2. Case No.
B241675
IN TIlE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
STEPHEN M, GAGGERQ,
Pla, intiff {md Appcllanl,
KNAPP, PETERSEN & CLARKE; STEVEN RAY GARCIA;
STEPHEN M. HARRIS and ANDRE JARDINI,
Defendants and Respondents;
PACIFIC COAST MANAGEMENT, 1NC,; 511 OFW LP;
GINGERBREAD COURT LP; MALIBU BROAD BEACH LP;
MARINA GLENCOE LP; BLU HOUSE LLC; BOARDWALK
SUNSET LLC; and JOSEPH PRASKE as Trustee of
THE GIGANIN TRUST, THE ARENZANO TRUST,
and TIlE AQUASANTE FOUNDATION
Additional Judgmant D_bto_,a, and Appellants
Hon. Rob¢a L, H_ss, Hon, Matthew St. GeaFge,
Hon, Murray Grass; Hon, Victor Greanberg
Superior Court of Los Angeles County
L,A,$,C, Cas_ No, BC286925
APPELLANTS _ OPENING BRIEF
EDWARD A, HOFFMAN, BRr,No, !67240
LAW OFFICES OF EDWARD A, HOFFMAN
12301 WILSHIRE BOULEVARD, SUITE 500
LOS ANGELES, CALIFORNIA 90025
(310) 442.3600
Attorney for Additional Judgment Debtors' and Appellants
3. B241675
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
STEPHEN M. GAGGERO,
Plaintiff and Appellant,
VS,
KNAPP, PETERSEN & CLARKE; STEVEN RAY GARC1A;
STEPHEN M. HARRIS and ANDRE JARDINI,
Defendants' and Respondents;
PACIFIC COAST MANAGEMENT, INC.; 511 OFW LP;
GINGERBREAD COURT LP; MALIBU BROAD BEACH LP;
MARINA GLENCOE LP; BLU HOUSE LLC; BOARDWALK
SUNSET LLC; and JOSEPH PRASKE as Trustee of
THE GIGANIN TRUST, THE ARENZANO TRUST,
and THE AQUASANTE FOUNDATION
Additional Judgment Debtors and Appellants
Hen. Robert L. Hess, Hen. Matthew St, George,
Hen. Murray Gross; Hen. Vletor Oreenberg
Superior Court of Los Angeles County
L.A.S.C. Case No. BC286925
APPELLANTS' OPENING BRIEF
EDWARD A. HOFFMAN, Bar No. 167240
LAW OFFICES OF EDWARD A. HOFFMAN
12301 WILSHIRE BOULEVARD, SUITE 500
LOS ANGELES, CALIFORNIA 90025
(310) 442-3600
Attorney for Additional Judgment Debtors and Appellants
4. TO BE FILED IN THE COURT OF APPEAL APP.001
Court _ ADpod Calo Numb=It:
B241675
COURT OF APPEAL, Second APPBLLATE DISTRICT, DIVISION Eight
l_Gw_lr(/I/_. HO[Illl,_JI (.[Jnr _ lb I,Z_U)
-' Law Offices of Edwttrd A, l,loffi_an
12301 Wilshire Blvd., Suite 500
l,os AItgeles, CA 90025
rt_ts_oNe_'0.: (3 10) 442-3600 ,Ax_o.ro_,,0:(310) 442-4600
_.M^'LAOO"ESStO_O,O_:ash@he ffinanlaw.com
a'rrORNEV_ORrNameJ:Pacific Coast Mtmagument, et el., Additional Judgment Debtors
APPELLANTmE'rmONER:Stephen M. Gaggero, et el.
RES_'ONt_ENTmEALPASTYININTEREST:Knapp, Petersen & Clarke, et el.
CERTIFICATE OF INTERESTED ENTITLES OR PERSONS
(Check one): _ INITIAL CERTIFICATE [] SUPPLEMENTAL CERTIFICATE
8t41edor C_JM CIIa Nun_oE
BC286925
IS_q count US8 ONL V
Notice: Please read rules 8.208 and 8.488 before completing this form. You may use this form for the Initial
certificate in an appeal when you file your brief or e prebrloflng motion, appllcat|on, or opposition to such a
motion or application In the Court of Appeal, and when you file a petition for an extraordinary writ. You may
also use this form as a supplemental certificate when you learn of changed or additional information that must
be disclosed.
1. This form is being submitted on behalf of the following party (name): Pacific Coast Management, et al._ Additional Judy.meat Debtors
2. a. [] There are no interested entities or persona that must be listed In this certificate under rule 8.208.
b. [_ Interested entities or parsons required to be listed under rule g.20fl are aa follows:
Full name of Interested
entlty or perse.
(1) TerraMar Trust
(2)
[_ Continued on attaohmant _,
Nature of Interest
(Explain):
The undersigned co.flea that the above.listed persons or ontltloa (corporations, pa_norshlpa, firms, or any other
association, but not Including government entitles or their agencies) have either (_) an ownership Interest of 10 percent or
more In the party If It Is an entity; or (2) a financial or other Interest In the outcome of the proceeding that the Justices
should consider In determining whether to dlaquall_ themselves, as defined In rule 8.208(e)(2).
Orate: June 24, 2013
Edwurd A. Hoffman
(TYPE _ PRINT NAME)
Paget 1 el 1
_o_,_uI_o=_=u= CERTIFICATE OF INTERESTED ENTITLES OR PERSONS c= R==*_Co_.,r_*==_,=_O,S,_S
Jt_ldat CO_J Ot C ¢d/omll= www.o_uttin_o, ca,gov
App-o0fi [Ra_ J_rpJarf 1,200g] Lgxi._lVa_lJr_ A utomoled Cet/ortJt';'lio Judicial C'omtcil Fuemn
5. TABLE OF CONTENTS
Table of Authorities vii
Introduction ......................................................... I
Statement of Appealability ............................................. 2
Factualand Procedural History .......................................... 2
I. The EstatePlan ............................................ 2
2. Respondents Serve as Gaggero's Attorneys ...................... 4
3. The Malpractice Case ....................................... 5
4. Post-Trial Discovery ........................................ 7
5. The Alter-Ego Motion ...................................... 8
6. Appellants Pay the Entire Judgment - Including Interest and
Additional Costs - Under Duress ............................. 11
Standards of Review ................................................. 11
Argument .......................................................... 13
I. The Finding That Gaggero Controlled His Own Litigation Means
Appellants Cannot Be Liable for His Debt ........................... 13
A, Entities Which Did Not Control the Litigation Cannot Be Added as
Judgment Debtors ......................................... 14
B. The Trial Court Expressly Found That Appellants DidNot Control
the Litigation ............................................. 15
C. The Evidence Could Not Support a Finding That Appellants
Controlled the Litigation .................................... 16
D. This Finding That Gaggero Controlled His Own Litigation Requires
a Full Reversal ........................................... 16
6. II.
III.
The Alter-Ego Decision Rests Entirely on the Court's Unsupported
Findings That Appellants Had Committed Misconduct ................. 18
A° Praskc Did Not "Refuse" to Produce Documents, Since
Respondents Did Not Ask Hhn To ............................ 19
° Because Appellants Had No Notice That They Would Be
Accused of Refusing to Produce Documents, the May 29
Ruling Violated Their Due Process Rights and Is Reversible
PerSe ............................................. 21
2, The Ruling Amounted to an Improper Discovery Sanction... 22
a. Praske Testified in His Individual Capacity and Not
as a Representative of Any of the Appellants ........ 23
b.
Evidentiary and Issue Sanctions May Not Be
Imposed on Nonparties .......................... 23
C°
There Is No Evidence That Respondents Moved to
Compel Responses from Praske ................... 24
d,
There Is No Evidence Praske Willfully Violated Any
Discovery Requirements ........................ 24
e, Gaggero's Failure to Produce Documents Is Not
Attributable to Appellants ....................... 25
B.
The Trial Court's Ruling Hinged on its Unsupported Finding That
the Same Lawyer Represented Both Praske and Gaggero at the
Time of this Supposed Refusal ............................... 26
C,
The Trial Court's Refusal to Let Appellants Produce the Trust
Documents Before Penalizing Them Is Another Reason Why the
Amended Judgment Is Reversible Per Se ...................... 27
Respondents Are Estopped to Make an Alter Ego Claim Because They
Admitted in Prior Proceedings That Gaggero and Appellants Are
Financially Separate ............................................. 29
IV. Appellants Cannot Be Gaggero's Alter Egos ......................... 32
-ii-
7. V,
A. The Varieties of Alter-ego Liability ........................... 32
B. Appellants Are Not Gaggero's Alter Egos under Any of These
Theories ................................................ 34
1, Outside Reverse Veil-Piercing ls Forbidden in
California .......................................... 35
2. Even If California Law Allowed Reverse Piercing,
Respondents Failed to Make the Necessary Showing ........ 37
3. The Single-Enterprise Rule Does Not Support the Amended
Judgment .......................................... 3"/
4. Section 187 Does Not Allow Courts to Impose Alter-
Ego Liability Where it Is Otherwise Forbidden ....... 38
5. Greenspan Does Not Support the Amended Judgment ....... 39
The Trusts Could Not Be Added to the Judgment Because They Are
Irrevocable .................................................... 41
A. Irrevocable Trusts May Never Be Held Liable for the Debts of
Their Settlors ............................................ 42
B. The Undisputed Evidence Shows That All Three of the Trusts
Are Irrevocable ........................................... 43
C. This Court must Reverse Because the Trial Court Placed the
Burden of Proof re Revoeability on the Wrong Parties ............ 45
D. There Is No Substantial Evidence That the Trusts Were
Revocable ............................................... 46
E, That Laycock Is from Another District Is Irrelevant .............. 47
F. Appellants Amply Preserved this Issue in the Trial Court .......... 47
1. Insufficiency of the Evidence Cannot Be Waived ........... 48
-iii-
8. .
Appellants Raised the Issue in the Trial Court, and the
Court Rejected it on the Merits ......................... 48
V1. There ls Insufficient Evidence to Support the Amended Judgment ........ _0
A. The Evidence ............................................ 51
B. The Gaps ................................................ 52
C*
Respondents Had to Prove Both That Appellants and Gaggero
Shared a Unity of Interest and Ownership and That Recognizing
Their Separateness Would Promote an Injustice ................. 53
D_ There ls No "Unity of Interest and Ownership" Between
Appellants and Gaggero .................................... 54
Respondents' Concession That Gaggero Does Not Own
Any of the Appellants Conclusively Disproves the Required
Unity ............................................. 54
2. Without Ownership, Evidence of Control Is Not Enough ..... 55
.
There Is Insufficient Evidence to Establish the Required
Unity of Interest and Ownership ........................ 56
a° Respondents' Evidence Would Have Been
Insufficient Even If They Did Not Have to
Prove Ownership .............................. 57
b.
Respondents Have Failed to Prove Unity Strong
Enough to Overcome Appellants' Separateness from
Gaggero ..................................... 60
E. Entbreing Appellants' Separateness from Gaggero Would Not
Sanction a Fraud or Promote Injustice ......................... 60
1, Appellants' Separateness from Gaggero Is Not a Fiction ..... 61
.
Respondents' Alter Ego Motion Is a Fraudulent Transfer
Claim in Disguise and Is Time-Barred ................... 61
9. VII.
VIII.
