Court Opinion

ID: 9913136
Source: CourtListenerOpinion
Date Created: 2023-12-26 22:01:42.729004+00
Date Added: 2024-06-11T13:07:39.300914
License: Public Domain

Filed 12/26/23 S.T.I. Demolition v. Quarles CA2/1
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                         SECOND APPELLATE DISTRICT

                                        DIVISION ONE

 S.T.I. DEMOLITION, INC.,                                             B328395

           Plaintiff and Respondent,                                  (Los Angeles County
                                                                      Super. Ct. No. TC022945)
           v.

 CHARLES QUARLES,

           Defendant and Appellant.

     APPEAL from an order of the Superior Court of
Los Angeles County, Peter Michael Shultz, Judge. Affirmed.
     Law Offices of Henry N. Jannol and Rebecca D. Wester for
Defendant and Appellant.
     Attlesey Ward and John P. Ward for Plaintiff and
Respondent.
                ____________________________
       Defendant Charles Quarles, president and chief executive
officer of the Bedford Group (Bedford), appeals from an order
finding he was Bedford’s alter ego. We affirm.
       In 2011, plaintiff and respondent S.T.I. Demolition, Inc.
(STI), obtained a judgment against Bedford (the judgment) and
later sought to add Quarles as a judgment debtor. The trial court
initially denied STI’s motion, and, in a prior appeal, we reversed
because the trial court did not analyze all the elements of alter
ego liability. Upon remand, the trial court granted STI’s motion
to add Quarles as a judgment debtor.
       In the current appeal, although Quarles challenges the
sufficiency of evidence to support two elements of alter ego
liability, Quarles fails to summarize the evidence at all, let alone
in the light most favorable to the trial court’s order as required by
our standards of review. As set forth in our Discussion, post,
substantial evidence supports the trial court’s order. Quarles
also argues the trial court erred in failing to consider evidence of
purported prejudice supporting his laches affirmative defense.
Quarles ignores our standard of review in failing to argue that
the evidence compelled application of laches to bar STI’s efforts to
add him to the judgment. The record, moreover, shows the trial
court did consider the evidence, but found it not dispositive.

                         BACKGROUND
      Because this is the second appeal regarding whether
Quarles was Bedford’s alter ego, we incorporate our description of
the factual and procedural background from our prior opinion.

1.    Judgment
     “In February 2011, after a bench trial, STI obtained a
judgment against Bedford for $108,863.70. In its judgment

                                     2
renewal dated August 7, 2020, STI indicated Bedford owed it
$212,571.58.” (S.T.I. Demolition, Inc. v. Quarles (July 27, 2021,
B307978) [nonpub. opn.] (Quarles I).)

2.    Debtor’s examination
      “On August 21, 2019, STI filed an application and order for
a debtor’s examination. On September 26, 2019, John Ward,
counsel for STI, examined Quarles as Bedford’s representative.
No reporter was present.” (Quarles I, supra, B307978.)

3.    STI moved to amend the judgment
       “On June 3, 2020, STI filed a motion to amend the
judgment to add Quarles as a judgment debtor. STI argued that
Quarles was Bedford’s alter ego.
       “In support of the motion, the president of STI, Ralph
Rodriguez, averred that STI and Bedford entered into a written
contract on an unspecified date. According to Rodriguez, Bedford
failed to pay STI, and STI obtained a judgment against Bedford
in February 2011. Rodriguez stated that Quarles appeared at
trial. Rodriguez believed that Bedford continues to operate
because it has a website and is registered with the California
Secretary of State. Specifically, in May 2019, Bedford filed a
statement of information with the Secretary of State signed by
Quarles as Bedford’s president.
       “Attorney Ward filed a declaration stating that Quarles
appeared on behalf of Bedford at a debtor’s examination that
Ward conducted on September 26, 2019. According to Ward,
Quarles testified that Quarles always owned 100 percent of
Bedford’s shares, and since 2012, Bedford has had no employees.
Quarles told Ward that, in 2012, Bedford sold all of its assets and
currently owns no assets and has no bank accounts. Ward

