This document is an opening brief submitted on behalf of additional judgment debtors and appellants in the Court of Appeal of California. It summarizes a case where the plaintiff Stephen Gaggero sued his former attorneys for legal malpractice. After trial, the court added additional entities and trusts as judgment debtors on an alter ego theory. The brief argues that 1) the trial court found Gaggero controlled his own litigation so the additional parties cannot be liable, 2) the alter ego decision was based on unsupported findings of misconduct, 3) respondents are estopped from making an alter ego claim, 4) appellants are not legally alter egos under California law, and 5) the trusts added cannot be liable because they are irrevoc
1. Case No.
B241675
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
STEPHEN M. GAGGERO,
Plaintiffand Appellant,
vs.
KN.t..PP, PETERSEN & CLARKE; STEVEN RP..Y GARCIA;
STEPHEN M. HARRIS and ANDRE JARDIN!,
Defendants andRespondents;
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 GIGANlN TRUST, THE ARENZANO TRUST,
and THE AQUASANTE FOUNDATION
Additional Judgment Debtors and Appellants
Hon. Robert L. Hess, Hon. Matthew St. George,
Hon. Murray Gross; Hon. Victor Greenberg
Superior Court ofLos 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
Attorneyfor Additional Judgment Debtors and Appellants
2. Case No.
B241675
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION EIGHT
STEPHEN M. GAGGERO,
PlaintiffandAppellant,
vs.
KNAPP, PETERSEN & CLARKE; STEVEN RAY GARCIA;
STEPHEN M. HARRIS and ANDRE JARDINI,
Defendants and Respondents;
PACIFIC COAST MANAGEMENT, INC.; 511 OFW LP;
GINGERBREAD COURT LP; MALIBU BROAD BEACH LP;
MARJNA 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
Hon. Robert L. Hess, Hon. Matthew St. George,
Hon. Murray Gross; Hon. Victor Greenberg
Superior Court ofLos 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
Attorneyfor Additional Judgment Debtors andAppellants
3. TO BE FILED IN THE COURT OF APPEAL
APP-008
COURT OF APPEAL, Second APPELLATE DISTRICT, DIVISION Eight
Court of Appea Case Nlrnber:
B241675
EORNEY OR PARlY 'VlfHOUT ATTOR{H (Na'/t State Bar number. a'(f address): ~~or Court Cas:i Number
dward A. Ho fman ar -167240)
BC286925-Law Offices ofEdward A. Hoffman
12301 Wilshire Blvd., Suite 500 FOR COURT USE ONLY
Los Angeles, CA 90025
TELEPHONENO : (3 10) 442-3600 FAA NO. (Opi1onao: (310) 442A6QQ
E·~A~1LADDREssropfiona~: eah@hoffmanlaw.com
ATTO«rlEY ~OR (Name): Pacific Coast Management, et al., Additional Judgment Debtors
-........._.._ -··- ~~ - ·~
APPELLANT/PETITIONER: Stephen M. Gaggero, et al.
RESPONDENT/REAL PARTY IN INTEREST: Knapp, Petersen & Clarke, et al.
CERTIFICATE OF INTERESTED ENTITIES OR PERSONS
(Check one): 0 INITIAL CERTIFICATE W SUPPLEMENTAL CERTIFICATE
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 a prebriefing motion, application, 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 M anagement, et al., Additional Judgment Debtors
2. a. D There are no interested entities or persons that must be listed in this certificate under rule 8.208.
b. []] Interested entities or persons required to be listed under rule 8.208 are as follows:
Full name of interested
entity or person
(1) TerraMar Trust
(2)
(3)
(4)
(5)
LJ Continued on attachment 2.
Nature of interest
(Explain):
The undersigned certifies that the above-listed persons or entities (corporations, partnerships, firms, or any other
association, but not including government entities or their agencies) have either (1 ) 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 disqualify themselves, as defined in rule 8.208(e)(2).
