Carlson v. Clapper

Background

Carlson Produce obtained a $487,128.36 default judgment against ScanX, Inc. for breach of contract. The judgment was entered on January 28, 2021, and had not been paid. Carlson Produce later sought to amend the judgment to add Rock Clapper as another judgment debtor, arguing that Clapper was ScanX’s alter ego—the individual and corporation were effectively not separate for purposes of the debt.

The underlying case originally asserted claims for breach of contract, breach of the duty of good faith and fair dealing, fraud, promissory estoppel, and quantum meruit or unjust enrichment against Clapper and ScanX. The court entered default judgment against ScanX on the contract claim. The remaining fraud claim was later dismissed as barred by the economic loss rule.

Legal Standard

The court applied Federal Rule of Civil Procedure 69(a), which allows federal courts to use state law when enforcing judgments. Under California law, a judgment may be amended to add a nonparty alter ego when the plaintiff proves, by a preponderance of the evidence, that the person is the old judgment debtor’s alter ego and controlled the litigation enough to have had an opportunity to defend the case.

Under California’s alter-ego test, the court considered whether there was a unity of interest and ownership between Clapper and ScanX and whether refusing to recognize that relationship would produce an inequitable result.

Alter-Ego Findings

The court found sufficient unity of interest and ownership based on three particularly important factors:

- Commingling of assets: Evidence showed at least nine transfers from ScanX’s account to NGB Markets, Inc., another entity controlled by Clapper and registered at the same address as ScanX. The evidence showed $153,820 transferred from ScanX to NGB and $38,300 transferred from NGB to ScanX. The court also considered ScanX’s payments of $5,000 to a car-restoration company and $5,000 to Clapper’s attorney for a case in which ScanX was not a party. - Disregard of corporate formalities: The California Secretary of State listed ScanX as “FTB Forfeited.” Clapper and ScanX shared counsel during part of the case, Clapper indicated that he was searching for counsel who fit his budget after the attorney withdrew, and Clapper, ScanX, and the other entities he controlled shared an address. - Inadequate capitalization: The evidence indicated that ScanX had limited operating capital, could make only partial payments to some creditors as cash flow allowed, and remained unable to pay its operating expenses even after receiving investment capital. Carlson Produce was paid for only the first two months of its services agreement with ScanX and received no later payments.

The court concluded that these facts showed a unity of interest and ownership. It also found an inequitable result because ScanX had no assets to satisfy the judgment, and its undercapitalization and inability to pay its debts meant that Clapper could not fairly use the corporate form to avoid liability for the judgment.

Opportunity to Litigate

The court also found that adding Clapper to the judgment would comply with due process. Clapper was ScanX’s chairman and chief executive officer; Carlson Produce asserted identical claims against Clapper and ScanX; both defendants shared an attorney before that attorney withdrew; both answered the complaint; and Clapper appeared for himself and ScanX at a settlement conference. Carlson Produce also served Clapper with the motion to amend the judgment. These circumstances showed that Clapper had significant opportunities to defend the underlying case.

Other Ruling and Disposition

The court took judicial notice of the documents filed at Docket No. 118, exhibits 1–8 and 10, because they were public records from sources whose accuracy could not reasonably be questioned. It did not take judicial notice of prior filings in the same case because those filings were already part of the record.

The court granted Carlson Produce’s motion to amend the judgment under Rule 69(a). It stated that a separate order would issue amending the judgment to add Clapper as an additional judgment debtor.