Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. EC036378, Charles W. Stoll, Judge.
Law Offices of David Drexler and David Drexler for Plaintiffs, Cross-defendants and Appellants.
Michael P. Rubin & Associates and Michael P. Rubin for Defendants, Cross-complainants and Appellants.
KLEIN, P. J.
Plaintiffs, cross-defendants and appellants Sarkis Gumrikyan, Sedrak Gumrikyan and Stepan Gumrikyan (the Gumrikyans or plaintiffs) appeal a judgment of the trial court entered on December 4, 2006.
Defendants, cross-complainants and appellants Khachik Kesheshyan, Hamlet Derhovanessian, Sedrak Kesheshyan and Khachik Toomanyan (collectively, defendants) cross-appeal from the judgment.
At various places in the record, the names of the parties are spelled differently. For consistency, we utilize the spellings set forth above.
The essential issue presented on appeal is the sufficiency of the evidence to support the trial court’s finding of an oral partnership agreement. The issues on cross-appeal relate to the trial court’s approval of certain items in the receiver’s final account.
We perceive no error in the trial court’s decision following trial, which found the existence of a partnership and ordered an accounting. However, in the subsequent phase of the proceedings, the trial court abused its discretion in approving certain aspects of the receiver’s final account. Therefore, the judgment is affirmed in part, reversed in part and remanded with directions.
FACTUAL AND PROCEDURAL BACKGROUND
1. Pleadings.
Here, plaintiffs’ appeal in essence is a challenge to the sufficiency of the evidence to support the trial court’s finding of an oral partnership agreement. Therefore, we begin with a discussion of the doctrine of judicial admissions. Thereafter, we set forth in some detail the allegations of plaintiffs’ complaint, which admitted the existence of an oral partnership agreement.
a. The doctrine of judicial admissions.
The admission of a fact in a pleading is a judicial admission. (Valerio v. Andrew Youngquist Construction (2002) 103 Cal.App.4th 1264, 1271 (Valerio).) The doctrine of judicial admissions is not limited to verified complaints, but applies to unverified complaints as well. (Reichert v. General Ins. Co. (1968) 68 Cal.2d 822, 836-837.) The admission of a fact in a pleading is conclusive on the pleader. The pleader cannot offer contrary evidence unless permitted to amend, and a judgment may rest in whole or in part upon the admission without proof of the fact. (4 Witkin, Cal. Procedure (4th ed. 1997) Pleading, § 415, p. 512.)
To quote Justice Corrigan in Valerio, supra, 103 Cal.App.4th at p. 1271: “The law on this topic is well settled by venerable authority. Because an admission in the pleadings forbids the consideration of contrary evidence, any discussion of such evidence is irrelevant and immaterial. [Citation.] ‘ “When a trial is had by the Court without a jury, a fact admitted by the pleadings should be treated as ‘found.’. . . If the court does find adversely to the admission, such finding should be disregarded in determining the question whether the proper conclusion of law was drawn from the facts found and admitted by the pleadings. . . . In such case the facts alleged must be assumed to exist. Any finding adverse to the admitted facts drops from the record, and any legal conclusion which is not upheld by the admitted facts is erroneous.” [Citations.]’ [Citation.]” (Italics added.)
b. Plaintiffs’ complaint alleged the existence of an oral partnership agreement and that the four defendants had breached the agreement by failing to contribute their respective one-seventh shares to purchase and improve the property; the complaint further alleged title was taken solely in the name of Sarkis Gumrikyan because defendants had bad credit.
On May 27, 2003, the three plaintiffs, the Gumrikyans, filed the operative first amended unverified complaint against the four defendants. The complaint pled in pertinent part: In November 2000, “[d]efendants, and each of them, entered into a business venture with plaintiffs to develop a large banquet hall. Defendants, and each of them, agreed to pay an equal percentage of all costs incurred in the purchase and renovation of the property generally described as Caesars Banquet Hall [in Tujunga]. Defendants did not, nor did they ever, intend to pay their percentage of the costs associated with the development of the banquet hall. By false promises to pay their share of the funding, defendants intended to, and did, induce plaintiffs into funding and/or financing virtually the entire costs associated with the development of the banquet hall. Defendants, and each of them, have refused to pay their one seventh share of the expenses incurred.” (Italics added.)
Plaintiffs further pled: because the defendants “had bad credit, plaintiff Sarkis Gumrikyan obtained a loan and purchase[d] the property himself.” (Italics added.) Of the total of $1,873,304 of costs incurred in the development of Caesars, plaintiffs paid or incurred over 83 percent of that sum. Defendants, despite plaintiffs’ requests, refused to come up with their share of the costs and expenses. After completion of the remodel, defendants seized complete control of the business and refused to pay plaintiffs their share of the profits.
