Preview
ELECTRONICALLY FILED
LAW OFFICE OF JEFF BENNION Superior Court of California
JEFFREY M. BENNION, SBN 2 75 946 County of Santa Barbara
2869 INDIA ST Darrel E. Parker, Executive Officer
SAN DIEGO, CA 92 103 7/20/2016 3:39:21 PM
(619) 609-7198
JEFF@]BENNIONLAW.COM By: Terri Chavez, Deputy
Attqrneys for Defendants
Chrls Hulme, enmfer Hulme, and
Cleaeew In ustnes, Inc.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA BARBARA
ANACAPA DIVISION
10
11 Patsy Moler,
Case No. 1417847
12 Plaintiff,
Defendants’ Sup lemental
13
v. Briefin on the ter Ego
Allegatlons
Chris Hulme, individually and dba
14
Clearylew Industryes, Inc,
Ienmfer Hulme,_1nd1v1dually and dba Complaint Filed: 7/1/13
15 Clearv1ew Industrms, Inc., and Does 1 A331 ned: Hon. James E Herman
througt, 1nclus1ve Tria Date: 7/13/2016
16
Defendants.
17
18 And Related Cross Action
19
20
Plaintiff filed this case over three years ago, making specific allegations of
21
alter ego without any basis. Over the course of the next three years, Plaintiff sent
22
hundreds of interrogatories, requests for admission, and requests for production to
23
defendants and took four days of depositions of Chris Hulme and Jen Hulme to try
24
to uncover any kernels of truth to alter ego allegations. She found none. Plaintiff
25
now seeks to burden Defendants, the jury, and the Court with the trivial results of a
26
three-year investigation, the results of which have not revealed a violation of any
27
Statute.
28
Defendants’ Supplemental Briefing on Alter Ego
I. Underlying Principles of Alter Ego Law in
California
A. Alter Ego Requires a High Standard of Proof
Aside from the factors identified in Associated Vendors, Inc. for specific
actions constituting alter ego, California courts have identified several principles
regarding the high standards needed to establish alter ego. “Alter ego is an extreme
remedy, sparingly used.” Sonora Diamond Corp. 17.Sup. Ct. (2000) 83 Cal.App4th
5 2 3, 5 3 8-5 3 9. It is only appropriate under narrowly-defined circumstances. Mesler
10 v. BraggManagement Co., (1985) 39 Cal.3d 290, 300.
11
12 B. Plaintiff Must Also Show Bad Faith
13 Some conduct amounting to bad faith must be identified that makes it
14 inequitable for the equitable owner of a corporation to hide behind its corporate
15 veil. Mid-Century Ins. Co. v. Gardner (1992) 9 Cal. App. 4th 1205,1213 (quoting
16 Associated Vendors, Inc. 12.Oakland Meat C0. (1962) 210 Cal. App.2d 806, 842). For
17 example, such bad faith might be found where an individual or corporation has
18 been "misusing the corporate laws by the device of a sham corporate entity formed
19 for the purpose of committing fraud or other misdeeds." Sonora Diamond 12.
20 Superior Ct. (2002) 83 Cal. App. 4th 523, 538 (emphasis added). The Associated
21 Vendors Court held that “bad faith in one form or another is an underlying
22 consideration and will be found in some form or another in those cases wherein the
23 trial court was justified in disregarding the corporate entity." Associated Vendors,
24 Inc. (1962) 210 Cal. App.2d at 838.
25
26
27
28
2
Defendants’ Supplemental Briefing on Alter Ego
C. Plaintiff Must Also Show Specific Manipulative
Conduct
Plaintiff must also show "'specific manipulative conduct' between the two
entities which 'relegate[s] the latter to the status of merely an' instrumentality,
agency, conduit or adjunct of the former." Institute of Veterinary Pathology, Inc. v.
California Health Laboratories, Inc, (1981) 116 Cal.App. 3d 111, 119-20.
D. Plaintiff Must Show an Inequitable Result Would
Follow
10 At oral argument, Plaintiff’s counsel incorrectly asserted that the inequitable
11 result here would be that Plaintiff would not be able to get her millions unless she
12 could collect it from the Hulmes personally. This is an incorrect statement of law.