IX.
X.
,
Enforcing a Statute of Limitations Neither Sanctions a
Fraud Nor Promotes an Injustice ....................... 62
F.
There Is Nothing Unjust about Making Respondents Bear the
Consequences of Their Own Business Decisions ................. 63
Q,
Respondents' Failure to Prove Their Case Means They May Not
Have Another Chance in the Trial Court ....................... 64
The Trial Court Invaded the Probate Court's Exclusive Jurisdiction Over
the Trusts' Internal Affairs ....................................... 64
That Gaggero and Appellants Are Financially Separate Is Law of the
Case ......................................................... 66
The Amended Judgment Cannot Stand Because it Directly Contradicts
the Original Judgment ........................................... 67
A.
The 2012 Finding That Appellants Are All Gaggero's Alter Egos
Cannot Be Reconciled with the 2008 Finding That PCM and
Gaggero Are Financially Separate ............................ 67
g. Having Accepted the Benefits of the Original Judgment,
Respondents May Not Contradict It ........................... 69
Respondents' 55-Month Delay Waived Their Alter-Ego Claim ........... 70
A°
A Court May Not Add New Judgment Debtors If the Creditor
Knew of the Relationship Before Judgment Was Entered .......... 71
B,
Respondents' Motion Was Based on Information They Had Before
the Judgment Against Gaggero Was Entered in Early 2008 ........ 71
C. Claimants Must Use Due Diligence When Adding Parties ......... 73
D.
That Delaying Was Convenient for Respondents Does Not
Excuse It ................................................ 74
E. Appellants Were Severely Prejudiced by Respondents' Delay ...... 74
-V-
10. XI. The Court Should Order Respondents to Make Appellants Whole for the
Costs They Have Incurred and the Consequential Damages They Have
Suffered Due to the Enforcement of the Amended Judgment ............. 75
Conclusion ......................................................... 77
Certificate of Word Count ............................................. 79
Proof of Service by Mail .............................................. 80
-Vi-
11. TABLE OF AUTHORITIES
STATE CASES
Aguilar v. Atlantic Richfield Co.
(2001) 25 Cal.4th 826 .............................................. 45, 46
Al J. Vela & Associates, Inc. v. Glendora Unified School Dist.
(1982) 129 Cal.App.3d 766 ............................................ 70
Alexander v. Abbey of the Chimes
(1980) 104 Cal.App.3d 39 ........................................... 54, 73
Ann M. v. Pacific Plaza Shopping Center
(1993) 6 Cal.4th 666 .................................................. 12
Assoc. Vendors, Inc. v. Oakland Meat Co.
(1962) 210 Cal.App.2d 825 .......................................... 62, 63
Auto Equity Sales, Inc. v. Superior Court
(1962) 57 Cal.2d 450 .................................................. 47
Baxter v. Peterson
(2007) 150 Cal.App.4th 673 ............................................ 64
Beck Development Co. v. Southern Pacific Transportation Co.
(1996) 44 Cal.App.4th 1160 ............................................ 44
Biscaro v. Stern
(2010) 181 Cal.App.4th 702 ............................................ 22
Blank v. Coffin
(1942) 20 Cal.2d 457 .................................................. 44
Bowman v. Board of Pension Commissioners
(1984) 155 Cal.App.3d 937 ............................................. 12
California State Employees' Assn. v. State Personnel Bd.
(1986) 178 Cal.App.3d 372 ............................................. 17
-vii-
12. Carpenter v. Jack in the Box
(2007) 151 Cal.App.4th 454 ............................................ I2
CC-California Plaza Associates v. Paller & Goldstein
(1996) 51 Cal.App.4th 1042 ............................................ 68
Chambers v. Kay
(2002) 29 Cal.4th 142 ................................................. 27
City of Los Angeles v. Morgan
(1951) 105 Cal.App.2d 726 ............................................. 21
Conley v. Matthes
(1997) 56 Cal.App.4th 1453 ............................................ 17
Crocker National Bank v. City & County of San Francisco
(1989) 49 Cal.3d 881 .................................................. 12
Crook v. Contreras
(2002) 95 Cal.App.4th 1194 ............................................ 46
Cuccia v. Superior Court
(2007) 153 Cal.App.4th 347 ............................................ 47
DiMaria v. Bank of California
(1965) 237 Cal.App.2d 254 ............................................. 42
Dow Jones Co. v. Avenel
(1984) 151 Cal.App.3d 144 ............................................. 16
Dowdall v. Superior Court
(1920) 183 Cal. 348 ................................................... 66
Elkins v. Superior Court
(2007) 41 Cal.4th 1337 ................................................ 29
Estate of Hearst
(1977) 67 Cal.App.3d 777 .............................................. 59
Estate of Mullins
(1988) 206 Cal.App.3d 924 ............................................. 65
-viii-
13. Estate of Teed
(1952) 112 Cal.App.2d 638 ............................................. 11
Ex Parte Tartar
(1959) 52 Cal.2d 250 .................................................. 41
Fassberg Const. Co. v. Housing Authority of City of Los Angeles
(2007) 152 Cal.App.4th 720 ............................................ 43
Gaggero v. Yura
(2003) 108 Cal.App.4th 884 ............................................ 25
Galdjie v. Darwish
(2003) 113 Cal.App.4th 1331 ............................................ 8
Gelfo v. Lockheed Martin Corp.
(2006) 140 Cal.App.4th 34 ............................................. 55
Ghirardo v. Antonioli
(1994) 8 Cal.4th 791 .................................................. 12
Gordon v. Nissan Motor Co., Ltd.
(2009) 170 Cal.App.4th 1103 ........................................... 28
Greenspan v. LADT, LLC
(2011) 191 Cal.App.4th 486 ........................................ passim
Gunderson v. Wall
(2011) 196 Cal.App.4th 1060 ........................................... 76
Hasson v. Ford Motor Co.
(1977) 19 Cal.3d 530 .................................................. 69
Heifetz v. Bank of America
(1957) 147 Cal.App.2d 776 ............................................. 46
Hinkle v. Southern Pacific Co.
(1939) 12 Cal.2d 691 .................................................. 44
In re Angela C.
(2002) 99 Cal.App.4th 389 ............................................. 28
-ix-
14. b_ re Enrique G,
(2006) 140 Cal.App.4th 676 ......................................... 22, 28
In re Goldberg's Estate
(1938) 10 Cal.2d 709 .................................................. 68
In re Jasmine G.
(2005) 127 Cal.App.4th 1109 ........................................... 21
In re Vincent B.
(1981) 125 CaI.App.3d 752 ............................................. 44
Jackson v. County of Los Angeles
(1997) 60 Cal.App.4th 171 ............................................. 31
dines v. Abarbanel
(1978) 77 Cal.App.3d 702 ........................................... 60, 71
Kahrs v. County of Los Angeles
(1938) 28 Cal.App.2d 46 ............................................... 45
Karlsson v. Ford Motor Co.
(2006) 140 Cal.App.4th 1202 ........................................... 25
Keeler v. Superior Court
(1956) 46 Cal.2d 596 .................................................. 39
Kelly v. New West Federal Savings
(1996) 49 Cal.App.4th 659 ............................................. 28
Kuhn v. Department of General Services
(1994) 22 Cal.App.4th 1627 ......................................... 12, 51
Lambert v. General Motors
(1998) 67 Cal.App.4th 1179 ............................................ 69
Las Palmas Assoc. v. Las Palmas Ctr. Assoc.
(1991) 235 Cal.App.3d 1220 ................................... 32, 34, 38, 54
Laycock v. Hammer
(2006) 141 Cal,App.4th 25 ......................................... passim
-X-
15. Levin v. Ligon
(2006) 140 Cal.App.4th 1456 ........................................... 31
Lovato v. Santa Fe Internat. Corp.
(1984) 151 Cal.App.3d 549 ............................................. 21
Marriage of Carlsson
(2008) 163 Cal.App.4th 281 ............................................ 28
Martin v. County of Los Angeles
(1996) 51 Cal.App.4th 688 ............................................. 21
McClellan v. Northridge Park Townhome Owners Assn.
(2001) 89 Cal.App.4th 746 ............................................. 11
Mclntire v. Superior Court
(1975) 52 Cal.App.3d 717 .............................................. 73
Mesler v. Bragg Management Co.
(1985) 39 Cal.3d 290 .................................................. 54
Mid-Century lns. Co. v. Gardner
(1992) 9 Cal.App.4th 1205 ............................................. 53
Minifie v. Rowley
(1922) 187 Cal. 481 ................................................... 32
Minton v. Cavaney
(1961) 56 Cal.2d 576 .................................................. 16
Misik v. D'Arco
(2011) 197 Cal.App.4th 1065 ....................................... passim
Morohoshi v. Pacific Home
(2004) 34 Cal.4th 482 ................................................. 66
Morrison Knudsen Corp. v. Hancock, Rothert & Bunshofi, LLP
(1999) 69 Cal.App.4th 223 ............................................. 57
Motores De Mexicali, S. A. v. Superior Court
(1958) 51 Cal.2d 172 .................................................. 14
-xi-
16. NEC Electronics Inc. v. Hurt
(1989) 208 Cal,App.3d 772 ................................... 11, 14, 16,39
Napa Valley Packing Co. v. San Francisco Relief& Red Cross Funds
(1911) 16 Cal.App. 461 ................................................ 69
New Albertsons, Inc. v. Superior Court
(2008) 168 Cal.App.4th 1403 ........................................... 24
Norgart v. Upjohn Co.
(1999) 21 Cal,4th 383 ................................................. 17
Parsons v. Bristol Development Co.
(1965) 62 Cal.2d 861 .................................................. 13
People ex rel. Lockyer v. Shamrock Foods Co.
(2000) 24 Cal.4th 415 ................................................. 12
People v. Avanessian
(1999) 76 Cal.App.4th 635 ............................................. 45
People v. Johnson
(1980) 26 Cal.3d 557 .................................................. 12
People v. Kluga
(1973) 32 Cal.App.3d 409 .............................................. 20
People v. Lujan
(2012) 211 Cal.App.4th 1499 ........................................... 39
People v. Powell
(2011) 194 Cal.App.4th 1268 ........................................... 12
People v. Shuey
(1975) 13 Cal.3d 835 .................................................. 66
People v. Stanley
(1995) 10 Cal.4th 764 ................................................. 67
Postal lnstant Press, lnc. v. Kaswa Corp.
(2008) 162 Cal.App.4th 1510 ....................................... passim
-xii-
17. Riddle v. Leuschner
(1959) 51 Cal.2d 574 ............................................... 55, 56
Rogers v. Bill & Vince 's, lnc.
(1963) 219 Cal.App.2d 322 ............................................. 76
San Bernardino County v. Riverside County
(1902) 135 Cal. 618 ................................................... 70
Santisas v. Goodin
(1998) 17 Cal.4th 599 ................................................. 43
Sauer v. Superior Court
(1987) 195 Cal.App.3d 213 ............................................. 13
Saxena v. Goffney
(2008) 159 Cal.App.4th 316 ......................................... 24, 25
Schoenberg v. Benner
(1967) 251 Cal.App.2d 154 ............................................. 16
Sessions v. Southern Pac. Co.
