In this fraud in the inducement action against the general partners of a limited partnership, a jury found in favor of respondent George J. Miske, as assignee of a limited partner's fraud claim, and the court entered judgment for $1,408,212.07, including compound prejudgment interest. Following the denial of posttrial motions, the court awarded Miske substantial attorney fees, based on the attorney fee provision in the underlying limited partnership agreement (LPA). Now appellant
All appellants challenge the award of attorney fees to Miske and the compounding of prejudgment interest. We reverse the attorney fee award
In 1985, appellants James Coxeter, Robert Bisno and TAFC formed two California limited partnerships for the purpose of redeveloping certain property in downtown Berkeley: appellant TACI and Trans-Action Commercial Mortgage Investors, Ltd. (TACMI). Both companies were private placement limited partnerships. Coxeter, Bisno and TAFC were the general partners of the two limited partnerships.
Bisno was responsible for managing the Berkeley project; Coxeter managed projects in Southern California and other parts of the state. Bisno approved the promotional work for the Berkeley project, handled the advertising, flyers and brochures on behalf of the partnerships, and approved and oversaw distribution of a private placement memorandum. As well, Bisno solicited potential investors, took them to the site, gave tours of the property, and made presentations encouraging them to invest.
In early 1986, Bisno transferred $470,000 from TACMI for his personal use to purchase a personal residence, without the knowledge or consent of the other partners.
Then in February and April 1987, Bisno met with Makoto Moriwaki, the president and owner of the Hong Kong company Haldir, Ltd. (Haldir), to discuss the partnerships. Moriwaki traveled each time to Berkeley, and visited the property. Haldir ultimately purchased 44 TACMI limited partnership units for $1,924,560. On April 11, 1987, its managing director executed a subscription agreement. Thereafter, Moriwaki tendered the purchase money. And finally, on April 13, 1987, Bisno, on behalf of the partnership, countersigned the subscription agreement accepting Haldir's subscription and making the company a limited partner.
For a short period of time thereafter, Haldir received distributions totaling $183,389.37 from TACMI, and then the payments stopped. Haldir received new cash flow projections from TACMI that were significantly less than the original projections.
In March 1998, Haldir sold its TACMI limited partnership interest for $198,000 to Berkeley Commercial Center, LLC (Berkeley Center).
Respondent Miske, another TACMI investor, had been instrumental in introducing Moriwaki to the Berkeley project. In 2005 he traveled to Japan to meet with Moriwaki. Miske discussed the misconduct and "bad things that had happened" in the partnership before Haldir invested in the company. After learning of the wrongdoing, Moriwaki, on behalf of Haldir, assigned to Miske all of Haldir's "right, title, and interest in any and all of our claims and causes of action for the monetary losses sustained as a result of the fraud and deceit" of Bisno, Coxeter, TACMI, TACI and TAFC "that induced Haldir ... to purchase and me to facilitate the purchase by Haldir" of the limited partnership units in TACMI. According to the terms of the assignment, Haldir would receive 75 percent of any net recovery Miske obtained on the assigned claims.
Prior to investing in TACMI, Moriwaki had not been advised of multiple material facts concerning the project, including that (1) the purchase price of a key asset was $1.7 million above its appraised value; (2) contrary to a statement in the promotional materials that the property was acquired with no markup, in fact a $900,000 markup had been added to the price of the property before the seller sold it to TACI and TACMI; and (3) Bisno embezzled $470,000 from TACMI to buy a home.
In late 2005 and early 2006, Miske, on his own behalf and as assignee of Haldir's claim, and other TACMI limited partners separately filed actions against TACMI, TACI, and three of the limited partnerships' general partners: Bisno, Coxeter and TAFC. Each action alleged that plaintiffs had been fraudulently induced to purchase units in TACMI. The court consolidated the three actions, but thereafter ordered that those plaintiffs entitled to trial preference because of age and health issues (the Preference Plaintiffs) would have their claims tried separately, before the claims of the non-Preference Plaintiffs. Miske was not a member of the preferential group.
The jury returned a special verdict in the Preference Plaintiffs' case against all defendants, awarding damages of $251,325 and compound prejudgment interest of more than $1.15 million as of the date of judgment. This court affirmed the judgment in an unpublished opinion. (Emanuele v. Bisno (Mar. 13, 2008, A117913).)
