Pynoos v. Massman CA2/2 ( 2014 )

Filed 10/16/14 Pynoos v. Massman CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
RITA J. PYNOOS, as Trustee, etc., et al., B249711
Plaintiffs and Appellants, (Los Angeles County
Super. Ct. No. BC480167)
v.
STEPHEN MASSMAN,
Defendant and Appellant.
APPEALS from a judgment of the Superior Court of Los Angeles County.
Ralph W. Dau, Judge. Affirmed in part, reversed in part, and remanded with directions.
Kelley Drye & Warren, Andrew M. White, Allison S. Brehm, Damaris M. Diaz,
and Joshua M. Keesan for Plaintiffs and Appellants.
Reed Smith, Bernard P. Simons, Margaret M. Grignon, Pavel Ekmekchyan,
Anne M. Grignon, and Thuy Tran for Defendant and Appellant.
Morrill Law Firm, Joseph M. Morrill, and Andrew R. Verriere for Amicus Curiae
Contra Costa Senior Legal Services on behalf of Plaintiffs and Appellants.
A limited partnership dissolves and distributes its assets. One of the limited
partnership interests is held in the name of a living trust. The trust’s sole trustee and
primary beneficiary is a 90-year-old woman. Can she sue the partnership’s general
partner for elder abuse when the trust holds the limited partnership interest? We
conclude that the trustee/beneficiary may sue for elder abuse. We also address the
parties’ remaining contentions, and conclude the punitive damages award was properly
stricken, but the jury’s award of prejudgment interest should be reinstated.
FACTS
Morris Pynoos (Morris)1 and Stephen Massman (Massman) formed the
Kingswood Village-Marina Partnership (Partnership) in 1974 to build and manage a
luxury high-rise in Marina Del Rey. Morris and Massman served as general partners, and
the Partnership added 30 or so limited partners as capital investors. A few years in,
Massman and Morris also became limited partners when they invested additional capital.
By 2002, Morris no longer held any of his interest in the Partnership in his own
name. He gave away 3.6 percent of his limited partnership interest, 1.8 percent to each of
his sons, plaintiffs Jonathon Pynoos (Jonathon) and Robert Pynoos (Robert). He
transferred the remainder—his 10 percent general partnership interest and a 4.4 percent
limited partnership interest—into a living trust. When Morris died in 2002, his
10 percent general partnership interest converted to a limited partnership interest. The
resulting 14.4 percent limited partnership interest was held in the trust’s name. Morris’s
elderly widow, plaintiff Rita Pynoos (Rita), became the sole trustee and primary
beneficiary of the trust.
In 2004, the Partnership sold the high-rise, its sole asset, for a nearly $60 million
profit. Because some of the partners agreed to payment in the new owners’ stock rather
than cash, the net cash profit came to approximately $50 million. Massman, as the
1 Because several members of the Pynoos family are involved in this case, we use
first names; no disrespect is intended.
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remaining general partner, spent the next six years winding down the Partnership. The
Partnership distributed cash to its partners in 2004, 2008, and 2010.
The Partnership Agreement (Agreement) laid out how annual profits and losses, as
well as proceeds from the sale of the building, were to be allocated and distributed to the
partners. Annual profits and losses were to be allocated and distributed according to each
partner’s proportional interest in the partnership (the so-called “fractional interest”).
Proceeds from the sale of property were to be allocated and distributed in a two-step
process: The first step looked to the balance of each partner’s “capital account,” which
was a mechanism used to keep track of each partner’s deposits and withdrawals of capital
as well as profits and losses allocated to that partner; the second step looked to fractional
interest.
Massman did not follow the Agreement when distributing the proceeds from the
building sale; instead, he relied solely upon fractional interest. This yielded a total
distribution of $8.25 million to the trust, and $1.03 million to each Jonathon and Robert.
But by skipping the first step, the trust was shortchanged $233,072; Jonathon, $60,842;
and Robert, $60,841. Massman received $243,941 too much.
PROCEDURAL HISTORY
Rita, as trustee for and primary beneficiary of the trust, and her sons (collectively,
plaintiffs) sued Massman. Among other claims, they sued for breach of contract, breach
of fiduciary duty, elder abuse, and fraud.
