Nos. G052234, G052524.

JOSEPH A. BUTTACAVOLI, et al., Cross-complainants and Respondents, v. STEVEN R. ROJAS, Cross-defendant and Appellant.

Court of Appeals of California, Fourth District, Division Three.

Attorney(s) appearing for the Case

Lewis Brisbois Bisgaard & Smith, Kira L. Klatchko and Jeffrey Miller for Cross-defendant and Appellant.

Lurie & Seltzer, Barak Lurie , and Michael J. Conway for Cross-complainants and Respondents.


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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.



Joseph Buttacavoli and Steven Rojas were 50/50 partners who, beginning in 1993, owned and operated Fullerton Dodge, a car dealership. In December 2006, Rojas agreed to buy Buttacavoli's share for $1.5 million. They had to obtain the approval of Chrysler Financial Services, which financed the dealership. Chrysler Financial Services required Buttacavoli to loan Fullerton Dodge $1 million as a condition of the sale, which Buttacavoli did (we refer to this as the "million dollar loan"). Less than one year after the transaction closed, Fullerton Dodge ceased business.

Chrysler Financial Services sued Buttacavoli, his wife Karen Buttacavoli, and Rojas to collect on personal guarantees they had executed for loans it made to Fullerton Dodge. Buttacavoli and his wife cross-complained against Rojas and Fullerton Dodge, invoking an indemnity provision in the sale agreement and ultimately seeking repayment for their settlement with Chrysler Financial Services as well as the attorney fees they paid to defend the case. They also sought breach of contract damages against Fullerton Dodge and Rojas for Fullerton Dodge's failure to repay the million dollar loan. Rojas cross-complained against Buttacavoli, asserting claims for breach of the oral partnership agreement, breach of fiduciary duty, and fraud. After a bench trial, the court found in favor of Buttacavoli on his indemnity claim, awarded $1 million in breach of contract damages against Fullerton Dodge, but not Rojas, and it ruled against Rojas on his cross-claims. Rojas appealed, and in a prior opinion we affirmed the judgment. (Buttacavoli v. Rojas (Aug. 27, 2014, G048487) [nonpub. opn.] (Buttacavoli I).)

Upon remand, after obtaining additional information during the course of attempting to collect the judgment, Buttacavoli moved to amend the judgment under Code of Civil Procedure section 187 to add Rojas as an alter ego of Fullerton Dodge on the breach of contract judgment.1 The court granted the motion. Rojas appeals, contending res judicata bars any attempt to amend the judgment because he was found not personally liable on the contract, and that the court abused its discretion on the merits. We affirm.


Rather than repeat the statement of facts from Buttacavoli I, we incorporate them here by reference. The only relevant fact we need to add concerning the underlying trial is that Buttacavoli attempted to hold Rojas personally liable on the million dollar loan, but the court entered judgment in favor of Rojas on that claim.

After the judgment, Buttacavoli conducted a debtor examination of Rojas which took place over the course of four separate days in 2013 and 2014. In December 2014, Buttacavoli filed a motion to amend the judgment to add Rojas to the judgment as the alter ego of Fullerton Dodge. The court heard oral argument in May 2015 and granted the motion. We detail the court's findings in the discussion section below.


The Motion to Amend the Judgment Was Not Barred by Res Judicata

Rojas's first contention presents a pure legal issue: Where a corporation is found liable on a contract but the owner is not, can the judgment be amended to hold the owner is the alter ego of the corporation? Yes, it can. Rojas argues res judicata bars this result. However, his contention is based on a fundamental misunderstanding of alter ego liability and res judicata.

Res judicata has two aspects — claim preclusion and issue preclusion. (DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813 (DKN Holdings).) "Claim preclusion . . . acts to bar claims that were, or should have been, advanced in a previous suit involving the same parties. [Citation.] Issue preclusion . . . describes the bar on relitigating issues that were argued and decided in the first suit." (Id. at p. 824.) It is undisputed that alter ego was never litigated in this case prior to the motion to amend the judgment. Thus, at issue here is claim preclusion, not issue preclusion.

"Judgments are often amended to add additional judgment debtors on the grounds that a person or entity is the alter ego of the original judgment debtor. [Citations.] This 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. [Citations.] `Such a procedure is an appropriate and complete method by which to bind new individual defendants where it can be demonstrated that in their capacity as alter ego of the corporation they in fact had control of the previous litigation, and thus were virtually represented in the lawsuit.' [Citation.] In other words, `[i]f the claim of individual liability is made at some later stage in the action, the judgment can be made individually binding on a person associated with the corporation only if the individual to be charged, personally or through a representative, had control of the litigation and occasion to conduct it with a diligence corresponding to the risk of personal liability that was involved.'" (NEC Electronics, Inc. v. Hurt (1989) 208 Cal.App.3d 772, 778-779.)

