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SUPERIOR COURT OF CALIFORNIA, COUNTY OF SANTA BARBARA
STREET ADDRESS: 1100 Anncapa St
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SUPERIOR CO
COUNTY of
ED
RT of CALIFORNIA
ANTA BARBARA
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MAILING ADDRESS:
as,
CITY AND ZIP CODE: Santa Barbara, CA, 93101 (
BRANCH NAME: l 8 2015
PLAINTIFF: PATSY MOLER Darrel E. Parker. Executive OflIoor
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DEFENDANT: CHRIS I-IULME
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ORDER AFTER HEARING CASE NUMBER: 1417847
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On December I7, 2015, a Civil Law and Motion Hearing was set before Judge James E. Herman on the __..
following matter(s):
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Matter(s):
Motion for Sanctions and OSC re Contempt, Filed by Plaintiff
Counsel presented argument and the matter was taken under submission.
Ruling:
For the reasons set forth herein, the motion of plaintiff Patsy Moler for sanctions pursuant to Code of Civil
Procedure section 128.5 and the request for an order to show cause re contempt are denied.
Background:
In this action, plaintiff Patsy Moler asserts claims against defendants Chris Hulme and ClearView Industries,
Inc., (ClearView) arising out of a construction project for improvements at Moler’s property by defendants.
Moler alleges, among other things, that defendants made various misrepresentations in reliance upon which
Moler funded the construction project for over $900,000. (Complaint, 1H]19-26.) Moler also alleges that
ClearView is the alter ego of Hulme. (Complaint, {HI 5-7.)
On June 10, 2015, defendants filed a motion for summary judgment or alternatively for summary adjudication.
According to the notice of the motion, defendants sought summary adjudication of “All allegations against
Chris Hulme” and “Cause of Action Number Two.” In the accompanying memorandum in support of the
motion, defendants argued that the allegations against Hulme are baseless because there is no showing of alter
ego. Defendants also argued that there was no basis for Moler’s allegations of fraud (the second cause of
action). As evidence supporting the motion, defendants presented, among other things, the declaration of
defendant Jennifer Hulme. The declaration stated the following:
“1) I am responsible for maintaining the minutes for C1earView’s corporate meetings.
“2) ClearView conducted annual meetings for the Shareholders and Board of Directors. The minutes attached as
Exhibit 20 are true and correct copies of the minutes I prepared.
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Patsy Moler vs Chris Hulme 1417847
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“3) In response to the Court's January 7, 2015 order, I began to collect the corporate minutes to respond to
Plaintiffs request for production for all corporate minutes. ClearView was incorporated in 2007 and a lot of the
information requested going back 8 years, was located in storage with other archived documents.
“4) The information for the corporate minutes reflect discussions and information that was stored electronically
in archived storage and other cormnunications, which were also stored in archived storage, which I converted
them [sic] into tangible form for production.” (Ring decl., 11 7 & exhibit E.)
The documents referred to in the Hulme declaration as exhibit 20 were documents produced to Moler pursuant
to court order. (Ring decl., {I 5 & exhibit D.)
Moler filed opposition to the motion for summary judgment or summary adjudication.
Defendants filed a reply to Moler’s opposition. The reply expressly withdrew defendants’ motion for summary
adjudication as it related to the fraud adjudication, but argued that the alter ego contentions of Moler were
unsubstantiated.
On October l4, 2015, the court denied defendants’ motion for summary judgment or summary adjudication.
The court noted that, as phrased, the first adjudication is as to all claims against Chris Hulme. The separate
statement with respect to this adjudication stated the issue to be adjudicated as “alter ego allegations against
Chris Hulme.” The court determined that, standing alone, the alter ego allegations were not a cause of action,
claim for damages or issue of duty, and hence the alter ego allegations cannot be summarily adjudicated. (Code
Civ. Proc., § 437e, subd. (f)(l).) The adjudication of the fraud claim was withdrawn, leaving nothing further for
resolution by the court.
On November 17, 2015, Moler filed this motion for sanctions pursuant to Code of Civil Procedure section 128.5
and for an order to show cause re contempt. Moler argues that defendants’ motion for summary judgment/
summary adjudication was devoid of merit, that the motion was based on facts that were clearly in dispute, and
that the motion was based on a knowingly false declaration and forged documents. Moler seeks monetary
sanctions in the amount of $44,090.00.
Defendants oppose the motion arguing that defendants had reasonable grounds for bringing the motion and did
not do so in bad faith, and that defendants did not submit any false records.
Analysis:
“A trial court may order a party, the party’s attorney, or both to pay the reasonable expenses, including
attomey’s fees, incurred by another party as a result of bad-faith actions or tactics that are frivolous or solely
intended to cause unnecessary delay.” (Code Civ. Proc., § 128.5, subd. (a).) “‘Actions or tactics’ include, but
are not limited to, the making or opposing of motions or the filing and service of a complaint, cross-complaint,
answer, or other responsive pleading.” (Code Civ. Proc., § 128.5, subd. (b)(1).) “‘Frivolous’ means totally and
completely without merit or for the sole purpose of harassing an opposing party.” (Code Civ. Proc., § 128.5,
subd. (b)(2).) “By its own terms, that statute authorizes the imposition of sanctions only for ‘actions or tactics’
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which are both frivolous and in ‘bad-faith.”’ (Summers v. City 0f Cathedral City (1990) 225 Cal.App.3d 1047,
1070)
( 1) Summary Judgment Procedure
Moler first argues that the motion for summary judgment or summary adjudication (MSJ/MSA) was totally
devoid of merit because a motion for summary judgment terminates the entire action and summary adjudication
of alter ego could not be summarily adjudicated.
