Ninth U.S. Circuit Skirts Two of Its Earlier Opinions

Tuesday, January 9, 2018

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Ninth U.S. Circuit Skirts Two of Its Earlier Opinions

Reverses Judge Lew Who Followed Holdings That State Law Is Followed in Determining If Party May Be Added as a Judgment Debtor on an Alter Ego Theory

By a MetNews Staff Writer

A three-judge panel of the Ninth U.S. Circuit Court of Appeals, in an unpublished memorandum, has reversed a district court order that was decided pursuant to two of the circuit’s own opinions declaring that state law should be followed in deciding whether to amend a judgment by adding a debtor on an alter ego theory.

The panel was comprised of Circuit Judge Stephen Reinhardt and Kim Wardlaw, along with District Judge Wiley Y. Daniel, of the District of Colorado, sitting by designation.

Their decision, rendered Friday, reverses a determination by Senior District Judge Ronald S.W. Lew of the Central District of California that Myriad Pictures may not be added as a judgment debtor in an action brought by the Writers Guild of America, West, Inc. and two writers against BTG Productions LLC. Lew found that, under California law, an adequate showing was not made that Myriad is an alter ego of BTG.

Timeliness of Action

The opinion affirms Lew’s view that the request to amend the judgment eight months after it was entered is, applying California law, timely, rejecting application of a federal rule requiring a motion within 10 days.

The Guild and BTG are parties to a collective bargaining agreement which has a provision requiring arbitration of disputes. A dispute arose as to payments allegedly owed to two writers, Guinevere Turner and Mark Distefano, for work on BTG’s 2013 movie, “Breaking the Girl” (sometimes marketed as “Breaking the Girls”), as well as payments to a guild fund.

An arbitrator (at a proceeding not attended by BTG) awarded more than $300,000 to the Guild and the writers which BTG did not pay; the plaintiffs filed a complaint seeking confirmation of the award; Lew, on Feb. 3, 2015, awarded judgment to the plaintiffs. On Oct. 21, 2015, the plaintiffs moved to add two judgment debtors—Myriad and producer Kirk D’Amico—which Lew denied Feb. 9, 2016.

Lew’s Decision

The district judge cited Federal Rules of Civil Procedure, rule 69(a)(1) which provides:

“A money judgment is enforced by a writ of execution, unless the court directs otherwise. The procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located….”

Lew quoted from the Ninth Circuit’s 1999 decision in In re Levander, which in turn quotes from the circuit’s 1998 opinion in Cigna Property & Casualty Insurance Co. v. Polaris Pictures Corp., for the proposition that Rule 69(a) authorizes resort to California law, which permits adding judgment-debtors.

He noted that California Code of Civil Procedure §187—which authorizes “all the means necessary” to carry out a judicial determination—“is often used to amend judgments to add judgment debtors on the ground that they are an alter ego of the original judgment debtor.”

Ninth Circuit Opinion

Cigna dealt with an insurance claim by then-attorney Rex K. DeGeorge who, according to the opinion by Judge David R. Thompson (since deceased), “has the remarkable experience of having owned several yachts which have been lost at sea,” and were insured. (DeGeorge was placed on interim suspension by the State Bar in 2002 based on his conviction for trying to cheat Cigna out of $3.5 million, and resigned in 2006 with charges pending.)

The issue was whether DeGeorge could be added as a judgment debtor based on being an alter ego of a phantom company he set up which supposedly owned the yacht in the question when it sunk. Thompson wrote:

“The proceeding to add DeGeorge as a judgment debtor on an alter ego theory was appropriate under Federal Rule of Civil Procedure 69(a). Rule 23(a) ‘permits judgment creditors to use any execution method consistent with the practice and procedure of the state in which the district court sits.’ Peacock v. Thomas, 516 U.S. 349…n. 7…(1996). California allows motions to add alter-ego judgment debtors within a reasonable period of time.”

He cited a California Court of Appeal case finding a seven-year delay reasonable, declaring a 7½-month delay in the present case timely under state law.

Tashima’s Opinion

Then-Judge A. Wallace Tashima (now a senior judge) wrote the opinion in Levander, which relied on Cigna, a case in which he had handled early proceedings as a district judge.

He said the instant case was “analogous” to Cigna given that the appellants “also were judgment-creditors attempting to collect on a debt” by adding an alter ego as a judgment debtor.

“As such,” he declared, “Rule 69(a) authorized the use of California law to collect on their debt, and the district court erred by holding that the bankruptcy court did not have the jurisdiction to allow them to do so.”

Tashima said the inquiry was “whether the requirements of California law were met” in determining whether a partnership was an alter ego of the defendant named in the judgment. In resolving that, he relied on California decisional law.

Lew also relied on California decisions, as well as federal decisions interpreting California law (and considered decisions interpreting the federal Labor Management Relations Act).

Ninth Circuit’s View

In affirming Lew’s deference to California law in permitting a motion to add a judgment debtor beyond the 10-day period provided for under a federal rule, the memorandum cites Cigna. In reversing and remanding the denial of the motion to add Myriad as a judgment debtor (the denial of the motion as to D’Amico apparently not having been appealed), the Ninth Circuit said:

“The dispute involves a collective bargaining agreement. Accordingly, the federal rather than the state test for determining alter ego applies. We remand for the application by the district court of the federal test in United Ass’n of Journeymen & Apprentices Local 343 v. Nor-Cal Plumbing, lnc.…(9th Cir. 1995). The record before us indicates that Myriad Pictures is the alter ego of BTG Productions LLC and was a controlling party in the litigation. To the extent that the district court may determine that an evidentiary hearing is required to resolve that question finally, it may conduct one.”

In the Journeymen case cited in the memorandum opinion, it was determined that where a contractor conducts business as two firms—one union, one non-union—a collective bargaining agreement with the union ordinarily does not apply to the non-union company. An exception is made, the Ninth Circuit held in that case, where it is established that the non-union company “was being used ‘in a sham effort to avoid collective bargaining obligations,’…rather than for the pursuit of legitimate business objectives untainted by ‘union animus.’ ”

In that case, which predated Cigna and Levander, Circuit Judge William A. Norris (who died last year) said:

“The alter ego doctrine is designed to prevent employers from escaping their collective bargaining obligations by shifting work to non-union firms they also own.”

His opinion says that the pivotal question of whether the two companies in that case were, in fact, a “single employer” presented “a genuine issue of material fact” that was erroneously decided on summary judgment in favor of the union.

Friday’s memorandum opinion does not explain the relevance of Journeymen to a case in which it is not set forth that it involves two mutually owned companies, one unionized and the other not.

The case is Writers Guild of America West Inc. v. Myriad Pictures, Inc., 16-55332.