Date: June 24, 2013
Edward A. Hoffman
(lYPE OR PRINT NAME)
Pagc 1of1
FrumApprc.ed forOp'..er.al Use
JudidalCOU'1Cll or Cailomia
APP--008 (Re~ January 1. 2009]
CERTIFICATE OF INTERESTED ENTITIES OR PERSONS ea1. Ru1esorcourt, rn1ese.2ca aA9a
vlW.r.oo;irlinfo.ca.g.;:>v
LexisNexis®Automaled California Judicial Co1111cil Forms
5. II. The Alter-Ego Decision Rests Entirely on the Court's Unsupported
Findings That Appellants Had Committed Misconduct. . . . . . . . . . . . . . . . . 18
A. Praske Did Not "Refuse" to Produce Documents, Since
Respondents Did Not Ask Him To. . . . .................... . ... 19
1. Because Appellants Had No Notice That They Would Be
Accused ofRefusing to Produce Documents, the May 29
Ruling Violated Their Due Process Rights and Is Reversible
Per Se................... .. ........................ 21
2. The Ruling Amounted to an Improper Discovery Sanction ... 22
a. Praske Testified in His Individual Capacity and Not
as a Representative ofAny ofthe 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
III. 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
-11-
6. A. The Varieties ofAlter-ego Liability. .......................... 32
B. Appel1ants Are Not Gaggero's Alter Egos under Any ofThese
Theories. . ........ . ..... . . .. . . . ......................... 34
1. Outside Reverse Veil-Piercing Is Forbidden in
California.... .. ... . ... . .. ......... .. . ... . .......... 35
2. Even IfCalifornia Law Allowed Reverse Piercing,
Respondents Failed to Make the Necessary Showing. . . ..... 37
3. The Single-Enterprise Rule Does Not Support the Amended
Judgment. . . . .............. .... . . . . ... . .. .. .. .. . . .. 37
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
V. 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 ofProofre Revocability 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 ofthe Evidence Cannot Be Waived. . . . . . . . . . . 48
-lll-
7. 2. Appellants Raised the Issue in the Trial Court, and the
Court Rejected it on the Merits. . ........ .. ...... .. . . ... 48
VI. There Is Insufficient Evidence to Support the Amended Judgment. . . . . . . . 50
A. The Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
B. The Gaps.... . ......................... .. .. . .. . ...... .. .. 52
C. Respondents Had to Prove Both That Appellants and Gaggero
Shared a Unity ofInterest and Ownership and That Recognizing
Their Separateness Would Promote an Injustice. . ....... ... ..... 53
D. There Is No "Unity of Interest and Ownership" Between
Appellants and Gaggero. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
1. Respondents' Concession That Gaggero Does Not Own
Any ofthe Appellants Conclusively Disproves the Required
Unity...... ... ..... ...... .. . ................ .. .... 54
2. Without Ownership, Evidence ofControl Is Not Enough.. ... 55
3. There Is Insufficient Evidence to Establish the Required
Unity of Interest and Ownership..... . .......... . ..... .. 56
a. Respondents' Evidence Would Have Been
Insufficient Even IfThey Did Not Have to
Prove Ownership. . .. . ......... . ..... : . . . . . . . . . 57
b. Respondents Have Failed to Prove Unity Strong
Enough to Overcome Appellants' Separateness from
Gaggero. ...... .. ........ .... .... ... ......... 60
E. Enforcing Appellants' Separateness from Gaggero Would Not
Sanction a Fraud or Promote Injustice. . . . . . . . . . . . . . . . . . . . . . . . . 60
1. Appellants' Separateness from Gaggero Is Not a Fiction. . . . . 61
2. Respondents' Alter Ego Motion Is a Fraudulent Transfer
Claim in Disguise and Is Time-Barred. . .. . ....... .. ..... 61
-IV-
8. 3. Enforcing a Statute ofLimitations Neither Sanctions a
Fraud Nor Promotes an Injustice. . . . . . . . . . . . . . . . . . . . . . . 62
F. There Is Nothing Unjust about Making Respondents Bear the
Consequences ofTheir Own Business Decisions............. .. .. 63
G. Respondents' Failure to Prove Their Case Means They May Not
Have Another Chance in the Trial Court. . . . . . . . . . . . . . . . . . . . . . . 64
VII. The Trial Cowt Invaded the Probate Court's Exclusive Jurisdiction Over
the Trusts' Internal Affairs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
VIII. That Gaggero and Appellants Are Financially Separate Is Law of the
Case ...................... . ..... . . ................. . ......... 66
IX. 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
B. Having Accepted the Benefits ofthe Original Judgment,
Respondents May Not Contradict It. .................. . ....... 69
X. Respondents' 55-Month Delay Waived Their Alter-Ego Claim. .... ..... . 70
A. A Court May Not Add New Judgment Debtors Ifthe Creditor
Knew ofthe 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-
9. 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 ofthe Amended Judgment. .......... .. 75
Conclusion ........ . ............... . ................................ 77
Certificate ofWord Count . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Proof ofService by Mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
-VJ-
21. 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.l' 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 ofGaggero'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
ill. 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 ofthe corporate veil, which California law forbids.
