Eng v. Brown ( 2018 )

Filed 3/22/18
CERTIFIED FOR PUBLICATION
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
FRANKLIN ENG, D071773
Plaintiff and Appellant,
v. (Super. Ct. No. 37-2011-102213-CU-
MC-CTL)
MICHAEL PATRICK BROWN et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of San Diego County, Katherine
A. Bacal, Judge. Affirmed.
Fischbach & Fischbach, Joseph S. Fischbach and Katharine B.K. Lau on behalf of
Plaintiff and Appellant.
Law Offices of Edwin Paul and Edwin Paul and Margie L. Jesswein on behalf of
Defendants and Respondents.
Plaintiff Franklin Eng appeals a judgment in favor of defendants Michael Patrick
Brown and Gerald Levy following a jury trial. Eng claimed that Brown and Levy
breached their fiduciary duties to him as purported partners or joint venturers in the
ownership and operation of the Tin Fish Gaslamp, a seafood restaurant in San Diego.
The jury found that Eng, Brown, and Levy entered into a partnership or joint venture, but
it was terminated when they formed a corporation, B.L.E. Fish, Inc. (B.L.E. Fish), to
purchase and operate the restaurant. Eng's claim for breach of fiduciary duty based on a
partnership or joint venture was therefore unsupportable.1
Eng contends, among other things, that (1) the trial court erred by denying his
request, in a motion in limine, that the court find that the parties created a partnership as a
matter of law; (2) the court erred by denying his motion in limine seeking to exclude any
evidence or argument that B.L.E. Fish merged with or superseded the partnership; (3) the
court erred by granting Brown and Levy's motion to amend their answer to assert an
affirmative defense based on merger or supersession; (4) the court erred by denying Eng's
motion for directed verdict; (5) the court committed instructional error (and a related
error in the special verdict) regarding merger and supersession; (6) the court erred in its
response to a juror question during deliberations; (7) the court erred by denying Eng's
motion to amend his complaint to add a claim for breach of fiduciary duties based on the
parties' corporate relationship; (8) the court erred by denying Eng's motion to strike the
testimony of a defense expert witness; and (9) the court erred by denying Eng's ex parte
application for the release of juror contact information. For reasons we will explain, we
reject Eng's contentions and affirm.
1 The parties refer to both partnership and joint venture relationships, but the
distinction between the two types of associations is immaterial to this appeal. We will
therefore focus on partnership, as do the parties.
2
FACTUAL AND PROCEDURAL BACKGROUND
"As required by the rules of appellate procedure, we state the facts in the light
most favorable to the judgment." (Orthopedic Systems, Inc. v. Schlein (2011) 202
Cal. App. 4th 529, 532, fn. 1.) Additional facts will be discussed where relevant in the
following sections.
Eng and Levy, both licensed real estate agents, worked together and became close
personal friends. In 2006, Levy listed the Tin Fish Gaslamp restaurant for sale on behalf
of its owner. Later that year, Eng and Levy decided to purchase the Tin Fish Gaslamp
themselves, along with Brown, who is Levy's nephew. They agreed that Brown would
own a majority of the business, 56.667 percent, with Levy owning 33.333 percent and
Eng 10 percent.
The group made an offer to purchase the Tin Fish Gaslamp. The offer was made
by Brown "[and] or assignee," which was identified only as an entity "to be determined."
In the notes, the offer stated that "Agent Jerry Levy will act as a principle [sic] in this
transaction" and "one of the principles [sic] is also a licensed . . . California real estate
agent." The seller accepted the group's offer. Escrow was opened, but the group was
unable to secure financing.
In January 2007, the group resubmitted an offer to purchase the Tin Fish Gaslamp.
The offer was made in the names of Brown and B.L.E. Fish, which had been incorporated
the same day. B.L.E. Fish was identified in the offer as a corporation. The offer made
the same agent disclosures as the prior offer. The seller again accepted. The parties
drafted revised escrow instructions, which also identified B.L.E. Fish as the buyer.
3
Later that month, Brown and Levy held an organizational meeting for B.L.E. Fish,
adopted bylaws, elected corporate officers and a board of directors (all positions being
filled by Brown and Levy), and approved the issuance of 100 shares of stock. The
directors approved a proposal for B.L.E. Fish to purchase and operate the Tin Fish
Gaslamp restaurant. Two months later, Brown, Levy, and Eng signed an election by
B.L.E. Fish to be an S corporation under the Internal Revenue Code. Around the same
time, Levy filed a fictitious business name statement on behalf of B.L.E. Fish. The
statement identified the Tin Fish Gaslamp name, described the business as being
conducted by a corporation, and noted that the business had not yet started.
In April 2007, escrow closed and B.L.E. Fish purchased the Tin Fish Gaslamp
business for $1.6 million. The next month, Brown, Levy, and Eng executed a
management agreement. It stated, in relevant part: "This management agreement
designates corporate officers, Michael P. Brown and Gerald W. Levy[,] the exclusive
authority to oversee the restaurant business and all daily operations of Tin Fish Gaslamp.
B.L.E. Fish, Inc. authorizes only the two corporate officers, Mike Brown and Gerald
Levy[,] to make all decisions for the restaurant on behalf of B.L.E.[,] Fish Inc." The
agreement stated that it would "remain in full force and affect [sic] with the authority of
the following corporate shareholders until which time the agreement is amended."
Brown's, Levy's, and Eng's signatures appear below that statement.
Brown transferred the outstanding shares of B.L.E. Fish to himself, Levy, and Eng
in proportion to their ownership interests, with Brown receiving 56.667 shares, Levy
33.333 shares, and Eng 10 shares. Eng had a business card describing him as an "owner"
4
of the Tin Fish Gaslamp. B.L.E. Fish holds annual shareholder and director meetings,
maintains corporate financial records, files corporate income taxes, and provides its
shareholders with income statements consistent with its S corporation status.
From 2007 through 2010, Eng received approximately $160,000 in distributions
from B.L.E. Fish. In 2010, Brown and Levy began to manage the business on a full-time
basis. They took salaries as corporate officers and retained a management company they
controlled to oversee operations. B.L.E. Fish agreed to pay the management company a
percentage of gross sales in exchange for its services. These salaries and management
fees were paid before shareholder distributions were calculated. Based in part on these
additional expenses, Eng received no distributions in 2011.
Eng retained counsel and filed suit against Brown, Levy, and B.L.E. Fish. Eng
alleged that he formed an oral joint venture with Brown and Levy to purchase and
operate the Tin Fish Gaslamp. They agreed that Brown and Levy would manage the
restaurant and receive a management fee of three percent of gross sales. Eng would own
10 percent of the joint venture, with Brown and Levy owning 57 percent and 33 percent,
respectively. Eng alleged that the parties agreed to form an S corporation that would be
owned by the joint venture for tax and liability reasons. However, according to Eng, the
parties were to remain partners as to each other. Eng further alleged that Brown and
Levy had conspired to reduce his distributions by padding the payroll, taking large
officers' salaries, and doubling the agreed-upon management fee.
Eng asserted causes of action for (1) partnership dissolution and accounting, (2)
constructive fraud, and (3) conversion. Eng's constructive fraud cause of action was
5
based on breaches of fiduciary duties owed to Eng "[b]y virtue of the joint venture
agreement." Eng alleged, in relevant part, as follows: "Defendants breached their
fiduciary duty to Plaintiff and violated the relationship of trust and confidence by
excluding Plaintiff from his interest in the joint venture business and assets and by
securing an advantage over Plaintiff by misleading Plaintiff to his prejudice, by
misappropriating approximately $400,000 in operating profits, by intentionally hiding
plaintiff's K-1, by refusing to allow Plaintiff's daughter to use his in-store credit, and
other acts . . . ." Eng later filed a first amended complaint (FAC), which added an
"alternative" cause of action for involuntary dissolution of a corporation and an
"alternative" shareholder derivative claim for breach of fiduciary duty against Brown and
Levy on behalf of B.L.E. Fish. Eng stated he would pursue the derivative claim "if and
only if the Court should find[] that the wrongful conduct hereinabove alleged belongs to
the Corporation and not to the joint venture . . . ."
Brown and Levy filed a demurrer to the FAC on the ground that it did not state
facts sufficient to constitute any cause of action. Among other things, they argued that no
partnership or joint venture existed among the parties. In addition, they argued, "Even if
Plaintiff is correct in asserting the parties were joint venture partners prior to the
formation of the corporation, the general rule is well established that a partnership does
6
not continue to exist after the formation of a corporation." They repeated this argument
in their reply.2
Eng dismissed his cause of action for involuntary corporate dissolution, and the
court sustained defendants' demurrer as to Eng's cause of action for conversion. Eng later
dismissed B.L.E. Fish as a defendant, and the court struck its answer to Eng's complaint.
Eng appealed the court's order. In an unpublished opinion, this court dismissed Eng's
appeal. (Eng v. B.L.E. Fish, Inc. (Sept. 21, 2015, D066054).) This court concluded that
Eng misinterpreted the trial court's order, and B.L.E. Fish remained a nominal defendant
to Eng's shareholder derivative claim.
