McCoy Electric Corporation vs Annette Rubin et al

Case Number

16CV03591

Case Type

Hearing Date / Time

Mon, 07/01/2024 - 10:00

Nature of Proceedings

1) Motion: Intervene; 2) Motion: Amend; 3) Motion: Attorney Fees; and, 4) Motion: Order to Change Judgment Debtor's Interest

Tentative Ruling

McCoy Electric v. Anette Rubin and Stuart Rubin    

Case No. 16CV03591          

Hearing Date: July 1, 2024                                                    

HEARING:              1. Cross-Defendant The Las Canoas Co. dba Construction Plumbing’s Motion to Amend Judgment Adding ASR Development Co. as a Judgment Debtor

                             2. Cross-Defendant The Las Canoas Co. dba Construction Plumbing’s Motion for Order to Charge Judgment Debtors’ Interests in Partnerships and Limited Liability Companies

                                    3. Cross-Defendant The Las Canoas Co. dba Construction Plumbing’s Motion for Post-Judgment Attorney Fees

                                     

ATTORNEYS:        For Plaintiff McCoy Electric.: Daniel E. Engel

                                    For Defendants Annette Rubin and A. Stuart Rubin: Patrick C.     McGarrigle

                                    For Cross Defendant/Cross Complainant The Los Canoas Co. dba Construction Plumbing: Daniel E. Engel

                                    For Intervening Party U.S. Real Estate Credit Holdings III-A, LP: Christopher O. Rivas

                                    [For additional appearances see list.]

                                   

TENTATIVE RULING:

For the reasons set forth below:

1. Cross-Defendant The Las Canoas Co. dba Construction Plumbing’s motion to amend judgment adding ASR Development Co. as a judgment debtor is denied.
2. Cross-Defendant The Las Canoas Co. dba Construction Plumbing’s motion for order to charge judgment debtors’ interests in partnerships and limited liability companies is granted.
   1. The Las Canoas Co. dba Construction Plumbing shall prepare formal Orders containing the language set forth in the below analysis.
3. Cross-Defendant The Las Canoas Co. dba Construction Plumbing’s Motion for post-judgment attorneys’ fees is granted in the amount of $68,935.00, in favor of The Los Canoas Co. dba Construction Plumbing and against Annette Rubin and A. Stuart Rubin, jointly and severally.

Background:

This action arises out of a remodeling project at residential property located at 4347 Marina Drive, Santa Barbara, California 93110. The Property was owned by defendants and cross-complainants Annette Rubin and A. Stuart Rubin (“Rubins”).

Plaintiff and cross-defendant McCoy Electric Corporation, an electrical contractor, commenced the action on August 15, 2016, claiming that it was still owed sums for labor and materials furnished at the Property. In response, the Rubins cross-complained against McCoy Electric and its principal, Richard McCoy, for breach of contract, negligent construction, overcharging, conversion of materials, and accounting. The Rubins cross-complained against The Las Canoas Co. dba Construction Plumbing (“CP”), as well as several other parties, on September 19, 2019, asserting causes of action for negligence, products liability, and breach of contract.

CP filed an answer to the Rubin’s cross-complaint on October 25, 2019, asserting a general denial and several affirmative defenses. On October 25, 2019, CP also cross-complained against the Rubins, alleging a claim for breach of written settlement agreement.

The Rubins dismissed their cross-complaint against CP on March 11, 2022.

CP moved for contractual attorneys’ fees for defending the tort cause of action alleged by the Rubins. On November 14, 2022, the motion was granted in the amount of $574,799.75.

In its efforts to collect on the judgment, CP now moves to amend the judgment to add ASR Development Co. as a judgment debtor, to charge the Rubins interests in 18 partnerships and limited liability companies, and for post-judgment attorney fees.

The Rubins have not filed any opposition or other response to the motions.

Analysis:

            Intervention of U.S. Real Estate Credit Holdings III-A, LP

Non-party U.S. Real Estate Credit Holdings III-A, LP (“USRECH”) seeks to intervene and objects to CP’s motion for an order to charge judgment debtors’ interests in partnerships and limited liability companies, and objects to CP’s motion to amend the judgment adding ASR as an additional judgment debtor.

