Opinion
D072582
11-08-2018
KEVIN PIFER et al., Plaintiffs and Appellants, v. STACY KATE PIFER et al., Defendants and Respondents.
Higgs Fletcher & Mack and Mark K. Stender for Plaintiffs and Appellants. Hahn Loeser & Parks, Michael J. Gleason and Kyle T. Overs for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 37-2015-00030172-CU-MC-CTL) APPEAL from judgments of the Superior Court of San Diego County, Richard E.L. Strauss, Judge. Affirmed. Higgs Fletcher & Mack and Mark K. Stender for Plaintiffs and Appellants. Hahn Loeser & Parks, Michael J. Gleason and Kyle T. Overs for Defendants and Respondents.
These two appeals by two limited partners, plaintiffs and appellants Kevin Pifer and Steven Pifer ("Appellants"), arise out of rulings on their amended cross-complaint, which challenged the administration of a restated family limited partnership, Pifer Property Holdings LP (the "partnership"). Demurrers brought by defendant and respondent Stacy Kate Pifer ("Kate") and her affiliated entity, defendant and respondent Pifer LLC, were sustained without leave to amend. A judgment on the pleadings brought by defendant and respondent Phoebe Moffatt (Moffatt) was granted without leave to amend. On appeal, Appellants argue the court erred as a matter of law in finding their 13 derivative and/or direct causes of action are defective, and in an exercise of discretion, it should have granted them leave to amend. (Schuster v. Gardner (2005) 127 Cal.App.4th 305, 312 (Schuster) [direct action, where right of action and recovery belongs to partner/shareholder, is distinct from derivative action, that is to be brought by partnership/corporation]; Wallner v. Parry Professional Bldg., Ltd. (1994) 22 Cal.App.4th 1446, 1449 (Wallner) [limited partner's derivative action is to enforce a claim that the partnership possesses against others, such as the general partners, but that the partnership refuses to enforce].)
We find the trial court's analyses of the apparent defects in these derivative and direct claims were well grounded in the record, which includes judicially noticeable procedural background from an underlying main action and a complaint in intervention. Appellants fail to show that they made or can make any sufficient showing of entitlement to further amend their cross-complaint. We affirm the judgments of dismissal.
I
INTRODUCTION; MAIN ACTION FILED
Because the appellate issues are somewhat complex, this introduction outlines the factual and procedural context in which this operative pleading (the amended cross-complaint) arose. The business of the partnership is mainly to own and operate several commercial real properties that are utilized primarily in the domestic trucking industry. Appellants' father John Pifer ("John") formed the partnership in 1998 and originally served as the president of its corporate general partner, Pifer Property, Inc. (PPI) (not a party to the cross-complaint). Later, Kate took over the presidency of PPI from her husband John, when he became disabled. For a short time, Kate's and John's adopted daughter Moffatt acted as PPI's president.
Disagreements arose over partnership administration, and in the underlying complaint (the main action) that gave rise to this cross-action, Appellants sued PPI, alleging that its operation of the partnership, through Kate and Moffatt, had disadvantaged their interests in it. Specifically, Appellants alleged Kate was using PPI to divert certain partnership assets and was taking excessive compensation, and they sought an accounting and damages for breaches of fiduciary duty and contract.
Appellants now own approximately 69.41 percent of the beneficial ownership of the partnership as individuals and as co-trustees of certain irrevocable trusts. Originally, PPI was allocated a 1 percent ownership interest, and John had an 80.59 percent interest. John died in 2017, and Kate apparently succeeded to many of his interests. The current remaining ownership percentage status is unclear, but not dispositive of these pleading issues.
Kate subsequently filed a complaint in intervention, claiming some alleged partnership assets belonged to her. (Code Civ. Proc., § 387 [intervention]; all further statutory references are to this code unless noted.) Appellants then filed their cross-complaint that is the subject of this appeal, naming as cross-defendants Moffatt, Kate, and Kate's affiliated entity Pifer LLC. In the amended cross-complaint, Appellants also named the partnership as a nominal cross-defendant, and attempted to clarify that some of their 13 causes of actions were derivative ones, brought on behalf of the partnership.
II
ADDITIONAL BACKGROUND
A. Partnership Business
Section 2.4 of the restated partnership agreement recites that its purposes include consolidating John's real estate holdings. Such consolidation was intended to minimize asset management expenses to facilitate John's gift giving. Thus, the primary purpose in creating the partnership is stated as permitting the transfer of interests in it to John's children, "to ease them into the ownership of the Partnership Property and to systematically involve them in the management of Partnership Property and thereby, provide for effective transition in the management of the Partnership Property." The agreement characterizes John as an "Affiliate of the General Partner," his company PPI.
Appellants came to believe that Kate was progressively increasing the control she had over John's finances and business affairs, as he became older and disabled. Kate had been married to him for about 30 years and is not the mother of Appellants. They contend that her actions as president of the corporate general partner PPI (from 2013-2015) have served to frustrate the purposes of the partnership. For a number of years before she succeeded to the presidency, she had acted as the chief operating officer of the partnership. In 2015, she and John achieved an adult adoption of Moffatt, a 47-year-old lawyer from Arizona, and Moffatt briefly served as president of PPI.
In September 2015, Appellants filed the main action against PPI, objecting to certain transactions by the partnership, including its sale of a real estate asset, the "Tulsa Property," to a PPI affiliate. Appellants claimed that PPI had "reversed" the partnership's "earlier, long-standing position that the Mountain Valley Property ["Mountain Valley" in Arizona] belongs to the Partnership and allow[ed] that property to be conveyed to the principals of PPI," i.e., Kate. The main action also claimed that PPI had wrongfully retroactively charged the partnership rent and overhead for past years, and had "siphoned" revenues from the partnership to itself or its principals, "thereby reducing the distributions payable to the limited partners." Without suing the partnership, John, or Kate, Appellants' original complaint requested a judicial partnership accounting and alleged that PPI had breached its fiduciary duties to them. (Corp. Code, § 15900 et seq., the Uniform Limited Partnership Act of 2008; transitional section, Corp. Code, § 15912.06.)
The operative cross-complaint's allegations arose from Kate's filing of her complaint in intervention in the main action, in November 2015 (amended in Feb. 2016). Among other things, she alleged that she was a third-party beneficiary of the partnership agreement, and that she qualified as an "Affiliate" of PPI under its terms. She contended that she should have received the benefit of Appellants' work in carrying out their obligations as limited partners, "to become more involved in the management in the partnership property," but they had refused to do so despite requests from John and Kate. She alleged that these breaches of duties by the limited partners caused her damages, and that she was entitled to reimbursement of monies paid to them. She sought declarations that various properties and assets, which Appellants claimed were partnership property, belonged instead to John and to her, as community or her individual property. These included rents, income and the Mountain Valley land.
In the original complaint in intervention, Kate alleged that she was entitled to declaratory relief that she should be considered to be a de facto partner in the partnership. She dropped that particular claim in her amended complaint in intervention. It has since been dismissed in its entirety, without prejudice. (See fn. 5, post.)
B. Filing of Cross-Complaint; Amendment
In response to the complaint in intervention, Appellants filed their original cross-complaint in March 2016, alleging 13 causes of action and seeking damages for Kate's breaches of fiduciary duty, misappropriations, intentional interference with contractual relations and/or prospective economic advantage. They alleged that PPI, through Kate, had utilized Pifer LLC as a conduit to receive money that properly belonged to the partnership. Moffatt, as an officer of PPI, was sued for PPI's torts committed during her tenure.