Plaintiffs alleged that Massman committed financial elder abuse by wrongly
retaining Rita’s property when he did not pay the trust what it was due under the
Agreement. The trial court sustained a demurrer to this claim without leave to amend
because, in its view, plaintiffs were unable to allege that Massman retained the “personal
property of an elder.”
Plaintiffs also alleged that Massman defrauded them by misleading them into
thinking he was complying with the Agreement, which caused them not to review the
Partnership’s books or seek to appoint a receiver sooner. The trial court sustained a
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demurrer to this claim without leave to amend because plaintiffs never alleged how the
delay in requesting an audit or a receiver damaged them.
The case went to trial on plaintiffs’ claims of breach of contract and breach of
fiduciary duty.
On the breach of contract claim, Massman did not dispute his noncompliance with
the Agreement. Instead, he presented evidence and argued that his noncompliance was
justified by (1) the Partnership’s prior practice of making distributions solely by
fractional interest, and (2) the impropriety of looking to plaintiffs’ capital account
balances. Massman thought these balances, which were derived from Morris’s limited
partnership interest, were “out of whack” because Morris’s later-created interest never
took the tax write-off that all the originally created interests had taken.
On the breach of fiduciary duty claim, plaintiffs presented evidence and argued
that Massman did not follow the Agreement and received a bigger distribution than he
should have; Massman considered more than one possible way to make the 2008
distribution and chose the one that most favored him; and Massman filed a lawsuit in
2009 on behalf of the Partnership and allocated the cost of that suit to the four limited
partners who had positive capital account balances (including plaintiffs), even though the
lawsuit helped only those partners who took payment in the new owner’s stock.
The jury was instructed on these two theories, on its discretion to award
prejudgment interest as to both, and on punitive damages. The jury found for plaintiffs
on both claims; awarded compensatory damages equaling what plaintiffs would have
received had the Agreement been followed; awarded prejudgment interest; and found that
Massman’s acts were malicious, oppressive, and/or fraudulent. After a brief, second
phase, the jury awarded punitive damages of $500,000 to the trust, and $250,000 to each
Jonathon and Robert.
Following trial, the trial court partially granted Massman’s motion for judgment
notwithstanding the verdict. The court affirmed the breach of contract and breach of
fiduciary duty verdicts, but overturned the jury’s award of punitive damages and
prejudgment interest.
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The court vacated the punitive damages award for two reasons—one legal, the
other evidentiary. Concluding that the breach of fiduciary duty claim presented at trial
was “all based upon” Massman’s breach of the Agreement, the court ruled that punitive
damages were barred by Civil Code section 3294, subdivision (a)’s requirement that such
damages “not aris[e] from contract.” The court also found insufficient evidence of
malice, oppression, or fraud.
The court vacated the prejudgment interest award because, in its view, the jury’s
award rested solely on Civil Code section 3288. Because section 3288 only authorizes
prejudgment interest for claims not based in contract, the court’s finding that plaintiffs’
claims were contract-based meant that the interest award was unauthorized.
Everyone appealed.
DISCUSSION
Plaintiffs’ Appeal
I. Demurrers
Our task in reviewing an order sustaining a demurrer without leave to amend is
twofold: We ask “whether the complaint states facts sufficient to constitute a cause of
action,” and “whether there is a reasonable possibility that the defect can be cured by
amendment.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
A. Elder Abuse
Elders (or their heirs) may sue those who take advantage of them for “financial
abuse.” (Welf. & Inst. Code, § 15610.30.) “Financial abuse” of an “elder” occurs when
a person (1) “[t]akes, secretes, appropriates, obtains, or retains,” (2) the “real or personal
property of an elder,” (3) “for a wrongful use or with intent to defraud, or both.” (Id.,
§ 15610.30, subd. (a)(1).) A plaintiff satisfies the first two elements by showing that she
was “deprived of any property right . . . regardless of whether the property is held
directly or by a representative of an elder.” (Id., § 15610.30, subd. (c), italics added.) A
“representative” is defined as a person who is “[a] conservator, trustee, or other
representative of the estate of an elder” or “[a]n attorney-in-fact of an elder.” (Id.,
§ 15610.30, subd. (d).)
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Rita contends that the distributions Massman wrongfully retained were her
“personal property,” even though they were held in the name of the living trust of which
she was the sole trustee and primary beneficiary. The trial court disagreed, and drew a
distinction between Rita and the trust. We agree with Rita.
