Danko v. O'Reilly CA1/2
232 Cal. App. 4th 732
| Cal. Ct. App. | 2014Background
- Danko sued O’Reilly and the law firm O’Reilly & Collins for breach of contract, quantum meruit, wrongful termination, indemnification, and Labor Code waiting-time penalties; jury awarded $2.4M plus interest and penalties, and judgment entered July 11, 2012.
- After posttrial fees and costs were set, Danko moved (Nov. 2012) under Code Civ. Proc. § 187 to amend the judgment to add Terry O’Reilly personally as a judgment debtor on an alter-ego theory, alleging O’Reilly treated firm assets as personal and diverted funds to defeat collection.
- The trial court (Judge Miller) held evidentiary findings of unity of interest, commingling, disregard of corporate formalities, inadequate capitalization, and postverdict transfers to frustrate enforcement, and granted the motion; amended judgment filed March 29, 2013.
- O’Reilly appealed, arguing the amendment violated the bankruptcy automatic stay (O’Reilly & Collins filed Chapter 7), and was barred by res judicata and collateral estoppel; bankruptcy court, district court, and trustee declined to void the amended judgment and approved a settlement addressing the stay.
- The Court of Appeal reviewed only legal questions (abuse of discretion, stay, preclusion), concluded the trial court did not abuse its equitable authority under § 187, and affirmed the amended judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether amending the judgment to add O’Reilly violated the bankruptcy automatic stay | Danko: amendment targeted a nondebtor (O’Reilly) and remedied alter-ego conduct; bankruptcy court/district court approved settlement effectively cured any stay issue | O’Reilly: amendment occurred while firm’s bankruptcy was pending, so action was stayed and any judgment is void | Court: denial — trustee and bankruptcy court treated amended judgment as permissible; retroactive relief/settlement rendered stay inapplicable to enforcement against O’Reilly personally |
| Whether res judicata/collateral estoppel barred postjudgment alter-ego relief | Danko: alter-ego is equitable, was reserved for postjury §187 process, not litigated at trial, and seeks enforcement not new relief | O’Reilly: issue could/should have been litigated earlier; original judgment final, so amendment is a second action barred by preclusion | Court: denial — alter-ego was reserved and not decided by the prior judgment; §187 amendment enforces existing judgment and is not barred by preclusion doctrines |
| Whether trial court abused discretion in adding O’Reilly as judgment debtor under §187 | Danko: evidence (commingling, control, diversion, postverdict transfers) shows unity of interest and injustice if corporate fiction upheld | O’Reilly: factual and legal deficiencies in alter-ego proof; estoppel and timing issues; alternative explanations for transfers and finances | Court: affirmed — substantial evidence (as found by trial judge) supported alter-ego findings and equitable amendment under §187; no abuse of discretion |
Key Cases Cited
- Greenspan v. LADT, LLC, 191 Cal.App.4th 486 (2010) (trial courts may amend judgments to add alter ego debtors under equitable principles)
- Misik v. D’Arco, 197 Cal.App.4th 1065 (2011) (§187 amendments may be timely postjudgment; alter-ego need not be tried to the jury)
- Carolina Casualty Ins. Co. v. L.M. Ross Law Group, LLP, 212 Cal.App.4th 1181 (2012) (affirming amendment of judgment against bankrupt law firm to add dominant lawyer as debtor)
- Wells Fargo Bank, N.A. v. Weinberg, 227 Cal.App.4th 1 (2014) (alter-ego amendment enforces judgment and is not claim preclusion when remedy is to reach assets/personally liable party)
- In re Schwartz, 954 F.2d 569 (9th Cir. 1992) (bankruptcy court may grant retroactive relief from stay; actions taken without relief may be void or voidable)
- In re Pecan Groves of Arizona, 951 F.2d 242 (9th Cir. 1991) (automatic stay benefits debtor/trustee; third parties generally lack standing to challenge stay violations)
- NEC Electronics, Inc. v. Hurt, 208 Cal.App.3d 772 (1989) (factors showing stockholder treated corporate assets as personal)
- Boeken v. Philip Morris USA, Inc., 48 Cal.4th 788 (2010) (overview of res judicata and collateral estoppel prerequisites)