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Tuesday, July 6, 2010

Court of Appeal Overturns Summary Judgment on Alter Ego Issue

With all of the attention on Martinez v. Combs, Reynolds v. Bement, the Labor Code Private Attorneys General Act (PAGA), and the question of who is responsible for employees' unpaid wages, I wanted to note this case on alter ego. Reports of alter ego's death in wage and hour law have been greatly exaggerated. See Reynolds v. Bement (2005) 36 Cal. 4th 1075, 1089 (nothing in the Berman hearing procedure "precludes hearing officers from finding individual corporate agents liable for unpaid wages when such liability is proven on established common law..." citing Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538 (alter ego doctrine)).

Zoran Corp. v. Chen (June 15, 2010) --- Cal.App.4th ---, is not a wage and hour case, but it bears mentioning. Plaintiff sued an individual and seven corporations for breach of contract, misrepresentation, and related causes of action. The trial court granted summary judgment to the individual, and the Court of Appeal reversed, finding triable issues of fact.

The Court relied on evidence that the individual “had considerable influence, and even domination and control,” over the alleged alter ego entities, even though he was not the president or CEO of any of the entities and was not a shareholder, director, officer, or employee of one entity.
Zoran has presented a triable issue on the question of whether Chen made all the decisions for the defendant companies. Based on conversations he had had with Chen as well as others, Schneider came to the understanding that Chen was the person who would deal with Zoran on behalf of all the defendant companies. Wu told Schneider that Chen “called all the shots,” that Ricky Huang (CFO of Citron) “worked for ... a company that [Chen] controlled.” Chen also made representations to Gertzberg that he controlled “everything,” that he “ma[d]e the decisions, eventually it's me,” thus contributing to the inference of control.

Taken together, Zoran's evidence reveals a businessman with heavy influence on the decisions made by executives of several companies. Chen promised to use his influence to see that Zoran was paid the overdue amounts from the defendant companies, although he did not promise to be directly responsible for those obligations. The evidence further suggests that Chen permitted the diversion of money destined from Cyberhome to Zoran by persuading Wu to send payments to Protop instead of directly to Zoran. While we cannot draw the further inference as a matter of law that there was such a unity of interest between Chen and Citron, Cyberhome, or Iwin that each of these companies must be deemed the alter ego of Chen, neither can we say on this record that Zoran will be unable to make the requisite showing at trial.

Should Zoran succeed in showing such unity of interest and ownership, it will then be obligated to demonstrate that “an injustice would result from the recognition of separate corporate identities.”
Slip op. at 10-11.

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