The National Grange of the Order of Patrons of Husbandry v. California State Grange

Filing 185

MEMORANDUM and ORDER signed by Senior Judge William B. Shubb on 3/2/2017 DENYING 176 Plaintiff's MOTION TO ADD JUDGMENT DEBTOR. (Kirksey Smith, K)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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NATIONAL GRANGE OF THE ORDER
OF PATRONS OF HUSBANDRY,
Plaintiff,

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MEMORANDUM AND ORDER RE: MOTION
TO ADD JUDGMENT DEBTOR

v.

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CIV. NO. 2:14-676 WBS DB

CALIFORNIA GUILD, formerly
doing business as “California
State Grange,”
Defendant.

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On September 12, 2016, the court ordered defendant

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California Guild (“Guild”) to pay plaintiff National Grange of

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the Order of Patrons of Husbandry $144,715.70 in attorneys’ fees

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(“fees order”).

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Plaintiff now moves to amend the court’s fees order to add Robert

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McFarland, president of defendant, as a judgment debtor to the

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order.

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///

(Sept. 12, 2016 Order (Docket No. 154).)

(Pl.’s Mot. (Docket No. 176).)

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I.

Factual and Procedural Background

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Plaintiff brought this action against defendant, a

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nonprofit corporation, for trademark infringement, false

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designation of origin, and unfair competition under the Lanham

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Act.

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judgment to plaintiff on July 14, 2015, (July 14, 2015 Order

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(Docket No. 60)), and enjoined defendant “from using marks

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containing the word ‘Grange’” on September 29, 2015 (“September

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2015 order”), (Sept. 29, 2015 Order (Docket No. 85)).

(Compl. (Docket No. 1).)

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The court granted summary

On April 20, 2016, the court found defendant in

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“deliberate and willful” violation of the September 2015 order

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(“April 2016 order”).

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Pursuant to 15 U.S.C. § 1117(a), the court awarded plaintiff

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attorneys’ fees incurred from various motions and affidavits it

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had filed for the purpose of enforcing the September 2015 order.1

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(See id. at 38-39.)

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(Apr. 20, 2016 Order (Docket No. 138).)

On September 12, 2016, the court determined the amount

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of fees awarded under the April 2016 order to be $144,715.70.

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(Sept. 12, 2016 Order at 23.)

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plaintiff the fees awarded and “file an affidavit with the court

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confirming payment within fourteen (14) business days.”

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The court ordered defendant to pay

(Id.)

On September 19, 2016, McFarland filed a declaration

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The motions and affidavits are: (1) plaintiff’s motion
for further injunctive relief (Docket No. 126); (2) plaintiff’s
motion to show cause as to why defendant should not be held in
contempt of court (Docket No. 109); and (3) two declarations of
Ed Komski, one supporting plaintiff’s contempt motion (Docket No.
109-1), and the other supporting plaintiff’s opposition to a
request for stay of the September 2015 order that defendant had
filed (Docket No. 99-2). (Apr. 20, 2016 Order at 38-39.)
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stating that defendant “is unable to comply with the [court’s]

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Fee[s] Order” because “[m]ost of the funds held by [defendant]

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are subject to a preliminary injunction issued in [a] State Court

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Action” the parties are involved in.

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Robert McFarland ¶¶ 2, 4 (Docket No. 155).)

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good faith,” McFarland provided, with his declaration, bank

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account records indicating that defendant had access to only

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$1,535.71 in bank account funds at the time of his declaration.

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(Id. ¶ 11e.)

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(Sept. 29, 2016 Decl. of
“As a showing of

On December 19, 2016, plaintiff deposed McFarland in

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connection with defendant’s alleged inability to comply with the

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court’s fees order.

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McFarland (“McFarland Dep.”) (Docket No. 176-2).)

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deposition, McFarland testified that defendant’s executive

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committee voted to pay him $80,000 in July 2016.

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The payment, according to defendant’s executive committee

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minutes, was a “severance package” paid to McFarland “in the

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event the California Guild legal process does not find in

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[defendant’s] favor and [defendant’s] structure fails.”

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Mot. Ex. 4, Cal. Guild Executive Committee Minutes (Docket No.

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176-2).)

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between McFarland and defendant.

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Robert McFarland ¶ 1.)

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(See Pl.’s Mot. Ex. 1, Dep. of Robert
At the

(Id. at 82.)

(Pl.’s

As of February 21, 2017, there has been no severance
(See Feb. 21, 2017 Decl. of

Plaintiff also discovered at the deposition that

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McFarland has a corporate credit card which defendant covers the

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charges for.

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plaintiff, McFarland uses the card to pay for “meals, lodging,

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entertainment and miscellaneous personal expenses,” and does not

(See McFarland Dep. at 50.)

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According to

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submit “expense reports” to defendant for such charges.

