Phillips, Spallas & Angstadt, LLP v. Fotouhi
197 Cal. App. 4th 1132
| Cal. Ct. App. | 2011Background
- Fotouhi, as controlling partner, formed Fotouhi, Epps, Hillger & Gilroy, LLP (Partnership) after leaving Phillips firm in 2004.
- An arbitration in 2005 awarded $2.4 million to the Phillips firm successors for partnership breaches by Fotouhi.
- Fotouhi filed for bankruptcy in 2005; bankruptcy court later denied discharge in 2007 for false oaths.”
- Bankruptcy trustee pursued unpaid referrals; in 2008 a separate judgment was entered against Fotouhi’s Partnership for $546,440, related to valuation of Fotouhi’s interest.
- In December 2008, Fotouhi, Epps, Hillger & Gilroy, Inc. formed a Corporation; assets and client matters were transferred or redirected to the Corporation, with ongoing partnership business impliedly continuing.
- By 2009 the Partnership operated as Fotouhi, Epps, Hillger & Gilroy, P.C. and the Corporation took over leases, client substitutions, and branding remained substantially the same.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a charging order may be issued against a corporation | Court may apply charging order to the Corporation as a continuation. | Charging orders apply only to partnerships/LLCs, not corporations. | Charging order against Corporation affirmed as continuation of the Partnership. |
| Whether the Corporation can be held liable as a mere continuation | Corporation is a continuation to enforce the judgment. | Entities are separate; no liability transfer. | Court properly held Corporation liable as a continuation to satisfy the judgment. |
| Whether applying the charging order to the Corporation violated due process | Disregarding corporate form necessary to enforce the judgment. | Due process requires respect for separate entities. | No due process violation; order targets Fotouhi’s share of Partnership profits, not nonjudgmental partners. |
| Whether section 187 authority or other authority justifies circumventing corporate form | Section 187 enables practical enforcement to carry out substantive rights. | Should not extend beyond statutory means or substitute for wage garnishment needs. | Section 187 authority properly used to disregard illusory separation for enforcement purposes. |
| Whether the order improperly imposes successor liability or external piercing of the corporate veil | Veil piercing to reach Partnership obligations via the Corporation is warranted. | Not permissible to reach corporate assets for shareholder debt. | Order does not impose improper veil piercing; ensures Corporation satisfies Partnership liabilities. |
Key Cases Cited
- Taylor v. S & M Lamp Co., 190 Cal.App.2d 700 (Cal. Ct. App. 1961) (charging orders replace levies to reach partnership interests)
- Maloney v. American Pharmaceutical Co., 207 Cal.App.3d 282 (Cal. Ct. App. 1988) (continuation theory when fraud or creditor rights are involved)
- McClellan v. Northridge Townhome Owners Assn., 89 Cal.App.4th 746 (Cal. Ct. App. 2001) (corporate continuation and liability extensions to purchaser)
- Blank v. Olcovich Shoe Corp., 20 Cal.App.2d 456 (Cal. Ct. App. 1937) (corporate form not preserved to evade obligations)
- Greenspan v. LADT LLC, 191 Cal.App.4th 486 (Cal. Ct. App. 2010) (veil piercing and corporate liability in context of judgments)
- Topa Ins. Co. v. Fireman's Fund Ins. Cos., 39 Cal.App.4th 1331 (Cal. Ct. App. 1995) (inherent judicial powers to control court processes)