Directi Internet Solutions v. Dhillon, et al
Filing
46
MEMORANDUM AND ORDER signed by Senior Judge William B. Shubb on 7/7/2014 DENYING 42 Plaintiff's Motion to Amend Judgment. (Kirksey Smith, K)
1
2
3
4
5
6
7
8
UNITED STATES DISTRICT COURT
9
EASTERN DISTRICT OF CALIFORNIA
10
----oo0oo----
11
12
13
DIRECTI INTERNET SOLUTIONS PVT.
LTD.,
Plaintiff,
14
MEMORANDUM AND ORDER RE:
MOTION TO AMEND JUDGMENT
v.
15
16
CIV. NO. 2:12-1045 WBS DAD
HARRY DHILLON; CREATIVE
AVIATION, INC.,
17
Defendants.
18
19
----oo0oo----
20
21
22
23
24
25
26
27
Plaintiff Directi Internet Solutions Pvt. Ltd. brought
this action against defendants Harry Dhillon and Creative
Aviation, Inc. (“Creative”), arising out of plaintiff’s allegedly
mistaken transfer of $150,000 to defendants.
This court entered
judgment in favor of plaintiff on February 27, 2013.
29.)
(Docket No.
Plaintiff now moves to amend the judgment to add judgment
debtors pursuant to Federal Rule of Civil Procedure 69(a)(1).
I.
Factual & Procedural Background
28
1
1
2
3
4
5
6
Plaintiff filed its Complaint on April 20, 2012,
bringing claims for breach of contract, fraud, civil theft, and
violations of California Business & Professions Code sections
17200 et seq.
9
10
11
12
13
14
15
16
17
18
No. 28), and entered judgment accordingly, (Docket No. 29).
Plaintiff attempted to execute the judgment but was
unsuccessful because the bank account upon which it had intended
to levy was closed.
21
22
23
24
25
26
27
(Carson Decl. Ex. A (Docket No. 42-1).)
On
January 10, 2014, Dhillon appeared before the assigned magistrate
judge for a judgment debtor’s examination, where he testified
that Creative had ceased operations and claimed that he is now
supported by his wife, Gurprit Kaur, who operates a new business,
Altamont Aviation, Inc. (“Altamont”).
(Carson Decl. Ex. B
(“Debt. Exam”) at 14:6-12, 40:16-42:10.)
Plaintiff subsequently
filed the present motion to amend the judgment to add Kaur and
Altamont as judgment debtors on April 8, 2014.
II.
(Docket No. 42.)
Analysis
19
20
On February 27, 2013, this court
granted in part plaintiff’s motion for default judgment, (Docket
7
8
(Docket No. 5.)
Federal Rule of Civil Procedure 69(a) “empowers federal
courts to rely on state law to add judgment-debtors” to money
judgments.
1999).
In re Levander, 180 F.3d 1114, 1120–21 (9th Cir.
Under Rule 69(a)(1), federal district courts in
California may apply California Code of Civil Procedure section
187 “to amend a judgment to add additional judgment debtors” as
long as two requirements are met: “‘(1) that the new party be the
alter ego of the old party and (2) that the new party had
controlled the litigation, thereby having had the opportunity to
28
2
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
litigate, in order to satisfy due process concerns.’”
Id. at
1121 (quoting Triplett v. Farmers Ins. Exch., 24 Cal. App. 4th
1415, 1421 (4th Dist. 1994)).
In addition to the alter ego
theory, California courts may add a successor corporation as a
judgment debtor under section 187 where the successor is a “mere
continuation” of its predecessor corporation.
McClellan v.
Northridge Park Townhome Owners Ass’n, 89 Cal. App. 4th 746, 75354 (2d Dist. 2001).
A.
Control of Litigation
Even assuming that Altamont and Kaur are alter egos of
Creative, “[d]ue process requires that a party added to a
judgment on alter ego grounds have had ‘control of the litigation
and occasion to conduct it with a diligence corresponding to the
risk of personal liability that was involved.’”
Bank of Montreal
v. SK Foods, LLC, 476 B.R. 588, 597 (N.D. Cal. 2012) (quoting NEC
Elecs. Inc. v. Hurt, 208 Cal. App. 3d 772, 781 (6th Dist. 1989)).
These due process concerns take on an even greater importance
where the underlying litigation resulted in a default judgment or
was otherwise not contested.
See, e.g., Katzir’s, 394 F.3d at
1150 (declining to add shareholder as judgment debtor when
shareholder knew corporation was on verge of dissolution and did
not have duty to defend underlying suit); Motores de Mexicali,
S.A. v. Superior Court, 51 Cal. 2d 172, 176 (1958) (refusing to
add individuals as judgment debtors to default judgment against
bankrupt corporation); NEC Elecs., 208 Cal. App. 3d at 781
(“Clearly, some active defense of the underlying claim is
contemplated.”).
28
3
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Here, Creative and Dhillon failed to respond to or
defend against the suit at all, much less mount an “active
defense.”
Id.
Plaintiff contends that Altamont and Kaur had
opportunity to control the litigation because they received
notice of the suit and chose not to contest it.
24-26 (Docket No. 42).)
(Pl.’s Mem. at 8
Plaintiff does not provide any factual
basis for this contention, however, but suggests the court must
infer it from the fact that Kaur and Dhillon are married and
operate Altamont out of the house where they both reside.
Even
assuming Kaur and Altamont knew of the suit, notice of the
litigation does not constitute control of it.