The fact that the court denied the unwithdrawn portion of the MSJ/MSA on procedural grounds does not
necessarily imply either that it was totally devoid of merit or that it was brought in bad faith.
A motion pursuant to Code of Civil Procedure section 43 7c may be alternatively for summary judgment or for
summary adjudication. “The motion for summary judgment shall be granted if all the papers submitted show
that there is no triable issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” (Code Civ. Proc., § 43 7c, subd. (c).) The first requested summary adjudication as set forth in the
notice of the MSJ/MSA is an adjudication that there is no merit to the allegations against Chris Hulme. This is
equivalent to seeking summary judgment as to Chris Hulme. There is nothing procedurally improper in seeking
summary judgment as to Chris Hulme separate from the other defendants.
The procedural problem pointed out by the court was that Hulme did not comply with Rules of Court, rule
3.1350(d) in that the separate statement provided separate statement facts for only the narrower issue of alter
ego. The court identified that the issue of alter ego standing alone is not an issue that can be summarily
adjudicated. The court did not exercise its discretion to overlook the noncompliance with rule 3.1350(d) and to
rule on the merits of the broader issue presented. The court does not find that this procedural error constituted
bad-faith frivolous actions or tactics.
(2) ‘MSJ/MSA Based on Facts Clearly In Dispute
An important aspect of the MSJ/MSA is that in reply defendants withdrew their requested adjudication of the
fraud claim.
When section 128.5 was amended in 2014 to apply to recently filed matters, a new subdivision (f) was added:
“Any sanctions imposed pursuant to this section shall be imposed consistently with the standards, conditions,
and procedures set forth in subdivisions (c), (d), and (h) of Section 128.7.”
Code of Civil Procedure section 128.7, subdivision (c), provides that notice of the sanctions motion cannot be
filed or presented to the court unless it is first served on the party against whom sanctions are sought and that
party fails to withdraw its challenged paper, claim, defense, contention, allegation, or denial. Section 128.5,
subdivision (f), expressly requires that sanctions under section 128.5 must be consistent with this procedure.
Consistency is different from compliant, but consistency in the present context necessarily implies that a party
have an opportunity to address the challenged conduct in advance of a sanctions motion. There is no evidence
presented in this motion of any discussion between the parties in advance of this motion apart from the formal
opposition to the MSJ/MSA and the formal reply.
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(Rev. October 4, 2011) ORDER AFTER HEARING
Case Name: CASE NUMBER:
Patsy Moler vs Chris Hulme 1417847
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The express withdrawal of the summary adjudication of the fraud claim in the reply demonstrates to the court
both the lack of bad faith with respect to the original assertion of that summary adjudication and the lack of
basis for the imposition of sanctions for the original assertion of that summary adjudication consistent with the
standards, conditions, and procedures of section 128.7, subdivision (c).
Given appropriate findings, the making of a motion for summary adjudication based upon facts that are known
to be disputed may be sufficient to impose sanctions pursuant to section 128.5. (Monex International, Lta’. v.
Peinado (1990) 224 Cal.App.3d 1619, 1626.)
A review of the factual issues presented by defendants with respect to the alter ego issue shows that defendants’
approach to this issue in the MSJ/MSA is at most misguided. “There is no litmus test to determine when the
corporate veil will be pierced; rather the result will depend on the circumstances of each particular case.”
(Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486, 511, internal quotation marks and citation omitted.)
““‘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.]”’ (Hasso v. Hapke (2014) 227
Cal.App.4th 107, 155.) “Whether a party is liable under an alter ego theory is a question of fact.” (Leek v.
Cooper (2011) 194 Cal.App.4th 399, 418.)
The disputes in factual issues are predominantly competing inferences to be drawn from the evidence. For
example, separate statement fact 17 is: “Chris Hulme never withdrew funds from the corporation’s bank
account for his personal use.” The evidence cited to dispute this asserted fact is that prior to the director’s
meeting held on October 29, 2007, Chris Hulme and Jennifer Hulme had been paid compensation, but prior to
that meeting there had been no formal corporate action to authorize that salary, and that the corporate resolution
authorizing the bank account was after the fact. (Order, filed Nov. 2, 2015, p. 28.) The dispute arises from the
inference that is drawn from the lack of formal, contemporaneous documentation. Defendants’ approach was to
focus upon particular acts or omissions and generally to dismiss as unreasonable alternative inferences,
ultimately arguing that the weight of the inferences favored defendants. On summary judgment, the court
determines whether there are triable issues of fact—the court does not weigh competing inferences. (E.g., Code
Civ. Proc., § 437e, subd. (c).)
