Court Opinion

ID: 8206175
Source: CourtListenerOpinion
Date Created: 2022-09-13 22:01:25.778466+00
Date Added: 2024-06-11T16:41:13.663352
License: Public Domain

Filed 9/13/22 Regency Entertainment etc. v. Worldview Entertainment etc. CA2/7
   NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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has not been certified for publication or ordered published for purposes of rule 8.1115.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 SEVEN

 REGENCY ENTERTAINMENT                                          B306464
 (USA), INC.,
  et al.                                                        (Los Angeles County
                                                                Super. Ct. No. BC687109)
           Plaintiffs and Respondents,

           v.

 WORLDVIEW ENTERTAINMENT
 HOLDINGS LLC, et al.,

           Defendants and Appellants.

      APPEAL from a judgment of the Superior Court of Los
Angeles County, Michael L. Stern, Judge. Affirmed.
      Kendall Brill & Kelly LLP, Richard B. Kendall, Philip M.
Kelly, Nicholas F. Daum and Amanda D. Barrow for Plaintiffs
and Respondents.
      Hogan Lovells US LLP, Paul B. Salvaty and Laura M.
Groen for Defendants and Appellants.
                     _______________________
                        INTRODUCTION

       A film distributor sought to hold a film investment fund
and its alleged corporate alter egos liable on a guaranty contract
to reimburse the distributor for an advance of distribution costs.
After a bench trial, the trial court found the various entity
defendants were all alter egos of each other, operating as a
“single enterprise,” and concluded that the entire enterprise was
liable on the guaranty contract. The alleged alter ego parties
appeal the trial court’s judgment and order imposing alter ego
liability on them for the guaranty. We conclude substantial
evidence supports the trial court’s alter ego finding and affirm.

         FACTUAL AND PROCEDURAL HISTORY

        A.    The Parties and Worldview Entities
        Plaintiff and respondent Regency Entertainment (USA),
Inc. (collectively, with Monarchy Enterprises S.A.R.L, “Regency”)
is a film distributor.
        Defendant and appellant Worldview Entertainment
Partners IX, LLC (“Worldview IX”) is a special purpose “film
fund” controlled by affiliated entities sharing the “Worldview”
name. In addition to Worldview IX, there are three other named
Worldview entity defendants and appellants: Worldview
Entertainment Holdings LLC (“Worldview LLC”), Worldview
Entertainment Holdings, Inc. (“Worldview Inc.”), and another
film fund, Worldview Entertainment Partners VII, LLC
(“Worldview VII”).1

1     There are 14 additional Worldview-affiliated entities not
party to this action: Worldview Entertainment Capital LLC,

                                 2
       Appellants describe Worldview LLC as the “parent
company of the other Worldview Defendants.” Maria Cestone is
the chairperson and sole board member of Worldview LLC.
Worldview LLC is the sole shareholder of the management
company Worldview Inc.
       Worldview Inc. manages and collects “fees” from (but does
not own) the two “film fund” defendants, Worldview IX and
Worldview VII. Cestone is the sole director of Worldview Inc.;
Christopher Woodrow served as CEO and a member of the Board
of Directors of Worldview Inc. until June 2014. After Woodrow’s
departure, a single executive, Patrick Thompson (under Cestone’s
direction), performed all operational tasks on behalf of all four
named Worldview entities. Among other things, Worldview Inc.
took “executive producer fees, production/financing fees and other
fees” from Worldview IX and Worldview VII. These fees included
approximately $450,000 paid by Worldview IX to Worldview Inc.
that Thompson, as the person most knowledgeable for the four
Worldwide entities, was unable to explain or itemize.
       Worldview LLC owns an 80 percent membership interest in
Worldview IX and a 50 percent membership interest in
Worldview VII. Sarah Johnson owns the remaining 20 percent of

Worldview Entertainment Capital II LLC, Worldview
Entertainment Capital III LLC, Worldview Entertainment
Financing LLC, Worldview Entertainment Financing II LLC,
Worldview Entertainment Partners LLC, Worldview
Entertainment Partners II LLC, Worldview Entertainment
Partners III LLC, Worldview Entertainment Partners IV LLC,
Worldview Entertainment Partners V LLC, Worldview
Entertainment Partners VI LLC, Worldview Entertainment
Partners VIII LLC, Worldview Entertainment Partners X LLC
and Sniper Acquisitions LLC.

