Journal of American Law

SUMMER/FALL 2015

The Journal of American Law is a peer-reviewed journal and the only one of its kind in the country. The Journal is a law review focused on important legal issues ranging from complex litigation to Supreme Court rulings.

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Summer/Fall 2015 // Journal of American Law 17 though a contract was breached by just one of the companies. 11 Te case involved a developer that created several limited liability companies (LLCs) to supervise various construction projects. 12 "Te developer transferred ownership of the companies to a trust, chose his brother as the trustee, and acted as the 'manager' of the companies." 13 Te plaintif there obtained an $8.45 million arbitration award against two of the developer's LLCs. 14 "At the time of the arbitration, one of the [LLCs] recently had received more than $47 million in property sales." 15 Tereafer, the plaintif prevailed against the two LLCs on breach of contract theories. 16 Between the time the arbitration award was rendered and being confrmed by the trial court, the LLCs' assets dwindled to $13,000. 17 "Te two companies appeared to be judgment proof." 18 Tereafer, the plaintif fled a motion to amend the judgment and add the developer and two other afliated companies as judgment debtors, relying on the alter ego doctrine. 19 Te trial court denied the plaintif's motion. 20 Te Court of Appeal reversed the trial court's denial of the plaintif 's motion to add the related entities under the single enterprise theory. In particular, it held the two afliated companies liable under the single enterprise theory because of the following circumstances: (1) the manager controlled the frst LLC's bank account, ran its fnances, and admitted that the second LLC never had any employees and had never prepared a fnancial statement; (2) the trustee was the manager's brother and the manager not only made most of the decisions for the LLCs, but also occasionally made fnancial decisions for the trust; and (3) the manager admitted that he commingled funds. 21 Further, the Court of Appeal held as prejudicial the trial court's exclusion of evidence that the developer was a manager of both companies and controlled its bank accounts and that the company held liable maintained no minutes from its meetings. 22 Tese fndings convinced the court that there was a "unity of interest" between the several entities. While Greenspan did not address the inequity prong, it is well settled in California that there must be a showing of a unity of interest and an inequitable result in order to hold 11 Greenspan, 121 Cal. Rptr. 3d 118. 12 Id. at 125. 13 Id. 14 Id. 15 Id. 16 Id. 17 Id. 18 Id. 19 Id. 20 Id. 21 Id. at 150-51. 22 Id. at 150. a sister company liable for another's conduct. Tis might be the case if Project Beta engaged in fraudulent conduct to the beneft of Project Alpha. A court in that instance would fnd it unfair not to hold Project Beta also liable. In Las Palmas Assocs. v. Las Palmas Ctr. Assocs., a dispute arose between buyers and a seller, Devcorp, of a shopping center development. 23 At the time, Devcorp was a wholly owned subsidiary of Hahn Inc. 24 The court held there was a unity of interest between Devcorp and Hahn because Hahn had guaranteed $43.2 million in loans and loan commitments to Devcorp, which strongly suggested Devcorp was undercapitalized. 25 Further, two people sat on the board of directors for both Devcorp and Hahn, and the companies shared employees, corporate counsel, and management. 26 Te Las Palmas Assocs. court then considered the inequity prong. It noted that both of the companies actively participated in the sale of the shopping center and, therefore, the fraudulent conduct giving rise to liability from beginning to end. 27 Tus, while Hahn was not a party to the purchase agreement, the court held that it was fair to pierce Devcorp's corporate veil to reach Hahn's assets. 28 Louisiana Te single business enterprise theory was introduced to Louisiana in 1991. 29 In Green v. Champion Insurance Co., the Louisiana Circuit Court of Appeal, 1st Circuit, used the theory to pierce the veil of a company solely on a fnding that one company was controlled by another. 30 In that case, the court merely applied a test of 18 factors similar to the "unity of interest" factors considered in traditional alter ego liability. 31 Green involved liquidation proceedings against Champion, an insolvent insurance company and part of a group of eight other afliated companies. 32 Looking at several factors considered in the unity of interest, the court held that the several entities were a single business enterprise. 33 For instance, family members were the controlling shareholders of all corporations, the directors and ofcers of the various corporations were the same, two particular family members 23 Las Palmas Assocs. v. Las Palmas Ctr. Assocs., 1 Cal. Rptr. 2d 301 (Ct. App. 1991). 24 Id. at 304-05. 25 Id. at 318. 26 Id. 27 Id. at 319. 28 Id. 29 Dunne, supra note 4, at 691 (citing Green v. Champion Ins. Co., 577 So. 2d 249 (La. Ct. App. 1991)). 30 Id. 31 Green, 577 So.2d at 257-59. 32 Id. 33 Id. at 258.

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