(1911) 159 Cal. 599 ................................................. i. 69
Smith v. Walter E. Heller & Co.
(1978) 82 Cal.App.3d 259 .............................................. 55
Steven W. v. Matthew S.
(1995) 33 Cal.App.4th 1108 ............................................ 50
Stockton Theatres lnc. v. Palermo
(1953) 121 Cal.App.2d 616 ............................................. 75
Tahoe National Bank v. Phillips
(1971) 4 Cal.3d 11 .................................................... 48
Tally v. Ganahl
(1907) 151 Cal. 418 ................................................... 67
Tavaglione v. Billings
(1993) 4 Cal.4th 1150 ....... , t , , • , , .......... , , ° ................ . ..... 69
-xiii-
18. Temple Comm. Hosp. v. Superior Court
(1999) 20 Cal.4th 464 ................................................. 24
Triplett v. Farmers Ins. Exchange
(1994) 24 Cal.App.4th 1415 ......................................... 14, 16
Vallbona v. Springer
(1996) 43 Ca1.App.4th 1525 ......................................... 13, 23
VirtualMagic Asia, Inc. v. Fil-Cartoons, Inc.
(2002) 99 Cal.App.4th 228 ............................................. 57
Wollersheim v. Church of Scientology Int 'l
(1999) 69 Cal.App.4th 1012 ......................................... 16, 53
FEDERAL CASES
Arizona v. Fulminante
(1991) 499 U.S. 279 [111 S.Ct. 1246, 113 L.Ed.2d 302] ...................... 21
Cascade Energy & Metals Corp. v. Bank
(10th Cir. 1990) 896 F.2d 1557 ....................................... 36, 63
Floyd v. I.R.S.
(10th Cir.1998) 151 F.3d 1295 ....................................... 36, 37
Holywell Corp. v. Smith
(1992) 503 U.S. 47 [112 S.Ct. 1021, 117 L.Ed.2d 196] ....................... 59
In re Barnes
(Bankr. E.D. Cal. 2002) 275 B.R. 889 .................................. 40, 42
In re Sims
(5th Cir. 1993) 994 F.2d 210 ............................................ 63
Katzir's Floor & Home Design, Inc. v. M-MLS.com
(9th Cir. 2004) 394 F3d 1143 ........................................ 16, 62
O. F. Nelson & Co. v. U.S.
(9th Cir. 1945) 149 F.2d 692 ............................................ 43
-xiv-
22. INTRODUCTION
The original judgment and costs award in this case, against plaintiff Stephen
Gaggero, were entered on February 5 and May 19, 2008, respectively, and affirmed by
this court on May 6, 2010. !/ More than four years after the judgment, respondents
asked the trial court to name the ten appellants as additional judgment debtors on the
ground that they were alter egos of Gaggero, whose attorney, Joseph Praske, had
created them in 1997 and 1998 as part of Gaggero's estate plan. The court granted
respondents' motion on May 29, 2012 and amended the judgment accordingly.
Appellants were subsequently placed into receivership. They then paid the judgment
in full at a cost of over $2.2 million.
The court's decision was wrong for many reasons. For one, the finding that
Gaggero controlled his own litigation means there can be no other judgment debtors.
The decision was also based on Praske's supposed failure to produce documents
which respondents had never asked him for. Appellants had no notice this might be
an issue, fundamentally violating their due process rights. The court compounded this
error by refusing appellants' request for a short continuance so they could produce the
evidence Praske had supposedly withheld.
The decision also was not supported by substantial evidence - in part because,
even though such ownership is a necessary part of an alter-ego relationship -
respondents conceded that Gaggero owns neither the appellants nor their assets. It
employed outside reverse piercing of the corporate veil, which California law forbids.
And it improperly held three irrevocable trusts liable for a debt of their settlor.
The decision also directly contradicts the original judgment's finding that
Gaggero had litigated his case in his individual capacity and not on behalf of any
entities. It is barred by judicial estoppel and law of the case. It also invaded the
I/
- The prior appeal was Gaggero v. Knapp, Petersen & Clarke, et al., 2 "d
Dist. No. B207567. Appellants respectfully ask the Court to take judicial
notice of the briefing, record and decision in that appeal pursuant to Evidence
Code sections 452, subdivision (d), and 453.
23. exclusivejurisdiction of theprobatecourtovermattersof internaltrustaffairs. And it
ignoredthe waivercausedby respondents'unjustifiable55-monthdelayin bringing
their motion.
Theseerrorshavedrawnappellantsinto adecade-oldlegaldispute,led to them
beingplacedinto receivership,andcostthemmillions of dollars. They respectfully
askthis courtto reversetrial court's baselessdecision.
STATEMENT OF APPEALABILITY
This appeal is taken from an amended judgment which named appellants
additional judgment debtors. That amended judgment is appealable under Code of
Civil Procedure section 904.1, subdivisions (a)(1) and (a)(2). z/ The alter-ego ruling is
independently appealable under section 904.1, subdivision (a)(2) as an order made
after a final, appealable judgment which involves different issues from those
addressed in the judgment and which affects that judgment and/or relates to its
enforcement.
FACTUAL AND PROCEDURAL HISTORY
- 1. The Estate Plan.
Gaggero, a successful real estate investor and developer, hired attorney Joseph
Praske in 1997 to develop and implement an estate plan on his behalf. (Trial RT1 602-
604; Trial RT5 2720; CT1 124-125; CT3 411.) 3-/ Setting up the estate plan took
several months in 1997 and 1998. (CT1 127, 152-163; CT2 192; CT3 411.) As part of
Z/All statutory citations herein are to the Code of Civil Procedure unless
otherwise noted.
3-/Citations to "JA", "Trial RT" and "Opn." refer to the joint appendix,
reporter's transcript and opinion from Gaggero's prior appeal, B207567.
Citations to "CT" and "RT" refer to the clerk's transcript and the reporter's
transcript in the present appeal.
24. thisprocess,Praskecreatedseverallimited liability companies("LLCs") andlimited
partnerships("LPs") in which Gaggeroinitially owneda membership or limited
partnership interest. (CT1 129-130; CT2 190-191,212-213.)
Appellants 511 OFW L.P., Gingerbread Court L.P., Malibu Broadbeach, L.P.,
Marina Glencoe L.P., Blu House L.L.C., and Boardwalk Sunset L.L.C. were each
created by Praske to ov_a a distinct piece of Gaggero's real property. (CT2 314-319,
360-CT3 370.)
Gaggero then transferred his properties to the LLCs and LPs. (CT1 126, 162-
163, 191.) He subsequently transferred his ownership in those entities into various
trusts which Praske had established, including appellants Arenzano Trust and the
Aquasante Foundation. (CT2 191-193,360-CT3 370.) He separately transferred his
personal residence to the Giganin Trust. (CT2 193-196.)
Praske has been the trustee of each of these trusts since they were formed.
(CT1 166-167; CT2 195; CT3 412.) By respondents' own admission, Gaggero no
longer owned the properties after he transferred them to the LLCs and LPs, and no
longer owned any interests in the LLCs or LPs after he transferred them to the trusts.
(CT1 28:2-7, 29:1-4, 29:21-22, 31:7-8, 31:8-11, 31:11-12, 31:12-18, 31:18-20, 32:4-5,
33:13-15, 36:2-6, 40:4-6, 42:15-16; CT3 428:15-17, 430:20-21,432:3-5,432:5-7,
432:7-9, 432:9-10, 432:11-12.)
The LLCs and LPs hired Praske's business management company, appellant
Pacific Coast Management, Inc. ("PCM"), to manage their assets and finances. (CT2
187-188, 195-196, 269.) Because Praske's expertise is in estate planning rather than
real estate management, PCM engaged Gaggero as a consultant to manage its clients'
real estate assets and guide future purchases or sales. (CT1 140; CT2 213-215,360.)
As of 2001, Gaggero's monthly pay was $3,000, along with the use of a company
vehicle and insurance benefits. (Trial RT6 3003-3005 CT3 375-376.) Gaggero also
used PCM to manage his own financial affairs. (CT2 252-257; Trial RT4 1836-1839.)
25. 2. Respondents Serve as Gaggero's Attorneys.
In or around August of 2000, Gaggero hired respondents - the law firm of
Knapp, Petersen & Clarke, and attorneys Stephen Ray Garcia, Stephen M. Harris, and
Andre Jardini -4/- to advise and represent him in various matters. (JA2 521-534; Trial
RT2 610-615.) They knew that he had two outstanding judgments against him from
other cases totaling hundreds of thousands of dollars; indeed, one of their tasks was to
bring a malpractice case against the attorney who had represented him in one of those
cases. (CT1 30:17-18; JA1 3:3-8, 4:1-16, 27-30; TrialRT2 303, 611-616; TrialRT5
2479.) Yet they did not require a retainer from him (Trial RT2 657-658; Trial RT4
2175; Trial RT8 4567-4570), and they worked on his behalf to persuade the judgment
creditors to compromise their claims because he could not afford to pay them in full
and might go bankrupt. (Trial RT5 2501-2511, 2738-2740, 2757; Trial RT6 3014-
3016, 3118-3119.) Gaggero paid respondents for their services with checks issued by
PCM drawn against funds he had borrowed from his estate. (Trial RT6 3139-3140.) _/
One of the cases respondents handled was Gaggero v. Yura, L.A.S.C. No.
BC239810 ("the Yura case"), which sought to enforce an agreement to purchase real
estate in Santa Monica. (Trial RT2 619-620, 635-636; Trial RT3 1247; Trial RT4
2173; CT2 281-288.) After the defendant claimed that Gaggero could not afford the
seven-figure purchase price, respondents prepared and submitted declarations by both
Gaggero and Praske explaining that, despite his limited personal wealth, Gaggero
could have borrowed the funds from his estate or other sources in arm's-length
transactions. (CT2:283-288.)
Amid disputes about the quality of their work, respondents resigned as
n/The record often refers to respondents collectively as "KPC".
5-/Gaggero tried to explain how these transactions worked, but
respondents successfully objected to that testimony. (Trial RT6 3141-3144.)
4
26. Gaggero'sattorneysandwithdrewtheir representationin early2002,(Trial RT3 908-
909, 1278-1279,1288-1289;Trial RT8 4616;TrialRT10 5750.)
3. The Malpraetlee Case.
Gaggero brought the underlying malpractice case later that year. (JA7 1934;
CT1 19.) His second amended complaint, filed on August 13, 2003, alleged several
causes of action, including professional negligence and breach of contract. (JA 1 1-41 .)
The damages he sought lneluded, inter ella, some of the fees he had paid to
respondents and their successor counsel, and a fee award to opposing counsel that he
had been required to pay in one of respondents' fbrnaer eases. (JA1 4-5, 11-24.)
The ease was tried without a jury from July 23 to September 10, 2007, when
the trial court granted respondents' motion for judgment under section 631.8. (Trial
RT10 5737-5738; JA1 147; JA2 366.) When asked how he paid respondents' fees,
Gaggero testified that he asked Praske to advance funds from the estate and that
Praske had agreed to do so. (Trial RT6 3139-3140.)
Praske did not testify at the trial. (Trial RT1.) Even after Gaggero testified that
he did not know details of the estate plan and that Praske was the only one who did
(Trial RT5 2773), respondents did not call him to the stand.
