all these people.
"[COUNSEL FOR KRAFT]: Well, that
"THE COURT: Which youve objected to. And I said thats mere perception, but that was based on his actions."
The foregoing describes how Mr. Kraft and Kraft Holdings dealt with the deposition excerpts in their papers and during the hearing before the superior court. Mr. Kraft and Kraft Holdings did not challenge the use of the deposition excerpts on the grounds that they had no opportunity to (1) appear at the depositions and (2) object to questions that were improper in form and ask questions to provide a more accurate context for interpreting the answers given.
C. Procedural Due Process Analysis
1. Declarations
Mr. Kraft and Kraft Holdings contend on appeal that MB Engineerings request for judicial notice failed to provide them with "sufficient notice" as that term is used in Evidence Code section 453. In particular, Mr. Kraft and Kraft Holdings argue the request should have (1) identified specifically the documents subject to the request, (2) included the documents as attachments to the request, and (3) been made more than five days before the hearing.
Evidence Code section 453, subdivision (a) provides that a party requesting judicial notice must give "each adverse party sufficient notice of the requests, through the pleadings or otherwise, to enable such adverse party to prepare to meet the request ...."
The December 7, 2005, hearing afforded Mr. Kraft and Kraft Holdings with a reasonable opportunity to challenge the propriety of MB Engineerings request for judicial notice on the three above enumerated grounds. (See Evid. Code, § 455 [opportunity to present information to court regarding judicial notice of a matter].) Mr. Kraft and Kraft Holdings did not use the opportunity to contend that MB Engineerings request for judicial notice failed to comply with Evidence Code section 453 or violated their procedural due process rights.
We conclude that state law—specifically, Evidence Code sections 453 and 455—provided Mr. Kraft and Kraft Holdings with sufficient procedural protections against inappropriate judicial notice. The record shows that they chose not to make use of these procedural protections. In short, Mr. Kraft and Kraft Holdings waived the procedural protections provided by statute. "Under the doctrine of waiver, a party loses the right to appeal an issue caused by affirmative conduct or by failing to take the proper steps at trial to avoid or correct the error." (Telles Transport, Inc. v. Workers Comp. Appeals Bd. (2001) 92 Cal.App.4th 1159, 1167.)
In view of the waiver of the state law procedural protections, the due process argument made by Mr. Kraft and Kraft Holdings is the equivalent of arguing that the superior court failed to perform a sua sponte duty to inquire into the sufficiency of the notice provided by the request for judicial notice. We conclude the due process clause did not impose such a duty on the superior court.
In summary, Mr. Kraft and Kraft Holdings were afforded the procedural protections that they were due. Their decision not to challenge the sufficiency of the notice provided in MB Engineerings request for judicial notice cannot be undone by invoking the due process clause for the first time on appeal.
2. Depositions
Mr. Kraft and Kraft Holdings contend their due process rights were violated because the deposition excerpts that MB Engineering attached to its motion came from a deposition that neither their attorney nor an attorney for Artesia attended. As a result, they were not able to test the conclusory statements of the witnesses or object to the many questions that were leading, called for speculation or hearsay, or lacked foundation.
Evidence Code section 353 provides that a decision based on the erroneous admission of evidence shall not be set aside unless the record shows a timely objection or motion was made that clearly stated the specific grounds for excluding the evidence. Thus, California statute provided Mr. Kraft and Kraft Holdings with procedures for contesting the superior courts reliance on the deposition excerpts. Mr. Kraft and Kraft Holdings did not follow the procedures. Instead, before the superior court, their attorney took the position that the depositions were evidence but challenged the weight that should be given the testimony. The failure of Mr. Kraft and Kraft Holdings to use the procedures provided by state law resulted in a waiver of the objections they now raise on appeal. (See Haskell v. Carli (1987) 195 Cal.App.3d 124, 129 [at hearing on summary adjudication motion, party failed to object to use of deposition testimony and, as a result, waived challenges to its admissibility].)
