Filed 3/1/22 Unified Real Estate Investments v. Thong CA2/1
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
UNIFIED REAL ESTATE B301162, B302953
INVESTMENTS, LLC,
(Los Angeles County
Plaintiff and Appellant, Super. Ct. No. BC691362)
v.
PHILLIP T. THONG et al.,
Defendants and Respondents.
APPEALS from a judgment and order of the Superior Court
of Los Angeles County, C. Edward Simpson and
Susan Bryant-Deason, Judges. Affirmed in part, reversed
in part, and remanded with directions.
CSReeder, Christopher S. Reeder and Elan Bloch for
Plaintiff and Appellant.
Wong & Mak and Fred A. Wong for Defendants and
Respondents.
____________________________
Plaintiff Unified Real Estate Investments, LLC (landlord)
appeals from a judgment in favor of defendants Phillip T. Thong,
Andrea L. Thong, Ly Hua, Wendy Lam, Heng Henry Hua (Henry
Hua), Newport Seafood Restaurant, Inc., Hua Culinary Group,
Inc., and Newport Seafood Restaurant, Inc. (collectively,
defendants).1
The individual defendants were shareholders in a
restaurant, New Port @ Beverly Hills, Inc. (NPBH), that leased
premises from landlord for a five-year term. Three years into
that term, NPBH ceased operations and vacated over landlord’s
objection. Landlord filed suit against NPBH for breach of the
lease and conversion, the latter cause of action based on
allegations that NPBH wrongfully removed equipment, furniture,
and other items when it vacated. Landlord sought to impose
liability on defendants based on their status as officers, directors,
shareholders, and/or alter egos of NPBH. Landlord further
claimed Phillip Thong was liable under a personal guaranty he
had provided at the outset of the lease.
NPBH did not appear and default was entered against it.
The other defendants proceeded to a bench trial. The trial court
ruled in favor of defendants and awarded attorney fees. The trial
court further orally announced a default judgment against NPBH
for unpaid rent and the items wrongfully removed from the
premises. The record indicates the trial court has yet to sign that
default judgment.
On appeal, landlord raises the following issues: (1) the trial
court failed to issue a requested statement of decision; (2) the
1 Because several of the defendants share last names, for
clarity and consistency we will refer to all individual defendants
by their first and last names.
2
trial court failed to include the default judgment against NPBH
in the judgment entered against defendants; (3) the trial court
wrongly concluded Phillip Thong’s personal guaranty was no
longer in effect when NPBH breached the lease; (4) the trial court
erred in finding defendants not liable for conversion; (5) the trial
court erred in finding defendants were not NPBH’s alter egos;
(6) the trial court made numerous evidentiary errors; and (7) the
trial court applied the wrong standard in calculating damages in
the default judgment.
The only issue before us meriting reversal is the trial
court’s ruling on the conversion cause of action. Henry Hua
testified that he directed NPBH’s move-out from the premises
and admitted to removing a number of items. We hold this
evidence establishes as a matter of law that Henry Hua is liable
for conversion. We remand for a determination of damages. We
affirm, however, the trial court’s judgment in favor of the other
defendants on the conversion claim.
We reject landlord’s other challenges. We conclude the
parties failed to request a statement of decision properly, and the
trial court was not required to issue one. The trial court
indicated it would enter judgment against NPBH separately from
defendants, which was within its discretion to do. We agree with
the trial court that Phillip Thong’s personal guaranty had expired
on its own terms at the time NPBH vacated the premises. The
evidence did not establish as a matter of law that defendants
were NPBH’s alter egos. None of landlord’s evidentiary
challenges merits reversal. Because the trial court has yet to
sign the default judgment against NPBH, the issue of damages is
not properly before us.
3
Accordingly, we reverse the judgment as to Henry Hua and
remand for a determination of damages on landlord’s conversion
claim against Henry Hua. Given the change in judgment, we also
vacate the award of attorney fees and costs. We otherwise affirm
the judgment.
FACTUAL BACKGROUND
We provide here general background on the case. More
detailed summaries of facts and proceedings appear in the
relevant sections of our Discussion, post.
Landlord owned and operated a building at 50 North
La Cienega in Beverly Hills. The building was a mixed-use
commercial property, with restaurants on the first floor and
medical offices on the second and third floors.
NPBH was a corporation formed in February 2014 to
operate a restaurant. Its officers were Ly Hua, president,
Wendy Lam, secretary, and Andrea Thong, chief financial officer,
each of whom was also a shareholder. Later in 2014, Andrea
Thong transferred her shares to her father, Phillip Thong, who
was NPBH’s accountant and “advisor.” Henry Hua was the
restaurant’s manager and executive chef, and later became a
shareholder. The other shareholders, not named as defendants
here, were Mimi Hua and Linda Hua.
In February 2014, landlord leased one of the restaurant
spaces at 50 North La Cienega to NPBH for a five-year term.
Phillip Thong was primarily responsible for negotiating the lease
on behalf of NPBH. Phillip Thong also signed a personal
guaranty for the performance of the lease. As we explain in more
detail in our Discussion, post, the guaranty provided that it
would expire after the first two years of the lease term unless
NPBH breached the lease within those first two years, in which
4
case the guaranty would remain in force for the remainder of the
lease term and any extension thereof.
Three years into the lease, NPBH’s shareholders decided to
close the restaurant. On October 3, 2017, NPBH through counsel
informed landlord of its intention to cease operations and return
possession of the premises to landlord. Landlord’s counsel
responded with a letter asserting that NPBH’s obligation to pay
rent would continue. The letter also asserted that under
paragraph 12(E) of the lease, NPBH could not remove any of
NPBH’s property from the premises unless it timely cured its
breach.
Although there was great dispute at trial as to what items
NPBH removed when it left the premises, Henry Hua
acknowledged at trial that he directed the removal of some items.
We summarize the evidence pertaining to the removed items in
the section of our Discussion addressing landlord’s conversion
cause of action.
PROCEDURAL BACKGROUND
1. Complaint and trial
On January 23, 2018, landlord filed a complaint against
NPBH, Phillip Thong, Andrea Thong, Ly Hua, Wendy Lam, and
Doe defendants asserting causes of action for breach of contract
and conversion. The complaint alleged that Andrea Thong, Ly
Hua, and Wendy Lam were officers of NPBH and Phillip Thong
both promoted NPBH and had a financial interest in it. The
complaint further alleged that all defendants, including the Doe
defendants, were “the agents, servants, employees, principals,
shareholders, joint venturers, alter egos, co-conspirators and/or
partners of each other . . . .”
5
The complaint alleged that NPBH abandoned the premises,
in the process causing damage and removing 33 items belonging
to landlord including a television, fire extinguishers, “and an
assortment of cooking appliances and related items” such as “a
burner range, convection oven, ice maker, and refrigerator.”
Phillip Thong, Andrea Thong, Ly Hua, and Wendy Lam
filed an answer to the complaint on March 7, 2018. NPBH
did not appear and the clerk entered default against it on
August 17, 2018.
On September 12, 2018, landlord amended the complaint to
substitute one individual and three entity defendants in place of
the Doe defendants: Henry Hua, Newport Seafood Group, Inc.,
Hua Culinary Group, Inc., and Newport Seafood Restaurant, Inc.
The new defendants answered the complaint on November 13,
2018.
At some point in the proceedings, landlord asserted the
additional contention that Phillip Thong was liable under his
personal guaranty.
Defendants unsuccessfully moved for summary judgment
and the case proceeded to a bench trial. The following witnesses
testified: Perry Cohan, landlord’s owner and managing director;
Tagel Mezgebu, landlord’s building manager; Phillip Thong;
Henry Hua; John Parks Landon, NPBH’s real estate agent; and
Bobby Lu, a restauranteur who took over the premises after
NPBH left. To the extent the testimony of these witnesses is
relevant to the appeal, we describe it in the applicable sections of
our Discussion, post.
Both parties called expert witnesses on the issues of
NPBH’s capitalization and adherence to corporate formalities,
factors pertinent to an alter ego analysis. Landlord’s expert,
6
Kevin Henry, opined NPBH was undercapitalized and its
adherence to corporate formalities insufficient, whereas
defendants’ expert, Barbara Luna, concluded the opposite.
2. Announcement of default judgment and tentative
ruling
Following the close of evidence, the trial court announced
the default judgment against NPBH, the nonappearing
defendant. The court ruled that NPBH owed landlord
$302,509.30 in unpaid rent, and an additional $90,000 for items
NPBH removed from the premises. The court ordered landlord’s
counsel to prepare a proposed judgment within 10 days.
Following closing arguments, the trial court provided an
oral tentative ruling regarding the appearing defendants. The
trial court found that Phillip Thong was not liable on his
guaranty, which was no longer in effect when NPBH vacated the
premises; that landlord failed to prove defendants were NPBH’s
alter egos; and that although NPBH wrongly removed items from
the premises, the evidence did not establish that the other
defendants were involved. The trial court found in favor of
defendants, and instructed defendants’ counsel to prepare a
proposed judgment.
