Case No. G041727

COURT OF APPEAL, STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT, DIVISION THREE

DANIELA PIRES OLAUSON, et al.,

Plaintiffs and Appellants,

vs.

JAMES BALDWIN,

Defendant and Respondent.

APPEAL FROM THE SUPERIOR COURT OF THE STATE

OF CALIFORNIA FOR THE COUNTY OF ORANGE,

SUPERIOR COURT NO. 97CC05913

THE HONORABLE CHARLES MARGINES

APPELLANTS’ OPENING BRIEF

Thomas V. Girardi (SBN 36603) Martin N. Buchanan (SBN 124193)

Keith D. Griffin (SBN 204388) Niddrie, Fish & Buchanan, LLP

Girardi & Keese 750 B Street, Suite 2640

1126 Wilshire Boulevard San Diego, CA 92101

Los Angeles, CA 90017 Telephone: (619) 238-2426

Telephone: (213) 977-0211 Facsimile: (619) 238-6036

Fascimile: (213) 481-1554

Attorneys for Plaintiffs and Appellants Daniela Pires Olauson,

Tiffany Olauson, a minor by and through her guardian ad litem

Daniela Pires Olauson, and Susan Champion

i

TABLE OF CONTENTS

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

A. History of TR Builder Corporation . . . . . . . . . . . . . . . . . . . . . . 1B. Ownership and Operation of the Cessna T210 . . . . . . . . . . . . . . 3C. Piloting Services of Daniel Neuman . . . . . . . . . . . . . . . . . . . . . 3D. The Plane Crash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4E. The Insurance Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

STATEMENT OF APPEALABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

I. THERE ARE TRIABLE ISSUES OF MATERIAL FACTAS TO JAMES BALDWIN’S ALTER EGO LIABILITYAND HE IS NOT ENTITLED TO JUDGMENT AS AMATTER OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

A. Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

B. The Trial Court Erred by Granting SummaryJudgment for James Baldwin on Alter Ego Liability . . . . . . 8

II. THERE ARE ALSO TRIABLE ISSUES OF FACTREGARDING TR BUILDER’S LIABILITY FOR THECRASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

B. TR Builder May Be Held Liable Under PublicUtilities Code Section 21404 . . . . . . . . . . . . . . . . . . . . . . . . 13

C. TR Builder May Be Held Liable Under theDoctrine of Respondeat Superior . . . . . . . . . . . . . . . . . . . . 13

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

ii

CERTIFICATE OF COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

CERTIFICATE OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

iii

TABLE OF AUTHORITIES

CASES

Alexander v. Abbey of the Chimes (1980) 104 Cal.App.3d 39 . . . . . . . 9, 11

Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.3d 825 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Brunzell Const. Co., Inc. of Nevada v. Harrah’s Club (1964) 225Cal.App.2d 734 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Claremont Press Publishing Co. v. Barksdale (1960) 187 Cal.App.2d 813 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Cummins v. Sky Cruisers, Inc. (1976) 59 Cal.App.3d 983 . . . . . . . . . . . 13

Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144 . . . . . . . . . . . . . . . 8

Empire Star Mines Co v. California Employment Commission (1946) 28 Cal.2d 33 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Fraizer v. Velkura (2001) 91 Cal.App.4th 942 . . . . . . . . . . . . . . . . . . . . . 7

Hamilton Murray v. Industrian Accident Commission (1932) 216 Cal. 340 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Hiehle v. Torrance Millworks, Inc. (1954) 126 Cal.App.2d 624 . . . . . . . 11

Jack Farenbaugh & Son v. Belmont Construction, Inc. (1987) 194 Cal.App.3d 1023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Justus v. Atchison (1977) 19 Cal.3d 564 . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290 . . . . . . . . . . 8, 12

Miller v. Department of Corrections (2005) 36 Cal.4th 446 . . . . . . . . . . . 7

Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69 Cal.App.4th 223 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Ochoa v. Superior Court (1985) 39 Cal.3d 159 . . . . . . . . . . . . . . . . . . . . . 7

iv

PAN Pacific Sash & Door Co. v. Glendale Park, Inc. (1958) 166 Cal.App.2d 652 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

People v. Sims (1982) 32 Cal.3d 468 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Perez v. Van Groningen & Sons, Inc. (1986) 41 Cal.3d 962 . . . . . . . . . . 13

RLH Industries, Inc. v. SBC Communications, Inc. (2005) 133 Cal.App.4th 1277 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

S.G. Borello & Sons, Inc. v. Department of Industrial Relations (1989) 48 Cal.3d 341 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Sugimoto v. Exportadora De Sal (9th Cir. 1994) 19 F.3d 1309 . . . . . . . . 12

Virtualmagic Asia, Inc. v. Fil-Cartoons, Inc. (2002) 99 Cal.App.4th 228 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Wilson v. Stearns (1954) 123 Cal.App.2d 472 . . . . . . . . . . . . . . . . . . . . . 11

STATUTES

Code of Civil Procedure section 437c . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Code of Civil Procedure section 904.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Public Utilities Code section 21404 . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 13

1

INTRODUCTION

This case arises from an airplane crash into the Pacific Ocean.

Plaintiffs and appellants are the survivors of two passengers who perished

in the crash. Their appeal is from a summary judgment ruling and final

judgment in favor of one of the defendants, James Baldwin. For purposes

of the summary judgment motion, Baldwin did not dispute that the crash

was caused by pilot negligence. The determinative issue on appeal is

whether Baldwin may be held liable as the alter ego of TR Builder

Corporation (“TR Builder”), the owner and operator of the airplane.

The trial court erred in ruling as a matter of law that Baldwin was

not the alter ego of TR Builder. Baldwin was the sole shareholder and

president of TR Builder. According to Baldwin’s own testimony, the sole

function of TR Builder at the time of the crash was to provide an airplane

and pilot for an off-road racing entity operated by the Baldwin family at a

loss “primarily for recreation.” (2 AA 357.) Based on the evidence

presented below, there are triable issues of material fact whether Baldwin

was using TR Builder as a mere conduit to support his family’s recreational

activities. In these circumstances, it would be inequitable to allow Baldwin

to use the corporate structure as a means to escape personal liability.

Accordingly, the judgment in favor of Baldwin should be reversed.

STATEMENT OF FACTS

A. History of TR Builder Corporation

On December 22, 1986, TR Builder Corporation (“TR Builder”)

was incorporated in California. (1 AA 92.) James Baldwin and his

brother, Alfred Baldwin, each contributed half of a condominium with an

agreed value of $232,000 as a capital asset of TR Builder. On March 26,

2

1987, the corporation issued 500 shares of stock to James Baldwin and 500

shares to Alfred Baldwin. (1 AA 87.)

From 1986 to 2004, James and Alfred Baldwin were the only

shareholders of TR Builder, the only members of its Board of Directors,

and the highest-ranking officers of the corporation. (1 AA 111-201.) As

of May 2004, James and Alfred Baldwin each still held 50 percent of the

corporation’s stock. (1 AA 111.) Sometime in 2005, prior to the plane

crash, James Baldwin became the sole shareholder and owner of 100

percent of the stock. (1 AA 72, 90, 108; 2 AA 409.) However, there is no

documentation in the board minutes or other corporate records of any sale

or transfer of Alfred Baldwin’s 50 percent share to James Baldwin. (1 AA

92-111.)

TR Builder’s original purpose was to borrow against the

condominium and invest in real estate development projects with other

Baldwin companies. (1 AA 87.) By the time of the plane crash on

November 19, 2005, however, TR Builder’s sole business function was

owning a Cessna T210 airplane and providing air transportation for

Baldwin Racing LLC, a limited liability corporation owned by James

Baldwin, his two sons, and his son-in-law “primarily for recreation” in off-

road truck racing. (2 AA 356-357, 409.) Baldwin Racing’s expenses far

exceeded its income. It was funded by contributions from James Baldwin

and his family. (2 AA 359-360.)