After the remittitur issued on the Preference Plaintiffs' claims, defendants settled with all remaining plaintiffs except Miske, as Haldir's assignee. Prior
On the issue of compound interest, the court ruled that "[d]efendants are barred from relitigating the plaintiff's entitlement to prejudgment compound interest if plaintiff prevails on his fraud claim at trial. The `positive misconduct' of the defendants is the same in the present case and in the case of the preference plaintiffs whose claims have already been tried."
The jury in the present case returned a special verdict finding that (1) Haldir reasonably relied on a concealment by Bisno that was a substantial factor in causing harm to it; (2) Bisno was acting within the scope of his authority when he concealed a material fact from Haldir; (3) Coxeter did not ratify Bisno's harmful conduct; and (4) the amount of compensatory damages, including compound interest, was $1,408,212.07. The court entered judgment stating the jury returned a special verdict "against all Defendants" and decreed that Miske recover from defendants "jointly and severally."
Thereafter Coxeter moved unsuccessfully for judgment notwithstanding the verdict or, alternatively, to set aside and vacate the judgment and enter a new judgment. Coxeter argued he was an innocent general partner and could not be liable to limited partner Haldir for his cogeneral partner's tortious conduct, citing Kazanjian. The trial court disagreed, finding Kazanjian distinguishable because "Haldir was an innocent third party for purposes of determining defendant Coxeter's liability for the actions of defendant Robert Bisno."
Miske moved for an award of attorney fees, relying on a provision in the TACMI LPA. Responding to Coxeter's argument that Haldir was not entitled to a fee award because the company prevailed against him based on its status as an "innocent third party" and not as a limited partner, the court ruled that "[o]nce the purchase [of its limited partnership interest] had been made, ... Haldir was entitled to the benefit of the attorney's fees clause in the
Coxeter centers his argument on Kazanjian. There, limited partner Kazanjian sued two general partners for one partner's misappropriation of partnership funds. The other partner was innocent of any wrongdoing, and the wrongdoing occurred well after the limited partner joined the partnership. The matter was referred to a referee for an accounting, and the trial court rendered judgment in accord with the referee's findings. Denying Kazanjian's claim against the innocent general partner, the court ruled that such a partner was not personally liable to a limited partner for damages suffered by acts of the cogeneral partner. (Kazanjian, supra, 235 Cal.App.3d at pp. 1624-1625.)
The legal question we must resolve is whether to treat Haldir as an innocent third party or an innocent limited partner, for purposes of its assigned fraud in the inducement claim. Haldir's complaint is that it purchased the limited partnership in reasonable reliance on Bisno's representations, which in fact were false and Bisno knew they were false. Had it known the truth about the concealed facts, it would not have purchased the units or become a limited partner. Further, Haldir would not have paid what it did for the units since the units, under the circumstances, had no value. The jury specifically found that Haldir reasonably relied "on a concealment" of Bisno, Haldir's reliance on the concealment was a substantial factor in causing harm to it, and Bisno was acting within the scope of his authority when he made the concealment.
Coxeter's argument that we must view this through the lens of the innocent general partner analysis is based on the hypertechnical argument that the cause of action for fraud in the inducement did not accrue until Haldir acted in reliance on Bisno's concealment and sustained damages as a result. (See Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 868 [76 Cal.Rptr.3d 325]: elements of action for fraud and deceit based on concealment are (1) the defendant concealed a material fact; (2) the defendant had a duty to disclose the fact to the plaintiff; (3) the defendant intentionally concealed the fact with intent to defraud; (4) the plaintiff was unaware of the fact and would not have acted had she or he had knowledge of the concealed fact; and (5) the plaintiff sustained damages as a result of the concealment.)
Respondent Miske, as assignee of Haldir, received a substantial attorney fee award which appellants now attack. The lower court grounded the fee award in the attorney fee provision of the LPA, which states: "If any dispute arises between the Partners, whether or not resulting in litigation, the prevailing party shall be entitled to recover from the other party all reasonable costs, including, without limitation, reasonable attorneys' fees." Specifically, the court held that Haldir's right to recover attorney fees under the LPA was an incident of the company's fraud claims which it passed to Miske by way of assignment.