Based on these allegations, plaintiffs, in the first cause of action, sought an accounting and an order compelling defendants to produce all financial records.
The second cause of action was for rescission. “43. Plaintiffs have, as described herein, fully performed as required by the oral agreement entered into with defendants regarding Caesar’s Banquet Hall. Defendants, and each of them, have failed, as described herein, to perform as required by their oral contract with plaintiffs. [¶] 44. Plaintiffs request that their oral contract with defendants regarding Caesar’s Banquet Hall be rescinded and that plaintiffs be released of any obligation to defendants.” (Italics added.)
The third cause of action also sought rescission based on defendants’ failure to “provide the consideration agreed upon as the basis for plaintiffs entering into said oral contract with defendants.” (Italics added.)
The sixth cause of action pled tortious interference with prospective business advantage.
The seventh cause of action sought dissolution of partnership. The pleading alleged: “54. Plaintiffs, and at all times herein mentioned, were general partners. [¶] 55. Defendants, at all times herein mentioned, were intended to be general partners in a partnership with plaintiffs with the Caesars Banquet Hall business.” (Italics added.) Plaintiffs alleged defendants “have knowingly been unfair toward plaintiffs,” and requested a dissolution and winding up of the partnership’s affairs.
Lastly, plaintiffs pled a cause of action for money lent.
c. The cross-complaint.
Khachik Kesheshyan, Sedrak Kesheshyan, Khachik Toomanyan and Hamlet Derhovanessian filed a cross-complaint against the Gumrikyans. The operative second amended cross-complaint set forth, inter alia, causes of action for fraud, conversion and breach of fiduciary duty. In addition to money damages, the cross-complaint sought declaratory relief and an accounting.
2. Proceedings.
The matter was tried to the court sitting without a jury. On July 16, 2004, the trial court issued a statement of decision, ruling as follows:
On the threshold issue of the existence of partnership, the trial court found there was a contract among the seven individuals, namely, the three Gumrikyans and the four defendants. “The terms of the contract were that these individuals would form a partnership for the operation of a banquet hall and that the parties would share the assets, profits and losses equally. The evidence shows that the asset was title to a banquet hall, Caesar’s, and the profits or losses derived from the operation of Caesar’s.” The trial court also observed the inclusion by plaintiffs of a cause of action for dissolution of partnership “implies the existence of a partnership between the parties.”
The trial court further found that although the partnership agreement was oral, the doctrine of promissory estoppel applied. “The Court finds the defendants substantially changed their position in reliance upon the performance of the partnership agreement by contributing money and labor. In addition, the Court finds that the plaintiffs would be unjustly enriched if they do not have to share title with the defendants. Therefore, a partnership agreement existed for the purpose of operating a banquet hall and the parties agreed under this agreement to divide equally the assets, profits and losses that arose from the operation of the banquet hall.”
With respect to plaintiffs’ complaint, the trial court ruled plaintiffs had met their burden of proof solely with respect to the causes of action for an accounting and for dissolution of partnership. As for plaintiffs’ remaining claims, the trial court found plaintiffs failed to show any grounds for rescission of contract, failed to show that defendants were indebted to plaintiffs for a certain amount of money (money lent), and failed to establish that defendants knowingly interfered with plaintiffs’ expectancy of economic relationships.
On the cross-complaint, the trial court found the cross-complainants had met their burden solely with respect to the causes of action for declaratory relief, quiet title and an accounting.
With respect to the rights of the parties, the trial court found “under the partnership agreement, each party had the right to collect equal shares of the profits and to bear equally the losses from the operation of the Caesar’s banquet hall. In addition, the Court finds that under the partnership agreement, each party had a right to own an equal share of the real property, i.e., the title to the banquet hall.”
On the quiet title claim, the trial court ruled that title to the banquet hall, held exclusively by Sarkis Gumrikyan, must be amended to add the other two Gumrikyans, as well as the four defendants, Khachik Kesheshyan, Hamlet Derhovanessian, Sedrak Kesheshyan and Khachik Toomanyan. “The title shall be amended to show that each owner has an undivided one-seventh interest as tenants in common.”
The trial court ruled that it was necessary to appoint an independent accountant to conduct an accounting of the profits and losses and to determine the profit or loss to be distributed to each member of the partnership. The trial court selected July 26, 2002, as the appropriate date to begin the accounting because it was the date of the first event in the banquet hall.
The date selected by the trial court was consistent with the plaintiffs’ position. Plaintiffs, in their cause of action for an accounting, sought an accounting “from and after July 27, 2002.”
3 Appointment of referee and receiver..
The trial court appointed Susan Bleeker (Bleeker) pursuant to Code of Civil Procedure section 639 as the referee accountant.