After the crash, TR Builder ceased conducting any business. (2 AA

410.) According to James Baldwin, TR Builder “doesn’t do anything” any

longer. TR Builder apparently had no remaining assets after the airplane

crashed into the ocean. (2 AA 356-357.) The board minutes do not reflect

what happened to the condominium. (1 AA 108-147.)

3

B. Ownership and Operation of the Cessna T210

In 1986, James Baldwin and R. Daniel Olmstead jointly purchased

the Cessna T210. (1 AA 73, 76.) In 1987, James Baldwin acquired R.

Daniel Olmstead’s interest in the Cessna T210. (1 AA 73, 78.)

On July 21, 1993, James and Alfred Baldwin purportedly

contributed their interests in four aircraft including the Cessna T210 to TR

Builder. There was no consideration paid for these aircraft. (1 AA 73, 88,

147.)

On exactly the same date, notwithstanding the purported donation of

the Cessna T210 to TR Builder, James Baldwin transferred ownership of

the Cessna T210 to Village Properties, a Baldwin partnership consisting of

himself, Alfred Baldwin, and a third partner. (1 AA 73.) The Bill of Sale

reflects that there was no consideration paid for the transfer. (1 AA 80.)

In July 1995, Village Properties transferred ownership of the Cessna

T210 to TR Builder. (1 AA 73.) The Bill of Sale reflects that there was no

consideration paid for the transfer. (1 AA 82.)

TR Builder owned, maintained, and equipped the Cessna T210. (2

AA 412.) As of November 2005, TR Builder did not own any aircraft

besides the Cessna T210. (2 AA 357.) The corporate records do not

reflect what happened to the other three aircraft that were purportedly

donated to TR Builder on July 21, 1993. (1 AA 92-147.)

C. Piloting Services of Daniel Neuman

From 1998 through 2005, TR Builder retained the services of Daniel

Neuman to pilot the Cessna T210. (1 AA 89; 2 AA 254-261, 411.)

Neuman was the only pilot paid by TR Builder between January 2003 and

4

the date of the crash. (2 AA 365-366, 411.) Neuman’s duties included

monitoring and contracting for aircraft maintenance, approving

maintenance bills for payment by TR Builders, and providing piloting

services for the Cessna T210. (1 AA 88-89; 2 AA 411.) TR Builder paid

Neuman at an agreed rate per full or half day of piloting services, and it

reimbursed him for travel expenses, including fuel, landing fees, parking,

food, and lodging. (1 AA 89; 2 AA 304, 371, 412.) The corporation also

paid Neuman overtime compensation on three occasions in 2005. (2 AA

412.) Neuman was required to remain on call and available to fly the

airplane, and he was compensated for remaining on “standby” for TR

Builder on multiple occasions. (2 AA 372, 377-385, 412-413.)

Neuman flew the Cessna T210 primarily for Baldwin Racing events.

The airplane was used as “an antenna in the sky” during the races. Neuman

also flew the plane for Baldwin family pleasure trips. Neuman did almost

all of his flying for TR Builder. (2 AA 294-295, 311, 361-362, 372.)

There is no evidence that TR Builder ever charged Baldwin Racing or the

Baldwin family for the use of the airplane or the piloting services.

One of the Baldwin entities was solely responsible for hiring

employees and doing payroll for all the other Baldwin entities, including

TR Builder. (2 AA 365.)

D. The Plane Crash

In November 2005, TR Builder arranged to provide air

transportation for Richard Olauson and Jeffrey TenEyck to attend the Baja

1000, a Baldwin Racing event in Mexico. (2 AA 414.) Olauson and

TenEyck were friends of James Baldwin’s son Jason. (2 AA 367.) Jason

was a well-known off-road racer who was competing in the Baja 1000 race.

5

(1 AA 13.) During the race, Olauson helped track lap times and TenEyck

observed the race from the Cessna T210 while maintaining radio

communication with the drivers and crew. (2 AA 367, 414.) Baldwin

Racing paid for a huge block of rooms for the entire crew in Mexico,

including Baldwin Racing employees and friends. (2 AA 369-370, 415.)