                                3
Worldview IX , and Cestone and Johnson own nearly the entire
remaining 50 percent of Worldview VII.2 Worldview IX and
Worldview VII have never had officers, directors, members,
managers, or employees that were separate or unique to those
entities.
       Worldview LLC is 75 percent owned by two limited liability
companies, Roseland Ventures LLC (“Roseland”) and Prospect
Point Capital LLC (“Prospect Point”). Cestone is the sole
manager of Roseland and owns Prospect Point with her brother
and Woodrow. Johnson is a 20 percent owner of Worldview LLC.3
       Since mid-2017 Worldview VII has paid for virtually all
expenses of the defendant Worldview entities, including rent,
legal fees, and salaries; before 2017 such expenses were paid by
Worldview Inc.

       B.    The Guaranty Agreement
       In 2014 Worldview IX invested in the feature film “Rules
Don’t Apply,” with Regency as the film’s marketer and
distributor. Regency agreed to advance “prints and advertising”
(“P&A”) costs for the film’s theatrical release. On March 1, 2014,
Worldview IX entered into a separate guaranty contract with
Regency to proportionally reimburse Regency for any shortfall
should the film’s revenues be insufficient to cover the advanced
P&A costs.

2     Two other individual minor investors each hold a less than
a 1 percent share of Worldview VII.

3    A third individual, Molly Connors, is a 5 percent owner of
Worldview LLC.

                                4
       On March 17, 2014, Worldview IX transferred $858,000 to
Worldview VII. Thompson stated that “Chris Woodrow was
running the company” at that time and that Thompson did not
know why the money was transferred. Defendants’ discovery
responses asserted that the transfer was to increase Johnson’s
investment in “Birdman,” a separate (and more commercially
successful) film for which Worldview VII was the funding vehicle.
On March 20, 2014, Worldview IX transferred another $2.8
million to make the direct investment in “Rules Don’t Apply,”
after which Worldview IX effectively had no assets. The $2.8
million consisted of funds specifically invested by Johnson in
Worldview IX; Thomson attested, however, that “there was some
shifting around of—to other accounts that happened in that
process.”
       In March 2016 Worldview IX obtained a “loan” of
$78,302.98 from Worldview Inc. to make an “overage” payment in
connection with “Rules Don’t Apply” because Worldview IX had
no money. Worldview Inc. was loaned the money for this
“overage” from Cestone; the loan was never repaid.
       Regency ultimately advanced over $20 million in investor-
approved P&A costs to release “Rules Don’t Apply” domestically
in November 2016. Thompson was aware that Worldview IX had
insufficient assets on hand to cover any shortfall. The domestic
theatrical release was financially unsuccessful, and by November
2017, there was a P&A shortfall of approximately $20 million.
       In November 2017 Regency issued a shortfall notice
advising all investors they each owed a pro-rata share of the
shortfall. The parties ultimately stipulated that Worldview IX
owed $1,668,773.

                                5
      C.     The Trial Court Concludes the Worldview Defendants
             Are Alter Egos of Each Other
       Regency settled with other investors who had signed
guaranties. Regency and the Worldview defendants proceeded
with litigation, including a four-day bench trial on the Worldview
defendants’ unclean hand defense, which the trial court rejected.
Regency and the Worldview defendants then agreed to a bench
trial on the issue of alter ego liability, based on a written record
alone.
       On February 7, 2020, the trial court issued its ruling and
statement of decision, finding Regency “met its burden of proof
that alter ego liability should be applied in this instance.” The
court found the Worldview entities “are operated and controlled
by the same persons,” chiefly Cestone and Johnson, and that
“[t]he overlapping and interlocking ownership of the two entities
is remarkable.” It concluded that “taken together, Worldview VII
and Worldview IX indistinguishably and collectively constitute
Worldview LLC,” and there was merely “a fiction of separately
standing companies.” Ultimately, it concluded that “[w]hile a
thin external veneer of separation may have been attempted to be
maintained, an examination of the actual operations of
Worldview VII and Worldview IX shows that they have been
functioning under common control and operating as a unitary
company that transfers monies back and forth. . . . While
Worldview VII and Worldview IX may have had separate bank
accounts and paid separate taxes, it appears that the two entities
commingled funds by cross-payment of rent payments and
salaries and made various insufficiently explained transfers of
funds between the two entities.”

                                 6
      The trial court also found “a paucity of evidence that the
Worldview entities properly maintained corporate formalities”
and “significant undercapitalization” of Worldview IX, which had
“inadequate bank resources or other access to funds that might
be utilized [to] make any required payment on a shortfall under
the Guaranty.”
      The court determined that if alter ego liability were not
applied, the result would be inequitable, reasoning that the
Worldview entities “must be held accountable for their
contractual obligations because they disregarded formalities,
commingled funds and were operated as a single entity.” It held
“the Court concludes that the single enterprise doctrine is
applicable in this instance and the Worldview enterprise, as a
whole, is liable under the Guaranty because plaintiff Regency has
pierced the corporate veil.”
      The parties agreed to a stipulated judgment of $1,668,773,
plus prejudgment interest of $188,668, for a total of $1,857,441,
with the parties reserving the right to appeal.
      This appeal followed.