The trial court also appointed David Pasternak as receiver in this matter.
4. Sale of receivership business and real property.
On January 26, 2006, the trial court ordered the partition and sale of the receivership business and real property.
On March 3, 2006, the trial court ordered the receiver to market and sell the receivership business and real property, and denied plaintiffs’ request to stay the order of sale pending plaintiffs’ appeal.
The Gumrikyans attempted to appeal the order directing the receiver to sell the business and its real property together with all furnishings, personal property, licenses and other related assets and also sought a writ of supersedeas. (No. B189588.) On June 27, 2006, this court dismissed the appeal as well as the petition for writ of supersedeas on the ground the order being appealed from was interlocutory and not appealable.
On June 2, 2006, the trial court ordered the sale of the receivership business and real property to the four defendants for $6.3 million and ordered that defendants receive an immediate credit of $3.6 million for their 4/7th share of the $6.3 million sale price. Shortly thereafter, escrow closed for the sale of the receivership business, liquor license and receivership real property.
On October 23, 2006, the trial court granted the receiver’s motion for an order for final distribution of the sale proceeds and remaining assets of the partnership. After payment of compensation and various costs, there remained a balance of $993,973. Of that sum, $637,389 was to be distributed jointly to the Gumrikyans and their attorney, David Drexler, and $26,892 to Michael Rubin, counsel for defendants. After those distributions, the remaining $329,629 was to be distributed in the 4/7ths and 3/7ths ratios.
Judgment was entered December 4, 2006. The Gumrikyans appealed and defendants cross-appealed.
CONTENTIONS
Plaintiffs, at page 13 of their opening brief, set forth the basis for their appeal. They contend the trial court erred: in failing to apply basic contract law; in finding the parties had entered into an oral contract; in waiving the application of the presumption of ownership (Corp. Code, § 16204); in waiving the application of the clear and convincing evidence standard (Evid. Code, § 662); in waiving the application of the statute of frauds (Civ. Code, § 1624); in waiving the application of the statutory requirements for the formation of a limited partnership (Corp. Code, § 15502); in applying the doctrine of promissory estoppel. Plaintiffs also contend the trial court arbitrarily ordered the final accounting to commence in July 2002, the date the banquet hall opened for business.
On cross-appeal, defendants contend the trial court abused its discretion: in failing to allow credit to them based on the court’s erroneous assumption they previously had received distribution of their portion of the net profits; in crediting plaintiffs’ counsel $173,543.50 in attorney fees and costs that he had been awarded in an unrelated case; and in not crediting defendants with 4/7ths of the salary paid to plaintiffs during the time of the receivership.
DISCUSSION
I. THE GUMRIKYANS’ APPEAL
1. No merit to Gumrikyans’ challenge to sufficiency of the evidence to support the trial court’s finding of an oral partnership agreement.
a. Trial court properly found the existence of an oral partnership agreement.
The existence and scope of an oral partnership agreement may be established by a preponderance of the evidence. (Weiner v. Fleischman (1991) 54 Cal.3d 476, 486.) The Gumrikyans’ basic contention on appeal is that the trial court erred in finding the parties had entered into an oral partnership agreement. The contention does not detain us.
As set forth above, plaintiffs’ complaint repeatedly alleged the existence of an oral partnership agreement. Rather than disputing the existence of a partnership agreement, the theory of the complaint was that the four defendants had breached the agreement by failing to contribute their respective one-seventh shares to purchase and improve the property.
Plaintiffs pled, inter alia, a cause of action for rescission, to wit: “43. Plaintiffs have, as described herein, fully performed as required by the oral agreement entered into with defendants regarding Caesar’s Banquet Hall. Defendants, and each of them, have failed, as described herein, to perform as required by their oral contract with plaintiffs. [¶] 44. Plaintiffs request that their oral contract with defendants regarding Caesar’s Banquet Hall be rescinded and that plaintiffs be released of any obligation to defendants.” (Italics added.)
Plaintiffs also pled a cause of action for dissolution of partnership, alleging: “54. Plaintiffs, and at all times herein mentioned, were general partners. [¶] 55. Defendants, at all times herein mentioned, were intended to be general partners in a partnership with plaintiffs with the Caesars Banquet Hall business.” (Italics added.) Plaintiffs pled defendants “have knowingly been unfair toward plaintiffs,” and requested a dissolution and winding up of the partnership’s affairs.
To reiterate, the admission of a fact in a pleading is a judicial admission and is conclusive on the pleader; the pleader cannot offer contrary evidence unless permitted to amend. (Valerio, supra, 103 Cal.App.4th at p. 1271; 4 Witkin, Cal. Procedure, supra, Pleading, §§ 413, 415.)