Prior to trial, the parties filed a number of motions in limine. One of Eng's
motions in limine sought to exclude any evidence or argument relating to a shareholder
derivative claim. Eng asserted that any breach of fiduciary duty, whether by partners or
majority shareholders, would be individual to him and therefore not derivative. At the
hearing on Eng's motion in limine, the court asked whether, given his motion, Eng
wanted to dismiss the shareholder derivative claim in his FAC. Eng responded
affirmatively. His counsel explained, "We don't want any money for the corporation or
from the corporation. So to me this is not even remotely a derivative action and I
apologize. The pleading in this case has been a nightmare from day one. . . . But we
2 Brown and Levy made the same argument again in their later motion for summary
judgment. The court acknowledged this argument but determined that triable issues of
fact remained "as to whether the corporation was formed to carry out a preincorporation
agreement" and therefore the partnership continued to exist notwithstanding the
corporation's formation.
7
are—we would like to proceed on a straight breach of fiduciary duty, constructive fraud
cause of action regardless of the capacity because we will not ask for any money to go
back to the corporation." At Eng's request, therefore, the court dismissed his shareholder
derivative claim.
A defense motion in limine sought to exclude any evidence or argument that
Brown and Levy breached their fiduciary duties as majority shareholders or corporate
officers because such a claim was not alleged in the FAC. Brown and Levy pointed out
that Eng's constructive fraud cause of action was based on fiduciary duties imposed "by
virtue of the joint venture agreement" rather than any corporate relationship. They noted
that, notwithstanding this allegation, Eng had proposed jury instructions regarding
corporate fiduciary duties (and, as noted, his motion in limine seemed to equate the two).
Brown and Levy requested that the court determine that such a claim was outside the
pleadings and not at issue in the trial. The court tentatively granted the motion, noting,
"The pleadings frame the case." Although Eng's counsel indicated he wanted to argue the
tentative, it does not appear any further argument occurred. The parties and the court
moved on to other trial matters. (The court later stated that its recollection was that it
would tentatively deny the motion without prejudice to objections made at trial.)
Eng brought another motion in limine, denominated number two, that sought to
exclude any evidence or argument that (1) a partnership was not formed to purchase the
Tin Fish Gaslamp restaurant or (2) B.L.E. Fish superseded the partnership. Eng's first
request essentially sought a finding that the parties formed a partnership as a matter of
law when they decided to purchase the restaurant. At the hearing on Eng's motion, the
8
parties agreed that the court should hold a hearing under Evidence Code section 402 to
determine whether a partnership was formed as a matter of law. During that hearing,
Levy testified regarding the group's interest in the Tin Fish Gaslamp, the two offers the
group made to purchase the restaurant, and B.L.E. Fish's operation of the restaurant. Eng
argued, on the basis of this testimony, that a partnership was formed as a matter of law
because the group agreed to purchase the Tin Fish Gaslamp and operate it for profit. The
court disagreed. It explained, "I understand the interest in reaching a resolution of this
question. However, I do not believe the answer is indeed an answer that can be given as
a matter of law. I would note that generally whether or not a partnership has been formed
is, in fact, a question of fact." The court found the facts in dispute regarding whether the
parties intended to form a partnership or a corporation and, further, whether any
partnership was superseded by the formation of a corporation. It therefore denied Eng's
request to find a partnership as a matter of law and denied Eng's motion in limine.
The next day, Eng asked the court to reconsider the second part of his motion in
limine, i.e., his request to exclude evidence and argument that the corporation superseded
the partnership. Eng argued that supersession was an affirmative defense that was not
pled in defendants' answer. Defendants therefore could not raise it at trial. The court,
apparently believing the issue of supersession to be a defense, but not an affirmative
defense, denied the motion.
Eng presented his case to the jury. He called Levy as his first witness, who again
testified regarding the Tin Fish Gaslamp purchase, the formation of B.L.E. Fish, and the
restaurant's operations and finances. Levy denied ever discussing forming a partnership
9
with Eng and Brown. Brown testified as well. He said that he always intended that the
business would be a corporation. The group never discussed any entity other than a
corporation purchasing the business. Eng also called Peter Wrobel, a certified public
accountant, whom he retained to estimate his damages and identify indications of
possible financial fraud at B.L.E. Fish. B.L.E. Fish's accountant and a potential investor
in the Tin Fish Gaslamp purchase also testified.
Eng testified on his own behalf. He said he initially believed he would be an
"equal partner" with Brown and Levy, but he agreed to reduce his share to 10 percent.
He denied discussing the formation of B.L.E. Fish with Brown or Levy prior to the first
or second offer to purchase the Tin Fish Gaslamp. However, they had general
discussions that it might be purchased by a limited liability company or another type of
entity. He said he first learned that B.L.E. Fish had been formed in the month after the
second offer had been submitted. Levy told him it would be an S corporation for limited
liability and tax reasons.
During Eng's testimony, his counsel attempted to resolve certain pleading issues.
Eng dismissed his first cause of action, for partnership dissolution and accounting. Only
his claim for constructive fraud based on a breach of fiduciary duty remained. Eng then
moved to amend his complaint to conform to proof. He wanted to add allegations to the
complaint that "the actions of the defendants in addition to violating their trust and
confidence in the overall relationship also violated their fiduciary duties as
shareholders—majority shareholders, the only directors and the only corporate officers
with authority." The court asked why Eng had not sought to amend his complaint earlier,
10
"when [he] received either the demurrer or the motion for summary judgment, both of
which argued the partnership was superseded by a corporation." Eng's counsel did not
provide an explanation for the delay, other than his belief that the supersession argument
was not meritorious. The court took the motion under submission.
Later the same day, the court indicated that its tentative inclination would be to
deny the motion to amend because the salient facts were known to Eng years before. Eng
argued that the conduct at issue was the same as alleged in the complaint, the only
difference being whether the fiduciary duties arose from a partnership relationship or a
corporate relationship. Eng pointed to the joint statement of the case, which stated that
Eng sued Brown and Levy "asserting that they have breached their duties as partners or
majority shareholders in a corporation." The court agreed to look at the issue again. It
asked Eng to prepare and file a proposed amended complaint for the court to examine.
After examining the proposed pleading, the court deferred ruling on the motion to
amend until the conclusion of trial. The court recounted the history of the litigation,
including the pleading amendments and dismissals. It noted that Eng had brought a
number of motions in limine, including several seeking pleading amendments, but they
did not raise the issue of fiduciary duties based on a corporate relationship. It further
noted that Brown and Levy sought to exclude all evidence or argument regarding such
duties, but Eng still did not seek leave to amend. The court recognized Brown and Levy's
argument that they would have tried the case differently if corporate fiduciary duties had
been at issue and that any such claim would only be derivative on behalf of B.L.E. Fish
and not individual to Eng. The court believed, however, that "the question does not need
11
to be decided by the Court prior to the matter being submitted to the jury because a
minority shareholder action for damages for breach of fiduciary duties of the majority
shareholder is a matter in equity and there is no right to a jury trial." The court therefore
proposed that the factual issue of the alleged breaches be submitted to the jury for an
advisory verdict. The court explained, "If it appears from the evidence presented and the
[jury's] verdict that . . . this [claim was] incidental to an injury to the corporation, or
plaintiff's stock was the only stock affected adversely,[3] it would find that the claim is a
claim that could be brought only by the corporation [and,] as the shareholder derivative
case was dismissed, the amendment would be denied. If the claim is a claim that could
be brought individually, then the Court will consider a further bench trial on that matter
only. There will be no instructions to the jurors on the claimed breach of the majority to
minority shareholders."
In the meantime, the defense case began with additional testimony from Brown
and Levy. They also called Thomas Lambert, a certified public accountant, who testified
that Brown's and Levy's compensation was in line with industry standards and Internal
Revenue Service (IRS) regulations, that the fees paid to their management company were
reasonable, and that IRS rules require B.L.E. Fish to pay Brown and Levy for their
services as active employees of the corporation.
3 The court appears to have misspoken. A claim generally belongs to the
corporation, rather than the individual, if the claim is incidental to an injury to the
corporation or a plaintiff's stock was not the only stock affected adversely, i.e., the whole
body of stock was affected. (See Jones v. H.F. Ahmanson & Co. (1969) 1 Cal. 3d 93,
106-107; Sole Energy Co. v. Petrominerals Corp. (2005) 128 Cal. App. 4th 212, 233.)
12
Eng moved to strike Lambert's testimony "because there has been no basis for
these opinions because they are not related to anything that Mr. Wrobel said or did."
Brown and Levy opposed, arguing that Lambert's opinions were properly admissible as
expert opinion testimony. The court denied the motion.