And it improperly held three irrevocable trusts liable for a debt oftheir 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 ofthe case. It also invaded the
J.!The prior appeal was Gaggero v. Knapp, Petersen & Clarke, et al., 2nd
Dist. No. B207567. Appellants respectfully ask the Court to take judicial
notice ofthe briefing, record and decision in that appeal pursuant to Evidence
Code sections 452, subdivision (d), and 453.
22. exclusive jurisdiction of the probate court over matters ofinternal trust affairs. And it
ignored the waiver caused by respondents' unjustifiable 55-month delay in bringing
their motion.
These errors have drawn appellants into a decade-old legal dispute, led to them
being placed into receivership, and cost them millions ofdollars. They respectfully
ask this court to reverse trial court's baseless decision.
STATEMENT OF APPEALABILITY
This appeal is taken from an amended judgment which named appellants
additional judgment debtors. That amended judgrne.nt is arpealable under Code of
Civil Procedure section 904.1, subdivisions (a)(l) and (a)(2).£' 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 ffiSTORY
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 RTI 602-
604; Trial RT5 2720; CTI 124-125; CT3 411 }' Setting up the estate plan took
several months in 1997 and 1998. (CTI 127, 152-163; CT2 192; CT3 411.) As part of
YAll statutory citations herein are to the Code of Civil Procedure unless
otherwise noted.
l'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.
2
23. this process, Praske created several limited liability companies ("LLCs") and limited
partnerships ("LPs") in which Gaggero initially owned a membership or limited
partnership interest. (CTl 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 own a distinct piece ofGaggero's real property. (CT2 314-319,
360-CT3 370.)
Gaggero then transferred his properties to the LLCs and LPs. (CTl 126, 162-
163, 191.) He subsequently transferred his ownership in those entities into various
trust~ 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 ofeach ofthese trusts since they were formed.
(CTl 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.
(CTl 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. (CTI 140; CT2 213-215, 360.)
As of2001, 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.)
3
24. 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 Jardini1/ - 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 ofthousands of dollars; indeed, one oftheir tasks was to
bring a malpractice case against the attorney who had represented him in one ofthose
cases. (CTI 30:17-18; JAl 3:3-8, 4:1 -16, 27-30; Trial RT2 303, 611-616; Trial RT5
2479.) Yet they did not require a retainer from him (Tria~ RT2 657-658; Trial RT4
2175; Trial RT8 4567-4570), and they worked on his behalfto 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.)i'
One ofthe 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 oftheir work, respondents resigned as
1'The record often refers to respondents collectively as "KPC".
.2.'Gaggero tried to explain how these transactions worked, but
respondents successfully objected to that testimony. (Trial RT6 3141-3144.)
4
25. Gaggero's attorneys and withdrew their representation in early 2002. (Trial RT3 908-
909, 1278-1279, 1288-1289; Trial RT8 4616; Trial RTlO 5750.)
3. The Malpractice Case.
Gaggero brought the underlying malpractice case later that year. (JA7 1934;
CTI 19.) His second amended complaint, filed on August 13, 2003, alleged several
causes of action, including professional negligence and breach ofcontract. (JAl 1-41.)
