Court reverses trial court’s refusal to add alter ego judgment debtors

Greenspan v. LADT, LLC (2010) 191 Cal.App.4th 486 (California Court of Appeal, Second Appellate District, Division One) [published]. While attempting to collect an $8 million arbitration award that GMSR had successfully defended against vacatur, GMSR’s client learned that the defendant companies had transferred nearly all of their assets to related companies and to a family trust that owned the companies. GMSR’s client filed a motion under Code of Civil Procedure section 187 to add these entities as judgment debtors, along with the companies’ manager, who had created the trust. The trial court denied the motion both on legal grounds and because the trial court excluded nearly all of the relevant evidence.

The Court of Appeal reversed. First, the court held that a judgment could be amended to add an alter ego even when that alter ego had prevailed on unrelated causes of action in the underlying arbitration. Second, the court held that alter ego liability applies equally to trustees. Third, the court clarified the standard necessary to establish the virtual-representation requirement for adding judgment debtors and found that it was met here. Finally, the court overturned almost all of the trial court’s evidentiary rulings.