Following the conclusion of the defense case, Eng moved for a directed verdict on
"the defense of . . . a corporation superseding a partnership . . . ." Eng's counsel argued
that Brown and Levy did not introduce evidence that "we formed B.L.E. [Fish] and we
specifically decided to get rid of our partnership and act only in a corporate form." Eng's
counsel asserted that they had "a pre-incorporation agreement to run the Tin Fish as a
corporation and that's all I've ever alleged, and that's the cubbyhole I'm stuck with, and
I'm fine going to the jury with that. [¶] [T]he only evidence they have is there was no
pre-incorporation agreement, it was always a corporation. . . . [¶] So I would like a
directed verdict on the issue of the partnership with the pre-incorporation agreement that
has survived. And it has nothing to do with B.L.E. Fish, Inc., because that was the
agreement."
The court asked why Eng wanted to amend his complaint if his case had nothing
to do with B.L.E. Fish. Eng's counsel responded, "Out of an abundance of caution only."
Eng's counsel believed "[t]he fiduciary duties of a director, officer, whatever as part of
the pre-incorporation agreement are co-extensive. [¶] In other words, it's not a separate
fiduciary duty from the partnership. It's all part of one thing . . . ." The court asked Eng's
counsel to confirm that he was "not asserting a breach of fiduciary duty, minority
shareholder to majority shareholder, because it's your position that the breach of fiduciary
13
duty is the breach of partner to partner fiduciary duty, [with the] corporation only being a
vehicle for the partnership." Eng's counsel accepted the court's formulation, adding only
the "qualification" that Brown and Levy did breach their fiduciary duty based on their
management activities. But, Eng's counsel said, "I think that [defense counsel's]
argument is that once the corporation superseded the partnership in his view, there are no
more fiduciary duties owed because we didn't allege it. That I don't dispute." (Italics
added.) What Eng did dispute was that the corporate form somehow immunized Brown
and Levy for their activities.
Based on this description of Eng's claims, the court denied his motion to amend. It
explained: "There is no basis to go forward with a breach of fiduciary duty claim,
corporate minority shareholder to majority shareholder, even if the two bases on which
that might have been asserted directly by an individual were established[,] given the
representation now that [the] argument is all of those fiduciary duties [were] the fiduciary
duties owed as partner[s]." Eng's counsel responded, "I guess that pretty well sums it
up."
Returning to Eng's motion for a directed verdict, the court discussed with the
parties who would have the burden of proof of showing that the corporation superseded
the partnership. The next day, the court modified its previous view of the parties'
respective burdens. It now concluded that, while the plaintiff has the burden of proving
the existence of a partnership and its terms, the defendants have the burden of proving
that the corporation superseded the partnership. Importantly, among the terms that
plaintiff had to prove were "that any pre-incorporation agreements were agreed to
14
continue post-incorporation," i.e., the parties agreed to continue the partnership
notwithstanding the formation of the corporation.
While Brown and Levy had not pled supersession as an affirmative defense, the
court stated it would allow an amendment to their answer because there could be no
prejudice. The court explained: "Plaintiff previously has been put on notice that that was
a defense that defendant was asserting and the facts hav[e] been taken in evidence." The
court rejected Eng's argument that he would have tried the case differently: "[Y]ou've
been arguing that all along that . . . you knew or at least knew in part that there was a
corporation. Plaintiff has been arguing all along that the partnership did not—was not
subsumed by the corporation. There's nothing new here." The court granted leave to
amend Brown and Levy's answer and denied Eng's motion for directed verdict on the
affirmative defense of supersession.
The parties struggled to draft jury instructions describing their respective burdens
on the issue of supersession. The court suggested the following special instruction: "[I]f
a partnership is incorporated, the partnership merges into the corporation and the partners
cease to be partners and have only the rights, duties and obligations of shareholders."
Eng disagreed. His counsel suggested, "Defendants have the burden of proof to you
concerning their argument that the parties intended that B.L.E. Fish, Inc. would supersede
and terminate their partnership." The court rejected Eng's formulation. It noted that it
was "plaintiff's burden to show . . . that the corporation was formed to carry out a pre-
incorporation agreement." When Eng's counsel agreed, the court suggested that the
special instruction say exactly that. Eng's counsel again agreed. Eng's counsel then
15
suggested a second part, reflecting the affirmative defense: "If plaintiff meets his burden,
it then becomes the burden—the burden of proof of the defendant to prove to you that the
corporation superseded and/or terminated the partnership." After further discussion, the
parties agreed on the following instruction, which was provided to the jury: "It is
plaintiff's burden to prove that the corporation was formed to carry out a pre-
incorporation agreement. If plaintiff meets his burden of proof, it is defendants' burden
of proof to prove that the partnership was superseded by the corporation." The parties
referred to this instruction as Special Instruction No. 24.4
4 The jury was instructed on the existence of a partnership using CACI No. 3711, as
follows: "You must decide whether a partnership existed in this case. A partnership is a
group of two or more persons who own a business in which all the partners agree to share
the profits and losses. A partnership can be formed by a written or oral agreement or by
an agreement implied by the parties' conduct." Similarly, the jury was instructed with
CACI No. 3712 regarding the existence of a joint venture: "You must decide whether a
joint venture was created in this case. A joint venture exists if all the following have
been proved. One, two or more persons or business entities combined their property,
skill or knowledge with the intent to carry out a single business undertaking. Two, each
has an ownership interest in the business. Three, they have joint control over the business
even if they agree to delegate control. And, four, they agree to share the profits and
losses of the business. [¶] A joint venture can be formed by a written or an oral
agreement or by an agreement implied by the parties' conduct." The jury was also
instructed on the existence and breach of fiduciary duties using CACI No. 4102, as
follows: "Franklin Eng claims he was harmed by defendants Brown and Levy's breach of
the fiduciary duty of loyalty. A partner and joint venturer owes their partners and joint
venturers undivided loyalty. To establish this claim, Franklin Eng must prove all of the
following: One, that defendants Brown and Levy were Franklin Eng's partners or joint
venturers. Two, that defendants Brown and Levy knowingly acted against Franklin Eng's
interests in connection with use of business funds for personal expenses, compensation
and bonuses and management fees. Three, that Franklin Eng did not give informed
consent to defendants Brown and Levy's conduct. Four, that Franklin Eng was harmed.
And, five, that defendants Brown and Levy's conduct was a substantial factor in causing
Franklin Eng's harm."
16
The parties also struggled with a special verdict form. Eng appears to have
requested the following question, which addressed defendants' burden of proof: "Do you
find that Defendants proved to you that the parties, Franklin Eng, Gerald Levy, and
Michael Brown, intended to terminate their partnership or joint venture when Michael
Brown formed B.L.E. Fish, Inc.?" The court proposed to remove the word "intended,"
but Eng objected. The court overruled Eng's objection and revised the proposal in other
ways. In the end, the special verdict adopted by the court began with the following two
questions: "1. Do you find that the parties entered into a partnership or joint venture in
2006?" and "2. Do you find that the parties terminated their partnership or joint venture
with the formation of B.L.E. Fish, Inc.?"
The parties presented closing arguments. Eng argued, in essence, that the group
formed a partnership before they submitted their first offer for the Tin Fish Gaslamp.
They agreed on their respective ownership percentages, and they agreed to form a
corporation as a vehicle of the partnership. Eng's counsel explained: "I wanted to make
sure everybody knew we're not going to trial with you claiming that a corporation is the
joint venture. The corporation is not the joint venture. The corporation was the vehicle
for the joint venture. That's called a pre-incorporation agreement." In response, Brown
and Levy argued the group never intended to form a partnership: "The parties at all times
intended to form a Subchapter S Corporation to buy the restaurant and to operate it."
And, in the alternative, they argued supersession: "So even if you believe that
somewhere between [the first offer for the Tin Fish Gaslamp] and [the second offer] there
was some partnership agreement reached, there was no evidence that there was. Even if
17
there was, that business was superseded by the corporation, taken in to be part of the
corporation."
During jury deliberations, a juror asked the following question: "Are all
corporations joint ventures and partnerships?" In an unreported conversation, the court
consulted counsel regarding its proposed response. It answered, "Please see Jury
Instructions CACI [Nos.] 3711 and 3712. A corporation is a legal entity organized under
the California Corporations Code. Please see Special Instruction No. 24."
After several hours of deliberations, the jury reached a verdict. It answered "yes"
to the first special verdict question ("Do you find that the parties entered into a
partnership or joint venture in 2006?") by a vote of 10 in favor and two against. It also
answered "yes" to the second special verdict question ("Do you find that the parties
terminated their partnership or joint venture with the formation of B.L.E. Fish, Inc.?") by
a vote of 11 in favor and one against. The court entered judgment in favor of Brown and
Levy and against Eng.
Eng filed an ex parte application for the release of juror contact information. It
was supported by a declaration from Eng's counsel, who stated that he spoke with several
jurors after their verdict was read. These jurors said that "the jury believed that the
formation of the corporation automatically superseded the partnership by the way Special
Verdict Question Number 2 was worded and that they felt as though they had no choice
but to vote 'YES.' " Eng's counsel also stated that one juror, an attorney, told his fellow
jurors that "there were no partnership/joint venture k-1s or meetings, facts which were
never raised by the defendants, to show that the partnership/joint venture never
18
existed/terminated on incorporation." Eng argued that the jurors' comments showed they
were confused and the jurors' contact information was necessary to obtain affidavits to
support posttrial motions. Defendants opposed. They argued that an ex parte application
was improper, that Eng's counsel could have asked the jurors for their contact
information when he spoke with them after their verdict, and that Eng's counsel was
aggressive during trial and would be aggressive in contacting the jurors as well.