The trial involved many issues, most of which are not germane to this appeal -
with one noteworthy exception. The damages Gaggero sought from respondents
included approximately $498,000 worth of attorney fees and costs he had paid. (JA 1
86, 89.) The payments had been made via checks which were written by appellant
PCM but drawn on Gaggero's own funds. (Trial RT4 1869, 1837-1839.) Gaggero
tried to explain why the payments were his responsibility. (Trial RT6 3141-3144.)
Respondents objected, claiming that he had refused to answer related questions at his
deposition. (Trial RT6 3142.) The court sustained this objection, excluding all
evidence about Gaggero's relationship with PCM, the trusts, and the other entities.
(Trial RT6 3142-3143.)
27. Gaggeromadeanoffer of proof, describingtherelationshipbetweenhimself,
PCM, thetrusts,andthe otherentitiesthathadbeencreatedaspart of hisestateplan.
In particular,hetriedto showthatPCM is a managementcompanywhich paysbills
onbehalfof its clients- includinghim - usingtheclients' own money,andthat he
had borrowedthefeesfrom trustswhich hewasrequiredto reimburse.Thetrial court
stoodby its ruling. (Trial RT7 3626-3629,3632-3633.)
On January8,2008,thecourtissueda32-pagestatementof decision.(CT1 60-
91.) Among its findings was that Gaggero could not recover any of the fees or costs
that PCM had paid because there was no evidence they had been paid with his money.
In the Court's words:
"... Mr. Gaggero did not personally pay a single dime in attorneys fees to
anyone who represented him. All the attorneys fees were paid by or through
one or more business entities, including PCM ... directly to the attorneys.
There was no evidence that Mr. Gaggero was represented in a capacity as
officer, director or employee of any of these entities, and there was no evidence
that Mr. Gaggero has any obligation to repay any of these entities any sums
which they paid to attorneys. As far as the evidence goes, the entities paid
whatever sums were expended entirely gratuitously." (CT1 86.)
The judgment was entered on February 5, 2008. (JA2 421-423.) Respondents
filed a notice of entry on February 28, 2008. (JA2 424-429.) Gaggero filed a timely
notice of appeal on April 28, 2008. (JA7 1876-1878.) That appeal was Case No.
B207567.
Respondents filed a memorandum of costs (JA2 430-432) and a motion for
attorney fees. (JA6 1552-1582.) Gaggero opposed the fee motion (JA6 1586-1616)
and filed a motion to tax costs. (JA6 1659-1680.) The trial court granted the fee
motion in its entirety and taxed only a small portion of the requested costs, resulting in
a fee award of $1,202,944.50, a costs award of $124,702.90, and an amended
judgment totaling $1,327,674.40. (JA7 1884-1889.) Gaggero's appeal from that
amended judgment was Case No. B209522.
This court consolidated Gaggero's appeals under Case No. B207567. It issued
28. anunpublishedopinionon May 6, 2010,affirming boththe original and amended
judgments in full. The opinion expressly upheld the findings about PCM quoted
above. (Opn. 21-23.) The remittitur was issued on August 19, 2010.
On December 28, 2010, the trial court amended the judgment a second time,
awarding respondents another $192,723.90 in attorney fees and $522 in costs against
Gaggero for the appeal, along with $320,591.78 in accrued interest. (CT1 114-116.)
4. Post-Trial Discovery.
Respondents conducted judgment-debtor discovery about Gaggero's finances.
They took Praske's third-party debtor exam on June 5, 2009. (CT2 357-CT3 377.)
The order to appear named Praske in his individual capacity and not as a
representative of any entities. It directed him to testify about his knowledge of
Gaggero's finances and about any funds or assets he possessed which were owed to
Gaggero. It did not call for any information about any of the appellants. (CT2 357-
358.)
During Praske's examination, respondents' counsel asked him for information
about appellants 511 OFW, Blu House, and Boardwalk Sunset. Praske's lawyer
instructed him not to answer those questions, objecting that the information was
outside the scope of the order to appear, was irrelevant to respondents' investigation
of Gaggero's finances, was privileged and infringed upon the rights of appellants and
other third parties. Praske followed his lawyer's advice, testifying only that Gaggero
had transferred properties to those entities in the 1990s and had retained no interest in
them. (CT2 362,366; CT3 368.) Although the examination was held in the
courthouse (CT2 359), respondents neither asked the court to resolve this dispute nor
moved to compel further responses.
Respondents also served Gaggero with written discovery, asking him, inter
alia, to produce the trust instruments for Giganin, Arenzano, and Aquasante. (CT2
329-354) Gaggero - who had testified in 2007 that Praske was the one who had this
7
29. information(Trial RT4 1871-1872,2133;Trial RT5 2770-2774)- statedin response
that hedid nothavethem.(CT2 333-334.)6-/Respondentsdid notmoveto compel
further responses,andinsteadbroughttheiralteregomotionjust threeweeksafterthe
responseswereserved.(CT1 24;CT3 354.)
Respondentsdid notexaminePraskeagain,eitherasanindividual or asa
representativeof anyof theappellants.Theyalsofailedto examineanyoneelseon
appellants'behalf. Theydid notsubpoenaanyrecordsfrom appellants,nor did they
subpoenarecordsconcerningappellantsfrom anythird parties.
5. The Alter-Ego Motion.
On April 10,2012,respondentsfiled amotion undersection187to deem
appellantsGaggero'salteregosandto furtheramendthejudgmentby namingthem
additionaljudgmentdebtors.(CT1 24- CT3378.)z_ Their motion conceded thirteen
times that Gaggero does not own the appellants or their assets. (CT1 28:2-7, 29:1-4,
29:21-22, 31:7-8, 31:8-11, 31:11-12, 31:12-18, 31:18-20, 32:4-5, 33:13-15, 36:2-6,
40:4-6 42:15-16.) It also admitted that Gaggero's offer of proof about PCM was
accurate (CT1 38:2-8), and provided evidence to back it up. (CT2 261:22-28.)
The exhibits did not include the trust instruments of any of the three trusts, the
partnership agreements of any of the four LPs, the operating agreements of either
6/Respondents claimed Gaggero had previously refused to produce the
documents despite a successful motion to compel. (CTI 33:18-34:6.) But that
motion involved only interrogatories, not requests for production. (CT1 33:21-
25.) By definition, interrogatories call only for answers, not for production of
documents. Even so, respondents claimed that Gaggero "did not produce any
documents in response". (CT1 33:20, emphasis in original; see also CT1
53:21-23.)
Z/This brief refers to the trusts as alter egos solely for the sake of clarity.
The trial court actually named Praske the alter ego in his capacity as trustee,
per Galdjie v. Darwish (2003) 113 Cal.App.4th 1331, 1343-1344. (CT3 541-
542.)
30. LLC, or PCM's articlesof incorporation. Theydid not includeanyotherinternal
recordsof anyof theappellants,either. Theydid not identify thebeneficiariesof the
trusts,the shareholdersof PCM,themembersor managersof theLLCs, or thegeneral
or limited partnersof theLPs. Theyincludedno corporateminutes,nocontracts,no
bankstatements,andnofinancial recordsof anykind involving anyof theappellants.
Therewerenodeclarationsfrom witnesseswho hadworkedfor, donebusinesswith,
or interactedin anyway with anyof the appellants.Aside from theaforementioned
questionsin thePraskeexaminationthreeyearsearlier,theevidencedid not reveal
anyattemptto getthis informationfrom anyonebutGaggero.
Theevidencerespondentsdid provideincludedtwo transcriptexcerptsfrom the
2007trial, containingjust 25pagesfrom atotal of over2,100.(CT2 249-261,266-
277.) The January8, 2008statementof decisionwasalsoanexhibit (CT1 30-80),as
werethesecondamendedjudgment(CT1 114-116)andexcerptsfrom this court's
May 6, 2010opinion in Gaggero'sappeal.(CT1 93-111.) Appellants received no
other notice of what had happened during the trial.
Also among the exhibits were a portion of Praske's 2009 third-party debtor
exam (CT2 357-CT3 377) and Gaggero's responses to post-judgment demands for
production. (CT2 322-354.) They also included Gaggero's responses to post-
judgment interrogatories and the transcript of the October 5,2011 hearing of
respondents' motion to compel further responses. (CT2 291-306, 322-236.) -8_
Respondents also provided two printouts of basic public intbrmation about PCM, the
LLPs, and the LCs. (CT2 309-311,314-319.)
Appellants opposed the motion (CT3 397-414), as did Gaggero. (CT3 379-396,
415-422.)
Respondents' reply papers conceded seven more times that Oaggero owned
-8/Their evidence did not include the interrogatories, the motion, the
opposition, the reply, the order, the supplemental responses, or any further
motion based on those responses.
31. neitherappellantsnortheir assets.(CT3 428:15-17,430:20-21,432:3-5,432:5-7,
432:7-9,432:9-10,432:11-12.)The additional evidence they provided filled none of
the gaps in their original showing. (CT3 423-539.) Six of the seven new exhibits were
documents from other cases. (CT3 435-436.) The seventh was Gaggero's
supplemental response to post-judgment document requests described above. (CT3
468-495.) These responses were dated and served on April 30, 2012 (CT3 493-495),
which was after the motion had been filed. (CT1 24,)
Respondents' motion was heard and granted on May 29, 2012. (RT 28; CT3
540.) At the hearing, the trial court decreed that respondents had provided "a very
substantial amount of evidence on the nature of these relationships", amounting to
"quite a showing" that Gaggero controlled all of the appellants. (RT 2:1-8.) It also
said there was "no doubt" that Gaggero - not respondents - had "controlled the
underlying litigation". (RT 17:10.)
The court insisted that it was Praske, not Gaggero, who had failed to turn over
the trust documents during discovery, claiming that he should have sought a protective
order if he did not want to produce them. (RT 7:8-8:26, 10:4-5.) On that basis, the
court held the documents' absence against appellants and said it foreclosed some of
their key factual arguments. (CT3 540.) When appellants' counsel offered to produce
the documents and asked for a short continuance, the court deemed the proposal too
little, too late and called it a delaying tactic. (RT 8:27-10:25.)
The formal May 29 order states that appellants - including Praske in his
capacity as trustee of the three trusts - "are hereby added as judgment debtors." (CT3
541-542.) -9I Appellants filed a notice of appeal three days later. (CT3 543-545.)
-9/The May 29 order was actually a third amended judgment even though
it was not labeled as such. "There is no prescribed form for a judgment. Its
sufficiency depends on whether it shows distinctly that the issues have been
adjudicated." (7 Witkin, Cal. Procedure (5th ed., 2008) Judgment, § 29, p.
569.) The court's order was labeled "Order Granting KPC's Motion to Amend
(continued...)
10
32. 6. Appellants Pay the Entire Judgment - Including Interest and
Additional Costs - Under Duress.
On November 15, 2012, after respondents had persuaded the trial court to place
all of the appellants into receivership, four of them paid the judgment in full. By then,
the amount had grown to $2,238,509.51. (MJN Exhs. 2, 3.) I-Q/
STANDARDS OF REVIEW
Alter-ego findings are ordinarily reviewed for substantial evidence. (NEC
Electronics Inc. v. Hurt (1989) 208 Cal.App.3d 772, 776-777; McClellan v.