Appellants' cross-complaint alleges individual and/or partnership entitlement to monetary recovery and equitable relief, largely based on Kate's alleged breaches of fiduciary duty through self-dealing in partnership property and drawing of excessive compensation. As direct causes of action, Appellants claim Kate committed related business interference torts (i.e., interference with prospective economic advantage and interference with contractual relations).
As against Kate, Pifer LLC, and Moffatt, Appellants plead a derivative claim for assumpsit (money had and received), accounting and other relief. (McBride v. Boughton (2004) 123 Cal.App.4th 379, 394 (McBride) [assumpsit or common count theory seeks to remedy monetary indebtedness, e.g., alleged restitution entitlement].) As against Kate and Moffatt, Appellants seek to impose liability for conspiracy and Moffatt's alleged aiding and abetting of Kate's tortious conduct. As against all cross-defendants, including the partnership itself, restitution, damages, injunctive, accounting, receivership and other relief are sought.
After Kate and Pifer LLC brought an initial motion for judgment on the pleadings, the court indicated during the hearing that the cross-complaint did not adequately plead derivative allegations on behalf of the partnership, and granted Appellants leave to amend. (Corp. Code, § 15910.01 [limited partner direct actions allowed for injury other than to partnership]; Corp. Code, § 15910.05 [any proceeds of derivative action belong to limited partnership, not plaintiff].) When Appellants inquired at the hearing about the Court's opinion about the validity of the intentional interference with economic advantage claim, the court said that would be taken up when the amended pleading was filed.
The amended cross-complaint pleads the same 13 causes of action, including breach of fiduciary duty, misappropriation, intentional interference in contractual relationship, intentional interference in prospective economic advantage, conspiracy and aiding and abetting. Claims also are alleged for money had and received, and for restitution, accounting, constructive trust, equitable lien, receivership and injunction. Appellants added general allegations that "In addition to suing on their own behalves [sic], Cross-Complainants sue derivatively on behalf of the partnership as to a number of the claims set forth below." They contended the derivative action was necessary because it would be futile to request that the general partner, PPI, bring such an action to enforce the rights of the partnership, because of Kate's control of it. (Corp. Code, § 15910.02.)
Appellants are somewhat inconsistent on whether the main action seeks a partnership or a judicial accounting, as compared to the cross-complaint, also seeking either a partnership or a judicial accounting.
Appellants alleged that the purposes of the partnership had "expanded over time to include the management of certain properties owned by [John and Kate] and/or Cross-Defendant PIFER, LLC." With respect to the capacity in which Kate was sued, Appellants alleged that during the times she was president and a director of PPI, Kate "was herself a fiduciary as to both the Partnership and the limited partners of the Partnership, in that she actually controlled the conduct of PPI, the general partner of the Partnership. Further, at the time of the events described herein, [Kate] was a family member of the Cross-Complainants, and as such was in a relationship of trust and confidence with them. Accordingly, [she] owes a fiduciary duty to deal with the partnership, its limited partners and Cross-Complainants (in their individual capacities) in the utmost good faith." (Italics added.) Appellants then alleged that Kate had engaged in self-dealing with the partnership as to its property, excluded them, and caused detriment to the partnership and to the limited partners. For purposes of their breach of fiduciary duty and other allegations, Appellants do not expressly make alter ego allegations, and they have rejected any claim by Kate that she was a de facto partner or equivalent to one, by alleging it would breach her fiduciary duties to make such a claim.
Section 369.5, subdivision (a) provides that a partnership "may sue and be sued in the name it has assumed or by which it is known." Subdivision (b) of section 369.5 provides that "A member of the partnership or other unincorporated association may be joined as a party in an action against the unincorporated association. If service of process is made on the member as an individual, whether or not the member is also served as a person upon whom service is made on behalf of the unincorporated association, a judgment against the member based on the member's personal liability may be obtained in the action, whether the liability is joint, joint and several, or several." Kate was not sued as a "member" of the partnership.
As alleged in the cross-complaint, Kate's tortious activities extended between December 20, 2013 through approximately September 15, 2015, while she was acting as the president and director of PPI, "and for several previous years she claimed the title of Chief Operating Officer of PPI." Around September 2015, Kate and John adopted Moffatt as an adult and briefly made her the PPI president, allegedly to block Appellants from increasing their involvement in partnership management. Although Kate had been married to John for about 30 years, she then obtained a Nevada decree of divorce from him in April 2016. All these relationships were alleged to be part of a wrongful scheme as to Appellants.
The intrafamily relationship problems and the participants' related defensive postures about their individual positions on matters of divorce, adoption, etc., are beyond the scope of this opinion and need not be quoted or resolved. These predominantly technical and financial issues can be analyzed as matters of law.
The cross-complaint further alleges that Kate transferred partnership assets to Pifer LLC or to third parties, and she wrongfully asserted that the Mountain Valley property was not partnership property, even though it had been treated as one for income tax purposes for many years. Appellants also claimed that Kate took excessive compensation from the partnership and used PPI as a conduit to divert partnership revenues and assets.
C. Filing of Kate's and Pifer LLC's Demurrers; Ruling
Kate and Pifer LLC demurred to the amended cross-complaint, alleging that it was still defective in setting forth derivative partnership claims, and that individual claims by Appellants were likewise unsupported. In addition to their demurrer arguments, Kate and Pifer LLC requested that the court take judicial notice of the Nevada divorce decree, and of verified discovery responses by Appellants to requests for admission. (Evid. Code, §§ 452, subd. (d), 453.) Those requests were granted.
Appellants vigorously opposed the demurrer. We describe the relevant arguments in more detail in the discussion portion of this opinion. The court heard argument and in its April 21, 2017 minute order, sustained the demurrer without leave to amend, addressing in detail each of the 13 causes of action.
First, the demurrer to the cause of action for breach of fiduciary duty as against Kate was sustained without leave to amend, on the grounds that "Kate is an officer of the corporate general partner. Cross-complainants have not cited to any persuasive authority which would establish that Kate, as an officer of the general partner, owed an individual fiduciary duty to the limited partners."
Next, the demurrer to the second cause of action for misappropriation was sustained without leave to amend: "Cross-complainants have not provided persuasive authority that this is a valid cause of action and if it is, the elements for such a claim."
The demurrers to the third cause of action for intentional interference with contractual relations and fourth cause of action for intentional interference with prospective economic advantage were sustained without leave to amend. The court reasoned, "Kate is an officer of PPI, a corporation which is a signatory to the partnership agreement. [Citation.] As a corporate agent acting on behalf of the corporation, she is not a stranger to the contract and thus, the elements of the interference claims cannot be pled. (Mintz v. Blue Cross of California (2009) 172 Cal.App.4th 1594, 1604.)"
With regard to the fifth cause of action for conspiracy, the demurrer was sustained without leave to amend, as follows: "Conspiracy is not a cause of action. (See, e.g. doctrine [of] Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 510.)"
On the seventh cause of action for assumpsit, the demurrer was sustained without leave to amend, with this finding: "A common count is not a specific cause of action, however, but is a simplified form of pleading normally used to aver the existence of various forms of monetary indebtedness, including that arising from an alleged duty to make restitution under an assumpsit theory. (McBride[, supra,] 123 Cal.App.4th 379, 394-395.) In this case, the assumpsit claim is demurrable since it seeks the same relief as alleged in the other claim, to which the demurrer is also sustained."