The damages he sought included, inter alia, some ofthe 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 ofrespondents' former cases. (JAl 4-5, 11-24.)
The case 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
RTlO 5737-5738; JAl 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 RTl .) Even after Gaggero testified that
he did not know details ofthe 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 ofwhich 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. (JAl
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.)
5
26. Gaggero made an offer ofproof, describing the relationship between himself,
PCM, the trusts, and the other entities that had been created as part of his estate plan.
In particular, he tried to show that PCM is a management company which pays bills
on behalf of its clients - including him - using the clients' own money, and that he
had borrowed the fees from trusts which he was required to reimburse. The trial court
stood by its ruling. (Trial RT7 3626-3629, 3632-3633.)
On January 8, 2008, the court issued a 32-page statement of decision. (CTl 60-
91.) Among its findings was that Gaggero could not recover any ofthe 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 ofthese entities, and there was no evidence
that Mr. Gaggero has any obligation to repay any ofthese entities any sums
which they paid to attorneys. As far as the evidence goes, the entities paid
whatever sums were expended entirely gratuitously." (CTI 86.)
The judgment was entered on February 5, 2008. (JA2 421-423.) Respondents
filed a notice ofentry 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 ofthe 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
6
27. an unpublished opinion on May 6, 2010, affirming both the 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. (CTI 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
28. information (Trial RT4 I87I-I872, 2133; Trial RT5 2770-2774)- stated in response
that he did not have them. (CT2 333-334.)2' Respondents did not move to compel
further responses, and instead brought their alter ego motion just three weeks after the
responses were served. (CTI 24; CT3 354.)
Respondents did not examine Praske again, either as an individual or as a
representative ofany ofthe appellants. They also failed to examine anyone else on
appellants' behalf. They did not subpoena any records from appellants, nor did they
subpoena records concerning appellants from any third parties.
5. The Alter-EgG Motion.
On April I0, 2012, respondents filed a motion under section I87 to deem
appellants Gaggero's alter egos and to further amend the judgment by naming them
additional judgment debtors. (CTI 24 - CT3 378.)JJ Their motion conceded thirteen
times that Gaggero does not own the appellants or their assets. (CTI 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: I5-I6.) It also admitted that Gaggero's offer ofproof about PCM was
accurate (CTl 38:2-8), and provided evidence to back it up. (CT2 261:22-28.)
The exhibits did not include the trust instruments ofany ofthe three trusts, the
partnership agreements of any ofthe four LPs, the operating agreements ofeither
§'Respondents claimed Gaggero had previously refused to produce the
documents despite a successfulmotion to compel. (CTI 33:I8-34:6.) But that
motion involved only interrogatories,not requests forproduction. (CT133:21-
25.) By definition, interrogatories call only for answers, not for production of
docwnents. Even so, respondents claimed that Gaggero "did not produce any
documents in response". (CTI 33 :20, emphasis in original; see also CTI
53:21-23.)
7JThis briefrefers to the trusts as alter egos solely for the sake ofclarity.
The trial court actually named Praske the alter ego in his capacity as trustee,
per Galdjie v. Darwish (2003) 1I3 Cal.App.4th 133 I, I343-1344. (CT3 541-
542.)
8
29. LLC, or PCM's articles of incorporation. They did not include any other internal
records ofany ofthe appellants, either. They did not identify the beneficiaries ofthe
trusts, the shareholders ofPCM, the members or managers ofthe LLCs, or the general
or limited partners ofthe LPs. They included no corporate minutes, no contracts, no
bank statements, and no financial records ofany kind involving any ofthe appellants.
There were no declarations from witnesses who had worked for, done business with,
or interacted in any way with any ofthe appellants. Aside from the aforementioned
questions in the Praske examination three years earlier, the evidence did not reveal
any attempt to get this information from anyone but Gaggero.