Living trusts are express trusts (e.g., Keitel v. Heubel (2002) 103 Cal.App.4th 324,
337; Estate of Heggstad (1993) 16 Cal.App.4th 943, 947-948), and “‘an ordinary express
trust is not an entity separate from its trustees’” (Presta v. Tepper (2009) 179
Cal.App.4th 909, 914, quoting Powers v. Ashton (1975) 45 Cal.App.3d 783, 787; Ziegler
v. Nickel (1998) 64 Cal.App.4th 545, 548). Rather, the trust represents “‘a fiduciary
relationship with respect to property.’” (Moeller v. Superior Court (1997) 16 Cal.4th
1124, 1132 & fn.3, quoting Rest.2d Trusts, § 2, p. 6.) This is why elders who are duped
into exercising their power as trustees to transfer trust property to a fraudster can sue that
fraudster for elder abuse. (See, e.g., Bounds v. Superior Court (2014) 229 Cal.App.4th
468, 473-474, 478-480 (Bounds) [elder abuse claim to cancel agreement, made by an
elder acting as trustee, to sell trust assets]; Teselle v. McLoughlin (2009) 173 Cal.App.4th
156, 164-165, 173-175 [elder abuse claim to recover trust assets transferred by an elder
acting as trustee]; Wood v. Jamison (2008) 167 Cal.App.4th 156, 158-165 [same]; Estate
of Lowrie (2004) 118 Cal.App.4th 220, 225-226 (Lowrie) [same].) If this were not the
rule, elders who elect to use living trusts as an estate planning tool would forfeit their
ability—and the ability of their heirs—to pursue elder abuse claims should the elders be
manipulated into transferring property out of the trust and into an abuser’s pocket.
Massman disputes this analysis. He contends that property held in trust may only
be treated as the “personal property” of an elder if the trust is revocable, and the trust and
the elder are one and the same (ostensibly when the elder is the trustee and sole
beneficiary). Whether the trust is revocable or irrevocable is irrelevant in this case.
Although a trustee of an irrevocable trust could not be swindled into transferring away
the corpus of that trust (because she would lack the power to do so [Empire Properties v.
County of Los Angeles (1996) 44 Cal.App.4th 781, 787]), Massman is alleged to have
withheld property from the trust. That can occur no matter what power the trustee has to
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control the trust corpus. Nor is there insufficient identity in this case, where Rita is both
the sole trustee and the primary beneficiary of the trust. More broadly, the distinctions
Massman asks us to draw are fine ones that appear nowhere in the text of the elder abuse
statute and are at odds with the statute’s overarching purpose to “enable interested
persons to engage attorneys to take up the cause of abused elderly persons.” (Welf. &
Inst. Code, § 15600, subd. (j).)
We are unpersuaded by the remaining arguments in support of the trial court’s
ruling. The court offered a second rationale in support of dismissal—namely, that Rita’s
entitlement to the distributions was too speculative and contingent to be considered her
property until she prevailed in a lawsuit establishing Massman’s underpayment. To be
sure, a plaintiff must have a sufficiently definite interest in the property allegedly taken to
sue for elder abuse. (E.g., Johnston v. Allstate Ins. Co. (S.D. Cal. May 23, 2013) 2013
U.S. Dist. LEXIS 73424, *10-*11.) Thus, property rights that spring into existence only
upon the happening of an event (ibid. [entitlement to insurance proceeds contingent upon
happening of covered event]), or that can be unilaterally divested by another (Estate of
Giraldin (2012) 55 Cal.4th 1058, 1065-1066 [expectation of inheritance from fully
revocable living trust]) are too speculative to support an elder abuse claim. But Morris’s
death rendered the living trust in this case irrevocable, and at that point Rita’s interest as
sole trustee and primary beneficiary became definite enough to support her claim.
(Accord, Bounds, supra, 229 Cal.App.4th at pp. 479-482 [challenge to executed but
unconsummated escrow instructions sufficiently definite]; cf. Estate of Giraldin, supra,
55 Cal.4th at pp. 1065-1066.) Further, we see no reason for an elder abuse plaintiff to
bring two lawsuits—one to establish entitlement to property, and a second to enforce the
loss of that property as elder abuse—when both issues can be litigated in a single suit.