CP opposes USRECH’s request to intervene. While CP may be technically correct that USRECH’s request to intervene should have been brought either by noticed motion or by ex parte application, the court will not ignore the likely fact that USRECH has liens that would be affected by the court’s ruling on the present motions. To ignore that fact would only result in further, and wholly unnecessary, litigation that would be of benefit to no party.

Despite the arguments made by CP, USRECH has an interest in the present motions in that USRECH obtained and perfected liens against the Rubins more than two years ago. According to USRECH, those liens remain in full force and effect. Essentially, USRECH objects to the motions on the grounds that their liens are superior to any lien that CP seeks to assert, based on the “first in time, first in right” rule of lien priorities.

The court will allow USRECH to intervene for the limited purpose of opposing the motion for an order to charge judgment debtors’ interests in partnerships and limited liability companies, and to CP’s motion to amend the judgment adding ASR as an additional judgment debtor.

            Requests for Judicial Notice

CP requests that the court take judicial notice of the following documents:

1. Plaintiff’s complaint in Abraham Stuart Rubin et al. v. Gary Stiffelman, et al. in the United States District Court, Central District of California, Case No. 2:23-cv-10152-CBM-PVC;
2. Petition for order validating third-party claim of ownership and superior right to possession by ASR filed on June 22, 2022, in USRECH v. Glenroy Coachella, LLC, in Riverside County Superior Court, Case No. RIC 1905743 (“USRECH case”);
3. USRECH’s opposition to ASR’s third-party claim of ownership and superior right to possession filed on June 8, 2022, in the USRECH case;
4. Petition for hearing on second third-party claim of ownership and superior right to possession, filed on November 9, 2023, in the USRECH case;
5. USRECH’s opposition to second third-party claim of ASR, filed on December 5, 2023, in the USRECH case;
6. Declaration of Christopher O. Rivas in support of USRECH’s opposition to ASR’s third-party claim of ownership and superior right to possession, filed on December 5, 2023, in the USRECH case;
7. Judgment denying second third-party claim of ASR, filed on December 29, 2023, in the USRECH case;
8. Further status report of Preferred Bank re: compliance with rulings on motions to compel and order re: sanctions, filed on June 22, 2023, in A. Stuart Rubin, et al. v. Preferred Bank, Case No. 21CV03982, in Santa Barbara County Superior Court;
9. Motion to amend judgment to add Doppio, Inc. as debtor, filed on July 16, 2020, in Parrish v. Avenatti, Santa Barbara County Superior Court Case No. 18CV04106;
10. September 1, 2020, order granting motion to amend judgment to add Doppio, Inc. as judgment debtor in Parrish v. Avenatti, Santa Barbara County Superior Court Case No. 18CV04106;
11. Unpublished opinion in Parrish v. Avenatti, B311480, Court of Appeals, Second District, Division 6, dated March 14, 2022;
12. Statement of information for ASR filed on December 8, 2023, with the California Secretary of State;
13. Resignation or agent for service of process for ASR filed on February 26, 2024.

Missing from CP’s request for judicial notice, as attachments, are the motion to amend judgment to add Doppio, Inc. as debtor, filed on July 16, 2020, and the September 1, 2020, order granting the motion to amend judgment. Judicial notice cannot be taken of documents that the court has not been provided copies of.

Judicial notice may be taken of: “Records of (1) any court of this state or (2) any court of record of the United States or of any state of the United States” and “Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States.” (Evid. Code, § 452, subds. (c), (d).)

“ ‘Courts can take judicial notice of the existence, content and authenticity of public records and other specified documents, but do not take judicial notice of the truth of the factual matters asserted in those documents.’ ” [Citation.]” (Dominguez v. Bonta (2022) 87 Cal.App.5th 389, 400.)

The court will take judicial notice of all 13 documents, other than the two that were not provided, but does not take judicial notice of the truth of any of the factual matters asserted in those documents. For example, CP relies on statements attributed to the Rubins in other litigation regarding ASR. The court cannot, and will not, take these statements as establishing any facts. Likewise, CP implicitly argues that the Riverside orders establish certain facts upon which the orders are based. They do not. In the present matter, this court is not bound by the findings of another trial court ruling on different facts that exist between different parties.

