BIGELOW, P. J.
In the underlying action, respondents DB Beaverton LLC and Drawbridge Special Opportunities Fund LP sued to recover amounts owed on two loans. In addition to suing the guarantors to the loans, respondents also sought to pierce the corporate veil and impose liability on third parties linked to the guarantors. Before trial, the court imposed issue sanctions for discovery abuses that established the amount due and owing on the loans. After a bench trial, the court found the third parties were liable under an alter ego theory. Appellants seek a reversal of the judgment on the grounds that the trial court erred when it issued the discovery sanctions and failed to find sufficient evidence to establish the guarantor was the alter ego of the third parties. We affirm the judgment.
On June 6, 2005, Fortress Credit Corp. loaned DPP Beaverton Commercial Investments LLC (Borrower) $40,300,000 to develop property in Beaverton, Oregon (Loan I). An additional $2,243,126 was loaned to Borrower on November 30, 2006, by Drawbridge Special Opportunities Fund LP (Drawbridge) in connection with the same development (Loan II). Both loans were secured by the property located in Beaverton and other collateral.
Dorn-Platz Property, Inc. (Dorn-Platz) is Borrower's manager and Greg Galletly is president of Dorn-Platz. As part of the loan transaction, Dorn-Platz executed a guaranty (Payment Guaranty), which obligated it to make full and prompt payment up to $4.5 million on Loan I. Dorn-Platz and Greg Galletly also executed two Exceptions to Non-Recourse Guaranty (Recourse Guaranties) under which they agreed to guarantee the full amount of Loans I and II if certain situations arose, including the imposition of a lien on the Beaverton property.
On May 11, 2007, a trust deed was recorded on the Beaverton property for $1 million by Dove Street Capital Lenders, LLC. Thirteen mechanics' liens totaling over $1.5 million were also recorded on the Beaverton property between May and December 2007. Borrower defaulted on Loans I and II in 2007.
Through a series of assignments in 2005 and 2007, respondents became the owners of Loans I and II and sued Dorn-Platz and Greg Galletly on February 25, 2008, for breach of the Payment Guaranty and the Recourse Guaranties. In an amended complaint, respondents alleged Dorn-Platz was the alter ego of the following: (1) Greg's
On September 4, 2008, Drawbridge filed motions to compel Greg and Dorn-Platz to respond to its request for production of documents and interrogatories. Those motions were taken off calendar when responses were served shortly before the hearing. Another motion to compel was filed when Greg failed to produce any documents and raised untimely objections to the document request. The court granted Drawbridge's motion, ordering Greg to produce responsive documents without objection and imposing sanctions in the amount of $1,500.
After Greg produced a limited number, but not all, of the documents responsive to the discovery requests, Drawbridge filed another motion on January 29, 2009, to compel him to produce all responsive documents. Motions to compel the production of documents were also filed against Dorn-Platz for the same reasons. No oppositions to the motions to compel were filed. In a minute order dated February 24, 2009, the trial court granted respondents' motions to compel and ordered Dorn-Platz to pay $1,000 and Greg to pay $1,500 in monetary sanctions. The trial court also warned "[i]f Defendant fails to comply with this court's order by March 3, 2009, Plaintiff shall promptly file a motion for evidentiary sanctions to preclude defendant Galletly from introducing any evidence at trial which is sought through these discovery requests, but not produced." As a result of Greg's and Dorn-Platz's refusal to appear at their noticed depositions, the trial court also awarded $1,250 in sanctions and granted Drawbridge's motion to compel their appearance at deposition.
Respondents also sought summary adjudication on Dorn-Platz's liability as to the Payment Guaranty and Dorn-Platz's and Greg's liability as to the Recourse Guaranties. Both motions were denied on the grounds that respondents failed to meet their burden to show damages.
When Greg and Dorn-Platz continued to refuse to appear for their depositions and produce any other documents, respondents filed a motion on May 19, 2009, for (1) terminating sanctions, or in the alternative, issue and evidence sanctions; and (2) monetary sanctions. In a six-page response to the motion for terminating sanctions, Dorn-Platz and Greg asserted they lacked any funds to dispute liability and had offered to stipulate to liability, leaving only the following issues for trial: (1) the amount due under the Payment Guaranty; (2) "[t]he establishing of the occurrence of the events that would cause the guaranty to spring into existence"; and (3) "[t]he amount due under the [Recourse Guaranties]."