Massman proffers four other reasons why we should affirm. He asserts that
Welfare and Institutions Code section 15610.30 forecloses our reading of the statute.
Section 15610.30, he argues, only allows an elder to sue when property is held by her
“directly or by [her] representative” (Welf. & Inst. Code, § 15610.30, subd. (c)), italics
added), and defines “representative” as persons acting on behalf of a deceased or
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incompetent elder (id., § 15610.30, subd. (d)). Because an elder acting as the trustee of a
living trust is both competent and alive, Massman concludes, she is not the same type of
“representative” contemplated by section 15610.30. (See Sierra Club v. Superior Court
(2013) 57 Cal.4th 157, 169 [admonishing courts not to construe ambiguous terms in a list
in a manner “‘markedly dissimilar to the other items in the list’”], quoting Moore v.
California State Bd. of Accountancy (1992) 2 Cal.4th 999, 1011-1012.) The meaning of
“representative” is beside the point because, as explained above, Rita’s dual role as
trustee and primary beneficiary means that she possesses the limited partnership interest
“directly.”
Massman next contends that Rita’s claim is outside the heartland of misconduct
the elder abuse statute was designed to deter. He asserts that the statute is aimed at
protecting elderly who are infirm or dependent, and thus “vulnerable” (Lowrie, supra,
118 Cal.App.4th at p. 226), and was not meant to apply to persons—like Rita—who are
sophisticated, wealthy investors with a business dispute. But the statute’s plain language
does not exempt from its reach claims brought by the wealthy or claims involving
business disputes, and courts have declined to create such exceptions. (E.g., Bonfigli v.
Strachan (2011) 192 Cal.App.4th 1302, 1315 [“[t]he statutory provisions are not limited
to . . . persons of limited financial means”]; id. at p. 1316 [claim arising out of a breach of
contract stated “skeletal claim” for elder abuse]; accord, Wood v. Santa Monica Escrow
Co. (2007) 151 Cal.App.4th 1186 [case involving elder abuse and breach of contract
arising from same transaction].) We also decline to do so.
Massman further argues that plaintiffs did not sufficiently plead, and can never
prove, that he made “wrongful use” of the withheld distributions. While specificity is
required for statutory causes of action (Covenant Care, Inc. v. Superior Court (2004) 32
Cal.4th 771, 790), plaintiffs alleged “wrongful use” and incorporated the operative
complaint’s general allegations that set forth how Massman made distributions to
plaintiffs’ detriment and his benefit. For purposes of pleading, that suffices. Massman’s
further argument that he may later be able to prove that Agreement immunized him from
liability is irrelevant to the demurrer.
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Massman lastly asserts that we lack jurisdiction to review this issue because the
trial court sustained the demurrer against Rita in her individual capacity and as trustee,
but only entered judgment against Rita as trustee. As noted above, the trust is not a
separate entity from Rita. More to the point, the trial court’s ruling on the elder abuse
claim was final, as it left “no issue . . . for further consideration.” (Breslin v. City and
County of San Francisco (2007) 146 Cal.App.4th 1064, 1074.)
Rita’s elder abuse claim must accordingly be reinstated. Because, as explained
below, we affirm the trial court’s ruling overturning the punitive damages for insufficient
evidence, our ruling is law of the case and precludes such damages on the elder abuse
claim. (Bank of America v. Superior Court (1990) 220 Cal.App.3d 613, 623-624
[sufficiency-of-evidence ruling on appeal is law of the case on remand].) Any other
outcome would improperly “afford[] plaintiffs a second chance to prove their case which
they would not have had if the trial court had acted correctly.” (Id. at p. 625.)
B. Fraud
An “essential” element of any fraud claim is that “the person complaining of fraud
actually have relied on the alleged fraud, and suffered damages as a result.” (City of
Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445,
482.) Put differently, there must be a “nexus between the alleged fraudulent [conduct] by
[the defendant] and the economic harm [the plaintiffs] have suffered.” (Bank of America
Corp. v. Superior Court (2011) 198 Cal.App.4th 862, 873.)