We provide further details on the default judgment and
tentative ruling in the applicable sections of our Discussion.
3. Judgment and appeal
On August 1, 2019, the trial court signed a judgment in
favor of defendants and awarded them costs. The judgment
stated that “[t]he default of [NPBH] was entered prior to trial,”
but does not reflect the default judgment announced at the end of
trial. Landlord filed a notice of appeal from the judgment.
7
Defendants then moved for attorney fees. The trial court
awarded defendants $239,962.50 in fees. Landlord filed a second
notice of appeal from the fees award, and that appeal was
consolidated with the first appeal.
Although the record on appeal contains a proposed default
judgment against NPBH prepared by landlord, the record does
not reflect the trial court has signed that judgment.
DISCUSSION
A. The Trial Court Was Not Required To Issue a
Statement of Decision
Landlord contends the trial court committed reversible
error by failing to issue a statement of decision following trial.
We conclude the parties never made a proper request for a
statement of decision, and therefore the trial court was not
required to issue one.
1. Applicable law
“[U]pon the request of any party appearing at the trial,” the
trial court “shall issue a statement of decision explaining the
factual and legal basis for its decision as to each of the principal
controverted issues at trial.” (See Code Civ. Proc., § 632.)
Subject to an exception not applicable here, a request for a
statement of decision “must be made within 10 days after the
court announces a tentative decision.” (See ibid.) “After a party
has requested the statement, any party may make proposals as to
the content of the statement of decision.” (Ibid.)
“The request for a statement of decision shall specify those
controverted issues as to which the party is requesting a
statement of decision.” (Code Civ. Proc., § 632.) A party’s failure
8
to specify that the statement of decision should address a
particular issue “waive[s the] right to object to the failure of the
statement of decision to do so.” (City of Coachella v. Riverside
County Airport Land Use Com. (1989) 210 Cal.App.3d 1277, 1292
(City of Coachella).) “[A] general, nonspecific request for a
statement of decision does not operate to compel a statement
of decision as to all material, controverted issues.” (Id. at
pp. 1292–1293; accord, Conservatorship of Hume (2006)
140 Cal.App.4th 1385, 1394.)
2. Relevant proceedings below
At the conclusion of his closing argument, counsel for
defendants orally requested “a statement of decision under CCP
632 and a finding of facts, particularly perhaps to address the
issues that were raised in the two trial briefs that I filed.”
Landlord’s counsel then offered his rebuttal argument.
After concluding that argument, landlord’s counsel asked to make
a “housekeeping note.” He said, “Since we’re doing a statement of
decision, there’s two things. One is we’ll have to put the
judgment in on whatever you decide in the statement of decision
with the default[,] and the reason being is the one judgment
rule.” Landlord’s counsel went on to explain his concern that if
landlord obtained the default judgment against NPBH before
obtaining a judgment against the other defendants, there would
be a problem with the “one judgment rule.” The trial court
replied, “I’ll leave that up to you.” Landlord’s counsel stated,
“The way to do it is with the final judgment, if we just submit it
with that, that would be fine. Obviously if the Court is going to
do a statement of decision, we’d be happy to prepare a closing
brief or proposed statement of decision if the Court elects.” The
trial court stated it did not need to receive further briefing.
9
The trial court then issued its oral tentative in favor of
defendants. At the conclusion of the tentative decision, the trial
court stated, “To the extent there is a request for a statement of
decision, that needs to be submitted in writing, specifying the
areas and the issues that the Court has not covered by its
tentative ruling.” The parties said nothing further regarding the
statement of decision and the proceedings concluded. The record
does not indicate that any party submitted any further requests
for a statement of decision.
3. Analysis
The record indicates that the parties never made a request
for a statement of decision unequivocally specifying the issues the
parties wished addressed. Defendants’ counsel requested a
statement of decision but was not definite about the issues to
address; instead, he said “perhaps” it should address the issues
raised in his trial briefs. Landlord’s counsel’s request was even
more ambiguous, but it appears his concern was less about the
content of statement of decision and more that any judgment
include the default judgment against NPBH.
Given these ambiguous statements from counsel, it is
unsurprising that following its tentative decision the trial court
asked for a written request specifying the issues to be covered in
the statement of decision. The parties did not respond to this
request, although they had 10 days following the trial court’s
tentative decision to do so. (Code Civ. Proc., § 632.) Landlord
therefore has waived any objection to the trial court declining to
issue a statement of decision. (City of Coachella, supra,
210 Cal.App.3d at p. 1292.)
Landlord argues defendants’ counsel’s reference to the trial
briefs adequately specified the issues the parties wished
10
addressed. Referencing an entire trial brief, without more, is not
an appropriate method of specifying controverted issues for a
statement of decision. Regardless, defendants’ counsel’s request
was preliminary, stating only that the statement of decision
“perhaps” should address the issues in the trial briefs. At best,
this indicated defendants’ counsel intent to make a more specific
request in the future. No such request manifested, even when
the trial court expressly asked for a more specific request.
Landlord argues a party may orally request a statement of
decision, and the trial court erred by requiring a written request.
Be that as it may, a valid request for a statement of decision,
whether written or oral, must specify the issues to be addressed.
That specificity was absent here.
Landlord’s cited case, In re Marriage of Ananeh-Firempong
(1990) 219 Cal.App.3d 272 (Ananeh-Firempong), does not hold
otherwise. In Ananeh-Firempong, just prior to the trial court
issuing its tentative decision, counsel orally requested a
statement of decision as to “the calculations used to determine
the valuation of Husband’s medical practice.” 2 (Ananeh-
Firempong, at pp. 282, 284.) The trial court did not issue a
statement of decision, instructing counsel, “If you wish to have [a
statement of decision], you may request that in writing.” (Id. at
2 The precise request was, “ ‘What I want to say is if the
court in its analysis were to make a finding as to this business
valuation—accepting one of these practitioners and totally
rejecting the other—then I have to request that we have a
staement [sic] of decision showing calculations so that the record
is clear as to what factors were used in arriving at whatever
valuation.’ ” (Ananeh-Firempong, supra, 219 Cal.App.3d at
p. 282.)
11
p. 283.) The Court of Appeal held the oral request was sufficient
and directed the trial court to provide a statement of decision on
the valuation issue. (Id. at pp. 284–285.) Ananeh-Firempong
is not instructive in the instant case, in which the parties never
specified, orally or in writing, the issues they wished addressed in
the statement of decision.
B. The Trial Court Was Not Required To Include the
Default Judgment Against NPBH in the Signed
Judgment in Favor of Defendants
Landlord argues the judgment was inconsistent with the
trial court’s findings because it did not include the default
judgment against NPBH. We reject this claim of error.
Trial courts are not required to enter judgment as to all
defendants simultaneously. (Code Civ. Proc., § 579 [“In an action
against several defendants, the Court may, in its discretion,
render judgment against one or more of them, leaving the action
to proceed against the others, whenever a several judgment is
proper.”].) Here, the trial court expressly ordered landlord’s
counsel to prepare a proposed judgment against NPBH, and
ordered defendants’ counsel to prepare a proposed judgment as to
the claims against defendants. Thus, the trial court made clear it
intended to enter two separate judgments, one for the appearing
defendants and one for the defaulting defendant.
The record on appeal indicates the trial court has yet to
sign landlord’s proposed judgment against NPBH. Other than
submitting the proposed judgment, there is no evidence in the
record that landlord has taken further action to obtain a
signature. We therefore decline to hold at this point that the
trial court has committed any error in regard to the default
judgment against NPBH.
12
The lack of a signed judgment against NPBH does not
impede our jurisdiction over the appeal from the judgment
against defendants. “ ‘[I]t has long been the settled rule that in a
case involving multiple parties, a judgment is final and
appealable when it leaves no issues to be determined as to one
party.’ [Citations.]” (Heshejin v. Rostami (2020) 54 Cal.App.5th
984, 991.) The judgment in favor of defendants “ ‘leaves no issues
to be determined’ ” as to them, and therefore is a final and
appealable judgment. (Ibid.)
C. The Trial Court Correctly Concluded the Personal
Guaranty Had Expired
Landlord argues Phillip Thong was liable under his
personal guaranty, and the trial court erred by concluding
otherwise. We agree with the trial court that at the time NPBH
vacated the premises, the guaranty had expired under its own
terms.
1. Relevant facts and proceedings below
The lease required “Tenant to provide to the Landlord a
personal guarantee for the performance of the Lease for the
duration of the five (5) year Lease term.”