Here is the point Rojas fails to acknowledge: "A claim against a defendant, based on the alter ego theory, is not itself a claim for substantive relief, e.g., breach of contract . . ., but rather, procedural, i.e., to disregard the corporate entity as a distinct defendant and to hold the alter ego individuals liable on the obligations of the corporation where the corporate form is being used by the individuals to escape personal liability, sanction a fraud, or promote injustice." (Hennessey's Tavern, Inc. v. American Air Filter Co. (1988) 204 Cal.App.3d 1351, 1359.) "The remedy provided by section 187 is simply a means of satisfying a judgment against individuals and companies that have ignored each other's separate existence in conducting business, thereby creating a single enterprise." (Greenspan v. LADT LLC (2010) 191 Cal.App.4th 486, 516-517 (Greenspan).) By contrast, "Claim preclusion `prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.'" (DKN Holdings, supra, 61 Cal.4th at p. 824, second italics added.) In asserting alter ego against Rojas, Buttacavoli was not asserting a cause of action. His alter ego motion did not assert that Rojas personally breached the contract (that claim had been rejected in the judgment). Rather, he was asserting the judgment against Fullerton Dodge can be satisfied by Rojas's assets because the two are a common enterprise. Claim preclusion does not apply.2

Our rejection of Rojas's argument is consistent with recent case law. In Greenspan, the plaintiff sued two limited liability companies for breach of contract and the manager of the LLC's for breach of fiduciary duty, but not breach of contract. The plaintiff prevailed against the LLC's at an arbitration, but not against the manager. (Greenspan, supra, 191 Cal.App.4th at p. 495.) After conducting judgment debtor examinations of the manager, the plaintiff moved to amend the judgment to add the manager as an alter ego of the LLC's, but the court denied the motion on essentially res judicata grounds. (Ibid.)

The Court of Appeal reversed. "The trial court . . . commented that [the plaintiff] could and should have litigated . . . alter ego status in the arbitration. But under res judicata principles, as we now explain, he had no obligation to do so." (Greenspan, supra, 191 Cal.App.4th at p. 516.) The court went on to note, as we have above, that amending a judgment to add an alter ego is a procedure to collect on a judgment rather than an independent cause of action. (Ibid.) It also found public policy counseled against application of res judicata: "An arbitration or civil suit is intended to determine liability and damages on specified causes of action, not to resolve hypothetical problems the plaintiff might face in collecting on a judgment. In this case, [the plaintiff] had no reason to name the [manager and his affiliates] as defendants in the original suit. As a result, the discovery concerning alter ego issues, in the form of judgment debtor proceedings, occurred after the judgment was obtained. [Citations.] 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." (Id. at p. 517.)

Rojas addresses Greenspan by seizing on the following comment by the court: "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. [Citation.] In the present case, however, when the complaint was filed, [the plaintiff] had no reason to suspect the existence of an alter ego relationship. . . ." (Greenspan, supra, 191 Cal.App.4th at p. 517.) Rojas argues the opposite result should occur in this case because Buttacavoli had reason to suspect the alter ego relationship.

We reject that argument. The comment in Greenspan was plainly dictum, as its choice of the word "probably" clearly demonstrates. Moreover, for the reasons stated above, claim preclusion simply does not apply. Instead, the principal limitation on adding an alter ego defendant is the requirement that the alter ego "`had control of the litigation and occasion to conduct it with a diligence corresponding to the risk of personal liability that was involved.'" (NEC Electronics, Inc. v. Hurt, supra, 208 Cal.App.3d at p. 778.) Rather than precluding a motion to amend the judgment, the fact that Rojas was a party facilitates it because he was more likely to be in control of the litigation. And, indeed, the court so found.

Rojas contends that our holding would create "a safe harbor for litigants wishing to forego diligent discovery or litigation of alter ego issues, and that it allows dilatory litigants to allege alter ego at any time even against a named party." Not so. Alter ego motions are subject to laches, but that requires the defendant to demonstrate prejudice. "[A] court errs if it refuses to apply the alter ego doctrine based solely on a plaintiff's unreasonable delay, or lack of due diligence" because that would obviate the prejudice requirement in a laches analysis. (Highland Springs Conference & Training Center v. City of Banning (2016) 244 Cal.App.4th 267, 286.) In the absence of a prejudice requirement, denying an alter ego amendment based on mere delay would impose "a de facto limitations period on a section 187 motion to amend a judgment. . . ." (Id. at pp. 286-287.) Which would be contrary to the law: "No statute of limitations applies to a section 187 motion to amend a judgment to add a judgment debtor. The motion may be made `"`"at any time so that the judgment will properly designate the real defendants."'"'" (Id. at p. 287.)