The attempts of Mr. Kraft and Kraft Holdings to avoid the requirements of Evidence Code section 353 by claiming an error of constitutional dimensions must fail. The procedural protections provided by state statute were adequate for constitutional purposes, and those procedures were not followed.
IV. Sufficiency of the Evidence to Establish Alter Ego
Each party presents a version of the facts that differs greatly from the version presented by its adversary. Our resolution of these disputes over the facts will determine the outcome of this appeal. Consequently, the selection and application of the standard of review is of crucial importance.
A. Standard of Review
1. General principles
We apply the substantial evidence standard of review to the superior courts findings concerning alter ego. (Baize v. Eastridge Companies LLC (2006) 142 Cal.App.4th 293, 302.)
The substantial evidence standard for review has been described by our Supreme Court as follows:
"Where findings of fact are challenged on a civil appeal, we are bound by the `elementary, but often overlooked principle of law, that ... the power of an appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, to support the findings below. (Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427, 429.) We must therefore view the evidence in the light most favorable to the prevailing party, giving it the benefit of every reasonable inference and resolving all conflicts in its favor in accordance with the standard of review so long adhered to by this court." (Jessup Farms v. Baldwin (1983) 33 Cal.3d 639, 660.)
One aspect of viewing the evidence in the light most favorable to the prevailing party concerns implied findings. Under the doctrine of implied findings, an appellate court must conclude that the superior court impliedly made findings of fact that support its decision if the record contains substantial evidence to support such a finding. (See People ex rel. Dept. of Corporations v. SpeeDee Oil Change Systems, Inc. (1999) 20 Cal.4th 1135, 1143 [under abuse of discretion standard of review, appellate court must accept trial courts implied findings of fact supported by substantial evidence]; SFPP v. Burlington Northern & Santa Fe Ry. Co. (2004) 121 Cal.App.4th 452, 462 [implied finding of fact must be supported by substantial evidence, otherwise appellate court may not infer it exists].)
2. Application of the substantial evidence standard of review
Mr. Kraft and Kraft Holdings present a version of the facts based on the October 18, 2005, declarations of Mike Kalmink, Ken McAfee, Tammy Gahart, and Anita Vance. These declarations were presented in support of the opposition to the motion to add judgment debtors. The declarations of Tammy Gahart and Anita Vance included the following identical statements:
The law firm representing Mr. Kraft and Kraft Holdings represented to the superior court that it was initially contacted by Mr. Kraft on October 26, 2005. Therefore, the declarations were prepared and signed before this initial contact.
Based on this timing of events, we reject MB Engineerings assertion "that the declarations were contrived by Appellants counsel to control what facts were stated and not stated." (Italics added.)
"I have had access to information about The Artesia Companies, Inc.s officers, directors or shareholders. [¶] ... Rune Kraft has never been an officer of The Artesia Companies, Inc. [¶] ... Rune Kraft was a director of The Artesia Companies, Inc., but resigned on May 1, 2002. [¶] ... Rune Kraft has never been a shareholder of The Artesia Companies, Inc."
The appellate record does not contain copies of the statements filed by Artesia with the California Secretary of State pursuant to Corporations Code section 2117. Under that section, foreign corporations are required to file statements that list, among other things, the names and addresses of its officers.
Each of their declarations also asserted that "Kraft Americas Holdings, Inc. was a shareholder of The Artesia Companies, Inc., but sold all of its shares on May 1, 2002."
In their opening appellants brief, Mr. Kraft and Kraft Holdings contend that the declarations establish that (1) Mr. Kraft was never an employee, shareholder, or officer of Artesia, (2) Mr. Kraft was a director of Artesia and resigned in May 2002, and (3) Kraft Holdings was a shareholder of Artesia at one time but sold its shares in 2002.
Appellants have asked this court to accept a number of assertions of fact based on these declarations. For example, appellants assert that Mr. Krafts role as a director of Artesia ceased once and for all after his purported resignation on May 1, 2002. We cannot accept this factual assertion because it violates the substantial evidence standard of review in two ways.