On February 21, 2014, Phillip Thong signed a “Guaranty of
Lease” (boldface omitted) in which he guaranteed NPBH’s
payment of rent and performance of the terms of the lease. The
final paragraph of the guaranty stated, “Notwithstanding
anything to the contrary contained in this Guaranty of Lease,
provided there has been no Breach (as that term [is] defined in
Paragraph 13.1(a) of the Lease) during the first twenty four (24)
months of the Original Term, Lessor agrees that this Guaranty of
Lease, effective as of the commencement of the twenty fifth (25th)
13
month of the Original Term, shall be cancelled and rendered of no
further force or effect. In the event, however, a Breach occurs
during the first twenty four (24) months of the Original Term,
this Guaranty of Lease, notwithstanding the foregoing, shall
remain in full force and effect throughout the Original Term and
any extension thereof.” The parties do not dispute that pursuant
to this language, the personal guaranty would expire after two
years in the absence of an earlier breach by NPBH.
At trial, Phillip Thong and Landon, NPBH’s real estate
agent, testified that Phillip Thong and Cohan, landlord’s
managing director, negotiated and agreed to the reduction of the
guaranty’s term from five years to two years. Cohan testified he
never agreed to the two-year term, and was not aware of the
reduced term until after NPBH had vacated the premises. Cohan
acknowledged he never read the signed guaranty after receiving
it.
NPBH left the premises in 2017, more than two years into
the original term of the lease. At issue in the trial court was
whether the guaranty was still in effect at that time. This
determination turned on whether NPBH had committed an
earlier breach during the first two years of the lease, which would
have extended the duration of the guaranty.
Landlord argued below that the guaranty itself breached
the lease, because the guaranty had a two-year duration rather
than the five years required by the lease, and NPBH did not
provide a new guaranty when the first guaranty expired to cover
the remaining three years. Landlord further argued NPBH had
breached a provision of the lease requiring NPBH to clean the
drain pipes every six months.
14
The trial court disagreed, concluding there could be no
breach unless the landlord first notified NPBH of the purported
noncompliance. In its oral tentative ruling, the trial court cited
paragraph 19(A) of the lease, which provides, “The occurrence of
anyone [sic] or more of the following events (‘Events of Default’)
shall constitute a material default and breach of this Lease by
Tenant.” Subparagraph (4) lists as one of the “Events of Default,”
“[t]he failure of Tenant to promptly and faithfully observe or
perform any of the covenants, conditions or provisions of this
Lease to be observed or performed by Tenant, where such failure
shall continue for a period of ten (10) days after written notice
thereof from Landlord to Tenant . . . .”
The trial court found no evidence that landlord had
provided notice within the first two years of the lease term that
NPBH had failed to provide an adequate guaranty or had failed
to clean the drain pipes. Accordingly, it found that NPBH had
not breached the lease within the first two years, and therefore
Phillip Thong was not liable under the guaranty.3
2. Analysis
On appeal, landlord does not dispute the trial court’s
finding that landlord did not within the first two years of the
lease term notify NPBH of either the insufficiency of the
guaranty or the failure to clean the drain pipes. Rather, landlord
contends the trial court misinterpreted the lease and guaranty to
3 The trial court rejected defendants’ argument that to the
extent the guaranty was not compliant with the lease, there was
no meeting of the minds and thus no valid guaranty. Defendants
do not reassert this argument on appeal, and we do not address
it.
15
require notice to establish a breach. This is a question of
contractual interpretation on undisputed facts, and our review is
de novo. (Bravo v. RADC Enterprises, Inc. (2019) 33 Cal.App.5th
920, 922.)
The guaranty by its language expired in two years absent a
breach as that term is defined in paragraph 13.1(a) of the lease.
The guaranty is not a model of clarity, because the lease does not
in fact contain a paragraph 13.1(a). Paragraph 13(A) of the lease,
however, entitled “Indemnity” (boldface omitted), refers to
breach, stating in relevant part, “Tenant shall further indemnify
and hold Landlord harmless from and against any and all claims,
costs, expenses and liabilities (including reasonable attorney’s
fees) arising from, or incurred in connection with, any breach of,
or default in, the performance of any obligation on Tenant’s part
to be performed under the terms of this Lease . . . .”
To understand the meaning of “breach” as used in
paragraph 13(A), the trial court appropriately looked to
paragraph 19(A), listing the events that “constitute a material
default and breach of this Lease.” Subparagraph (4) states that
one such event is the failure of NPBH to perform the provisions of
the lease “where such failure shall continue for a period of ten
(10) days after written notice thereof from Landlord.” This
language establishes that NPBH’s noncompliance with a
provision of the lease does not in itself constitute a “material
default and breach”—rather, breach occurs only after the
landlord has notified NPBH of the noncompliance, and NPBH
has failed to cure the issue within 10 days of that notice. In other
16
words, notice from the landlord is a necessary predicate to a
breach.4
The trial court found, and landlord does not dispute, that
landlord did not notify NPBH of any noncompliance within the
first two years of the lease term. Thus, NPBH did not breach the
lease within the first two years of the lease term, and the
guaranty was no longer in effect when NPBH abandoned the
premises in 2017.
Landlord contends that several provisions of the guaranty
obviate the need for notice to establish a breach. First, the
guaranty states, “This Guaranty shall not be released, modified
or affected by the failure or delay on the part of [landlord] to
enforce any of the rights or remedies of the [landlord] under said
Lease, whether pursuant to the terms thereof or at law or in
equity.” Landlord argues that through this provision, Phillip
Thong waived any challenge based on landlord failing to make a
timely demand on NPBH.
We disagree. The two-year expiration provision applies
“[n]otwithstanding anything to the contrary contained in this
Guaranty of Lease.” Thus, to the extent it is in conflict with the
provision cited by landlord, it supersedes that other provision.
Landlord also cites provisions in the guaranty stating, “No
notice of default need be given to Guarantors” and landlord “may
proceed immediately against [NPBH] and/or against Guarantors
4 The lease lists certain “Events of Default” not subject to
the 10-day notice requirement under paragraph 19(A)(4), namely
abandonment of the premises, failure to make rent or other
payments, and involuntary assignment of the tenant’s interest in
the lease. Landlord does not contend any of these events
occurred in the first two years of the lease term.
17
following any breach or default by [Tenant] or for the
enforcement of any rights which [landlord] may have as against
[NPBH] under the terms of the Lease or at law or in equity.”
Further, “[landlord] shall have the right to proceed against
Guarantors hereunder following any breach or default by [NPBH]
without first proceeding against [NPBH] and without previous
notice to or demand upon either [NPBH] or Guarantors.”
These provisions establish that in the event of a breach or
default, landlord may proceed against the guarantors without
notice to either NPBH or the guarantors. For these provisions to
apply, however, there must first be a breach or default under the
lease. As discussed, a breach or default occurs only if the
landlord has first notified NPBH of NPBH’s noncompliance, and
NPBH has not cured the issue within 10 days. In other words,
although the guaranty requires no notice before landlord may
enforce it following a breach, the lease requires notice to NPBH to
establish the breach in the first place.
Landlord further argues the provisions of the lease itself
establish no notice is necessary to trigger a breach as defined in
the guaranty. Landlord suggests the leases’s “no waiver” clause
either obviates the notice requirement in paragraph 19(A)(4) or
bars NPBH or Phillip Thong from asserting it. That provision
states, in relevant part, that “[n]o delay or omission in the
exercise of any right or remedy of Landlord with respect to any
default by Tenant shall impair such right or remedy or be
construed as a waiver thereof.”
We reject landlord’s interpretation. As applicable here, the
“no waiver” clause arguably would entitle landlord to serve notice
of NPBH’s noncompliance at any time, even long after the
noncompliance occurred, thus triggering the 10-day clock under
18
paragraph 19(A)(4). Landlord still would have to serve notice to
establish breach, however. As discussed, landlord did not serve
notice of any noncompliance during the first two years of the
lease term. Thus, NPBH was not in breach during those first
two years.
Landlord argues the term “breach” as used in the guaranty
is different from the “Events of Default” under paragraph 19(A)
of the lease. This argument runs afoul of the express language of
Paragraph 19(A), which states “[t]he occurrence of anyone [sic] or
more of the following events (‘Events of Default’) shall constitute
a material default and breach of this Lease by Tenant.” (Italics
added.) This language establishes that whatever distinction may
be drawn between a default and a breach, the events triggering
them nonetheless are identical, including the notice requirement
under subparagraph (4).
Landlord cites paragraph 10(A)(5) of the lease, providing “If
Tenant is served with a Notice for any kind of breach, Landlord
shall have the right to enter the Premises at any time after which
such notice is posted.” Landlord argues that “this language
contemplates a separate existence between what constitutes a
breach of the Lease Agreement and the notice requirement to
proceed with any sort of enforcement action or create the
existence of an Event of Default.”