Northrtdge Park "Ibwnhome Owners Assn. (2001) 89 Cal.App.4th 746, 751-752.) To
be deemed substantial, evidence "must be of ponderable legal significance." (Estate of
Teed (1952) 112 Cal.App.2d 638, 644.) "It must be reasonable in nature, credible, and
of solid value; it must actually be 'substantial' proof of the essentials which the law
requires in a particular case." (Ibid.) "A decision supported by a mere scintilla of
evidence need not be affirmed on review." (Bowman v. Board of Pension
_-/(...eontinued)
Judgment to Add Judgment Debtors". (CT3 541.) It stated that the corporate,
limited partnership and LLC appellants "are hereby added as judgment
debtors" (CT3 541) and that the trustee of the three appellant trusts, "in his
capacity as the trustee", "is hereby added as a judgment debtor." (CT3 541-
542.) Because the order expressly modified the terms of the second amended
judgment, it was in itself a further amended judgment regardless of its label.
The court next formally amended the judgment on August 6, 2012,
adding interest and costs, and deemed that to be the third amended judgment.
(MJN Exh. 1.) Appellants' appeal from that amended judgment is now
pending in this court as Case No. B243062,
_/Appellants respectfully ask the court to judicially notice the trial
court's November 5, 2012 order approving the receiver's ex parte application
re payment of the judgment, and respondents' December 3, 2012 notice of
satisfaction for the limited purpose of showing that appellants paid the
judgment after being subjected to enforcement efforts by respondents.
II
33. Commissioners (1984) 155 Cal.App.3d 937, 944.) When assessing the sufficiency of
the evidence, an appellate court must review the entire record and cannot consider
only the evidence favorable to one party. (People v. Johnson (1980) 26 Cal.3d 557,
577.)
Where conflicting inferences may be drawn from the evidence, the appellate
court "must presume in favor of the judgment all reasonable inferences." (Kuhn v:
Department of General Services (1994) 22 Cal.App.4th 1627, 1622-1633, emphasis in
original,) "The ultimate determination is whether a reasonable trier of fact could have
found for the respondent based on the whole record." (ld. at 1633, emphases in
original, citing People v. Johnson, supra, 26 Cal.3d at pp. 577-578.) The Court of
Appeal will uphold inferences only if they are the "product of logic and reason and...
rest on the evidence." (Kuhn, supra, 22 Cal.App.4th at p. 1633.) Reasonable
inferences "do not include those which are contrary to uncontradicted evidence of
such a nature that reasonable people would not doubt it." (Ibid.)
Rulings on pure questions of law are reviewed de novo, with no deference
either to the trial court's ruling or the stated reasons therefor. (Ghirardo v. Antonioli
(1994) 8 Cal.4th 791,799.) This standard applies to questions of statutory
interpretation (People ex tel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415,
432.) Findings as to mixed questions of law and fact are reviewed de novo where
legal issues predominate. (Crocker National Bank v. City & County of San Francisco
(1989) 49 Cal.3d 881,888.)
The existence and scope of a legal duty are reviewed de novo. (Ann M. v.
Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 674.) Whether a given act is
within a court's inherent authority is also reviewed de novo. (Carpenter v. Jack in the
Box (2007) 151 Cal.App.4th 454, 460.) But the exercise of inherent authority is
reviewed for abuse of discretion. (People v. Powell (2011) 194 Cal.App.4th 1268,
1283.)
//
12
34. Whenthe interpretationof awritten documentis at issueandneitherside
presentedextrinsicevidenceat trial to aid in its interpretation,"the appellatecourt is
not bound by the trial court's ruling[.]" (Eisenberg, Horvitz, and Wiener, California
Practice Guide: CivilAppeals and Writs" (Rutter 2013) ("Eisenberg, et al.") § 8:66,
emphasis in original.) The meaning of such a document is a question of law and is
thus subject to interpretation de novo. (Parsons v. Bristol Development Co. (1965) 62
Cal.2d 861,865-866.)
Orders imposing discovery sanctions are reviewed for abuse of discretion.
(Vallbona v. Springer (1996) 43 Cal.App.4th 1525, 1545.) Where those sanctions are
based on factual findings, the findings are reviewed for substantial evidence. (Sauer v.
Superior Court (1987) 195 Cal.App.3d 213,227-228.)
ARGUMENT
I. THE FINDING THAT GAGGERO CONTROLLED HIS OWN
LITIGATION MEANS APPELLANTS CANNOT BE LIABLE FOR HIS
DEBT.
Much of this brief will address the finding that appellants are Gaggero's alter
egos. But this court need not even address that issue because the trial court made
another, distinct finding that fatally undermines the amended judgment: it found that
the underlying litigation was controlled not by appellants but by Gaggero. (CT3 540.)
Even actual proof of an alter ego relationship is not enough to add the alter
ego's name to a judgment. The court must also find that the alter ego controlled the
litigation. The trial court made no such finding. Instead, it expressly found that
Gaggero had controlled the litigation himself. The judgment against appellants fails
due not only to the absence of a finding that they were in control, but to the presence
of a finding that they were not. That ruling is fatal to the amended judgment and
requires a full reversal.
13
35. A. Entities Which Did Not Control the Litigation Cannot Be Added as
Judgment Debtors.
The California Supreme Court has held that adding a judgment debtor who did
not control the underlying litigation violates the Fourteenth Amendment's guarantee
of due process. As it explained, "[t]hat constitutional provision guarantees that any
person against whom a claim is asserted in a judicial proceeding shall have the
opportunity to be heard and to present his defenses." (Motores De Mexicali, S. A. v.
Superior Court (1958) 51 Cal.2d 172, 176.) Due process requires that anyone who is
held liable for a judgment have an opportunity to dispute the allegations which led to
that judgment. To add new debtors "without allowing them to litigate any questions
beyond their relation to the allegedly alter ego corporation would patently violate this
constitutional safeguard." (Ibid.)
"The ability under section 187 to amend a judgment to add a defendant, thereby
imposing liability on the new defendant without trial, requires both (1) that the new
party be the alter ego of the old party and (2) that the new party had controlled the
litigation, thereby having had the opportunity to litigate, in order to satisfy due process
concerns." (Triplett v. Farmers Ins. Exchange (1994) 24 Cal.App.4th 1415, 1421,
emphases in original.) These requirements "are in addition to, not in lieu of the
threshold alter ego issues." (Ibid., emphasis in original; see also Ahart, California
Practice Guide: Enforcing Judgments and Debts (Rutter 2012) ("Ahart") § 6:1568
["The amendment lies only if the nonparty alter ego controlled the underlying
litigation. Absent such control, the alter ego is a true nonparty", emphasis in
original].)
Even a genuine alter ego may become a new judgment debtor" 'only if the
individual to be charged, personally or through a representative, had control of the
litigation and occasion to conduct it with a diligence corresponding to the risk of
personal liability that was involved.' " (NEC Electronics Inc. v. Hurt, supra, 208
Cal.App.3d at pp. 778-779, quoting Rest.2d, Judgments, § 59, p. 102.) The alter ego
14
36. canthusbeliable if it controlledthelitigant, but not if thelitigant controlledthealter
ego. Liability canonly betransferredupthechainof command,notdown.
B. The Trial Court Expressly Found that Appellants DidNot Control
the Litigation.
The trial court did not find that any of the appellants exerted even a slight
amount of control over the litigation. It instead expressly found that
Gaggero controlled the litigation himself. (CT3 540 [holding that appellants "are the
alter ego of Mr. Gaggero, who controlled this litigation."]) And it said at leastfive
times at the May 29 hearing that Gaggero controlled the lawsuit and/or the appellants.
(RT 2:6-8 ["I seem to have quite a showing here that, in fact, Mr. Gaggero controls
these - directs these monies at will"], 17:10-11 ["there is no doubt that Mr. Gaggero
controlled the underlying litigation"], 18:26 ["Gaggero controlled the litigation"],
22:18-19 ["Mr. Praske is for all intents and purposes a rubber stamp"], 27:21 ["Mr.
Gaggero controls these entities."]) _/
This is precisely the opposite of what respondents had to prove. The finding
that Gaggero controlled his own litigation means that no one else was exerting the
necessary control to qualify as an additional judgment debtor, w/ The court's own
finding fatally undermines its contradictory alter-ego ruling.
//
//
_/Similarly, in its statement of decision, the court found that Gaggero
had litigated the case "entirely in a personal capacity" and not as part of an
entity that could recover for the services of in-house counsel. (JA2 413-414.)
_/Ofcourse, appellants do not agree that Gaggero controlled them. But
this finding underscores the court's belief that appellants did not control
Gaggero or his litigation.
15
37. C. The Evidence Could not Support a Finding that Appellants
Controlled the Litigation.
Even if the trial court had not found that Gaggero controlled his own litigation,
the evidence could not have supported the opposite finding. Respondents did not
claim any of the appellants ever had even the slightest bit of control over the case.
They instead argued that Gaggero had controlled the appellants. (CT1 28:10-11,
29:18-19, 36:23, 37:21-22, 38:1-4; CT3 424:10-11,428:25-26.) Respondents bore
the burden &proof, and they proved the opposite of what was required. (Wollersheim
v. Church ofScientology lnt 'l (1999) 69 Cal.App.4th 1012, 1017; Ahart, supra, §
6:1572.) _/
The requisite control entails more than mere involvement in the case. It is not
enough, for instance, to fund the litigation, appear as a witness, and cooperate, without
exerting actual control of the litigation. (Minton v. Cavaney (1961) 56 Cal.2d 576,
581.) It is also not enough to be the sole owner of a judgment debtor who hired and
fired its lawyers and who appeared at settlement conferences. (Katzir's Floor & Home
Design, Inc. v. M-MLS.com (9th Cir. 2004) 394 F3d 1143, 1149-1150.)
D. This Finding that Gaggero Controlled His own Litigation Requires
a Full Reversal.
Appellants, of course, do not challenge the finding that Gaggero controlled the
litigation. Respondents neither appealed from it nor filed a cross-appeal, it is
_/A handful of older decisions simply inferred such control from the
alter ego finding. (See, e.g., Schoenberg v. Benner (1967) 251 Cal.App.2d 154,
168; Dow Jones Co. v.Avenel(1984) 151 Cal.App.3d 144, 148-149.) But they
pre-date substantial case law that says control is a distinct requirement. (See,
e.g., Triplett v. Farmers, supra, 24 Cal.App.4th at p. 1421; NEC Electronics
Inc. v. Hurt, supra, 208 Cal.App.3d at p. 778-779.) Ahart calls the
preponderance test "undoubtedly the correct standard of proof" (Ahart, supra,
§ 6:1572a, citing Wollersheim, supra, 69 Cal.App.4th at p. 1017 [contrary rule
"would stand in stark contrast to well-settled law that the preponderance test
applies generally in the trial court."].)
16
38. thereforefinal andbinding onrespondentsin anyfurtherproceedingsin thetrial court.
It is too latefor respondentsto challengethefinding. "[A] respondentwho has
not appealedfrom thejudgmentmaynot urgeerroronappeal."(California State
Employees 'Assn. v. State Personnel Bd. (1986) 178 Cal.App.3d 372, 382, fla. 7.)
