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Susan V.I. Callahan, As Trustee, Etc v. Gibson

April 19, 2011

SUSAN V.I. CALLAHAN, AS TRUSTEE, ETC., PLAINTIFFS AND APPELLANTS,
v.
GIBSON, DUNN & CRUTCHER LLP, DEFENDANT AND RESPONDENT.



(Los Angeles County Super. Ct. No. BC372999) APPEAL from a judgment of the Superior Court of Los Angeles County, Rolf M. Treu, Judge.

The opinion of the court was delivered by: Perluss, P. J.

CERTIFIED FOR PUBLICATION

Reversed.

Inge Realty Company, a California limited partnership, Susan V.I. Callahan, as trustee of the Robert E. Inge Children's Trusts (Trust No. 1), Sophia Inge, as trustee of the Robert Inge Family Trust, Sophia Inge and Susan V.I. Callahan, as co-executors of the Estate of Robert E. Inge, and Sophia Inge, individually (collectively, Robert Inge family members) appeal from the judgment entered after the trial court granted summary judgment in favor of Gibson, Dunn & Crutcher LLP (Gibson, Dunn) in this legal malpractice action arising out of Gibson, Dunn's drafting of Inge Realty Company's limited partnership agreement dated October 20, 1988. The Robert Inge family members contend the trial court erred in concluding, as a matter of law, they had sustained "actual injury" at the time of execution of the partnership agreement and their legal malpractice action was thus time barred. We reverse.

FACTUAL AND PROCEDURAL BACKGROUND

1. The Creation of the Limited Partnership

Inge Realty Company was founded in 1955 by brothers Robert and Oliver Inge. It engaged in the business of buying and selling properties and renting properties it owned to tenants.

In September 1988 Robert and Oliver*fn1 retained Gibson, Dunn to advise them regarding the best way to restructure their successful business (then operating as a real estate trust) to minimize income tax liabilities and to implement the succession plan that Robert and Oliver desired. According to the Robert Inge family members, during the initial meeting and thereafter, Robert and Oliver explained they wanted Inge Realty Company to continue as a family-run enterprise after they could no longer run the business.

Gibson, Dunn recommended the brothers' business be converted to a limited partnership with Robert and Oliver serving as general partners. On September 22, 1988 Gibson, Dunn partner Gordon Schaller sent a draft limited partnership agreement to Robert and Oliver with a cover letter stating, "The basic function of this Agreement is to allow you to continue the operations of Inge Realty Company in a structure with less tax risks than a trust and more flexibility for purposes of gifting interests and operation in the event of your deaths."

A final form of the partnership agreement, dated October 20, 1988, was executed in October 1988. Robert and Oliver were each named general partners; each held a 2 percent interest in the partnership; and each had an equal right to run the business. The Oliver E. Inge Trust and the Robert E. Inge Trust were each given a 48 percent limited partnership interest in the business.

Paragraph 1.6 of the partnership agreement provided, "The term of this Partnership shall commence on the Effective Date of this Agreement, and, unless extended by agreement of all of the Partners or terminated earlier pursuant to this Agreement, shall continue until December 31, 2038."

Paragraph 9.5 of the partnership agreement provided, in part, "Anything in this Agreement to the contrary notwithstanding, the General Partners shall have no authority, without the unanimous vote of the Limited Partners, to: [¶] . . . [¶] (f) After the death, retirement or insanity of a General Partner, to continue the business of the Partnership with Partnership property, except as is provided in this Agreement."

Paragraph 13.1 of the partnership agreement provided, in part, "The Partnership shall be dissolved upon the happening of any of the following events: [¶] (a) The death, disability, insanity, incompetency, dissolution, bankruptcy, retirement, resignation or expulsion of all of the General Partners[.]"

Paragraph 13.3 of the partnership agreement provided, in part, "Notwithstanding anything to the contrary provided in this Agreement, upon the death of any of the General Partners, the following provisions shall control: [¶] (a) If either Oliver V. Inge ('Oliver') or Robert E. Inge ('Robert') predeceases the other (such predeceasing Partner being referred to as the 'deceased brother'), the deceased brother's interest as a General Partner shall be converted to an interest as a Limited Partner . . . . [¶] (b) Upon the death of the survivor of Robert and Oliver, each of the Limited Partners hereby agrees that, if so requested by either of Robert's or Oliver's respective surviving wives, they shall vote to continue the Partnership on the same terms and conditions as are contained in this Agreement and elect such requesting wife or wives as the sole successor General Partner(s) of the Partnership. Either such surviving wife may make such a request by delivering to each of the Partners a written notice stating the same within thirty (30) days after the death of the survivor of Robert and Oliver."

