Alter Egos Found Liable for Debt of Single Enterprise of Related Corporations

 

ALTER EGOS FOUND LIABLE FOR DEBT OF SINGLE ENTERPRISE OF RELATED CORPORATIONS

By D. Michael Clauss, Esq.

Green River Mall Corp. v. Jagg Inc., Orange County Superior Court Case No. 793885, Hon. Julee Robinson. Bench Trial: 6 days. Judgment Entered: 10/27/1999

Verdict/Judgment: $1,626,840. $1,076,840 awarded for alter ego and single enterprise liability, $90,000 for fraud, $200,000 for punitive damages, $90,000 for breach of contract and $350,000 attorney fees.

Trial counsel for Plaintiff: D. Michael Clauss, Esq. of Case, Ibrahim & Clauss, LLP

Plaintiff corporation claimed breach of contract, fraud, alter ego and single enterprise liability after defendant parent corporation ceased making payments under the terms of a forbearance agreement. The plaintiff was Green River Mall Corp., a California corporation and real estate developer. The defendants were Jagg Inc. dba Captain Creams, the parent company of adult entertainment clubs and two real estate development companies, and Connye G. Morgan, the sole shareholder of Jagg Inc. Plaintiff entered a judgment forbearance agreement with the related enterprise of Jagg Inc., among others, involving an unsatisfied underlying money judgment for approximately $1 million. Under the terms of the forbearance agreement, certain payments were to be made to plaintiff and the parties to the forbearance agreement were to cooperate to sell to a third party a long-term land lease on a tract of land located in Corona. After paying approximately $420,000 to plaintiff, Jagg Inc. (the parent corporation) ceased further payments. The judgment debtors on the underlying unsatisfied judgment filed for Chapter 7 bankruptcy. In bankruptcy, the land lease was lost. Consequently, plaintiff sued to enforce a guaranty in the forbearance agreement and for fraud, alter ego and single enterprise liability against the parent corporation and its sole shareholder, Connye Morgan.

The court awarded costs of suit and $350,000 for attorney fees. The court augmented the “touchstone” or “lodestar” attorney fees figure from approximately $150,000 to $350,000 based on, among other things, factors of difficulty, the contingency nature of attorney engagement and the high risk of recover. Defendants appealed the fee award and judgment.

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