A recent California decision, Relentless Air Racing, LLC v. Airborne Turbine LTD. Partnership, 2014 DJDAR 57 (Cal. App. 2d Dist., Dec. 31, 2013), states that a judgment creditor does not have to demonstrate wrongful intent by alter ego parties when attempting to add them as additional judgment debtors on a judgment.
Presently, trial courts may add judgment debtors to a judgment (after trial!) when a person or entity is the alter ego of the original judgment debtor. The court is allowed to do this for reasons of fairness. Essentially, a judgment creditor is asking the court to insert the “correct” defendant after trial is complete!
This can be done if: 1) the parties added as judgment debtors had control of the underlying litigation and were virtually represented; 2) there was a unity of interest and ownership between the entity and owners; and 3) an unfair result would occur if the underlying acts are treated as those of the entity alone.
In Relentless, the appellate court determined that the judgment creditor could not collect on a money judgment because the corporate judgment debtor was insolvent. This led to an unfair result. In addition, the corporate partners had control off the underlying litigation and there was a unity of interest between the partners and corporation. The court declared that the decision to add parties to the judgment did not turn on the corporate partners’ intent during their control of the corporate entity, but the result that occurred to the judgment creditor because it could not collect a money judgment from an insolvent entity. The appellate allowed the judgment creditor to add the corporate partners and pursue them judgment personally.
This case provides a strong reminder to individuals to follow corporate formalities and avoid careless business decisions or they may find themselves personally liable for the legal judgments against their companies.