Court Opinion

ID: 2647941
Source: CourtListenerOpinion
Date Created: 2013-12-31 20:41:20.840444+00
Date Added: 2024-06-11T12:57:29.643381
License: Public Domain

Filed 12/31/13
                             CERTIFIED FOR PUBLICATION

             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                SECOND APPELLATE DISTRICT

                                        DIVISION SIX

RELENTLESS AIR RACING, LLC,                                 2d Civil No. B244612
                                                         (Super. Ct. No. CV090342)
     Plaintiff and Appellant,                             (San Luis Obispo County)

v.

AIRBORNE TURBINE LTD.
PARTNERSHIP,

     Defendant and Respondent.

                 Relentless Air Racing, LLC (Relentless) obtained a money judgment
against limited partnership, Airborne Turbine Ltd. Partnership (Airborne). Unable to
collect the judgment, Relentless moved to add two natural persons and two corporations
as judgment debtors. The trial court found that the natural persons and the corporations
were the alter egos of Airborne. But the court denied the motion because it found
Relentless failed to show that treating Airborne as a separate entity would lead to an
inequitable result.
                 We reverse. Relentless cannot collect its judgment because Airborne is
insolvent. Under the circumstances here, this is an inequitable result as a matter of law.
(Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 508 (Greenspan).) An
inequitable result does not require a wrongful intent.
                                            FACTS
                 Relentless sued Airborne in a contract dispute involving the sale of an
airplane. Relentless prevailed and the trial court awarded it $174,374.95 in attorney fees
and $6,640.91 in costs.
              Relentless has been unable to collect its judgment from Airborne.
Relentless moved to amend the judgment to add Wayne and Linda Fulton, Airborne
Turbine, Inc. (ATI), and Paradise Aero, Inc. (Paradise) as judgment debtors.1 Relentless
claims that Airborne, ATI, and Paradise are alter egos of the Fultons. The motion rested
on the post-judgment debtor examinations of the Fultons.
              The Fultons are Airborne's sole limited partners and they are the sole
officers and directors of ATI and Paradise. ATI was Airborne's general partner until
2011, when Paradise became Airborne's general partner. Wayne Fulton testified that he
and Linda Fulton decided to change general partners at the end of trial on the underlying
action. Linda Fulton testified they made the decision to change general partners because
"[w]e just wanted to keep ATI completely separate [from Airborne] and the trial."
              Linda Fulton stated that Airborne had a good chance to succeed at the
beginning of trial. But the jury instructions twisted the law against Airborne. She said,
"[I]f I had been on that jury I would have had to vote against myself too."
              The Fultons and the entities through which they operate are in the business
of importing and selling airplanes and airplane parts. The entities operate from an office
in the Fultons' house using equipment owned by the Fultons. The Fultons make
agreements among the entities. Thus, Linda Fulton testified Airborne pays ATI's utility
bills in lieu of rent for the use of ATI's hanger.
              The Fultons claim they have Airborne partnership meetings, as many as
five or six times a day, when they speak to each other about business. They have written
minutes, however, of only one meeting a year. When asked if they keep conversations
about Airborne separate from conversations about ATI, Linda Fulton replied, "Well,
generally it depended on what we're talking about. If it's let's say about the lawsuit, of
course that's [Airborne]. If it's about another transaction we're working on, it's for that
company. But we don't keep minutes per se of any meeting. Do you keep minutes with
your wife about every conversation you have?"

              1
                We shall refer to the Fultons, Airborne, ATI, and Paradise collectively as
the Fulton parties as clarity demands.