Paragraph 10(A)(5) describes the conditions under which
the landlord may enter the premises, a separate issue from the
notice required to establish a breach, the latter of which is
addressed in paragraph 19(A)(4). Paragraph 10(A)(5) is not
instructive on the interpretation of the term “breach.” Again,
landlord’s suggestion that breach is something other than the
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events described in paragraph 19(A) is belied by the express
language of that paragraph.
Landlord notes, as have we, that the guaranty in defining
breach does not cross-reference paragraph 19(A) of the lease, but
rather paragraph 13, which refers to “any breach of, or default in”
NPBH’s performance under the lease. Landlord claims “this
section appears to distinguish between the mere existence of a
breach in the performance of a condition of the Lease Agreement
and notice.”
We see nothing inconsistent between paragraph 13 and
paragraph 19 of the lease, nor can we conceive how we may
understand the meaning of “breach” in paragraph 13 without
looking to paragraph 19, which defines the events constituting
breach. The guaranty is sufficiently clear that it intends to
incorporate the definition of breach from the lease, despite not
explicitly cross-referencing paragraph 19.
Landlord argues it was unaware that Phillip Thong had
provided a guaranty for a shorter term than the lease required,
and cannot have been required to provide notice “of a breach that
was concealed, or upon which [landlord] was unaware.” This
argument disregards the contrary testimony at trial that landlord
expressly agreed to the term reduction, which we must assume
the trial court found credible. (LSREF2 Clover Property 4, LLC v.
Festival Retail Fund 1, LP (2016) 3 Cal.App.5th 1067, 1076
(Clover Property) [absent a statement of decision, reviewing court
“presume[s that] the trial court ‘made all factual findings
necessary to support the judgment for which substantial evidence
exists in the record’ ”].) Regardless, the reduction of the
guaranty’s term was not “concealed,” but was apparent on the
face of the guaranty. It is no defense that the landlord accepted
20
the guaranty without reading it. Landlord cites no authority to
the contrary.
In its reply brief, landlord argues the trial court committed
reversible error by failing to rule properly on landlord’s motion in
limine seeking to bar defendants from raising a meeting-of-the-
minds defense to the guaranty or from arguing that their
negotiations with landlord shortened the guaranty’s term. Any
such error was harmless, because our holding does not depend on
a meeting-of-the-minds argument or the trial court’s findings
regarding the parties’ negotiations. Rather, we rely on the
undisputed facts and plain language of the lease and guaranty.
D. The Trial Court Erred by Not Finding Henry Hua
Liable for Conversion, But the Record Supports the
Court’s Ruling in Favor of the Other Defendants on
That Cause of Action
Landlord contends the evidence at trial established that
defendants, through NPBH, wrongfully removed equipment and
other items when NPBH vacated the premises, and the trial court
erred in concluding defendants were not liable for conversion.
We agree the evidence at trial established as a matter of law that
Henry Hua, who admitted to removing items from the premises,
was liable for conversion, and the trial court erred by concluding
otherwise. We, however, conclude that substantial evidence
supported the trial court’s finding in favor of the other defendants
on the conversion claim.
We begin with a summary of the proceedings below,
including the relevant evidence at trial and the trial court’s oral
ruling.
21
1. Proceedings below
a. Evidence presented
The summary of each witness’ testimony is organized for
clarity and therefore is not necessarily in the order in which the
witness provided the testimony.
i. Testimony of Perry Cohan
Cohan, landlord’s managing director, testified that before
NPBH moved into the premises, landlord had installed $42,000 of
new kitchen equipment from Alpine Fixtures & Sheet Metal, Inc.
(Alpine). After NPBH entered into the lease, NPBH began
modifying the space and installing equipment and furniture. No
one from NPBH ever told Cohan to remove any of the Alpine
equipment.
When NPBH vacated the premises, Cohan entered the
space and discovered nearly everything had been removed, and
there was damage to the walls and floors. NPBH never returned
any equipment to landlord.
Cohan never personally saw anyone remove the equipment
NPBH had installed.
Cohan believed the wrongfully removed equipment fell into
two categories: the Alpine equipment that was in the space when
NPBH moved in, and the equipment NPBH installed itself.
ii. Testimony of Tagel Mezgebu
Mezgebu, landlord’s building manager, testified that
landlord installed equipment from Alpine before NPBH moved in.
Mezgebu identified photographs he had taken of the space with
the Alpine equipment installed, again before NPBH had moved
in.
22
NPBH renovated the space before moving in. All of the
Alpine equipment was removed during the renovation, replaced
by equipment for preparing Chinese cuisine. Mezgebu initially
testified no one from NPBH asked him to remove any equipment,
but later he said he did not remember if anyone had asked him.
When NPBH was moving out of the space in 2017, Mezgebu
saw the movers taking out a stainless steel table. Mezgebu told
Henry Hua, who was present, that the table was part of the bar.
Henry Hua said he would put it back. Apart from the bar table,
Mezgebu did not witness anyone remove anything else.
Mezgebu testified that when he entered the space after
NPBH had left, “about 95 percent of the stuff” was gone.
Mezgebu took pictures of the space after NPBH vacated, and
those pictures were entered as exhibits at trial.
iii. Testimony of Phillip Thong
Phillip Thong testified that the equipment landlord had
previously installed in the space was unsuitable for NPBH’s
purposes and had to be taken out. He presented an architect’s
plan to Cohan that called for gutting the kitchen and replacing
all the equipment. Cohan approved the plan and agreed to
remove the existing equipment. Ly Hua and Henry Hua then
tagged the equipment to be removed with blue tape. Phillip
Thong asked Mezgebu at least two or three times to remove the
tagged equipment, but Mezgebu did not do so.
Phillip Thong testified regarding a general ledger for
NPBH as of December 31, 2017, with entries for “disposal . . . due
to close of business” of leasehold improvements, fixed assets,
furniture and fixtures, and computers. (Capitalization omitted.)
Phillip Thong explained, “[W]hen a company no longer has assets
or abandons those assets, you write it off from the books in
23
closing as the company no longer has any assets.” Phillip Thong
stated nothing physically had to happen to the assets for the
write-off to take place. Leasehold improvements would have
been left at the premises because they could not be removed.
Their value would be reduced to zero on the financial statement
because the company cannot take the improvements upon
vacating the premises.
Another entry in the ledger indicated that inventory had
been transferred to “San Gabriel location.” (Some capitalization
omitted.) Phillip Thong explained that another New Port entity
had sold inventory to NPBH, and when NPBH shut down it
returned the goods to the other entity, resulting in a write-off of
approximately $8,700.
iv. Testimony of Henry Hua
Henry Hua testified that he was in charge of NPBH moving
out of the premises, and he identified for the movers what to
remove. His summarized his instructions as follows: “I told them
if it was loose to pack it. If it was something we can unplug, pack
it. If it was something that was, like, an electrical plug, we can
unplug it and take it with us. Anything that wasn’t bolted to the
floor, to the wall, don’t take it [sic].[5] Last thing, when they
moved, don’t damage the building, please.”
Henry Hua took photographs after the moveout was
completed. The set of photographs was admitted as an exhibit.
Looking at the photographs, Henry Hua described some items the
movers had taken, such as a fish tank, some booth seating, some
loose shelving, and a timeclock for employees to punch in and out.
5We presume Henry Hua meant to say that he instructed
the movers not to take anything bolted to the floor.
24
NPBH had leased two dishwashers from outside vendors, and at
NPBH’s request the vendors removed the dishwashers from the
premises. Henry Hua testified the movers left behind a custom
built Chinese kitchen including woks, stock pots, a giant cooling
table, a steam deck station, a three-compartment sink, and a
prep sink, although he did not identify these items at trial in the
photographs he took, nor was he asked to do so.
Henry Hua acknowledged at trial that some items were
taken to a warehouse in San Gabriel, but he did not specify which
items.
After NPBH vacated the premises, landlord’s counsel sent a
letter to NPBH’s counsel listing 33 items of equipment landlord
believed NPBH had removed. Henry Hua read the letter and did
not recognize any of the listed items other than a television and
four fire extinguishers. NPBH had purchased the fire
extinguishers for the premises. Through a letter from NPBH’s
counsel, Henry Hua offered to return the television and fire
extinguishers to the premises, but he did not recall landlord
responding. He never went to the premises to return the
television and fire extinguishers.
v. Testimony of Bobby Lu
Lu, the restauranteur who took over the space after NPBH
left, testified that when he took possession, the kitchen contained
a stove, a shell of refrigeration, a small sink for handwashing,
and a work counter.
b. Trial court’s ruling
As discussed, the trial court did not issue a statement of
decision. It provided an oral tentative decision, which also
incorporated earlier comments the trial court made the court day
25
prior. It also orally explained the basis for the default judgment
against NPBH. We summarize all of these comments below.
In summarizing the trial court’s oral comments, we do not
suggest they are a substitute for a statement of decision, or
provide a basis to affirm or reverse any part of the judgment.