The ruling next states, "The demurrer to the eighth cause of action for accounting is sustained without leave to amend. Cross-complainants base the claim on the assumption there is a fiduciary relationship. As discussed above, there is no fiduciary relationship between Cross-defendants and Cross-complainants."
As to the claims for restitution, constructive trust, equitable lien, injunction or receivership, the demurrers were sustained without leave to amend: "These are remedies, not causes of action. Insofar as no other claims against Kate and Pifer LLC remain, there is no basis for the remedies to remain even if the court considered them causes of action."
D. Filing of Moffatt's Motion for Judgment on the Pleadings; Ruling
In support of her motion for judgment on the pleadings, Moffatt requested that the trial court take judicial notice of the proceedings brought by Kate and Pifer LLC to attack the amended cross-complaint, including the minute orders sustaining their demurrers without leave to amend. Judicial notice was granted accordingly.
Moffatt argued that this cross-complaint failed to set forth adequately pled derivative or individual claims and she was entitled to judgment as a matter of law, because of the failure of the underlying torts pled against Kate, which also formed the basis of the conspiracy and aiding/abetting claims against Moffatt.
Appellants strenuously opposed the motion for judgment on the pleadings. The court held a hearing and confirmed its tentative ruling, which was to grant the motion without leave to amend. In relevant part, the ruling followed the same reasoning as stated with respect to the demurrer, on the fifth cause of action for conspiracy. Since the court had already determined that Appellants could not maintain their breach of fiduciary duty, misappropriation, and business interference claims against Kate, there was no longer a sufficient allegation of any underlying tort, such that neither the conspiracy claim nor the separate sixth cause of action against Moffatt, for aiding and abetting, could be maintained. The court reasoned, "There can be no aiding and abetting liability absent the commission of an underlying tort." (Citing Richard B. LeVine, Inc. v. Higashi (2005) 131 Cal.App.4th 566, 575.)
With regard to the claim for assumpsit against Moffatt, judgment on the pleadings was granted without leave to amend, on the same grounds as for the demurrer brought by Kate and Pifer LLC. It could not stand alone as a common count, and since the assumpsit claim was based on the same underlying facts as alleged in support of the other claims that were insufficient, it too failed. (McBride, supra, 123 Cal.App.4th 379, 394; Hays v. Temple (1937) 23 Cal.App.2d 690, 695.)
Likewise, the separate cause of action for accounting could not be stated and no leave to amend was justified. "A right to an accounting is derivative, it must be based on other claims." (Janis v. California State Lottery Com. (1998) 68 Cal.App.4th 824, 833-834.) Since all claims against Moffatt had failed, the accounting claim was unsupported. Similarly, the court granted judgment on the pleadings as to the causes of action for restitution, receivership, and injunction, without leave to amend, because: "These are remedies, not causes of action. Insofar as no other claims against Cross-Defendant Moffatt remain, there is no basis for the remedies to remain even if the court considered them causes of action."
E. Subsequent Events in Main Action; Dismissal of Complaint in Intervention
After the demurrer and judgment on the pleading rulings were finalized, Kate dismissed her complaint in intervention without prejudice, in May 2017. These appeals were filed in July 2017.
There is no discussion in the briefs on appeal about the effect of the dismissal of the complaint in intervention, without prejudice, upon the viability of the current cross-complaint. Because of the wide ranging nature of the cross-complaint's allegations, we do not consider its allegations to be moot because of the voluntary dismissal of the pleading that gave rise to it. (See Bogardus v. Santa Ana Walnut Growers Assn. (1940) 41 Cal.App.2d 939, 952 [some issues can remain for trial court in an intervention matter even after dismissal of a related cause of action].)
In their opening brief, Appellants seek to inform this court about a separate application to amend that it made in the main action, after the subject rulings were issued: "Then, out of an abundance of caution, and in order to ensure all procedural rights had been exhausted in the trial court, Appellants moved for leave to amend their second amended complaint against PPI to assert claims against Respondents [Kate, Moffatt, and Pifer LLC] or, alternatively, to name Respondents as Doe defendants therein [apparently in the main action]. That motion was denied on August 9, 2017."
Other entries in the register of actions included in the appellant's appendix show that, in the main action, a trial date was scheduled in April 2018. No information about the status or outcome of any such trial proceedings is available in the record before us, and we are required to review the rulings on the record that was available to the trial court at the time they were rendered.
III
APPLICABLE STANDARDS OF REVIEW
Both demurrers and motions for judgment on the pleadings are tests of the legal sufficiency of the cross-complaint. For purposes of analyzing rulings on the demurrer and judgment on the pleadings, the courts will accept as true the facts alleged in the respective portions of the pleadings. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) The inquiry is whether they state their causes of action on any available legal theory. (Grinzi v. San Diego Hospice Corp. (2004) 120 Cal.App.4th 72, 85; Schuster, supra, 127 Cal.App.4th at p. 311.) While we accept as true all facts properly pled in the complaint, we do not assume the truth of "contentions, deductions or conclusions of law." (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 (Aubry).) We also consider all properly judicially noticed matters. (Evid. Code, §§ 452, 459.)
Because the trial court's determinations on these legal questions were made by applying legal principles to a given set of facts, we review its rulings de novo. (Schuster, supra, 127 Cal.App.4th at p. 311; see D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 18-19 [" 'a ruling or decision, itself correct in law, will not be disturbed on appeal merely because given for a wrong reason. If right upon any theory of the law applicable to the case, it must be sustained regardless of the considerations which may have moved the trial court to its conclusion.' "].)
Both on demurrer and for a judgment on the pleadings, the trial court exercises its discretion in deciding whether to grant leave to amend. (Aubry, supra, 2 Cal.4th at p. 967.) Absent a reasonable possibility that any pleading defects can be cured by amendment, the trial court does not abuse its discretion in denying leave to amend. (Ibid.) Appellant carries the burden of proving an amendment would cure any defect. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
IV
DERIVATIVE OR DIRECT NATURE OF CLAIMS; ALTERNATIVE PLEADING
Appellants argue that the trial court's analysis was erroneous on all their theories, and/or that the court abused its discretion in denying them leave to amend, particularly as to their individual (direct) tort causes of action for pleading interference with contractual relations and prospective economic advantage. (Everest Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 427-428 (Everest Investors) [partner's cause of action is individual, not derivative, only where the injury resulted from the violation of some special duty the wrongdoer owed to partner (or stockholder), that has " 'its origin in circumstances independent of the plaintiff's status' " as partner].) Appellants further argue their various derivative claims brought on behalf of the partnership were well pled, as were their separate causes of actions for several different kinds of equitable remedies.
"A partnership is an entity separate and apart from the partners of which it is comprised, and it is the partnership entity which owns its assets, not the partners. [Citation.] 'California law treats a partnership as a "hybrid" organization that is viewed as an aggregation of individuals for some purposes, and as an entity for others.' " (Everest Investors, supra, 114 Cal.App.4th 411, 424.)
The partnership agreement states, "The interests of the Partners in the Partnership shall be personal property for all purposes. All property owned by the Partnership, whether real or personal, tangible or intangible, shall be owned by the Partnership as an entity, and no Partner shall have any direct ownership of such property or any right to use such property for any purpose other than a purpose of the Partnership." (§ 2.6, Nature of Partners' Interests; italics added.)
