Bardis v. Oates, No. C043040.

CourtCalifornia Court of Appeals
Writing for the CourtButz
Citation119 Cal.App.4th 1,14 Cal.Rptr.3d 89
PartiesChristo BARDIS et al., Plaintiffs and Respondents, v. Marvin L. OATES et al., Defendants and Appellants.
Docket NumberNo. C043040.
Decision Date28 May 2004
14 Cal.Rptr.3d 89
119 Cal.App.4th 1
Christo BARDIS et al., Plaintiffs and Respondents,
v.
Marvin L. OATES et al., Defendants and Appellants.
No. C043040.
Court of Appeal, Third District.
May 28, 2004.
Rehearing Denied June 9, 2004.
Review Denied September 15, 2004.
Certiorari Denied February 22, 2005. See 125 S.Ct. 1325.

[14 Cal.Rptr.3d 92]

[119 Cal.App.4th 4]

Howard Rice Nemerovski Canady Falk & Rabkin, Jerome B. Falk, Jr., San Francisco, Steven L. Mayer, Goleta, Long X. Do, San Francisco; Downey Brand, M. Max Steinheimer and Rhonda Cate Canby, Sacramento, for Defendants and Appellants.

Freidberg & Parker, Edward Freidberg, Sacramento, for Plaintiffs and Respondents.

[119 Cal.App.4th 5]

BUTZ, J.


In this case involving self-dealing, secret markups and clandestine commissions arising out of a real estate partnership, a jury awarded plaintiffs Christo Bardis and Lloyd and Nancy Arnold, a California limited partnership, $165,527.63 in compensatory damages and $7 million in punitive damages against defendants Marvin L. Oates and his corporation A & A Properties, a California corporation.

Defendants launch a twofold attack on the judgment: First, without contesting the factual underpinnings of the jury's finding that they committed fraud and breach of fiduciary duty, defendants claim that plaintiffs failed to show they were damaged, and therefore defendants were entitled to judgment as a matter of law. Second, assuming compensatory damages were properly assessed, defendants contend the punitive damages award was so grossly excessive that it must be vacated.

We find no error in the award of compensatory damages. However, in light of recent due process constraints laid down by the United States Supreme Court in State Farm Mutual Insurance v. Campbell (2003) 538 U.S. 408, 123 S.Ct. 1513, 155 L.Ed.2d 585 (Campbell), we shall modify the punitive damages award from $7 million to $1.5 million, and affirm the judgment as modified.

FACTUAL AND PROCEDURAL BACKGROUND

With a couple of notable exceptions, the facts of this case are not in dispute. We summarize the essential facts upon which the jury based its verdict.

The Parties

All of the parties are sophisticated real estate investors or entities. Most prominent among them, defendant Marvin "Buzz" Oates (Oates), is a successful real estate developer who owns and controls a family of satellite companies. These include defendant A & A Properties (hereafter A & A), which manages commercial property and also does business as a real estate brokerage under the name Buzz Oates Real Estate (hereafter BORE). BORE is managed and operated by Kevin Ramos (Kevin), son of Frank Ramos (Ramos), a longtime friend and business partner of Oates.

14 Cal.Rptr.3d 93

Another prominent entity in Oates's empire is a multipurpose construction company called Buzz Oates Enterprises II (BOE II). Oates owns a controlling interest in both A & A and BOE II, and manages their day-to-day operations.

119 Cal.App.4th 6

Plaintiff Christo Bardis (Bardis) is a real estate developer who became a business associate of plaintiff Lloyd Arnold1 in the 1980's when they were in the harness racing business together.

Acquisition of the Cypress Property

In 1989, Bardis and Arnold located an opportunity to purchase and develop a 300-acre tract of land in the Orange County town of Cypress, which included a horse racetrack, golf course and industrial area. The men believed they could buy the property at a distressed price for a fraction of its estimated potential value. Arnold spoke to Ramos about the deal. Both men thought that bringing the experienced Oates into the venture was a "natural fit."

Bardis, Arnold, Oates and Ramos ultimately formed a partnership to develop the property, which they called the Cypress Development General Partnership (Cypress partnership). The terms of the partnership were memorialized in a 29-page contract (partnership agreement).

The Cypress property was purchased for $71 million. Bardis managed the partnership from 1989 to 1994, when Oates took over as manager. By then, the partnership had sold enough of the tract to recover its investment and pay off its debt, while retaining 40-plus acres of commercial property which the partners expected to sell off in parcels at an enormous profit.

