IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA THIRD APPELLATE DISTRICT (Sacramento)
January 30, 2013
BEN M. EASTMAN, PLAINTIFF AND RESPONDENT,
CHARLES R. BOGGS, DEFENDANT AND APPELLANT.
(Super. Ct. No. 34-2008-00010731-CU-MC-GDS)
The opinion of the court was delivered by: Butz , J.
Eastman v. Boggs
NOT TO BE PUBLISHED
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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
Defendant Charles R. Boggs appeals from a nearly $2.8 million bench trial judgment, which found he self-dealed while acting as the sole general partner of a limited partnership.
Boggs's one and only claim on appeal is that this litigation should never have proceeded to trial because the trial court should have sustained without leave to amend Boggs's demurrer to the complaint. Boggs's demurrer alleged that former Corporations Code section 15526 of the Uniform Limited Partnership Act of 1949 (ULPA), which governs here, foreclosed plaintiff Ben M. Eastman, as a limited partner, from bringing a derivative action on behalf of the limited partnership for breach of fiduciary duty against Boggs as the general partner.
A case that is directly on point, that has been on the books for 18 years, and that has never been criticized, Wallner v. Parry Professional Bldg., Ltd. (1994) 22 Cal.App.4th 1446 (Wallner), rejects the basis of Boggs's demurrer. We agree with Wallner. Consequently, we disagree with Boggs and shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
This appeal asks us to review a demurrer ruling. Thus, we accept as true those facts alleged in the complaint and those of which we may take judicial notice. (Wallner, supra, 22 Cal.App.4th at p. 1448.) Those facts are as follows.
Cordova Investments (Cordova), a limited partnership, was formed in 1983 to acquire, operate and eventually sell 20 duplexes in Rancho Cordova. Cordova is governed by the ULPA.*fn1 Eastman was a general partner in Cordova from its formation until May 1991; since then, Eastman has been a limited partner.
Eastman, as a limited partner, has brought a derivative action on behalf of Cordova against Boggs for an accounting and breach of fiduciary duty. The lawsuit alleges that Boggs engaged in self-dealing regarding the Cordova duplexes (the last of which sold in 2006) and refused to account for partnership affairs, to Cordova's financial detriment.
To set the legal context here, we note that a "limited partnership 'can generally be described as a type of partnership comprised of one or more general partners who manage the business and who are personally liable for partnership debts, and one or more limited partners who contribute capital and share in the profits, but who take no part in running the business and incur no liability with respect to partnership obligations beyond their capital contribution.' " (Sacramento Suncreek Apartments, LLC v. Cambridge Advantaged Properties II, L.P. (2010) 187 Cal.App.4th 1, 12-13 (Sacramento Suncreek), quoting Evans v. Galardi (1976) 16 Cal.3d 300, 305.)
It is within this legal context that former Corporations Code section 15526 (hereafter section 15526)--the statute at issue here--operates. (See Sacramento Suncreek, supra, 187 Cal.App.4th at pp. 12-13.) Section 15526 states, "A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner's right against or liability to the partnership." (Stats. 1949, ch. 383, § 1, p. 695.)
Wallner, a demurrer case, interpreted section 15526 as not barring a limited partner from maintaining a derivative action on behalf of the limited partnership against the general partners. The derivative action in Wallner alleged that the general partners engaged in self-dealing and breached their fiduciary duties to the limited partnership by leasing the partnership property to themselves without paying rent. (Wallner, supra, 22 Cal.App.4th at pp. 1448, 1450-1453.)
Wallner reasoned that nothing in the language of section 15526 prohibits a derivative action, and that allowing a derivative action would not defeat the section's purpose, which is to prevent a limited partner from interfering with the rights of the general partner(s) to conduct the partnership's business, and to exercise reasonable business judgment. (Wallner, supra, 22 Cal.App.4th at pp. 1450-1453.) Since the purpose of the derivative suit in Wallner was "to collect [rental] debts owing to the partnership which the general partners refuse[d] to collect because of alleged self-dealing," the suit did not, said Wallner, "purport to interfere with the general partners' right to carry on the business." (Id. at p. 1453.) Thus, Wallner concluded, "[a]llowing a limited partner's derivative action where the general partner refuses to carry on the partnership, as alleged here [and, we note, here as well], is . . . appropriate under Corporations Code section 15526." (Wallner, at p. 1454.)
The only way Wallner does not apply here is if we disagree with it. We see no reason to do so.
Boggs sees four such reasons, but Wallner addressed and rejected those as well.
First, Boggs claims that section 15526's language plainly prohibits derivative suits. We do not see it that way.
Second, Boggs points to language in Kobernick v. Shaw (1977) 70 Cal.App.3d 914, and similar language in other decisions (see Evans v. Galardi, supra, 16 Cal.3d at pp. 309, 311, fn. 16; Sacramento Suncreek, supra, 187 Cal.App.4th at p. 13 [a decision from this court, quoting Evans]; Bedolla v. Logan & Frazer (1975) 52 Cal.App.3d 118, 128). Kobernick stated, "The general rules as expressed in [section 15526] prohibit a limited partner from bringing a lawsuit on behalf of the limited partnership." (Kobernick, supra, 70 Cal.App.3d at p. 918.) Section 15526, properly analyzed, said Wallner, reflects "the general rule" that a limited partner is not to interfere when the general partner runs the partnership for the partnership; this general rule does not apply, however, when the general partner runs the partnership for essentially himself. (Wallner, supra, 22 Cal.App.4th at pp. 1450-1451.)
Third, Boggs argues that because the ULPA's legislative successor, the CRLPA, enacted a provision specifically authorizing a derivative suit by the limited partners, this shows that section 15526 of the ULPA failed to provide such a remedy. However, as Wallner suggested, the CRLPA may only have explicitly recognized what the ULPA implicitly recognized on statutory and equitable grounds. (Wallner, supra, 22 Cal.App.4th at p. 1450, fn. 4 [courts have concluded that a limited partner's derivative action arises from equitable as well as statutory grounds].)*fn2
Fourth, and finally, Boggs notes that a limited partner's derivative action is unnecessary because each limited partner, under section 15526, can file an individual suit for his share of the loss caused by the general partners' misdeeds. Individual suits, however, would raise the same issues that a derivative suit would raise, and would do so without maintaining the partnership. (Wallner, supra, 22 Cal.App.4th at p. 1453, fn. 8.)
The judgment is affirmed. Eastman is awarded his costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)
We concur: RAYE , P. J. NICHOLSON , J.