                                    3
averred that Quarles testified he continues to conduct business
out of Bedford’s offices and uses the following e-mail:
cquarles@thebedfordgroup.com. Additionally, Bedford maintains
a website. Ward reported that Quarles testified Bedford is
‘essentially defunct’ and Quarles did not shut it down because the
website attracts customers to his consulting business and it
would cost him $10,000 to ‘shut down Bedford and discharge its
debts via bankruptcy.’
       “According to Ward, Mr. Quarles stated that, at an
unspecified date, Bedford prevailed in an arbitration against
Zurich Insurance and obtained a $17 million arbitration award.
‘Mr. Quarles stated that he used $2,000,000 of the award to
satisfy a debt owed to Hanmi Bank secured by his personal
residence’ on Kenway Drive (the Kenway Property). Ward
reported that ‘Mr. Quarles stated Hanmi Bank agreed to sell the
note to his nephew Darren Gooden so Mr. Quarles would not lose
[the] Kenway [Property] to Hanmi.’ Ward explained that Quarles
testified 40 percent of the arbitration award was used to pay
Bedford’s attorneys and an unspecified amount was used to pay
City National Bank for a line of credit.
       “Documents attached to STI’s motion to amend the
judgment showed that in March 1998, Bedford conveyed the
Kenway Property by grant deed to Charles and JoAnn Quarles.
Charles Quarles signed the deed as president of Bedford. The
deed states: ‘ “The grantors and the grantees in this conveyance
are comprised of the same parties who continue to hold the same
proportionate interest in in [sic] the property, R & T 11923(d).” ’
(Capitalization omitted.)
       “In 2006, Charles and JoAnn Quarles transferred a deed of
trust on the Kenway Property to Hanmi Bank. In June 2012,

                                    4
Hanmi Bank filed a notice of default and election to sell
indicating that Charles and JoAnn Quarles owed $16,509,082.58.
On January 8, 2018, Hanmi Bank assigned the deed of trust to
the Gooden Group, Inc., whose managing director was Darren
Gooden. It is undisputed that Darren Gooden is Quarles’s
nephew and was a former employee of Bedford.” (Quarles I,
supra, B307978.)

4.   Quarles’s opposition
       “Charles Quarles opposed STI’s motion arguing, among
other things, that Bedford’s ‘payment to Hanmi Bank was a
payment of a business debt because the bank required
Mr. Quarles to collateralize his home in order to secure a
$37 million construction loan from the bank to the Bedford
Group.’ (Capitalization omitted.) Quarles also argued that the
equitable doctrine of laches prevented STI from adding him as a
judgment debtor.
       “In his declaration in opposition to STI’s motion, Quarles
stated he was the former president and former chief executive
officer of Bedford. Bedford was involved in the construction of a
condominium complex in Oakland, California (Oakland
Property). Hanmi Bank entered into a construction agreement
with Bedford and other entities to loan money to Thomas Berkley
Square Housing, LLC for the construction of the Oakland
Property. The loan was secured not only by the Oakland
Property, but also by Charles and JoAnn Quarles’s personal
residence. According to Quarles, he signed a commercial
guaranty of Hanmi Bank’s loan to Thomas Berkley Square
Housing, LLC for the construction of the Oakland Property
secured by his personal residence.

                                   5
        “Quarles averred that when Thomas Berk[ ]ley Square
Housing, LLC defaulted on the loan, Hanmi Bank sold the
Oakland Property and commenced litigation against both Charles
and JoAnn Quarles for the outstanding indebtedness. Hanmi
[B]ank agreed to postpone its trustee sale of the Kenway
property, and on the day before the scheduled foreclosure sale,
JoAnn Quarles filed for bankruptcy. According to Quarles,
during the bankruptcy, Quarles reached a settlement agreement
with Hanmi wherein it would be paid $1.2 million in satisfaction
of its loan.
        “According to Quarles, Bedford obtained insurance proceeds
from litigation concerning the Oakland Property ‘around’
September 2014. Quarles ‘used the proceeds’ from litigation
against the insurer of the Oakland Property to pay the first
$1 million of the latter settlement with Hanmi Bank. Quarles
did not identify the recipients of the remaining insurance
proceeds or dispute Ward’s declaration that Bedford recovered
$17 million from the insurer. According to Quarles, ‘I did not
divert corporate funds for my own personal use. My payment to
Hanmi Bank . . . was for a debt that was incurred for a business
purpose. . . . While part of the debt was secured by . . . my home, I
had to allow Lender [Hanmi Bank] to collateralize my home in
order for the construction loan to be provided to the Bedford
Group.’
        “According to Quarles, Bedford ceased doing business in
2013. Quarles explained that he continued using the e-mail
address ‘because that is the only e-mail address [he] ha[s] ever
used.’ Bedford ‘still maintains a website because [Mr. Quarles]
hope[s] that business may be revived again someday.’ ”
(Quarles I, supra, B307978.)

