A FEHA alter ego theory raised first on appeal fails, and unchallenged findings left no fallback
Raising a new argument for the first time on appeal is a narrow path, and Villasenor v. Schneiter shows how narrow. The Second District, Division One, took up a FEHA plaintiff's new legal theory because it was purely legal, rejected it, and affirmed a judgment that the owner of her former employer was not its alter ego. She had not challenged the trial court's factual findings.
What happened
Ana Villasenor worked as a restaurant hostess from December 2015 to April 2016. She sued under the Fair Employment and Housing Act (FEHA) for gender discrimination, sexual harassment, retaliation, and failure to prevent them, alleging that a supervisor harassed her and retaliated after she rejected his advances, leading to her constructive discharge. She sued two corporate defendants, SR Restaurant Holdings Group, Inc. and SR Long Beach FD, Inc. She also sought to hold Kurt Schneiter liable as their alter ego. Schneiter is the sole member of a nonparty LLC that owns SR Holdings.
The trial was bifurcated. A jury found the two companies liable and awarded $345,061.17 in compensatory damages and $100,000 in punitive damages. The alter ego phase was tried to the court. The trial court applied the presumption of corporate separateness, found that Villasenor had not met her burden, and entered judgment for Schneiter. An amended judgment awarded her $949,672.50 in attorney fees and $103,241.65 in costs against the corporate defendants.
Can you raise a new argument for the first time on appeal?
On appeal, Villasenor argued that FEHA alters the common law presumption that a corporation is separate from its owners. She had not made that argument to the trial court. The Court of Appeal noted as much in a footnote and explained why it would decide the point anyway:
“Because Villasenor raises a purely legal issue, we consider the issue despite her failure to raise it below.”
Why the unchallenged findings mattered
Alter ego is a common law doctrine. Under it, “[c]orporate entities are presumed to have separate existences,” and “It is the plaintiff’s burden to overcome the presumption of the separate existence of the corporate entity.” The court observed that “Villasenor does not challenge the sufficiency of the evidence supporting the trial court’s factual findings,” so it did not reach that question. The appeal therefore came down to one legal issue: whether the trial court should have applied the presumption at all in a FEHA case.
Does FEHA change the alter ego presumption?
No. The court started from the rule that statutes are presumed not to displace the common law, and noted that FEHA has no provision addressing alter ego liability or the enforcement of judgments. FEHA’s statement of purpose (Gov. Code, § 12920) did not manifest an intent to change the presumption, and its liberal-construction directive (§ 12993) had little relevance because no FEHA provision addresses alter ego liability. The court found the presumption compatible with FEHA’s purpose of providing effective remedies, because a plaintiff can still rebut it.
Villasenor also pointed to FEHA’s asymmetric standard for fees and costs, which protects unsuccessful plaintiffs. The court explained that the presumption creates no comparable risk, because “the presumption becomes relevant only when a plaintiff prevails and seeks to enforce the judgment against a corporate defendant’s alleged alter ego.” The fee cases she relied on did not consider alter ego liability or the presumption. The court concluded:
“In short, we conclude FEHA does not alter the presumption of corporate separateness.”
The disposition reads: “The judgment is affirmed. The parties shall bear their own costs on appeal.”
What it means in practice
The decision carries two lessons about how an appeal is shaped long before the briefs are written. First, a legal theory belongs in the trial court. This one was heard on appeal only because it was a pure question of law. Second, the decision whether to challenge the findings sets the scope of the appeal. With the findings left standing, the appeal had to succeed on the legal question or not at all. For more on how arguments are lost by not making them below, see our post on forfeiture after a summary judgment opposition.
Key takeaways
- The Second District held that FEHA does not alter the common law presumption of corporate separateness that governs alter ego claims.
- The plaintiff had not made that argument in the trial court, and the court considered it because it raised a purely legal issue.
- Because the plaintiff did not challenge the sufficiency of the evidence for the trial court's findings, the appeal turned on that single legal question.
- The court affirmed the judgment for the owner, and the parties bear their own costs on appeal.
Why appeals like this one need an appellate lawyer
This appeal was shaped by two choices made before it was filed. The FEHA theory was never raised in the trial court, so it reached the Court of Appeal only because it was purely legal. And the trial court’s findings went unchallenged, so there was no second route: the appeal rested on one legal question, and the court answered it against the appellant.
An appellate lawyer looks at a case with the appeal in mind while the trial record is still being made. That means raising every legal theory in the trial court, in writing, so it is preserved. It means deciding which findings must be attacked, and under which standard of review, since findings are tested for substantial evidence while legal questions are reviewed independently. And it means building the record that a challenge to the findings would need.
If you are heading into a bench phase, or have just lost one, talk to an appellate lawyer early, while arguments can still be preserved and the record can still be built. Learn more about our appellate practice.
What this post is not. This post is attorney advertising and general information about a court decision. It is not legal advice, and reading it does not create an attorney-client relationship. Every case turns on its own facts and record, and appellate deadlines are short and often jurisdictional — talk to appellate counsel about your case promptly.
Facing a ruling you may need to appeal or challenge by writ? Yisrael Gelb · yisrael@gelblawapc.com · (323) 632-6864