The issues here require us to analyze not only the elements of the respective causes of action pled against the various cross-defendants, but also the nature of Appellants' theories as derivative or individual claims. An initial problem presented is that they appear to be pleading alternative theories not only in the overall cross-complaint, but within many of the individual causes of action. For example, they have inartfully pled as part of their background facts, "In addition to suing on their own behalves [sic], Cross-Complainants sue derivatively on behalf of the partnership as to a number of the claims set forth below." Without identifying what number of claims is derivative in nature, they simply designate the names of the individual cross-defendants against whom each cause of action is brought, and specify that others are against "all cross-defendants," now including the partnership itself.
With respect to their causes of action for breach of fiduciary duty, misappropriation and conspiracy, Appellants specifically plead that "to the extent that a court of competent jurisdiction were to determine that [those specified torts described above] constitute direct claims of the individual Cross-Complainants rather than derivative claims, Cross-Complainants assert that they have been individually damaged, in the amount of at least $50,000.00, by such other breaches." Apparently, Appellants believe we can read the face of the pleading to allege two causes of action in one, both direct and derivative, on each of those three theories (1st, 2nd and 5th causes of action). At argument before the trial court on demurrer, they asserted that only the business interference torts allegations (3rd and 4th causes of action) were solely individualized in nature. At that time, they sought to pursue all other substantive causes of action both directly (to redress individualized injury), and derivatively (to seek recovery on behalf of the partnership). However, they only named "all cross-defendants" (which includes the partnership itself) in certain causes of action, apparently as an alternative form of pleading for both derivative and direct claims (8th, accounting; 9th, restitution; 12th, receivership; 13th, injunction).
Section 472c, subdivision (a) provides, "When any court makes an order sustaining a demurrer without leave to amend the question as to whether or not such court abused its discretion in making such an order is open on appeal even though no request to amend such pleading was made." (See also Kruss v. Booth (2010) 185 Cal.App.4th 699, 712, fn. 13 (Kruss) citing to People ex rel. Brown v. Powerex Corp. (2007) 153 Cal.App.4th 93, 112 [" 'A party may propose amendments on appeal where a demurrer has been sustained, in order to show that the trial court abused its discretion in denying leave to amend.' "].) Thus, Appellants sought guidance from the trial court and do so again from this court, to identify which of their claims may be legally viable. We shall not address their suggestion that they tried to amend their pleading in the main action as against PPI, since only the cross-complaint is now before us. We also disregard any suggestion that the court should have given them legal advice about how to amend their pleadings, and reiterate that the burden was on them to set forth cognizable causes of action. (Schifando v. City of Los Angeles, supra, 31 Cal.4th 1074, 1081.)
For example, Appellants' reply brief unjustifiably complains that "in the absence of judicially-identified defects, any proposed amendment would necessarily have been a 'stab in the dark' as to what aspects of the pleading a court might conclude needed amending."
For analysis of these pleading matters, it is not enough for Appellants to argue that as a procedural matter, a cross-complaint " 'may set forth the same cause of action in varied and inconsistent counts with strict legal propriety.' " (4 Witkin, Cal. Procedure (5th ed. 2008) Pleading, § 402, p. 542.) Where one remedy is sought on various legal theories, a plaintiff is "entitled to offer his evidence to show liability on either theory, without being forced to guess at the outset which one his evidence would support." (Id. at § 409, p. 548.) Appellants argue the trial court's ruling incorrectly required them to elect among available remedies. (Ibid.)
Appellants are disregarding well-established substantive restrictions on the pleading of inconsistent rights or remedies in the field of partnership law. "[T]he doctrine of election of remedies applies only where more than one remedy is sought and the remedies are mutually exclusive. If the plaintiff pleads a single cause of action and seeks only a single remedy, election cannot be compelled no matter how many legal theories in as many counts the plaintiff uses. And if the plaintiff seeks two remedies, but they are legally consistent and not mutually exclusive, the plaintiff's right to the dual remedies is not impaired by the pleading of the single cause of action according to different legal theories." (4 Witkin, Cal. Procedure, supra, Pleading, § 409, p. 548; italics added.)
In partnership and corporate law, the two types of actions, direct or derivative, are normally treated as mutually exclusive: " 'i.e., the right of action and recovery belongs either to the shareholders [partners] (direct action) or to the corporation [partnership] (derivative action).' " (Schuster, supra, 127 Cal.App.4th at p. 312; see Friedman et al., Cal. Practice Guide: Corporations (The Rutter Group 2018) ¶¶ 6:598.2, 601.1a, 601.1b, pp. 6-281 to 6-283 [narrow exception to exclusive remedy is made for a close corporation's action to recover excessive compensation paid to majority shareholders, where the only minority shareholder may have a direct action for "disguised dividends," citing to Jara v. Suprema Meats, Inc. (2004) 121 Cal.App.4th 1238, 1253-1260].)
The " 'test for distinguishing direct from derivative claims in the context of a limited partnership is substantially the same as that used when the underlying entity is a corporation.' " (Schuster, supra, 127 Cal.App.4th 305, 317.) "In determining whether an individual action as opposed to a derivative action lies, a court looks at 'the gravamen of the wrong alleged in the pleadings.' " (Paclink Communications Internat. v. Superior Court (2001) 90 Cal.App.4th 958, 965.) " '[An] action is derivative, i.e., in the corporate right, if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.' " (Jones v. H. F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106 (Jones).)
To determine if a partner or shareholder may maintain an individual cause of action, "it is the gravamen of the wrong alleged in the pleadings, not simply the resulting injury, which determines whether an individual action lies." (Nelson v. Anderson (1999) 72 Cal.App.4th 111, 124 (Nelson).) Individual damages cannot be "incidental to an injury to the corporation. [Citation.] The cause of action is individual, not derivative, only ' "where it appears that the injury resulted from the violation of some special duty owed the stockholder by the wrongdoer and having its origin in circumstances independent of the plaintiff's status as a shareholder." ' " (Id. at p. 124.) For example, some permissible corporate direct actions are "suits brought to compel the declaration of a dividend, or the payment of lawfully declared or mandatory dividends, or to enjoin a threatened ultra vires act or enforce shareholder voting rights." (Schuster, supra, 127 Cal.App.4th 305, 313.)
The principles allowing alternative pleading, and discretionary leave to amend on a proper showing, must also be read in conjunction with the rule that Appellants bear the burden of showing error on appeal. (Schuster, supra, 127 Cal.App.4th 305, 311 [plaintiff must show "there is a reasonable possibility any defect identified by the defendant can be cured by amendment"; review is de novo].) Complaints must be given "a reasonable interpretation," read "as a whole" with their "parts in their context." (Blank v. Kirwan, supra, 39 Cal.3d 311, 318; Kruss, supra, 185 Cal.App.4th 699, 726.) Appellants already amended the cross-complaint once, and in this factual and legal context, are presumed to know the applicable law for pleading in the alternative, as well as for pleading derivative or direct causes of action. (Wallner, supra, 22 Cal.App.4th 1446, 1451, fn. 6 [in area of procedures, limited partnership treated substantially same as corporation]; Everest Investors, supra, 114 Cal.App.4th 411, 425 [applying corporation law from Jones, supra, 1 Cal.3d at p. 106].)
Without much analytical help from Appellants, we undertake to examine whether they have alleged sufficient facts to support each cause of action, and in what capacity. De novo review of pleadings matters requires basic analysis of standing to sue, in terms of identifying the real party in interest who is alleging a particular cause of action. (§ 367 ["Every action must be prosecuted in the name of the real party in interest, except as otherwise provided by statute."].) These issues fall well within the scope of the issues briefed in this appeal.