The trial court, noting Greg and Dorn-Platz conceded to violating the court's previous discovery orders, granted respondents' motion on June 11, 2009. The court ruled, "If defendants Dorn-Platz Properties, Inc. and Greg Galletly have not appeared for depositi[o]n on a date convenient to plaintiffs and produced all outstanding discovery which the court has previously ordered on or prior to June 22, 2009, the court will sign the proposed order submitted by the moving parties, [with a few minor changes]." The court further awarded respondents $1,315 in monetary sanctions.
On June 24, 2009, respondents reported to the court Greg and Dorn-Platz continued to refuse to produce responsive documents, including tax returns and documents reflecting their assets. Further, Greg appeared at Dorn-Platz's noticed deposition, but stated he did not acquaint himself with the topics identified in the deposition notice. In a July 1, 2009 objection to the proposed order granting issue and evidence sanctions, Dorn-Platz and Greg admitted the responses to the discovery requests at issue were untimely and "[n]either Dorn-Platz Properties, Inc. nor Greg Galletly has ever produced all of the documents requested." However, they argued most of the discovery sought was irrelevant and merely meant to "crush" appellants so respondents could "avoid the necessity of actually proving its case at trial."
On July 7, 2009, the trial court signed respondents' proposed order for issue and evidence sanctions. Along with a monetary sanction of $11,755.50, the court found certain facts to be "admitted and established for all purposes in this action," including that Dorn-Platz was liable under the Payment Guaranty for $4.5 million. It was further established as of May 19, 2009, Dorn-Platz and Greg were liable for $23,150,122.81 with interest accruing at a rate of $10,207.29 per day under the Recourse Guaranty for Loan I and liable for $3,396.378.25 with interest accruing at a rate of $1,497.52 per day under the Recourse Guaranty for Loan II. The court ordered "Guarantors [Dorn-Platz and Greg] shall be precluded from introducing or relying at trial on any documents responsive to the Requests for Production of Documents served on Galletly and Dorn-Platz in this action that were not produced prior to the filing of the Sanctions Motion."
A bench trial began on August 3, 2009, and the trial court issued a tentative statement of decision on November 9, 2009. Both parties submitted proposed changes to the tentative decision and a final statement was issued on December 11, 2009. In its statement of decision, the trial court adopted its findings as to the amounts owed to respondents under Loan I and II. The trial court also found the Payment Guaranty was triggered by Borrower's default and the Recourse Guaranties were triggered when the liens were placed on the Beaverton property. As to the Alter Ego Defendants, the trial court made extensive findings that they were the alter egos to Dorn-Platz and also liable to respondents under the Recourse Guaranties and Payment Guaranty. Judgment was entered against appellants on December 11, 2009, and this appeal followed.
While appellants admit the trial court had the authority to enter a preclusion order for discovery abuses, they take issue with what the trial court established in its order: the amounts owed by Dorn-Platz and Greg when the liens on the Beaverton property triggered their obligations under the Recourse Guaranties. Contending respondents were bestowed a "windfall," appellants argue the trial court's sanctions put the respondents in a better position than they would otherwise have been in if they had obtained the discovery they sought. Specifically, appellants state documents relating to what had been paid on the loans were only available to respondents and Borrower, not appellants. Similarly, the documents and information that established the existence of the liens were also only in the possession of respondents and Borrower. As a result, precluding appellants from contesting the amounts due under the loans was an abuse of discretion. We disagree and find no abuse of discretion.
Code of Civil Procedure section 2023.030, subdivision (b), permits a trial court to "impose an issue sanction ordering that designated facts shall be taken as established in the action in accordance with the claim of the party adversely affected by the misuse of the discovery process. The court may also impose an issue sanction by an order prohibiting any party engaging in the misuse of the discovery process from supporting or opposing designated claims or defenses." Misuse of the discovery process includes disobeying a court order to provide discovery. (§ 2023.010, subd. (g).) We uphold a trial court's exercise of discretion if it is based on reasoned judgment and complies with the legal principles and policies appropriate to the particular matter at issue. (In re Marriage of Economou (1990) 224 Cal.App.3d 1466, 1476.) However, the court must exercise its discretion in a manner consistent with the basic purposes of such sanctions: to compel disclosure of discoverable information. "Discovery sanctions cannot be imposed to punish the offending party or to bestow an unwarranted `windfall' on the adversary." (Ibid.; Deyo v. Kilbourne (1978) 84 Cal.App.3d 771, 793; Motown Record Corp. v. Superior Court (1984) 155 Cal.App.3d 482, 489.)
