S.T.I. Demolition v. Quarles CA2/1
B307978
| Cal. Ct. App. | Jul 27, 2021Background
- STI obtained a February 2011 bench judgment against Bedford for breach of contract (originally ~$108,863; judgment renewal in 2020 listed ~$212,572).
- After a September 26, 2019 debtor’s examination (no reporter), STI moved (June 3, 2020) to amend the judgment to add Charles Quarles as a judgment debtor on an alter-ego theory.
- Evidence: Quarles was Bedford’s sole shareholder, president and CEO; Bedford obtained ~ $17 million in insurance/arbitration proceeds; Quarles used some proceeds to pay a Hanmi Bank obligation that had been collateralized by his personal residence; Bedford conveyed the Kenway property to Charles and JoAnn Quarles; Bedford ceased active business around 2013 but kept a website, office, and registration.
- Quarles acknowledged guaranteeing/ securing construction-related indebtedness and argued payments were business-related; he also asserted laches based on nearly 10 years’ delay and loss of records/witnesses.
- The trial court found Quarles had control/virtual representation in the underlying litigation but concluded the Hanmi payment was a business payment and—focusing solely on that transaction—denied alter-ego relief without evaluating the full slate of alter-ego factors or laches.
- The Court of Appeal reversed and remanded, directing the trial court to apply the full alter-ego analysis (including inequity) and, if appropriate, to consider Quarles’s laches defense.
Issues
| Issue | Plaintiff's Argument (STI) | Defendant's Argument (Quarles) | Held |
|---|---|---|---|
| Virtual representation / control of underlying litigation | Quarles controlled Bedford, appeared at trial, so was virtually represented | Quarles did not contest this on appeal | Court: Supported — Quarles had control and was virtually represented |
| Unity of interest / commingling | Quarles treated corporate assets as his own (transfers, use of proceeds, shared offices/email/registration) | Payment to Hanmi was for a business debt; guaranty/collateral does not equal commingling | Court: Trial court erred by considering only the Hanmi payment; remand to examine all alter-ego factors and totality of circumstances |
| Inequitable result (whether creditors would be harmed if veil not pierced) | Adding Quarles needed to make judgment collectible and prevent injustice | Argued no alter ego and no basis for adding him | Court: Trial court did not address this element; appellate court declines to decide in first instance and remands for trial-court determination if unity is found |
| Laches (equitable defense) | STI: Laches not applicable; motion timely to pursue collection | Quarles: ~10-year delay prejudiced defense; records/witnesses lost | Court: Trial court did not rule; on remand, if alter-ego established, court must consider laches as a defense |
Key Cases Cited
- Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership, 222 Cal.App.4th 811 (describing authority to amend judgment to add alter-ego debtors)
- Associated Vendors, Inc. v. Oakland Meat Co., Inc., 210 Cal.App.2d 825 (listing principal alter-ego factors and indicia of commingling/control)
- Sonora Diamond Corp. v. Superior Court, 83 Cal.App.4th 523 (alter-ego analysis requires consideration of all circumstances; no single factor controls)
- Misik v. D’Arco, 197 Cal.App.4th 1065 (remand required where trial court applied incorrect alter-ego law)
- Baize v. Eastridge Companies, LLC, 142 Cal.App.4th 293 (factual findings on alter ego reviewed for substantial evidence)
- Mid-Century Ins. Co. v. Gardner, 9 Cal.App.4th 1205 (party seeking to disregard corporate form bears the burden)
- Greenspan v. LADT LLC, 191 Cal.App.4th 486 (equitable nature of alter-ego relief and correctness of adding parties to judgment)
- Stark v. Coker, 20 Cal.2d 839 (alter-ego as an equitable doctrine for trial-court determination)