Raicevic v. Geraci CA4/1

• Court: California Court of Appeal
• Decided: August 19, 2015
• Docket: D065629
• Status: Unpublished

Opinion

Filed 8/19/15 Raicevic v. Geraci CA4/1 NOT TO BE PUBLISHED IN OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

COURT OF APPEAL, FOURTH APPELLATE DISTRICT

DIVISION ONE

STATE OF CALIFORNIA

VLADIMIR RAICEVIC et al., D065629

Plaintiffs and Respondents,

v. (Super. Ct. No. GIC881930)

ALAN L. GERACI,

Defendant and Appellant.

APPEAL from a judgment of the Superior Court of San Diego County, Timothy

B. Taylor, Judge. Reversed and remanded for further proceedings.

Care Law Group, Alan L. Geraci; Kirby Noonan Lance & Hoge and Charles T.

Hoge for Defendant and Appellant.

Law Offices of Jerry D. Cluff and Jerry D. Cluff for Plaintiffs and Respondents.

Defendant Alan L. Geraci appeals an amended judgment entered after the trial

court granted plaintiffs' (Vladimir Raicevic and Imelda Raicevic, individually and as

trustees of their respective family trusts (together the Raicevics)) motion to add him as a

judgment debtor in their successful fraud action against defendants Stephen F. Lopez and the law firm of Geraci & Lopez, a general partnership (Partnership). On appeal, Geraci

contends: (1) the trial court abused its discretion under Code of Civil Procedure1 section

187 by adding him as a judgment debtor because it misconstrued applicable law (e.g.,

that a general partner cannot be held liable for a partnership's judgment debt unless

named as a defendant in the complaint); (2) he was denied due process of law; and (3) the

court erred by inadequately considering his objections to the Raicevics' evidence.

FACTUAL AND PROCEDURAL BACKGROUND2

In 2007, the Raicevics filed the instant action against Lopez, the Partnership, and

other defendants alleging causes of action for intentional and negligent

misrepresentations they allegedly made in 2004. After the trial court granted a motion

for summary judgment in favor of Lopez and the Partnership, we reversed the summary

judgment in a prior appeal (Andjelka Raicevic, Individually and as Trustee, etc. et al. v.

Stephen F. Lopez et al. (Aug. 18, 2010, D055002) [nonpub. opn.] (Raicevic I)). On

remand, following trial, the jury returned special verdicts finding Lopez and the

Partnership liable for intentional and negligent misrepresentation and awarding the

Raicevics $588,000 in compensatory damages. In November 2011, the trial court entered

judgment in favor of the Raicevics. In Raicevic II, we reversed the trial court's award of

1 All statutory references are to the Code of Civil Procedure unless otherwise specified.

2 For a more detailed description of the factual and procedural background of the Raicevics' action against Lopez and the Partnership, refer to our opinion in Vladimir Raicevic, Individually and as Trustee, etc., et al. v. Stephen F. Lopez et al. (Jan. 23, 2015, D061253) [nonpub. opn.] (Raicevic II).

2 attorney fees to the Raicevics, but affirmed the judgment against Lopez and the

Partnership in all other respects.

In July 2013, the Raicevics filed a motion to amend the judgment to add Geraci as

a judgment debtor. They argued that section 187 authorized the trial court to amend the

judgment to add Geraci as an additional judgment debtor on grounds of alter ego liability,

successor entity liability, and Corporations Code section 16807 liability. Geraci opposed

the motion, arguing that: (1) neither he nor his professional corporation, as a general

partner of the Partnership, could be held liable for the Partnership's judgment debt unless

named as a defendant in the complaint; (2) he could not be added as a judgment debtor

under Corporations Code section 16807; and (3) the Raicevics had not submitted any

evidence showing he was the alter ego of his professional corporation (or of the

Partnership). After hearing arguments of counsel, the trial court granted the Raicevics'

motion and entered an amended judgment adding Geraci as a judgment debtor. Geraci

filed a notice of appeal.

On September 2, 2014, Geraci filed a request for judicial notice of or, in the

alternative, to augment the record with, certain exhibits. We previously granted his

motion in part and augmented the record with Exhibit 1 to his motion. We now grant his

request to take judicial notice of our prior opinion in Raicevic I (exh. 2 to his motion), but

deny his request to augment the record with, or take judicial notice of, the remaining

exhibits (i.e., exhs. 3-6 to his motion).

3 On June 12, 2015, the Raicevics filed a request to further augment the record with

the second amended judgment in this case (i.e., an amended judgment after trial by jury

and after decision on appeal), which the trial court entered on June 11, 2015, following

our opinion in Raicevic II. We now grant their request to further augment the record with

that second amended judgment.