                                     6
5.    Prior appeal
      In the prior appeal, STI appealed from the trial court’s
order denying its motion to add Quarles as a defendant to the
judgment. We reversed, concluding that the trial court did not
evaluate all the factors relevant to whether Quarles should be
added the judgment as Bedford’s alter ego. (Quarles I, supra,
B307978.)

6.    STI files a new motion to amend the judgment;
      Quarles opposes the motion; and STI files a reply
       On remand, STI filed the same motion and supporting
documentation that it filed in its original motion to add Quarles
as a judgment debtor. Quarles opposed Quarles’s new motion by
relying substantially on his same declaration described above.
(Quarles shortened the declaration and changed the designation
of exhibits.)
       With respect to laches, Quarles argued the doctrine barred
STI from adding him as a judgment debtor. Quarles contended
that STI should have taken a debtor’s examination earlier and
that he was prejudiced because “documents have been destroyed
for a number of years now that would surely aid Mr. Quarles in
mounting a defense to Plaintiff’s [STI’s] claims.” Quarles also
argued that the testimony of his accountant would be “critical” to
refute the alter ego allegations.
       In its reply, STI countered the laches argument, stating
Quarles had not demonstrated prejudice because STI’s motion
was based on Quarles’s admissions, not on Bedford’s records. STI
argued the alleged lost records were “irrelevant.”
       On appeal, Quarles does not summarize the evidence
supporting STI’s motion or the evidence in opposition. He merely

                                   7
states: “The renewed motion was filed on December 1, 2022
[citation] and the opposition was filed January 19, 2023.
[Citation]. STI renewed its reply on January 26, 2023.
[Citation.] Ultimately, on February 2, 2023, the trial court ruled
that Quarles was the alter ego of Bedford.”

7.    Trial court’s order
      Quarles does not describe the trial court order. Instead, he
contends: “Ultimately on February 2, 2023, the trial court ruled
that Quarles was the alter ego of Beford. [Citation.] [¶] Based
on the reasons set forth herein, the trial court should be
reversed.”
      In its order, the trial court emphasized that Quarles “owns
100% of Bedford’s shares.” The court found Bedford had no
employees but according to the Secretary of State, maintained its
corporate status. The trial court also emphasized that Bedford
had obtained a $17 million arbitration award against Zurich
Insurance after Quarles claimed Bedford had no assets or bank
accounts. The court found Quarles continues to conduct business
as a real estate consultant in Bedford’s offices. The court further
found that Bedford’s books and records have been destroyed.
(Quarles does not dispute these findings.)
      The court concluded from this evidence that Bedford was
inadequately capitalized and did not maintain corporate
formalities.
      With respect to laches, the court noted Quarles’s argument
he was prejudiced by STI’s delay in seeking to add him to the
judgment because Bedford’s records had been destroyed and its
accountant had died. The trial court found that after taking the
debtor exam, STI did not delay unreasonably in seeking to add
Quarles to the judgment. The court explained that STI acted

                                    8
reasonably in pursuing the judgment against Bedford because
Quarles admitted that he hoped the business would be revived.
The court also found that Bedford’s lack of records was caused by
Bedford’s own failure to maintain its records when its accountant
died.