Plaintiffs alleged that Massman’s misrepresentations and omissions caused them
not to request an audit or appointment of a receiver at some earlier but unspecified point
in time. Though plaintiffs received five opportunities to allege their fraud claim,
including an attempt after the sustaining of a demurrer with leave to amend, they never
alleged how they were damaged by their delayed action. The trial court concluded that
the required nexus was missing, and sustained the demurrer without leave to amend. We
agree.
It is undisputed that plaintiffs eventually conducted their audit and brought this
lawsuit to recover the full amount of under-distribution. Plaintiffs assert that they might
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have been able to stop some of the later misallocations before they happened. This
lawsuit enables them to be made whole, so there appears to be no damage from the delay,
and that is the sole harm alleged in their fraud claim. We concur with the trial court that
further amendment would be futile.
II. Posttrial Motions
We review a trial court’s grant of judgment notwithstanding the verdict de novo if
it is based upon purely legal questions, and for substantial evidence if it challenges the
sufficiency of evidence presented at trial. (Hasso v. Hapke (2014) 227 Cal.App.4th 107,
119 (Hasso).) When undertaking substantial evidence review, we assess whether the
judgment is supported by “evidence which is reasonable, credible, and of solid value”
and resolve all conflicting evidence and credibility calls in favor of the verdict. (In re
I.R. (2014) 226 Cal.App.4th 201, 211.) We may strike punitive damages (or affirm a trial
court’s order striking them) if they were awarded in error. (Crogan v. Metz (1956) 47
Cal.2d 398, 405 (Crogan).)
A. Punitive Damages
1. Arising Out of Contract
Punitive damages may be awarded against a defendant who acts with “oppression,
fraud, or malice,” but only if the defendant has “breach[ed] . . . an obligation not arising
from contract.” (Civ. Code, § 3294, subd. (a), italics added.) This language draws a firm
line between torts and contracts (Erlich v. Menezes (1999) 21 Cal.4th 543, 550-551
(Erlich); Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 514-
516; accord, Ward v. Taggart (1959) 51 Cal.2d 736, 743), and authorizes punitive
damages for the former but prohibits them in the latter—even if the breach of contract is
“‘“willful, fraudulent, or malicious”’” (Cates Construction Inc. v. Talbot Partners (1999)
21 Cal.4th 28, 61 (Cates Construction); Crogan, supra, 47 Cal.2d at p. 405), or “in bad
faith” (Brewer v. Premier Golf Properties, LP (2008) 168 Cal.App.4th 1243, 1252
(Brewer)).
Defining contract actions and tort actions is relatively simple: Contract actions
“enforce the intentions of the parties to [an] agreement,” while tort actions are “primarily
10
designed to vindicate ‘social policy.’” (Foley v. Interactive Data Corp. (1988) 47 Cal.3d
654, 683.) Distinguishing between them can be far more difficult, particularly where—as
here—the defendant’s alleged conduct can constitute both a breach of contract and the
tort of breach of fiduciary duty. (Enea v. Superior Court (2005) 132 Cal.App.4th 1559,
1564 (Enea); Kangarlou v. Progressive Title Co., Inc. (2005) 128 Cal.App.4th 1174,
1178.) Maintaining the line between contract and tort is nevertheless critical if Civil
Code section 3294’s limitation is to have any meaning. (Erlich, supra, 21 Cal.4th at
p. 551 [noting importance of resisting “pressure to obliterate the distinction between
contracts and torts”].)
Where a particular set of facts can qualify as—and is alleged to be—both a
contract and a tort, the availability of punitive damages turns on whether the claim is, at
bottom, “based on” a breach of contract or a breach of an independent legal duty that
gives rise to the tort. (Brewer, supra, 168 Cal.App.4th at p. 1252; Arthur L. Sachs v. City
of Oceanside (1984) 151 Cal.App.3d 315, 322 [looking to “the nature of the right sued
upon”]; Voth v. Wasco Public Util. Dist. (1976) 56 Cal.App.3d 353, 356 [looking to the
“quintessence of the action”]; Brockway v. Heilman (1967) 250 Cal.App.2d 807, 812
[looking to “the gravamen of an action”].)
Where a lawsuit is primarily grounded in the commission of an independent tort,
the fact that the defendant’s conduct also breaches a contract between the parties will not
preclude punitive damages; in that situation, the contract is “incidental” to the tort.