Dissolution of the Cypress Partnership and Formation of TIC

In 1997, the Cypress partnership dissolved and the partners distributed the remaining parcels. Bardis and Arnold took parcels 7, 8 and 9, while Oates, Ramos and an Oates-controlled entity named OBF received parcels 1, 4, 5 and 6. The four Cypress partners took title as tenants in common to parcels 2 and 3. With respect to parcels 2 and 3, the partnership agreement was replaced by a written tenancy in common (TIC) agreement.

The Cypress Partnership and TIC Agreements

Under the Cypress partnership agreement, all major decisions affecting the partnership were to be made by majority vote of the partners. The managing partner had primary responsibility for day-to-day management of the partnership business. In addition to his share of the profits, the managing partner was permitted to receive cash disbursements "as may, from time to time, be approved by unanimous vote of all Partners in order to defray any general

119 Cal.App.4th 7

office and additional expenses incurred by the Managing Partner in the administration of his duties." The partnership agreement further provided that if any partner or affiliate performed services for the partnership as an employee or independent contractor, he was to be compensated at the same rate as would be paid for providers of such services in the community. However, all expenses payable to the managing partner had to be approved by a majority vote of the partnership.

Unlike the Cypress partnership agreement, the 1997 TIC agreement disclaimed "any intention to create a partnership or joint venture." The agreement obligated each cotenant to pay the expenses arising

14 Cal.Rptr.3d 94

from the property in proportion to his ownership share. It also authorized the "Lead Co-Tenant" to manage the properties and compensated him at the rate of $500 per month for carrying out such duties. Oates was designated as the "Lead Co-Tenant." As with the Cypress partnership, Oates utilized A & A to manage the TIC.

Management Fees

Despite the clause of the partnership agreement requiring a majority vote for any payment of compensation for services to the managing partner, during the time Oates was managing partner, A & A charged a fee of $500 per month for "managing" the Cypress properties. Oates admittedly never asked for a vote authorizing payment of the monthly fee. Although he acknowledged he lacked authority to charge the partnership a fee and was aware that Bardis had never charged for his time and efforts while he managed the property, Oates tried to justify the management fee at trial by asserting that it represented less than what it actually cost him to manage the Cypress tract.

The Markups

While managing the Cypress partnership and the TIC, A & A routinely received invoices from vendors. However, instead of paying the invoices directly, A & A tendered them to BOE II, a division of A & A, which marked up the invoices by 5 percent or more, and wrote a check for the marked-up amount from partnership funds. For example, a water bill for $97,673 for the partnership was submitted to BOE II; BOE II added a markup charge of $4,883 and charged the partnership $102,556 for the same bill. This practice was applied to bills of all sizes.

The markup percentages for the services of Bruce Kemp, an engineering consultant, and Gordon Egan, a contract attorney, were even steeper than those for routine bills: BOE II marked up Kemp's services by 100 percent, while the fee for Egan's services was marked up 50 percent.

119 Cal.App.4th 8

Oates concealed the markups from Bardis and Arnold. At trial, he claimed the markups enabled A & A to recoup "overhead" costs. However, no one at A & A ever did an analysis to determine what the actual overhead costs were.

The Ewing Commission

In January 1998, Kemp brought to Kevin Ramos of BORE a prospective buyer for parcel 2 of the Cypress tract, Ewing Development Company (Ewing). Previously, Bardis had made it abundantly clear that he was not going to allow Oates or BORE to receive a realtor's commission on the sale of TIC properties.

Although no broker handled the transaction on behalf of Ewing, Kevin associated Bob Goodmanson and his company CB Commercial (CB), whose offices were near the Cypress property, to handle the sale. Kevin and Goodmanson had a prior understanding that CB would help market the property and earn a share of any eventual commission earned by BORE.

On March 18, 1998, Kevin sent a memo to the four TIC owners, setting forth the terms of a proposed sale to Ewing. The memo recited that CB would receive a 4 percent commission. This recitation, according to Kevin's trial testimony, was an intentional misrepresentation. In fact, Kevin had secretly agreed to split the seller's commission with Goodmanson, so that BORE would get 60 percent of it and CB 40 percent. The commission split agreement was concealed for the purpose of deceiving Bardis.

All the TIC owners approved the sale to Ewing under the terms proposed by Kevin.

14 Cal.Rptr.3d 95

The deliberately false statement that CB would receive the entire commission on the Ewing sale appeared on the written purchase agreement as well as the closing escrow statement.