The trial court recognized as much. In its statement of decision, the trial court observed plaintiffs’ inclusion of a cause of action for dissolution of partnership “implies the existence of a partnership between the parties.”
We conclude the judicial admissions in the Gumrikyans’ complaint are dispositive. The Gumrikyans cannot dispute the existence of an oral partnership agreement for the acquisition and operation of the Caesars Banquet Hall business.
There is no merit to the Gumrikyans’ contention the partnership agreement is infirm for noncompliance with Corporations Code section 15502, within the Uniform Limited Partnership Act, which requires, inter alia, the execution of a certificate of limited partnership. The Gumrikyans did not plead the existence of a limited partnership and the trial court did not find the existence of a limited partnership. The Gumrikyans pled the existence of a general partnership.
b. The partnership agreement extended to the acquisition of the subject real property.
Next, plaintiffs contend that even assuming there were an oral partnership agreement concerning a banquet hall business, the agreement did not relate to the future acquisition of real property.
Plaintiffs’ first amended complaint is also dispositive with respect to this issue.
Plaintiffs pled in relevant part: “Defendants, and each of them, entered into a business venture with plaintiffs to develop a large banquet all. Defendants, and each of them, agreed to pay an equal percentage of all costs incurred in the purchase and renovation of the property generally described as Caesars Banquet Hall, 6719 and 6723 Foothill Blvd., Tujunga, CA 91042.”
Plaintiffs further pled: because the defendants “had bad credit, plaintiff Sarkis Gumrikyan obtained a loan and purchase[d] the property himself.” (Italics added.) Of the total of $1,873,304 of costs incurred in the development of Caesars, plaintiffs paid or incurred over 83 percent of that sum.
Thus, plaintiffs, in their pleadings, admitted the scope of the partnership agreement extended to the acquisition of Caesars Banquet Hall, even though title was taken solely in the name of Sarkis Gumrikyan. Rather than denying the existence of an agreement by the partners to acquire said real property, the plaintiff alleged the “[d]efendants, and each of them, have refused to pay their one seventh share of the expenses incurred.”
We conclude the allegations of the first amended complaint constituted a judicial admission by the Gumrikyans that the oral partnership agreement extended to the acquisition of the subject real property.
c. Gumrikyans’ reliance on statute of frauds is misplaced; the oral agreement among the partners that Sarkis Gumrikyan would take title on behalf of the partnership was outside the statute of frauds.
The Gumrikyans contend the statute of frauds required a written agreement to reflect that the property was being acquired by Sarkis Gumrikyan on behalf of the alleged partnership and here, there was no such writing.
In this regard, the trial court ruled that although the partnership agreement was oral, the doctrine of promissory estoppel applied so as to take this agreement outside the statute of frauds. “The Court finds the defendants substantially changed their positions in reliance upon the performance of the partnership agreement by contributing money and labor. In addition, the Court finds that the plaintiffs would be unjustly enriched if they do not have to share title with the defendants. Therefore, a partnership agreement existed for the purpose of operating a banquet hall and the parties agreed under this agreement to divide equally the assets, profits and losses that arose from the operation of the banquet hall.”
The Gumrikyans argue at length that the trial court erred in applying the doctrine of promissory estoppel because defendants failed to properly plead and prove all the elements of promissory estoppel.
The elements of a promissory estoppel claim are “ ‘(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.’ ” (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887, 901.)
The Gumrikyans’ promissory estoppel arguments are an irrelevancy because the statute of frauds does not apply to agreements among partners concerning real property.