Defendants also argued the information Eng sought would be inadmissible under
Evidence Code section 1150. The court denied Eng's application.
Eng moved for a new trial or, in the alternative, for judgment notwithstanding the
verdict. He raised a number of grounds, including denial of his motion to amend, denial
of his motion for directed verdict, instructional error, and error in the special verdict. The
court denied Eng's motion. With respect to the motions to amend, the court stated, "It
does appear that plaintiff sought to amend during trial, four years after the case was filed
and with no explanation for the delay. In addition, plaintiff dismissed the derivative
shareholder claims on the eve of trial. On the other hand, defendant's proposed
affirmative defense that any partnership was superseded by the corporation did not
interject a new issue. This was the same issue the parties argued on motion for summary
judgment." Eng appeals.
DISCUSSION
I
Because the resolution of many of Eng's arguments turns on disputed aspects of
partnership law, we begin with a discussion of the substantive law governing partnership
19
formation and subsequent incorporation. In general, "the association of two or more
persons to carry on as coowners a business for profit forms a partnership, whether or not
the persons intend to form a partnership." (Corp. Code, § 16202, subd. (a).) With certain
exceptions, "[a] person who receives a share of the profits of a business is presumed to be
a partner in the business . . . ." (Id., subd. (c)(3).) But "[t]he sharing of gross returns does
not by itself establish a partnership, even if the persons sharing them have a joint or
common right or interest in property from which the returns are derived." (Id., subd.
(c)(2).) Similarly, "[j]oint tenancy, tenancy in common, tenancy by the entireties, joint
property, common property, or part ownership does not by itself establish a partnership,
even if the coowners share profits made by the use of the property." (Id., subd. (c)(1).)
"The question of the existence of a partnership depends primarily upon the
intention of the parties ascertained from the terms of the agreement and from the
surrounding circumstances. [Citations.] Ordinarily the existence of a partnership is
evidenced by the right of the respective parties to participate in the profits and losses and
in the management of the business. [Citations.] In ascertaining the intention of the
parties, where they have entered into a written agreement, such intention should be
determined chiefly from the terms of the writing. [Citation.] While the question of
whether a partnership exists is to be determined from the nature of the relation agreed
upon rather than the name which the parties have given to it, some weight must be given
to the language of the parties themselves. [Citations.] It is the intention as evidenced by
the terms of the agreement, and not the subjective or undisclosed intention of the parties
that controls." (Constans v. Ross (1951) 106 Cal. App. 2d 381, 386-387.)
20
However, "[a] partnership need not be evidenced by writing [citation]. It is
immaterial that the parties do not designate the relationship as a partnership or realize that
they are partners, for the intent may be implied from their acts [citations]." (Greene v.
Brooks (1965) 235 Cal. App. 2d 161, 166 (Greene).) "In that sense, any partnership
without a written agreement is a 'de facto' partnership [citations]." (Persson v. Smart
Inventions, Inc. (2005) 125 Cal. App. 4th 1141, 1157 (Persson).) "[T]he question of
partnership is one of fact." (Billups v. Tiernan (1970) 11 Cal. App. 3d 372, 379 (Billups);
see Spier v. Lang (1935) 4 Cal. 2d 711, 716.)
An association organized as another entity (e.g., a corporation) is not a
partnership. (Corp. Code., § 16202, subd. (b).) Absent unusual circumstances, this
principle holds even if the corporation began as a partnership. "[I]n the usual case . . . a
partnership does not continue to exist after the formation of a corporation." (Persson,
supra, 125 Cal.App.4th at p. 1157; see Cavasso v. Downey (1920) 45 Cal. App. 780, 786
(Cavasso); Miles, Inc. v. Scripps Clinic & Research Found. (S.D.Cal. 1993) 810 F. Supp.
1091, 1099-1100.) "Consequently, considerable doubt exists that the obligations that
flow from a partnership—including fiduciary duties among partners—may be imposed on
the shareholders of a corporation duly formed and operated under California statutes.
This becomes more apparent in this case where the finding of a de facto partnership was
made solely for the purpose of imposing a fiduciary duty on the de facto partners, and not
with respect to any other rights or obligations of partners, or for the purpose of enforcing
a preincorporation agreement between the partners." (Persson, at p. 1157.)
21
Because "[a] partnership once shown to exist is presumed to continue until the
contrary is shown," the party seeking to rebut the partnership relationship has the burden
of showing subsequent incorporation or other reorganization. (Asamen v. Thompson
(1942) 55 Cal. App. 2d 661, 668 (Asamen); see Credit Bureaus of Merced County, Inc. v.
Fuller (1962) 199 Cal. App. 2d 495, 496.) If that party establishes that the partnership
incorporated or reorganized into another type of entity, it has met its burden of proof to
show that the partnership ended and the partnership relationship was terminated. (See
Persson, supra, 125 Cal.App.4th at p. 1157.)
Because the party alleging subsequent incorporation or reorganization has the
burden of proof to show an additional fact, and does not necessarily dispute the elements
of partnership formation, the defense of subsequent incorporation or reorganization must
be pled and proved as an affirmative defense. "What constitutes new matter which must
be pled as an affirmative defense in order to be considered at trial was set forth in the
early case of Goddard v. Fulton [(1863)] 21 Cal. 430, 436, where the court stated: 'If the
answer, either directly or by implication, admits the truth of all the essential allegations of
the complaint which show a cause of action, but sets forth facts from which it results that,
notwithstanding the truth of the allegations of the complaint, no cause of action existed in
the plaintiff at the time the action was brought, those facts are new matter. But if those
facts only show that some essential allegation of the complaint is not true, then such facts
are not new matter, but only a traverse.' " (Lever v. Garoogian (1974) 41 Cal. App. 3d 37,
39; see Four Star Electric, Inc. v. F&H Construction (1992) 7 Cal. App. 4th 1375, 1381.)
22
This affirmative defense is also known as "supersession" because the corporation
supersedes the partnership.
The proponent of the partnership may avoid this result by offering evidence that
the partners intended to retain their partnership notwithstanding incorporation. "Partners
may, by agreement, continue their relations as copartners in conjunction with their
relationship as stockholders of a corporation, and 'the law would take cognizance of such
dual relationship and deal with "the parties in the light of their agreement[s between
themselves], independently of their incorporation" . . . .' " (Persson, supra, 125
Cal.App.4th at p. 1158; see Elsbach v. Mulligan (1943) 58 Cal. App. 2d 354, 369
(Elsbach); Asamen, supra, 55 Cal.App.2d at p. 669.) "[C]ourts will enforce
preincorporation agreements among partners or joint venturers who have incorporated in
order to carry out the agreement between or among the partners or joint venturers."
(Persson, at p. 1159.) Because the proponent of the partnership must produce this
evidence to avoid a finding that the partnership was superseded, the proponent has the
burden of proof on this issue. (See Mindenberg v. Carmel Film Productions, Inc. (1955)
132 Cal. App. 2d 598, 602 (Mindenberg) [affirming grant of nonsuit where proponent
failed to produce sufficient evidence of intent to maintain the partnership]; see also Evid.
Code, § 550, subd. (a).) In sum, if incorporation is shown, the burden shifts back to the
proponent of the partnership to prove that the parties entered into a preincorporation
agreement or otherwise intended for their partnership to survive incorporation because
the "ordinary principle" is that the partnership would not survive. (Persson, at p. 1159.)
23
Elsbach, on which Eng primarily relies, recognized the general rule that a
partnership will not survive incorporation: "[S]ince plaintiff participated in the formation
of the corporation he may not now proceed in disregard of the corporate entity, since
when a corporation supersedes a partnership or joint adventure, rights subsequently
accruing to the partners or joint adventurers are not based on that relationship." (Elsbach,
supra, 58 Cal.App.2d at p. 368.) It also recognized the exception: "If a corporation or a
formal partnership is a mere agency for the purpose of convenience in carrying out a joint
venture agreement, and independent and innocent third parties, such as creditors or
stockholders, are not injured thereby . . . , justice would seem to demand that in
determining the rights of the parties they be placed in the position each occupied under
the original agreement." (Id. at pp. 368-369.) In Elsbach, there were "conflicts in the
evidence as to whether the operations of the parties constituted genuine corporate
functions or whether the corporate form was employed merely as a convenient method of
carrying out the agreement of the parties." (Id. at p. 369.) The trial court could therefore
reasonably find that the partnership survived its incorporation. (Ibid.)