DISCUSSION

I

Standards of Review

A trial court's decision to amend a judgment to add a judgment debtor is reviewed

on appeal for abuse of discretion. (Carolina Casualty Ins. Co. v. L.M. Ross Law Group,

LLP (2012) 212 Cal.App.4th 1181, 1189 (Carolina Casualty).) We also review a trial

court's evidentiary rulings for abuse of discretion. (Pannu v. Land Rover North America,

Inc. (2011) 191 Cal.App.4th 1298, 1317.) It is an abuse of discretion for a trial court to

fail to exercise discretion vested in it. (Fletcher v. Superior Court (2002) 100

Cal.App.4th 386, 392.)

We review a trial court's factual findings for substantial evidence to support them.

(Carolina Casualty, supra, 212 Cal.App.4th at p. 1189.) We review de novo, or

independently, questions of law, including whether a party has been denied procedural

due process. (Nasha v. City of Los Angeles (2004) 125 Cal.App.4th 470, 482; Clark v.

City of Hermosa Beach (1996) 48 Cal.App.4th 1152, 1169-1170.) Furthermore, "[t]he

question of whether a trial court applied the correct legal standard to an issue in

4 exercising its discretion is a question of law [citation] requiring de novo review

[citation]." (Eneaji v. Ubboe (2014) 229 Cal.App.4th 1457, 1463.)

II

Section 187 and Amendments to Judgments Generally

"Under section 187, the trial court is authorized to amend a judgment to add

additional judgment debtors. [Citations.] As a general rule, 'a court may amend its

judgment at any time so that the judgment will properly designate the real defendants.'

[Citations.] Judgments 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. [Citations.]

'Amendment of a judgment to add an alter ego "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. . . .' " (Hall, Goodhue, Haisley &

Barker, Inc. v. Marconi Conf. Center Bd. (1996) 41 Cal.App.4th 1551, 1554-1555, fn.

omitted.) Section 187 provides:

"Where jurisdiction is, by the Constitution or this Code, or by any other statute, conferred on a Court or judicial officer, all the means necessary to carry it into effect are also given; and in the exercise of this jurisdiction, if the course of proceeding be not specifically pointed out by this Code or the statute, any suitable process or mode of proceeding may be adopted which may appear most conformable to the spirit of this code."

"The court may exercise its authority [under section 187] to impose liability upon an alter

ego who had control of the litigation, and was therefore represented in it. [Citation.] The

addition of a new party as judgment debtor stems from the concept of the alter ego

5 doctrine, which is that an identity exists between the new party and the original party,

whose participation in the trial leading to the judgment represented the newly added

party." (Misik v. D'Arco (2011) 197 Cal.App.4th 1065, 1072.) "In addition, even if all

the formal elements necessary to establish alter ego liability are not present, an unnamed

party may be included as a judgment debtor if 'the equities overwhelmingly favor' the

amendment and it is necessary to prevent an injustice." (Carolina Casualty, supra, 212

Cal.App.4th at pp. 1188-1189.)

"In order to see that justice is done, great liberality is encouraged in the allowance

of amendments brought pursuant to . . . section 187." (Misik v. D'Arco, supra, 197

Cal.App.4th at p. 1073.) Accordingly, "[t]he trial court's decision to amend a judgment to

add a judgment debtor is reviewed for abuse of discretion." (Carolina Casualty, supra,

212 Cal.App.4th at p. 1189.)

III

Legal Standard Applied by the Trial Court

Geraci contends the trial court abused its discretion under section 187 by

amending the judgment to add him as a judgment debtor because it misconstrued

applicable law (e.g., that a general partner cannot be held liable for a partnership's

judgment debt unless named as a defendant in the complaint). Geraci was not named as a

defendant in the Raicevics' complaint. In support of his argument, he cites Fazzi v.

Peters (1968) 68 Cal.2d 590 (Fazzi).

6 A

In moving for an amendment of the judgment to add Geraci as a judgment debtor,

the Raicevics argued that section 187 authorized the trial court to amend the judgment to

add him as an additional judgment debtor on grounds of alter ego liability, successor

entity liability, and Corporations Code section 16807 liability. Geraci disagreed and

argued the court could not add him as a judgment debtor because, citing Fazzi, neither he

nor his professional corporation was named as a defendant in the action. The trial court

granted the motion to add Geraci as a judgment debtor, stating:

"Geraci clearly participated in and controlled the litigation. The court agrees with the [Raicevics] that Carolina Casualty controls here, and this court is duty bound to follow it unless and until another rule is announced by higher courts. Auto Equity Sales[, Inc.] v. Superior Court [(1962) 57 Cal.2d 450, 455].