There were usually about fifteen “groupies” and “sometimes dozens of

friends that come down to watch the race.” (2 AA 370.)

On November 19, 2005, Neuman was flying the Cessna T210 back

from the Baja 1000 on behalf of TR Builder when the plane crashed into

the Pacific Ocean. Olauson, TenEyck, Neuman, and Jason Baldwin

perished in the crash. (2 AA 415.)

E. The Insurance Policy

At the time of the accident, TR Builder had a “USAIG All-Clear

Aircraft Policy” covering the Cessna T210. TR Builder submitted only two

Coverage Summary pages of the insurance policy to the trial court. (2 AA

263-264.) According to the Coverage Summary, TR Builder’s covered

business was “Real Estate Development.” (2 AA 263.) The summary also

stated that the aggregate coverage limit was $2 million per occurrence. (2

AA 264.)

STATEMENT OF THE CASE

In November 2006, Olauson’s wife and daughter, Daniela Pires

Olauson and Tiffany Olauson, and TenEyck’s mother, Susan Champion,

filed suit alleging wrongful death and survival claims against TR Builder,

James Baldwin, and other defendants. The complaint alleged that the crash

occurred as a result of pilot negligence and negligent failure to maintain,

service, and repair the aircraft. It also alleged that James Baldwin was an

6

alter ego of TR Builder, and that the crash occurred while Neuman was

acting within the course and scope of his employment as a pilot for TR

Builder and James Baldwin. (1 AA 1-26.)

James Baldwin filed a motion for summary judgment. For purposes

of the motion, Baldwin did not contest that Neuman was negligent in

piloting the airplane. (1 AA 47, fn. 3.) However, Baldwin argued that he

could not be held liable because he did not own or operate the aircraft, he

did not employ Neuman, TR Builder was not his alter ego, and Neuman

was an independent contractor of TR Builder. (1 AA 36-62.)

In opposition, plaintiffs argued that there were triable issues of fact

whether Baldwin was the alter ego of TR Builder. Plaintiffs also argued

that there were triable issues of fact as to TR Builder’s liability for the

pilot’s negligence as the owner of the airplane and the employer of the

pilot. (2 AA 320-336.)

The trial court granted Baldwin’s motion for summary judgment. It

found that Baldwin was not the alter ego of TR Builder as a matter of law,

because there was no unity of interest or ownership between them, and no

evidence that an inequitable result would follow if Baldwin were not held

liable. Accordingly, the court did not address any of the theories of liability

asserted against TR Builders. (2 AA 426-439.) The court entered a final

judgment in Baldwin’s favor on January 7, 2009. (2 AA 441-442.)

Appellants filed a timely notice of appeal. (2 AA 452.)

As of the filing of this brief, the case is still pending in the trial court

as to the other defendants, including TR Builder.

/ / /

7

STATEMENT OF APPEALABILITY

This appeal is from a final judgment in favor of one of the

defendants, James Baldwin. The judgment is appealable pursuant to Code

of Civil Procedure section 904.1(a)(1). An appeal may be taken when the

case involves multiple parties and a judgment is entered which leaves no

issue to be determined as to one party. (Justus v. Atchison (1977) 19

Cal.3d 564, 568, overruled on other grounds in Ochoa v. Superior Court

(1985) 39 Cal.3d 159, 171.)

ARGUMENT

I.

THERE ARE TRIABLE ISSUES OF MATERIAL FACTAS TO JAMES BALDWIN’S ALTER EGO LIABILITYAND HE IS NOT ENTITLED TO JUDGMENT AS AMATTER OF LAW

A. Standard of Review

“On appeal from the granting of a motion for summary judgment, we

examine the record de novo, liberally construing the evidence in support of

the party opposing summary judgment and resolving doubts concerning the

evidence in favor of that party.” (Miller v. Department of Corrections

(2005) 36 Cal.4th 446, 460.) Only uncontradicted facts may be accepted as

true, and all reasonable inferences must be drawn against the moving party.