“[A] court’s oral comments may be valuable in illustrating the
trial judge’s theory, but they may never be used to impeach the
order or judgment on appeal. [Citation.] This is because a trial
court retains inherent authority to change its decision, its
findings of fact, or its conclusions of law at any time before entry
of judgment and then the judgment supersedes any
memorandum or tentative decision or any oral comments from
the bench.” (Shaw v. County of Santa Cruz (2008)
170 Cal.App.4th 229, 268 (Shaw).)
i. Trial court’s “initial thoughts”
Following the close of evidence, and before closing
argument, the trial court provided some “initial thoughts.” The
trial court found Cohan’s testimony “vague,” in that “[h]e didn’t
know what happened to his equipment. He didn’t know what
equipment [NPBH] provided.” The trial court also found
Mezgebu’s testimony “rather limited and not in great detail.”
Phillip Thong, in contrast, “seemed to have more of a command of
personal knowledge as to what he testified to,” and “[h]e was
specific in his testimony on the removal of the landlord’s kitchen
equipment and why it needed to be removed and what it was
replaced by.” The court found “Henry Hua’s testimony was
primarily consistent with that of Mr. Thong.”
After addressing other issues in the case, the trial court
stated, “As far as the removal of the equipment by [NPBH] when
they vacated the premises, that shouldn’t have happened. It was
26
clearly a violation of the lease. Their right to remove their
equipment was contingent upon their vacating the premises
without having breached the lease. Here it is clear that they
breached the lease by vacating the premises before the term
expired and as a result did not have the contractual right to
remove that equipment.” The court found, however, that there
was weak evidence, if any, as to the value of the missing
equipment, and no admissible testimony as to what the landlord
had to spend to restore the premises to a marketable condition.
ii. Oral explanation of default judgment
The trial court began the next court day by announcing the
default judgment against NPBH. The court ruled that NPBH
owed landlord $302,509.30 in unpaid rent. The court continued,
“There’s testimony and evidence that some equipment and
furniture was removed,” and “even though there was no direct
testimony on its value,” the trial court opted to determine its
value based on an NPBH balance sheet as of year-end 2017,
which listed figures “for equipment and for furniture and fixtures
and also the accumulated depreciation.”
The balance sheet to which the trial court referred, under
the heading “Fixed Assets,” had line items for “Leasehold
Improvement,” “Equipment,” “Furniture & Fixtures,” and
“Computers,” and then a line for accumulated depreciation and
amortization. The amount attributed to “Equipment” was
$133,100.80, and the amount attributed to “Furniture &
Fixtures” was $122,622.44. The total depreciation and
amortization for all fixed assets was listed as –$162,544.00.
The trial court stated, “I’ve taken the figure for furniture
and fixtures because the only equipment that I believe the
testimony supported that was removed was the leased
27
equipment. I have added an additional $90,000 to the default
judgment for the removal of the furniture,” for a total judgment of
$392,590.30.
iii. Tentative decision
Following closing arguments, the trial court orally
announced its tentative ruling, beginning by incorporating its
preliminary thoughts from the previous court day summarized
above.
On the issue of NPBH’s removal of items from the
premises, the trial court found “no reliable evidence of the value
or damage to [landlord]. There’s been no evidence that any of the
defendants other than [NPBH] actually removed any of the
equipment.” The court found that the equipment “was removed
by individuals that were hired by [NPBH].”
2. Standard of review
Landlord’s argument on appeal primarily consists of listing
evidence presented at trial and arguing that evidence establishes
defendants’ liability for conversion.6 “Although we ordinarily
review evidentiary challenges for substantial evidence, that
6 Landlord also contends the trial court failed to apply a
strict liability standard when evaluating landlord’s conversion
cause of action. Although landlord states this argument is
supported by the trial court’s tentative ruling and ultimate
judgment, landlord fails to cite any portions of the tentative
ruling or judgment indicating the trial court applied the wrong
standard. Our own review of the record, moreover, gives no
indication that the parties raised any arguments that turned on
the proper application of that standard. We therefore reject this
argument.
28
standard ‘ “is typically implicated when a defendant contends
that the plaintiff succeeded at trial in spite of insufficient
evidence.” ’ [Citations.] ‘ “In the case where the trier of fact has
expressly or implicitly concluded that the party with
the burden of proof did not carry the burden” ’ . . . and that party
appeals, ‘ “the question for a reviewing court becomes whether
the evidence compels a finding in favor of the appellant as
a matter of law.” ’ [Citation.]” (Manela v. Stone (2021)
66 Cal.App.5th 90, 105 (Manela).)
Here, landlord, as plaintiff, had the burden to prove each
element of its cause of action for conversion. (Evid. Code, § 500
[“a party has the burden of proof as to each fact the existence or
nonexistence of which is essential to the claim for relief or
defense that he is asserting”].) Our inquiry therefore is whether
the evidence establishes as a matter of law that defendants are
liable for conversion. In the absence of a statement of decision,
we apply the doctrine of implied findings, and “presume the trial
court ‘made all factual findings necessary to support the
judgment for which substantial evidence exists in the record.’ ”
(Clover Property, supra, 3 Cal.App.5th at p. 1076.)
3. Analysis
The tort of conversion consists of three elements:
“(a) plaintiff’s ownership or right to possession of personal
property, (b) defendant’s disposition of property in a manner
inconsistent with plaintiff’s property rights, and (c) resulting
damages.’ [Citations.]” (Voris v. Lampert (2019) 7 Cal.5th 1141,
1150 (Voris).) To establish the first element, “ ‘[n]either legal
title nor absolute ownership of the property is necessary.
[Citation.] A party need only allege it is “entitled to immediate
possession at the time of conversion. [Citations.]” [Citation.] . . . ’
29
[Citation.]” (Plummer v. Day/Eisenberg, LLP (2010)
184 Cal.App.4th 38, 45, italics omitted.)
“[C]onversion is a strict liability tort. It does not require
bad faith, knowledge, or even negligence; it requires only that the
defendant have intentionally done the act depriving the plaintiff
of his or her rightful possession.” (Voris, supra, 7 Cal.5th at
p. 1158.) Further, “[a]n agent is guilty of conversion, even if he
acts in good faith and in accord with his instructions, if his
principal is guilty of conversion.” (Wells Fargo Bank & Union
Trust Co. v. Dowd (1956) 139 Cal.App.2d 561, 575 (Wells Fargo
Bank & Union Trust).)
a. The record compels the conclusion that
Henry Hua is liable for conversion
The trial court in its tentative ruling stated there was “no
evidence that any of the defendants other than [NPBH] actually
removed any of the equipment.” This comment is not supported
by the record, because Henry Hua expressly testified that he was
in charge of the move-out, and instructed the movers what to
take. He described a number of the items he ordered removed.
He acknowledged he read the letter from landlord listing missing
items, and admitted he removed the television and fire
extinguishers. Although he offered to return them, he did not
do so.
Evidence may compel a finding as a matter of law when it
is “ ‘ (1) “uncontradicted and unimpeached” and (2) “of such a
character and weight as to leave no room for a judicial
determination that it was insufficient to support a finding.” ’
[Citation.]” (Sonic Manufacturing Technologies, Inc. v. AAE
Systems, Inc. (2011) 196 Cal.App.4th 456, 466 (Sonic).) Henry
Hua’s testimony that he was responsible for the removal of items
30
from the premises certainly was uncontradicted and
unimpeached, and in fact was corroborated by other evidence. 7
It is not clear from the record whether the items removed
by Henry Hua were items originally installed by the landlord,
items purchased by NPBH, or both. The distinction is immaterial
to our analysis. It is undisputed that under the terms of the
lease, upon NPBH’s breach landlord assumed ownership or a
right to possession of all of NPBH’s property on the premises.
Paragraph 12(E) of the lease states, in relevant part, “All articles
of personal property and all business and trade fixtures,
machinery and equipment, furnishings, furniture and movable
partitions owned or placed in the Premises by Tenant at Tenant’s
expense shall be and remain the property of Tenant and may be
removed by Tenant at any time during the Lease Term provided
Tenant is not in material default hereunder . . . .” (Italics added.)
Our Supreme Court has held that an analogous lease
provision prohibiting a “Lessee . . . in default” from “removing . . .
trade fixtures, equipment, and other like property which it may
have installed” is “reasonably susceptible of the construction that
upon the lessees’ default the trade fixtures shall belong to . . .
lessors . . . .” (See Goldie v. Bauchet Properties (1975) 15 Cal.3d
307, 311, fn. 3, 318 (Goldie).)8
7 Defendants in their respondent’s brief argue the only
evidence supporting Henry Hua’s direct liability for conversion
was Mezgebu’s testimony that Henry Hua was at the move-out
and said he would return a table at Mezgebu’s request.
Defendants fail to address Henry Hua’s own testimony about the
move-out.