            Motion to Amend Judgment Adding ASR Development Co. as a Judgment Debtor:

“The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing party is using the corporate form unjustly and in derogation of the plaintiff’s interests. [Citation.] In certain circumstances the court will disregard the corporate entity and will hold the individual shareholders liable for the actions of the corporation: ‘As the separate personality of the corporation is a statutory privilege, it must be used for legitimate business purposes and must not be perverted. When it is abused it will be disregarded and the corporation looked at as a collection or association of individuals, so that the corporation will be liable for acts of the stockholders or the stockholders liable for acts done in the name of the corporation.’ ” (Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300 (Mesler); see also Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538 [“A corporate identity may be disregarded—the ‘corporate veil’ pierced - where an abuse of the corporate privilege justifies holding the equitable ownership of a corporation liable for the actions of the corporation.”].) “There is no litmus test to determine when the corporate veil will be pierced; rather the result will depend on the circumstances of each particular case. There are, nevertheless, two general requirements: ‘(1) that there be such unity of interest and ownership that the separate personalities of the corporation and the individual no longer exist and (2) that, if the acts are treated as those of the corporation alone, an inequitable result will follow.’ ” (Mesler, supra, at p. 300.)

“In appropriate circumstances, traditional veil piercing permits a party to pierce the corporate or limited liability company (LLC) veil ‘so that an individual shareholder [or LLC member] may be held personally liable for claims against the corporation [or LLC].’ [Citation.] ‘Rather than seeking to hold an individual responsible for the acts of an entity, reverse veil piercing seeks to satisfy the debt of an individual through the assets of an entity of which the individual is an insider.’ [Citation.] ‘Outside reverse veil piercing arises when the request for piercing comes from a third party outside the targeted business entity.’ ” (Blizzard Energy, Inc. v. Schaefers (2021) 71 Cal.App.5th 832, 840 (Blizzard Energy); see Postal Instant Press, Inc. (2008) 162 Cal.App.4th 1510, 1518 (Postal Instant Press).)

However, in cases involving a corporation, as opposed to a limited liability company, “a third party creditor may not pierce the corporate veil to reach corporate assets to satisfy a shareholder’s personal liability.” (Postal Instant Press, at pp. 1512-1513.)

Because the alter ego doctrine marks a departure from the presumption that collective entities are legally distinct from their members and shareholders, piercing the veil is “ ‘an extreme remedy, [to be] sparingly used’ ” (Hasso v. Hapke (2014) 227 Cal.App.4th 107, 155), and the party seeking to invoke it generally bears a “heavy burden” (Santa Clarita Organization for Planning & Environment v. Castaic Lake Water Agency (2016) 1 Cal.App.5th 1084, 1105). In the reverse veil piercing context, that burden is even more onerous and its use should be “ ‘extremely rare.’ ” (Postal Instant Press, at p. 1518.)

Because ASR is a corporation, the doctrine of reverse piercing does not allow CP to reach ASR’s assets to satisfy the Rubins’ personal liability to CP, by adding ASR as a judgment debtor. As the court in Postal Instant Press explained, “[o]utside reverse piercing can harm innocent shareholders and corporate creditors, and allow judgment creditors to bypass normal judgment collection procedures. . . . [¶] To address the many concerns created by outside reverse piercing, the courts recognizing the doctrine have created significant qualifications to its application,” including that legal remedies are inadequate and that “innocent creditors” will not be harmed.” (Id. at p. 1513.)

“Amendment of a judgment to add an alter ego is an equitable procedure [citation], and before applying outside reverse piercing, “ ‘the availability of alternative, adequate remedies must be considered by the trial court’ ” [Citation.]” (Id. at p. 1524.)

Even if the doctrine of reverse piercing applied to corporations, CP has not adequately shown that failure to hold ASR liable for the Rubins’ judgment would result in injustice, inequity, or that other means of satisfying the judgment would be unsuccessful. CP’s arguments regarding a “less invasive adequate remedy” is conclusory and not supported by admissible evidence.