                          DISCUSSION
       To prevail on a motion to add a judgment debtor as an alter
ego of a corporation, STI must demonstrate that “ ‘(1) the parties
to be added as judgment debtors had control of the underlying
litigation and were virtually represented in that proceeding;
(2) there is such a unity of interest and ownership that the
separate personalities of the entity and the owners no longer
exist; and (3) an inequitable result will follow if the acts are
treated as those of the entity alone.’ [Citation.]” (Quarles I,
supra, B307978, quoting Relentless Air Racing, LLC v. Airborne
Turbine Ltd. Partnership (2013) 222 Cal.App.4th 811, 815–816.)
       Quarles does not dispute the trial court’s ruling as to the
first element. Quarles, however, takes issue with the trial court’s
findings as to the remaining two elements in arguing no
substantial evidence supported them. Quarles also argues the
trial court should have found in his favor as to his laches defense.

A.    Quarles Forfeited His Substantial Evidence
      Challenge to the Trial Court’s Unity of Interest
      Findings By Failing To Summarize the Evidence In
      Accordance With Our Standard of Review; Even If
      Preserved, the Argument Lacks Merit
      In our prior opinion, we explained the criteria for
determining whether Bedford and Quarles shared a unity of
interest. We incorporate that analysis immediately below.

                                    9
        “Our jurisprudence has identified several factors a trial
court must consider in deciding whether a corporation and an
individual are alter egos. These factors include: ‘Commingling of
funds and other assets, failure to segregate funds of the separate
entities, and the unauthorized diversion of corporate funds or
assets to other than corporate uses [citations]; the treatment by
an individual of the assets of the corporation as his own
[citations]; the failure to obtain authority to issue stock or to
subscribe to or issue the same [citations]; the holding out by an
individual that he is personally liable for the debts of the
corporation [citations]; the failure to maintain minutes or
adequate corporate records, and the confusion of the records of
the separate entities [citations]; the identical equitable ownership
in the two entities; the identification of the equitable owners
thereof with the domination and control of the two entities;
identification of the directors and officers of the two entities in
the responsible supervision and management; sole ownership of
all of the stock in a corporation by one individual or the members
of a family [citations]; the use of the same office or business
location; the employment of the same employees and/or attorney
[citations]; the failure to adequately capitalize a corporation; the
total absence of corporate assets, and undercapitalization
[citations]; the use of a corporation as a mere shell,
instrumentality or conduit for a single venture or the business of
an individual or another corporation [citations]; the concealment
and misrepresentation of the identity of the responsible
ownership, management and financial interest, or concealment of
personal business activities [citations]; the disregard of legal
formalities and the failure to maintain arm’s length relationships
among related entities [citations]; the use of the corporate entity

                                   10
to procure labor, services or merchandise for another person or
entity [citations]; the diversion of assets from a corporation by or
to a stockholder or other person or entity, to the detriment of
creditors, or the manipulation of assets and liabilities between
entities so as to concentrate the assets in one and the liabilities
in another [citations]; the contracting with another with intent to
avoid performance by use of a corporate entity as a shield against
personal liability, or the use of a corporation as a subterfuge of
illegal transactions [citations]; and the formation and use of a
corporation to transfer to it the existing liability of another
person or entity [citations].’ [Citation.]” (Quarles I, supra,
B307978, quoting Associated Vendors, Inc. v. Oakland Meat Co.,
Inc. (1962) 210 Cal.App.2d 825, 838–840.)
       Quarles contends no substantial evidence supported the
trial court’s finding of unity of interest between Bedford and
Quarles. Quarles has forfeited this argument. “ ‘A party who
challenges the sufficiency of the evidence to support a particular
finding must summarize the evidence on that point, favorable
and unfavorable, and show how and why it is insufficient.
[Citation.]’ [Citation.] Where a party presents only facts and
inferences favorable to his or her position, ‘the contention that
the findings are not supported by substantial evidence may be
deemed waived.’ [Citation.]” (Schmidlin v. City of Palo Alto
(2007) 157 Cal.App.4th 728, 738, italics omitted.) Here, Quarles
does not summarize any of the evidence—either favorable or
unfavorable. He therefore has forfeited his challenge to the
sufficiency of the evidence supporting the trial court’s finding of a
unity of interest with Bedford.
       On its merits, Quarles’s challenge also fails. In Quarles I,
we summarized the following evidence supporting a unity of