As explained in Kaljian v. Menezes (1995) 36 Cal.App.4th 573, “agreements among partners or joint venturers regarding real property are not within the statute of frauds. (See, e.g., Bates v. Babcock (1892) 95 Cal. 479 [30 P. 605]; James v. Herbert (1957) 149 Cal.App.2d 741, 748-749 [309 P.2d 91]; Lasry v. Lederman (1957) 147 Cal.App.2d 480, 487-488 [305 P.2d 663]; Fitzgerald v. Provines (1951) 102 Cal.App.2d 529, 538 [227 P.2d 860].) [¶] Cases so holding arise in a variety of contexts, and the courts have propounded differing rationales for enforcing oral contracts in such situations. The common factual fundament upon which they rest is the existence of a joint venture or partnership. . . . [¶] In one line of cases the agreement was to share profits from rents or sale of real property and one joint venturer or partner failed to account to the others. (Dutton v. Interstate Investment Corp. (1941) 19 Cal.2d 65, 70 [119 P.2d 138]; Bates v. Babcock, supra, 95 Cal. at pp. 486-488; Coward v. Clanton (1889) 79 Cal. 23, 26-27 [21 P. 359]; En Taik Ha v. Kang (1960) 187 Cal.App.2d 84, 90-91 [9 Cal.Rptr. 425].) In these cases the courts held that the contract was not within the statute of frauds because it did not affect title to real property; rather, the subject matter was profits. (See Bates v. Babcock, supra, 95 Cal. at p. 486.) [¶] Other cases involved an agreement between two or more parties to purchase property for their joint account, but one took title in his own name. (Koyer v. Willmon (1907) 150 Cal. 785, 786-788 [90 P. 135]; Sadugor v. Holstein (1962) 199 Cal.App.2d 477, 480-481 [18 Cal.Rptr. 859]; Jaffe v. Heffner (1959) 173 Cal.App.2d 512, 516 [343 P.2d 374]; Lasry v. Lederman, supra, 147 Cal.App.2d at pp. 487-488; Fitzgerald v. Provines, supra, 102 Cal.App.2d at p. 538.) The theory underlying the rule of these cases is that the existence of a partnership or joint venture between the parties placed them in a confidential relationship. By violating his fiduciary duties, the offending party constituted himself a constructive trustee for the benefit of the others. (See Koyer v. Willmon, supra, at pp. 786-788.)” (Kaljian, supra, 36 Cal.App.4th at pp. 583-584, italics added.)
Because the instant agreement among the partners that Sarkis Gumrikyan would take title on behalf of all the partners is outside the statute of frauds, it is unnecessary to address the Gumrikyans’ contentions with respect to the promissory estoppel exception to the statute of frauds.
d. Defendants successfully rebutted any presumption the property was the separate property of Sarkis Gumrikyan.
The Gumrikyans also rely on Corporations Code section 16204, which provides in relevant part at subdivision (d): “Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes.” (Italics added.)
The Gumrikyans also invoke Evidence Code section 662, which states: “The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.”
Here, any presumption the real property was solely Sarkis Gumrikyan’s separate property, rather than partnership property, was easily rebutted by the Gumrikyan’s own allegations. Their first amended complaint alleged that because the defendants “had bad credit, plaintiff Sarkis Gumrikyan obtained a loan and purchase[d] the property himself.” The Gumrikyans admitted the real property was acquired by Sarkis Gumrikyan on behalf of the partnership. The Gumrikyans simply pled they were aggrieved because defendants had failed to pay their respective shares of the $1.8 million in development costs, and as a result, a disproportionate share was borne by the Gumrikyans. Inherent in that allegation is the admission that the property was acquired on behalf of the partnership.
We conclude the Gumrikyans’ judicial admission that title was taken by Sarkis Gumrikyan on behalf of all the partners was sufficient to rebut any presumption that the property was the separate property of Sarkis Gumrikyan.
2. The Gumrikyans’ argument they were fraudulently induced to enter into the partnership agreement is unavailing.
The Gumrikyans contend the defendants committed fraud by hiding their true financial status, and thereby successfully induced the Gumrikyans to finance the acquisition and improvement of the property on behalf of the impecunious defendants.
In this regard, the trial court ruled “Plaintiffs have not shown by a preponderance of evidence that plaintiffs entered into the partnership agreement through fraud, mistake, or duress, that there was an unlawful contract. Therefore, the plaintiffs have not shown that the partnership agreement should be rescinded.”
The Gumrikyans do not address the impact of the trial court’s finding that they were not fraudulently induced to enter into the partnership agreement. The Gumrikyans’ arguments do not challenge the sufficiency of the evidence to support the trial court’s ruling in this regard. The Gumrikyans merely set forth the evidence supportive of the plaintiffs’ case. They argue this issue as though this court were examining this matter de novo, rather than as a reviewing court.
The Gumrikyans have not presented a proper argument to challenge the trial court’s determination that plaintiffs failed to establish fraud by a preponderance of the evidence. Therefore, this issue merits no discussion.
3. Accounting issues.
a. Starting date of accounting period.
The Gumrikyans contend the trial court “erroneously and arbitrarily ordered that the final accounting begin in July 2002 when the banquet hall opened,” and this precluded the court ordered accountant and receiver from doing “a full, complete and fair forensic accounting.” The contention is devoid of merit.
The Gumrikyans, in their first amended complaint, requested an accounting “from and after July 27, 2002.” The trial court ruled “July 26, 2002 is the appropriate date to begin the accounting because it was the date of the first event in the banquet hall.”
In other words, the trial court gave the Gumrikyans what they asked for in terms of the starting date for the accounting. Therefore, the Gumrikyans’ present contention that the trial court arbitrarily ordered the accounting to begin as of July 26, 2002 is without merit.
b. Other accounting issues.