The evidence respondents did provide included two transcript excerpts from the
2007 trial, containing just 25 pages from a total of over 2,100. (CT2 249-261, 266-
277.) The January 8, 2008 statement of decision was also an exhibit (CTl 30-80), as
were the second amended judgment (CTl 114-116) and excerpts from this court's
May 6, 2010 opinion in Gaggero's appeal. (CTI 93-111.) Appellants received no
other notice ofwhat had happened during the trial.
Also among the exhibits were a portion ofPraske'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.)ll.'
Respondents also provided two printouts ofbasic public information about PCM, the
LLPs, and the LCs. (CT2 309-311, 314-319.)
Appellants opposed the motion (CT3 397-414), as did Gaggcro. (CT3 379-396,
415-422.)
Respondents' reply papers conceded seven more times that Gaggero owned
ll.ITheir 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.
9
30. neither appellants nor their 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. (CTI 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 ofevidence on the nature ofthese relationships", amounting to
"quite a showing" that Gaggero controlled all ofthe 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 ofthe three trusts - "are hereby added as judgment debtors." (CT3
541-542.)2' Appellants filed a notice of appeal three days later. (CT3 543-545.)
21The May 29 orderwas actually a third amendedjudgmenteven 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 orderwas labeled"Order Granting.K.PC's Motion to Amend
(continued...)
10
31. 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 ofthe appellants into receivership, four ofthem paid the judgment in full. By then,
the amount had grown to $2,238,509.51. (MJN Exhs. 2, 3.)-ill'
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.
Northridge Park Townhome Owners Assn. (2001) 89 Cal.App.4th 746, 751-752.) To
be deemed substantial, evidence "must be ofponderable legal significance." (Estate of
Teed (1952) 112 Cal.App.2d 638, 644.) "It must be reasonable in nature, credible, and
ofsolid value; it must actually be 'substantial' proof ofthe 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 ofPension
21(...continued)
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 ofthe second amended
judgment, it was in itselfa further amended judgment regardless ofits label.
·.The court next fonnally amended the judgment on August 6, 2012,
adding interest and costs, and deemed that to be the third amendedjudgment.
(MJN Exh. 1.) Appellants' appeal from that amended judgment is now
pending in this court as Case No. B243062.
.ill'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.
11
32. 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 ofthe judgment all reasonable inferences." (Kuhn v.
Department ofGeneral 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." (Id. 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 ifthey are the "product oflogic 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 ofstatutory
interpretation (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415,
432.) Findings as to mixed questions oflaw and fact are reviewed de novo where
legal issues predominate. (Crocker National Bank v. City & County ofSan Francisco
(1989) 49 Cal.3d 881, 888.)
The existence and scope of a legal duty are reviewed de novo. (Ann M v.
Pacific Plazc;; 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) 151Cal.App.4th454, 460.) But the exercise of inherent authority is
reviewed for abuse of discretion. (People v. Powell (2011) 194 Cal.App.4th 1268,
1283.)
II
12
33. When the interpretation of a written document is at issue and neither side
presented extrinsic evidence at trial to aid in its interpretation, "the appellate court is
not bound by the trial court's ruling[.]" (Eisenberg, Horvitz, and Wiener, California
Practice Guide: Civil Appeals and Writs (Rutter 2013) ("Eisenberg, et al.")§ 8:66,
emphasis in original.) The meaning ofsuch a document is a question oflaw 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 ofdiscretion.
(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
34. 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 (I) that the new
party be the alter ego ofthe 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 ifthe nonparty alter ego controlled the underlying
litigation. Absent such control, the alter ego is a ttue 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
35. can thus be liable ifit controlled the litigant, but not ifthe litigant controlled the alter
ego. Liability can only be transferred up the chain of command, not down.
B. The Trial Court Expressly Found that Appellants DidNot Control
the Litigation.
The trial court did not find that any ofthe 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 ofMr. Gaggero, who controlled this litigation."]) And it said at least.five
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."])!ll
This is precisely the opposite ofwhat 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..!11 The court's own
finding fatally undermines its contradictory alter-ego ruling.
II
II
Jl!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.)
.!11Qfcourse, 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
36. C. The Evidence Could not Support a Finding that Appellants
Controlled the Litigation.