8 The full text of the provision at issue in Goldie reads,
“ ‘All trade fixtures, equipment and other like property which the
Lessee has installed in or attached to the building or
31
In Goldie, the Supreme Court could not determine as a
matter of law that the quoted language served to transfer
ownership of the lessees’ property to the lessors upon breach, and
remanded for the trial court to determine the intent of the
parties. (Goldie, supra, 15 Cal.3d at pp. 318–319.) In the instant
case, however, defendants did not contest below landlord’s
assertion that paragraph 12(E) granted landlord a possessory
interest in NPBH’s property upon breach, nor did they contest it
in their respondent’s brief. We deem the matter conceded and
forfeited.
Thus, even if the only items removed by Henry Hua were
items originally belonging to NPBH, under the terms of the lease
improvements located upon the demised premises, provided the
removal of the same shall not structurally injure the building or
improvements, shall remain the property of the Lessee, subject to
Lessor’s security interest, and the Lessor agrees that the Lessee
shall have the option at any time, and from time to time,
provided the Lessee is not then in default in the performance of
any of the obligations of the lease on its part to be performed to
trade in or replace any and all of its trade fixtures, equipment,
and other like property which it may have installed in the
building or improvements, and upon the termination of the lease,
to remove same, provided that upon such trading in, replacing or
removing the Lessee shall restore and repair any damage
occasioned thereby to the building and improvements, and
further provided that if Lessee be in default, it shall not then
have any right of trading in, replacing or removing of such trade
fixtures, equipment, and other like property which it may have
installed. Nothing in this Article shall be deemed to permit the
removal by the Lessee of any permanent type exterior or interior
carrying walls, or permanent type floor coverings.’ ” (Goldie,
supra, 15 Cal.3d at p. 311, fn. 3.)
32
landlord assumed possession of those items when NPBH
abandoned the premises and breached the lease. Henry Hua’s
removal of those items, therefore, constituted conversion. This
is so regardless of whether Henry Hua was ignorant of
paragraph 12(E), or was acting in good faith on instructions from
someone else. (Voris, supra, 7 Cal.5th at p. 1158; Wells Fargo
Bank & Union Trust, supra, 139 Cal.App.2d at p. 575.)
Because the trial court did not find Henry Hua liable for
conversion, the trial court made no findings as to what precisely
Henry Hua removed or ordered removed and the damages
therefrom. We acknowledge the trial court orally announced a
default judgment against NPBH that included $90,000 in
damages for removal of items from the premises. Assuming the
trial court ultimately signs the judgment containing that award,
it does not compel the conclusion that the trial court necessarily
found that Henry Hua removed or directed others to remove
property belonging to landlord worth $90,000. 9 In the absence of
a statement of decision, it is unclear whether the $90,000 solely
reflects the items removed by Henry Hua or at his direction, or
incorporates items for which Henry Hua is not responsible.
It is necessary, therefore, to remand to the trial court for a
determination of damages attributable to Henry Hua’s actions.
We leave it to the trial court to decide in the first instance how
best to accomplish this.
9We express no opinion as to the validity of the damages
award announced by the trial court.
33
b. The record does not compel the conclusion
that the other defendants are liable for
conversion
Whereas the record unequivocally established that Henry
Hua removed or directed others to remove items from the
premises, there was no such evidence for any of the other
defendants. The only other defendant to testify, Phillip Thong,
did not admit to being involved in the move-out, nor did any of
the other witnesses or documentary evidence indicate any
defendant other than Henry Hua was involved in removing
items.
It is true that Phillip Thong testified regarding removing
equipment when NPBH renovated the premises at the outset of
the lease, but it was not clear from his testimony whether NPBH
removed the items or landlord did. Phillip Thong further
testified Cohan approved of the removal of the items. This
testimony supports the inference that landlord consented to or
participated in the removal of items at the outset of the tenancy,
which defeats a claim of conversion. (Chen v. PayPal, Inc. (2021)
61 Cal.App.5th 559, 576 [“ ‘ there can be no conversion where an
owner either expressly or impliedly assents to or ratifies the
taking, use or disposition of his property’ ”].)
Landlord argues that as officers, directors, and/or
shareholders of NPBH, defendants can be liable for the acts of
the corporation. Landlord cites case law stating that “[d]irectors
are jointly liable with the corporation and may be joined as
defendants if they personally directed or participated in the
tortious conduct” (Frances T. v. Village Green Owners Assn.
(1986) 42 Cal.3d 490, 504), and shareholders similarly may be
liable if they “specifically directed or authorized the wrongful
34
acts” (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 785).
Such individuals may also be liable if “they specifically knew or
reasonably should have known that some hazardous condition or
activity under their control could injure plaintiff,” yet
“negligently failed to take or order appropriate action to avoid the
harm.” (Frances T., at p. 508.)
Landlord argues that “the improper removal of these items
was intended to benefit the entire group of [defendants] and
therefore all [defendants] should be liable for the converted
property.” Landlord further argues that defendants are liable
because they “collectively elected to shut down the operations of
NPBH” and thus “authorized the conversion of property . . . by
appointing Henry Hua to remove contents from the Premises.”
Landlord also contends defendants “ratif[ied]” the wrongful
removal “by failing to return stolen items following demand for
their return by Unified,” and “specifically knew and reasonably
should have known that actions taken within their control
injured [landlord].”
As an initial matter, landlord’s argument casts too wide a
net by lumping defendants together as a group. No evidence was
presented that the entity defendants had any control over or
owned shares in NPBH. Nor was there any evidence establishing
that as a matter of law the entity defendants were involved in the
move-out or received property to which landlord had a right to
possession. Henry Hua admitted items were taken to a
warehouse in San Gabriel, but no evidence was introduced as to
who controlled that warehouse. Phillip Thong testified that when
NPBH closed, it returned $8,700 of inventory to one of the entity
defendants, but the evidence did not establish as a matter of law
that this happened after NPBH had breached the lease by
35
abandoning the premises. The date listed for that transaction in
NPBH’s ledger, December 31, 2017, could just as well have
reflected the date the transaction was entered for recordkeeping
purposes at the end of the year, rather than the date of the
transaction itself.
As for the individual defendants other than Henry Hua,
again, there was no evidence establishing as a matter of law that
they directed, authorized, or participated in the move-out or the
removal of landlord’s property. Their agreement as a group to
close the restaurant does not establish that they also agreed as a
group to remove items from the premises. Although there was
correspondence between landlord’s counsel and NPBH’s counsel
about the purportedly removed items, this does not compel the
conclusion that any of the individual defendants apart from
Henry Hua were aware of that correspondence—indeed, based on
Henry Hua’s testimony, it appeared that he handled the matter.
At bottom, the standard of review defeats landlord’s
arguments here. Whether or not there was evidence from which
the trial court might have concluded that some or all of the
defendants directed, participated in, or otherwise were aware of
NPBH’s removal of items from the premises, no evidence compels
this conclusion as a matter of law. Landlord’s argument
therefore must fail.
E. The Record Does Not Establish as a Matter of Law
That Defendants Were Alter Egos of NPBH
Landlord contends it “presented overwhelming evidence”
that defendants were alter egos of NPBH, and the trial court
erred by ruling otherwise. We reject this challenge.
36
1. Applicable law and standard of review
“Ordinarily, a corporation is regarded as a legal entity,
separate and distinct from its stockholders, officers and directors,
with separate and distinct liabilities and obligations. [Citations.]
A corporate identity may be disregarded—the ‘corporate veil’
pierced—where an abuse of the corporate privilege justifies
holding the equitable ownership of a corporation liable for the
actions of the corporation.” (Sonora Diamond Corp. v. Superior
Court (2000) 83 Cal.App.4th 523, 538.)
“ ‘Alter ego is an extreme remedy, sparingly used.
[Citation.]’ [Citations.]” (Hasso v. Hapke (2014) 227 Cal.App.4th
107, 155 (Hasso).) A “heavy burden rests on the shoulders of the
party seeking to pierce the corporate veil.” (Santa Clarita
Organization for Planning & Environment v. Castaic Lake Water
Agency (2016) 1 Cal.App.5th 1084, 1105 (Santa Clarita
Organization for Planning & Environment).) “ ‘[T]he corporate
form will be disregarded only in narrowly defined circumstances
and only when the ends of justice so require.’ [Citation.]” (Zoran
Corp. v. Chen (2010) 185 Cal.App.4th 799, 810 (Zoran Corp.).)