Unlike the defendants, the Gumrikyans do not raise any issues with respect to the results of the accounting. Instead, the Gumrikyans’ appeal denies the existence of a partnership and seeks reversal on that basis. Therefore, the only challenges to the accounting are brought by the cross-appellants. We now turn to the issues on cross-appeal.
II. THE CROSS-APPEAL
The defendants’ cross-appeal raises three issues with respect to the accounting and distribution of monies among the parties. Before addressing the specifics of defendants’ contentions on cross-appeal, we note the Gumrikyans have declined to respond to those contentions. The Gumrikyans’ response to the cross-appellants’ opening brief is as follows: “[Defendants’] Cross-appeal on accounting-related issues seems to be a lengthy, unsupported, rambling and disjointed diversionary tactic intended to direct the court’s attention away from the fact that Respondents have no valid claim to Appellants’ property, let alone the earnings generated from the property. Appellants respectfully submit that this court’s determination of Appellants’ Appeal will render [defendants’] accounting-related appeal moot.”
In short, the Gumrikyans have forfeited their opportunity to respond to the merits of the cross-appeal. We now turn to defendants’ contentions on cross-appeal.
1. Standard of appellate review.
It is “well settled that ‘[e]quitable principles apply in determining the rights of the parties to an action for an accounting between partners, for dissolution of the partnership, and settlement of its affairs.’ [Citation.]” (Heller v. Pillsbury Madison & Sutro (1996) 50 Cal.App.4th 1367, 1392.) We review the trial court’s ruling for an abuse of discretion. (Ibid.)
2. Allocation of $728,217 in net profits to defendants.
a. Overview.
The primary issue on cross-appeal relates to defendants’ recovery of their share of the net profits of the business.
Bleeker’s spreadsheet set forth the amount each partner should receive from the net profits she was able to calculate from the period of time from July 26, 2002 to July 31, 2005. Bleeker determined the amount of net profits due the four defendants totaled $728,217.52. On the receiver’s motion for approval of the final account, there was a dispute as to whether said net profits were actually distributed to the four defendants or whether they were still owed those monies.
With respect to whether defendants received their proportionate share of the net profits, the evidence at trial showed that in May 2003, the Gumrikyans forcibly took control of the business, changed the locks and excluded defendants from the business.
This circumstance was pointed out by defendants in their opposition to the receiver’s final accounting. The declaration of Khachik Kesheshyan stated in relevant part: “Between July 2002 and May 2003, there were no ‘net profits’ because all of the revenue the business generated was put back into the business . . . . [¶] 3. In Susan Bleeker’s Summary of Share of Profits . . . she calculated the net profits from July 2002 (when this court ordered the accounting to start) and July 31, 2005 (the day the Receiver took over). . . . All net profits were kept by the Plaintiffs. Neither I nor any of the co-defendants received any distribution at any time of any net profits as reflected in Susan Bleeker’s report . . . .”
In other words, Khachik Kesheshyan asserted no net profits were generated before defendants were locked out of the business, and after the defendants were locked out, the Gumrikyans ran the business and retained all the profits.
Defendants’ opposition to the receiver’s motion for approval of the final accounting was also supported by the declaration of Michael Rubin, counsel for the defendants. The Rubin declaration stated: “In speaking with Ms. Bleeker, I asked her why the accounting does not provide for payment to the Defendants of $728,217.52. She stated that her accounting only calculated the amount of the net profits, not where they went. She stated that she made no determination of whether the Defendants received any distribution of the net profits.”
In reply, the receiver’s papers stated “[t]he allocation of profits does not impact the distribution of receivership funds because all such profit (if any) was distributed to partners and/or used for the operation of the business before the commencement of the receivership.”
b. Trial court’s ruling.
The reporter’s transcript of the October 23, 2006 hearing on the receiver’s motion for approval of the final accounting contains the following colloquy between defendants’ attorney and the trial court:
“Mr. Rubin: -- I would like a finding. The problem that I am having here is that we have shown that this $728,217.52 has never been paid to my clients. They have never received their portion of the net profits. They have been waiting during the three years pendency of this case to receive the profits to which they were due.
“The Court: And you have raised this in your objections
“Mr. Rubin: Right. I’m asking the court. Doesn’t this, by failing to pay them this money, doesn’t it assume that it’s already been distributed?
“The Court: You heard the court’s order, didn’t you?
“Mr. Rubin: Right. But I’d like a court finding
“The Court: No findings. This is not a findings situation, nor is this an evidentiary hearing.
“Mr. Rubin: Well, no, I’m just asking
“The Court: I have considered
“Mr. Rubin: Are you making a finding that my clients have already received that money and therefore
“The Court: I am making no findings.” (Italics added.)