The language of the above attorney fee provision is broad enough to cover the type of fraud in inducement claims brought against appellants. Indeed, the Preference Plaintiffs pursued attorney fees under Code of Civil Procedure section 1021 and the partnership agreement, and the court granted the motion in substantial part. Appellants appealed that order but then abandoned the claim.
What precisely did Haldir assign to Miske? Haldir assigned all "right, title, and interest in any and all of [its] claims and causes of action for the monetary losses sustained as a result of the fraud and deceit" of appellants that induced Haldir to purchase 44 limited partnership units in TACMI. Haldir did not assign to Miske the LPA containing the attorney fee clause. Nor did the assignment or the agreement for assignment make any reference to Haldir as a limited partner of TACMI or to the LPA.
Here, the attorney fee provision itself entitles a prevailing partner to reasonable fees in the event a dispute "arises between the Partners." Written in the present tense, the clause requires a dispute between partners arising during the course of the agreement, which itself is between the general partners and the initial and listed limited partners. From the above chronology and analysis, it is apparent that Miske never stepped into Haldir's shoes as a limited partner with rights under the LPA, including the right to attorney fees in the event of a dispute with a partner. This is so based on one of two possibilities. First, if Berkeley Center became a substituted limited partner as anticipated by the assignment from Haldir of all of its units to the center, then of course Haldir's assignment to Miske of its fraud claims did not confer rights under the LPA because Haldir was no longer a limited partner and could not assign something it no longer owned.
On the other hand, if Haldir maintained its limited partner status after assignment of all its partnership units to Berkeley Center, its assignment to Miske was limited solely to its fraud claims and causes of action. The assignment did not include a separate assignment of the LPA with its attorney fee clause, nor did it mention the LPA or refer to Haldir as a TACMI limited partner, and no action was taken by the TACMI general partners to convert Miske's status from that of assignee to a substituted limited partner entitled to fees under the LPA. Under the terms of the LPA and the governing law at the time, Haldir could not assign any interest in TACMI or TACMI's assets without the consent of the general partners and compliance with other procedures, and thus Miske could not become a substituted limited partner who could then step into Haldir's shoes as a partner and enjoy the benefit of the attorney fee provision in the event of a dispute between partners. Miske would always be only an assignee of Haldir's fraud claims, nothing more.
First, we do recognize that an assignment of a cause of action ordinarily transfers all its incidents. (Civ. Code, § 1084.) Thus, for example, the statutory right to costs passes to an assignee with the assignment of a cause of action. (Vons Cos., Inc. v. Lyle Parks Jr., Inc. (2009) 177 Cal.App.4th 823, 833 [99 Cal.Rptr.3d 562].) And, where an assignor transfers rights to receive and collect moneys due under a settlement agreement that provides for reasonable attorney fees in the event proceedings are undertaken to enforce rights thereunder, the right to such fees is conveyed with the assignment. (A. J. Industries, Inc. v. Ver Halen (1977) 75 Cal.App.3d 751, 754, 762 [142 Cal.Rptr. 383] (Ver Halen).) Similarly, the assignment from lessors of a claim for four months' rent of certain leased premises carried with it the right to attorney fees where the underlying lease provided for attorney fees in the event of a suit to enforce any rights of lessors. (Adjustment Corp. v. Marco (1929) 100 Cal.App. 338, 340-341 [279 P. 1006] (Marco).) In both Ver Halen and Marco, the rights assigned—to receive money due under a settlement agreement and lease respectively—stemmed directly from the underlying agreement affording a right to attorney fees in pursuit of recovery of such moneys. In contrast, the right assigned in this case—Haldir's fraud in the inducement claim against appellants—did not stem directly from the LPA and hence the assignment did not confer on Miske the right to attorney fees under the LPA.
Moreover, here the LPA is the "thing" or the "principal" within the meaning of Civil Code sections 1084 and 3540, without which there would be no fraud claims. Stated a little differently, the LPA is not dependent on, or subordinate to, or a consequential part of Haldir's claims for fraud and deceit. Rather, these claims are dependent on, subordinate to and a consequential part of the LPA and the limited partnership units. Since the principal (LPA)
For all these reasons, we conclude that Haldir's assignment of fraud claims to Miske did not confer any rights under the LPA, and therefore Miske had no claim to attorney fees in this action.
We reverse the award of attorney fees and in all other respects affirm the judgment. Parties to bear their own costs on appeal.
Rivera, J., and Sepulveda, J.,