Rojas principally relies on Jines v. Abarbanel (1978) 77 Cal.App.3d 702 (Jines), which we find readily distinguishable. There a doctor suffered a malpractice judgment. (Id. at p. 706.) Afterwards, the plaintiffs moved to amend the judgment to add the doctor's medical corporation as an alter ego, though the plaintiffs admitted their failure to name the medical corporation as a defendant initially was "`inadvertent and excusable.'" (Id. at p. 714.) The evidence showed the doctor was the president, director, and sole shareholder, and that the corporation itself had billed for the services subject to the lawsuit. (Ibid.) The trial court granted the order. The Jines court reversed. It noted there was no suggestion in the record that the doctor abused the corporate privilege. (Id. at p. 715.) The court also noted the doctor and the corporation had "been openly conducting themselves as employee and employer, as is permitted by the professional incorporation statutes. [Citations.] Nothing was irregular, nothing was concealed. Plaintiffs' attorneys concede they were aware of the existence of the corporation before the case was tried. [¶] There was no legal basis for the postjudgment order adding the corporation as a judgment debtor." (Id. at p. 717.) From this, Rojas deduces the following principle: "Where a judgment creditor is aware of an alter ego relationship before trial, it is not appropriate to amend a judgment to add that known alter ego using a section 187 motion."

Rojas reads far too much into Jines. Jines stands for the proposition that where there is no evidence of alter ego, and where the fact and relevance of the corporation was not concealed, there is no basis to add the corporation in a postjudgment motion. Jines is no help to Rojas.

The Court Did Not Abuse Its Discretion

Next, Rojas contends the court abused its discretion in making an alter ego finding. Rojas does not contest the sufficiency of the evidence to support the court's findings, and thus we accept them as established.

The court issued a detailed statement of decision and made the following findings: "[T]here is no question Rojas exercised control of the litigation, and Rojas does not dispute this contention." "The evidence shows Rojas commingled funds and diverted corporate funds for his own personal benefit. Further, the corporation was inadequately capitalized in and around the time Rojas became the 100% owner. All the stock is owned by Rojas, and there was questionable effort by him to maintain corporate formalities." The evidence revealed that Rojas used Fullerton Dodge funds to pay his personal taxes, personal obligations to his ex-wife arising from their divorce, and personal payments for a country club membership. Further, Rojas admitted to financial chicanery involving the capitalization of Fullerton Dodge. At one point Chrysler Financial Services was pressuring Rojas to better capitalize the dealership, so he wrote a check for $792,466.46. Only he did not have that much in his checking account, so he first had the dealership write a check to him for that amount, creating the false impression that he was actually investing money. And as we noted in our prior opinion, Rojas was required to invest $300,000 of his own money as a condition of purchasing Buttacavoli's interest — a provision directed aimed at adequately capitalizing the business — and he never did.

"Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its stockholders, officers and directors, with separate and distinct liabilities and obligations. [Citations.] A corporate identity may be disregarded — the `corporate veil' pierced — where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation. [Citation.] Under the alter ego doctrine, then, 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. [Citations.] The alter ego doctrine prevents individuals or other corporations from misusing the corporate laws by the device of a sham corporate entity formed for the purpose of committing fraud or other misdeeds. [Citation.]

"In California, two conditions must be met before the alter ego doctrine will be invoked. First, there must be such a unity of interest and ownership between the corporation and its equitable owner that the separate personalities of the corporation and the shareholder do not in reality exist. Second, there must be an inequitable result if the acts in question are treated as those of the corporation alone. [Citations.] `Among the factors to be considered in applying the doctrine are commingling of funds and other assets of the two entities, the holding out by one entity that it is liable for the debts of the other, identical equitable ownership in the two entities, use of the same offices and employees, and use of one as a mere shell or conduit for the affairs of the other.' [Citations.] Other factors which have been described in the case law include inadequate capitalization, disregard of corporate formalities, lack of segregation of corporate records, and identical directors and officers. [Citations.] No one characteristic governs, but the courts must look at all the circumstances to determine whether the doctrine should be applied. [Citation.] Alter ego is an extreme remedy, sparingly used." (Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538-539.) "The trial court's decision to amend a judgment to add a judgment debtor is reviewed for an abuse of discretion. [Citations.] Factual findings necessary to the court's decision are reviewed to determine whether they are supported by substantial evidence." (Carolina Casualty Insurance Co. v. L.M. Ross Law Group, LLP (2012) 212 Cal.App.4th 1181, 1189.)

Rojas makes no attempt to dispute that several of the factors are present in this case. His entire argument is, essentially, that Buttacavoli also used corporate funds to pay personal expenses while he was an owner and thus should be estopped from asserting alter ego. The problem is, Rojas's principal transgression was undercapitalizing Fullerton Dodge. There is no evidence Buttacavoli ever did that. Moreover, we concluded in our prior opinion that Buttacavoli loaned Fullerton Dodge more money than he took out. In other words, the money Buttacavoli took out was owed to him. Rojas, by contrast, was pilfering from the company without investing anything. There is no basis for an estoppel.


The postjudgment order is affirmed. Respondents shall recover their costs incurred on appeal.



1. All statutory references are to the Code of Civil Procedure.
2. This observation highlights another problem in Rojas's analysis: Res judicata applies to subsequent suits; the postjudgment proceeding at issue here was part of the same suit as the underlying judgment. "Claim preclusion arises if a second suit involves (1) the same cause of action (2) between the same parties (3) after a final judgment on the merits in the first suit." (DKN Holdings, supra, 61 Cal.4th at p. 824, italics added.)


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