Although the trial court declined to make an express finding as to whether defendants already had received the $728,217 in net profits, the trial court overruled defendants’ objections and approved the accounting. Therefore, the trial court impliedly but necessarily found the $728,217 in net profits to which defendants were entitled already had been distributed to defendants.
c. Trial court’s ruling was abuse of discretion.
As indicated, the evidence at trial established the defendants were locked out by the Gumrikyans in May 2003. Between May 2003 and July 31, 2005, when the receiver took over, the Gumrikyans exercised sole control of the business. The records reflects the defendants received credit for 4/7ths of two checks in May 2003, which checks totaled $10,712 and represented payments by customers. There is no substantial evidence to support a finding that the Gumrikyans distributed $728,217 in net profits, or anything approaching that sum, to the defendants after having excluded them from the business.
The receiver made no attempt to show the $728,217 had in fact been distributed to the four defendants. In response to this objection by the defendants, the receiver’s reply memorandum stated “[t]he allocation of profits does not impact the distribution of receivership funds because all such profit (if any) was distributed to partners and/or used for the operation of the business before the commencement of the receivership. The lack of documentation has prevented Susan Bleeker (and Dominic LoBuglio) from determining where $650,119.49 in unallocated cash went. The $650,119.49 was disbursed during the pre-receivership time when the business was operated first by the Kesheshyans and then by the Gumrikyans. The Receiver and his forensic accountants have not determined how the disbursement of these funds is allocated between these two periods of business operations . . . . Even if allocated between these two periods of operation, the Receiver and his forensic accountants could not determine if any of those funds were withdrawn by any of the partners or properly used for the operation of the business. In hindsight, the Receiver . . . inartfully entitled the first Exhibit 23 schedule ‘Summary of Share of Profits,’ when a more accurate title would be ‘Settlement of Advance Accounts.’ That schedule settles disparities in the advance accounts that in fact operate in favor of the Kesheshyans because the Gumrikyans owed the partnership money and the Kesheshyans were due money from the partnership.” (Italics added.)
Although the receiver took the position that the $728,217 did “not impact the distribution of receivership funds because all such profit (if any) was distributed to partners and/or used for the operation of the business,” Bleeker, the accountant, had determined the $728,217 were “[n]et proceeds available” to the four defendants. (Italics added.) The receiver also alluded to the inability to determine what happened to $650,119 in unallocated cash. However, the only reasonable inference to be drawn from the fact that defendants were locked out of the business in May 2003 is that they did not share in any cash proceeds after that date. No evidence is cited to show that the Gumrikyans, after having locked out the defendants, distributed to defendants their proportionate share of the net profits.
We conclude that on this record, the trial court abused its discretion in impliedly finding that notwithstanding the exclusion of defendants from the business in May 2003, the defendants obtained distribution of the entire $728,217.52 in net profits to which they were entitled, pursuant to Bleeker’s determination. Therefore, the trial court’s order approving the final accounting must be reversed insofar as it overruled defendants’ objection, to wit: “1. The proposed final accounting is fatally flawed because it assumes that the Defendants already received their 4/7 of the net profits, where in fact, that money was taken by the Plaintiffs and never paid over to either the Defendants or the Receiver.”
The issue of the distribution of said profits must be redetermined on remand, in accordance with the views expressed herein.
3. Attorney fees awarded to Drexler for unrelated litigation.
a. Overview.
At some point, Sarkis Gumrikyan, the owner of record, entered into an agreement with Kazar Akopyan (Akopyan) to sell him the property and business for $2.1 million. Akopyan sued Sarkis Gumrikyan for specific performance of that contract. In early 2004, the matter was arbitrated before a retired judge, who ruled in favor of Sarkis Gumrikyan. On July 28, 2004, the trial court (Hon. Michael Mink) entered an order confirming the arbitration award and decreeing that Sarkis Gumrikyan recover from Akopyan his attorney fees in the sum of $170,187.50 plus costs, for a total of $187,146.50.
The arbitrator also awarded Sarkis Gumrikyan an escrow deposit of $20,000 by Akopyan as liquidated damages and allowed Sarkis Gumrikyan to retain $100,000 paid by Akopyan outside escrow.
Akopyan apparently was judgment proof, rendering Sarkis Gumrikyan unable to collect the award of attorney fees and costs from him.
Therefore, in response to the receiver’s final report and motion, the Gumrikyans requested the trial court to order the receiver to pay them and Drexler the amount ordered by Judge Mink in his order confirming the arbitration award in the Akopyan matter. The Gumrikyans’ theory was that but for the successful efforts of Drexler, there would have been no property for the receiver to sell and no money to be distributed to anyone.
The receiver did not take any position on this issue.
Defendants, however, objected on the ground they did not retain Drexler nor did they ever agree to pay him attorney fees and costs incurred in connection with the Akopyan matter.
