Adding 'alter ego' claims when suing companies gets risky, following Calif. decision

By Carrie Salls | Jan 26, 2018

SANTA ANA, Calif. (Legal Newsline) – A defendant has been awarded attorneys’ fees even though summary judgment in the case was awarded to the plaintiff, an Orange County law firm.

But Burkhalter Kessler Clement & George, which was awarded the judgment as to its claims against Eclipse Group LLP, also sued the company's managing partner Jennifer Hamilton as its alter ego.

The California Court of Appeals, 4th Appellate District, Division Three ruled Jan. 8 the firm needs to pay Hamilton's attorneys fees.

Acknowledging the appeals court’s ruling that “there can be more than one ‘prevailing party’ in a lawsuit," Keith Bishop, a partner in Allen Matkins’ corporate and securities practice group, told Legal Newsline, “At first blush, the ruling seems anomalous – the plaintiff won but was nevertheless liable for one of the defendant’s attorney fees.

“As a result of this decision, lawyers may be more careful about naming defendants under alter ego theories. Plaintiffs’ attorneys may feel that naming individuals as the alter ego for business defendants will bring extra pressure, but the strategy could backfire if the alter ego claim is not strong.”

According to the appeals court opinion, plaintiff Burkhalter Kessler named Eclipse Group LLP and Hamilton as defendants in an office space sublease breach-of-contract lawsuit.

Eclipse and Hamilton were both represented in the Burkhalter case by Avyno Law.

“The sublease contract had a provision for an award of reasonable attorney fees to the prevailing party in the event of a lawsuit,” the appeals court opinion said.

Although the Superior Court of Orange County entered summary judgment in Burkhalter Kessler’s favor in connection with Eclipse, it dismissed the firm’s alter ego claims against Hamilton.

As part of its rulings, the Superior Court awarded attorneys’ fees to Burkhalter Kessler, but not to Hamilton. The appeals court opinion said there was “no explanation for the court’s denial” of Hamilton’s attorneys’ fees payment request.

“We reverse (the Superior Court ruling on Hamilton’s attorneys’ fees)," the appeals court ruled. “In some lawsuits involving more than two parties, there may be more than one ‘prevailing party’ entitled to contractual attorney fees. Here, both Burkhalter and Hamilton are prevailing parties on the contract.”

The appeals court sent the case back to the Superior Court, instructing it to “award Hamilton reasonable attorney fees that were incurred by Avyno solely in her defense, subject to the court’s sound discretion.”

As a result, Bishop said attorneys may need to revise their approach to a lawsuit in which an alter ego defendant is involved.

“Consequently, lawyers may elect to wait and try to add alter ego defendants until after they have won a judgment,” Bishop said.

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Allen Matkins - Orange County office California Fourth Circuit Court of Appeals

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