First, it views the declarations as credible. The principle that the evidence must be viewed in the light most favorable to the prevailing party prevents this court from accepting the declarations as credible. Express or implied findings concerning the credibility of evidence fall within the province of the trier of fact. (E.g., Bradley v. Perrodin (2003) 106 Cal.App.4th 1153, 1166.)
Second, the factual assertion is based on an inference. Specifically, the declarations are silent on whether Mr. Kraft was reappointed as a director of Artesia after May 1, 2002. The literal text of the declarations of Tammy Gahart and Anita Vance would be true even if Mr. Kraft had been appointed or elected as a director of Artesia any time after May 1, 2002. Thus, appellants have asked this court to infer that Mr. Kraft did not become a director of Artesia after May 1, 2002. Such an inference is not appropriate under the substantial evidence standard of review because it is an inference that is unfavorable to the prevailing party.
We will not list every factual assertion made by appellants that violates the substantial evidence standard of review and its requirement that the evidence be viewed in the light most favorable to the prevailing party. The foregoing example illustrates the two main defects in the version of facts set forth by Mr. Kraft and Kraft Holdings in this appeal—that is, assuming their evidence is credible and drawing inferences in their favor. In the absence of a statement by the superior court otherwise, we must conclude that the superior courts implied findings of fact include only inferences and credibility findings that favor MB Engineering.
B. Principles of Law Contained in the Alter Ego Doctrine
In Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538-539, this court set forth the fundamental principles of Californias alter ego doctrine:
"Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. [Citations.] A corporate identity may be disregarded—the `corporate veil pierced—where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation. [Citation.] Under the alter ego doctrine, then, when the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the corporate entity and deem the corporations acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners. [Citations.] The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. [Citation.]
"In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. [Citations.] `Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other. [Citations.] Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. [Citations.] No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. [Citation.] Alter ego is an extreme remedy, sparingly used. [Citation.]"
With respect to the inequitable result element, this court also observed that difficulty in enforcing a judgment, by itself, does not constitute an inequity that the alter ego doctrine was designed to prevent. (Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at p. 539.) Rather, the alter ego doctrine applies "where some conduct amounting to bad faith makes it inequitable for the [alter ego] to hide behind the corporate form." (Ibid.)
C. Equitable Ownership as a Prerequisite to Alter Ego Liability
Mr. Kraft and Kraft Holdings argue that a finding of alter ego requires domination and control by an equitable owner. They further argue that the evidence was insufficient as a matter of law to support a finding that Mr. Kraft was an equitable owner of Artesia.
We reject each of these arguments. The first argument is based on an misstatement of law. The second argument is not supported with the necessary authority and analysis.
First, alter ego liability is not limited to equitable owners. As this court recognized in Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at page 538, under the alter ego doctrine, "courts will ignore the corporate entity and deem the corporations acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners." This quote indicates that equitable ownership is not an essential prerequisite to liability under the alter ego doctrine.
The rigidity of appellants position is at odds with "the general rule that the conditions under which a corporate entity may be disregarded vary according to the circumstances in each case. [Citations.]" (Automotriz etc. De California v. Resnick (1957) 47 Cal.2d 792, 796.) Thus, application of the alter ego doctrine is particularly within the province of the trial court. (Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825, 837.)
The second argument was not properly developed. Mr. Kraft and Kraft Holdings stated in conclusory fashion that they are not "equitable owners" of Artesia. They did not provide a definition of the term "equitable owner." It necessarily follows that they did not cite authority supporting their implicit choice of definition and did not analyze the application of that definition to the facts of this case. (See Sprague v. Equifax, Inc. (1985) 166 Cal.App.3d 1012, 1050 [appellant must show error exists by citation to authorities and argument].)