"[The Raicevics] offer substantial evidence, not refuted by Geraci, that efforts are being made to shift assets among entities for purposes of evading the [P]artnership's judgment debt. The very recent [Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096] case and the [Phillips, Spallas & Angstadt, LLP v. Fotouhi (2011) 197 Cal.App.4th 1132] case from 2011 discussed in the moving papers make clear the policy of the courts that this sort of 'merry chase' conduct not be countenanced."

The court entered an amended judgment adding Geraci as a judgment debtor.

B

Geraci argues the trial court misconstrued applicable law by not following Fazzi's

holding that a general partner of a partnership cannot be held liable under a judgment

against the partnership unless that partner was named as a defendant in the action. In

Fazzi, the California Supreme Court "simply reaffirm[ed] the seemingly self-evident

7 proposition that a judgment in personam may not be entered against one not a party to the

action." (Fazzi, supra, 68 Cal.2d at p. 591.) The court cited the legislative history of

former Code of Civil Procedure section 3883 that "manifest[ed] a continuing legislative

effort to permit efficient enforcement of claims against the joint property of partnerships

while facilitating concurrent enforcement of claims against the individual property of

partners joined as defendants." (Fazzi, at p. 595.) It cited the general rule that "the

judgment in an action [against a partnership] brought under such a statute bound only the

partnership property and was not enforceable against the individual property of partners

not joined as individual defendants and served with process as such." (Ibid.) Fazzi

reversed a default judgment against a partner who had not been named as a defendant in

the action against the partnership. (Id. at p. 598.)

Although we agree with the general proposition under Fazzi that a partner is not

personally liable under a judgment in an action against a partnership unless that partner

was individually named as a defendant in the action, Fazzi's facts did not involve a

motion to amend the judgment to add a judgment debtor under section 187. Because

3 Former Code of Civil Procedure section 388 then stated: "When two or more persons, associated in any business, transact such business under a common name, whether it comprises the names of such persons or not, the associates may be sued by such common name, the summons in such cases being served on one or more of the associates; and the judgment in the action shall bind the joint property of all the associates, and the individual property of the party or parties served with process, in the same manner as if all had been named defendants and had been sued upon their joint liability." (Fazzi, supra, 68 Cal.2d at p. 592, italics omitted.) That section has been replaced by section 369.5. (Cal. Law Revision Com. com., 14 West's Ann. Corp. Code (2004 ed.) foll. § 369.5, p. 43.)

8 Fazzi did not involve facts relating to, or otherwise address the question of, whether

section 187 allows an amendment of a judgment against a partnership to add a partner as

a judgment debtor, Fazzi does not stand for the proposition that Geraci now claims,

which is that a partner can never be added as a judgment debtor under section 187 unless

that partner was named as a defendant in the action. "Language used in any opinion is of

course to be understood in the light of the facts and the issue then before the court, and an

opinion is not authority for a proposition not therein considered." (Ginns v. Savage

(1964) 61 Cal.2d 520, 524, fn. 2.) Furthermore, "[a]n appellate decision is not authority

for everything said in the court's opinion but only 'for the points actually involved and

actually decided.' " (Santisas v. Goodin (1998) 17 Cal.4th 599, 620; see also Harris v.

Capital Growth Investors XIV (1991) 52 Cal.3d 1142, 1157.) Accordingly, we are not

persuaded by Geraci's assertions that a partner cannot, as a matter of law, be added as a

judgment debtor by amendment of the judgment under section 187, and the trial court

misconstrued that principle of law in applying section 187 to add him as a judgment

debtor.

C

Despite our rejection of Geraci's specific assertion above, we nevertheless agree

with his general assertions that the trial court appeared to misconstrue applicable law and

did not exercise its discretion under section 187. In its order granting the Raicevics'

section 187 motion, the court stated: "Carolina Casualty controls here, and this court is

duty bound to follow it unless and until another rule is announced by higher courts. " In

9 so doing, the court appeared to express its belief it had no discretion under section 187 to

make a decision different from that set forth in Carolina Casualty. In Carolina Casualty,

a judgment was entered against a law firm that was organized as a limited liability

partnership (LLP). (Carolina Casualty, supra, 212 Cal.App.4th at pp. 1183, 1186.)

However, the LLP subsequently refused to satisfy the judgment, asserting it had ceased

operations three years before the judgment was entered and had no assets. (Id. at pp.