Given this theoretical background, we next undertake to analyze the relief requested against the respective cross-defendants, first by identifying whether a derivative or direct action is actually, dominantly being pled in each of the 13 causes of action. We then examine the sufficiency of the facts to support the required elements for stating a recognized legal theory, according to applicable principles of law, and consider the amendment issues as well.
V
CAUSES OF ACTION VS. KATE ALONE, NOS. 1-4, 10, 11; REMEDIES
A. Breach of Fiduciary Duty, First Cause of Action
1. Both Derivative and Individual Claims
Appellants allege in their breach of fiduciary duty cause of action that during the times Kate was president and a director of PPI, she engaged in self-dealing, commingled her personal assets, and wrongfully excluded Appellants from taking control. However, she "was herself a fiduciary as to both the partnership and the limited partners of the partnership, in that she actually controlled the conduct of PPI, the general partner of the partnership. Further, at the time of the events described herein, [she] was a family member of the Cross-Complainants, and as such was in a relationship of trust and confidence with them."
Accordingly, Appellants sought to recover damages for breaches of fiduciary duty as to the partnership, and as to the limited partners (in their individual capacities). They claim injuries were incurred, because (1) the partnership has been damaged in the amount of at least $100,000.00, and (2), "Cross-Complainants as individuals have been damaged in the amount of at least $50,000.00, the amount of such damages to be established at trial." (Italics added.)
As described above, Appellants attempt to leave the door open for alternative pleading by alleging, "to the extent that a court of competent jurisdiction were to determine that the other breaches of fiduciary duty described above constitute direct claims of the individual Cross-Complainants rather than derivative claims, Cross-Complainants assert that they have been individually damaged, in the amount of at least $50,000.00, by such other breaches." In the prayer for relief, they seek damages and also appointment of a receiver. (§ 564, subd. (b)(1), (9).) Thus, they assert dual injuries were incurred, both as to (1) the partnership and (2) individually.
2. Legal Principles and Application: Derivative
An action is derivative, that is, in the corporate right, " 'if the gravamen of the complaint is injury to the corporation, or to the whole body of its stock and property without any severance or distribution among individual holders, or it seeks to recover assets for the corporation or to prevent the dissipation of its assets.' " (Jones, supra, 1 Cal.3d at p. 106.) Appellants are claiming that the wrongful acts of Kate, as the corporate general partner's officer, amounted to misfeasance in managing the business, causing the business to lose earnings, profits, and opportunities. (See Nelson, supra, 72 Cal.App.4th 111, 125-127.) In such a case, the claim is derivative and not individual, because the resulting injury was to the partnership as a whole. (See Kazanjian v. Rancho Estates, Ltd. (1991) 235 Cal.App.3d 1621, 1629 [key differences between limited and general partners are (1) limitation of liability of the limited partner to the amount of the investment, "in return for which (2) the limited partner relinquishes all right of business management."].)
A corporate general partner, such as PPI, can act only through its agents or officers. (See Western Camps, Inc. v. Riverway Ranch Enterprises (1977) 70 Cal.App.3d 714, 730; Insurance Co. of North America v. Superior Court (1980) 108 Cal.App.3d 758, 763.) Corporate directors are generally not subject to personal liability for their official activities, unless their activities exceed the scope of authorized activities or are in bad faith. (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1045.) If alter ego of a corporate agent is pled and proven, then "a guilty fiduciary" may be held "liable in quasi contract to the extent that he has unjustly enriched himself by his breach." (Commons v. Schine (1973) 35 Cal.App.3d 141, 144-145 [individual was alter ego of a corporate general partner of a bankrupt limited partnership, and due to his dominance and control of the corporation, could be charged with liability for the obligations of the partnership].)
In re Real Estate Associates Ltd. Partnership Litigation (C.D. Cal. 2002) 223 F.Supp.2d 1109 is a district court case applying California law, holding as relevant here that individual defendants who were officers of an entity that was the managing general partner of a limited partnership did not owe individual fiduciary duties to a class of limited partner investors. The class was claiming that the individual defendants owed it fiduciary duties, based on their control and domination of the managing general partner in the overall transaction, in which the investors lost money. However, the district court determined "the plaintiffs have failed to allege facts or establish that the actions of the Individual Defendants with respect to [the managing general partner entity] are such that it is appropriate to 'pierce the partnership veil' to hold them personally liable to the Class. The Court finds that the Individual Defendants did not owe fiduciary duties to the Class, and that the plaintiffs' cause of action is proper against [the Managing General Partner entity] only." (Id. at p. 1134.)
Where the acts alleged to have caused a partner's injury "amount to alleged misfeasance or negligence in managing the corporation's business," any obligations so violated were duties owed directly and immediately to the partnership. (Nelson, supra, 72 Cal.App.4th 111, 125.) To the extent that Appellants are claiming injury on behalf of this partnership, from the actions of the managing general partner PPI, their claim is not properly addressed to Kate, who was alleged to be acting on behalf of PPI, albeit improperly. On a derivative basis, PPI was charged separately in the main action with similar defalcations, and it is unclear how the cross-complaint against Kate individually differs or is sustainable.
3. Legal Principles and Application: Direct Action
Assuming Appellants intended to allege individual injury from the claimed self-dealing by Kate, we examine the adequacy of the pleading. Initially, we reject Appellants' theory that since Kate is or was their long-time stepmother, she owes them a family-based fiduciary duty. They are adults who had their own relationship with their father, who established the partnership. (See Knapp v. Knapp (1940) 15 Cal.2d 237, 242 ["family connection alone is not sufficient to support a finding of a confidential relationship . . ."].) The face of the pleading discloses arms' length or adversary dealings, rather than a confidential relationship.
Next, to the extent that Appellants argue Kate individually owed them a fiduciary duty, based on her activities on behalf of PPI, they do not show a personal relationship, such as a de facto partnership interest. The teaching of Everest Investors, supra, 114 Cal.App.4th 411 and similar cases is that "a limited partner may suffer an injury to its interest without the occurrence of any injury to the partnership entity or to the partnership assets because the interest of a limited partner in a partnership is separate and apart from the partnership's ownership interest in its assets." (Id. at p. 428.) As a comparison, minority shareholders can maintain individual actions against wrongdoers, if the majority shareholders' self-dealing "rendered worthless" only the minority shareholders' stock. (Id.at p. 427, citing Crain v. Electronic Memories & Magnetics Corp. (1975) 50 Cal.App.3d 509, 521-522.)
But here, the dominant claims of injury are to the partnership itself, and to Appellants' interests only as limited partners. (See Mieuli v. DeBartolo (N.D. Cal. May 7, 2001) 2001 U.S. Dist. LEXIS 22519, **37, 41-42 [under California law, a limited partner may only bring derivative claims to redress injuries to the partnership].) Appellants cannot show they are entitled to enforce a fiduciary relationship arising out of contract or from another relationship imposing one as a matter of law. (See Kovich v. Paseo Del Mar Homeowners' Assn. (1996) 41 Cal.App.4th 863, 867.)
4. Accounting, Restitution, Receivership and Injunction
On the issue of remedies as separate causes of action, we observe that the harms alleged are those suffered by Appellants as limited partners and are thus limited by the rights granted them in the partnership agreement. The concepts of "cause of action" and "remedy" are separate and distinct. "A 'cause of action' must be distinguished from the remedy sought: . . . ' "[T]he relief is not to be confounded with the cause of action . . . ." ' " (Marlin v. Aimco Venezia, LLC (2007) 154 Cal.App.4th 154, 162.) A "cause of action" must exist before a "remedy" may be granted. (Shell Oil Co. v. Richter (1942) 52 Cal.App.2d 164, 168.)
