A California state appeals court has denied the appeal of the estate of Dennis Green, the former head coach in the National Football League, which claimed unsuccessfully that two businessmen were alter egos of the defunct United Football League (UFL) and owed him close to $1 million in salary.
In ruling for the businessmen, the appeals court agreed with the lower court’s findings that “alter ego liability is not warranted,” and the plaintiff “has not otherwise shown the court’s decision amounted to an abuse of discretion.”
Green was hired in 2009 to coach a football team in the newly-formed UFL. He was paid the agreed-upon compensation in 2009 and 2010. But he was not in 2011. So he pursued arbitration against the league and was awarded $990,000. By the time the award was confirmed and judgment entered, the league was defunct. After Green was unable to collect, he moved to amend the judgment to add two of the league’s founders, William Hambrecht and Paul Pelosi, as judgment debtors, claiming they were alter egos of the league. The trial court denied the motion.
Hambrecht was one of the original owners of the league and invested approximately $40 million. Pelosi was also an initial investor and owned approximately 2 percent of the league. Pelosi also co-owned Team San Francisco (Team SF), a UFL team based in California.
The UFL contracted with Green to serve as head coach of Team SF for the 2009 season. After the 2009 season was completed, the UFL entered into a new two-year contract with Green to continue coaching Team SF. Green was to be paid $1 million for the 2010 season and $1.5 million for the 2011 season. The UFL completed its 2010 season and paid Green his full salary. However, the league cut short the 2011 season by two games, and Green claimed he received only a portion of his salary, before the UFL was shuttered
Green sued the UFL and Team SF, seeking to recover the allegedly unpaid portion of his salary. The trial court granted the UFL’s and Team SF’s petitions to compel arbitration. William Mayer, the UFL commissioner, served as arbitrator pursuant to a provision in Green’s contract stating the commissioner would serve as arbitrator of any disputes. Mayer ruled the UFL owed Green $990,000. He did not issue an award against Team SF, finding it “did not directly negotiate with, pay, or it appears substantively interact with Mr. Green at all until the financial unraveling of the league.” The trial court confirmed the award and entered judgment against the UFL for $990,000, plus $590 in costs.
Green was unsuccessful in his efforts to collect his judgment against the UFL. So he filed a motion to add Hambrecht and Pelosi as judgment debtors on the ground they were alter egos of the league. The trial court denied Green’s motion, finding he had failed “to demonstrate a unity of interest between the UFL and the non-parties, misuse of the corporate form, that it would be equitable to grant this motion, or that the non-parties controlled the underlying litigation.”
Green appealed.
Alter Ego Liability
In considering the alter ego doctrine, the appeals court noted that its application is typically reserved for situations where “the corporate form is used to perpetrate a fraud, circumvent a statute, or accomplish some other wrongful or inequitable purpose.” In such cases, the courts “will ignore the corporate entity and deem the corporation’s acts to be those of the persons or organizations actually controlling the corporation, in most instances the equitable owners.”
The appeals court added that “ample evidence supports the trial court’s finding that Hambrecht and Pelosi are not alter egos of the now defunct UFL.”
In support of this finding, the court highlighted the following:
“First, the UFL was a functioning sports league and not merely a shell company for Hambrecht’s or Pelosi’s other ventures. The league completed two seasons in 2009 and 2010, and a good portion of a third season in 2011. It entered into its own contracts, maintained its own equipment and supplies, and had its own corporate office in Florida. It employed approximately 68 players and 12 assistant coaches per team, as well as an administrative staff of approximately 30 employees. It even secured a television broadcasts rights agreement with CBS Sports Network … .
“Second, the UFL was not bereft of capitalization. The type of undercapitalization supporting an alter ego finding occurs when “‘the capital is illusory or trifling compared with the business to be done and the risks of loss.'” (Automotriz etc. De California v. Resnick (1957) 47 Cal.2d 792, 797.) The UFL raised tens of millions of dollars in capital. Hambrecht made loan advances in excess of $40 million, while Pelosi invested more than $3.5 million. The league’s funding was sufficient enough for it to play two full seasons and a portion of a third.
“Third, the UFL sufficiently followed corporate formalities. True, Hambrecht and Pelosi admitted the league’s record keeping practices were not ideal. For example, there was no documentation of their investments in the UFL. And while Hambrecht knew the league had a constitution, he did not know if it was finalized or where it could be found. In other respects, however, the UFL followed business formalities. It had its own bank account and separate headquarters in Florida. The league held regular meetings at which Mayer, the former commissioner, took the role as chairman. And, although Hambrecht testified he was unsure of the status of the league’s constitution, the league’s original commissioner, Michael Huyghue, testified the league was governed by both a constitution and set of bylaws.
“Fourth, Hambrecht and Pelosi did not commingle personal funds with UFL funds, or otherwise divert UFL funds for their personal use. The UFL maintained its own bank account, and Green has cited no evidence showing Pelosi or Hambrecht used the same account to store personal funds.”
The appeals court found support for its decision in Sonora Diamond Corp. v. Superior Court (2000) 83 Cal.App.4th 523 for the supposition that the doctrine “does not guard every unsatisfied creditor of a corporation, but instead affords protection where some conduct amounting to bad faith makes it inequitable for the corporate owner to hide behind the corporate form. Difficulty in enforcing a judgment or collecting a debt does not satisfy this standard.”
The court added that “that is all Green has shown here with respect to inequity—that he is an unsatisfied creditor of a business venture that ultimately did not work out, despite very substantial investment by the owners. That is not enough.”
Dennis Green v. United Football League LLC; CT. App. Calif., First App. Dist., Div. One; A145772, 2016 Cal. App. Unpub. LEXIS 6098; 8/17/16