Even ifthe 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 ofthe 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 of proof, and they proved the opposite ofwhat was required. (Wollersheim
v. Church ofScientology Int'! (1999) 69 Cal.App.4th 1012, 1017; Ahart, supra,§
6:1572.)ll'
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 ofthe 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
illA handful of older decisions simply inferred such control from the
alter ego finding. (See, e.g., Schoenbergv. Benner (1967) 251Cal.App.2d 154,
168;DowJones Co. v. Avenel (1984) 151Cal.App.3d144, 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 ; NE('. Electronics
Inc. v. Hurt, supra, 208 Cal.App.3d at p. 778-779.) Ahart calls the
preponderance test "undoubtedly the correct standard ofproof' (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
37. therefore final and binding on respondents in any further proceedings in the trial court.
It is too late for respondents to challenge the finding. "[A] respondent who has
not appealed from the judgment may not urge en-or on appeal." (California State
Employees' Assn. v. State Personnel Ed. (1986) 178 Cal.App.3d 372, 382, fn. 7.)
Even ifrespondents 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 ifrespondents 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 ifthey 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 Jaw there is only one proper judgment on undisputed
facts.!!!', we may direct the trial cou11 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.
II
II
.l.11Here, 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
38. 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 bim. 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
triai about the identities ofthese beneficiaries supposed beneficiaries [sic]." (RT
26:15-18.) But Praske did not testify at the trial (Trial RTl), and neither Gaggero nor
any other witness was ever asked to identify the beneficiaries of any ofthe trusts.
Here again, the record does not say what the court insisted it says.
II
II
18
39. A. Praske Did Not "Refuse" to Produce Documents, Since Respondents
Did Not Ask Him To.
The trial court devoted almost halfof 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 ofMr. 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 precluded 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: I5-I7 ["I have
been denied that information as defense counsel has been denied that information";
"... information.that has been previously withheld"]; I2: I5-I6 ["How would I know
without you providing everything?"])
But respondents claimed only that they had sought the documentsfrom
Gaggero in written discovery, and that it was Gaggero who had failed to produce
them. (CTI 28:I4-I9, 33:13-34:6; CT3 429:I3-18.) Their supporting evidence
likewise concerned only Gaggero's discovery responses. (CTI 46:I-4, 53:1-4, 53:I6-
54:2, CT2 290-306, 32I-354; CT3 435:21-24, 467-495.) They did not serve document
requests on Praske, either individually or on appellants' behalf.
The only evidence ofPraske's role in discovery was some excerpts ofhis June
8, 2009 third-party judgment debtor examination. (CT2 359-CT3 377.)111
He had been
ll1
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
40. ordered to appear in his individual capacity. (CT2 357.) The order did not call for him
to produce documents, and it sought his testimony only about Gaggero and not about
appellants. (CT2 357-358.) Respondents started to ask him questions about the
internal operations of appellants 511 OFW, Blu House, and Boardwalk Sunset, but he
declined to answer on attorney-client privilege and other grounds on advice of
counsel. (CT2 360-362, 366; CT3 368.) Respondents otherwise limited their
questions to Gaggero's relationship with the appellant trusts, LLCs and LPs, revealing
that Gaggero had no financial or participatory interest either with them or in the
properties they owned. (CT2 362-CT3 375.) Praske also testified that PCM furnished
Gaggero with a-truck in his role as consultant and paid the insurance premiums. (CT3
375-376.)
During the 34 months after they took Praske's examination and before they
brought their alter-ego motion, respondents did nothing to seek any additional
documents or information from Praske or the appellants.
Praske's purported misdeeds were but a figment ofthe court's imagination.
"Judicial imagination is, however, no substitute for evidence." (People v. Kluga
(1973) 32 Cal.App.3d 409, 418, Diss. Opn. ofKaus, 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.
II
II
ll'(...continued)
about different matters. (CTI 182-CT2 2 18.) Praske's Yura testimony
predated the originaljudgment in this case by more than three and a halfyears.
It pre-dated the alter-ego motion by almost seven years.