The trial court overruled the objection and ordered the receiver to pay Drexler $173,543.50 from the receivership estate.
b. Trial court abused its discretion in requiring defendants to bear 4/7ths of Drexler’s fees in the Akopyan action.
The record reflects the partnership was not a party to the Akopyan action. The sole parties thereto were Akopyan, as plaintiff/buyer and Sarkis Gumrikyan, as defendant/seller. The record further reflects that neither the partnership nor any of the defendants was a party to the superior court proceeding confirming the arbitration award. The sole parties to the superior court proceeding were Akopyan and Sarkis Gumrikyan.
Further, the award of attorney fees was only against Akopyan. Pursuant to the order confirming the arbitration award, Sarkis Gumrikyan was to look to Akopyan for recovery of his attorney fees and costs.
There was no showing that defendants ever agreed to retain Drexler as their counsel in the Akopyan action. Merely because Sarkis Gumrikyan was unable to recover his attorney fees in the Akopyan action from Akopyan does not entitle the Gumrikyans to recover said fees, or more precisely, 4/7ths of said fees, from defendants in the instant action.
Finally, we make the observation that at the same time Drexler was representing Sarkis Gumrikyan (and allegedly all seven partners) in the Akopyan litigation, Drexler was representing the Gumrikyans in the instant action against defendants. It is self evident that Drexler could not act as counsel for the four defendants in the Akopyan action at the same time that he was representing the Gumrikyans in the instant action against the four defendants.
For these reasons, the trial court erred in requiring defendants to pay 4/7ths of Drexler’s attorney fees in the Akopyan action.
4. Partnership salaries.
a. Overview.
The final item in controversy is the payment of salaries to the Gumrikyans for running the business. The receiver paid the Gumrikyans a total of $73,500 between August 1, 2005 and June 30, 2006 for running the business.
In their response and objections, defendants asserted they were entitled to a credit of $42,000, representing 4/7ths of the total salaries paid to the Gumrikyans during that time frame.
The receiver defended the salaries, asserting “the salaries paid to the Gumrikyans by the Receiver was compensation, not a distribution of profits. The Gumrikyans were paid for their work. They spent a great deal of time operating the business during the receivership, and maintaining it as an operating business for the benefit of all the owners. Their compensation was not excessive for their service, and it would be patently unfair for them to forfeit some of that compensation to the Kesheshyans, who were not working for the Receiver during that time.”
The trial court overruled defendants’ objection to the salaries and approved the final account.
b. Gumrikyans not entitled to salaries for services performed on behalf of the partnership.
Absent an agreement between partners for compensation, a partner is not entitled to any compensation for services to the partnership other than a share of the profits. (Bardis v. Oates (2004) 119 Cal.App.4th 1, 14.) Corporations Code section 16401 provides for a limited exception to that rule. The statute provides in relevant part: “A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership.” (Corp. Code, § 16401, subd. (h).)
However, the salaries were not paid to the Gumrikyans during a period of winding up the business. The business continued to exist – only the ownership changed. The Gumrikyans ran the business until June 12, 2006. On that date, with the imminent close of escrow for the sale of the business to the four defendants, the receiver replaced the Gumrikyans with the four defendants as the management of the business.
On this record, the trial court abused its discretion in approving payment of $73,500 in compensation to the Gumrikyans because there was no agreement to that effect, and because the compensation was not paid for services rendered in winding up the business. Accordingly, defendants are entitled to a credit of 4/7ths of the compensation paid to the Gumrikyans, which amounts to $42,000.
5. Evidentiary hearing on accounting issues.
Lastly, defendants contend the trial court erred in failing to conduct an evidentiary hearing on numerous other accounting issues. Defendants assert it was “improper and highly prejudicial” for the trial court to simply “rubberstamp” the receiver’s accounting “instead of making a closer scrutiny.”
However, other than the three items discussed above, defendants do not specify any error in any of the other rulings on the receiver’s final account. We do not presume any error in those rulings. We reject defendants’ speculation that a full evidentiary hearing might have led to a different ruling on some of the other accounting issues.
DISPOSITION
The order approving the receiver’s final report is reversed with respect to the issue of defendants’ $728,217.52 share of the net profits and the matter is remanded to the trial court for further proceedings in that regard, consistent with this opinion. The trial court is also directed (1) to reverse its order charging defendants with 4/7ths of the $173,543.50 in attorney fees awarded to Drexler for the Akopyan litigation and (2) to modify its order so as to credit defendants with 4/7ths of the $73,500 in salaries paid to the Gumrikyans, i.e., $42,000. In all other respects, the judgment is affirmed.
Defendants shall recover their costs on the appeal and cross-appeal.
We concur: KITCHING, J., ALDRICH, J.