Addition of Alter Ego as Judgment Debtor Subject to Preponderance

Metropolitan News-Enterprise, February 5, 1999

A successful plaintiff who moves to add an alleged alter ego of the defendant as an additional judgment debtor must prove the relationship between the parties by preponderance of the evidence, this district's Court of Appeal ruled yesterday.

Handing a rare victory to the Church of Scientology in its long-running battle with member-turned-critic Larry Wollersheim, Div. Two concluded that Los Angeles Superior Court Judge John Shook erred in only requiring Wollersheim to present substantial evidence to support his claim that Church of Scientology International and the Religious Technology Center are alter egos of the Church of Scientology of California.

Wollersheim, who claimed that the church harassed him and tried to destroy his business, sued in 1980 and was awarded $ 30 million by a jury in 1986. That amount was reduced three years later to $ 2.5 million by the late Los Angeles Superior Court Judge Ronald Swearinger, who had presided over the trial.

The church later brought an equitable action, seeking to vacate the judgment based on extrinsic evidence that Swearinger was biased because he believed that church members had tailed him, slashed his tires, killed his dog, and engaged in other "funny stuff," as he put it in an interview.

Los Angeles Superior Court Judge Edward Kakita struck the complaint under the anti-SLAPP law, saying the suit was part of the ongoing harassment of Wollersheimthe judge noted that the church and related entities had filed three suits against him in the seven years after he obtained his uncollected judgmentand that there was insufficient evidence of judicial bias for the church to be expected to prevail on the merits.

The judge also awarded Wollersheim $ 250,000 in attorney fees and costs.

Div. Three of this district's Court of Appeal affirmed.

In his motion to add CSI and RTC to the judgment, Wollersheim asserted that the two were created as part of a reorganization of the California church, which began after he filed the 1980 suit. Judge John Shook ruled that there was substantial evdence that "CSI and RTC are the alter egos of CSC" and that "CSI and RTC controlled the litigation."

Shook cited +NEC Electronics, Inc. v. Hurt+, 208 Cal.App.3d 772, and +Triplett v. Farmers Ins. Exchange, 24 Cal.App.4th 1415.

In +NEC+, a 1989 case, the Court of Appeal reversed an order adding the defendant corporation's sole shareholder and chief executive officer to the judgment as an alter ego. The court said it did not believe there was "substantial evidence to support the trial court's conclusion that [the CEO's] manipulation of the assets of [the corporation] produced an inequity+."

In +Triplett+, the court reversed an order adding the defendant's insurer to a judgment, citing +NEC+.

But the reference to substantial evidence in +NEC+, Justice John Zebrowski wrote yesterday, was an "unremarkable statement" regarding the standard of appellate review, not the standard to be applied by the trial court in ruling on the motion.

The controlling law on that issue, Zebrowski said, is Evidence Code Sec. 115, which provides that issues of fact are to be decided under a preponderance standard "[e]xcept as otherwise provided by law."

The usual presumption that the trial court has applied the correct standard, the justice went on to say, doesn't apply because the plaintiff specifically argued that substantial evidence was all that was required and the trial judge specifically applied that test over the objection of the defendants.

Attorneys on appeal were Daniel A. Leipold, Robert F. Donohue, and Cathy L. Shipe of Hagenbaugh & Murphy, and Craig J. Stein of Gartenberg, Jaffe, Gelfand & Stein for the plaintiff, Gerald. L. Chaleff of Orrick, Herrington & Sutcliffe and Edward J. Horowitz for CSI; and Samuel D. Rosen and Barbara A. Reeves of Paul, Hastings, Janofsky & Walker for RTC.

The case is +Wollersheim v. Church of Scientology International+, B118114.

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