                                    11
interest between Bedford and Quarles: “Quarles in his capacity
as president of Bedford transferred the Kenway [P]roperty to
Charles and JoAnn Quarles representing that Bedford and the
Quarles’s were the ‘same parties.’ (Capitalization omitted.)
Hanmi Bank assigned the deed of trust on the Kenway Property
to the Gooden Group, Inc., whose managing director was Darren
Gooden, a former employee of Bedford and Quarles’s nephew.
Although Bedford has stopped conducting business in 2013,
Bedford maintains offices, a website, and an e-mail address.
Quarles operates his consulting business in the same offices.
Bedford received $17 million in insurance proceeds in 2014 after
Bedford ‘went out of business.’ In 2019, Quarles continued to
represent to the California Secretary of State that he was
Bedford’s ‘president.’ (Capitalization omitted.) According to
Quarles, his current use of Bedford’s website benefits Quarles’s
consulting business.” (Quarles I, supra, B307978.)
      Quarles argues the trial court should have considered
Bedford’s capitalization at the time of formation, not when
Bedford received the $17 million arbitration award. Quarles
identifies no evidence supporting his statement that Bedford was
adequately capitalized at the time of its inception. Even
assuming Bedford were adequately capitalized at the time of its
inception, the evidence described above would still constitute
substantial evidence of a unity of interest between Bedford and
Quarles.
      Quarles also argues the trial court erred in finding the
absence of evidence that Bedford adhered to corporate
formalities. Quarles cites no evidence that Bedford maintained
corporate formalities and the record shows otherwise.
Significantly, the record shows Bedford received a $17 million

                                  12
insurance payment that was never deposited into Bedford’s bank
account. As the president, chief executive officer, and sole
shareholder, Quarles’s silence on what happened to the money he
received from Zurich Insurance supports the inference that he
diverted it to his personal use.

B.    Quarles Has Forfeited His Contention that
      Substantial Evidence of an Inequitable Result was
      Lacking; Substantial Evidence Supported That It
      Would Be Inequitable To Treat Quarles as Separate
      from Bedford
       Quarles argues no substantial evidence supported the trial
court’s finding that it would be inequitable to treat Quarles and
Bedford as separate entities. Quarles has forfeited this argument
by failing to summarize the evidence in the light most favorable
to the trial court’s order. (Schmidlin v. City of Palo Alto, supra,
157 Cal.App.4th at p. 738.)
       The argument also fails on its merits. Butler America, LLC
v. Aviation Assurance Co., LLC (2020) 55 Cal.App.5th 136, 147
holds that a judgment debtor’s inability to collect on a judgment
may be evidence of an inequitable result. Butler further
explained: “In applying the alter ego doctrine, no particular
findings are necessary, but the conditions under which a
corporate entity should be ignored vary according to the
circumstances of each case.” (Id. at p. 146.) Alter ego “is an
equitable doctrine and, though courts have justified its
application through consideration of many factors, their basic
motivation is to assure a just and equitable result.” (Alexander v.
Abbey of the Chimes (1980) 104 Cal.App.3d 39, 48.)
       Here, there was evidence STI has been unable to collect on
the judgment because Quarles shut down Bedford in 2013 shortly

                                   13
before Bedford received a $17 million insurance award the
following year. This evidence creates the inference Bedford could
not pay its debt to STI because Quarles diverted the 2014
insurance proceeds from Bedford.1 To use Quarles’s
nomenclature, the disappearance of the $17 million and Quarles’s
silence as to its location supports the inference that he “raid[ed]
the corporate coffers,” which Quarles acknowledges would be an
inequitable result for purposes of alter ego. Additionally, STI
presented evidence Quarles told STI’s attorney, that in 2012,
Bedford had sold all its assets, and in 2019, owned no assets and
has no bank accounts. Quarles’s silence as to what happened to
Bedford’s assets sold in 2012 when Bedford still owed STI money
also supports the trial court’s finding that it would be inequitable
to treat Bedford and Quarles—Bedford’s president, CEO, and sole
shareholder—as separate entities.