Courts have shown considerable skepticism towards alleged preincorporation
agreements. In Persson, for example, two individuals founded a consumer products
business. (Persson, supra, 125 Cal.App.4th at p. 1147.) After three years owning and
operating the business as partners, they incorporated the business and became
shareholders, directors, and corporate officers. (Ibid.) One of the founders eventually
sued the other, alleging breach of fiduciary duty and other claims. (Id. at pp. 1149-1150.)
Following an advisory jury verdict in the plaintiff's favor, the trial court found that the
24
founders maintained a de facto partnership, notwithstanding the incorporation of the
business, and the defendant breached his fiduciary duties as a partner. (Id. at p. 1151.)
The reviewing court reversed this finding, concluding as a matter of law that the
partnership did not survive incorporation. (Id. at p. 1156.) It held that the corporation
"was not formed to carry out a preincorporation agreement which was later breached.
Additionally, this is not a case where substantial justice requires that the parties be treated
in accordance with a preincorporation agreement. [¶] Accordingly, we apply the
ordinary principle that, after a partnership is incorporated, the rights or obligations which
partners can enforce against each other no longer exist. In the absence of a
preincorporation agreement or evidence the corporate form was disregarded, shareholders
in a duly formed corporation operating in accordance with legal requirements do not
become de facto partners, and thereby acquire fiduciary duties to each other, simply
because they earn the same salary and refer to each other for convenience as partners.
They have the rights and obligations of shareholders, not partners, and the trial court
erred in concluding otherwise." (Id. at p. 1159.)
In Mindenberg, the appellate court affirmed an order granting nonsuit on the
plaintiff's claim for an accounting and other relief. (Mindenberg, supra, 132 Cal.App.2d
at p. 602.) The plaintiff argued that he formed a joint venture with two defendants,
relying on one defendant's testimony that the group discussed going into business
together. (Id. at p. 601.) The appellate court disagreed. It held, "The evidence shows
without conflict that the original plan was formation of a corporation and the conduct of
business by it, each of the three . . . to own one-third of the stock; that the
25
corporation . . . was promptly formed; that it conducted the business throughout,
observing the customary corporate forms, electing officers and directors, conducting
directors' meetings, acting through its elected officers, etc.; 10 shares of stock were
issued to or for the benefit of each of the three participants . . . . The testimony and other
proof fails to reveal any respect in which the corporation was used as a blind or sham, or
as an agency of the stockholders in any manner or sense other than that of the normal
corporation." (Ibid.) The relevant written agreements "contain[ed] no slight intimation
of any joint venture in relation to the corporation or its assets or business." (Id. at p.
602.) The trial court therefore did not err by granting nonsuit. (Ibid.)
Similarly, in Cavasso, the appellate court found insufficient evidence "to support
the finding of the [trial] court that the partnership between [defendant] and [plaintiff]
continued after the formation of the corporation." (Cavasso, supra, 45 Cal.App. at p.
786.) The appellate court held that plaintiff's conclusory testimony was "not sufficient"
to show that a partnership continued. (Ibid.) There was no evidence, for example, that
plaintiff and defendant "had, by agreement, continued their relations as copartners, in
conjunction with their relation as stockholders of the corporation . . . . If such an
agreement ever existed it was not alleged or proved." (Ibid.)
26
With these authorities in mind, we turn to Eng's specific claims of error. We will
discuss these legal principles where necessary in further detail below.5
II
Eng first contends the court erred by denying his motion in limine, which sought
(1) a finding that Eng, Brown, and Levy formed a partnership as a matter of law and (2)
the exclusion of any evidence or argument that B.L.E. Fish superseded the partnership.
As to the first request, the trial court found that the formation of a partnership was a
factual issue to be decided by the jury. As to the second, the court found that exclusion
was not warranted because supersession was not an affirmative defense.
The first in limine request, while not necessarily improper, was an unusual use of
the motion in limine procedure. "In limine motions are designed to facilitate the
management of a case, generally by deciding difficult evidentiary issues in advance of
trial. ' "The usual purpose of motions in limine is to preclude the presentation of
evidence deemed inadmissible and prejudicial by the moving party. A typical order in
limine excludes the challenged evidence and directs counsel, parties, and witnesses not to
refer to the excluded matters during trial." ' " (Amtower v. Photon Dynamics, Inc. (2008)
158 Cal. App. 4th 1582, 1593, italics omitted.) Eng's first request did not seek a ruling on
5 Here, as noted above, the jury found that Brown, Levy, and Eng formed a
partnership but that the partnership was terminated with the formation of B.L.E. Fish.
Throughout his briefing, Eng takes issue with this finding and argues simply that the jury
got it wrong. He claims that defense witnesses lied and at least one critical document
was forged. These arguments misperceive this court's role and provide no basis for
reversal. (See Navarro v. Perron (2004) 122 Cal. App. 4th 797, 803.)
27
the admissibility of evidence. Instead, it sought to take a factual issue away from the jury
on the ground that the relevant facts were undisputed and no rational jury could find that
a partnership had not been formed. (See Billups, supra, 11 Cal.App.3d at p. 379 ["[T]he
question of partnership is one of fact."].)
The request was more akin to a partial directed verdict on the issue of partnership
formation. (See, e.g., Newing v. Cheatham (1975) 15 Cal. 3d 351, 364-365 (Newing);
Moore v. Mercer (2016) 4 Cal.App.5th 424, 450 (Moore).) Assuming without deciding
that such a motion could properly be made prior to trial, we conclude the court did not err
by denying the motion. " 'A directed verdict may be granted only when, disregarding
conflicting evidence, giving the evidence of the party against whom the motion is
directed all the value to which it is legally entitled, and indulging every legitimate
inference from such evidence in favor of that party, the court nonetheless determines
there is no evidence of sufficient substantiality to support the claim or defense of the
party opposing the motion, or a verdict in favor of that party.' " (Moore, at p. 450.) Here,
based on Levy's testimony at hearing on Eng's motion, as well as the documentary
evidence surrounding B.L.E. Fish's formation and its offer to purchase the Tin Fish
Gaslamp restaurant, a rational trier of fact could have found that the parties never formed
a partnership. Instead, their association from the outset was intended to be organized as a
corporation and was, in fact, so organized.
Even if the court had erred, Eng has not shown prejudice. Eng claims he was
forced to litigate "a non-issue," but that is insufficient. Eng has not shown how litigating
the issue of partnership affected the outcome of the trial. Eng points out that the first
28
special verdict question, concerning partnership formation, would not have been
submitted to the jury if the court had found that the partnership was formed as a matter of
law. But the jury found in Eng's favor on this question, so Eng fails to show how its
inclusion prejudiced him.6
Eng's second in limine request to exclude any evidence or argument that B.L.E.
Fish superseded the partnership was premised on the assertion that such evidence was
irrelevant because Brown and Levy had not pled an affirmative defense based on
supersession. The trial court believed that merger or supersession was not an affirmative
defense and denied the motion. As discussed above, this belief was in error. Once Eng
proved the existence of a partnership, it was Brown and Levy's burden to introduce
evidence of subsequent incorporation. (See Asamen, supra, 55 Cal.App.2d at pp. 668-
669.) However, given the events at trial, it is clear that even if the court had correctly
identified supersession as an affirmative defense, it would not have excluded such
evidence. The court changed its view, accepted that supersession was an affirmative
defense, and granted Brown and Levy's motion to amend their answer to assert the
defense. There is no reasonable probability the court would have proceeded differently
here, had the court understood that supersession was an affirmative defense from the
6 Eng appears to believe that, had the trial court found a partnership as a matter of
law, Brown and Levy would have been precluded from arguing the affirmative defense of
supersession. This is incorrect. The affirmative defense of supersession assumes that a
partnership has been found to exist. A finding that a partnership exists as a matter of law
does not affect the availability of this defense.
29
outset of trial. Eng has not shown his motion in limine would have been granted had the
court not misunderstood the affirmative defense.
III
Relatedly, Eng contends the court erred by allowing Brown and Levy to amend
their answer during trial to assert supersession as an affirmative defense. "Any judge, at
any time before or after commencement of trial, in the furtherance of justice, and upon
such terms as may be proper, may allow the amendment of any pleading or pretrial
conference order." (Code Civ. Proc., § 576.) "This language necessarily implies the trial
judge has discretion on whether to permit amendment to pleadings during the course of
trial, and scores of cases so hold. [Citations.] [¶] The cases on amending pleadings
during trial suggest trial courts should be guided by two general principles: (1) whether
facts or legal theories are being changed and (2) whether the opposing party will be
prejudiced by the proposed amendment. Frequently, each principle represents a different
side of the same coin: If new facts are being alleged, prejudice may easily result because
of the inability of the other party to investigate the validity of the factual allegations
while engaged in trial or to call rebuttal witnesses. If the same set of facts supports
merely a different theory . . . no prejudice can result." (City of Stanton v. Cox (1989) 207
Cal. App. 3d 1557, 1563 (City of Stanton).) We review the trial court's order for abuse of
discretion. (Garcia v. Roberts (2009) 173 Cal. App. 4th 900, 909.)