The conclusory assertion by Mr. Kraft and Kraft Holdings that they were never shown to be the equitable owners of Artesia is insufficient. As a reviewing court, we are unable to determine what, if any, definition of equitable ownership they used to reach this conclusion. For example, their references to the shareholder records and corporate formalities concerning who were the directors and officers of Artesia suggest that they may have confused registered ownership with equitable (also known as beneficial) ownership. (See Blacks Law Dictionary (7th ed. 1999) p. 1130 [equitable owner and beneficial owner treated as equivalents].) Also, it is possible that they did not realize that equitable ownership can exist when another party holds legal title to an asset for the benefit of the equitable owner. (Ibid.)
Furthermore, assuming for the sake of argument that equitable ownership is a prerequisite to liability under the alter ego doctrine, we conclude that the superior court impliedly found that Mr. Kraft and Kraft Holding were equitable owners of Artesia.
This conclusion is based on the following. During the December 2005 hearing, the superior court explicitly found that Mr. Kraft personally micromanaged Artesia on a daily basis—that is, he ran the corporation. The superior court also asked counsel for Mr. Kraft and Kraft Holdings whether that level of control was a pretty good basis for inferring equitable ownership. In addition, the superior court expressed doubts about not inferring equitable ownership because that would mean that Mr. Kraft was "an officious interloper with no connection to the company" who had just managed to convince all the staff and officers of Artesia that he really was in control.
Consequently, the record shows the superior court regarded Mr. Kraft as an equitable owner rather than an interloper with no interest in or connection to Artesia.
Lastly, the record contains sufficient evidence to support the trial courts finding of fact regarding equitable ownership. Tammy Gahart twice referred to Mr. Kraft during her deposition as the owner of Artesia. This testimony, when viewed in the light most favorable to MB Engineering, supports the inference that Mr. Kraft was the equitable owner of Artesia despite the lack of evidence in the record to establish that he was a registered shareholder.
D. Control of the Litigation
Mr. Kraft and Kraft Holdings rely on NEC Electronics, Inc. v. Hurt (1989) 208 Cal.App.3d 772 for the proposition that they cannot be added as judgment debtors under an alter ego theory of liability unless they controlled the litigation of the accounts receivable claim against Artesia and had the opportunity to conduct a defense of that claim. (Id. at pp. 778-781.)
The superior court explicitly addressed both control of Artesia and control of the litigation. The December 7, 2005, minute order included the following: "[MB Engineering] has shown through statements on the record that Rune Kraft and Kraft Americas Holdings, Inc. exercised sufficient control over the business practices of Artesia and the current litigation to add them as judgment debtors."
The superior courts express finding of fact regarding control of the litigation is supported by substantial evidence.
For example, approximately 11 months after the lawsuit was filed, Mr. Kraft drafted a six-page letter and sent it to Tammy Gahart to be signed and sent to MB Engineering. The September 7, 2004, letter was addressed to MB Engineering and its attorney. Among other things, the letter chronicled some of Artesias problems with labor conflicts, vandalism, and insurance. The letter asserted, among other things, that MB Engineering had breached its lease with Artesia, prevented Artesia from resuming business, and caused weekly losses to Artesia of approximately $5,000. The letter urged that the best interests of the parties would be served by a business solution rather than resorting to the courts. Thus, the letter shows Mr. Kraft took an active role in negotiations designed to resolve the litigation, which included controlling how an officer of Artesia approached negotiations.
Tammy Gahart testified during her August 2004 deposition that Mr. Kraft talked with her before the deposition. When asked about the substance of that conversation, she said: "He wanted to wait til we got the stuff back from—didnt want to mix me up with facts I think." During the deposition, she referred to Mr. Kraft, not herself, as the owner of Artesia. She testified Mr. Kraft appointed her as an officer, told her what to do and not to do, and had the authority to tell others at Artesia what to do and not to do.
This particular statement apparently was made in reference to the question of ownership of the batch plant that Artesia operated at the location leased from MB Engineering.