(Fraizer v. Velkura (2001) 91 Cal.App.4th 942, 945.)

Summary judgment on alter ego liability must be denied if the

defendant has failed to establish the absence of triable issues of material

fact or if he is not entitled to judgment as a matter of law. (Code Civ.

Proc., § 437c, subd. (c); RLH Industries, Inc. v. SBC Communications, Inc.

(2005) 133 Cal.App.4th 1277, 1287-1288.) If the material facts are in

8

dispute, summary judgment is an “improper vehicle” for determining alter

ego liability. (Dow Jones Co. v. Avenel (1984) 151 Cal.App.3d 144, 148.)

B. The Trial Court Erred by Granting SummaryJudgment for James Baldwin on Alter Ego Liability

The trial court ruled that James Baldwin was not the alter ego of TR

Builder as a matter of law. It found insufficient evidence of a unity of

interest or ownership, and no evidence that an inequitable result would

result if James Baldwin were not held liable. This ruling was erroneous.

Viewing the record in the light most favorable to the plaintiffs, there are

triable issues of material fact on the alter ego theory of liability against

James Baldwin and he is not entitled to judgment as a matter of law.

“The alter ego doctrine arises when a plaintiff comes into court

claiming that an opposing party is using the corporate form unjustly and in

derogation of the plaintiff’s interests.” (Mesler v. Bragg Management Co.

(1985) 39 Cal.3d 290, 300.) “In California, two 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.” (Sonora

Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523, 538.)

Courts consider a host of factors in determining unity of interest and

ownership. Some of the relevant factors include: (1) commingling of funds

and other assets and/or unauthorized diversion of corporate funds or assets

to non-corporate uses; (2) the treatment by an individual of the assets of the

corporation as his own; (3) sole ownership of all of the stock in a

corporation by one individual or the members of a family; (4) failure to

adequately capitalize a corporation or absence of corporate assets; (5) use

9

of a corporation as a mere shell, instrumentality, or conduit for the business

of an individual or another corporation; (6) concealment of personal

business activities; (7) disregard of legal formalities and failure to maintain

arm’s length relationships among related entities; (8) use of the corporate

entity to procure services for another person or entity; and (9) the use of a

corporation to transfer to it the existing liability of another person or entity.

(Morrison Knudsen Corp. v. Hancock, Rothert & Bunshoft (1999) 69

Cal.App.4th 223, 249-250, citing Associated Vendors, Inc. v. Oakland

Meat Co. (1962) 210 Cal.App.3d 825, 838-840.)

“[T]he determination of whether a corporation is an alter ego of an

individual is ordinarily a question of fact.” (Alexander v. Abbey of the

Chimes (1980) 104 Cal.App.3d 39, 46.) “No single factor is determinative,

and instead a court must examine all the circumstances to determine

whether to apply the doctrine.” (Virtualmagic Asia, Inc. v. Fil-Cartoons,

Inc. (2002) 99 Cal.App.4th 228, 245.)

Applying the relevant factors, there are triable issues of material fact

as to James Baldwin’s alter ego liability. By the time of the accident in

November 2005, James Baldwin was the sole shareholder and president of

TR Builder. (1 AA 72.) TR Builder’s only remaining business activity

was to provide air transportation for the Baldwin family’s recreational off-

road racing company, Baldwin Racing. (2 AA 356-357, 409.) Baldwin

Racing’s expenses far exceeded its income, and it was funded primarily by

contributions from James Baldwin. (2 AA 359-360.) Thus, TR Builder’s

sole corporate function was to provide a free airplane and free pilot for use

by James Baldwin and his family in a recreational activity that operated at a

loss.

“Under our law where one person owns all of the stock of a

corporation and uses the corporation as a mere conduit for the transaction

10

of his own business, the corporation is regarded as his ‘alter ego.’”