Even if respoI_dents had challenged the finding their challenge would fail, since they
repeatedly argued below it was Gaggero who controlled appellants and not the other
way around. So even if respondents do an about-face and claim the finding was an
error, it would be an error they invited. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383,
403.)
This finding conclusively establishes that appellants did not control the
litigation. They thus cannot be additional judgment debtors even if they somehow
really are Gaggero's alter egos. Because respondents cannot overcome this finding,
there is no reason to remand the case for further proceedings. "[W]here it appears
from the record as a matter of law there is only one proper judgment on undisputed
facts _/, we may direct the trial court to enter that judgment." (Conley v. Matthes
(1997) 56 Cal.App.4th 1453, 1459, fn. 7.) Appellants respectfully ask this court to do
just that.
//
//
_/Here, of course, the undisputed fact is that Gaggero controlled his
own litigation. It defeats respondents' claim no matter what their other
evidence might show.
17
39. II. THE ALTER-EGO DECISION RESTS ENTIRELY ON THE COURT'S
UNSUPPORTED FINDINGS THAT APPELLANTS HAD COMMITTED
MISCONDUCT.
The trial court explained that it rejected appellants' arguments because Praske
had refused to produce the trust instruments or identify the trusts' beneficiaries during
discovery. (CT3 540.) The court made the same accusation several times during the
hearing. (RT 8, 10, 11, 12, 26.) It insisted that, by refusing to produce the documents,
appellants were using their confidentiality "as both a sword and a shield". (RT 26:26-
27.) But there was no evidence Praske had ever been asked for any these documents,
much less that he had refused to provide them. Respondents did not even claim that
they had sought such documents from him. The trial court was simply wrong.
Even though appellants had never been asked for the trust documents, had
never been called as witnesses, and had only become involved in the case when they
received the alter-ego motion (RT 11:22-12:7), the court accused them of a long
history of discovery abuse:
"[T]his is a situation where these issues have been percolating for a long time,
and there is a fundamental unfairness to making KPC jump through all these
hoops to collect the judgment and saying no, no you can't have X, Y and Z,
and then coming in at the last minute making arguments not set forth in the
pleadings based on evidence not before the court and saying Judge give us a do
over." (RT 27:7-14.)
The court also faulted Praske for supposedly being evasive at trial: "And in
fact, I do know that Mr. Praske was extraordinarily vague when he was questioned at
trial about the identities of these beneficiaries supposed beneficiaries [sic]." (RT
26:15-18.) But Praske did not testify at the trial (Trial RT 1), and neither Gaggero nor
any other witness was ever asked to identify the beneficiaries of any of the trusts.
Here again, the record does not say what the court insisted it says.
//
//
18
40. A. Praske Did Not "Refuse" to Produce Documents, Since Respondents
Did Not Ask Him To.
The trial court devoted almost half of its minute order to Praske's supposed
refusal to produce documents and to the role this refusal played in its decision:
The Court notes that Mr. Praske, represented by the same counsel who
represented Mr. Gaggero, has apparently refused to produce the trust
documents on the grounds that they are confidential. That refusal has resulted
in there now being no evidentiary [sic] for any of the factual assertions
concerning the trust which counsel has made today. In particular, to the extent
counsel suggests there are beneficiaries and contingent beneficiaries who are
entitled to notice, the actions of Mr. Praske, while represented by Mr.
Gaggero's counsel, have made this impossible. (CT3 540.)
This statement echoed similar comments from the court during the hearing.
(See, e.g., RT 8:4-6 ["you or Mr. Gaggero have prccluded the other side from access
to the very information that you claim is necessary for them to give notice"]; 10:19-20
["...evidence that has previously been refused to be produced..."]; 11:15-17 ["I have
been denied that information as defense counsel has been denied that information";
"... information that has been previously withheld"]; 12:15-16 ["How would I know
without you providing everything?"])
But respondents claimed only that they had sought the documents from
Gaggero in written discovery, and that it was Gaggero who had failed to produce
them. (CT1 28:14-19, 33:13-34:6; CT3 429:13-18.) Their supporting evidence
likewise concerned only Gaggero's discovery responses. (CT1 46:1-4, 53:1-4, 53:16-
54:2, CT2 290-306, 321-354; CT3 435:21-24, 467-495.) They did not serve document
requests on Praske, either individually or on appellants' behalf.
The only evidence of Praske's role in discovery was some excerpts of his June
8, 2009 third-party judgment debtor examination. (CT2 359-CT3 377.) _/ He had been
_/Respondents also offered some of Praske's 2005 trial testimony in
Gaggero v. Yura, et al., L.A.S.C. No. BC239810 - a different case in which
he was cross-examined by different lawyers representing different clients
(continued...)
19
41. orderedto appearin his individual capacity.(CT2 357.) Theorderdid not call for him
to producedocuments,andit soughthistestimonyonly aboutGaggeroandnotabout
appellants.(CT2 357-358.) Respondentsstartedto askhim questionsaboutthe
internaloperationsof appellants511OFW,Blu House,andBoardwalkSunset,but he
declinedto answeron attorney-clientprivilege andothergroundsonadviceof
counsel.(CT2 360-362,366;CT3368.) Respondentsotherwiselimited their
questionsto Gaggero'srelationshipwith theappellanttrusts,LLCs andLPs,revealing
that Gaggerohadnofinancial or participatoryinteresteither with themor in the
propertiesthey owned.(CT2 362-CT3375.) PraskealsotestifiedthatPCM furnished
Gaggerowith a truck in his role asconsultantandpaidtheinsurancepremiums.(CT3
375-376.)
During the34monthsafterthey tookPraske'sexaminationandbeforethey
broughttheir alter-egomotion,respondentsdid nothingto seekanyadditional
documentsor informationfrom Praskeor theappellants.
Praske'spurportedmisdeedswerebut a figmentof thecourt's imagination.
"Judicial imaginationis, however,no substitutefor evidence."(Peoplev. Kluga
(1973) 32 Cal.App,3d 409, 418, Diss. Opn. of Kaus, J..) There is no evidence that
Praske ever refused to turn over the disputed documents. The alter-ego finding flows
entirely from this error by the trial court. The amended judgment must therefore be
reversed in its entirety.
//
l/
2/(...continued)
about different matters. (CT1 182-CT2 218.) Praske's Yura testimony
predated the original judgment in this case by more than three and a half years.
It pre-dated the alter-ego motion by almost seven years.
2O
42. 1. Because Appellants Had no Notice that They Would Be
Accused of Refusing to Produce Documents, the May 29
Ruling Violated Their Due Process Rights and is Reversible
Per Se.
Appellants had no notice that they would need to rebut a claim that Praske had
withheld documents. They only learned of the accusation at the hearing, when the
court asked why it should believe that the trusts are irrevocable after Praske had
supposedly refused to produce evidence. (RT 6-8.) Appellants' counsel - who had not
participated in the 2007 trial and had been hired specifically to oppose the alter-ego
motion in 2012 (RT 11-12) - explained that respondents' papers contained
uncontradicted evidence that all three trusts were irrevocable. But the court focused
only on Praske's supposed misconduct. (RT 6-7.)
Failure to give an affected party notice of issues that may be decided against it
violates its Fourteenth Amendment right to due process. (Lovato v. Santa Fe lnternat.
Corp. (1984) 151 Cal.App.3d 549, 553.) A ruling that is entered without notice to the
affected parties is void. (City of Los Angeles v. Morgan (1951) 105 Cal.App.2d 726,
730.) The alter-ego findings and amended judgment are thus void to the extent they
rest on the finding that Praske had refused to produce evidence.
Imposing a penalty without even an attempt to give notice is "a mistake of
constitutional dimension." (In re Jasmine G. (2005) 127 Cal.App.4th 1109, 1115.)
Unlike a routine error in the presentation of evidence, which may be deemed harmless,
a complete failure to offer notice is a structural error which "demand[s] automatic
reversal." (Ibid.)
The United States Supreme Court has explained that "structural defects in the
constitution of the trial mechanism.., defy analysis by 'harmless-error' standards."
(Arizona v. Fulminante (1991) 499 U.S. 279, 309 [111 S.Ct. 1246, 113 L.Ed.2d 302].)
Although that holding was made in a criminal case, "California courts have applied
Fulminante outside the criminal context[.]" (In re Jasmine G., supra, 127 Cal.App.4th
at p. 1115; see also Martin v. County of Los Angeles (1996) 51 Cal.App.4th 688,698.)
21
43. As this court recentlyexplained,eventhoughArticle VI, section13of theCalifornia
Constitutiongenerallyallowsreversalonly on ashowingof prejudice,"someerrorsin
civil casesremainreversibleperse,primarily whentheerrorcallsinto questionthe
veryfairnessof thetrial or hearingitself." (Biscarov. Stern (2010) 181 Cal.App.4th
702, 709.)
When a trial court commits a structural error, the "appellant is not required to
specifically demonstrate prejudice" and is entitled to a reversal as a matter of law,
regardless of the strength of his opponent's evidence or arguments. (ln re Enrique G.
(2006) 140 Cal.App.4th 676, 685; Eisenberg, et al., supra, § 8:308.) "[S]tructural
error calls for reversal per se because the error prevents a reviewing court from
ascertaining what might have happened absent the error." (Biscaro v. Stern, supra,
181 Cal.App.4th at p. 709.)
The court's belief that appellants had wrongfully withheld evidence - stated
twice in the minute order (CT3 540) and three times at the hearing (RT 10:7-14) -
clearly played an outsized role in its decision. Having been given no notice, counsel
could not have supplied either the evidence or an explanation of what had happened.
And though counsel tried to solve the problem by offering to produce the trust
instruments, the court refused to give him a chance. (RT 8-11 .)
2. The Ruling Amounted to an Improper Discovery Sanction.
Although not so labeled, the trial court's holding amounted to an evidentiary
and/or issue sanction for discovery abuses. That sanction was improper.
The court's authority to impose discovery sanctions comes from section
2023.030, which allows them only for "engaging in conduct that is a misuse of the
discovery process". Section 2023.010 contains a list of conduct that qualifies, all of
which involve improperly propounding discovery or refusing to properly answer it.
While that llst is not exhaustive, it shows that courts may not sanction a party - let
alone a nonparty witness - for failing to provide evidence that had not been sought
22
44. from him.
"The powerto imposediscoverysanctionsis a broaddiscretionsubjectto
reversalonly for arbitrary,capricious,or whimsicalaction."(Vallbonav. Springer
(1996) 43 Cal.App.4th 1525, 1545.) But this discretion has limits. "Only two facts
are absolutely prerequisite to imposition of the sanction: (1) there must be a failure to
comply ... and (2) the failure must be wilful[.]" (Ibid.) Neither of these prerequisites
was satisfied here.
It is not even clear when the court believed Praske was supposed to produce the
trust instruments. Its comment that appellants "could have applied fbr a protective
order to that effect in a timely fashion" (RT 10) makes no sense. Why would
appellants seek protection from something that never happened. 9 What would their
motion have sought protection from? When should they have brought it.'?
If Praske had actually refused to produce the trust documents, respondents
could have proved it easily. They offered no such proof.
a. Praske Testified in His Individual Capacity and Not as
a Representative of Any of the Appellants.