                          DISCUSSION

       A.    Standard of Review
       “In reviewing a finding of alter ego liability, we must
consider whether the trial court’s findings are supported by
substantial evidence.” (Baize v. Eastridge Companies, LLC
(2006) 142 Cal.App.4th 293, 302; accord, Toho-Towa Co., LTD. v.
Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096,
1108 [“Whether the evidence has established that the corporate
veil should be ignored is primarily a question of fact which should

                                 7
not be disturbed when supported by substantial evidence”].) We
will not reverse the trial court’s factual determination of whether
a corporation is an alter ego of another organization or individual
if it is supported by substantial evidence. (Misik v. D’Arco (2011)
197 Cal.App.4th 1065, 1072 (Misik); Las Palmas Associates v. Las
Palmas Center Associates (1991) 235 Cal.App.3d 1220, 1248 (Las
Palmas).)
        In reviewing for substantial evidence, “we resolve all
conflicts in the relevant evidence ‘against the appellant and in
support of the order.’” (Sonora Diamond Corp. v. Superior Court
(2000) 83 Cal.App.4th 523, 535 (Sonora Diamond).) Substantial
evidence may be contradicted or uncontradicted; “[t]he appellate
court has no power to judge the effect or value of the evidence, to
weigh the evidence, to consider the credibility of witnesses, or to
resolve conflicts in the evidence or in the reasonable inferences
that may be drawn from the conflicts.” (Wells Fargo Bank, N.A.
v. Weinberg (2014) 227 Cal.App.4th 1, 8.) Accordingly, an
appellant raising a claim of insufficiency of the evidence assumes
a “‘daunting burden’”: “The test ‘is simply whether there is
substantial evidence in favor of the respondent. If this
“substantial” evidence is present, no matter how slight it may
appear in comparison with the contradictory evidence, the
judgment must be upheld. As a general rule, therefore, we will
look only at the evidence and reasonable inferences supporting
the successful party, and disregard the contrary showing.’”
(People v. Overstock.com, Inc. (2017) 12 Cal.App.5th 1064, 1079.)

       B.   Law of Alter Ego and the “Single-enterprise” Rule
       Appellants do not contest Worldview IX’s liability for the
total amount of the $1,857,441 judgment. Rather, the alter ego

                                 8
defendants challenge the sufficiency of the evidence to support
the trial court’s finding that they were alter egos of Worldview
IX. An alter ego determination is an equitable finding that rests
in the trial court’s discretion as a question of fact. (Las Palmas,
supra, 235 Cal.App.3d at p. 1248.) “Under the alter ego doctrine,
. . . 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 corporation’s acts to be those of the persons or
organizations actually controlling the corporation, in most
instances the equitable owners.” (Sonora Diamond, supra, 83
Cal.App.4th at p. 538.)
        “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.” (Mesler v. Bragg
Management Co. (1985) 39 Cal.3d 290, 300.) However, to apply
alter ego liability and hold the equitable owners or parties
controlling the organization responsible for the corporation’s
conduct requires: “‘(1) that there be such unity of interest and
ownership that the separate personalities of the corporation and
the individual no longer exist and (2) that, if the acts are treated
as those of the corporation alone, an inequitable result will
follow.’” (Ibid.; accord, Hub City Solid Waste Services, Inc. v. City
of Compton (2010) 186 Cal.App.4th 1114, 1122; Sonora Diamond,
supra, 83 Cal.App.4th at p. 538.)
        The first requirement “encompasses a series of factors,”
including: “one individual’s ownership of all the stock in a
corporation; use of the same office or business location;
commingling of funds and other assets of the individual and
corporation; an individual holding out that he is personally liable