This issue was addressed in In re Marriage of Chakko (2004) 115 Cal.App.4th 104, 106. There, the trial court imposed an issue sanction declaring the father's income to be $40,000 per month for purposes of child support after he failed to comply with an order to produce his financial documents. The trial court derived the income figure from a mortgage loan application to refinance the father's $2.5 million house. The father claimed the signature on the application was forged and he did not fill out the application. However, the mortgage broker testified she used his financial documents to fill out the application and the father signed the application. The father stated he was employed by a corporation he owns with his current wife. His income from that corporation was $5,291, plus approximately $13,000 in personal expenses paid for by the corporation each month. The father further stated his failure to comply with the discovery order was the fault of his prior counsel. (Id. at pp. 107-108.)
The father argued the issue sanction placed him in a worse position than if he had produced the documents and they were interpreted in favor of the mother. (In re Marriage of Chakko, supra, 115 Cal.App.4th at p. 109.) On review, the appellate court found no abuse of discretion, holding the issue sanction directly addressed the discovery violation because it provided the very information the father refused to provide voluntarily: evidence of his income. (Ibid.) The father failed to demonstrate the sanction was excessive since the documents he refused to produce were the ones used by the loan broker to complete the mortgage application. (Id. at p. 110.)
Here, it is undisputed Dorn-Platz and Greg violated multiple discovery orders. Indeed, they admit to it in their briefs. The only question is whether imposition of the issue sanction was excessive. We find it was not. There is no indication any lesser sanction would have motivated Dorn-Platz and Greg to obey the court's discovery orders. Indeed, the trial court had previously issued multiple monetary sanctions, to no avail, and had warned Dorn-Platz and Greg it would impose issue sanctions.
As in In re Marriage of Chakko, supra, 115 Cal.App.4th at page 110, the sanction directly addressed the discovery abuse, encompassing the very information Dorn-Platz and Greg had refused to disclose: the amounts due and owing under Loans I and II. Dorn-Platz and Greg's argument that they did not possess the information is disingenuous. Greg testified at deposition that Dorn-Platz would have kept track of any payments made under the loans as part of its duties as Borrower's manager. As a result, at least some documents or information should have been produced since the discovery explicitly sought information regarding payments made by Borrower, Dorn-Platz or Greg as well as the amounts owed under the loans.
The next three points raised by appellants are premised on the discovery served on the Alter Ego Defendants shortly before trial. We reject each of them.
Extensive discovery was served on each of the Alter Ego Defendants on May 29, 2009. The Alter Ego Defendants objected on timeliness grounds, contending the discovery was not served 30 days before the discovery cutoff. Respondents filed an ex parte application for an order compelling the Alter Ego Defendants to provide supplemental responses without objection or, in the alternative, for an order shortening time for a motion to compel to be heard. Respondents' ex parte application to shorten time was granted on July 13, 2009, and a hearing was set for July 16, 2009, when the motion to compel was granted. Citing section 2016.060 of the Code of Civil Procedure, the trial court found the discovery requests to be timely.
The Alter Ego Defendants failed to produce any documents pursuant to the July 16 order. Respondents subsequently filed a motion in limine to exclude documents that were responsive to discovery but not previously produced, including the minute books of BABBB, DLG and Barnust. The trial court issued an order excluding the Alter Ego Defendants' exhibits from trial as a result of their failure to comply with the July 16 order compelling discovery.