2. Oliver's Death, the Probate Action and the Issue of Involuntary Dissolution

Oliver died on February 22, 2003, and Robert became the sole general partner of Inge Realty Company. According to Oliver's estate plan, his assets were held in the Oliver E. Inge Trust upon his death. Bank of the West, which had been substituted for Robert as successor trustee of the Oliver E. Inge Trust shortly before Oliver's death, also became executor of Oliver's estate.

The primary asset in the Oliver E. Inge Trust was its now 50 percent limited partnership interest in the Inge Realty Company, which was valued at approximately $10.5 million. The trust and the estate, however, did not have sufficient liquid assets to pay the then-owed $5.4 million in estate taxes and other related expenses and bequests made by Oliver, which exceeded $4 million. The Robert Inge family members were advised that if Oliver's trust were unable to timely pay the taxes due, the Internal Revenue Service might impose a "forced dissolution of the partnership."

Following Oliver's death, Bank of the West made demands for partnership income distributions from Inge Realty Company on behalf of Oliver's trust. The demands were refused, apparently on the ground that Oliver had impermissibly amended his trust beginning in late 2001 by adding non-Inge family members as beneficiaries and that distributions from Inge Realty Company to non-Inge family members were not authorized. Then, in April 2004 Bank of the West initiated a probate action (a petition for instructions) that ultimately sought, among other things, dissolution of the partnership in part pursuant to former Corporations Code section 15682, subdivision (b), because Robert had allegedly engaged in "pervasive fraud and abuse of authority" by not authorizing distributions to Bank of the West as trustee of Oliver's trust*fn2 and in part on the ground the partnership had dissolved under the terms of paragraph 13.1 of the partnership agreement because Robert was now "disabled and/or incompetent to act in the business of Inge Realty," leaving no general partner to run the business.*fn3 According to the Robert Inge family members, at the time Sophia, Robert's wife, was prepared to run the company.

The Robert Inge family members were named as respondents in the Bank of the West probate action. They assert they were advised by their lawyers that drafting problems with the partnership agreement presented a real risk that Bank of the West would succeed in effecting a dissolution of the partnership and that settlement of the probate action was therefore advisable. Robert died in October 2004, but the probate action continued; Bank of the West did not concede the propriety of Sophia's assumption of the role of general partner. The parties to the probate action eventually settled their various disputes in mid-November 2005. The court approved the settlement on December 29, 2006.

3. The Robert Inge Family Members' Legal Malpractice Action

In December 2004 the Robert Inge family members entered into tolling agreements with Gibson, Dunn regarding claims that might be asserted regarding the law firm's legal representation of Inge Realty Company and its partners, and in particular, with respect to advice concerning, and the drafting of, the October 20, 1988 limited partnership agreement. Those tolling agreements were renewed or extended through June 20, 2007.

The Robert Inge family members filed a complaint on June 19, 2007, a first amended complaint on December 27, 2007 and a second amended complaint on May 2, 2008, asserting claims against Gibson, Dunn for professional negligence, breach of fiduciary duty and negligent infliction of emotional distress. The second amended complaint alleges, in part, Robert and Oliver's primary goal in retaining Gibson, Dunn in 1988 was to preserve and protect Inge Realty Company as a family business and to ensure it remained at all times in the Inge family. Yet, under the terms of the partnership agreement as drafted by Gibson, Dunn, there was no provision for the limited partnership to continue except upon the death of both general partners. "In particular, there was no mechanism in the agreement for the continuation of the [partnership] if the sole remaining partner was incompetent or disabled or retired." According to the second amended complaint, the Robert Inge family members reasonably believed there was a likelihood Robert could be found to be incompetent and/or disabled and/or retired after Bank of the West asserted in mid-2004 he was largely incapacitated by a stroke and no longer active in the operation of the business and, as a result of Gibson, Dunn's negligent drafting of the provisions of the partnership agreement relating to succession and termination, ...


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