Here, Brown and Levy's position throughout the litigation had been that no
partnership was formed and, in the alternative, if a partnership was formed it was
superseded by the incorporation of B.L.E. Fish. As the trial court pointed out, Brown and
30
Levy explicitly made that argument in their motion for summary judgment and during
pretrial motions. They simply did not believe that supersession was an affirmative
defense, and at the outset of trial the court agreed. When the court changed its view,
Brown and Levy's belief became wrong. To move forward, however, Brown and Levy
merely needed to refocus the emphasis of their defense. Because their underlying factual
assertions did not change, and because even the underlying legal assertions were
consistent, the court did not abuse its discretion in allowing Brown and Levy to formalize
their argument as an affirmative defense. (See City of Stanton, supra, 207 Cal.App.3d at
p. 1563.) The argument was already part of the trial, so Eng could show no prejudice.
These circumstances are analogous to those considered by our Supreme Court
more than 100 years ago: "We cannot say that the court abused its discretion in
permitting the amended answer. The rule is that courts will be liberal in allowing an
amendment to a pleading when it does not seriously impair the rights of the opposite
party—and particularly an amendment to an answer. A defendant can generally set up as
many defenses as he may have. Appellant contends that the affidavits upon which the
motion to amend was made show that it was based mainly on a mistake of law made by
respondent's attorney; but, assuming that to be so, still the power of a court to allow an
amendment is not limited by the character of the mistake which calls forth its exercise."
(Gould v. Stafford (1894) 101 Cal. 32, 34.) An analogous mistake of law occurred here,
and the trial court did not abuse its direction by allowing Brown and Levy to correct it by
amending their answer to assert the affirmative defense of supersession.
31
Eng contends that the defense contradicted Brown's and Levy's testimony at trial,
in which they denied ever forming a partnership with Eng. In Eng's view, they could not
simultaneously deny the partnership and claim it was superseded by the corporation.
(See Brautigam v. Brooks (1964) 227 Cal. App. 2d 547, 560-561.) We disagree. A
partnership may be formed even where the parties do not specifically intend their
relationship to be a partnership. (Greene, supra, 235 Cal.App.2d at p. 166.) It was not
factually inconsistent for Brown and Levy to argue that a partnership was not formed
and, even if it was formed unintentionally, it was superseded by the incorporation of
B.L.E. Fish.
Eng repeatedly claims that the doctrine of judicial estoppel should apply, but he
does not attempt to show that the elements of the doctrine were satisfied here. This
omission alone is fatal to his argument. (See Cahill v. San Diego Gas & Electric Co.
(2011) 194 Cal. App. 4th 939, 956 (Cahill).) And, in any event, we are not persuaded that
the doctrine applies. " 'Judicial estoppel prevents a party from asserting a position in a
legal proceeding that is contrary to a position previously taken in the same or some
earlier proceeding. The doctrine serves a clear purpose: to protect the integrity of the
judicial process.' [Citation.] 'This obviously contemplates something other than the
permissible practice . . . of simultaneously advancing in the same action inconsistent
claims or defenses which can then, under appropriate judicial control, be evaluated as
such by the same tribunal, thus allowing an internally consistent final decision to be
reached.' " (Jackson v. County of Los Angeles (1997) 60 Cal. App. 4th 171, 181.) "[T]he
doctrine [of judicial estoppel] should apply when: (1) the same party has taken two
32
positions; (2) the positions were taken in judicial or quasi-judicial administrative
proceedings; (3) the party was successful in asserting the first position (i.e., the tribunal
adopted the position or accepted it as true); (4) the two positions are totally inconsistent;
and (5) the first position was not taken as a result of ignorance, fraud, or mistake." (Id. at
p. 183.) Here, Eng cannot show that Brown and Levy were successful in asserting their
position that a partnership was never formed. Instead, Brown and Levy took their
allegedly inconsistent positions during litigation to determine that question. This strategy
was an example of the "permissible practice" of advancing alternative arguments before a
final decision is reached. (Id. at p. 181.)
IV
Eng claims the court erred by denying his motion for directed verdict on Brown
and Levy's affirmative defense of supersession. As noted, " 'A directed verdict may be
granted only when, disregarding conflicting evidence, giving the evidence of the party
against whom the motion is directed all the value to which it is legally entitled, and
indulging every legitimate inference from such evidence in favor of that party, the court
nonetheless determines there is no evidence of sufficient substantiality to support the
claim or defense of the party opposing the motion, or a verdict in favor of that party.' "
(Moore, supra, 4 Cal.App.5th at p. 450.) "On appeal, we decide de novo whether
sufficient evidence was presented to withstand a directed verdict." (Bonfigli v. Strachan
(2011) 192 Cal. App. 4th 1302, 1315.)
Brown and Levy's affirmative defense of supersession required them to show that
their partnership with Eng was subsequently incorporated. "[A]fter a partnership is
33
incorporated, the rights or obligations which partners can enforce against each other no
longer exist." (Persson, supra, 125 Cal.App.4th at p. 1159.) There was ample evidence
at trial to support the defense. The transaction that was the subject of the purported
partnership—the purchase of the Tin Fish Gaslamp—was taken over by B.L.E. Fish in
the offer that was accepted and successfully closed. B.L.E. Fish was duly incorporated
with Brown, Levy, and Eng as shareholders. They signed a management agreement
designating Brown and Levy to act on behalf of the corporation. The corporation owned
and operated the restaurant, its corporate form was respected, and it made distributions
consistent with the shareholders' S corporation election. Nothing of the alleged
partnership remained. Based on this evidence, a rational trier of fact could find that the
corporation superseded the partnership. The trial court did not err by denying Eng's
motion for a directed verdict.
Eng argues that Brown and Levy were required to offer evidence that the partners
specifically agreed to terminate the partnership and replace it with B.L.E. Fish. Eng's
argument appears to rely on a misinterpretation of the parties' respective burdens of
proof. To support their affirmative defense of supersession, Brown and Levy needed to
prove only that the partnership incorporated. (See Persson, supra, 125 Cal.App.4th at p.
1157.) Eng could rebut this affirmative defense by showing that the parties had a
preincorporation agreement to continue the partnership notwithstanding the formation of
the corporation. (Id. at p. 1159; see Elsbach, supra, 58 Cal.App.2d at pp. 368-369.) But
to obtain a directed verdict on this basis, Eng would have had to have shown that the
existence of a preincorporation agreement to maintain the partnership was essentially
34
uncontested, i.e., there was " 'no substantial support' " for Brown and Levy's position that
no such preincorporation agreement existed. (Newing, supra, 15 Cal.3d at p. 359; see
Moore, supra, 4 Cal.App.5th at p. 450.) He has made no effort to do so. Instead, Eng
has relied on his belief that Brown and Levy were required to disprove the existence of a
preincorporation agreement as part of their defense of supersession. For the reasons we
have discussed, this belief was in error.7
Eng appears to contend that the trial court's order denying Brown and Levy's
motion for summary judgment supports his view that Brown and Levy were required to
disprove the existence of a preincorporation agreement to maintain the partnership
notwithstanding the incorporation of B.L.E. Fish. But, given the shifting burdens of
proof on summary judgment, this order has no relevance to Eng's request for a directed
verdict. (See, e.g., Kahn v. East Side Union High School Dist. (2003) 31 Cal. 4th 990,
1003 ["When the defendant moves for summary judgment, in those circumstances in
which the plaintiff would have the burden of proof by a preponderance of the evidence,
the defendant must present evidence that would preclude a reasonable trier of fact from
finding that it was more likely than not that the material fact was true [citation], or the
defendant must establish that an element of the claim cannot be established . . . ."].) In
7 The proof Eng argues Brown and Levy were required to produce, i.e., a specific
intent or agreement to terminate the partnership, would only have become relevant if Eng
had shown he was entitled to a directed verdict on the issue of the existence of a
preincorporation agreement. However, because Eng did not establish that the parties
entered into a preincorporation agreement to continue the partnership, the burden never
shifted back to Brown and Levy to rebut that showing.
35
their summary judgment motion, Brown and Levy cited Persson and argued that any
partnership was superseded by the formation of B.L.E. Fish. Eng responded that the
partnership survived the formation of B.L.E. Fish based on a preincorporation agreement.
The trial court denied the motion for summary judgment because it found that "a triable
issue of fact exists as to whether the corporation was formed to carry out a
preincorporation agreement." The trial court's finding that Eng had raised a triable issue
of material fact on the existence of a preincorporation agreement is not the same as a
finding that Eng had shown there was no substantial support for Brown and Levy's
contrary position at trial. The court did not err by denying Eng's motion for directed
verdict.
V
In a related argument, Eng contends the court erred by not instructing the jury as
follows: "Defendants have the burden of proof to you concerning their argument that the
parties intended that B.L.E. Fish, Inc. would supersede and terminate their partnership."
We conclude the court did not err because Eng's proposed instruction was not a correct
statement of the law.
"A party is entitled upon request to correct, nonargumentative instructions on
every theory of the case advanced by him which is supported by substantial evidence.