With respect to the production of documents, Tammy Gahart indicated that she sent approximately eight inches of documents to an attorney named McLean. Tammy Gahart could not explain why only 189 pages of materials were produced by Artesia because she had gotten the documents together and had them sent to the attorney. That was the end of her involvement. The superior court could infer from her testimony regarding the documents and her other testimony regarding Mr. Krafts control over Artesia that Mr. Kraft gave directions to the attorney.
Later in the deposition, the attorney for MB Engineering and Tammy Gahart discussed the production of documents and the prospect of a motion to compel that sought sanctions.
"Q I guess its potentially possible the Court may order sanctions against the officers if he believes the officers are obstructing.
"[TAMMY GAHART] We have absolutely no authority whatsoever to do anything, so thats what makes it kind
"Q So Mr. Kraft is telling you what to do or not to do with regard to this, is that correct?
"[TAMMY GAHART] Yes.
"Q Yes?
"[TAMMY GAHART] Yes. So, you know, Im—I would bring him in if it was my company, youd have everything and let the chips fall where it may, but its not my company."
Tammy Gahart also testified that Mr. Kraft directed who could come to depositions and testify as the person most knowledgeable about an aspect of Artesias business.
The deposition of Ken McAfee also supports the finding that Mr. Kraft controlled the litigation. Ken McAfee testified he was employed by Artesia in sales and operations. He stated during his deposition that Mr. Kraft approved a paper upon which was written an estimate of the amount owed to MB Engineering ($ 138,081) and that Mr. Kraft was the person from whom he took orders.
Consequently, the deposition testimony of Tammy Gahart and Ken McAfee shows Mr. Kraft (1) exercised actual control over how Artesia conducted the litigation and (2) was involved actively in this process.
1. This case is not analogous to NEC Electronics
Mr. Kraft and Kraft Holdings argue that this case is analogous to the situation presented in NEC Electronics, Inc. v. Hurt, supra, 208 Cal.App.3d 772. In that case, the defendant corporation filed an answer to the complaint and made no other attempt to defend the lawsuit. (Id. at p. 780.) The chief executive officer, who was the alter ego of the corporation, was "never actively involved in defending the [underlying] lawsuit." (Id. at p. 781.) As a result, the court concluded it was error to add him as an additional judgment debtor. (Ibid.)
We conclude that this case is distinguishable from NEC Electronics, Inc. v. Hurt because (1) Artesia defended against the accounts receivable claim of MB Engineering and (2) Mr. Kraft actively participated in that defense. The record shows that Artesia defended against MB Engineerings claims, and the litigation was not resolved until it came before the superior court on the long cause calendar nearly 13 months after the complaint had been filed. Artesia responded to discovery and communicated with MB Engineering and its counsel regarding how the disputes should be resolved. Although no attorney appeared on Artesias behalf at the November 8, 2004, trial, this case is not a situation where a party responded to the complaint, took no other action to defend itself, and allowed a default to be entered against it.
The record supports the superior courts implied finding of fact that Mr. Kraft and Kraft Holdings chose not to have Artesia appear at the November 2004 trial. (See CLD Construction, Inc. v. City of San Ramon (2004) 120 Cal.App.4th 1141, 1145 [corporation may appear before court only through licensed counsel].) Although an attorney did not appear on behalf of Artesia, Tammy Gahart attended the trial.
In addition, unlike the chief executive officer in NEC Electronics, Inc. v. Hurt, Mr. Kraft, through his active involvement, controlled how Artesia conducted the litigation with MB Engineering.
2. Manipulation of shell corporations discovery responses
This case also involves an important factor not discussed in NEC Electronics, Inc. v. Hurt. In particular, the record supports an implied finding by the superior court that Mr. Kraft manipulated Tammy Gahart and Artesias discovery responses in the underlying litigation to confuse MB Engineering about the various ownership interests in the batch plant and supporting equipment.