Consequently, courts have upheld punitive damages awards where the defendant
wrongfully converted joint venture assets (Foster v. Keating (1953) 120 Cal.App.2d 435,
445, 454-455); committed fraud in the inducement of a contract (Squire’s Dep’t Store,
Inc. v. Dudum (1953) 115 Cal.App.2d 320, 324); set up a competing business while
acting as corporate officer (Sequoia Vacuum Systems v. Stransky (1964) 229 Cal.App.2d
281, 286-289); threatened to resign as trustee of a retirement fund unless investors
invested in its own stock (Vale v. Union Bank (1979) 88 Cal.App.3d 330, 334-335, 339);
or engaged in unfair competition by soliciting a former employer’s customers (Southern
California Disinfecting Co. v. Lomkin (1960) 183 Cal.App.2d 431, 451). (See also
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William L. Lyon & Associates, Inc. v. Superior Court (2012) 204 Cal.App.4th 1294,
1311-1312 [broker owes client fiduciary duty irrespective of contract; punitive damages
recoverable].)
But where the gist of the action is the defendant’s noncompliance with the terms
of a contract (e.g., Doyle v. Chief Oil Co. (1944) 64 Cal.App.2d 284, 295 [misallocation
of royalties under contract; no punitive damages]), punitive damages are barred by Civil
Code section 3294. The sole exception to this principle involves courts treating the
breach of the covenant of good faith and fair dealing as a tort for which punitive damages
may be recovered. Because this is a “major departure” from the general rule and risks
becoming an exception that swallows the rule, courts have confined such recovery to
insurance policy contracts (Cates Construction, supra, 21 Cal.4th at pp. 34-35, 41-46);
pension contracts between employers and employees (Hannon Engineering, Inc. v. Reim
(1981) 126 Cal.App.3d 415, 425-427); and other adhesion contracts where the parties
have a disparity in bargaining power (id. at p. 426). Contracts involving investors fall
outside this narrow exception. (Trs. of Capital Wholesale Elec. Etc. Fund v. Shearson
Lehman Bros. (1990) 221 Cal.App.3d 617, 625-626.)
In this case, plaintiffs’ fiduciary duty claim is based upon Massman’s breach of
the Agreement. Plaintiffs argued to the jury that Massman breached his “fiduciary duty
. . . to follow the terms of the partnership agreement.” Moreover, the damages they
sought were identical to those they sought for breach of contract—namely, the
distributions to which they were entitled under their interpretation of the Agreement.
Plaintiffs offer three arguments in response. First, they contend that they
presented evidence that Massman engaged in “self-dealing” because he personally
benefitted from the fractional interest-based distribution and because he misallocated the
legal costs of the 2009 lawsuit to the limited partners having a positive capital account
balance. But these claims of self-dealing do not state the violation of an independent tort
duty. Indeed, they have meaning (and are actionable) only by reference to the
Agreement. Plaintiffs’ reliance on Bardis v. Oates (2004) 119 Cal.App.4th 1 is unhelpful
because that case did not pass on the propriety of punitive damages. (Id. at p. 16.) Nor is
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it significant that Massman benefitted from the breach of contract. If a defendant’s
personal benefit were enough to transform a breach of contract into an actionable tort, the
line between contract and tort would no longer exist. Second, plaintiffs point to the
Nevada Supreme Court’s decision in Clark v. Lubritz (Nev. 1997) 113 Nev. 1089. Clark
held that “the breach of a fiduciary duty arising from [a] partnership agreement is a
separate tort upon which punitive damages may be based.” (Id. at p. 1098.) As explained
above, the law in California is different. Lastly, plaintiffs assert that foreclosing punitive
damages in this case would foreclose such damages in all cases involving a breach of
fiduciary duty if a contract is in any way involved. We disagree, as we are doing no more
than applying the longstanding rule and agreeing with the trial court that the contract in
this case is not “incidental.”
