Toho-Towa Co. v. Morgan Creek Productions, Inc.
217 Cal. App. 4th 1096
| Cal. Ct. App. | 2013Background
- Toho-Towa contracted to distribute Morgan Creek’s film in Japan; MCP representatives told Toho-Towa the contract would be with Morgan Creek International B.V. (B.V.) and guaranteed by Morgan Creek International Ltd. (Ltd.), and assured B.V./Ltd. had sufficient assets.
- B.V. failed to pay roughly $4.5 million invoiced for distribution costs; Toho‑Towa obtained a JAMS arbitration award against B.V. and Ltd., later confirmed as a $5.74 million judgment.
- B.V. and Ltd. did not satisfy the judgment. Toho‑Towa conducted post‑judgment examinations and learned MCP employees performed work for B.V./Ltd., the three entities were owned/controlled by James Robinson, and B.V. received no licensing funds (payments went to Ltd.’s lender).
- Toho‑Towa moved under Code Civ. Proc. § 187 to add MCP as an alter ego judgment debtor; the trial court granted the motion after finding integrated operations and domination by MCP.
- MCP sought relief under Code Civ. Proc. § 473(b) (attorney mistake/excusable neglect) based on its counsel’s failure to present declarations; the trial court denied relief and MCP appealed both orders.
Issues
| Issue | Plaintiff's Argument (Toho‑Towa) | Defendant's Argument (MCP) | Held |
|---|---|---|---|
| Whether MCP can be added as an alter ego judgment debtor under § 187 (single business enterprise/alter ego) | The three entities operated as a single enterprise: common owner, MCP employees performed B.V./Ltd. work, funds were routed away from B.V., and MCP controlled policies/operations; piercing is equitable. | MCP argued the factors for alter ego/single enterprise are absent and the record lacks evidence that MCP dominated B.V./Ltd. | Affirmed. Substantial evidence supported single‑enterprise/alter ego treatment and that it would be inequitable to allow MCP to avoid liability. |
| Whether MCP controlled the underlying arbitration (due process requirement to add nonparty) | MCP in fact controlled the defense: retained counsel, reviewed pleadings, paid bills, supervised strategy, and designated MCP officers for exams. | MCP claimed it did not control the arbitration and cited cases where defendants defaulted or provided no defense. | Affirmed. MCP controlled the arbitration; cited cases involved effective defaults and are distinguishable. |
| Whether excluded declarations filed with MCP’s ex parte application may be considered on appeal of the § 187 order | Toho‑Towa argued excluded evidence cannot be used to overturn the § 187 ruling because the trial court denied admission. | MCP argued the declarations are part of the appellate record and may be considered when reviewing substantial evidence. | Held: Excluded evidence that the trial court refused to consider cannot be relied on to reverse the § 187 order; MCP must first prevail on challenge to exclusion. |
| Whether the trial court abused discretion in denying relief under § 473(b) for counsel’s mistake or excusable neglect | Toho‑Towa: counsel’s failures were not excusable; mistakes falling below professional standard do not justify relief; no showing a reasonably prudent attorney would do the same. | MCP: relief warranted because counsel reasonably (albeit mistakenly) believed plaintiff bore burden to prove alter ego and thus did not need to present rebuttal evidence; alternatively, omission was excusable neglect. | Affirmed. Court did not abuse discretion: mistake of law was not the kind warranting relief, and counsel’s failures were not excusable (fell below reasonable professional standard). |
Key Cases Cited
- Mirabito v. San Francisco Dairy Co., 8 Cal.App.2d 54 (recognition of court authority to add alter ego as judgment debtor)
- Triplett v. Farmers Ins. Exchange, 24 Cal.App.4th 1415 (requirements to add nonparty under § 187: alter ego and control of litigation)
- Las Palmas Associates v. Las Palmas Center Associates, 235 Cal.App.3d 1220 (single business enterprise doctrine; factors for piercing corporate veil)
- Mesler v. Bragg Management Co., 39 Cal.3d 290 (alter ego piercing governed by narrow equitable principles)
- Troyk v. Farmers Group, Inc., 171 Cal.App.4th 1305 (list of factors for single enterprise/alter ego analysis)
- NEC Electronics, Inc. v. Hurt, 208 Cal.App.3d 772 (distinguishable default/no defense cases on control-of-litigation issue)
- Schoenberg v. Romike Properties, 251 Cal.App.2d 154 (illustrates control-of-litigation inquiry when alter ego pays and directs defense)
- Zamora v. Clayborn Contracting Group, Inc., 28 Cal.4th 249 (standards for § 473(b) excusable neglect and attorney error analysis)
- Bettencourt v. Los Rios Community College Dist., 42 Cal.3d 270 (standard for excusable attorney mistake under § 473(b))