The Court of Appeals of California (Second Appellate District, Division Six) issued a decision at the end of last year permitting a company that had won a judgment against a limited partnership to add related parties which the Court found to be alter egos of that partnership. The plaintiff, Relentless Air Racing, LLC (“Relentless”) obtained a monetary judgment against Airborne Turbine Ltd. Partnership (“Airborne”) which imported and sold airplanes and airplane parts . After winning at trial, however, Relentless could not collect the judgment as Airborne no longer held any assets. It then sought to add additional parties as judgment debtors. Relentless contended that all of the parties were controlled by the same two married individuals and acted in a unitary fashion.
California law requires that three requirements must be met in order to add judgment debtors after a judgment has been secured against a single defendant: (1) the parties to be added as judgment debtors had control of the underlying litigation and were virtually represented in that proceeding; (2) there is such a unity of interest and ownership that the separate personalities of the entity and the owners no longer exist; and (3) an inequitable result will follow if the acts are treated as those of the entity alone. Initially the trial court found that only 2 of these requirements were met. But the appellate court ruled in Relentless Air Racing, LLC v. Airborne Turbine Ltd. Partnership, 2d Civil No. B244612 (filed 12/31/13, that Relentless did demonstrate that all 3 requirements existed.
Specifically, the court found the following factors amply established that the same two individuals, Wayne and Linda Fulton, the sole limited partners of Airborne and two other entities ran each as part of a single enterprise:
- The Fultons were the officers and directors of Airborne Turbine, Inc.(“ATI”), the general partner of the limited partnership until 2011 right before the trial of this case.
- They were also the officers and directors of the entity which became the new general partner substituting for ATI.
- The Fultons operated each of these businesses from their home using office equipment they had purchased personally.
- From 2009-2010 they paid themselves lump-sum draws from Airborne accounts ranging from $7500 to $20,000 on an irregular basis.
- They withdrew $115,000 from Airborne prior to trial ostensibly to render it without assets which could conceivably be subject to collection if Airborne lost at trial.
- The Fultons were the sole shareholders of each of the involved corporations.
- They also were the only limited partners who controlled the decisions in the litigation.
- They had an oral rent agreement with one of the entities for the airplane hangar where airplanes and parts were stored and maintained.
Essentially the Court of Appeals concluded that the Fultons controlled all of these entities and had transferred assets from the limited partnership that was specifically sued in an effort to shield those assets from collection. Further they disagreed with the trial court’s determination that the plaintiff had to prove the Defendant intentionally conveyed its assets in order to avoid having to pay the judgment. Instead all that has to be shown is that an inequitable result would occur, with respect to Relentless, if these additional parties cannot be added in this post-judgment phase.
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