13 There is no corporate requirement to keep cash reserves sufficient to satisfy any
14 potential judgment at any time. This issues was squarely dealt with decades ago in
15 Associated Vendors: “The purpose of the doctrine is not to protect every unsatisfied
16 creditor, but rather to afford him protection, where some conduct amounting to bad
17 faith makes it inequitable, under the applicable rule above cited, for the equitable
18 owner of a corporation to hide behind its corporate veil.” Associated Vendors, 210
19 Cal. App. 2d at 842.
20 In fact, the purpose of the corporate veil is to protect the shareholders from
21 verdicts against the corporation, not to make them de facto umbrella policy
22 insurers.
23
24 E. Several Associated Vendors Factors Must Be Present
25 The Associated Vendors Court identified several factors that must be present
26 in an alter ego case. Highlighting the high standard needed in such a case, the Court
27 held: “In instances where alter ego was found, at least several of these factors were
28 present.” Associated Vendors, Inc. (1962) 210 Cal. App. 2d 806, 840.
3
Defendants’ Supplemental Briefing on Alter Ego
II. The Duty to Resurrect a Corporation that Has
Been Destroyed by the Plaintiff
The history of ClearView is thus: They incorporated in 2007, started as a
small home-office business. It achieved steady growth over the next six years,
buying vehicles, hiring employees, moving into an office with a secretary, and
gaining a reputation in the community. By 2013, ClearView had enough capital to
front the over $175,000 required to buy the materials and pay its employees to
improve Patsy Moler’s property for the first half of the year. By that point, they were
completely spent and pleaded with Patsy Moler to at least get on a payment
10 schedule to start paying her bills because they had no more money. While they were
11 wallowing around a zero balance, instead of reimbursing ClearView for the work it
12 did at her request, she sued them, forcing them to take out a line of credit for the
13 first time since incorporation. Since then, ClearView has been hobbling along with
14 no money, debt, no work, and growing legal fees. Continuing her torment, Patsy
15 Moler went on Yelp leaving negative comments about ClearView, which became
16 one of the top search results when searching for ClearView Industries, Inc. online
17 and raised many questions by customers.
18 Faced with no other options, Chris Hulme had to start fresh with a new
19 company.
20 ClearView has assets in the form of tools and equipment, which it has kept in
21 its name, and leases to Chris Hulme’s sole proprietorship.1 If ClearView had
22 intended to act in bad faith, it would have transferred the title of the equipment
23 instead of leaving the title in ClearView’s name, or simply borrowed them without
24 paying. Regardless, ClearView is not undercapitalized as it is able to meet its
25 financial requirements. ClearView files tax returns, pays for the filing of a statement
26
27
1
Chris Hulme also assumed the office lease and the lease on ClearView’s vehicles
28
totaling over $2,000 a month in payments made to or on behalf of ClearView.
4
Defendants’ Supplemental Briefing on Alter Ego
of information each year, pays for its license with the CSLB, and meets its other
obligations as a company left on life support.
Defendants have been unable to find any authority suggesting that
corporation has a duty to resurrect itself after being destroyed as a direct result of
the Plaintiff’s acts. However, the issue of whether ClearView has undervalued its
lease (an assertion made by Plaintiff without a designated expert to provide an
opinion on the value of the tangible and intellectual property in the lease), is not
relevant to the liability or damages phase of the trial and would only become
relevant post-trial in the event of a verdict against ClearView and Plaintiff asserts
10 that ClearView should have more cash because of an undervalued lease.
11 Accordingly, Defendants request that the issue of the lease only be handled
12 post-trial.
13
14 III. Alter Ego Is Not a Iury Question
15 Because alter ego claims are equitable in nature, a court, and not a jury,
16 determines whether the moving party met its burden to show the grounds for
17 applying the doctrine. See Dowjones C0. v.Avenel (1984) 151 Cal.App.3d 144, 147-
18 148.
19 Accordingly, Defendants request the issue of alter ego be decided
20 subsequent to trial in a very short bench trial by way of bifurcation.
21
22 Dated: July 20, 2016 Law Office of Jeff Bennion
23
24
25
By:
M
Jeffrefi/I/Bennion,
fl’"\ Esq.