The variety of interests that can be owned by a person or entity can be described using the "bundle of sticks" metaphor. (E.g., Sterling Builders, Inc. v. United Nat. Ins. Co. (2000) 79 Cal.App.4th 105, 109.) Some of the more important sticks in the bundle of interests that can be owned include the right to possess the property, the right to use the property, and the right to exclude others from using the property. (See Note, Property Rights in Ancient Human Skeletal Remains (1997) 70 So.Cal. L.Rev. 805, 826 [listing the "sticks" included in the bundle of rights that can be owned].)
Artesias responses to MB Engineerings special interrogatories were signed by Tammy Gahart and dated October 22, 2004. The answers stated that Artesia (1) "never acquired any interest in the batch plant"; (2) "never transferred any interest in the batch plant to anybody"; and (3) did not have any information about current and past interests in the batch plant that were held by other persons or entities.
In contrast, documentation subsequently presented by third party claimant Concreteworks, Inc. showed that Artesias personnel had a great deal of information about the batch plant and related equipment and various acquisitions and transfers of interests therein. On August 30, 2002 (five months after Tammy Gahart purportedly replaced Mr. Kraft as a director of Artesia), Artesia acknowledged receipt of $37,912.68 from Kraft Holdings as payment in full for the balance owed to Artesia by Artesia Ready Mix Concrete, Inc. concerning the March 1, 2001, lease of the batch plant. Other documents show that Anita Vance was aware of the history of the batch plant as far back as Dave Humphrey Enterprises, Inc.s lease of the batch plant to Artesia Ready Mix Concrete, Inc. and that she was aware of the interests subsequently held by Kraft Holdings and Concreteworks, Inc. When Tammy Gaharts written response to MB Engineerings interrogatories are viewed in the context of this information, one inference is that she was kept in a state of ignorance about information that was readily available to Artesia. Another inference is that she knowingly provided incomplete and inaccurate information. In either event, the record shows that Mr. Kraft controlled Artesia, including how it responded to MB Engineerings discovery. Thus, the record also supports the inference that Mr. Kraft manipulated Tammy Gahart into providing MB Engineering with inaccurate and incomplete discovery responses.
In contrast to her ignorance in late 2004, by July 28, 2005, Tammy Gahart was able to provide a detailed declaration, based on her personal knowledge, that Artesia "leased the [batch plant] from Artesia Ready Mix Concrete, Inc. from March 1, 2001 to August 31, 2002, from Kraft [Holdings] from September 1, 2002 to August 31, 2003 and from Concreteworks, Inc. from September 1, 2003 to August 31, 2013." The declaration also described interests that Artesia held in equipment as a renter, owner, and borrower. The declaration shows that, when the person controlling Artesia wished for Tammy Gahart to be aware of information about interests held in the batch plant and other items of equipment, she was made aware of that information.
E. Two-part Test Under Alter Ego Doctrine
At the close of the December 2005 hearing, the superior court summarized its decision:
"It appears to me that this is about as classic an example of an application of the alter ego doctrine as you can find. [Artesia] was a shell corporation, had no assets. Had figurehead officers appointed by Mr. Kraft. [¶] [Kraft Holdings] held title to the assets. Rune Kraft individually managed and controlled the company. And, therefore, theyre both alter egos. So Im going to grant the motion to add them as a judgment debtor."
1. Unity of interest and control
In this case, the evidence is sufficient to support the finding that Mr. Kraft and Kraft Holdings controlled Artesia and its employees. Furthermore, the evidence is sufficient to support the implied finding that the level of control equated to domination. (See Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at p. 839.) The record shows that Mr. Kraft appointed Artesias officers and that the officers and employees operated under his direction. In addition, the superior courts finding that Artesia was a shell corporation is consistent with the implied finding that Artesia did not have interests separate from those of Mr. Kraft and Kraft Holdings. In other words, the superior court found that the interests of Artesia were the same as the interests of Mr. Kraft and Kraft Holdings.