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Mot., Mem. (“Pl.’s Mem.”) at 18 (Docket No. 176-1).)

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(Pl.’s

Based on its discoveries, plaintiff now moves to amend

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the court’s fees order to add McFarland as a judgment debtor to

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the order on the theory that McFarland is defendant’s alter ego

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for liability purposes in this action.

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Motion is brought pursuant to Federal Rule of Civil Procedure

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69(a) and California Code of Civil Procedure section 187

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(“section 187”).2

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II.

(Id. at 19.)

Plaintiff’s

(Id. at 19-20.)

Discussion

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Under Rule 69(a), “federal district courts in

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California may apply California Code of Civil Procedure section

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187 ‘to amend a judgment to add additional judgment debtors.’”

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Directi Internet Sols. Pvt. Ltd. v. Dhillon, No. CIV. 2:12-1045

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WBS, 2014 WL 3057514, at *1 (E.D. Cal. July 7, 2014) (quoting In

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re Levander, 180 F.3d 1114, 1121 (9th Cir. 1999)).

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is premised on the notion that [an] amendment [adding a judgment

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debtor] ‘is merely inserting the correct name of the real

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defendant,’ such that adding a party to a judgment after the fact

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does not present due process concerns.”

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“Section 187

Katzir’s Floor & Home

Defendant has appealed the court’s fees order to the
Ninth Circuit, where the appeal is currently pending. (See
Docket No. 160.) While the court does not have jurisdiction to
“adjudicate anew the merits” of its fees order while the order is
on appeal, it “retains jurisdiction . . . to preserve [the
order’s] status quo.” Mayweathers v. Newland, 258 F.3d 930, 935
(9th Cir. 2001). Because a motion to add a judgment debtor based
on the alter ego theory merely seeks to “insert[] the correct
name of the real defendant” to a judgment, Katzir’s Floor & Home
Design, Inc. v. M-MLS.com, 394 F.3d 1143, 1148 (9th Cir. 2004),
plaintiff’s Motion would not alter the merits of the court’s fees
order. Accordingly, the court has jurisdiction over plaintiff’s
Motion.
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Design, Inc. v. M-MLS.com, 394 F.3d 1143, 1148 (9th Cir. 2004).

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“A [section] 187 amendment requires ‘(1) that the new

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party be the alter ego of the old party and (2) that the new

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party had controlled the litigation, thereby having had the

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opportunity to litigate, in order to satisfy due process

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concerns.’”

Id. (quoting Levander, 180 F.3d at 1121).

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The “alter ego” prong of section 187 requires a showing

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that: (1) “there is such unity of interest and ownership” between

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the individual and the corporation “that the separate

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personalities of the corporation and the individual no longer

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exist,” and (2) “if the acts [in question] are treated as those

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of the corporation alone, an inequitable result will follow.”

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Bank of Montreal v. SK Foods, LLC, 476 B.R. 588, 597 (N.D. Cal.

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2012).

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ownership” between an individual and a corporation, the court is

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instructed to consider “a long list of factors,” such as: (1)

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whether the individual “commingl[ed his] funds and . . . assets”

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with those of the corporation’s, (2) whether the individual

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“treat[ed] the assets of the corporation as his own,” (3) whether

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the corporation “fail[ed] to maintain minutes or adequate

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corporate records,” (4) whether the individual “dominat[ed] and

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control[led]” the corporation, (5) whether the corporation is

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“undercapitalize[ed],” (6) whether the parties “disregard[ed

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]legal formalities and . . . fail[ed] to maintain [an] arm’s

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length relationship[],” and (7) whether there is a “diversion of

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assets from [the] corporation” to the individual “to the

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detriment of creditors.”

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In deciding whether there is a “unity of interest and

Id. at 597-98.

Plaintiff focuses on three factors in particular:
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“disregard of corporate formalities,” “commingling of assets,”

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and “inadequate capitalization.”

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(Pl.’s Mem. at 25-26.)

Plaintiff argues that defendant’s payment of $80,000 to

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McFarland was authorized without any true regard for corporate

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formalities because the vote of the executive committee to pay

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him that money was “orchestrat[ed].”

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not offered any evidence indicating that defendant’s executive

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committee and its oversight over defendant’s affairs are a sham.

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Plaintiff also argues that McFarland’s disregard for corporate

(Id. at 26.)

Plaintiff has

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formalities is evidenced by his ability to use defendant’s credit

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card for personal expenses without submitting expense reports.

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(Id.)

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that the executive committee reviews McFarland’s expenses “every

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quarter,” including his “use of the Guild credit card,” and has

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“never known [McFarland] to use the Guild’s [funds] for . . .

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personal [purposes].”

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Decl.”) ¶¶ 4-5 (Docket No. 179-1); Decl. of Cheri Bunker (“Bunker

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Decl.”) ¶¶ 6-8 (Docket No. 179-2).)