                                  9
for debts of the corporation; identical directors and officers;
failure to maintain minutes or adequate corporate records;
disregard of corporate formalities; absence or inadequate
capitalization; and the use of the corporation as a mere shell,
instrumentality or conduit for the business of an individual.”
(Misik, supra, 197 Cal.App.4th at p. 1072.)
       Here, the central question is whether the other Worldview
entity defendants have sufficient unity of interest and ownership
to be equitably treated as alter egos of Worldview IX for liability
under the guaranty. Under the “single-enterprise” rule, a “sister
or affiliated” company can be held liable under the alter ego
doctrine when a court finds that, as a matter of equity, the
organization has been operating as a single enterprise,
considering the relevant factors. (Troyk v. Farmers Group, Inc.
(2009) 171 Cal.App.4th 1305, 1341 (Troyk).) Where a particular
corporation is a “shell” and is “so organized and controlled, and
its affairs are so conducted, as to make it merely an
instrumentality, agency, conduit, or adjunct of another
corporation,” the “single enterprise” doctrine will apply. (Las
Palmas, supra, 235 Cal.App.3d at p. 1249.) “No one
characteristic governs, but the courts must look at all the
circumstances to determine whether the doctrine should be
applied.” (Troyk, at p. 1342.)

      C.    Sufficient Evidence Supports the Trial Court’s
            Findings of Alter Ego
      Ample evidence presented at trial supports the court’s
finding that the entity defendants were alter egos of Worldview
IX. The defendant Worldview entities were owned and controlled
by the same primary investors: Cestone and to a lesser extent,

                                10
Johnson. The defendant entities also employed the same
executive and used funds interchangeably across the larger
Worldwide organization. Beginning in mid-2017, Worldview VII
paid for the expenses on behalf of the other Worldview entities,
including rent, salaries, legal fees and office expenses. All the
Worldview entities also used a single office and mailing address.
      Since 2014 the affiliated entities largely disregarded
corporate formalities, including failing to hold board meetings
and failing to keep corporate minutes.4 Funds were also freely
transferred among the different Worldview entities, and
individual investors, including hundreds of thousands of dollars
in unexplained “fees” that were paid from Worldview IX to
Worldview Inc. Money was similarly transferred between the

4      Defendants note that Corporations Code section 17703.04,
subdivision (b), provides that “failure to hold meetings of
members or managers [of a limited liability company] or the
failure to observe formalities pertaining to the calling or conduct
of meetings shall not be a factor tending to establish that a
member or the members have alter ego or personal liability for
any debt, obligation, or liability of the limited liability company
where the articles of organization or operating agreement do not
expressly require that meetings be held,” and that the Operating
Agreements for three of the entities—Worldwide LLC, Worldwide
IX and Worldwide VII—do not expressly require meetings. The
evidence defendants rely upon does not clearly support their
argument; the incorporation documents contemplate that an
annual meeting for Worldwide LLC and Worldwide IX “will be
held”; and the documents for Worldwide VII use permissive
language, stating an annual meeting “may be held.” Irrespective
of the lack of corporate meetings, there is sufficient evidence that
the different Worldview defendants were not treated as separate
entities.

                                11
two film funds and Cestone, Worldview Inc. and Worldview IX to
cover “overages” owed by Worldview IX.
       The overlap in ownership, employees, physical space and
business practices, as well as the lack of separate governance
functions among the Worldview entities, reveals a disregard for
corporate formalities and the failure to maintain arm’s length
corporate relationships. In addition, the transfer of funds among
the Worldview entities, particularly the March 2014 transfer of
$858,000 from Worldview IX to Worldview VII, exemplifies a
commingling of assets and suggests a pattern of improper
undercapitalization of Worldview IX assets to Regency’s ultimate
detriment. In its totality, this evidence is sufficient to establish a
unity of interest and ownership that demonstrates that separate
individual corporations no longer exist—the first of the two
requirements necessary for finding alter ego.
       The second requirement, that an inequitable result will
follow if the guaranty obligation is treated as that of Worldview
IX alone, is also supported by substantial evidence. The $858,000
transfer of funds from Worldview IX to Worldview VII appears to
have occurred to maximize Johnson’s investment in a different
film (by using a different corporate entity) while leaving
Worldview IX undercapitalized. This transfer and commingling
of assets supports an inference of bad faith and supports the trial
court’s conclusion that the defendants manipulated the finances
of the corporate entities to avoid Worldview IX’s liability on the
guaranty. Given Worldview IX’s limited assets, payment on the
guaranty to Regency would be impossible without resorting to the
assets of the other entities. It would be inequitable to allow the
affiliated Worldview entities to avoid liability by pointing to
siloed corporate identities that were previously ignored. Thus,

                                 12
substantial evidence supports the trial court’s findings regarding
alter ego liability.

                         DISPOSITION

      The judgment of the trial court is affirmed. Respondents
are awarded their costs on appeal.

                                     WISE, J.

We concur:

      PERLUSS, P. J.

      SEGAL, J.

     Judge of the Alameda County Superior Court, assigned by
the Chief Justice pursuant to article VI, section 6 of the
California Constitution.

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