In short, the evidence is sufficient to support a finding that Artesia, as a separate corporate entity, was a sham. Part of that sham included the use of corporate formalities to obscure the fact that Mr. Kraft actually controlled Artesia. For instance, corporate records presented to the court show that Mr. Kraft resigned as a director of Artesia effective May 1, 2002. Nonetheless, Mr. Kraft continued to appoint officers after that date and continued to dominate Artesia while asserting that he held no formal position as a director or officer of the corporation. In other words, the individuals appointed to fill positions of authority were "complete figureheads."
The Delaware General Corporation Law provides that the officers of a Delaware corporation generally are chosen by the board of directors. (8 Del.C. § 142(b).)
2. Inequitable result
The second basic requirement that serves as a guide in applying the alter ego doctrine concerns the existence of an inequitable result if the acts of the corporation are treated as those of the corporation alone and not as the acts of the alter egos. (Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at p. 837.)
The presence of actual fraud is not required to establish an inequitable result. (Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at p. 838.) Bad faith, in one form or another, exists in those cases where the corporate entity is disregarded. (Ibid.) "[B]ad faith makes it inequitable for the [alter ego] to hide behind the corporate form." (Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at p. 539.) Therefore, as stated earlier, difficulty in enforcing a judgment, by itself, does not constitute an inequitable result that the alter ego doctrine was designed to prevent. (Ibid.)
Bad faith may exist in situations involving (1) the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in the other and (2) the diversion of assets from the corporate entity to another person or entity to the detriment of creditors. (Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at p. 840.) Another factor that supports the existence of an inequitable result is the use of the corporation as a mere shell or conduit for a single business that is conducted by the alter ego. (Id. at p. 839.)
In this case, the superior court determined Artesia was a shell corporation with no assets and only liabilities. For example, during the December 2005 hearing, the superior court indicated that Artesia was a shell corporation that was used to absorb liabilities and did not have any assets. When counsel for Mr. Kraft presented the question why Mr. Kraft would bother to assert control over Artesia, the following exchange took place:
"THE COURT: How about to set up a shell entity that could take the liabilities and have no assets.
"[COUNSEL FOR KRAFT]: I understand the Courts concern.
"THE COURT: He can absorb the income and the assets, and somebody else can take the liabilities."
The superior court determined that it was inequitable to treat Artesia as a separate corporate entity because it was a shell corporation that had been manipulated to hold liabilities while the assets involved in the operation of its business were held by other entities. This ground has been recognized as a basis for finding that treating the corporation as a separate entity would produce an inequitable result. Accordingly, the remaining question is whether substantial evidence supports the superior courts underlying findings regarding the manipulation of assets and liabilities.
Viewing the evidence in the light most favorable to MB Engineering, we consider two questions about manipulation of the assets and liabilities of Artesia. First, is it possible that the superior court found that the various transactions documented in connection with Concreteworks, Inc.s third party claim to the batch plant were sham transactions created after the fact? Second, if the answer to the first question is yes, who orchestrated those sham transactions?
As to the first question, we conclude that it was within the province of the superior court as the finder of fact to determine whether the various transfers were real (i.e., credible) or shams. For instance, the deposition testimony and the declarations of Tammy Gahart support conflicting inferences about whether those transactions took place as described in the documents, or the documents were created after the fact and do not reflect what really occurred. If all questions of credibility were resolved in favor of MB Engineering (under the substantial evidence rule, an appellate court must presume as much), then the superior court could have found those transactions were shams. Thus, we infer that the superior court impliedly found that the transactions were shams.
As to the second question, we conclude that the superior court found that Mr. Kraft orchestrated the sham transactions concerning the assets and liabilities involved in the business conducted by Artesia. His control over Artesia and the individuals involved was sufficient to allow the superior court to make such an implied finding.
Consequently, we conclude that the superior courts determination that accepting Artesia as a separate corporate entity would produce an inequitable result is amply supported by the record. Thus, the superior courts alter ego determination and order adding Mr. Kraft and Kraft Holdings as judgment debtors does not contain reversible error.
DISPOSITION
The judgment is affirmed. Respondent shall recover its costs on appeal.
We Concur:
CORNELL, Acting P.J.
HILL, J.