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Toho-Towa Co., Ltd. v. Morgan Creek Productions, Inc.

California Court of Appeals, Second District, Fifth Division

July 11, 2013

TOHO-TOWA CO., LTD., Plaintiff and Respondent,
MORGAN CREEK PRODUCTIONS, INC., Defendant and Appellant.

APPEAL from an order of the Superior Court of Los Angeles County Super. Ct. No. BS131357 Debre Katz Weintraub, Judge.

Glaser Weil Fink Jacobs Howard Avchen & Shapiro, Patricia L. Glaser, Joel N. Klevens for Defendant and Appellant.

Greenberg Glusker Fields Claman & Machtinger, Charles N. Shephard for Plaintiff and Respondent.

O'NEILL, J. [*]

Morgan Creek Productions, Inc. ("MCP"), a Delaware corporation with its principal place of business in Los Angeles, appeals the trial court's order adding it to a judgment for more than $5.7 million which Toho-Towa Co., Ltd., a Japanese company ("Toho-Towa") was awarded against two MCP-affiliated companies, Morgan Creek International B.V., a Netherlands company ("B.V.") and Morgan Creek International Ltd., a Bermuda corporation ("Ltd."). MCP maintains that the trial court erred in ruling that the three business entities constituted a single business enterprise for purposes of imposing alter ego liability on MCP for the debts of B.V. and Ltd. We conclude that the ruling is supported by substantial evidence. MCP also contends that the trial court abused its discretion in failing to set aside its ruling pursuant to Code of Civil Procedure, [1] section 473, subdivision (b). We see no abuse of discretion. Consequently, we affirm the order.


In 2005, Toho-Towa negotiated with MCP to acquire Japanese distribution rights to the MCP-produced motion picture The Good Shepherd (the "Picture"). After the parties had reached agreement as to the terms of the distribution deal, Howard Kaplan, MCP's then general counsel, told Toho-Towa that B.V., rather than MCP, would grant Toho-Towa the distribution rights under the agreement, and that a third entity, Ltd., would guarantee B.V.'s contractual obligations to Toho-Towa. Mr. Kaplan indicated to Toho-Towa that this was the structure MCP used for its international distribution deals. Mr. Kaplan assured Toho-Towa that B.V. and Ltd. would have sufficient assets to meet any financial obligations Toho-Towa might be owed with respect to the Picture. As a consequence of these assurances, Toho-Towa entered into a written agreement with B.V. to distribute the Picture in Japan. The obligations of B.V. under the agreement were guaranteed by Ltd.

Pursuant to the terms of the distribution agreement, by the end of October 2008, B.V. owed Toho-Towa approximately $4.5 million in connection with expenses it had advanced to distribute the Picture. On October 31, 2008, Toho-Towa submitted its invoice to B.V. requesting payment of this amount. On November 13, 2008, Toho-Towa's invoice to B.V. was forwarded to MCP's chief financial officer, Gary Stutman. On December 3, 2008, Mr. Stutman advised Toho-Towa by email that he was "speaking with our owner, Mr. Jim Robinson, re the payment date." The invoice was never paid.

On April 22, 2009, Toho-Towa initiated a JAMS arbitration against B.V. and Ltd., based on B.V.'s failure to pay the reimbursable costs represented in the October 31, 2008 invoice. MCP's in-house counsel, Don Hardison, retained attorney Alan Gutman to represent B.V. and Ltd. in the arbitration. Mr. Hardison reviewed the pleadings, consulted with Mr. Gutman on strategy, reviewed and approved Mr. Gutman's bills, and forwarded them to MCP's chief financial officer for payment.

The arbitrator entered a final arbitration award in favor of Toho-Towa against B.V. and Ltd. in the amount of $5, 233, 386. A three-judge JAMS appellate panel unanimously affirmed the arbitration award. On Toho-Towa's motion, the award was confirmed as a judgment on June 23, 2011. With interest and attorneys' fees, the amount of the judgment was $5, 741, 536.

Neither B.V. nor Ltd. satisfied the judgment entered against them.

In the fall of 2011, Toho-Towa took examinations under oath, pursuant to section 708.110 et seq., of various MCP representatives, including MCP's former chief financial officer Gary Stutman, its vice president Brian Robinson, and its general counsel Don Hardison, to ascertain the relationship between the three Morgan Creek entities. Through these examinations, Toho-Towa learned that the three Morgan Creek entities were owned by a single individual, James Robinson; that the work of B.V. and Ltd. was performed by employees of MCP; and that the companies were operated in such a way that no money flowed to the foreign Morgan Creek entities. Based on this information, Toho-Towa moved, pursuant to section 187, to add MCP to its judgment against B.V. and Ltd., on the theory that MCP was the alter ego of the other two entities ("the section 187 motion").

Toho-Towa's motion, filed on December 30, 2011, was supported by a memorandum of points and authorities, the declarations of its California counsel Charles Shephard, its Dutch counsel Frederic Verhoeven, its president Hiroyasu Matsuoka, and its employee Yusuke Horiuchi. These declarations form the basis of the evidence presented in support of the motion, the contents of which are discussed below.

MCP filed its opposition to the motion, together with its memorandum of points and authorities, objections to the declarations of Messrs. Shephard, Verhoeven, Matsuoka and Horiuchi, and a request that the court take judicial notice of the fact that MCP is a Delaware corporation, on January 20, 2012. MCP submitted no declarations to counter the evidence provided by Toho-Towa.

On February 3, 2012, the court began the hearing on the motion by announcing its tentative decision to add MCP to the judgment. The court found the following factors relevant to its conclusion that MCP was the alter ego of B.V. and Ltd., based on the declarations Toho-Towa submitted with its motion:[3]

(1) The entities were all owned by the same person, James Robinson.

(2) Mr. Robinson was the only person with authority to resolve the dispute with Toho-Towa.

(3) Ltd. had no employees and no bank account.

(4) B.V.'s financial arrangements were structured so that it never received any money. Rather, all of B.V.'s licensing ...

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