Equitable principles apply to partnership matters, and in cases not provided for by law, equity will govern. (Wallner, supra, 22 Cal.App.4th 1446, 1450 [construing prior Uniform Limited Partnership Act; see Corp. Code, § 15912.06, applicability of current Act.) Appellants assert that some cases have allowed "causes of action" to be asserted for restitution, injunction and disgorgement. (See, e.g., Cruz v. PacifiCare Health Systems, Inc. (2003) 30 Cal.4th 303, 320.) They argued to the trial court that they adequately tied these forms of "relief" to the facts which entitle the pleader to relief (i.e., the cause of action), and they could legitimately choose "to (i) break them out separately into counts (labeled as 'causes of action'), (ii) incorporate by reference the pleading's Statement of Facts, and (iii) state additional specific facts (e.g., wrongful conduct) which entitled Appellants to that specific form of relief." Also, "Had they been given the chance, Appellants would have moved these claims for relief inside the counts setting forth the tort claims."
To the extent that the related cause of action for an injunction (No. 13) alleges that Kate "has accelerated her misappropriation of partnership assets" starting in 2014, the harm would be to the partnership. The same is true as to the receivership cause of action (No. 12), which seeks to preserve partnership assets.
The accounting cause of action (No. 8) also appears to be derivative in nature and seeks to distinguish between partnership assets and those of Kate that were commingled with them. Accounting is further sought to identify funds and assets she or the other cross-defendants have received since the inception of the partnership. "A right to an accounting is derivative, it must be based on other claims." (Janis v. California State Lottery Com., supra, 68 Cal.App.4th 824, 833-834.) As will be explained, other related claims against Kate fail and the accounting claim is unsupported.
Likewise, the restitution cause of action (No. 9), alleging Kate engaged in self-dealing as to partnership property and took excessive compensation and reimbursements, seeks to avoid unjust enrichment by having all cross-defendants restore to the partnership and/or to Appellants the aggregate amount of such improper takings. Those allegations are premised on actions carried out in Kate's official capacity, but without an adequate allegation of fiduciary duty to support these remedies. They do not stand alone as independent causes of action.
Appellants now "agree with Respondents and the trial court that the remedies named above are not themselves 'causes of action.' " However, they have failed to show that the underlying tort claims they allege, and that are next discussed, have adequately stated their derivative or direct causes of action. No substantive support is left for these requested remedies.
B. Misappropriation, Second Cause of Action
1. Both Derivative and Individual Claims
Appellants allege in their "misappropriation" cause of action that while she was acting as a fiduciary, Kate engaged in self-dealing by selling partnership assets and charging the partnership rent, expenses and excessive compensation. Mainly injury to the partnership is alleged, but also, "as a proximate result of the above-described misappropriations of partnership assets, partnership distributions that Cross-Complainants would otherwise have received from the partnership were diminished substantially."
Next, Appellants make their form allegation, "To the extent that a court of competent jurisdiction were to determine that such misappropriations constituted direct claims of the individual Cross-Complainants rather than derivative claims, Cross- Complainants assert that they have been individually damaged by such diminution, in the amount of at least $50,000.00, by such misappropriations." (Italics added.) In the prayer for relief, they seek damages and appointment of a receiver. (§ 564, subd. (b)(1), (9).) Thus, they assert dual injuries were incurred, both as to (1) the partnership and (2) individually.
2. Legal Principles and Application
These misappropriation claims appear to be largely based on fiduciary duty allegations, to explain why the alleged self-dealing was improper. These claims seek to vindicate partnership interests, and would not clearly benefit the individual limited partners, whose rights are governed by the partnership agreement. The partnership holds title to assets, and the general partner administers the partnership. To the extent it is alleged that Kate, as an officer of PPI, breached fiduciary duties, this cause of action also resembles a constructive fraud theory, as Appellants suggest in their reply brief. (Civ. Code, § 1573 [constructive fraud requires a special relationship].) In their opening brief, Appellants "offer to re-label this cause of action in any way that this Court or the trial court might prescribe." They suggest that a cause of action for "misappropriation" was impliedly recognized in cases such as Kazanjian v. Rancho Estates, Ltd., supra, 235 Cal.App.3d 1621, 1624, which was fundamentally an action for dissolution of a partnership and an accounting. In Michelson v. Hamada (1994) 29 Cal.App.4th 1566, one doctor filed a complaint against another, alleging breach of contract for management services, breach of fiduciary duty, fraud, and other causes of action. (Id. at pp. 1574-1575.) The court found that the circumstances and conduct of the parties showed they created an agency relationship, noting, "A contract between parties that includes the rendering of services does not preclude recovery for breach of a confidential relationship where property is misappropriated." (Id. at pp. 1580.)
Constructive fraud, as defined in Civil Code section 1573, occurs: "1. In any breach of duty which, without an actually fraudulent intent, gains an advantage to the person in fault, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him; or, [¶] 2. In any such act or omission as the law specially declares to be fraudulent, without respect to actual fraud."
The cases relied on by Appellants do not provide authority for recognizing an independent tort of misappropriation. In any event, the problems arising from Kate's alleged self-dealing and exclusion from control, as alleged in other causes of action and in the main action, did not justify inventing a new cause of action here. The related separate cause of action for accounting was also inadequate to provide a basis for a new tort. (Janis v. California State Lottery Com., supra, 68 Cal.App.4th 824, 833-834 [right to an accounting is derivative and based on other claims].) The trial court did not abuse its discretion in declining leave to amend to refashion these claims in some unspecified way.
C. Constructive Trust Cause of Action, No. 10
1. Derivative Only Claims
Appellants allege in their constructive trust cause of action that Kate holds record title to an interest in the Mountain Valley property, which equitably, belongs to the partnership. "PIFER, LLC holds, or has held, funds arising from the self-dealing transactions involving the Tulsa Property, as described above. As an officer of PPI at the time of those transfers, and also as a trusted family member of Cross-Complainants' family, [Kate] was a fiduciary as to Cross-Complainants and had a conflict of interest as to such transfers." Based on those allegations, Appellants sought to have a constructive trust imposed upon the Mountain Valley property, and on the proceeds of the Tulsa property transactions, and other self-dealing funds.
2. Legal Principles and Application
This cause of action is related to and dependent on Appellants' claims that Kate was a fiduciary and had a conflict of interest in making the allegedly improper transfers of property and funds. However, they have not set forth a basis for an actionable fiduciary duty owing by Kate individually. The derivative claim is also not well taken. The actions she carried out in making the challenged transfers were done in her official capacity, and there is no basis for this equitable remedy without such an underlying cause of action properly stated in the cross-complaint.
D. Equitable Lien Cause of Action, No. 11
1. Derivative Claims
Appellants allege in their equitable lien cause of action that even though Kate holds record title to an interest in the Mountain Valley property, such property equitably belongs to the partnership. She and her affiliated entity Pifer LLC allegedly hold other funds. As an officer of PPI and also as a trusted family member, Kate held fiduciary status and therefore she and Pifer LLC allegedly hold title to her interest in the Property and partnership funds subject to an equitable lien in favor of the partnership, for the indirect benefit of Appellants as limited partners in the partnership.