The notice of Praske's third-party judgment debtor examination was issued to
him individually, not on behalf of any trusts or business entities. (CT2 357.) So even
if he really had refused a proper document request, that refusal would not have been
attributable to any of the appellants. The trial court, however, held it against all of
them.
b. Evidentlary and Issue Sanctions May Not Be Imposed
on Nonparties.
At least until the amended judgment was entered on May 29, 2012, the only
parties to the case were Gaggero and respondents. The 2009 order for Praske to
appear expressly acknowledges that he was to testify as a third person rather than as a
23
45. judgment debtor. (CT2 357.) So even if he really had improperly withheld documents
and even if he had done so as appellants' agent, it would have happened when the
appellants were nonparties. Monetary sanctions and contempt are the only relief
available against a nonparty witness. (Temple Comm. Hosp. v. Superior Court (1999)
20 Cal.4th 464, 476-477; Eisenberg, et al., supra, § 8:617.5.)
c. There Is No Evidence that Respondents Moved to
Compel Responses from Praske.
A court may generally impose evidentiary sanctions only if the sanctioned
party has willfully disobeyed a prior order compelling him to provide the requested
documents or information. (New Albertsons, Inc. v. Superior Court (2008) 168
Cal.App.4th 1403, 1428; Saxena v. Goffney (2008) 159 Cal.App.4th 316, 334.) "[T]he
burden is on the propounding party to enforce discovery. Otherwise, no penalty
attaches either for the responding party's failure to respond or responding
inadequately!" (Weil & Brown, California Practice Guide: Civil Procedure Before
Trial (Rutter 2013) § 8:1136.)
Even if respondents had asked Praske about the trusts and even if he had
refused to answer their questions, respondents could have immediately sought an
order directing him to respond. After all, the exam was held in the courthouse (CT2
359) precisely to make such prompt relief available. (Ahart, supra, § 6:1335.1.)
Instead, they waited almost three years - and even then they did not claim that he had
ever withheld the documents. By the time respondents filed their motion, they had
long since lost the right to challenge Praske's responses.
d. There Is No Evidence Praske Willfully Violated Any
Discovery Requirements.
The major exception to prerequisite of a successful motion to compel is for
parties who willfully give false information in their discovery responses. (Saxena,
24
46. supra, 159 Cal.App.4th at p. 334 ["in the absence of a violation of an order
compelling an answer or further answer, the evidence sanction may only be imposed
where the answer given is willfully false." (Emphasis in original)]; Karlsson v. Ford
Motor Co. (2006) 140 Cal.App.4th 1202, 1214-1215.)
Respondents offered no evidence that Praske gave false answers at all, much
less that he did so willfully in connection with nonexistent document requests. They
did not claim that any of his testimony was false, much less willfully so, and they
certainly didn't offer contrary evidence. The worst that could be said of Praske's
testimony is that he declined to answer three questions on the advice of counsel. (CT2
362,366; CT3 368.) Such refusal supports only the inference that be believed he did
not have to answer. (Gaggero v. Yura (2003) 108 Cal.App.4th 884, 892-893.) "The
simple failure to answer, or the giving of an evasive answer, requires the propounding
party to pursue an order compelling an answer or further answer - otherwise the right
to an answer or further answer is waived and an evidence sanction is not available."
(Saxena, supra, 159 Cal.App.4th at p. 334.)
e. Gaggero's Failure to Produce Documents is not
Attributable to Appellants.
Respondents justified their alter-ego motion in part by complaining that
Gaggero declined to give them information about appellants. (CT1 33-34, CT2 322-
326, 329-354.) According to respondents' motion, "Further post-judgment discovery
propounded to Gaggero would be similarly futile without amendment &judgment."
(CT1 34.) But even if Gaggero was wrong to withhold the information, and even if
further attempts to get the materials from him really would have been futile, that is a
statement about him and not appellants. Respondents did not even claim they had
sought the trust instruments from appellants - or anyone else besides Gaggero - and
they offered no evidence that it would have been futile to try.
The court's order says that Praske was the one who refused to produce the
25
47. documents.(CT3 540.) Evenif Gaggero'sactionssomehowcould support
sanctioning the trusts, that was not the basis of the court's ruling.
Had respondents subpoenaed the trust instruments from Praske, he could have
moved to quash the subpoena or sought a protective order and explained why he
should not have to comply. As it is, he never had reason nor opportunity to do either
of these things.
Nor can Gaggero's actions be imputed to Praske or any of the appellants.
There is no finding that Gaggero was acting as appellants' agent when he answered
respondents' discovery. That discovery had been served on him in his individual
capacity, before respondents had even tried to bring appellants into the case. (CT2
322-326, 329-354.)
Neither the trial court nor respondents ever explained how any of the appellants
could be held accountable for Gaggero's discovery responses. The court could only
attribute those responses to appellants by presuming that Gaggero and the appellants
were one and the same. But a court may not presume the truth of claim in order to
find that the claim is true; that is what burdens of proof are designed to prevent. Even
if we assume that Gaggero had the documents and willfully failed to turn them over,
that failure could only be held against him.
B. The Trial Court's Ruling Hinged on its Unsupported Finding that
the Same Lawyer Represented both Praske and Gaggero at the
Time of this Supposed Refusal.
The minute order says twice that Praske was represented by Gaggero's attorney
when he supposedly refused to produce the trust documents. (CT3 540.) The court
made the same observation three times during the hearing:
THE COURT: ... You see, Mr. Praske has previously been represented
by counsel for Mr. Gaggero. Sort of looks like they are joined at the hip.
In connection with this motion, this is not a situation where Mr. Praske,
26
48. duringtheseprecedingtimes,hashadindependentcounsel,
HehasusedMr. Gaggero'scounsel,which suggeststo me- certainly
leadsto aninferencethatthepositionstakenwereeoordlnatedpositions.(RT
10:7-14.)
Theaccusationhasno supportin therecord. Thesupposedrefusalnever
happened,sothereisno wayto saywho representedGaggeroor Praskeat thetime.
Gaggerowasrepresentedat thehearingby David Chatfield,while appellantswere
representedby David Esquibias.(CT3 379-396,397-414,RT 1.)
Sohow did respondentssuggestto thecourtthatPraskeandGaggeroshared
counsel.'?By dismissivelycalling ChatfieldandEsquibias"purportedly" separateand
by notingthattheir officesarein thesamesuite.(CT3 433:13-16.)_/ But sharing
spacedoesnot supporta reasonableinferencethatlawyersarepartof a singlefirm.
(SeeChambers v. Kay (2002) 29 Cal.4th 142, 150.) The available evidence uniformly
showed that Chatfield and Esquibias were not. They have different firm names,
different phone numbers and different fax numbers. (CT3 379, 397.) Different
assistants signed their proofs of service. (CT3 396, 414.) There is literally no
evidence that they share any of the attributes of a single law firm. (Cal. Rules Prof.
Conduct, rule 1-100(B)(1)(a).) This but one of many ways respondents persuaded the
court with appearances and innuendo instead of substantial evidence.
C. The Trial Court's Refusal to Let Appellants Produce the Trust
Documents Before Penalizing Them is Another Reason Why the
Amended Judgment is Reversible Per Se.
When a court refuses to let a party offer evidence critical to its case, it violates
that party's constitutional right to a fair hearing. (U.S. Const., 14th Amend.; Cal.
Const., art. I, § 7.) Such violations are structural errors and are irrebuttably presumed
_/These statements appear in their reply brief, and thus were not
rebutted in the oppositions.
27
49. to beprejudicial.(In re Angela C. (2002) 99 Cal.App.4th 389, 394-395.) Reversal for
such errors is mandatory. (In re Enrtque G., supra, 140 Cal.App.4th 676, 685.)
Once counsel realized that the court believed appellants had the burden to
produce the trust documents, he offered to do so and asked for a short continuance as
well as an order limiting their disclosure. (RT 8-10.) The court rejected hls request,
stating "You could have applied for a protective order to that effect in a timely
fashion." (WI" 10.) Of course, because respondents never asked appellants tbr the
documents, they never had any reason to seek such an order.
Even though appellants offered to produce the trust documents mere moments
after they first learned of the accusation, the court held that the papers should already
have been produced and accused appellants of obstruction. The court faulted
appellants' counsel for
"...coming in at this point in time, raising arguments orally, that were not in the
papers, asserting evidence that has previously been refused to be produced, and
then saying, well you have got to delay it Judge, this that and the other thing.
" '1 want to do all the things that Mr. Praske has not done, when he was
represented by Mr. Gaggero's counsel.' Smells like more delay." (RT 10:17-
25.)
Counsel explained that he needed only a short continuance, but the court was
unmoved, again demanding to know why the argument had not been made sooner.
(RT 10:26-11:18.) When counsel explained that there were beneficiaries who were
entitled to notice, the court complained "I have been denied that information as
defense counsel has been denied that information" and demanded to know "What, if
anything else are you offering an way of information that has been previously
withheld?" (RT 11:19-21.)
"Denying a party the right to testify or to offer evidence is reversible per se."
(Kelly v. New West Federal Savings (1996) 49 Cal.App.4th 659, 677; accord Marriage
of Carlsson (2008) 163 Cal.App.4th 281,291; Gordon v. Nissan Motor Co., Ltd.
(2009) 170 Cal.App.4th 1103, 1114-1116.) Eisenberg, et al., agree that an "erroneous
28
50. denialof aparty's right to testify or present evidence establishing its ease is reversible
per se." (Eisenberg, et al., supra, § 8:311.)
Courts must give "a full and t'air opportunity to the parties to present all
competent, relevant, and material evidence bearing upon any issue properly presented
for determination." (Elktns v. Superior Court (2007) 41 Cal.4th 1337, 1357-1358.)
"To this end a trial judge should not determine any issue that is presented for his
consideration until he has heard all competent, material, and relevant evidence the
parties desire to introduce.' "(Ibid.) That is precisely what the trial court failed to do
here. Appellants are entitled to a reversal.
IIl. RESPONDENTS ARE ESTOPPED TO MAKE AN ALTER EGO CLAIM
BECAUSE THEY ADMITTED IN PRIOR PROCEEDINGS THAT
GAGGERO AND APPELLANTS ARE FINANCIALLY SEPARATE.
Although they now insist that appellants' money is really Gaggero's,
respondents took the opposite position both in this case and when they were his
lawyers in Yura - and they have not claimed they were duped into doing so. Their
alter-ego motion represents a complete about-face. That gambit succeeded in the trial
court, but this court should not stand for it.
A declaration respondents drafted for Praske and then filed in Yura said:
"I am trustee over a portion of Mr. Gaggero's personal estate. As
trustee, I have agreed to authorize funds from Mr. Gaggero's personal estate in
the amount of $1,100,000 for purchase of the real property located at 938
Palisades Beach Road. The portion of Mr. Gaggero's estate over which I am
trustee has well in excess of $1,100,000 readily available." (CT2 285.)
A declaration they drafted and filed for Gaggero, after describing his own and
his family's financial resources, went on to describe the separate finances &his estate:
"10. In addition, I manage certain entities which have sufficient assets
to close the escrow on the 938 property. These entities are ready, willing and
able to commit and have committed the funds necessary to close escrow on the
938 property which is worth at least $1,650,000, by payment of $1,100,000
into escrow,
29
51. 12. Lastly,thetrusteeandattorneyof my personalestate,JosephJ,
Praske,hasagreed to authorize the necessary funds ($1,100,000) from my
personal estate to purchase the 938 property. My estate has well in excess of
$1,100,000 at its disposal.)" (CT2 287-288.)