26
Attorneys for Defendants
27
ClearView Industries, Inc. and
28 Chris Hulme
5
Defendants’ Supplemental Briefing on Alter Ego
Preview
ELECTRONICALLY FILED LAW OFFICE OF JEFF BENNION Superior Court of California JEFFREY M. BENNION, SBN 2 75 946 County of Santa Barbara 2869 INDIA ST Darrel E. Parker, Executive Officer SAN DIEGO, CA 92 103 7/20/2016 3:39:21 PM (619) 609-7198 JEFF@]BENNIONLAW.COM By: Terri Chavez, Deputy Attqrneys for Defendants Chrls Hulme, enmfer Hulme, and Cleaeew In ustnes, Inc. SUPERIOR COURT OF THE STATE OF CALIFORNIA COUNTY OF SANTA BARBARA ANACAPA DIVISION 10 11 Patsy Moler, Case No. 1417847 12 Plaintiff, Defendants’ Sup lemental 13 v. Briefin on the ter Ego Allegatlons Chris Hulme, individually and dba 14 Clearylew Industryes, Inc, Ienmfer Hulme,_1nd1v1dually and dba Complaint Filed: 7/1/13 15 Clearv1ew Industrms, Inc., and Does 1 A331 ned: Hon. James E Herman througt, 1nclus1ve Tria Date: 7/13/2016 16 Defendants. 17 18 And Related Cross Action 19 20 Plaintiff filed this case over three years ago, making specific allegations of 21 alter ego without any basis. Over the course of the next three years, Plaintiff sent 22 hundreds of interrogatories, requests for admission, and requests for production to 23 defendants and took four days of depositions of Chris Hulme and Jen Hulme to try 24 to uncover any kernels of truth to alter ego allegations. She found none. Plaintiff 25 now seeks to burden Defendants, the jury, and the Court with the trivial results of a 26 three-year investigation, the results of which have not revealed a violation of any 27 Statute. 28 Defendants’ Supplemental Briefing on Alter Ego I. Underlying Principles of Alter Ego Law in California A. Alter Ego Requires a High Standard of Proof Aside from the factors identified in Associated Vendors, Inc. for specific actions constituting alter ego, California courts have identified several principles regarding the high standards needed to establish alter ego. “Alter ego is an extreme remedy, sparingly used.” Sonora Diamond Corp. 17.Sup. Ct. (2000) 83 Cal.App4th 5 2 3, 5 3 8-5 3 9. It is only appropriate under narrowly-defined circumstances. Mesler 10 v. BraggManagement Co., (1985) 39 Cal.3d 290, 300. 11 12 B. Plaintiff Must Also Show Bad Faith 13 Some conduct amounting to bad faith must be identified that makes it 14 inequitable for the equitable owner of a corporation to hide behind its corporate 15 veil. Mid-Century Ins. Co. v. Gardner (1992) 9 Cal. App. 4th 1205,1213 (quoting 16 Associated Vendors, Inc. 12.Oakland Meat C0. (1962) 210 Cal. App.2d 806, 842). For 17 example, such bad faith might be found where an individual or corporation has 18 been "misusing the corporate laws by the device of a sham corporate entity formed 19 for the purpose of committing fraud or other misdeeds." Sonora Diamond 12. 20 Superior Ct. (2002) 83 Cal. App. 4th 523, 538 (emphasis added). The Associated 21 Vendors Court held that “bad faith in one form or another is an underlying 22 consideration and will be found in some form or another in those cases wherein the 23 trial court was justified in disregarding the corporate entity." Associated Vendors, 24 Inc. (1962) 210 Cal. App.2d at 838. 25 26 27 28 2 Defendants’ Supplemental Briefing on Alter Ego C. Plaintiff Must Also Show Specific Manipulative Conduct Plaintiff must also show "'specific manipulative conduct' between the two entities which 'relegate[s] the latter to the status of merely an' instrumentality, agency, conduit or adjunct of the former." Institute of Veterinary Pathology, Inc. v. California Health Laboratories, Inc, (1981) 116 Cal.App. 3d 111, 119-20. D. Plaintiff Must Show an Inequitable Result Would Follow 10 At oral argument, Plaintiff’s counsel incorrectly asserted that the inequitable 11 result here would be that Plaintiff would not be able to get her millions unless she 12 could collect it from the Hulmes personally. This is an incorrect statement of law. 13 There is no corporate requirement to keep cash reserves sufficient to satisfy any 14 potential judgment at any time. This issues was squarely dealt with decades ago in 15 Associated Vendors: “The purpose of the doctrine is not to protect every unsatisfied 16 creditor, but rather to afford him protection, where some conduct amounting to bad 17 faith makes it inequitable, under the applicable rule above cited, for the equitable 18 owner of a corporation to hide behind its corporate veil.” Associated Vendors, 210 19 Cal. App. 2d at 842. 