2. Legal Principles and Application
This cause of action is again dependent on the breach of fiduciary duty pleading, which on the alleged facts is not enforceable against Kate individually. The derivative claim is not well taken. The actions she carried out in making the challenged transfers were allegedly done in her official capacity, and there is no basis for this equitable remedy without a supporting cause of action properly stated in the cross-complaint.
E. Interference with Contractual Relations, Third Cause of Action
1. Individual Claim Only Alleged
Appellants allege in their third cause of action that Kate, individually and as a stranger to the restated partnership agreement, intentionally interfered with the limited partners' rights under that contractual relationship. Although she was acting as the president and director of PPI from 2013 to 2015, "and for several previous years she claimed the title of Chief Operating Officer of PPI," Appellants argue she personally conducted nonofficial and tortious activities, such as by adopting Moffat and allegedly committing breaches of fiduciary duty and misappropriations, to interfere with their contract rights.
The partnership agreement provides that limited partners or their affiliates "may provide services to the partnership and be compensated therefor so long as such compensation arrangements are affirmatively approved by Limited Partners holding a Majority in Interest of the Percentage Interests . . . ." As to the injuries incurred, each Appellant claims damage in the amount of at least $50,000, apparently through loss of partnership income or compensation for services. In the prayer for relief, they seek damages and appointment of a receiver. (§ 564, subd. (b)(1), (9).)
In sustaining the demurrer without leave to amend, the court interpreted the pleading as alleging that Kate, as an officer of the PPI signatory to the partnership agreement, was not a stranger to the contract and thus, the elements of the interference claims cannot be pled. (Mintz v. Blue Cross of California, supra, 172 Cal.App.4th 1594, 1604.)
2. Legal Principles and Application
The question remains whether Appellants' attempt to plead this individual cause of action is based on claimed injury that " ' "resulted from the violation of some special duty owed the [partner] by the wrongdoer and having its origin in circumstances independent of the plaintiff's status as a [partner]." ' " (Nelson, supra, 72 Cal.App.4th 111, 124.) And the "individual cause of action exists only if the damages were not incidental to an injury to the corporation." (Ibid., italics omitted; Hilliard v. Harbour (2017) 12 Cal.App.5th 1006, 1012.)
"The elements which a plaintiff must plead to state the cause of action for intentional interference with contractual relations are (1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126.)
In Mintz v. Blue Cross of California, supra, 172 Cal.App.4th 1594, the court explained that the " 'agent's immunity rule' " means that " 'duly acting agents and employees cannot be held liable for conspiring with their own principals . . . .' " (Id. at p. 1605.) This rule applies only to claims of conspiracy to commit a tort, and "has no direct applicability to a claim for interference with contract rights." (Ibid.) There, the court said the real question was "whether the representative of a contracting party may be held liable for the substantive tort of interfering with the contract. The cases answer that question in the negative." (Id. at p. 1606.)
Appellants mainly rely on Asahi Kasei Pharma Corp. v. Actelion Ltd. (2013) 222 Cal.App.4th 945, 963, 967-968 to argue that "The manager's privilege does not exempt a manager from liability when he or she tortiously interferes with a contract or relationship between third parties." As the cross-defendant, Kate is alleged to be the manager of a party to the partnership agreement. The actions she took in dealing with partnership property were carried out in her official (not personal) capacity. These facts do not support a claim she was a stranger interfering with the partnership agreement, when she conducted partnership business. The PPI administration overall was being challenged in the main action.
Under Quelimane Co. v. Stewart Title Guaranty Co. (1998) 19 Cal.4th 26, to claim an interference with an existing contract, "it is not necessary that the defendant's conduct be wrongful apart from the interference with the contract itself." (Id. at p. 56.) The focus in such a claim is on whether a plaintiff's own performance to a third party was made more difficult. (Id. at pp. 55-56.) A limited partner has relinquished all right of business management to the general partners, in return for investment rights with a limitation of liability. (Kazanjian v. Rancho Estates, Ltd., supra, 235 Cal.App.3d 1621, 1629.) The only possible claim Appellants might have that is distinct from the partnership's rights, i.e., their investment rights, would be a right to compensation for their offered services, which they claim was denied to them. However, even such a claim depends upon their rights as a limited partner to be employed by the business.
In Nelson, supra, 72 Cal.App.4th 111, the court observed that "in some cases, the same facts regarding injury to the corporation may underlie a personal cause of action, such as intentional infliction of emotional distress, breach of contract, fraud, or defamation . . . ." (Id. at pp. 124-125.) But here, Appellants have not alleged any kind of special duty owed to them by a third party to the partnership agreement. They do not allege they incurred damages that were not "incidental" to harm to the partnership. (Everest Investors, supra, 114 Cal.App.4th 411, 426-427.) If there was self-dealing by Kate, it is not alleged to have caused separate injury to the limited partners, through violation of some special duty owed to them, " 'having its origin in circumstances independent of the plaintiff's status as a [partner].' " (Id. at p. 427.) The demurrer was properly sustained on this theory.
F. Intentional Interference With Prospective Economic
Advantage, Fourth Cause of Action
1. Individual Claim Only
In this cause of action for intentional interference with prospective economic advantage, Appellants allege that their limited partnership status created reasonable expectations that PPI and its officials would take only reasonable compensation and pay reasonable expenses, and ultimately would yield control of the partnership to Appellants. Consistent with their reasonable expectations, they argued they should have received their proportion of the "genuine" net income and economic benefits from partnership assets, as well as reasonable compensation for rendering management services to it. However, Kate's adoption of Moffat and alleged commission of breaches of fiduciary duty and misappropriations allegedly caused them to lose such prospective benefits.
Damages and appointment of a receiver were sought, to redress individual injuries from Kate's intentional interference in their prospective economic advantage. (§ 564, subd. (b)(1), (9).)
2. Legal Principles and Application
"The tort of intentional or negligent interference with prospective economic advantage imposes liability for improper methods of disrupting or diverting the business relationship of another which fall outside the boundaries of fair competition." (Settimo Associates v. Environ Systems, Inc. (1993) 14 Cal.App.4th 842, 845.) For intentional interference, the plaintiff must plead and prove: " ' "(1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship." ' " (Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1153 (Korea Supply); italics added.) With respect to the type of intentional disruptive acts that are actionable, they must be wrongful by some independent legal measure, beyond interference. (Ibid.)
Further, an intentional interference claim requires setting forth facts of " ' "(4) actual disruption of the relationship; and (5) economic harm to the plaintiff proximately caused by the acts of the defendant." ' " (Korea Supply, supra, 29 Cal.4th at p. 1153.) A proximate cause showing is required for a plaintiff to recover for harm that is closely connected to the defendant's alleged wrongful conduct. (Id. at pp. 1165-1166; San Jose Construction, Inc. v. S.B.C.C., Inc. (2007) 155 Cal.App.4th 1528, 1544-1545 [" 'it is sufficient for the plaintiff to plead that the defendant "[knew] that the interference is certain or substantially certain to occur as a result of his action" ' "].)
Tortious interference can occur even when " 'the disruption is caused by an act directed not at the plaintiff, but at a third person.' " (Korea Supply, supra, 29 Cal.4th at p. 1163; Popescu v. Apple Inc. (2016) 1 Cal.App.5th 39, 66.) As alleged, Kate's activities were carried out using her PPI corporate authority, even if it was arguably abused. Appellants claim Kate's interference with their future economic benefit occurred only in the ways in which they had compensation or investment rights stemming from the partnership, not independently arising harm from a special duty. (See Nelson, supra, 72 Cal.App.4th at pp. 125-127.) They have not successfully pled this theory nor shown how it could be amended.
