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Eldorado Stone, LLC v. Renaissance Stone

February 5, 2009

ELDORADO STONE, LLC; ELDORADO STONE OPERATIONS, LLC, PLAINTIFFS,
v.
RENAISSANCE STONE, INC.; ALFONSO ALVAREZ; JOSE GALVEZ MARTINEZ; JOSEPH SMITH; ROB HAGER; AND ORCO CONSTRUCTION SUPPLY, DEFENDANTS.



The opinion of the court was delivered by: Hon. Jeffrey T. Miller United States District Judge

AND RELATED COUNTERCLAIMS

ORDER DENYING MOTION FOR LEAVE TO AMEND JUDGMENT

Plaintiffs Eldorado Stone, LLC and Eldorado Stone Operations, LLC (collectively "Eldorado") move for leave to amend the judgment to add Michael Berguin, Scott Butler and FCI/Mission Oaks Funding (the "Proposed Judgment Debtors") as alter egos of judgment debtor Renaissance Stone, Inc. ("RSI"). Proposed Judgment Debtors oppose the motion. For the reasons set forth below, the motion to amend the judgment is denied.

BACKGROUND

On March 29, 2007 a jury returned a unanimous verdict in favor of Eldorado and against Defendants. Following a remittitur, on January 22, 2008 final amended judgment was entered in favor of Eldorado and against RSI in the amount of $10,948,755.58, including attorneys' fees and costs. In May 2007 RSI ceased doing business and Eldorado commenced collection efforts against RSI. By the time RSI ceased doing business, it had depleted its bank accounts and whatever assets the company had were turned over to a secured creditor. (Bjurstrom Decl. ¶4). To locate assets, Eldorado conducted a debtor's examination of Michael Berguin and Scott Butler, board members of RSI. Eldorado seeks to pierce the corporate veil and hold shareholders Berguin, Butler, and FCI/Mission Oaks Funding liable for RSI's judgment.

RSI, a former manufacturer and retailer of decorative stone products, was incorporated on July 8, 2004. Former Eldorado employee Alfonso Alvarez served as RSI's secretary, treasurer, and executive vice-president while Defendant Joseph Smith served as RSI's president.

Proposed Judgment Debtors are shareholders in RSI who purchased shares in RSI following the review of an offering memo prepared by Miller Capital Corporation. (FCI Rocks Decl. ¶4). FCI Rocks, a Nevada limited liability company in which Butler owned shares, purchased 30,000 shares of common stock for the purchase price of $300,000. Butler does not personally own shares in RSI. FCI Rocks was the third smallest shareholder, owning 3.59% of the total outstanding shares in RSI. (FCI Rocks Decl. ¶11). In September 2004 Berguin made an initial investment in RSI of $1,000,000. (Berguin Decl. ¶¶2, 5). Berguin was never an officer nor employee of RSI, had no responsibility concerning corporate formalities, and relied on RSI management to attend to corporate duties. (Berguin Decl. ¶6; Smith Decl. ¶116). At the time of their investment in RSI, neither Berguin nor Butler were aware that Alvarez had misappropriated trade secrets from Eldorado. Further, at the time of his initial investment in RSI, Berguin reviewed a letter prepared by Alvarez stating that he did not misappropriate any of Eldorado's trade secrets or take any proprietary information with him when he left Eldorado in June 2004. (Berguin Decl. ¶5; Exh. 1).

The business plan, prepared by Miller Capital Corporation, estimated a minimum capital requirement of $1.5 million. Ultimately, RSI raised initial capital of about $1.5 million. (Smith Decl. ¶¶18, 20).

By the fall of 2004 Eldorado had commenced the present action. At that time Berguin and FCI Rocks believed that RSI had meritorious defenses. It was only after the Alvarez's deposition that Berguin learned that Alvarez may have misappropriated Eldorado's intellectual property. (Berguin Decl. ¶17; Butler Decl. ¶19)). Neither Berguin nor Butler selected counsel for RSI or the other named Defendants. (Berguin Decl. ¶19; Butler Decl. ¶22).

In October 2005 Eldorado's counsel conducted a meeting with Mike Lewis of Eldorado, Butler, and Berguin. No attorney for RSI was present at the meeting. (Butler Decl. ¶30). In a follow-up e-mail to the meeting, counsel for Eldorado indicated that she had held up on naming any of the investors as defendants. (Butler Decl. ¶32; Exh. FF). Butler participated in two additional meetings with Eldorado. (Butler Decl. ¶¶34, 35).

Berguin, the largest shareholder in RSI, did not select or control the attorneys who represented RSI. (Berguin Decl. ¶19). After RSI experienced difficulty in raising additional capital, Berguin personally guaranteed the attorney's fees of Quinn Emanuel, counsel for RSI. In November 2006 Quinn Emanuel released the guarantee in exchange for payment of $441,980 toward attorney's fees already incurred by RSI and an additional $100,000 to fund a new retainer agreement between Quinn Emanuel and the named Defendants. Id. at ¶19. Ultimately, Berguin invested $1,000,000 in the first round of financing, $60,000 in the second round, $590,271 in the third round and $1,141,000 in the fourth and final round of financing for a combined total of $2,791,271. Id. at 37.

Plaintiffs now move pursuant to Cal. Civil Code §187 to amend the judgment to add Proposed Judgment Debtors as parties to this action under an alter ego theory. The motion is opposed.

DISCUSSION

The Motion to Amend the Judgment California Code of Civil ...


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