20
41. 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 ofthe 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 ofLos 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." (Jn 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 ofthe 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. 11 15; see also Martin v. County ofLos Angeles (1996) 51 Cal.App.4th 688, 698.)
21
42. As this court recently explained, even though Article VI, section 13 ofthe California
Constitution generally allows reversal only on a showing ofprejudice, "some errors in
civil cases remain reversible per se, primarily when the error calls into question the
very fairness ofthe trial or hearing itself." (Biscaro v. 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. (Jn re Enrique G.
(2006) 140 Cal.App.4th 676, 685; Eisenberg, et al., supra, § 8:308.) "[S]tructural
error calls for reversal per ~P, 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 beliefthat 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 ofwhat 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 list 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
43. from him.
"The power to impose discovery sanctions is a broad discretion subject to
reversal only for arbitrary, capricious, or whimsical action." (Val/bona v. Springer
(1996) 43 Cal.App.4th 1525, 1545.) But this discretion has limits. "Only two facts
are absolutely prerequisite to imposition ofthe sanction: (1) there must be a failure to
comply ... and (2) the failure must be wilful[.]" (Ibid.) Neither ofthese 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 for 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? What would their
motion have sought protection from? When should they have brought it?
IfPraske 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 ofPraske's third-party judgment debtor examination was issued to
him individually, not on behalfof any trusts _or business entities. (CT2 357.) So even
ifhe really had refused a proper document request, that refusal would not have been
attributable to any ofthe appellants. The trial court, however, held it against all of
them.
b. Evidentiary 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
44. judgment debtor. (CT2 357.) So even ifhe really had improperly withheld documents
and even ifhe 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 ifthe 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 ifrespondents had asked Praske about the trusts and even ifhe 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 courth~use (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
45. supra" 159 Cal.App.4th at p. 334 ["in the absence ofa violation ofan order
compelling an answer or fu11her answer, the evidence sanction may only be imposed
where the answer given is willfullyfalse." (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 ofhis testimony was false, much less willfully so, and they
certainly didn't offer contrary evidence. The worst that could be said ofPraske'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 he 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 ofan 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. (CTI 33-34, CT2 322-
326, 329-354.) According to respondents' motion, "Further post-judgment discovery
propounded to Gaggero would be similarly futile without amendment ofjudgment.~·
(CTI 34.) But even if Gaggero was wrong to withhold ihe 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
46. documents. (CT3 540.) Even if Gaggero's actions somehow could support
sanctioning the trusts, that was not the basis ofthe 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
ofthese things.
Nor can Gaggero's actions be imputed to Praske or any ofthe 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 ofproof are designed to prevent. Even
ifwe assume that Gaggero had the documents and willfully failed to tum 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
47. during these preceding times, has had independent counsel.
He has used Mr. Gaggero's counsel, which suggests to me - certainly
leads to an inference that the positions taken were coordinated positions. (RT
10:7-14.)
The accusation has no support in the record. The supposed refusal never
happened, so there is no way to say who represented Gaggero or Praske at the time.
Gaggero was represented at the hearing by David Chatfield, while appellants were
represented by David Esquibias. (CT3 379-396, 397-414, RT 1.)
So how did respondents suggest to the court that Praske and Gaggero shared
counsel? By dismissively calling Chatfield and Esquibias "purportedly" separate and
by noting that their offices are in the same suite. (CT3 433:13-16.)161
But sharir.g
space does not support a reasonable inference that lawyers are part ofa single firm.
(See Chambers 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 ofthe attributes ofa single law firm. (Cal. Rules Prof.
Conduct, rule 1- lOO(B)(l)(a).) This but one of many ways respondents persuaded the
court with appearances and innuendo instead ofsubstantial 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.
Vlhen 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
WThese statements appear in their reply brief, and thus were not
rebutted in the oppositions.
27
48. to be prejudicial. (Jn re Angela C. (2002) 99 Cal.App.4th 389, 394- 395.) Reversal for
such errors is mandatory. (Jn re Enrique 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 his request,
stating "You could have applied for a protective order to that effect in a timely
fashion." (RT 10.) Of course, because respondents never asked appellants for 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 ofthe 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.