(Brunzell Const. Co., Inc. of Nevada v. Harrah’s Club (1964) 225

Cal.App.2d 734, 744.) As described above, James Baldwin owned all of

the stock of TR Builder and used the corporation as a mere conduit for his

family’s recreational off-road racing. Thus, there was a complete unity of

interest and ownership between James Baldwin and TR Builder.

Other factors also support a finding of unity of interest. James

Baldwin donated the Cessna T210 to TR Builder without payment of any

consideration. (1 AA 73, 82, 88, 147.) After donating the airplane, James

Baldwin continued to treat it as his own by using it almost exclusively for

his own family’s off-road racing and pleasure trips. (2 AA 311, 356-361.)

He also used TR Builder as a means to procure Neuman’s piloting services

for his recreational off-road racing company. (2 AA 362-363, 371-372.)

There is no evidence that the Baldwin family or Baldwin Racing ever paid

TR Builder for the use of the airplane or Neuman’s piloting services. TR

Builder had no assets other than the Cessna T210 and it ceased doing

business after the accident. (2 AA 356-357, 410.) Further, TR Builder and

Baldwin Racing apparently had no legitimate business purpose other than

to shield the Baldwins from personal liability in their recreational activities.

In these circumstances, it would be inequitable to treat the acts in

question as those of TR Builder alone. “Since the separate personality of a

corporation is but a statutory privilege it must not be employed as a cloak

for evasion of obligations.” (PAN Pacific Sash & Door Co. v. Glendale

Park, Inc. (1958) 166 Cal.App.2d 652, 659.) If TR Builder were to be

recognized as a separate personality, it would allow James Baldwin to use

the corporate structure as a means of evading liability for his family’s own

recreational activities. California cases applying the alter ego doctrine have

recognized that it is inequitable to allow a corporation to be used as a

11

vehicle to evade personal liability. (See, e.g., Claremont Press Publishing

Co. v. Barksdale (1960) 187 Cal.App.2d 813, 817; Hiehle v. Torrance

Millworks, Inc. (1954) 126 Cal.App.2d 624, 628-629; Wilson v. Stearns

(1954) 123 Cal.App.2d 472, 486.)

It would also be inequitable not to apply the alter ego doctrine

because TR Builder had no assets other than the Cessna T210 and is now a

“hollow shell” without means to satisfy any judgment. California courts

recognize that this is also a valid basis for applying the alter ego doctrine.

(See, e.g., Jack Farenbaugh & Son v. Belmont Construction, Inc. (1987)

194 Cal.App.3d 1023, 1034; Alexander v. Abbey of the Chimes (1980) 104

Cal.App.3d 39, 47.)

In the trial court, James Baldwin argued that no inequity would

result because TR Builder had a $2 million insurance policy on the Cessna

T210. However, the defense failed to establish that the policy would

provide any coverage for this accident. The defense submitted only two

Coverage Summary pages of the policy. These pages identified TR

Builder’s business as “Real Estate Development.” (1 AA 263-264.)

Nothing in the record establishes that the policy would cover a crash that

occurred while the airplane was being used for a Baldwin family

“recreational” business in off-road racing. Nor does the record indicate

what other limitations of coverage or exclusions might apply.

For all these reasons, there is substantial evidence in the record to

support a finding of alter ego liability. It is a question of fact whether

James Baldwin used TR Builder as a mere conduit to support his family’s

recreational activities.

/ / /

/ / /

/ / /

Appellants also argued that TR Builder could be held liable under1

the holding of Sugimoto v. Exportadora De Sal (9 Cir. 1994) 19 F.3dth

1309, 1311-1312.

12

II.

THERE ARE ALSO TRIABLE ISSUES OF FACTREGARDING TR BUILDER’S LIABILITY FOR THECRASH

A. Introduction

Under the alter ego doctrine, an individual shareholder may be held

personally liable for the obligations of the corporation. (Mesler v. Bragg

Management Co. (1985) 39 Cal.3d 290, 300.) If the alter ego doctrine

applies, it follows that James Baldwin may be held personally liable for any

judgment rendered against TR Builder in this action.