VI
CLAIMS AGAINST KATE, MOFFATT AND PIFER LLC, NOS. 5-7
A. Conspiracy, Fifth Cause of Action
1. Derivative and Individual Claims
Appellants allege in their conspiracy cause of action that together, Moffatt and Kate furthered Kate's breaches of fiduciary duty, misappropriations, intentional interference with contract and interference with prospective economic advantage. Moffatt also individually is alleged to have usurped Appellants' partnership opportunities when she took the PPI presidency for a period of time.
The damage alleged was to the partnership in the amount of at least $100,000. Appellants again sought to set forth alternative forms of pleading as follows: "to the extent that a court of competent jurisdiction were to determine that the conspiracy described above constitutes a direct claim of the individual Cross-Complainants rather than derivative claims on behalf of the partnership, Cross-Complainants assert that they have each been individually damaged by the above-described conspiracy, in the amount of at least $50,000." Imposition of liability for conspiracy was sought against both Kate and Moffatt. Also, appointment of a receiver was requested. (§ 564, subd. (b)(1), (9).) Accordingly, Appellants appear to assert both derivative claims on behalf of the partnership, and an individual or direct cause of action.
2. Legal Principles and Application
In relevant part, the rulings each sustained the objections to the conspiracy cause of action, on the basis that Appellants could not maintain their breach of fiduciary duty, misappropriation, and business interference claims against Kate, and so there was no longer a sufficient allegation of any underlying tort.
This cause of action is dependent on Appellants' claim that Kate is a "guilty fiduciary" who should be held liable for unjust enrichment from self-dealing. (Commons v. Schine, supra, 35 Cal.App.3d 141, 144-145 [alter ego liability to be pled and proven].) Likewise, Moffatt's actions as president of PPI allegedly insulated Kate from responsibility for her earlier misappropriations.
Conspiracy "cannot be alleged as a tort separate from the underlying wrong it is organized to achieve." (McMartin v. Children's Institute International (1989) 212 Cal.App.3d 1393, 1406; Applied Equipment Corp., supra, 7 Cal.4th 503, 510-511.) In their reply brief, Appellants admit this principle applies, and offer to amend their pleading to meet that requirement, by inserting conspiracy theories inside the counts alleging the underlying tort. Since Appellants do not separate out their individual interests from those of their limited partnership interests and entitlements, they have not successfully pled such underlying torts. This cause of action was not properly pled, and Appellants do not show how it can be successfully linked to a surviving theory.
B. Aiding and Abetting, Sixth Cause of Action (Moffatt only)
1. Derivative and Individual Claims
Appellants allege in their aiding and abetting cause of action that in addition to conspiring with Kate, Moffatt aided and abetted Kate's breaches of fiduciary duty and misappropriations, and as an officer of PPI, she insulated them from reversal, as Appellants were requesting. Moffatt also allegedly assisted Kate in keeping Appellants away from control of the partnership, by disrupting the contractual relationship under the partnership agreement, thereby frustrating Appellants' prospective economic advantage thereunder.
As alleged injury, they plead that the partnership and Appellants have each been financially damaged, and a receivership is warranted.
2. Legal Principles and Application
As explained in Kruss, supra, 185 Cal.App.4th 699, 729, tort liability for aiding and abetting will lie when a corporate director is aware that another director has violated a fiduciary duty by self-dealing, but the defendant director knowingly and substantially assisted in the breaches of duty. An existing, underlying tort is required for such an aiding and abetting cause of action to be maintained. (Richard B. LeVine, Inc. v. Higashi, supra, 131 Cal.App.4th 566, 574.)
This cause of action is dependent on Appellants' being able to show that Kate had an individual fiduciary duty to Appellants, stemming from her activities as an officer and director of PPI, or from her familial relationship. However, they have not set forth sufficient facts to support those or other underlying causes of action, which Moffatt is said to have abetted. We have been given no basis on appeal to determine how amendments would cure the defects identified in the remainder of the pleading. This demurrer was properly sustained.
C. Assumpsit, Seventh Cause of Action (vs. Kate, Moffatt and Pifer LLC)
1. Derivative Claim Only
In their assumpsit cause of action, Appellants allege that Kate, Moffatt and Pifer LLC are each in receipt of funds from the partnership, to which they were not entitled. Such monies had and received are related to the Mountain Valley property, the Tulsa property, excessive compensation to Kate or John or Moffatt, or excessive reimbursements to Kate.
As to the injuries incurred, Appellants claim the partnership is entitled to receive restitution for all such partnership money had and received by them
2. Legal Principles and Application
"When a common count is used as an alternative way of seeking the same recovery demanded in a specific cause of action, and is based on the same facts, the common count is demurrable if the cause of action is demurrable." (McBride, supra, 123 Cal.App.4th 379, 394-395.) This assumpsit cause of action is dependent on pleading and proving that the partnership was harmed by actions taken by Kate in her official capacity, or Moffatt as president. In their opening brief, Appellants explain that this seventh cause of action (seeking the return of money from whatever source) was intended to be different from the restitution claim (9th cause of action, seeking return of money and property that was taken by intentional wrongful acts).
An assumpsit theory does not stand alone as a common count, and here, it is based on the same underlying facts alleged in support of the other claims, but that were insufficient. (McBride, supra, 123 Cal.App.4th 379, 394; Hays v. Temple, supra, 23 Cal.App.2d 690, 695.) No error in sustaining this portion of the demurrer has been shown.
VII
DENIAL OF LEAVE TO AMEND; NO APPARENT ABUSE OF DISCRETION
Finally, we address Appellants' argument that although they amended the cross-complaint in response to Kate's preliminary motion, they were entitled to further leave or an advisory opinion from the trial court about how to successfully amend their cross-complaint. "Liberality in permitting amendment is the rule, not only where a complaint is defective as to form but also where it is deficient in substance, if a fair prior opportunity to correct the substantive defect has not been given." (McDonald v. Superior Court (1986) 180 Cal.App.3d 297, 304.)
Appellants generally argued in opposition to the demurrer, "Because these pleading issues have not previously been adjudicated, it would be an abuse of discretion to deny leave to amend if the demurrer is sustained." Again, in opposition to Moffatt's judgment on the pleading, they claim their pleading did not "show on its face that it is incapable of amendment," and therefore denial of leave to amend would be an abuse of discretion.
In the briefs on appeal, Appellants have not clearly set forth which claims were intended to be direct (nonderivative) or derivative in nature, except for possibly clarifying that the business interference torts were individualized only. It is a fair inference from the record that after the initial ruling was issued on the first judgment on the pleadings motion, they made only token efforts to amend to set forth derivative claims, by adding to their background facts, "In addition to suing on their own behalves [sic], Cross-complainants sue derivatively on behalf of the partnership as to a number of the claims set forth below." Their amended pleading remained mainly unintelligible as to the party asserting each claim on behalf of which entity, as a real party in interest. (§ 367.)
Moreover, the trial court was mindful that the main action was still going on, in which the corporate general partner's officers and directors (PPI) were defending against the same type of allegations of self-dealing, involving the same individual who was the main target of this case, Kate. Without a clearer showing of why this separate cross-action would be justified in pleading any applicable or recognizable theories, the court did not abuse its discretion in denying leave to amend. We affirm the judgments of dismissal.
DISPOSITION
The judgments of dismissal are affirmed. Costs on appeal to respondents.
HUFFMAN, J. WE CONCUR: BENKE, Acting P. J. O'ROURKE, J.