See NEC Elecs.,
208 Cal. App. 3d at 781 (“Moreover, it is not enough that [the
chief executive officer and sole shareholder] was “aware” of the
action . . . .”)
Because plaintiff obtained a default judgment
against Creative and Dhillon, “[t]here was no defense for
[Altamont or Kaur] to control.”
Id.
Without a showing of such
control, due process precludes amending the judgment to add Kaur
and Altamont as judgment debtors.
B.
Successor Corporation
Alternatively, plaintiff argues that Altamont should be
added as a judgment debtor because it is a successor corporation
to Creative.
To be a successor, or “mere continuation,” of a
predecessor corporation, “California courts require evidence of
one or both of the following factual elements: (1) a lack of
adequate consideration for acquisition of the former
corporation’s assets to be made available to creditors, or (2)
one or more persons were officers, directors, or shareholders of
28
4
1
2
3
4
5
6
both corporations.”
MLS.com, 394 F.3d 1143, 1150 (9th Cir. 2004).
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Although it listed
this standard in the disjunctive, the Ninth Circuit in Katzir’s
went on to hold that “[i]nadequate consideration is an ‘essential
ingredient’ to a finding that one entity is a mere continuation
of another.”
7
8
Katzir’s Floor & Home Design, Inc. v. M-
Id.
Here, although Creative had its own office and Altamont
is operated from Dhillon and Kaur’s home, (Debt. Exam at 14:1815:8, 43:3-4), plaintiff presents evidence that Altamont was
formed to step into the shoes of Creative and is the same
corporation running under a different name.
See McClellan, 89
Cal. App. 4th at 756 (finding that homeowner’s association was a
successor when it pertained to the same condominium complex,
comprised of the same unit owners, was managed by the same board
members, and had the same source of income as the predecessor
entity).
Altamont and Creative are in the same line of business,
the sale of spare airplane parts.
In addition, some sections of
Altamont’s web site contain the exact same language as Creative’s
web site.
H.)
(Compare Carson Decl. Ex. D at 4 with Carson Decl. Ex.
Altamont’s web site also contains a link to send an email
addressed to “parts@creativeaviation.com.”
n.1.)
(Pl.’s Mem. at 42:9
Given that Altamont began operations in April or May 2012,
(Debt. Exam at 47:15-17), shortly after Creative ceased
operations in December 2011, (id. at 15:22-24), and before
Dhillon closed Creative’s business account, (id. at 18:12-14),
this is strong circumstantial evidence that Altamont was formed
as a successor corporation to Creative.
28
5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Moreover, there is evidence that Dhillon and Kaur are
involved in the management and ownership of both entities.
Dhillon was the sole owner of Creative, (Debt. Exam at 16:16-17),
but testified that Kaur is the president and sole owner and
employee of Altamont, (id. at 41:18-42:4).
registered the domain name and listed himself as the contact
person for Altamont’s web site.
18
19
20
21
22
23
24
25
26
27
(Carson Decl. Ex. G.)
According
to plaintiff, Dhillon registered for the web site using the same
email address that was used to communicate with plaintiff’s
principal.
(Pl.’s Mem. at 5:15-17.)
A bank statement for
Altamont Aviation also shows payments made to Ocwen Loan
Servicing listing Dhillon as the beneficiary.
F.)
(Carson Decl. Ex.
In light of this evidence, Dhillon’s testimony that he has
no involvement with Altamont is not credible.
(Debt. Exam at
48:8-17.)
16
17
However, Dhillon
As for Kaur, while Dhillon testified that Kaur was not
involved with Creative Aviation, Federal Aviation Administration
records document a Dealers’ Aircraft Registration Certificate in
the name of “Gurprit Kaur Creative Aviation.”
E.)
(Carson Decl. Ex.
In order to be eligible for this Certificate, Kaur had to be
“substantially engaged in manufacturing or selling aircraft,” 14
C.F.R. § 47.65, and thus it appears Kaur was significantly
involved in operations at Creative.
This evidence that Dillon
and Kaur were “officers, directors, or shareholders of both
corporations,” Katzir’s, 394 F.3d at 1150, further supports a
finding that Altamont is a successor corporation to Creative.
Nevertheless, plaintiff does not provide any evidence
28
6
1
2
3
4
5
6
7
8
9
10
11
that Altamont paid inadequate consideration for Creative’s
assets.
assets was Dhillon’s testimony that Creative’s remaining assets
were computers and furniture that he had either disposed of or
retained for personal use.
14
15
16
19
20
Plaintiff
and Altamont, much less that Altamont acquired Creative’s assets
for inadequate consideration.
Without a showing of inadequate
consideration, plaintiff’s motion to add Altamont as an
additional judgment debtor lacks an “essential ingredient” to a
finding of successor liability.
Katzir’s, 394 F.3d at 1150.
Accordingly, because due process precludes a finding of
alter ego liability, and plaintiff presents no evidence of
inadequate consideration necessary for successor liability, the
court must deny plaintiff’s motion to amend the judgment to add
Altamont Aviation and Gurprit Kaur as judgment debtors.
17
18
(Debt. Exam at 17:15-23.)
does not present any evidence of any transaction between Creative
12
13
To the contrary, the only evidence regarding Creative’s
IT IS THEREFORE ORDERED that plaintiff’s motion to
amend the judgment to add judgment debtors be, and the same
hereby is, DENIED.
Dated:
July 7, 2014
21
22
23
24
25
26
27
28
7
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?