Appellants first argue the discovery served on the Alter Ego Defendants was untimely and therefore, there was no basis for the trial court to grant a motion to compel on July 16, 2009. At the time discovery was served on the Alter Ego Defendants on May 29, 2009, an initial trial date was set for July 27, 2009. Appellants calculate the last day to serve discovery as May 28, 2009, 30 days from a discovery cutoff of June 27, 2009. Appellant miscalculates the discovery cutoff date. June 27, 2009, was a Saturday. Under section 2016.060 of the Code of Civil Procedure, the discovery cutoff date rolled forward to Monday, June 29, 2009. (Pelton-Shepherd Industries, Inc. v. Delta Packaging Products, Inc. (2008) 165 Cal.App.4th 1568, 1573, fn. 5 (Pelton).) Therefore, the last day to serve discovery, absent a motion to shorten time, would have been May 29, 30 days from June 29, making respondents' request for discovery timely.
Appellants also contend "[t]he Trial Court had no authority to grant the Motion to Compel on an ex parte application," because it failed to make the "required" findings to issue a discovery order within 15 days of trial under Code of Civil Procedure section 2024.050. Appellants neglect, however, to identify what "required" findings the trial court failed to make, instead citing to section 2024.050 and Pelton, supra, 165 Cal.App.4th at pages 1587-1588, without explanation. A review of section 2024.050 and Pelton reveal that neither help appellants' case.
Code of Civil Procedure section 2024.050 provides a trial court may hear a discovery motion within 15 days of trial on a motion of a party that is accompanied by a meet and confer declaration. Section 2024.050 also provides several factors the court must take into consideration before allowing a discovery motion to be heard on shortened time. (§ 2024.050, subd. (b).) In Pelton, the plaintiff filed a motion to compel one month after the cutoff date for hearing a discovery motion had passed and failed to make a motion pursuant to section 2024.050. As a result, the trial court was found to have abused its discretion when it granted the late-filed motion without first determining whether discovery should be reopened under section 2024.050. (Id. at p. 1584.)
Here, the record shows respondents did exactly what the plaintiff in Pelton did not do—they filed an ex parte application under Code of Civil Procedure section 2024.050 for, among other things, leave to have a motion to compel heard after the discovery motion cutoff date. On July 13, 2009, the trial court heard and granted respondents' ex parte application. The trial court subsequently heard and granted respondents' motion to compel on July 16, 2009, finding, as we did above, the discovery served on the Alter Ego Defendants was timely. Nothing more was required under Pelton or section 2024.050. Even if the trial court were required to make certain findings before granting respondents' ex parte application, we presume it did so since the record does not indicate otherwise. (McComber v. Wells (1999) 72 Cal.App.4th 512, 522-523.)
We likewise dismiss appellants' related argument that the trial court erred when it excluded the Alter Ego Defendants' exhibits from trial as a result of their failure to comply with the July 16 order compelling discovery. According to appellants, the exclusion order was premised on the July 16 order; "As that order was improper, the exclusion was improper." Since we find ample basis for the July 16 order compelling discovery, we conclude there was no abuse of discretion when the trial court subsequently issued its exclusion order.
Our conclusion is further compelled by appellants' failure to provide adequate citations to the law or to the record to show prejudice. (In re Marriage of McLaughlin (2000) 82 Cal.App.4th 327, 337.) For example, appellants complain "the Trial Court then allowed the Respondents to nit pick from the defendants proposed exhibits and introduce partial exhibits without the defendants being allowed to introduce the remaining documents that explained the contents of the exhibits the Respondents were allowed to introduce," citing in a footnote to documents showing the transfer of property from Dorn-Platz to DLG and Brad Barnes. Yet, appellants fail to show how these documents were taken out of context or how admitting a more complete set of documents could have helped appellants' position such that they were prejudiced by their exclusion.
Finally, appellants contend the trial court did not find sufficient facts to establish the Alter Ego Defendants had "a unity of interest" or constituted a "single enterprise" with Dorn-Platz so as to be liable for Dorn-Platz's debts. To the contrary, we find the trial court made extensive findings as to each Alter Ego Defendant to support its conclusion.
Two requirements must be established before liability may be imposed under an alter ego theory: (1) "`there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased'" and (2) inequity will result from adherence to the fiction of a separate corporate existence.