“ ‘[T]wo conditions must be met before the alter ego
doctrine will be invoked. First, there must be such a unity of
interest and ownership between the corporation and its equitable
owner that the separate personalities of the corporation and the
shareholder do not in reality exist. Second, there must be an
inequitable result if the acts in question are treated as those of
the corporation alone.’ [Citations.]” (Hasso, supra,
227 Cal.App.4th at p. 155.)
Courts consider a number of factors when determining
whether to apply the alter ego doctrine, including but not limited
to, “ ‘ “[c]ommingling of funds and other assets, failure to
37
segregate funds of the separate entities, and the unauthorized
diversion of corporate funds or assets to other than corporate
uses . . . ; . . . the treatment by an individual of the assets of the
corporation as his own . . . ; . . . the failure to obtain authority to
issue stock or to subscribe to or issue the same . . . ; . . . the
holding out by an individual that he is personally liable for the
debts of the corporation . . . ; the failure to maintain minutes or
adequate corporate records, and the confusion of the records of
the separate entities . . . ; . . . the identical equitable ownership in
the two entities; the identification of the equitable owners thereof
with the domination and control of the two entities; identification
of the directors and officers of the two entities in the responsible
supervision and management; sole ownership of all of the stock in
a corporation by one individual or the members of a family . . . ;
. . . the use of the same office or business location; the
employment of the same employees and/or attorney . . . ; . . . the
failure to adequately capitalize a corporation; the total absence of
corporate assets, and undercapitalization . . . ; . . . the use of a
corporation as a mere shell, instrumentality or conduit for a
single venture or the business of an individual or another
corporation . . . ; . . . the concealment and misrepresentation of
the identity of the responsible ownership, management and
financial interest, or concealment of personal business
activities . . . ; . . . the disregard of legal formalities and the
failure to maintain arm’s length relationships among related
entities . . . ; . . . the use of the corporate entity to procure labor,
services or merchandise for another person or entity . . . ; . . . the
diversion of assets from a corporation by or to a stockholder or
other person or entity, to the detriment of creditors, or the
manipulation of assets and liabilities between entities so as to
38
concentrate the assets in one and the liabilities in another . . . ;
. . . the contracting with another with intent to avoid performance
by use of a corporate entity as a shield against personal liability,
or the use of a corporation as a subterfuge of illegal transactions
. . . ; . . . and the formation and use of a corporation to transfer to
it the existing liability of another person or entity.” . . . ’
[Citations.]” (Zoran Corp., supra, 185 Cal.App.4th at pp. 811–
812.) “ ‘No single factor is determinative, and instead a court
must examine all the circumstances to determine whether to
apply the doctrine. [Citation.]’ [Citation.]” (Id. at p. 812.)
“Whether a party is liable under an alter ego theory is
normally a question of fact. [Citations.] ‘The conditions under
which the corporate entity may be disregarded, or the corporation
be regarded as the alter ego of the stockholders, necessarily vary
according to the circumstances in each case inasmuch as the
doctrine is essentially an equitable one and for that reason is
particularly within the province of the trial court.’ [Citation.]”
(Zoran Corp., supra, 185 Cal.App.4th at p. 811.)
We review a trial court’s findings regarding alter ego for
substantial evidence. (Santa Clarita Organization for Planning
& Environment, supra, 1 Cal.App.5th at p. 1095.) Because
landlord bore the burden at trial of proving alter ego, landlord
can prevail on this issue only if the evidence establishes as a
matter of law that defendants were alter egos of NPBH. (Manela,
supra, 66 Cal.App.5th at p. 105.)
2. Trial court’s tentative ruling
For the reader’s information, we briefly summarize the
trial court’s tentative ruling on the issue of alter ego, although we
do not rely on that ruling in resolving this appeal. (See Shaw,
supra, 170 Cal.App.4th at p. 268.)
39
The court found a lack of evidence that defendants
commingled funds or exercised dominance and control over
NPBH. The court noted a lack of evidence as to particular
shareholders’ participation in the business, including Ly Hua and
Wendy Lam. As for Henry Hua, “[t]here’s been no evidence that
he commingled any of his funds with the funds of the restaurant
or that he exercised any control over the restaurant so as to
benefit himself personally rather than the corporate entity.” As
for Phillip Thong, “there’s been no testimony or evidence that he
had any day-to-day responsibility for the restaurant” or “that he
personally benefited from the operation of the restaurant.
There’s no evidence of any commingling of funds.” The trial court
did not specifically discuss defendant Andrea Thong or the entity
defendants in its tentative ruling.
The trial court found that NPBH sufficiently complied with
corporate formalities for a small, closely-held business, including
maintaining adequate minutes of meetings, recording stock
transfers, making required filings with the Secretary of State,
and maintaining a corporate bank account. The court found
NPBH was adequately capitalized, based on it having sufficient
funds initially for leasehold improvements and then operating for
almost three years. The court stated that the restaurant
operated “on a day-to-day cash basis,” and therefore did not need
as much capitalization as other businesses that might see delays
in receiving income.
3. Evidence identified by landlord on appeal
Rather than summarizing all relevant evidence presented
at trial, we will summarize landlord’s own description of the
evidence purportedly establishing that defendants are NPBH’s
alter egos. We explain in our subsequent Analysis section where
40
we take particular issue with landlord’s characterization of the
evidence.10
a. Capitalization
Landlord claims the evidence showed NPBH was
undercapitalized. Landlord points to evidence indicating NPBH
had low cash on hand and no initial capital infusion, and what
sums were contributed to the company were primarily used to
make leasehold improvements, and were therefore not available
to pay for operational expenses. Much of the money coming to
the corporation was characterized as loans from shareholders.
NPBH reported a substantial net loss every year.
Landlord’s expert witness calculated that NPBH had
obligations exceeding $2.5 million, and presented a chart
indicating that NPBH consistently operated at a negative cash
balance and gradually depleted its equity until it shut down.
b. Common ownership and control
Landlord contends NPBH was a “quintessential ‘friends
and family’ small business.” Landlord points to evidence that
Phillip Thong and Ly Hua were “longtime friends.” Henry Hua is
Ly Hua’s son and Andrea Thong is Phillip Thong’s daughter.
Shares were issued to other family members such as Mimi Hua
and Linda Hua. Wendy Lam was an officer and shareholder in
one of the entity defendants along with Ly Hua. Payments were
10 To the extent we do not expressly take issue with any
part of landlord’s characterization of the evidence, this should not
be taken as validation of that characterization, but merely that
we accept that characterization arguendo for purposes of this
appeal.
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made to family members as “consultants,” although landlord
contends there was no evidence those individuals provided any
consulting services.
Landlord contends the evidence showed the individual
defendants “routinely hold themselves out as owners of” NPBH
and the entity defendants. Henry Hua worked for one of the
other entity defendants before he worked at NPBH.
c. Others holding themselves out as liable for
debts of NPBH
Landlord asserts Phillip Thong held himself out as liable
for the debts of NPBH. This was evidenced by his provision of
the personal guaranty, the fact that his family trust paid for
NPBH’s first and last month’s rent and security deposit at the
beginning of the lease, and Phillip Thong’s statement to the
designer renovating the premises that Thong’s credit was good
and he promised the designer would be paid.
Defendants’ expert identified on a financial exhibit an
“advance” from a “sister company” to NPBH.
d. Corporate formalities
Landlord contends the minutes of NPBH’s board meetings
were a “sham” because they were prepared by Phillip Thong, who
admitted he was not present, and were signed by Wendy Lam,
whom Phillip Thong testified had limited ability in English.
Some minutes stated Henry Hua was present, but Henry Hua
testified he never attended those meetings.
Landlord argues the evidence showed company shares
issued for no value and transferred to family members for no
consideration, with no correlation to the shareholders’ ownership
interest or equity investment. NPBH’s records did not explain
42
why some financial infusions were booked as loans and others as
capital payments.
e. Diversion of assets for defendants’ benefit
Landlord contends the evidence showed defendants taking
assets for their own benefit from NPBH. Landlord points to a
general ledger from 2014 listing two payments to Dara Thong,
whom landlord contends is Phillip Thong’s wife. One payment is
for $1,166, and one for $1,680.54. The ledger also shows multiple
payments to Mimi Hua and Jasen Lam, identified by Phillip
Thong as his brother-in-law, as consultants.
Landlord also points to evidence previously described that
when NPBH closed, some inventory was transferred to one of the
entity defendants, some property was stored in a San Gabriel
warehouse, and NPBH wrote various assets off its books.
Landlord contends evidence also shows NPBH repaid loans or
made cash payments to the entity defendants, as well as vendors
servicing the entity defendants, Phillip Thong’s accounting firm,
and NPBH’s lawyer.
f. Shared attorney, accountant, bank, and
address
Landlord notes that all defendants are represented by the
same counsel that represented NPBH, Phillip Thong’s accounting
firm provided services to all the entity defendants, and all entity
defendants used the same bank, of which Phillip Thong was a
director. When NPBH shut down, its bank account was
transferred to the same address as two of the other entity
defendants.
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g. Defendants’ confusion of various entities
Landlord claims Phillip Thong’s testimony that defendants’
expert was retained by NPBH, the nonappearing defendant,
suggests Phillip Thong saw no distinction among the various
defendants.