The motion to amend the judgment to add ASR as an additional judgment debtor will be denied.

            Motion for Order to Charge Judgment Debtors’ Interests in Partnerships and Limited Liability Companies:

“If a money judgment is rendered against a partner or member but not against the partnership or limited liability company, the judgment debtor’s interest in the partnership or limited liability company may be applied toward the satisfaction of the judgment by an order charging the judgment debtor’s interest pursuant to Section 15907.03, 16504, or 17705.03 of the Corporations Code.” (Code Civ. Proc., § 708.310.)

CP has established, by admissible evidence, that the Rubins hold interests in 18 limited liability companies and limited partnerships.

Charging orders are appropriate in order for CP to attempt collection on its judgment against the Rubins.

“ ‘Other things being equal, different liens upon the same property have priority according to the time of their creation . . ..’ ” (Civ. Code, § 2897.) Numerous statutes apply this general first-in-time principle to specific types of liens or security interests. For example, California Uniform Commercial Code section 9322 governs priorities between competing security interests, ranking them “ ‘according to priority in time of filing or perfection.’ ” (Cal. U. Com. Code, § 9322, subd. (a)(1).) Similarly, Code of Civil Procedure section 697.590 governs priorities between judgment liens on personal property and security interests in the same property, ranking those interests “ ‘according to priority in time of filing or perfection.’ ” (§ 697.590, subd. (b).)” (Rice v. Downs (2021) 73 Cal.App.5th 213, 230.)

“We have not found, nor have the parties identified, a statute specifically addressing the priority of charging orders in relation to other liens and security interests.” (Ibid.)

“In the absence of a statute specifically addressing the priority of charging orders, we rely on the general first-in-time rule stated in Civil Code section 2897. (See Bluxome Street Associates v. Fireman’s Fund Ins. Co. (1988) 206 Cal.App.3d 1149, 1158; cf. Ahart, Cal. Practice Guide: Enforcing Judgments and Debts (The Rutter Group 2021) ¶ 6:1472.1 [citing Civ. Code, § 2897 in support of proposition that “ ‘Where judgment creditors have obtained charging order liens on the same interests, priority should be given to the first creditor that obtained a lien’ ”].)” (Ibid.)

By way of evidence submitted in support of its objection, USRECH obtained and perfected its liens approximately two years ago. They appear to have priority. CP has indicated that CP will challenge USRECH’s claims of priority, and validity of their liens, in separate litigation. However, that has not yet occurred, and the court cannot rely on speculative outcomes of future litigation in ruling on the present motions.

As such, the motion will be granted, but CP will be instructed to prepare orders, for each of the 18 entities identified in its motion, that utilizes the following language:

“The motion of The Las Canoas Co. dba Construction Plumbing came regularly for hearing on July 1, 2024, before Hon. Colleen K. Sterne, in Department 5 of the above-entitled court, with appearances by counsel as follows: [list the names of the persons who appeared at the hearing and, as applicable, who they represented]. The court having considered the documents filed in connection with the motion and heard the argument of counsel, and good cause appearing:

IT IS ORDERED:

1. That the interest of Annette Rubin or A. Stuart Rubin in the [partnership or LLC] known as [Name of partnership or LLC], whose address is [address of partnership or LLC] [is/are] hereby charged with the unpaid balance of the judgment entered in favor of The Las Canoas Co. dba Construction Plumbing and against Annette Rubin and A. Stuart Rubin, jointly and severally, on November 28, 2022, in the sum of $577,424.75 plus interest thereon at the rate of 10 percent per annum from November 28, 2022.

2. That [Name of partnership or LLC and its members or general partners] shall pay any money or property due or to become due to Annette Rubin or A. Stuart Rubin directly to The Las Canoas Co. dba Construction Plumbing until the amount remaining due on the judgment, plus all accrued interest, is paid in full.

3. Absent further Order of the court: That should U.S. Real Estate Credit Holdings III-A, LP hold a senior-priority lien, pursuant to writs of attachment or other lien, [Name of partnership or LLC] shall honor and fully satisfy the lien of U.S. Real Estate Credit Holdings III-A, LP prior to paying any money or property due, pursuant to this order, to The Las Canoas Co. dba Construction Plumbing.”