CB received a 4 percent commission on the Ewing sale, or $203,484.44. It then sent BORE a check for the agreed-upon kickback in the amount of $122,090.

The Cottonwood Commission

In June 1999, the last remaining parcel of TIC property was sold to Cottonwood Christian Center (Cottonwood). However, the Cottonwood offer included not only TIC-owned parcel 3, but also adjacent parcels 4, 5 and 6, which were owned by Ramos and Oates.

Goodmanson had...

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117 practice notes
  • Everest Properties II v. Prometheus Development Co., Inc., A114305 (Cal. App. 9/27/2007), A114305
    • United States
    • California Court of Appeals
    • September 27, 2007
    ...deal with partnership property other than for the sole benefit of the partnership [citation].' "`[Citations.]" (Bardis v. Oates (2004) 119 Cal.App.4th 1, 12.) "`There is an obvious and essential unfairness in one partner's attempted exploitation of a partnership opportunity for his own pers......
  • Boeken v. Philip Morris Inc., No. B152959.
    • United States
    • California Court of Appeals
    • April 1, 2005
    ...California court concluded "that an award at the high end of the single-digit ratio spectrum is justified." (Bardis v. Oates (2004) 119 Cal. App.4th 1, 26, 14 Cal.Rptr.3d 89.) It allowed a ratio of 9 to 1, but the wrongdoing caused no physical injury or death and the "amount of damages suff......
  • Cnty. of Ventura v. City of Moorpark, 2d Civil No. B282466
    • United States
    • California Court of Appeals
    • June 12, 2018
    ...the proceedings below. As a theory of defense, an argument may not be asserted for the first time on appeal. ( Bardis v. Oates (2004) 119 Cal.App.4th 1, 13, fn. 6, 14 Cal.Rptr.3d 89.) The argument is forfeited.But even if Moorpark had preserved its argument, it would not save the settlement......
  • Bullock v. Philip Morris Usa, Inc., No. B164398.
    • United States
    • California Court of Appeals
    • April 21, 2006
    ...limit was a ratio of 4 to 1. (Boeken, supra, at p. 1701, 26 Cal. Rptr.3d 638.) Boeken also cited the holding in Bardis v. Oates (2004) 119 Cal. App.4th 1, 26, 14 Cal.Rptr.3d 89, limiting the ratio to 9 to 1 in a case where the damages suffered by the plaintiff were small compared to the ser......
  • Request a trial to view additional results
117 cases
  • Everest Properties II v. Prometheus Development Co., Inc., A114305 (Cal. App. 9/27/2007), A114305
    • United States
    • California Court of Appeals
    • September 27, 2007
    ...deal with partnership property other than for the sole benefit of the partnership [citation].' "`[Citations.]" (Bardis v. Oates (2004) 119 Cal.App.4th 1, 12.) "`There is an obvious and essential unfairness in one partner's attempted exploitation of a partnership opportunity for his own pers......
  • Boeken v. Philip Morris Inc., No. B152959.
    • United States
    • California Court of Appeals
    • April 1, 2005
    ...California court concluded "that an award at the high end of the single-digit ratio spectrum is justified." (Bardis v. Oates (2004) 119 Cal. App.4th 1, 26, 14 Cal.Rptr.3d 89.) It allowed a ratio of 9 to 1, but the wrongdoing caused no physical injury or death and the "amount of damages suff......
  • Cnty. of Ventura v. City of Moorpark, 2d Civil No. B282466
    • United States
    • California Court of Appeals
    • June 12, 2018
    ...the proceedings below. As a theory of defense, an argument may not be asserted for the first time on appeal. ( Bardis v. Oates (2004) 119 Cal.App.4th 1, 13, fn. 6, 14 Cal.Rptr.3d 89.) The argument is forfeited.But even if Moorpark had preserved its argument, it would not save the settlement......
  • Bullock v. Philip Morris Usa, Inc., No. B164398.
    • United States
    • California Court of Appeals
    • April 21, 2006
    ...limit was a ratio of 4 to 1. (Boeken, supra, at p. 1701, 26 Cal. Rptr.3d 638.) Boeken also cited the holding in Bardis v. Oates (2004) 119 Cal. App.4th 1, 26, 14 Cal.Rptr.3d 89, limiting the ratio to 9 to 1 in a case where the damages suffered by the plaintiff were small compared to the ser......
  • Request a trial to view additional results

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