      1  Quarles also incorrectly interprets our prior opinion for
the proposition that “the Appellate Court agreed that Quarles
did not divert funds from Bedford Group to pay for a personal
obligation.” Although we concluded that in interpreting the
evidence in the light most favorable to Quarles, a trier of fact
could find the Hanmi Bank transaction was a corporate
transaction, at that time, we were considering the evidence in the
light most favorable to Quarles, the then prevailing party below.
(Quarles I, supra, B307978.) In the current appeal, STI prevailed
below and thus we consider the evidence in the light most
favorable to STI. In any event, we have not relied upon the
Hanmi Bank transaction. The record contains other substantial
evidence supporting the trial court’s findings.

                                   14
C.    Quarles Does Not Argue the Evidence Compelled a
      Finding in His Favor as to His Laches Defense;
      Moreover, the Record Does Not Support That
      Conclusion
        “ ‘ “Laches is an equitable defense based on the principle
that those who neglect their rights may be barred from obtaining
relief in equity. [Citation.]” ’ ” (Golden Gate Water Ski Club v.
County of Contra Costa (2008) 165 Cal.App.4th 249, 263.) “ ‘The
existence of laches is a question of fact to be determined by a
weighing of all of the applicable circumstances by the trial
judge.’ [Citation.]” (Quarles I, supra, B307978, quoting Rouse v.
Underwood (1966) 242 Cal.App.2d 316, 323.) On remand, the
trial court rejected Quarles’s laches defense. Where the issue on
appeal turns on a failure of proof at trial, the question for a
reviewing court becomes whether the evidence compels a finding
in favor of the appellant as a matter of law. (Roesch v. De Mota
(1944) 24 Cal.2d 563, 570–571.)
       Quarles argues, “The trial court’s examination of Quarles’
laches defense was flawed in that it failed to consider the
prejudicial impact of the passage of time between the judgment
in 2011 and the debtor examination in 2019. According to
Quarles, he was “severely prejudiced . . . by the loss of the books
and records of Bedford Group as well as the loss of the
accountant, James Williams, who died in 2016 and is no longer
available to testify.”
       Quarles’s argument rests on the incorrect premise that the
trial court failed to consider Quarles’s claim that STI’s delay in
seeking to add him to the judgment was prejudicial because of
the intervening destruction of corporate records and his
accountant’s death. In fact, the court acknowledged Quarles’s

                                   15
contention that “he will suffer substantial prejudice since all
records of Bedford have been destroyed, and its accountant died.”
The trial court just was not convinced that this evidence merited
applying laches to bar STI’s efforts to add Quarles to the
judgment. The trial court instead concluded inter alia that the
absence of records was caused by Bedford’s failure to maintain its
records when its accountant died.
       Quarles does not argue on appeal that as a matter of law,
he would suffer such prejudice from STI’s delay in taking the
debtor’s exam to merit barring it from adding him as a judgment
debtor. Had he made that argument, we would reject it.
Although Quarles’s accountant and any corporate books held by
the accountant theoretically could have been useful to Quarles,
Quarles does not show this evidence was unique. Quarles was
the president, chief executive officer, and sole shareholder of
Bedford and his multiple roles support the inference that he
would have been privy to information available to Bedford’s
accountant. Quarles fails to identify any evidence supporting the
inference that the deceased accountant’s books were the only
source of information concerning Bedford’s assets or other
information relevant to alter ego analysis.
       Finally, in his opposing declaration, Quarles indicates, “I
had sued the contractor’s insurance carrier (Zurich Insurance)”
and later obtained $17 million for a construction project “Bedford
Group, Inc. was involved in . . . .” Quarles further indicates he
used $1 million of the proceeds for a specific purpose but fails to
identify where the remainder of insurance proceeds went.
According to Quarles, he received that money after Bedford “went
out of business” and Quarles does not explain why Bedford’s
accountant would have had critical knowledge as to money

                                   16
received after Bedford went out of business. In short, Quarles
does not show that as a matter of law, laches forecloses STI from
adding Quarles as a judgment debtor.

                          DISPOSITION
      The trial court’s order is affirmed. STI Demolition, Inc.
shall have its costs on appeal.
      NOT TO BE PUBLISHED.

                                           BENDIX, J.

We concur:

             ROTHSCHILD, P. J.

             CHANEY, J.

                                   17