The trial court may not force the litigant to rely on abstract generalities, but must instruct
in specific terms that relate the party's theory to the particular case." (Soule v. General
Motors Corp. (1994) 8 Cal. 4th 548, 572.) "The legal adequacy of jury instructions is a
36
legal issue subject to the de novo standard of appellate review." (Isip v. Mercedes-Benz
USA, LLC (2007) 155 Cal. App. 4th 19, 24.)
It is elementary that a court may refuse a party's request for a jury instruction that
misstates the law. "A trial court has no duty to modify or edit an instruction offered by
either side in a civil case. If the instruction is incomplete or erroneous the trial judge
may, as he did here, properly refuse it." (Truman v. Thomas (1980) 27 Cal. 3d 285, 301;
see Boeken v. Philip Morris, Inc. (2005) 127 Cal. App. 4th 1640, 1673.) As discussed
above, Brown and Levy's supersession defense did not require a specific intent that
B.L.E. Fish would supersede and terminate the partnership. They were required to show
only that the partnership was in fact incorporated. (See Persson, supra, 125 Cal.App.4th
at p. 1157.) The trial court therefore properly refused Eng's proposed jury instruction.
Eng argues that his proposed instruction was a correct statement of law under
Elsbach. We disagree. Elsbach recognized the general rule that incorporation terminates
the partnership relationship. (Elsbach, supra, 58 Cal.App.2d at p. 368.) It did not impose
the requirement urged by Eng, i.e., that the parties must have specifically intended such a
result. If incorporation is shown, the burden shifts back to the proponent of the
partnership to prove that the parties entered into a preincorporation agreement or
otherwise intended for their partnership to survive incorporation because the "ordinary
principle" is that the partnership would not survive. (Persson, supra, 125 Cal.App.4th at
p. 1159.) Elsbach does not place the burden on the party resisting the partnership to
show that the parties did not enter into a preincorporation agreement.
37
Eng criticizes the trial court for imposing a rule of "automatic termination"
whenever a partnership is incorporated. But again, as a general rule, termination of the
partnership does occur automatically upon incorporation. "[T]he ordinary principle [is]
that, after a partnership is incorporated, the rights or obligations which partners can
enforce against each other no longer exist." (Persson, supra, 125 Cal.App.4th at p.
1159.) That is, "in the usual case . . . a partnership does not continue to exist after the
formation of a corporation." (Id. at p. 1157.) No specific showing of intent or agreement
to terminate the partnership is required.
VI
In a similar vein, Eng contends the court erred by omitting the principle of intent
from the special verdict form. Eng appears to have requested the following question,
which the court rejected: "Do you find that defendants proved to you that the parties,
Franklin Eng, Gerald Levy, and Michael Brown, intended to terminate their partnership
or joint venture when Michael Brown formed B.L.E. Fish, Inc.?" " 'The use of special
interrogatories in a verdict form lies within the sound discretion of the trial court, and the
court's determination will not be disturbed on appeal absent a clear abuse of discretion.' "
(J.P. v. Carlsbad Unified School Dist. (2014) 232 Cal. App. 4th 323, 340.)
For the same reasons as discussed above, Eng's proposed special verdict question
misstated the law by requiring a specific finding of intent to terminate the partnership
38
upon incorporation. (See Persson, supra, 125 Cal.App.4th at pp. 1157, 1159.) The court
did not abuse its discretion by refusing it.8
VII
Eng further contends the court erred in its response to a juror's question during
deliberations. The juror asked, "Are all corporations joint ventures and partnerships?"
The court answered, "Please see Jury Instructions CACI [Nos.] 3711 and 3712. A
corporation is a legal entity organized under the California Corporations Code. Please
see Special Instruction No. 24."
Eng complains that the court's response was confusing and could have been
improved in a number of ways. But it does not appear from the record that Eng
suggested any of these alternatives to the court. Eng has therefore forfeited any claim of
error on that basis. "When the trial court responds to a question from a deliberating jury
with a generally correct and pertinent statement of the law, a party who believes the
court's response should be modified or clarified must make a contemporaneous request to
that effect; failure to object to the trial court's wording or to request clarification results in
forfeiture of the claim on appeal." (People v. Dykes (2009) 46 Cal. 4th 731, 802.)
8 In this context, Eng argues that Persson is inapplicable because there was a
significant delay in that case between formation of the partnership and formation of the
corporation. (See Persson, supra, 125 Cal.App.4th at p. 1147.) We disagree. If
anything, the closeness in time between the formation of the alleged partnership here and
the formation of B.L.E. Fish shows that the parties did not intend for the partnership to
survive because it had not undertaken any significant business activities.
39
To the extent Eng asserts that the court's response was an incorrect statement of
law, he has not supported that assertion. The CACI instructions cited by the court are
correct and were pertinent to the jury's question regarding partnership formation. The
instruction regarding a corporation as a legal entity was likewise correct and addressed
the jury's confusion regarding the relationship between corporations and partnerships.
Special Instruction No. 24, to which Eng agreed, explained the connection between
partnership formation and subsequent incorporation, thus reminding the jury of the
parties' dispute over the issue of supersession. Eng's claim that the instruction advised
the jury that "if there is a corporation, there is no partnership because a corporation is
separately formed" is therefore incorrect. The court's response encapsulates the law on
this topic that it had already provided the jury. Eng has not shown it was erroneous. 9
VIII
Eng argues that the court erred by denying his motion to amend his complaint to
add allegations that Brown and Levy breached their fiduciary duties as shareholders in
B.L.E. Fish, not simply as partners. As noted (see pt. III, ante), courts have the power to
allow amendments before or after the commencement of trial in the interests of justice.
(Code Civ. Proc., § 576.) " 'Courts must apply a policy of liberality in permitting
amendments at any stage of the proceeding, including during trial, when no prejudice to
9 Eng also appears to claim, contradictorily, that the court was prohibited from
instructing the jury on any legal issues in response to its question. Eng is mistaken. (See
Code Civ. Proc., § 614.) Indeed, a trial court's failure to provide legal instructions in
response to a jury's question may be reversible error under certain circumstances. (See,
e.g., Bartosh v. Banning (1967) 251 Cal. App. 2d 378, 387-388.)
40
the opposing party is shown.' " (Duchrow v. Forrest (2013) 215 Cal. App. 4th 1359, 1377;
see Desny v. Wilder (1956) 46 Cal. 2d 715, 751 ["Great liberality is indulged in matters of
amendment to the end that lawsuits may be determined upon their merits."].)
"Generally, 'the trial court has wide discretion in determining whether to allow the
amendment, but the appropriate exercise of that discretion requires the trial court to
consider a number of factors: "including the conduct of the moving party and the belated
presentation of the amendment. [Citation.] . . . The law is well settled that a long
deferred presentation of the proposed amendment without a showing of excuse for the
delay is itself a significant factor to uphold the trial court's denial of the amendment.
[Citation.]" [Citation.] "The law is also clear that even if a good amendment is proposed
in proper form, unwarranted delay in presenting it may—of itself—be a valid reason for
denial." [Citation.]' " (Emerald Bay Community Assn. v. Golden Eagle Ins. Corp. (2005)
130 Cal. App. 4th 1078, 1097, italics omitted.) "The trial court's ruling on a motion to
amend a pleading is reviewed under an abuse of discretion standard [citation], and the
appellant has the burden of establishing its discretion was abused." (Ibid.)
Here, the court was properly skeptical of Eng's proposed amendment. It was
offered during trial, after several years of litigation, and based on facts known to Eng
since he filed his initial complaint. The amendment also mirrored a theory of recovery
that Eng dismissed prior to trial, i.e., the shareholder derivative action against Brown and
Levy for breaching their duties to the corporation.
Nonetheless, the record shows that the court took Eng's proposed amendment
under submission. The court intended to rule after the completion of evidence and
41
argument, since it believed it was an equitable claim to be decided by the court. The
court was unsure what the evidence would show about the nature of Eng's injury, whether
it was primarily his personal injury or an injury to the corporation, which would
determine whether Eng could bring a direct claim or whether it could only be a
shareholder derivative suit. If the evidence showed the claim was personal to Eng, the
court's inclination was to allow the amendment. If the evidence showed the claim
belonged to the corporation, the court's inclination was to deny the amendment because
Eng had already dismissed his shareholder derivative claim.
Eng, however, changed course. In connection with his motion for directed verdict,
his counsel argued that his claims had nothing to do with B.L.E. Fish. He agreed with the
court that Eng was not asserting "a breach of fiduciary duty, minority shareholder to
majority shareholder" claim. Eng's counsel said, "I think that [defense counsel's]
argument is that once the corporation superseded the partnership in his view, there are no
more fiduciary duties owed because we didn't allege it. That I don't dispute." (Italics
added.)
The court therefore denied Eng's motion to amend. It stated, "There is no basis to
go forward with a breach of fiduciary duty claim, corporate minority shareholder to
majority shareholder, even if the two bases on which that might have been asserted
directly by an individual were established[,] given the representation now that [the]
argument is all of those fiduciary duties [were] the fiduciary duties owed as partner[s]."
Eng's counsel responded, "I guess that pretty well sums it up."