In the trial court, the parties briefed whether TR Builder could be

held liable for the crash. Appellants argued that TR Builder could be held

vicariously liable for the pilot’s negligence under Public Utilities Code

section 21404 or under the doctrine of respondeat superior. The trial court1

did not decide these issues in ruling on James Baldwin’s summary

judgment motion, because it found that James Baldwin was not the alter

ego of TR Builder as a matter of law.

Appellants submit that this Court need not necessarily decide these

issues either. TR Builder is a named defendant in this action and has not

been dismissed from the case below. If liability is imposed against TR

Builder on any theory, the alter ego doctrine would allow the jury to pierce

the corporate veil and impose individual liability against James Baldwin as

well. Out of an abundance of caution, however, appellants will brief the

two main theories of liability against TR Builder.

/ / /

13

B. TR Builder May Be Held Liable Under Public UtilitiesCode Section 21404

Public Utilities Code section 21404 provides: “Liability of the

owner or pilot of an aircraft carrying passengers for injury or death to the

passengers is determined by the rules of law applicable to torts on the land

or waters of this state, arising out of similar relationships. Every owner of

an aircraft is liable and responsible for death or injury to person or property

resulting from a negligent or wrongful act or omission in the operation of

the aircraft, in the business of the owner or otherwise, by any person using

or operating the same with the permission, express or implied, of the

owner.”

This statute “manifests a legislative intent to impose vicarious

liability for permissive use on the owner of an aircraft to the same extent

that such liability is imposed on owners of automobiles or watercraft.”

(Cummins v. Sky Cruisers, Inc. (1976) 59 Cal.App.3d 983, 985.) In the

trial court, James Baldwin did not dispute that TR Builders was the owner

of the Cessna T210 within the meaning of Public Utilities Code section

21404. Accordingly, TR Builders may be held vicariously liable for

Neuman’s negligence as a permissive user of the aircraft under section

21404.

C. TR Builder May Be Held Liable Under the Doctrineof Respondeat Superior

“Under the doctrine of respondeat superior, an employer is

vicariously liable for his employee’s torts committed within the scope of

employment.” (Perez v. Van Groningen & Sons, Inc. (1986) 41 Cal.3d 962,

967.) In the trial court, James Baldwin argued that this theory of vicarious

liability did not apply because Neuman was an independent contractor of

TR Builder, not an employee. However, there are triable issues of fact on

14

this issue.

“In determining whether one who performs services for another is

an employee or an independent contractor, the most important factor is the

right to control the manner and means of accomplishing the result desired.

If the employer has the authority to exercise complete control, whether or

not that right is exercised with respect to all details, an employer-employee

relationship exists.” (Empire Star Mines Co v. California Employment

Commission (1946) 28 Cal.2d 33, 43, overruled on another ground in

People v. Sims (1982) 32 Cal.3d 468, 479-480, fn. 8.)

“Other factors to be taken into consideration are (a) whether or not

the one performing services is engaged in a distinct occupation or business;

(b) the kind of occupation, with reference to whether, in the locality, the

work is usually done under the direction of the principal or by a specialist

without supervision; (c) the skill required in the particular occupation; (d)

whether the principal or the workman supplies the instrumentalities, tools

and the place of work for the person doing the work; (e) the length of time

for which the services are to be performed; (f) the method of payment,

whether by the time or by the job; (g) whether or not the work is a part of

the regular business of the principal; and (h) whether or not the parties

believe they are creating the relationship of employer-employee.” (Empire

Star Mines Co., supra, 28 Cal.2d at pp. 43-44.)

Applying these factors, it is a triable issue of fact whether Neuman

was an employee of TR Builder. TR Builder had the right to control the

manner and means by which Neuman accomplished his work. TR Builder

owned the airplane and had complete control over its use. (1 AA 88-89; 2

AA 412.) TR Builder and the Baldwins dictated when and where Neuman

flew the airplane, which passengers he transported, and when he returned.

