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Court of Appeal:
Changed Circumstances Require Second Alter-Ego Ruling
Judge Ruled at Trial That Owner’s Identity Is Separate From Corporation’s; That Has No Collateral Estoppel Effect Where Evidence Purportedly Shows That Proprietor Did, Following Judgment, Treat Business Assets as His Own
By a MetNews Staff Writer
The Third District Court of Appeal held yesterday that it was error to deny a motion to add an alter ego as an additional debtor on a nearly $1 million judgment based on collateral estoppel where a successive request was based on new evidence.
Angel Lynn Realty, Inc. (“ALR”) prevailed in an action against Real Estate Portfolio Management, LLC (REPM”), owned by one Steve George, garnering an award of $993,206.88. The April 2022 judgment recites:
“Plaintiff ALR has not proved a basis for defendant Steve George to be liable for the conduct of defendant REPM under an alter ego theory.”
Collection efforts failed and ALR conducted judgment debtor examinations of George and his wife. The examinations revealed that George had drained his company of its assets in order to avoid payment of the judgment.
Trial Court Ruling
ALR on April 25, 2024, moved to amend the judgment to add George as a joint debtor on an alter ego theory. Sacramento Superior Court Judge Richard K. Sueyoshi denied the motion.
He ruled that collateral estoppel—in recent cases dubbed “issue preclusion—applies, declaring:
“ALR is precluded from relitigating the issue of alter ego presented at trial and adjudicated on the merits in this case.”
The judgment creditor argued on appeal:
“As a nation of laws not men, we must have a method and means for ensuring the rule of law is enforceable. Judgments are the principal form of vindicating rights in civil actions. Rigid application of an equitable doctrine should not be used to abridge the judiciary’s essential power to issue enforceable judgments. While certainly collateral estoppel plays its own role in ensuring judgments are not disturbed, it does not operate to allow a judgment debtor to engage in post-trial transfers intended to frustrate the judgment. If collateral estoppel were to apply to preclude adjudication of such misconduct, the authority of the courts would be greatly eroded.”
Appeals Court Opinion
In her opinion reversing the judgment, Presiding Justice Laurie M. Earl said:
“Although it does not use these terms, ALR contends, in essence, that the issue of alter ego liability is one of those issues that is not static and can change over time. We agree.”
She provided the hypothetical of “Jane” having been determined not to be the alter ego of a defendant ABC, a corporation, but, after a judgment is entered against the business in favor of “John,” dissolves it, diverting its assets to herself. Earl wrote:
“If John thereafter moved to amend the judgment to add Jane as a judgment debtor based on an alter ego theory, would collateral estoppel preclude him from doing so on the ground the alter ego issue had already been decided against him? We do not believe it would. Although the alter ego issue was litigated and decided, the relevant facts and circumstances materially changed after the judgment was entered. To put it another way: When the judgment was entered. Jane was not ABC’s alter ego. but based on postjudgment events, she became ABC’s alter ego, and it would be inequitable to continue to respect ABC’s corporate separateness from Jane.”
Earl decreed that the Sacramento Superior Court would decide, on remand, whether George actually is the judgment debtor’s alter ego.
The case is Angel Lynn Realty v. George, 2025 S.O.S. 2547.
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