      Post-Judgment Attorney Fees

CP seeks post-judgment attorney fees in the amount of $68,935.00. The motion is supported by the declaration of Daniel E. Engel and unredacted billing statements.

Code of Civil Procedure section 685.040 provides: “The judgment creditor is entitled to the reasonable and necessary costs of enforcing a judgment. Attorney’s fees incurred in enforcing a judgment are not included in costs collectible under this title unless otherwise provided by law. Attorney’s fees incurred in enforcing a judgment are included as costs collectible under this title if the underlying judgment includes an award of attorney’s fees to the judgment creditor pursuant to subparagraph (A) of paragraph (10) of subdivision (a) of Section 1033.5.”

“[Code of Civil Procedure section 685.040] imposes just “ ‘two requirements before a motion for an award of postjudgment attorney fees may be awarded as costs: (1) the fees must have been incurred to ‘enforce’ a judgment; and (2) the underlying judgment had to include an award for attorney fees pursuant to Code of Civil Procedure section 1033.5, subdivision (a)(10)(A)....’ ” [Citation.]” (Cardinale v. Miller (2014) 222 Cal.App.4th 1020, 1025 (Cardinale).) “While in the usual scheme of things the target of a fee motion under section 685.040 is presumably the original judgment debtor, the Legislature did not so restrict the provision’s scope. Rather, the statute by its terms is broad enough to encompass fees expended to enforce a judgment against third parties who conspired with the judgment debtor to evade its enforcement.” (Ibid.)

“[T]he fee setting inquiry in California ordinarily begins with the ‘lodestar,’ i.e., the number of hours reasonably expended multiplied by the reasonable hourly rate. ‘California courts have consistently held that a computation of time spent on a case and the reasonable value of that time is fundamental to a determination of an appropriate attorneys’ fee award.’ [Citation.] The reasonable hourly rate is that prevailing in the community for similar work. [Citation.] The lodestar figure may then be adjusted, based on consideration of factors specific to the case, in order to fix the fee at the fair market value for the legal services provided. [Citation.] Such an approach anchors the trial court’s analysis to an objective determination of the value of the attorney’s services, ensuring that the amount awarded is not arbitrary. [Citation.].” (PLCM Group v. Drexler (2000) 22 Cal.4th 1084, 1095.)

“[T]he verified time statements of the attorneys, as officers of the court, are entitled to credence in the absence of a clear indication the records are erroneous.” (Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 396.)

“[T]rial courts must carefully review attorney documentation of hours expended” in assessing reasonable and necessary attorney fees. (Ketchum v. Moses (2001) 24 Cal.4h 1122, 1132.) “The ‘ “experienced trial judge is the best judge of the value of professional services rendered in his court, and while his judgment is of course subject to review, it will not be disturbed unless the appellate court is convinced that it is clearly wrong.” ’ ” (Ibid.)

“ ‘[A] reasonable hourly rate is the product of a multiplicity of factors .... the level of skill necessary, time limitations, the amount to be obtained in the litigation, the attorney’s reputation, and the undesirability of the case.’ ” (Margolin v. Regional Planning Com. (1982) 134 Cal.App.3d 999, 1003–1004.)

“[T]he [party] ... seeking fees and costs ‘ “bear[s] the burden of establishing entitlement to an award and documenting the appropriate hours expended and hourly rates.” [Citation.]’” (Christian Research Institute v. Alnor (2008) 165 Cal.App.4th 1315, 1320.) “‘To that end, the court may require [a] defendant[ ] to produce records sufficient to provide “‘a proper basis for determining how much time was spent on particular claims.’” [Citation.]’” (Ibid.) “The evidence should allow the court to consider whether the case was overstaffed, how much time the attorneys spent on particular claims, and whether the hours were reasonably expended. [Citation.]” (Ibid.)

The court has reviewed the billing statements and finds the time expended to be reasonable in CP’s efforts to enforce their judgment. Likewise, the hourly rate is reasonable.

Post-judgment attorney fees will be allowed in the amount requested.