Liminal Determination of the Alter Ego Allegations, Before Any Liability Consideration, Deemed Inconsequential For Purposes of Applying Reynolds.
Reynolds Metals Co. v. Alperson, 25 Cal.3d 124 (1979), posted in our Leading Cases, is a venerable decision holding that defendants prevailing on alter ego allegations. in a full trial of all issues, were entitled to recover attorney’s fees as prevailing parties under Civil Code section 1717 based upon a fees clause in some promissory notes. We call the case now to be discussed “Reynolds Metals with a twist.”
In Reynolds, the promissory note liability and alter ego claims were tried together. However, in Pueblo Radiology Medical Group, Inc. v. Gerlach, Case No. B194106 (2d Dist., Div. 6 June 4, 2008) (published), the trial judge bifurcated the breach of contract claim from the alter ego issue, hearing the alter ego issue first. The trial judge determined that two individual shareholders were not alter egos and later awarded them section 1717 attorney’s fees of $250,000.
The losing plaintiff appealed, with both sides arguing that Reynolds controlled. Plaintiff contended that the fee award was premature because there was no determination of a contractual breach, as there was in Reynolds. Conversely, defendants argued that the bifurcated determination was just as final for ending the case as the full adjudication in Reynolds.
Result? The Court of Appeal affirmed, siding with defendants’ position. “The fact that the breach of contract claim and alter ego issue were tried together [in Reynolds] is irrelevant. The determinative fact was that the individual defendants had prevailed on the alter ego issue … [Here] the trial court’s determination that respondents were not the alter egos of the corporation effectively ended the case to them. They were entitled to recover attorney fees under the contract.” (Slip Opn., at p. 4.)
In a footnote, the Ventura-based court found its determination analogous to the result reached in Profit Concepts Management, Inc. v. Griffith, 162 Cal.App.4th 950 (2008), which we reviewed in our May 11, 2008 post. In Profit Concepts, section 1717 fees were awarded when a party quashed the summons and ended the contract claim pending against it in California. This is indeed an apt analogy to the “finality” reasoning utilized by the appellate court in Pueblo Radiology.
Defendants’ award of fees at the trial level was left intact, and they were also awarded costs and fees for their appellate victory (which were to be assessed by the trial judge previously awarding $250,000 in fees).