20 In fact, the purpose of the corporate veil is to protect the shareholders from 21 verdicts against the corporation, not to make them de facto umbrella policy 22 insurers. 23 24 E. Several Associated Vendors Factors Must Be Present 25 The Associated Vendors Court identified several factors that must be present 26 in an alter ego case. Highlighting the high standard needed in such a case, the Court 27 held: “In instances where alter ego was found, at least several of these factors were 28 present.” Associated Vendors, Inc. (1962) 210 Cal. App. 2d 806, 840. 3 Defendants’ Supplemental Briefing on Alter Ego II. The Duty to Resurrect a Corporation that Has Been Destroyed by the Plaintiff The history of ClearView is thus: They incorporated in 2007, started as a small home-office business. It achieved steady growth over the next six years, buying vehicles, hiring employees, moving into an office with a secretary, and gaining a reputation in the community. By 2013, ClearView had enough capital to front the over $175,000 required to buy the materials and pay its employees to improve Patsy Moler’s property for the first half of the year. By that point, they were completely spent and pleaded with Patsy Moler to at least get on a payment 10 schedule to start paying her bills because they had no more money. While they were 11 wallowing around a zero balance, instead of reimbursing ClearView for the work it 12 did at her request, she sued them, forcing them to take out a line of credit for the 13 first time since incorporation. Since then, ClearView has been hobbling along with 14 no money, debt, no work, and growing legal fees. Continuing her torment, Patsy 15 Moler went on Yelp leaving negative comments about ClearView, which became 16 one of the top search results when searching for ClearView Industries, Inc. online 17 and raised many questions by customers. 18 Faced with no other options, Chris Hulme had to start fresh with a new 19 company. 20 ClearView has assets in the form of tools and equipment, which it has kept in 21 its name, and leases to Chris Hulme’s sole proprietorship.1 If ClearView had 22 intended to act in bad faith, it would have transferred the title of the equipment 23 instead of leaving the title in ClearView’s name, or simply borrowed them without 24 paying. Regardless, ClearView is not undercapitalized as it is able to meet its 25 financial requirements. ClearView files tax returns, pays for the filing of a statement 26 27 1 Chris Hulme also assumed the office lease and the lease on ClearView’s vehicles 28 totaling over $2,000 a month in payments made to or on behalf of ClearView. 4 Defendants’ Supplemental Briefing on Alter Ego of information each year, pays for its license with the CSLB, and meets its other obligations as a company left on life support. Defendants have been unable to find any authority suggesting that corporation has a duty to resurrect itself after being destroyed as a direct result of the Plaintiff’s acts. However, the issue of whether ClearView has undervalued its lease (an assertion made by Plaintiff without a designated expert to provide an opinion on the value of the tangible and intellectual property in the lease), is not relevant to the liability or damages phase of the trial and would only become relevant post-trial in the event of a verdict against ClearView and Plaintiff asserts 10 that ClearView should have more cash because of an undervalued lease. 11 Accordingly, Defendants request that the issue of the lease only be handled 12 post-trial. 13 14 III. Alter Ego Is Not a Iury Question 15 Because alter ego claims are equitable in nature, a court, and not a jury, 16 determines whether the moving party met its burden to show the grounds for 17 applying the doctrine. See Dowjones C0. v.Avenel (1984) 151 Cal.App.3d 144, 147- 18 148. 19 Accordingly, Defendants request the issue of alter ego be decided 20 subsequent to trial in a very short bench trial by way of bifurcation. 21 22 Dated: July 20, 2016 Law Office of Jeff Bennion 23 24 25 By: M Jeffrefi/I/Bennion, fl’"\ Esq. 26 Attorneys for Defendants 27 ClearView Industries, Inc. and 28 Chris Hulme 5 Defendants’ Supplemental Briefing on Alter Ego