                                               2
              Linda Fulton testified that she took draws from Airborne in the amount of
$20,000 in September 2009; $15,000 and $7,500 in January 2010; and $15,000 in
February 2010. The money was used to pay the Fultons' personal bills, which she
testified were "over $15,000 a month." She said she made the decision to take a draw
"[w]hen bills came up that I had to pay."
              When asked if she and her husband have a meeting to make a decision
about a draw, Linda Fulton replied, "No, this is how we make our money. We buy and
sell aircraft. I don't have a job like you where you get your little weekly paycheck. [¶]
This is how we make our money. We put money in. We take it out. We fund our
company. We buy aircraft. We sell aircraft. We draw on the money that we earn. That's
what we do for a living. They are not toys. These aircraft are not toys for us. It's our
business. That's what we do. [¶] We can go through every month and say, oh, here is
another 15 and here is another 20. How about that? That's what we do. That's how we
do it."
              The last time Airborne had a significant amount of money was in January
2011, prior to the underlying trial. In 2011 the Fultons withdrew $115,000 from
Airborne. There is a helicopter that is the subject of litigation between the parties in
Florida. Wayne Fulton sent the helicopter's logbooks to France. The helicopter cannot
be operated without the logbooks. Airborne does not currently have any assets.
              The trial court found that the Fultons are sole shareholders in the
corporations and are the sole limited partners who controlled the underlying litigation.
              The trial court also found that the Fultons and their business entities are not
separate entities. That court stated: "[T]here is substantial evidence that the separate
personalities of the business entities and the individuals no longer exist. The Fultons are
the sole officers, members, shareholders, owners and operators of the business entities.
The businesses are operated in the Fultons' personal residence. Money is freely
transferred from the businesses to the Fultons. There is some disregard for the legal
formalities. Corporate entities are used to procure labor and services for the benefit of
the Fultons and their other businesses, such as the oral 'rent' agreement on the hanger.

                                              3
Most compelling, was the Fultons' demeanor at trial during which they portrayed their
business ventures as their personal efforts, benefits, responsibilities and liabilities."
              The trial court found that there is not sufficient evidence, however, to show
that an unjust or inequitable result would occur if Airborne is treated as an entity separate
from the Fultons and their other entities. The trial court stated, "While the evidence . . .
creates some suspicion, ultimately there is not sufficient evidence for the Court to
conclusively find that an unjust or inequitable result would occur if the acts are treated as
those of the Fultons' business entities. For example, Airborne's substitution of its general
partner in 2011 may lead to the conclusion that the Fultons were transferring assets from
one entity to another. However, there is no evidence that at the time of the transfer,
Airborne had substantial assets that were transferred to the Fultons or another one of their
businesses for purposes of avoiding payment of the judgment. [Fn. omitted.] There was
a discussion regarding $115,000 received by Airborne in 2011, but there is no evidence
those funds were improperly directed to the Fultons or to one of the other business
entities. Relentless cites to Wayne Fulton's sending of the logbook to France, but the
ramifications of that act will most likely be addressed in the Florida action involving
Robinson. In other words, it is unclear how the act was detrimental to Relentless."
                                        DISCUSSION
              The trial court is authorized to amend a judgment to add judgment debtors.
(Greenspan, supra, 191 Cal.App.4th at p. 508.) The judgment may be amended to add
additional judgment debtors on the ground that a person or entity is the alter ego of the
original judgment debtor. (Ibid.) It is an equitable procedure based on the theory that the
court is not amending the judgment to add a new defendant but is merely inserting the
correct name of the real defendant. (Ibid.) The decision to grant an amendment lies in
the sound discretion of the trial court. (Ibid.) Great liberality is allowed in granting such
amendments. (Ibid.)
              In order to prevail in a motion to add judgment debtors, Relentless must
show 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

                                               4
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. (Greenspan, supra, 191 Cal.App.4th at pp. 509, 511.)
              The trial court found the first two factors in favor of Relentless. Those
findings are supported by more than ample evidence and are not challenged here.
              The trial court found the third factor against Relentless. It found Relentless
failed to show that if the acts are treated as Airborne's alone, an inequitable result would
follow. In reaching that conclusion, the trial court found that Relentless failed to prove
the Fultons changed Airborne's general partner in order to avoid the judgment, or that the
$115,000 the Fultons withdrew from Airborne was "improperly directed." In addition,
Relentless failed to show it was harmed by Wayne Fulton's action in sending the
helicopter's logbooks to France because the matter would be resolved in a Florida
lawsuit.
              The trial court erred in requiring Relentless to prove that the Fultons acted
with wrongful intent. The law does not require such proof. Relentless was required to
prove that the Fultons' acts caused prove an "inequitable result." (Greenspan, supra, 191
Cal.App.4th at p. 511, italics added.) Here the Fultons' intent is beside the point.
              The Fultons used Airborne's funds to pay their personal debts. It is
undisputed that since the underlying litigation in 2011, Airborne has had no substantial
assets from which the judgment could be satisfied. Relentless has therefore been unable
to collect its judgment from Airborne. The Fultons continue to operate their business, but
as Airborne's sole limited partners and the sole shareholders of its general partner, they
are in complete control of Airborne. As long as Airborne is the sole judgment debtor, it
is highly unlikely it will ever have assets with which to satisfy the judgment. Given the
trial court's finding that the Fultons, Airborne, ATI, and Paradise are one and the same, it
would be inequitable as a matter of law to preclude Relentless from collecting its
judgment by treating Airborne as a separate entity.
              The Fulton parties point out that when two or more inferences can be
reasonably deduced from the facts, we are without power to substitute our deductions for