" 'I 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
unm~ved, 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
ofCarlsson (2008) 163 Cal.App.4th 281, 291 ; Gordon v. Nissan Motor Co., Ltd.
(2009) 170 Cal.App.4th 1103, 1114-11 16.) Eisenberg, et al., agree that an "erroneous
28
49. denial of a party's right to testify or present evidence establishing its case is reversible
per se." (Eisenberg, et al., supra, § 8:311.)
Courts must give "a full and fair opportunity to the parties to present all
competent, relevant, and material evidence bearing upon any issue properly presented
for determination." (Elkins v. Superior Court (2007) 41Cal.4th1337, 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.
Ill. 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 ofMr. 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 ofthe real property located at 938
Palisades Beach Road. The portion ofMr. 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 ofhis 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
50. ***
12. Lastly, the trustee and attorney ofmy personal estate, Joseph J.
Praske, has agreed 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 ofmisleading the Yura court, even innocently. Yet they
now point to these very declarations - and even to their own choice ofthe phrase
"personal estate"- as evidence ofa supposed fraud by appellants. (CTI 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 (CTl
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 ifrespondents actually believe the estate plan is
somehow fraudulent, they are complicit in the fraud ofwhich 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 ofyears. ... 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 ofwhat 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. (CTI 85-87.) It concluded
that
30
51. "the only plaintiff in this action is Mr. Gaggero in his personal capacity. No
other person or entity has joined this action as a plaintiff, and there is no
credible evidence that Mr. Gaggero has authority to represent any other person
or entity (whether by an assignment or otherwise) in asserting these damage
claims." (CTl 85.)
Respondents again insisted that Gaggero is separate from appellants in this
very court in July of2009, during his appeal from the original judgment. As they
explained on page 35 oftheir brief:
"(g) Gaggero lacks standing to recover expenditures by 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 ofthe 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 ofLos 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 ofjudicial 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 remed[y] to be invoked when a party's
inconsistent behavior will otherwise result in a miscarriage ofjustice." (Levin
v. Ligon (2006) 140 Cal.App.4th 1456, 1468, citations and quotation marks
omitted.)
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
52. 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)
191Cal.App.4th486, 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.LR.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 ofalter-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 ofstating the obvious, appellants will briefly
describe the various forms ofthe alter-ego doctrine before explaining why none of
them support the May 29 judgment.
Ifone 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 ofthe businesses ifshe controlled the litigation. This process is ordinary
veil-piercing, and it has long been allowed under California law. (Minifie v. Rowley
(1922) 187 Cai. 481, 487.)
The judgment creditor can also ask the court to find that the second business is
the alkr ego ofthe first because their finances are intermingled and because they share
common ownership. Ifthe 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 Pa/mas Assoc. v. Las Palmas Ctr. Assoc. (1991) 235
32
53. Cal.App.3d 1220, 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.!Y 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. (Id. at pp. 1512-
1513, 1518; Greenspan, supra, 191 Cal.App.4th atp. 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 ifthe original judgment debtor really has intermingled her finances
with those ofthe businesses even though she doesn't own them? Doesn't the law give
her creditor some sort of remedy? Ofcourse 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.) Ifhe 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
lYJt is called "outside" reverse piercing because "[t]he typical 'reverse
pierce' case 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 ofthe Law ofCorporations§ 41.70. "Reverse piercing
of corporate veil".)
33
54. their own participation in the fraud. Ofcourse, such a claim must be supported with
evidence ofthe transactions and brought before it becomes time-barred.
B. Appellants Are not Gaggero's AJter 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 ordina1y 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. (CTl 29:25-26, 40:23-42: 17; CT3 424:15-24, 428:4-431 :24.)lli' 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. (CTI 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
il'They insisted that the court did not need reverse piercing in order to
add appellants to thejudgment and that this was just a fallback position. (CTI
29:24-26, 40:23-28, 42:16-17;CT3424:19-24, 428:4-430:2.) They didnot say
what their primary theory actually was.
34