2. Sufficiency of the Evidence
The trial court alternatively ruled that plaintiffs had not adduced sufficient
evidence to support an award of punitive damages. Any such award is predicated upon a
finding that the defendant “has been guilty of oppression, fraud, or malice.” (Civ. Code,
§ 3294, subd. (a).) “Malice” is intentional conduct aimed at causing injury or “despicable
conduct . . . carried on . . . with a willful and conscious disregard of the rights or safety of
others.” (Id., § 3294, subd. (c)(1).) “Oppression” is “despicable conduct” that subjects a
person to “cruel and unjust hardship in conscious disregard of that person’s rights.” (Id.,
§ 3294, subd. (c)(2).) “Fraud” reaches intentional misrepresentations or omissions aimed
at depriving a person of property. (Id., § 3294, subd. (c)(3).) Although a plaintiff must
make this showing by clear and convincing evidence at trial, that elevated burden drops
out of the equation when we evaluate the sufficiency of evidence on appeal. (E.g., In re
Marriage of E. & Stephen P. (2013) 213 Cal.App.4th 983, 989-990.) We apply the usual
standard discussed above.
Plaintiffs argue that the jury’s finding that Massman acted with malice,
oppression, or fraud is justified by several acts. They contend that Massman’s
distributions benefited him at plaintiffs’ expense. But that establishes at most a breach of
contract or breach of fiduciary duty, neither of which is enough by itself to support a
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punitive damages award. (Civ. Code, § 3294, subd. (a) [no punitive damages in contract
cases]; Flyer’s Body Shop Profit Sharing Plan v. Ticor Title Ins. Co. (1986) 185
Cal.App.3d 1149, 1154 [“[A] breach of a fiduciary duty alone . . . does not permit an
award of punitive damages.”].) Plaintiffs assert that Massman looked at two spreadsheet
proposals for the 2008 distribution and chose the one that benefited him more. Relatedly,
plaintiffs posit that Massman did not produce these spreadsheets in discovery. These
points add little, if anything, to the first argument and fall short of the type of “despicable
conduct” contemplated by Civil Code section 3294. Plaintiffs lastly assert that Massman
engaged in fraud by promising Robert and Jonathon, in a 2007 letter, that he would
distribute to them the full balance of their capital accounts. But the letter refers to
distributions of “remaining undistributed capital [attributable to each brother],” and says
nothing about “capital accounts.”
Our independent review of the trial transcript confirms the propriety of the trial
court’s ruling. Massman did not follow the Agreement and, on balance, gave himself
more than if he had followed the Agreement, but he sometimes under-distributed to
himself. The jury rejected Massman’s excuses and found that he deprived plaintiffs of
their fair share. However, the record does not support the finding that his conduct was
malicious, oppressive, or fraudulent within the meaning of punitive damages law.2
B. Prejudgment Interest
A party who suffers injury can sometimes recover interest on the damages suffered
starting from the date of the injury rather than the date judgment is entered. (Civ. Code,
§§ 3287, 3288.) This entitlement hinges on the nature of the underlying injury. For
contract-based claims, prejudgment interest may be awarded as long as the damages are
“liquidated.” (Civ. Code, § 3287, subd. (b); Jamison v. Jamison (2008) 164 Cal.App.4th
714, 721.) For noncontract claims, prejudgment interest may be awarded even on
2 In this light of ruling, we need not decide whether the size of the punitive damages
award exceeded constitutional limits.
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unliquidated damages. (Civ. Code, § 3288; Canavin v. Pac. Southwest Airlines (1983)
148 Cal.App.3d 512, 524-525.)
In this case, the trial court said it was compelled to vacate the jury’s award of
prejudgment interest by virtue of its ruling that plaintiffs’ breach of fiduciary claim was,
in effect, a contract claim; in the court’s view, the jury’s interest award was tied solely to
the breach of fiduciary damages. We disagree.
To begin, the jury awarded interest on both the contract and breach of fiduciary
duty claims. The jury was instructed that it could award judgment for each claim
individually. But as to prejudgment interest, the verdict form included a single, unified
question following questions regarding liability and damages for each individual claim.
We have no basis to infer that the jury awarded prejudgment interest on one claim and
not the other.
Moreover, the jury’s award of prejudgment interest on the contract claim was
proper. Contract damages are “liquidated” if they are “certain, or capable of being made
certain by calculation.” (Civ. Code, § 3287, subd. (a); Worthington Corp. v. El Chicote
Ranch Properties, Ltd. (1967) 255 Cal.App.2d 316, 322 (Worthington Corp.).) If the
amount of damages arising from a contract breach is contested and can only be resolved
by resort to a trier of fact, the damages are not “liquidated.” (Polster, Inc. v. Swing
(1985) 164 Cal.App.3d 427, 434.) Here, plaintiffs’ contract damages were liquidated
because they could be “capable of being made certain by calculation.” (Ibid.) Plaintiffs
were able to consult the Agreement to calculate precisely how much they were underpaid.