                                               5
those of the trial court. (Citing Crawford v. Southern Pacific Co. (1935) 3 Cal.2d 427,
429.) But there is only one reasonable inference here―there is an inequitable result if
the Fultons, ATI, and Paradise are not added as judgment debtors.
              The Fulton parties argue that Relentless was aware of the alter ego
relationship before judgment. They claim, without citation to the record, that Wayne
Fulton was named as a defendant in the underlying lawsuit, specifically alleging Fulton
was the alter ego of Airborne. Relentless dismissed Fulton prior to trial. They also
claim, without citation to the record, that Relentless learned of the relationship between
the Fultons, ATI and Paradise during trial.
              The Fulton parties rely on Greenspan, supra, 191 Cal.App.4th, page 516.
There, the trial court denied the plaintiff's motion to amend the judgment on the ground
that plaintiff could and should have litigated any alter ego status in the underlying action.
In reversing the Court of Appeal stated, "But under the trial court's reasoning, the
plaintiff in every corporate contract case would be encouraged—regardless of the
circumstances—to sue not only the corporation but also its owners and affiliated
companies and then engage in pretrial discovery in an attempt to establish alter
ego liability. This would promote a fishing expedition into alter ego evidence before
the plaintiff obtained a favorable judgment, if at all. Thus, it may be prudent for a
plaintiff to sue only the corporation. Should problems later arise in satisfying a judgment
against the corporation, the plaintiff may resort to appropriate postjudgment proceedings
[citation], including [the] procedure for adding judgment debtors. Of course, if before
filing suit, the plaintiff reasonably believes that an alter ego relationship exists among
various individuals and companies, the complaint should probably include alter ego
allegations and name the alleged alter egos as defendants." (Id. at p. 517.)
              As Greenspan points out, there are good policy reasons not to force a
plaintiff to litigate alter ego status in the underlying action. Nothing in Greenspan
requires plaintiffs to do so. At most, Greenspan states that where a plaintiff reasonably
believes an alter ego relationship exists, the complaint "should probably" include alter
ego allegations. "Should probably" is not mandatory.

                                              6
              The Fulton parties' reliance on Jines v. Abarbanel (1978) 77 Cal.App.3d
702, is also misplaced. There, plaintiff obtained a malpractice judgment against a
physician. Plaintiff made a postjudgment motion to add the doctor's professional
corporation as a judgment debtor. The trial court granted the motion. The Court of
Appeal reversed. The court expressly rejected plaintiff's argument that the doctor would
be able to insulate some of his earnings from the reach of judgment creditors through his
professional corporation. (Id. at pp. 714-715.) The court also pointed out that plaintiff
was aware of the existence of the professional corporation before the case was tried. (Id.
at p. 717.)
              In Jines, the relationship between the doctor and his professional
corporation was obvious from the beginning. The relationship between the Fultons, their
limited partnership and their shifting corporate general partners was anything but
obvious. It is one thing to allege an alter ego relationship, it is another thing to prove it.
It makes no sense to deny Relentless a recovery because it did not engage in pretrial
discovery and spend time litigating an alter ego allegation, when the entire matter might
have been resolved simply by the Fulton parties paying the judgment.
              The order is reversed. The judgment is amended to add the Fultons, ATI,
and Paradise as judgment debtors. The matter is remanded for further proceedings
consistent with this opinion. Costs are awarded to Relentless.
              CERTIFIED FOR PUBLICATION.

                                            GILBERT, P. J.
We concur:

              YEGAN, J.

              PERREN, J.

                                               7
                               Dodie A. Harman, Judge

                      Superior Court County of San Luis Obispo
                        ______________________________

             Adamski Moroski Madden Cumberland & Green, David M. Cumberland
and Joshua M. George for Plaintiff and Appellant.
             Cox Wootton Griffin Hansen & Poulous and Rupert P. Hansen for
Defendant and Respondent.