42
Under these circumstances, the court did not abuse its discretion in denying Eng's
motion to amend. Eng's amendment was presented with a years-long unexcused delay.
And, during trial, Eng disclaimed the theory underlying the proposed amendment itself.
The court was not required to allow an amendment to assert a theory that Eng's counsel
told the court he was no longer pursuing. (See Horn v. Atchison, T. & S. F. R. Co. (1964)
61 Cal. 2d 602, 605 ["Counsel, by his own statement, was authorized to make such
concessions and his client is bound thereby in the absence of fraud."].)
Resisting this conclusion, Eng appears to argue that he acquiesced in the denial of
his motion to amend because he believed the court would correctly instruct the jury on
his remaining claim for breach of partnership fiduciary duties. We fail to see the
connection between the two issues. Eng's claim based on partnership fiduciary duties
was separate from his claim based on alleged corporate fiduciary duties. If Eng wanted
to assert the latter claim, he was required to pursue his motion to amend. It appears Eng
made the tactical decision to focus on his claim based on partnership fiduciary duties and
acquiesced in the court's denial of his motion to amend to assert corporate fiduciary
duties. Eng may now regret that decision, but that is insufficient to show the court erred.
Eng contends that "[t]he facts of the misappropriation were all the same no matter
which hat the [defendants] were wearing." But the trial court was not required to grant
leave to amend, in light of the circumstances discussed above, simply because the two
breach of fiduciary duty claims shared a subset of relevant facts. Moreover, Eng ignores
the differences between the two claims, including the source and scope of the fiduciary
43
duties involved and the remedies available. The court did not err by denying Eng's
motion to amend.10
IX
Eng argues that the court erred by overruling his objection and denying his motion
to exclude the testimony of defense expert Thomas Lambert. Lambert testified about the
reasonableness of Brown and Levy's compensation and fees, as well as certain IRS
regulations governing S corporations. Eng appears to claim that the court should have
excluded Lambert's testimony as unduly prejudicial under Evidence Code section 352.
"The court in its discretion may exclude evidence if its probative value is
substantially outweighed by the probability that its admission will (a) necessitate undue
consumption of time or (b) create substantial danger of undue prejudice, of confusing the
issues, or of misleading the jury." (Evid. Code, § 352.) "The trial court's determination
of undue prejudice is subject to review under the abuse of discretion standard. [Citation.]
When weighing probative value against the danger of prejudice, a trial court is deemed to
have abused its discretion if its decision was arbitrary, capricious, or patently absurd and
10 Because Eng has not shown the court erred, his argument that the court
erroneously intended to deny him a jury trial on his proposed new claim based on
corporate fiduciary duties is moot. The court did not deny Eng a jury trial on his claim
based on corporate fiduciary duties; it did not hold a trial on that claim at all because it
denied Eng's motion to amend. We therefore need not decide whether Eng was entitled
to a jury trial on such a claim, although we note that other courts have held that a plaintiff
has no jury trial right on analogous claims. (See Central Laborers' Pension Fund v.
McAfee, Inc. (2017) 17 Cal.App.5th 292, 350; Interactive Multimedia Artists v. Superior
Court (1998) 62 Cal. App. 4th 1546, 1556.)
44
resulted in a manifest miscarriage of justice." (Phillips v. Honeywell Internat. Inc. (2017)
9 Cal.App.5th 1061, 1081.)
Eng has not shown the trial court abused its discretion. Eng primarily claims that
Lambert's testimony was not probative because it did not respond to the testimony of
Eng's expert witness. But expert testimony need not respond to another expert's
testimony in order to be relevant, probative, and admissible. (See Evid. Code, § 801.)
Eng argued at trial that Brown and Levy breached their fiduciary duties by paying
themselves excessive compensation and fees. Brown and Levy's defense was, in part,
that the compensation and fees were reasonable. Lambert's testimony was directly
relevant to this issue. Eng also claims that Lambert's testimony was prejudicial because
he testified about certain corporate formalities and regulations. But, again, this testimony
was relevant because it supported Brown and Levy's defense, i.e., that the partnership had
been superseded by the corporation, which was not a mere vehicle for the partnership
under a preincorporation agreement.
X
Eng contends the court erred by denying his ex parte request for juror contact
information under Code of Civil Procedure section 237. Although Eng has not provided
a transcript of the relevant hearing, the court's minute order states that "at the end of trial,
the Court asked jurors to stay behind to speak with counsel, if they chose, and further,
that the juror, whose contact information is being requested by way of this ex parte
application, did stay behind and plaintiff's counsel could have asked for his information
at the time."
45
Code of Civil Procedure section 237 requires that a petition seeking juror contact
information "shall be supported by a declaration that includes facts sufficient to establish
good cause for the release of the juror's personal identifying information." (Id., subd.
(b).) Good cause includes a showing that the party seeking disclosure has made a diligent
effort to contact the jurors through other means. (People v. Jones (1998) 17 Cal. 4th 279,
317; People v. Carrasco (2008) 163 Cal. App. 4th 978, 990; see Townsel v. Superior Court
(1999) 20 Cal. 4th 1084, 1094, fn. 3 (Townsel).) "We review the denial of a petition for
disclosure for an abuse of discretion." (People v. Cook (2015) 236 Cal. App. 4th 341, 346
(Cook).)
Eng has not shown the court abused its discretion. He does not address the
diligence requirement, except to say that it would render Code of Civil Procedure section
237 meaningless. We disagree. The court's inherent power to protect jurors survived the
enactment of the statute, and the diligence requirement is part of that power. (See
Townsel, supra, 20 Cal.4th at p. 1096 & fn. 4; People v. Tuggles (2009) 179 Cal. App. 4th
339, 381.) It ensures that parties take advantage of consensual interactions with jurors,
such as those following the verdict, before seeking court intervention. Further, Eng's ex
parte application showed that the jurors' names were available to him. The court's minute
order recording the jury's verdict, for example, lists each juror's first and last names. Eng
attached that minute order to his ex parte application itself. Eng has not shown that the
46
court abused its discretion in denying his ex parte application for juror contact
information based on lack of diligence.11
Moreover, even if the diligence requirement did not apply, Eng did not show good
cause to justify the disclosure of juror contact information. Eng primarily sought the
information to support his argument that the jurors were confused about the jury
instructions and the special verdict form, including the second question regarding
termination of the partnership. But any juror statements discussing such confusion would
have been inadmissible to impeach the verdict. (See Evid. Code, § 1150, subd. (a); Bell
v. Bayerische Motoren Werke Aktiengesellschaft (2010) 181 Cal. App. 4th 1108, 1125
["[J]uror declarations are inadmissible to the extent that they purport to describe the
jurors' understanding of the instructions or how they arrived at their verdict."]; Bly-Magee
v. Budget Rent-A-Car Corp. (1994) 24 Cal. App. 4th 318, 325-326 [declarations
expressing confusion regarding special verdict form held inadmissible].) Eng also
claims, in passing, that a juror committed misconduct because he provided his own
opinion of the law. But in his posttrial motion, Eng claimed only that the juror, who was
11 People v. Johnson (2013) 222 Cal. App. 4th 486, 497 disagreed that the diligence
requirement survived the enactment of Code of Civil Procedure section 237, at least in
criminal cases, because the statute provides that juror contact information must be sealed
following a criminal verdict. Johnson believed a diligence requirement would encourage
counsel to try to circumvent the sealing order. (Ibid.) Eng does not cite Johnson or
provide any cogent legal argument or other authority that the diligence requirement does
not apply here, so he has forfeited any argument in this vein. (Cahill, supra, 194
Cal.App.4th at p. 956.) Moreover, we note that the statute does not require the sealing of
juror contact information in civil cases, so the reasoning of Johnson does not necessarily
apply here. (See Code Civ. Proc., § 237, subd. (a)(2).)
47
an attorney, told his fellow jurors that "there were no partnership/joint venture k-1s or
meetings, facts which were never raised by the defendants, to show that the
partnership/joint venture never existed/terminated on incorporation." But this vague
allegation does not establish that the juror conveyed any legal principles; he stated only
the evidentiary fact that the alleged partnership had no documentation or formal
meetings. This is not misconduct. Eng's showing was therefore insufficient to constitute
good cause to release juror contact information. (See Cook, supra, 236 Cal.App.4th at p.
346 ["Good cause does not exist where the allegations of jury misconduct are speculative,
conclusory, vague, or unsupported."].)
XI
In reply, for the first time, Eng argues that the court's alleged errors constitute
structural errors that require reversal without consideration of prejudice. (See Cassim v.
Allstate Ins. Co. (2004) 33 Cal. 4th 780, 801, fn. 6; Conservatorship of Maria B. (2013)
218 Cal. App. 4th 514, 534.) For the reasons we have already discussed, Eng has not
shown the trial court committed any structural error. Eng is not entitled to reversal on
this basis.
48
DISPOSITION
The judgment is affirmed.
IRION, J.
WE CONCUR:
McCONNELL, P. J.
AARON, J.
49