Cases

Code of Civil Procedure section 187 permits trial courts to disregard the corporate shield by amending judgments to include alter egos of the original judgment debtor.  Invoking section 187, GMSR’s client moved to add two individuals to a judgment against the individuals’ LLCs.  The trial court denied the motion, finding that there was no unity of interest between the LLCs and the individuals, and that equity did not require adding the individuals.

The Court of Appeal reversed in a published opinion.  Agreeing with arguments developed by GMSR, it concluded that several of the trial court’s stated bases for finding a lack of unity of interest were contrary to the evidence.  The appellate court further held that the trial court erred in requiring evidence that the LLCs’ corporate form was a sham, in bad faith, or intended to defraud—under California law, the alter ego doctrine also applies where the corporate form was used for “‘some other wrongful or inequitable purpose.’”  And, the appellate court agreed that GMSR’s client’s inability to collect on the judgment, “combined with the other factors indicating inequitable uses of the corporate form, may satisfy the unjust result element for alter ego liability.”  These conclusions, among others, led the Court of Appeal to reverse the order denying the section 187 motion, and to remand “for a fresh consideration of the motion so that the court may exercise informed discretion with awareness of the full scope of its discretion and the applicable law.”

To read the Court of Appeal opinion, click HERE.