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Defendant has submitted affidavits, however, testifying

(Decl. of Kathleen Bergeron (“Bergeron

Plaintiff next argues that McFarland’s commingling of

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his assets with those of defendant’s is evidenced by defendant’s

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payment of $80,000 to McFarland.

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its argument about corporate formalities, plaintiff’s argument

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about commingling of assets depends on the unsupported assumption

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that defendant’s executive committee exercises no real power in

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limiting McFarland’s access to Guild funds.

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(Pl.’s Mem. at 25-26.)

As with

Plaintiff lastly argues that defendant is inadequately

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capitalized to comply with the court’s fees order because

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McFarland has divested defendant of its funds.
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(See id. at 25.)

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That defendant is inadequately capitalized, however, does not

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mean that McFarland is singularly responsible for its lack of

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capital.

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unsupported assumption that McFarland exercises unilateral

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control over defendant’s funds.

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Again, plaintiff’s argument here depends on the

Even assuming that defendant and McFarland are engaging

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in fraud by depleting defendant’s assets to avoid complying with

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the court’s fees order, the evidence does not support a finding

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that McFarland is singularly responsible for such fraud such that

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the court may impose alter ego liability upon him.3

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Because plaintiff has not offered evidence sufficient

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to show that McFarland disregarded defendant’s corporate

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formalities, commingled his assets with those of defendant’s, or

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unilaterally divested defendant of its funds, plaintiff has

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failed to satisfy the “alter ego” prong of section 187.

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Even if the court were to assume that McFarland is the

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alter ego of defendant, plaintiff has also not shown that

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McFarland “controlled the litigation” in this matter such that

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adding him as a judgment debtor to the court’s fees order would

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not present “due process concerns.”

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A more appropriate remedy for defendant and McFarland’s
alleged actions would appear to be an action under the Uniform
Fraudulent Transfer Act (“UFTA”), Cal. Civ. Code §§ 3439 et seq.,
which prohibits “transfer by the debtor of property to a third
person undertaken with the intent to prevent a creditor from
reaching that interest to satisfy its claim,” Arch Ins. Co. v.
Sierra Equip. Rental, Inc., No. 2:12-CV-00617 KJM, 2015 WL
1814316, at *4 (E.D. Cal. Apr. 21, 2015). Under the UFTA, a
“broad” set of remedies is available, including “[a]voidance of
the [fraudulent] transfer or obligation to the extent necessary
to satisfy the creditor’s claim,” Cal. Civ. Code § 3439.07(a)(1),
and imposition of tort liability on individuals who conspire to
violate the UFTA, see Arch Ins. Co., 2015 WL 1814316, at *5.
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To satisfy the “due process” requirement of section

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187, plaintiff must show that McFarland “had control of the

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litigation” in this matter and “occasion to conduct [such

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litigation] with a diligence corresponding to the risk of

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personal liability that was involved.”

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Design, 394 F.3d at 1150; see also Bank of Montreal, 476 B.R. at

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597 (placing burden of proof with respect to section 187 motion

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on “judgment-creditor”).

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to overcome due process objections . . . usually includ[es] the

Katzir’s Floor & Home

“Control of the litigation sufficient

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financing of the litigation, the hiring of attorneys, and control

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over the course of the litigation.”

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at 601 (quoting NEC Elecs. Inc. v. Hurt, 208 Cal. App. 3d 772,

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778-79 (6th Dist. 1989)).

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Bank of Montreal, 476 B.R.

The evidence before the court does not indicate that

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McFarland “had control of the litigation” in this matter.

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According to affidavits submitted by defendant, “all major

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litigation decisions” involving the Guild are subject to “a vote

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of the Guild’s Executive Committee,” which retains “overs[ight

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over] all the litigation between the Guild, National Grange and,

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California State Grange.”

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Edwards (“Edwards Decl.”) ¶ 8 (Docket No. 179-7); see also

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Bergeron Decl. ¶ 3 (corroborating Bunker and Edwards

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declarations).)

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McFarland, pays defendant’s attorneys’ fees.

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¶ 7 (noting that “the expenses [of] continuing litigation between

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the Guild [and] National Grange” are creating “financial

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restrictions [on] the Guild”).)

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plaintiff (“Saxton affidavit”) shows that decisions regarding how

(Bunker Decl. ¶¶ 3, 6; Decl. of David

One affidavit indicates that defendant, not
(See Edwards Decl.

Another affidavit submitted by

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much money to set aside for defendant’s litigation expenses are

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subject to executive committee vote.

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of Jan Saxton (“Saxton Decl.”) ¶¶ 11-13 (recounting executive

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committee discussion and vote on how much money to set aside for

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“Grange” litigation) (Docket No. 182-1).)

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indicate that McFarland did not “ha[ve] control of the

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litigation” in this matter.

