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Rudy Corrales et al v. Richard Corrales

August 10, 2011

RUDY CORRALES ET AL., PLAINTIFFS AND RESPONDENTS,
v.
RICHARD CORRALES, DEFENDANT AND APPELLANT.



Appeal from a judgment of the Superior Court of Orange County, Richard W. Luesebrink, Temporary Judge. (Pursuant to Cal. Const., art. VI, § 21.) (Super. Ct. No. 06CC03600)

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

CERTIFIED FOR PUBLICATION

OPINION

Reversed and remanded.

INTRODUCTION

The parties to this appeal, a partnership dispute, agree on one issue. They want us to assume a partnership can consist of one person. Having carefully studied the idea of a one-partner partnership in light of the Revised Uniform Partnership Act, we conclude that no such animal exists. If a partnership consists of only two persons, the partnership dissolves by operation of law when one of them departs.

The trial judge in this case had a truly unenviable task before him as he pondered his decision. He found none of the key witnesses credible and had virtually no independent corroboration on which to rely. He was confronted with partnership books and records kept, not by GAAP (generally accepted accounting principles), but by "winging it." He probably developed severe neck pain from constantly shaking his head over the way the participants ran their business.

The parties have now brought this matter to us, and we have reluctantly concluded it has to go back to the long-suffering judge. The case was tried for the most part on a completely erroneous theory. Both parties seem to have proceeded on their assumption of the vitality of a one-person partnership, which we conclude cannot exist under California law. Since that assumption underlies the monetary portion of the judgment,*fn1 we remand to allow the application of the correct dissolution procedure.

FACTS

The brothers Corrales, Rudy and Richard, formed RC Electronics (RCE) in 1989, according to a written partnership agreement with an indefinite term.*fn2 RCE repaired, refurbished, and sold computer tape drives. The brothers agreed that Rudy would be responsible for running the business, while Richard would supply financing and business know-how. Richard already had a thriving business occupying him full-time; he became involved in RCE because Rudy could not obtain enough financing on his own to start a business.

Rudy's wife, Pamela, came on board shortly after RCE started up; she became the office manager and was responsible for preparing the company's business records. Their two daughters also worked for RCE.

The business was quite successful for several years, and Rudy and Richard realized substantial sums from it. In 2004, however, Richard discovered that Rudy, Pamela, and their daughters had formed a competing business, PK Electronics (PKE), to perform the same services performed by RCE, but without Richard.*fn3 When Richard inquired about PKE, Rudy refused to tell him anything and cut off all communication with him.

Richard sent Rudy a "Notice of Dissociation," dated April 12, 2005, in which he stated that he was withdrawing from the partnership. Richard and Rudy sued each other in 2006 in separate lawsuits. Richard sued Rudy, Pamela, the two daughters, PKE, and RCE for breach of contract, breach of fiduciary duty, fraud, conspiracy, misappropriation of trade secrets, and accounting. Rudy sued Richard for breach of contract, common counts, fraud, negligent misrepresentation, breach of fiduciary duty, and "Cal. Corp. Code, §§ 16703."

The two lawsuits were tried together to the court over four days in June 2009. A major issue in the case was the valuation of the business for buyout purposes, pursuant to Corporations Code*fn4 section 16701. Competing experts testified. Richard's expert based his valuation estimates on the company's financial statements and regarded the partnership tax returns as unreliable. Rudy's expert made disparaging remarks about the financial statements and based his valuation on the tax returns. The court adopted Rudy's expert's valuation. The court also ...


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