1186-1187.) The judgment creditor then moved to amend the judgment to add the LLP's

sole equity partner, Leonard M. Ross, and other entities as judgment debtors on the

ground they were the real defendants and real parties in interest. (Id. at pp. 1187, 1192.)

The trial court granted the motion to add Ross as a judgment debtor, finding he had

actively participated in and controlled the litigation and amending the judgment was

equitably justified to specify the true identity of the culpable party. (Id. at pp. 1187-

1188.) The trial court found Ross had directed the litigation, permitted the suit to

advance against a nonentity with no funds (i.e., the LLP), and encouraged dispositive

cross-motions for summary judgment. (Id. at p. 1188.)

On appeal, Carolina Casualty concluded the trial court properly exercised its

section 187 discretion to add Ross as a judgment debtor based on its findings the LLP had

been dissolved and ceased to exist prior to the litigation and Ross had actively

participated in and controlled the litigation against the LLP, knowing it was a dissolved,

inactive entity with no funds. (Carolina Casualty, supra, 212 Cal.App.4th at pp. 1193-

1194.) It was only after the judgment was entered against the LLP that Ross disclosed it

10 had been dissolved before the litigation. (Id. at pp. 1187, 1194.) Carolina Casualty

therefore affirmed the amended judgment adding Ross, the equity partner, as a judgment

debtor. (Id. at p. 1198.)

By stating it was bound to follow Carolina Casualty's holding and, based on that

holding, granting the Raicevics' motion to add Geraci as a judgment debtor, the trial court

in this case presumably did not exercise its discretion under section 187 and simply made

the same decision the trial court did in Carolina Casualty (i.e., it granted the motion to

add a partner as a judgment debtor). In so doing, it misconstrued applicable law and did

not exercise its discretion to decide the section 187 motion based on the particular facts

and circumstances in this case. "[A] ruling otherwise within the trial court's power will

nonetheless be set aside where it appears from the record that in issuing the ruling the

court failed to exercise the discretion vested in it by law." (People v. Penoli (1996) 46

Cal.App.4th 298, 302.) "Failure to exercise a discretion conferred and compelled by law

constitutes a denial of a fair hearing and a deprivation of fundamental procedural rights,

and thus requires reversal." (Id. at p. 306.)

Alternatively, assuming arguendo the trial court exercised its discretion by adding

Geraci as a judgment debtor, it nevertheless appeared to misconstrue applicable law.

When a trial court's exercise of discretion is based on an erroneous understanding of the

law, the judgment must be reversed and the matter remanded for an informed

determination. (People v. Downey (2000) 82 Cal.App.4th 899, 912.) Based on the record

in this case, it appears the trial court not only did not understand it had discretion under

11 section 187 and was not compelled to make the same decision as in Carolina Casualty,

but it also cited factors showing it misunderstood applicable law in amending a judgment

to add a judgment debtor under section 187. The court cited Geraci's participation and

control of the litigation.4 That factor, in and of itself, is an insufficient basis on which to

amend a judgment to add a judgment debtor as an alter ego of an original judgment

debtor. Rather, that factor must be considered with all of the other circumstances in a

case. In determining whether a person is the alter ego of an entity, a court must consider

all of the circumstances and no single factor is determinative. (Zoran Corp. v. Chen

(2010) 185 Cal.App.4th 799, 811-812; Greenspan v. LADT LLC (2010) 191 Cal.App.4th

486, 512-513.)

The record shows the trial court in this case apparently did not consider all of the

circumstances in implicitly finding Geraci was the alter ego of the Partnership and

amending the judgment to add him as a judgment debtor. Therefore, we must reverse the

amended judgment and remand the matter for an informed exercise of the trial court's

discretion under section 187. (People v. Downey, supra, 82 Cal.App.4th at p. 912.) In

exercising that discretion, the court shall consider all of the circumstances in this case,

including any relevant factors listed in controlling case law. (See, e.g., Zoran Corp. v.

4 To the extent the trial court also cited evidence that assets were shifted among various entities to evade payment of the Partnership's judgment debt, it apparently did not rely on that factor in finding Geraci was the alter ego of the Partnership. Although the Raicevics argue the successor entity liability doctrine should apply to make Geraci liable as an additional judgment debtor (see, e.g., Phillips, Spallas & Angstadt, LLP v. Fotouhi, supra, 197 Cal.App.4th 1132), the record does not show the court relied on that doctrine in adding Geraci as an additional judgment debtor. 12 Chen, supra, 185 Cal.App.4th at pp. 811-812; Misik v. D'Arco, supra, 197 Cal.App.4th at

p. 1073; Greenspan v. LADT LLC, supra, 191 Cal.App.4th at pp. 510-514; Toho-Towa

Co., Ltd. v. Morgan Creek Productions, Inc., supra, 217 Cal.App.4th at pp. 1106-1110;

Troyk v. Farmers Group, Inc. (2009) 171 Cal.App.4th 1305, 1341-1342; Carr v.