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(Pl.’s Reply Ex. A, Decl.

These affidavits

Plaintiff cites previous affidavits submitted by

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McFarland reciting the boilerplate language that he is “President

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and an authorized representative of Defendant” and has “personal

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knowledge of . . . facts” he testifies to on defendant’s behalf

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as evidence that McFarland controlled the litigation in this

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matter.

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114-1, 132-8, and 155).)

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authorized representative of Defendant” and has “personal

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knowledge” of defendant’s affairs does not mean that he controls

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defendant’s litigation decisions.

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he is “the primary contact person” for defendant with respect to

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this litigation, he “consulted the Executive Committee” prior to

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“every major litigation decision” and the committee “vote[d] on

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[such] issue(s).”

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22.)

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affidavits does not show that McFarland controlled the litigation

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in this matter.4

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(See Pl.’s Mem. at 22 (citing Docket Nos. 78-1, 105-1,
That McFarland is “President and an

McFarland testifies that while

(Feb. 21, 2017 Decl. of Robert McFarland ¶

Thus, plaintiff’s citation to McFarland’s previous

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Plaintiff cites In re Levander, 180 F.3d 1114 (9th Cir.
1999) and Jack Farenbaugh & Son v. Belmont Constr., Inc., 194
Cal. App. 3d 1023 (2d Dist. 1987) for the proposition that it
need only show that McFarland “was an active participant in this
litigation” to satisfy section 187’s “control” requirement.
(Pl.’s Reply at 7-8 (Docket No. 182).) Neither case stands for
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Plaintiff also cites affidavits submitted by its

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members testifying that McFarland “is personally and uniquely

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responsible for the bad faith and deliberate intentional actions

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that resulted in” the court’s fees order as evidence that

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McFarland controlled the litigation that led to the order.

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Pl.’s Mem. at 22-23 (citing Docket Nos. 68-1, 75-1, 83-1, 99-2,

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and 109-1).)

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uniquely responsible for the bad faith and deliberate intentional

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actions that resulted in” the court’s fees order also does not

(See

That McFarland may have been “personally and

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mean that he controlled the litigation that led to the order.

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would be consistent for the court to find that McFarland engaged

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in bad faith actions on defendant’s behalf, but that the

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litigation resulting from such actions was controlled by

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defendant’s executive committee, as the evidence here indicates.

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(See Bunker Decl. ¶¶ 3, 6; Edwards Decl. ¶ 8; Bergeron Decl. ¶ 3;

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Saxton Decl. ¶¶ 11-13.)

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“is personally and uniquely responsible for [defendant’s] bad

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faith and deliberate intentional actions” is also unavailing.

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It

Thus, plaintiff’s claim that McFarland

Lastly, plaintiff suggests that defendant’s executive
committee is merely a front for McFarland’s control of the

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that proposition. In Levander, the Ninth Circuit found that a
partnership controlled the litigation of a corporation “because
the same group of individuals comprised the Partnership and the
Corporation.” Levander, 180 F.3d at 1123. In Jack Farenbaugh, a
California appellate court found that the president of a
corporation controlled the litigation of the corporation because
“he [gave] instructions to [the corporation’s] attorney as to
what he wanted done,” apparently without any interference from
other members of the corporation. Jack Farenbaugh, 194 Cal. App.
3d at 82. Thus, in both Levander and Jack Farenbaugh, the
presiding court found more than mere participation in litigation,
but participation as to indicate control of litigation.
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litigation in this matter.

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committee, according to plaintiff, “orchestrat[es ]corporate

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formalities to paper over” McFarland’s decisions, and in fact

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exercises no real power over defendant’s affairs.

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stated in the “alter ego” analysis of this Order, plaintiff has

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not offered any evidence to support the claim that the executive

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committee is merely a front for McFarland.

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Saxton affidavit corroborates defendant’s claim that the

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executive committee meets, actively discusses, and votes on Guild

(See Pl.’s Mem. at 26.)

The

(Id.)

As

Contrarily, the

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matters, including litigation matters.

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13 (recounting executive committee discussion and vote on how

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much money to set aside for “Grange” litigation).)

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evidence showing that defendant’s executive committee is a mere

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front for McFarland, the court cannot find that McFarland

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controlled the litigation in this matter such that adding him as

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a judgment debtor to the court’s fees order would comport with

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due process.

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(See Saxton Decl. ¶¶ 11-

Without any

See Bank of Montreal, 476 B.R. at 597.

Because plaintiff has failed to satisfy both the “alter

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ego” and “control[ of] litigation” prongs of section 187, the

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court must deny plaintiff’s Motion.

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IT IS THEREFORE ORDERED that plaintiff’s Motion to

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amend the court’s September 12, 2016 order to add McFarland as a

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judgment debtor to the order be, and the same hereby is, DENIED.

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Dated:

March 2, 2017

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