On this issue, the court concludes that defendants’ approach was argued in good faith and without intention to
harass or delay. Defendants believe that they will succeed on this issue and such belief has led them to discount
evidence to the contrary. This approach is legally incorrect in a summary judgment motion and defendants
should have been more thoughtful about their motion. Nonetheless, “[i]neptitude is not synonymous with bad
faith.” (Monex International, Ltd. v. Peinado, supra, 224 Cal.App.3d 1619, 1626, fn. 6.) The existence of
factual disputes here does not constitute bad-faith frivolous actions or tactics. Again, the court also finds that
imposition of sanctions under the circumstances here would be inconsistent with the standards, conditions, and
procedures set forth in subdivision (c) of Section 128.7.
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(Rev. October 4,2011) ORDER AFTER HEARING
Case Name: CASE NUMBER:
Patsy Moler vs Chrls Hulme 1417847
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(3) Corporate Minutes
Moler makes the serious charge that Jennifer Hulme’s declaration regarding corporate minutes presented in
support of the MSJ/MSA was knowingly false and that documents were forged. (Motion, at p. 6.) In support of
this charge, Moler compares Jennifer Hulme’s declaration (quoted above) with the deposition of Jennifer Hulme
in which Hulme explains that the minutes were not created in the hard copy form produced until 2015 when
required by court order to do so. (Ring decl., exhibit F [J. Hulme depo.].)
The documents at issue are not presented to the court in connection with this motion. The deposition testimony
of Jennifer Hulme is that these documents were created in 2015 in hard copy form but were dated as of a date
shortly afier the meeting minuted. (J.Hulme depo., p. 128.) For example, with respect to the minutes for a
meeting on October 29, 2007, Hulme is asked why the hard copy minutes created in 2015 were dated October
30, 2007, and explains: “The shareholder meeting was the next day the 30th, and that was kind of close of those
meetings, so I thought that I should sign it as of that day. I didn’t have any guidance otherwise.” (Ibid.) “I
thought it was appropriate to sign it in the date and year of the meetings.” (Id., p. 129.)
The arguments between the parties confuse the issue of whether the documents created in hard copy in 2015
constitute minutes from meetings in other years, such as 2007, with the issue of whether the documents created
in 2015 were willfully misrepresented as having been created electronically in virtually the same form in 2007
as was printed in 2015.
“Each corporation shall keep adequate and correct books and records of account and shall keep minutes of the
proceedings of its shareholders, board and committees of the board and shall keep at its principal executive
office, or at the office of its transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each. Those minutes and other books
and records shall be kept either in written form or in another form capable of being converted into clearly
legible tangible form or in any combination of the foregoing. When minutes and other books and records are
kept in a form capable of being converted into clearly legible paper form, the clearly legible paper form into
which those minutes and other books and records are converted shall be admissible in evidence, and accepted
for all other purposes, to the same extent as an original paper record of the same information would have been,
provided that the paper form accurately portrays the record.” (Corp. Code, § 1500.)
The Corporations Code does not state when minutes must be created. Corporations Code section 1500 does
indicate that minutes may be kept in other than written form as long as the minutes are capable of being
converted into clearly legible tangible form. The declaration of Hulme is ambiguous as to the precise nature of
the form of the document from which the hard copy minutes were presented. In one sense, the declaration is
consistent with Hulme’s deposition that the dates listed for the minutes are dates relative to the meetings even
though the minutes were only recently created. In another sense, the declaration is misleading in that the
differences between the dates are not clearly explained leaving the impression that the hard copy documents
were created contemporaneously with the meetings. Ultimately, this problem was rendered insignificant as the
full nature of the documents was presented to the court in opposition and the court resolved the MSJ/MSA
without reliance upon these documents.
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(Rev. October 4, 2011) ORDER AFTER HEARING
Case Name: CASELNUMBETR:
Petey Moler vs Chrls Hulme 1417847
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As the deposition testimony of Jennifer Hulme indicates, there is no basis for a claim that the documents were
forged. Defendants did not attempt to conceal the process by which the documents came into hard copy forrn.
Jennifer Hulme's declaration was ambiguous, but the court does not find that the declaration was intentionally
false. 0n the evidence presented, the court does not find that the presentation of the Jennifer Hulme declaration
constitutes bad-faith frivolous actions or tactics.
On the totality of the evidence presented, the court does not find that defendants engaged bad-faith frivolous
actions or tactics pursuant to Code of Civil Procedure section 128.5. Even if the court were to find that some, or
all, of this conduct did constitute bad-faith frivolous actions or tactics within the meaning of section 128.5, for
the reasons discussed and based upon the facts and argument, the court would not exercise its discretion to
award sanctions pursuant to section 128.5. The motion of plaintiff for sanctions pursuant to section 128.5 will
be denied. For the same reasons, the court will deny the request for an order to show cause re contempt.
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S0 ORDERED, Clerk shall give notice.
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Dated:
DEC 1 B 2015
Jam s E_ Herman
JUDGE OF THE SUPERIOR COURT
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(Rev. October 4. 201 1) ORDER AFTER HEARING