4. Analysis
We note at the outset that the applicable law and standard
of review outlined above make it exceedingly difficult for an
appellant to obtain reversal of a trial court’s finding that a party
is not the alter ego of a corporate entity. This is particularly so
where, as here, there is no statement of decision, and therefore
we must presume the trial court made all factual findings
necessary to support its ruling. Even assuming the evidence
supports the presence of some of the alter ego factors, no factor is
in and of itself determinative. The trial court therefore could
have found the absence of other alter ego factors weighed against
piercing the corporate veil. It is not surprising, therefore, that
landlord cites no case, nor have we discovered one, in which a
reviewing court has reversed a trial court’s ruling that a party
has failed to prove alter ego.
With this in mind, we conclude landlord has not shown as a
matter of law “ ‘such a unity of interest and ownership between
the corporation and its equitable owner that the separate
personalities of the corporation and the shareholder do not in
reality exist.’ ” (Hasso, supra, 227 Cal.App.4th at p. 155.)
Landlord’s evidence did not establish as a matter of law
several key alter ego factors. NPBH had multiple shareholders
and officers; this was not a circumstance in which one person or
family unquestionably was in control. (See Zoran Corp., supra,
44
185 Cal.App.4th at p. 811 [one alter ego factor is “ ‘ “sole
ownership of all of the stock in a corporation by one individual or
the members of a family” ’ ”].) Although landlord tries to
characterize the shareholders as a unified group based on
friendship, familial relationship, or professional relationship, the
record is lacking in evidence as to how the defendants interacted
with one another and what role they played in NPBH’s
decisionmaking. Certainly there was no evidence compelling the
conclusion they were of one mind on key matters or that one
person or family had particular control. Absent evidence of a
unity of interest among the various shareholders, we cannot
conclude there was a unity of interest between the shareholders
as a group and the corporation.
There is a similar lack of evidence in regard to the entity
defendants. Landlord identifies virtually no evidence
establishing the ownership structure of those entities. Landlord
contends the individual defendants “routinely hold themselves
out as owners of” the entity defendants, but cites no evidence
supporting this contention. At most, landlord cites a document
showing that Wendy Lam and Ly Hua are directors and officers
of one of the entities, but this is insufficient to establish
“ ‘ “identical equitable ownership” ’ ” with NPBH, much less the
other entity defendants. (Zoran Corp., supra, 185 Cal.App.4th at
p. 811.) Although there is evidence the entity defendants
conducted business with NPBH, the evidence does not compel the
conclusion those transactions were not proper, arm’s-length
transactions. Indeed, there was little evidence at all as to how
the entities interacted with one another, and no evidence that
any entity defendant controlled NPBH. Nor does repayment of
debts or the transfer of funds upon NPBH’s closure in and of
45
itself prove “ ‘ “the manipulation of assets and liabilities between
entities so as to concentrate the assets in one and the liabilities
in another.” ’ ” (Id. at p. 812.)
These conclusions are reason enough to affirm the trial
court on the issue of alter ego, even assuming arguendo
landlord’s evidence proved the presence of some alter ego factors.
Landlord did not, however, prove its listed factors as a matter of
law. At least some of the evidence landlord cites as evidence of
abuse of the corporate privilege supports innocent inferences as
well.
For example, the fact that NPBH paid consulting fees or
other monies to shareholders or their family members does not
prove those individuals did not provide goods or services to
NPBH in exchange. Phillip Thong’s testimony that he prepared
the corporate minutes, despite not being at the meetings, does
not preclude the possibility that Wendy Lam took notes in
whatever language she preferred, which Phillip Thong then
translated and converted into official minutes.
We acknowledge that a key area of dispute at trial was
whether NPBH was adequately capitalized, and landlord devotes
considerable space in its briefing to this issue. As a matter of
substantial evidence, we note defendants put forth an expert
witness who testified NPBH was indeed adequately capitalized,
testimony we must assume the trial court credited given the
standard of review.11 Even if the expert’s opinion was invalid,
11 Landlord notes the trial court stated it did not find
either party’s expert’s testimony “very helpful.” This does not
indicate the trial court disbelieved all aspects of that testimony.
Regardless, we cannot rely on the trial court’s oral comments to
impeach the judgment. (Shaw, supra, 170 Cal.App.4th at p. 268.)
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however, “[e]vidence of inadequate capitalization is, at best,
merely a factor to be considered by the trial court in deciding
whether or not to pierce the corporate veil.” (Associated Vendors,
Inc. v. Oakland Meat Co., Inc. (1962) 210 Cal.App.2d 825, 841–
842.) Given the other factors the trial court could have found in
favor of defendants, NPBH’s undercapitalization would not
justify reversing the trial court, even were we to accept landlord’s
analysis of that factor.
F. Landlord Fails to Show Prejudice From its Claims of
Evidentiary Error
Landlord claims the trial court made a number of
evidentiary errors. We review such claims for abuse of discretion.
(Twenty-Nine Palms Enterprises Corp. v. Bardos (2012)
210 Cal.App.4th 1435, 1447.) “[A]n erroneous evidentiary ruling
requires reversal only if ‘there is a reasonable probability that a
result more favorable to the appealing party would have been
reached in the absence of the error. [Citation.]’ [Citations.]”
(Id. at p. 1449.) Under these principles, we conclude none of
landlord’s challenges merits reversal of the judgment.
Landlord notes that at the outset of trial, the trial court
referred to the large number of exhibits and said, “Somebody is
going to have to boil this case down to the six or eight or ten or
12 exhibits that are important for me.” Further, throughout the
trial, the trial court instructed the parties to “move along”—
landlord contends this was directed to landlord’s counsel far more
often than to defendants’ counsel. Landlord does not explain how
or why these comments amount to reversible error, and we do not
address them further.
Landlord contends the trial court erred by granting
defendants’ motion in limine to restrict the expert testimony to
47
the issue of NPBH’s capitalization, and not to allow the experts to
opine on the lack of corporate formalities or the injustice prong.
Landlord does not explain what specific evidence landlord would
have introduced but for this ruling and how it might have
affected the outcome of the trial, and therefore fails to show
prejudice. We note that landlord’s expert did in fact testify
regarding corporate formalities, despite the trial court’s ruling
and without objection from defendants.
Landlord argues the trial court improperly relied on
hearsay evidence when assessing the issue of capitalization,
namely a news article submitted with defendant’s expert report.
The trial court also sustained objections to landlord’s questions to
Phillip Thong regarding what Thong believed was a sufficient
amount of capital to run the restaurant.
Although the trial court read aloud a portion of the news
article to which landlord refers when making its initial comments
after the close of evidence, in the absence of a statement of
decision we cannot assume the trial court relied on that article in
rendering judgment. (Shaw, supra, 170 Cal.App.4th at p. 268
[“a court’s oral comments . . . may never be used to impeach the
order or judgment on appeal”].) Landlord does not explain what
testimony Phillip Thong would have provided had the trial court
not sustained the objections to landlord’s questions, and therefore
fails to demonstrate prejudice.
Finally, landlord provides a long list of testimony and
evidence the trial court excluded, with a parenthetical for each
explaining the topic to which the testimony or evidence
pertained. Again, landlord does not explain how, had this
evidence been admitted, there is a reasonable probability of a
more favorable result for landlord.
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G. The Issue of Damages Is Not Properly Before Us
Landlord contends the trial court applied the wrong
measure of damages on the default judgment against NPBH.
As discussed, the trial court has not yet signed the proposed
judgment prepared by landlord, and therefore there is no
damages award from which to appeal. This argument is not
properly before us and we decline to address it.
We also decline landlord’s invitation to provide guidance to
the trial court as to how to assess damages against Henry Hua on
remand. The trial court has yet to address the damages
attributable to Henry Hua, and should have the opportunity to do
so in the first instance.
H. The Award of Fees and Costs Must Be Reversed
The parties have not briefed how we should address the
fees and costs award in the event of a partial reversal. We think
it best that the trial court should address that issue in the first
instance. We therefore vacate the awards of attorney fees and
costs. The parties may seek fees and costs anew in the trial
court. We express no opinion as to how the trial court should rule
on those requests.
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DISPOSITION
The judgment is reversed as to Heng Henry Hua only. The
trial court is directed to enter judgment against Heng Henry Hua
on Unified Real Estate Investments, LLC’s cause of action for
conversion. The trial court is further directed to determine
damages consistent with this opinion. The trial court’s award of
attorney fees and costs is vacated. The judgment otherwise is
affirmed. The parties shall bear their own costs on appeal.
NOT TO BE PUBLISHED.
BENDIX, J.
We concur:
ROTHSCHILD, P. J.
CRANDALL, J.*
* Judge of the San Luis Obispo County Superior Court,
assigned by the Chief Justice pursuant to article VI, section 6 of
the California Constitution.
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