Some Defendants can be Named Later as an Alter Ego of the Judgement Debtor

Favila v. Pasquarella (2021) 65 Cal.App.5th 934

In Favila, the Plaintiffs obtained a judgment against a Corporate Defendant; however, in a summary judgement motion, their claims against an Individual Defendant were defeated. Following entry of judgment, the Individual Defendant transferred the Corporate Defendant’s assets to a new corporation. The Individual Defendant then placed the new corporation’s funds in a bank account under her own Social Security Number. Upon the Plaintiff’s motion, the trial court exercised its equitable authority under CCP section 187 to add the Individual Defendant to the judgment as the alter ego of the Corporate Defendant. The Individual Defendant appealed, arguing that she could not be added as an alter ego, because the trial court had previously found that she was not personally liable for any of the underlying claims.

The Court of Appeal rejected her argument, holding that neither claim preclusion nor issue preclusion barred the judgment against her, because the motion to add the individual as a judgment debtor under equitable principles did not involve the same cause of action or primary right as the claims against her in her individual capacity in the underlying lawsuit. The theory that supported adding her as a Judgment Debtor was not her personal culpability in the underlying action–the issue resolved in her favor on summary judgment–but her post-judgment actions that effectively made her the successor to the corporate Defendant. The Court noted that the effect of a section 187 motion to add a judgment debtor on alter ego grounds is not to add a new defendant, but to insert the correct name of the real defendant.

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