The California Court of Appeal recently issued a decision in Wells Fargo Bank v. Weinberg, 2014 Westlaw 2762068 (Cal. App.). There, a corporation (in this case a law firm comprised of only one attorney) needed money which it ultimately borrowed from a bank. Although the attorney personally guaranteed the debt, there was apparently no writing evidencing the guaranty.
The lawyer, however, left an electronic recording with the bank wherein he made an oral promise guarantying the debt. The attorney eventually took several hundred thousand dollars out of the corporation and the corporation never repaid the promissory note. The bank sued both the corporation on the note and the attorney on the oral guaranty. The trial court sustained the attorney’s demurrer to the oral guaranty but ultimately granted a judgment against the corporation. The bank then conducted a judgment debtor examination and learned of the attorney’s transfer of funds from the corporation. The bank moved to amend the judgment and added the attorney as the alter ego of the corporation. The trial court granted that motion which in effect gave the bank an “end around” to collect against the attorney. Not surprisingly, the attorney appealed arguing that the judgment against him was precluded under the doctrine of res judicata since the alter ego claim could have been brought in the underlying action – but was not. The Court of Appeals rejected the res judicata argument and found that the attorney’s conduct was a “separate and district harm” from the law corporation’s breach of contract and that the attorney’s exercise of control over the corporation was the thing that precluded the bank from collecting on the judgment. As such, just because the bank could not state a claim for breach of guaranty did not mean that it was precluded from alleging alter ego against its putative guarantor.
For the full opinion, please click here.