(Accord, Pluth v. Smith (1962) 205 Cal.App.2d 818, 826-827 [awarding prejudgment
interest in a partnership accounting case].) Tellingly, Massman did not at trial contest
plaintiffs’ calculation.
Massman defends the trial court’s ruling on three grounds. He first argues that
plaintiffs waived the issue by not seeking prejudgment interest on their contract claim.
There was no waiver. The jury was instructed on this theory, and plaintiffs raised it in
their posttrial papers. Massman further asserts that only a court may award prejudgment
interest in a contract case, and here the jury did so. This argument finds no support in
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section 3287 or the case law. (See Worthington Corp., supra, 255 Cal.App.2d at p. 327.)
Massman finally argues that the damages were contested (and thus not liquidated), but
cites evidence contesting his liability. “Uncertainty as to liability is irrelevant” to the
propriety of prejudgment interest. (Howard v. American National Fire Ins. Co. (2010)
187 Cal.App.4th 498, 535.)
We accordingly reinstate the prejudgment interest award.
Massman’s Cross-appeal
Massman argues that the trial court erroneously declined to direct verdicts for him
on the breach of contract and breach of fiduciary duty claims.
I. Breach of Contract Claim
Massman concedes he did not adhere to the Agreement’s terms when making
distributions. Instead, he argues that he had good reasons for doing so that preclude a
finding that he breached the contract that he otherwise admits not following.
Some of these reasons were presented to—and implicitly rejected by—the jury. In
particular, Massman presented evidence that (1) the capital account balances and
fractional interests were “out of whack” (although evidence as to why was not admitted);
(2) adhering to the Agreement by reference to capital account balances would have given
plaintiffs more than their fair share; (3) the Partnership made all previous distributions by
fractional interest (although none called for resort to capital account balances under the
Agreement); and (4) Massman was at most negligent, and thus immune from personal
liability under the Agreement. The jury heard evidence on all four issues, and was
specifically instructed on the Agreement’s immunity provision. Because “contradicted
evidence” is still substantial evidence (Hasso, supra, 227 Cal.App.4th at 119), we decline
Massman’s invitation to reweigh the evidence.
Massman argues for the first time on appeal that the limited partners all agreed to
modify the Agreement by virtue of a 2002 letter that used a fractional interest-based
example when explaining how proceeds from the sale of the building would be
distributed. Although the letter was mentioned during the trial, the trial court did not
permit Massman to argue that the letter amended the Agreement. This ruling was not
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erroneous. The Agreement spelled out how it was to be amended, and these procedures
had been followed with each of the Agreement’s three formal amendments. The 2002
letter did not satisfy these procedures; at most, it established the limited partners’
permission to sell the building.
II. Breach of Fiduciary Duty Claim
Plaintiffs are correct that general partners owe limited partners a fiduciary duty.
(Enea, supra, 132 Cal.App.4th at p. 1564.) But, as we note above, plaintiffs’ fiduciary
duty claim is grounded in Massman’s breach of the Agreement. Because plaintiffs’ claim
rests on “‘an agreement between the parties [and] not an obligation imposed by law [in]
the absence of any such agreement’” (Brewer, supra, 168 Cal.App.4th at p. 1251), it
cannot stand. Massman is entitled to a directed verdict on this claim.
DISPOSITION
For these reasons, the order sustaining the demurrer to plaintiffs’ elder abuse claim
is reversed. The trial court is directed to reinstate that claim and to conduct further
proceedings in accordance with this opinion. In all other respects the order sustaining the
demurrer is affirmed. The judgment’s award of compensatory damages on the breach of
contract claim is affirmed; the award of compensatory damages on the breach of
fiduciary duty claim is reversed, and judgment is to be directed for Massman on that
claim. The trial court’s order striking the jury’s award of punitive damages is affirmed.
The order striking the jury’s award of prejudgment interest is reversed and the trial court
is directed to reinstate the jury’s award. Parties are to bear their own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
HOFFSTADT, J.
We concur:
BOREN, P. J. CHAVEZ, J.
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