Motores de Mexicali, S.A. v. Superior Court of Los Angeles County

In Motores de Mexicali, S.A. v. Superior Court of Los Angeles County (1958) 51 Cal.2d 172, Motores de Mexicali, S. A. sued Erbel, Inc., doing business as Bi Rite Auto Sales, to recover a debt owed on vehicle purchase drafts issued in the name of Bi Rate Auto Sales. (Motores, supra, 51 Cal.2d at p. 173.) When no responsive pleading was filed, the trial court entered default judgment. After failing to recover the amount of the default judgment directly from Erbel, Inc., Motores de Mexicali asked the trial court to amend the default judgment to add three individuals as judgment debtors, alleging that Erbel, Inc. was the alter ego of the three individuals. (Id. at pp. 173-174.) On petition to the Supreme Court for writ of mandate after the trial court indicated its intention to deny the requested amendment, the Supreme Court concluded that amending the default judgment to add additional judgment debtors on an alter ego theory would unconstitutionally deprive those individuals of due process. (Id. at pp. 175-176.) The Motores court noted the Fourteenth Amendment guarantees a defendant in a judicial proceeding "the opportunity to be heard and to present ... defenses." (Motores, supra, 51 Cal.2d at p. 176.) Summary addition of the three individual defendants to the default judgment, "without allowing them to litigate any questions beyond their relation to the allegedly alter ego corporation, would patently violate this constitutional safeguard." (Ibid.) The court distinguished previous court of appeal decisions that had added parent corporations to judgments against their subsidiaries, noting that those parent corporations had actually litigated the cases, whereas in Motores the judgment was entered against the corporation "strictly by default." (Ibid.) Finally, the court rejected the argument that the individual defendants should have intervened, reasoning that "they were under no duty to appear and defend personally in that action, since no claim had been made against them personally." (Ibid.) This court applied Motores to a request to amend a default judgment to add an alter ego judgment debtor in NEC, supra, 208 Cal.App.3d at pp. 778-781. NEC sued the Ph Components corporation to recover on amounts due for goods NEC sold to Ph Components. Ph Components filed a general denial. Before trial, Ph Components informed NEC that it would not appear at trial. NEC proceeded to trial, Ph Components did not appear, and the trial court entered judgment in favor of NEC. After entry of judgment, Ph Components filed a voluntary Chapter 11 bankruptcy petition. NEC then successfully moved to amend the judgment to add the company's sole shareholder and chief executive, Porter Hurt, as a judgment debtor, arguing that Hurt was the alter ego of Ph Components. (Id. at pp. 774-776.) The Court acknowledged in NEC that amending a judgment to add alter ego judgment debtors "is an equitable procedure based on the theory that the court is not amending the judgment to add a new defendant but is merely inserting the correct name of the real defendant." (NEC, supra, 208 Cal.App.3d at p. 778, citing Code Civ. Proc., 187.) We noted, however, that in Motores the Supreme Court found constitutional due process protections make such amendments improper when judgment is by default. Like the defendant corporation in Motores, Ph Components did not appear at trial and made no attempt to defend the lawsuit. As a consequence, Hurt's interests were not represented. (NEC, at pp. 779-780.) Having been sued only as a corporation and on the verge of bankruptcy, Ph Components had no incentive to defend the NEC lawsuit. Because the interests and exposure of that corporation and Hurt were not the same, Hurt did not have "occasion to conduct the litigation with a diligence corresponding to the risk of personal liability that was involved ... ." (Id. at p. 781.)