As to the unity of interest requirement, the court in Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at pages 838-840, provided an extensive list of factors which courts have considered to impose alter ego liability, including: the commingling of funds and other assets; failure to segregate the funds of separate entities; the unauthorized diversion of corporate funds or assets to other than corporate uses; the failure to maintain adequate corporate records; identical equitable ownership of two entities; sole ownership of all of the stock in a corporation by one individual or members of a family; the use of the same office or business location; the employment of the same employees or attorney; inadequate capitalization; and the diversion of assets to the detriment of creditors or the manipulation of assets and liabilities between entities so as to concentrate the assets in one and the liabilities in another. (See also Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69 Cal.App.4th 223, 249-250.) The unity of interest requirement can also be fulfilled where it is shown two or more entities operate as "an instrumentality or conduit of the other in the prosecution of a single venture." (Pan Pacific Sash & Door Co. v. Greendale Park, Inc. (1958) 166 Cal.App.2d 652, 658.) This is known as the single-enterprise rule and has typically been applied to find liability between sister companies. (Las Palmas, supra, 235 Cal.App.3d at pp. 1249-1250.)
As to the second requirement, case law has established inequity or injustice results if there exists an abuse of the corporate form, such as inadequate capitalization or misrepresentation of the corporate structure to creditors. (Minton v. Cavaney (1961) 56 Cal.2d 576, 579; American Home Ins. Co. v. Travelers Indemnity Co. (1981) 122 Cal.App.3d 951, 966.) "[T]he fraud or inequity, the elimination of which legitimately invokes the doctrine, must be that of the party against whom the doctrine is invoked, and such party must have been an actor in the course of conduct constituting the `abuse of corporate privilege' [citation], or must be seeking some inequitable advantage based upon `"`"the fiction of separate existence"'"' [citation]." (United States Fire Ins. Co. v. National Union Fire Ins. Co. (1980) 107 Cal.App.3d 456, 472.)
In its statement of decision, the trial court found the following by a preponderance of the evidence:
Appellants concede substantial evidence supports the trial court's conclusion Dorn-Platz was the alter ego of Brad and Greg. They continue to assert, however, there was insufficient evidence to prove that Dorn-Platz was the alter ego of the remaining Alter Ego Defendants—the wives, Allison and Deborah, BABBB (Brad's and Allison's investment vehicle), DLG (Greg's and Deborah's investment vehicle) and Barnust (100 percent shareholder of Dorn-Platz). We disagree and find substantial evidence supports the court's ruling.
It is clear from the trial court's statement of decision a unity of interest existed between Dorn-Platz and the remaining Alter Ego Defendants. The extensive findings show Greg and Deborah Galletly and Brad and Allison Barnes organized their business so Greg and Dorn-Platz were left with substantial liabilities while most, if not all, assets were diverted to the Alter Ego Defendants. In particular, Dorn-Platz and Greg guaranteed approximately $43 million in loans through the Payment Guaranty and Recourse Guaranties but ultimately had very little income and assets to pay when the loans came due. Dorn-Platz's revenue was $10,000 per month and its operations were paid by using "smoke and mirrors." When it lacked sufficient funds, it received loans from the Alter Ego Defendants. According to the trial court, "[e]ach of Brad, BABBB, Barnust, DLG, Deborah, and Allison have loaned money to Dorn-Platz." These loans were not memorialized or documented, did not carry interest, were not secured and often, were not repaid.
Though he also signed personal guaranties as part of the loans, Greg did not even have a personal bank account. Instead, Greg's compensation, when not paid in cash, was deposited into DLG's bank accounts. Similarly, interest paid to Greg and Deborah by Dorn-Platz was deposited into DLG's accounts. Dorn-Platz also provided funding directly to DLG. Dividends from Dorn-Platz were paid out to Allison and DLG through Barnust.
Importantly, Greg submitted personal financial statements to respondents in 2006 and 2007, that he and Deborah owned homes in Carpinteria and Rancho Mirage. Two days after the loans were due, Greg and Deborah transferred title to these homes to DLG. That same day, Dorn-Platz transferred a 25 percent interest it held in two other properties to Brad and DLG. Neither Brad nor DLG paid for any of these assets.
The findings also amply show appellants failed to maintain adequate corporate records or controls, employed the same accountant and were all represented by the same attorney. Funds were frequently circulated between Dorn-Platz and Greg, Deborah, Allison and Brad and their investment vehicles without regard to corporate formalities or controls. These are all factors identified in Associated Vendors, Inc. v. Oakland Meat Co., supra, 210 Cal.App.2d at pages 838-840, which have warranted imposition of alter ego liability.