Respondents have never disavowed the statements, and they have never
claimed that either Praske or Gaggero misled them about these facts. They certainly
haven't accused themselves of misleading the Yura court, even innocently. Yet they
now point to these very declarations - and even to their own choice of the phrase
"personal estate"- as evidence of a supposed fraud by appellants. (CT1 37:13-20.) Of
course, respondents' papers do not mention that they wrote these declarations and
vouched for them in a court of law. And though respondents insist that the lawyers
who later argued that Gaggero and appellants are separate are part of a scheme (CTI
28:12-14, 29:1-2; CT3 422:11-13,422:21-23,433:4-18), they ignore their own history
of doing the same thing. Even if respondents actually believe the estate plan is
somehow fraudulent, they are complicit in the fraud of which they now complain.
Respondents took the same position during Gaggero's trial in the present case,
insisting that he and PCM were separate and that he therefore lacked standing to
recover money the business had advanced - in other words, that he was litigating
solely for himself. They argued there that Gaggero
"testified in his deposition, and he testified at trial, that he is merely a
consultant to PCM. He has no ownership interest. [¶] He has had no
ownership interest for a number of years .... I believe his testimony was that
somebody may have called him a director at some point in time, but he later
learned that that was not an accurate description of what he was. Okay. I have
got all the corporate documents for PCM. He is not listed as a director. [¶[] He
is not an officer. He is nothing. He has expressly, by design, disavowed any
relationship with that company." (Trial RT6 3629:8-19.)
Based on respondents' argument, the trial court expressly found that Gaggero
was separate from the estate he had created years earlier. (CT1 85-87.) It concluded
that
3O
52. "the only plaintiff in this actionis Mr. Gaggeroin hispersonalcapacity.No
otherpersonor entity hasjoined this actionasaplaintiff', andthereis no
credibleevidencethatMr. Gaggerohasauthorityto representanyotherperson
or entity (whetherby anassignmentor otherwise)in assertingthesedamage
claims." (CT1 85.)
RespondentsagaininsistedthatGaggerois separatefrom appellantsin this
very courtin July of 2009,duringhisappealfrom theoriginaljudgment. As they
explainedonpage35of their brief:
"(g) Gaggerolacksstanding to recover expendituresby his
trusts.
In light of Gaggero's testimony that the money used to pay his legal
bills came from a trust, only the trust has standing to bring a claim for damages.
As a trust beneficiary, Gaggero has "no legal title or ownership interest in the
trust assets." [Citation]. He is not the real party in interest and has no standing
to sue on behalf of the trust. [Citations]"
"Judicial estoppel prevents a party from asserting a position in a legal
proceeding that is contrary to a position previously taken in the same or some earlier
proceeding." (Jackson v. County of Los Angeles (1997) 60 Cal.App.4th 171, 181
[citations omitted].) This variety ofestoppel "is invoked to prevent a party from
changing its position over the course of judicial proceedings when such positional
changes have an adverse impact on the judicial process." (Ibid.)
"The dual purposes for applying this doctrine are to maintain the integrity of
the judicial system and to protect parties from opponents' unfair strategies.
Judicial estoppel is intended to prevent litigants from playing fast and loose
with the courts. It is an extraordinary reined[y] to be invoked when a party's
inconsistent behavior will otherwise result in a miscarriage of justice." (Levin
v. Ligon (2006) 140 Cal.App.4th 1456, 1468, citations and quotation marks
omit_ted.)
Appellants raised the judicial-estoppel issue in the trial court. (CT3 408.) So
did Gaggero. (CT3 392-394.) The court rejected it. (RT 15:2-16:25.) But having
previously argued that appellants are separate from Gaggero, respondents should not
have been allowed to take the opposite position.
31
53. IV. APPELLANTS CANNOT BE GAGGERO'S ALTER EGOS.
Sometimes when an individual disregards the separateness of a business entity
he owns by mingling its finances with his own, a court will deem it his alter ego and
hold him personally liable for its debts. (Postal Instant Press, Inc. v. Kaswa Corp.
(2008) 162 Cal.App.4th 1510, 1513, 1518 ("PIP"); Greenspan v. LADT, LLC (2011)
191 Cal.App.4th 486, 513 ("Greenspan").) Doing so, of course, is called "piercing
the corporate veil". It is a way to make a shareholder responsible for the debts of a
corporation which he has not treated as a separate entity. (2 A.L.R.6th 195.) There are
variations on this basic concept, but none of them justify the result below.
A. The Varieties of Alter-Ego Liability.
Respondents won in the trial court by blurring the distinctions between the
different types of alter-ego liability and glossing over the reasons why some are
allowed and others aren't. As a result, they won a judgment which is not permitted
under any of these varieties. At the risk of stating the obvious, appellants will briefly
describe the various forms of the alter-ego doctrine before explaining why none of
them support the May 29 judgment.
If one person owns two businesses and disregards their separate identities,
intermingling their finances with each other's and with her own in order to avoid
paying their debts, then the alter-ego doctrine says she can be liable for a judgment
against one of the businesses if she controlled the litigation. This process is ordinary
veil-piercing, and it has long been allowed under California law. (Minifie v. Rowley
(1922) 187 Cal. 481,487.)
The judgment creditor can also ask the court to find that the second business is
the alter ego of the first because their finances are intermingled and because they share
common ownership. If the second business or the owner controlled the litigation, they
can also be added as judgment debtors. This is the single-enterprise rule and it, too, is
allowed in California. (Las Palmas Assoc. v. Las Palmas Ctr. Assoc. (1991) 235
32
54. Cal,App.3d1220,1249-1250("Las Palmas").)
But what it the judgment is against the owner alone, and the creditor wants the
court to hold the businesses liable as additional judgment debtors? That process is
called "outside reverse veil piercing", or "reverse piercing" for short. _/ Some states
would allow it, if the businesses controlled the owner's litigation and if there were
safeguards in place to protect their other shareholders. (PIP, supra, 162 Cal.App.4th at
pp. 1521-1522.) In California, though, reverse piercing is forbidden. (ld. at pp. 1512-
1513, 1518; Greenspan, supra, 191 Cal.App.4th at p. 513.) The creditor's remedy
would instead be to execute on the owner's interest in the businesses. (PIP, supra, 162
Cal.App.4th at p. 1522.)
Suppose instead that the individual judgment debtor concededly does not own
the businesses, but the creditor wants them deemed her alter egos anyway. This
process has no name, because it does not exist. There is no sensible reason to do it.
There are no statutes, cases, principles, or theories which say it should ever be
allowed. Even so, it is what happened here.
But what if the original judgment debtor really has intermingled her finances
with those of the businesses even though she doesn't own them? Doesn't the law give
her creditor some sort of remedy? Of course it does - but not via the alter-ego
doctrine. The creditor's remedy is to allege fraudulent transfers from the original
debtor to the businesses. (Civ. Code, § 3439.07.) If he can prove the accusation, then
the businesses can be forced to pay the judgment - not because they are somehow
equivalent to the original debtor or had some control over her defense, but because of
E/It is called "outside" reverse piercing because "[t]he typical 'reverse
pierce' ease involves a corporate insider, or someone claiming through such
individual, attempting to pierce the corporate veil from within so that the
corporate entity and the individual will be considered one and the same."
(Fletcher Cyclopedia of the Law of Corporations § 41.70. "Reverse plereing
of corporate veil".)
33
55. their own participationin the fraud. Of course,suchaclaim mustbesupportedwith
evidenceof thetransactionsandbroughtbeforeit becomestime-barred.
B. Appellants Are not Gaggero's Alter Egos Under any of these
Theories.
Respondents were notably vague about which mechanism they were relying on,
and the trial court did not explain which one it was using. The mechanism could not
have been ordinary veil-piercing. After all, appellants clearly do not own Mr.
Gaggero, and respondents never claimed that they do.
At one point respondents hinted that they were invoking the single-enterprise
rule, (CTI 36:11-13.) But that rule does not apply here because, inter alia, it requires
common ownership between the original and additional judgment debtors. (Las
Palmas, supra, 235 Cal.App.3d at pp. 1249-1250.) Just as appellants do not own Mr.
Gaggero, neither does anyone else. Since he does not have an owner, there is no
common ownership over him and the appellants.
Respondents argued at length that appellants could be liable through reverse
piercing. (CT1 29:25-26, 40:23-42:17; CT3 424:15-24, 428:4-431:24.) _/Reverse
piercing is forbidden by California law. (PIP, supra, 162 Cal.App.4th at pp. 1512-
1513.) But even if it were allowed it would have been improper here, since
respondents conceded at least twenty times in their papers that Gaggero does not own
the appellants or their assets. (CT1 28:2-7, 29:1-4, 29:21-22, 31:7-8, 31:8-11, 31:11-
12, 31:12-18, 31:18-20, 32:4-5, 33:13-15, 36:2-6, 40:4-6, 42:15-16; CT3 428:15-17
k/They insisted that the court did not need reverse piercing in order to
add appellants to the judgment and that this was just a fallback position. (CTI
29:24-26, 40:23-28, 42:16-17; CT3 424:19-24,428:4-430:2.) They did not say
what their primary theory actually was.
34
56. 430:20-21,432:3-5,432:5-7,432:7-9,432:9-10,432:11-12.)_/ After all, if Gaggero
ownedthe appellants,respondentscouldhavejust seizedsomeof his ownership
intereststo satisfythejudgment.
Theonly theorythatremainsis fraudulenttransfer. But respondentsmadeno
suchclaim,andthecourt madenosuchfindings. Theydid notbring a separateaction
againstappellants.And they concedethat a fraudulent-transferclaim would have
beentime-barred.(CT1 29:2-4,40:19-20,42:15.16.)
Appellantscouldnot beliable for Gaggero'sjudgmentunderanyot'these
theories,evenit"theyactuallyhadcontrolledthelitigation.
1. Outside Reverse Veil-Piercing is Forbidden in
California.
The difference between ordinary and reverse veil-piercing is straightforward:
ordinary veil-piercing makes owners liable for the debts of their businesses, while
reverse veil-piercing makes businesses liable for the debts of their owners. California
law permits the former but not the latter, allowing courts under proper circumstances
to move liability up the figurative chain of command but not down. The reason it is
forbidden is that "[o]utside reverse piercing can harm innocent shareholders and
corporate creditors, and allow judgment creditors to bypass normal judgment
collection procedures." (PIP, supra, 162 Cal.App.4th at p. 1513.)
"Traditional alter ego doctrine and reverse piercing, while having
similar goals, advance those goals by addressing very different concerns. When
a judgment debtor is a corporation, the judgment creditor cannot reach the
assets of the individual shareholders due to limitations on liability imposed by
corporate law. Traditional piercing of the corporate veil is justified as an
equitable remedy when the shareholders have abused the corporate form to
evade individual liability, circumvent a statute, or accomplish a wrongful
purpose. [Citations.]
_JRespondents made the same concession in 2009 on pages 11 and 35
of their brief in Gaggero's appeal from the original judgment.
35