(1 AA 88-89; 2 AA 293-295, 357-375.) TR Builder also dictated

15

Neuman’s use of the airplane as an “antenna in the sky” during off-road

races. (2 AA 362, 372.) Based on TR Builder’s right of control alone,

there is sufficient evidence to establish an employment relationship.

(Hamilton Murray v. Industrian Accident Commission (1932) 216 Cal.

340, 345-348 [sufficient evidence of employment relationship where

purchaser of airplane hired pilot to fly it from a plant in Missouri to his

home in California for actual expenses of $5 per day].)

Other relevant factors also support the existence of an employment

relationship. Neumann was paid by the amount of time he devoted to TR

Builder, not by the job, and he was reimbursed for expenses. (1 AA 89; 2

AA 304, 371, 412.) TR Builder supplied the airplane and liability

insurance. (1 AA 88-89, 263-264; 2 AA 412.) Neuman had worked as a

pilot for TR Builder continuously for seven years, and TR Builder had

retained him for an indefinite period of time, not for a limited scope or

duration. (1 AA 89, 254-261; 2 AA 411.) Neumann billed TR Builder for

piloting services on 79 days between January 31 and November 19, 2005.

(2 AA 379-385.) He was “on call” for TR Builder and was compensated to

remain on “standby” on multiple occasions. (2 AA 372, 377-385, 412-

413.) On three different dates in 2005, Neuman was paid overtime for his

piloting services. (2 AA 379-385, 412.) Moreover, Neuman’s ongoing

services as a pilot were essential to TR Builder’s sole function – to provide

air transportation to Baldwin Racing and the Baldwins. (2 AA 356-357.)

Taken in its totality, this evidence is more than sufficient to create a

triable issue of fact whether Neuman was an employee or an independent

contractor of TR Builder. “The determination of employee or independent-

contractor status is one of fact if dependent upon the resolution of disputed

evidence or inferences ....” (S.G. Borello & Sons, Inc. v. Department of

Industrial Relations (1989) 48 Cal.3d 341, 349.)

16

CONCLUSION

The trial court erred in ruling that James Baldwin was not the alter

ego of TR Builder as a matter of law. There are triable issues of material

fact on the alter ego theory of liability. If TR Builder is held liable for the

pilot’s negligence, the alter ego doctrine would allow the jury to pierce the

corporate veil and impose individual liability against James Baldwin as

well. Accordingly, the summary judgment order and judgment in favor of

James Baldwin should be reversed.

Dated: May , 2009 NIDDRIE, FISH & BUCHANAN LLP

By: ______________________________

Martin N. Buchanan

Attorney for Appellants

17

CERTIFICATE OF COMPLIANCE

Pursuant to rule 8.204(c) of the California Rules of Court, I certify

that the foregoing Appellants’ Opening Brief was produced on a computer

in 13-point type. The word count, including footnotes, as calculated by the

word processing program used to generate the brief is 4,396 words,

exclusive of the matters that may be omitted under subdivision (c)(3).

Dated: May , 2009 NIDDRIE, FISH & BUCHANAN, LLP

By: ______________________________

Martin N. Buchanan

Attorney for Appellants

18

CERTIFICATE OF SERVICE

I, Martin N. Buchanan, am employed in the County of San Diego,

California. I am over the age of 18 years and not a party to the within

action. My business address is 750 B Street, Suite 2640, San Diego,

California 92101. On May ___, 2009, I served the APPELLANTS’

OPENING BRIEF by mailing a copy by first class mail to the following

addresses:

Peter P. BrotzenGregory L. AndersonDwyer, Daly, Brotzen & Bruno LLP550 South Hope Street, Suite 1900Los Angeles, CA 90071-2632

(Attorneys for Respondent James Baldwin)

Clerk of Court

California Supreme Court

350 McAllister Street

San Francisco, CA 94012

(4 copies)

Hon. Charles Margines

Orange County Superior Court

700 Civic Center Drive West

Santa Ana, CA 92701

I declare under penalty of perjury under the laws of the State of

California that the foregoing is true and correct. Executed on May ,

2009, at San Diego, California.

__________________________

Martin N. Buchanan