Barnabey's Hotel Corp. (1994) 23 Cal.App.4th 14, 20-23; Carolina Casualty, supra, 212

Cal.App.4th at pp. 1188-1189 [finding equity partner of limited liability partnership liable

as its alter ego].)5 On remand, the trial court should allow the parties to present evidence

at an evidentiary hearing on the Raicevics' motion to amend the judgment and, in ruling

on that motion, should make specific findings of fact and explain its reasoning in finding

whether or not Geraci was, directly or indirectly (e.g., through his professional

corporation), the alter ego of the Partnership and exercising its discretion under section

187 whether to amend the judgment to add him as a judgment debtor.

D

For purposes of providing guidance to the trial court on remand, we address the

Raicevics' argument that the trial court can rely on Corporations Code section 16807 to

amend a judgment against a partnership to add a partner as a judgment debtor.

5 Contrary to Geraci's assertion, although the alter ego doctrine is most commonly applied to hold shareholders liable as alter egos of corporations, he does not cite, nor are we aware of, any authority restricting the application of the alter ego doctrine to corporations and their shareholders. We believe there is no logical reason to so restrict the application of that doctrine and conclude, as Carolina Casualty implicitly did, that a partner of a partnership may be held liable as the alter ego of the partnership. (Carolina Casualty, supra, 212 Cal.App.4th at pp. 1192-1194.) 13 Corporations Code section 16807 deals with the winding up of a partnership's business,

stating in relevant part:

"(b) Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. In settling accounts among the partners, the profits and losses that result from the liquidation of the partnership assets shall be credited and charged to the partners' accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner's account. Except for registered limited liability partnerships and foreign limited liability partnerships, a partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner's account.

"(c) If a partner fails to contribute the full amount that the partner is obligated to contribute under subdivision (b), all of the other partners shall contribute, in the proportions in which those partners share partnership losses, the additional amount necessary to satisfy the partnership obligations for which they are liable under Section 16306. A partner or partner's legal representative may recover from the other partners any contributions the partner makes to the extent the amount contributed exceeds that partner's share of the partnership obligations for which the partner is personally liable under Section 16306."6 (Italics added.)

The Raicevics argue, without any supporting authority, that the trial court had discretion

under section 187 to add Geraci as a judgment debtor by creating a procedure under

Corporations Code section 16807 allowing judgment creditors to enforce a judgment

against a partnership that has insufficient assets to pay the judgment by moving to amend

the judgment to add partners as additional judgment debtors. However, we conclude

section 187 does not allow a trial court to create and employ such a new procedure to add

6 Corporations Code section 16306, subdivision (a), generally provides: "[A]ll partners are liable jointly and severally for all obligations of the partnership unless otherwise agreed by the claimant or provided by law."

14 partners as judgment debtors in addition to the original partnership judgment debtor. Had

the Legislature intended to allow judgment creditors to obtain amended judgments

making partners liable in this manner, it would have expressly so provided in

Corporations Code section 16807 or another statute. The Raicevics do not carry their

burden on appeal to persuade us to reach a contrary conclusion.

IV

Due Process of Law

Geraci contends that he was denied due process of law when the trial court granted

the Raicevics' motion to amend the judgment to add him as a judgment debtor. However,

because we reverse the judgment and remand for further proceedings, we need not

address, and do not decide, whether Geraci was denied due process of law. Nevertheless,

if we had addressed that issue, it is likely we would have concluded Geraci received

notice of, and an opportunity to be heard on, the Raicevics' motion and therefore was not

denied due process of law.

V

Geraci's Objections to Evidence

Geraci also contends that in granting the Raicevics' motion to amend the judgment

to add him as a judgment debtor, the trial court did not adequately consider his objections

to the evidence they submitted in support of their motion. However, because we reverse

the judgment and remand for further proceedings, we need not address, and do not

decide, whether the court did not adequately consider his objections to that evidence.

15 DISPOSITION

The judgment is reversed and the matter is remanded for further proceedings

consistent with this opinion. The parties shall bear their own costs on appeal.

McDONALD, J.

WE CONCUR:

NARES, Acting P. J.

AARON, J.