Monday, June 29, 2020
Man Who Prevailed When Sued as Alter Ego of Judgment Debtor in Contract Action Entitled to Fees, Ikola Says, Because He Would Have Liable for Fees If He Had Lost
By a MetNews Staff Writer
Div. Three of the Fourth District Court of Appeal held yesterday that a man who was sued in the Orange Superior Court as an alleged alter ego of a debtor under a Riverside Superior Court judgment, and prevailed, was entitled to an award of attorney fees although he was not a party to the contract sued upon in the former action which contained an attorney-fee provision.
If the person sued as an alter ego had been found to be such, that person would be liable for attorney fees under the contract so, the opinion reasoned, if the person is found not to be an alter ego it’s only fair to grant fees in favor of that defendant.
The appellant was MSY Trading Inc. which imports and exports vehicles. It obtained a stipulated judgment in Riverside against SMS Retail Corona and SMS Signature Cars, Inc. in connection with the sale to it of a Saleen brand automobile which was defective.
Unable to collect on the judgment, MSY asked the Riverside Superior Court to add business executive and former race car driver Steve Saleen and Saleen Automotive as judgment debtors, arguing that they are alter egos of the defendants. The court declined to do so—though it did add Saleen Signature Cars as a judgment debtor.
Trial Court Determination
MSY then sued Steve Saleen and Saleen Automotive in Orange Superior Court, again alleging that they are alter egos. Orange Superior Court Judge David R. Chaffee found that Saleen, the individual, is not an alter ego, but Saleen Automotive is.
The contract that was sued upon in the Riverside action contained a provision for attorney fees to the prevailing party in the event of a dispute. Saleen sought fees under that provision and, pursuant to Civil Code §1717 which says that “[r]easonable attorney’s fees shall be fixed by the court, and shall be an element of the costs of suit” where such an agreement exists, Chaffee awarded Steve Saleen $36,910.
MSY protested that Saleen was found not to be an alter ego, hence he was not party to the contract, and therefore cannot benefit from a provision in it.
Justice Raymond J. Ikola wrote the opinion affirming Chaffee’s judgment. He wrote:
“As the trial court observed, if plaintiffs had prevailed in their action to deem Steve an alter ego of the judgment debtors, Steve would have been liable for the attorney fee award that was a component of the Riverside judgment. Under the principles of mutuality that inform Civil Code section 1717, Steve was entitled to fees as the prevailing party.”
MSY argued that it did not sue in Orange Superior Court on the contract; it brought an enforcement action. Ikola responded that “in the eyes of the law, the alter ego was a party, albeit by a different name” in the contract action and that “a postjudgment, independent action to establish alter ego liability for a judgment on a contract is itself an action on the contract.”
Saleen Automotive’s Appeal
Chaffee also awarded $90,365 in attorney fees to MSY based on prevailing over Saleen Automotive. But the Orange County court lacked jurisdiction, Saleen and Saleen Automotive asserted, because only one court can have jurisdiction in a matter and that court is in Riverside County.
Under the rule of “exclusive concurrent jurisdiction” if there are two courts that could have had jurisdiction over a matter, the court which first exercises jurisdiction retains it, the defendants argued. Ikola responded:
“There is a very simple reason why this doctrine has no application here: there was nothing pending in any other court that could result in a conflicting judgment. Plaintiffs contend the doctrine applies because the Riverside Superior Court retained jurisdiction over the settlement agreement pursuant to Code of Civil Procedure section 664.6.3 But that only means the Riverside Superior Court could exercise jurisdiction without requiring a separate action on the settlement agreement. It does not mean it is the only court with jurisdiction to adjudicate the settlement agreement. There is nothing remarkable about the fact that there are multiple suitable venues for a claim.”
“Defendants’ second argument goes something like this: Code of Civil Procedure section 685.040 only permits fees where the underlying judgment includes an award of contractual attorney fees. Here, Saleen Automotive was deemed the alter ego of Saleen Signature Cars. Saleen Signature Cars was the entity the Riverside Superior Court added to the judgment pursuant to a motion to amend the judgment in March 2016. The order amending the judgment, however, did not itself award attorney fees. Defendants conclude, ‘Carried over to this current action, then, the Appellants are entitled to NO attorney fees!’ Aha!
“Except there is a rather glaring flaw in this analysis: Saleen Signature Cars was added to a judgment that does contain an award of contractual attorney fees. The amended judgment did not eliminate the prior judgment, it simply added a party. Thus Code of Civil Procedure section 685.040 applied.”
The case is MSY Trading Inc. v. Saleen Automotive, Inc., G057093.
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