Further, the factual findings show the second requirement of resulting inequity is met. Dorn-Platz was inadequately capitalized for an entity that issued guaranties totaling over $40 million. Even if there was no misrepresentation at the time the loans were made, the subsequent acts by appellants, including distribution of income without corporate controls and transfer of assets out of Dorn-Platz two days after the loans became due, created a situation where inequity would result if we continued to recognize "the fiction of separate existence." (United States Fire Ins. Co. v. National Union Fire Ins. Co., supra, 107 Cal.App.3d at p. 472.)
Appellants contend the Alter Ego Defendants were not officers, directors or employees of Dorn-Platz and (with the exception of Barnust) did not hold any of its stock or share in its profits. In short, appellants argue, as a matter of law, an individual or entity who does not control the corporation at issue or have an ownership interest in it cannot be deemed its alter ego. Given the facts of this case, however, a perceived lack of control or ownership does not necessarily defeat application of the alter ego doctrine.
Pan Pacific Sash & Door Co. v. Greendale Park, Inc., supra, 166 Cal.App.2d 652, cited by both parties, is instructive in this regard. There, R.L. Blink and M.S. Hoffberg and their wives incorporated Ralmor Corporation with each owning an equal share of the company. Messrs. Blink and Hoffberg later created Greendale Park, Inc. to acquire and develop land in the Antelope Valley. They were the sole shareholders of Greendale. Greendale entered into a construction contract with Ralmor under which Ralmor agreed to construct houses on a property acquired by Greendale. (Id. at p. 657.) Financial records showed multiple loans were made between Greendale to Ralmor. "Both corporations appear to have operated largely on money borrowed from Messrs. Blink and Hoffberg . . . . Each corporation was heavily indebted and unable to pay." (Id. at p. 658.) It was held that "[u]pon the basis of the foregoing evidence the trial court was warranted in concluding, as it did, that each corporation was but an instrumentality or conduit of the other in the prosecution of a single venture namely, the construction and sale of houses upon the tract in question." (Ibid.) Though the companies had the same stockholders, directors, officers and shared the same address and common employees, there was no indication either had control over the other or one was the parent company to the other.
Similarly, in Las Palmas, supra, 235 Cal.App.3d at pages 1250-1251, sister corporations were held to be the alter egos of one another where one guarantied over $45 million in loans made to the other and shared directors and staff, including corporate counsel.
As described above, money and assets were freely transferred between Dorn-Platz and each of the Alter Ego Defendants. Dorn-Platz shared an address, an attorney, an accountant and employees with BABBB, DLG and Barnust. Under the facts of this case, it would be unfair to permit the Alter Ego Defendants to escape liability simply because assets were diverted from Greg, the individual who controlled Dorn-Platz, to the remaining Alter Ego Defendants.
In any case, we do not agree with appellants that there is no proof the Alter Ego Defendants (except Brad) controlled the actions or activities of Dorn-Platz. Loans were frequently made to Dorn-Platz by each of the Alter Ego Defendants to continue its day-to-day operations. Indeed, the trial court found DLG loaned $1 million to Dorn-Platz and that each of the other Alter Ego Defendants have made at least several loans to Dorn-Platz. From this, we can infer at least a modicum of control over Dorn-Platz by the remaining Alter Ego Defendants. (Manson v. Shepherd (2010) 188 Cal.App.4th 1244, 1264 [reasonable inferences may be drawn from the facts in a statement of decision to support a trial court decision].) Moreover, the trial court's findings establish each of the Alter Ego Defendants have an ownership interest in Dorn-Platz, albeit indirectly. Allison and DLG own Barnust, which is the 100 percent stockholder to Dorn-Platz. Deborah and BABBB, in turn, have ownership interests in Dorn-Platz through DLG and Allison. Combined with the other extensive findings by the trial court, these facts are sufficient to impose alter ego liability on BABBB, DLG, Barnust, Allison and Deborah.
The judgment is affirmed. Appellants and respondents each to bear their own costs on appeal.
We concur:
RUBIN, J.
GRIMES, J
