Bedolla v. Logan & Frazer

• Decision Date: 15 October 1975
• Citation: 52 Cal.App.3d 118,125 Cal.Rptr. 59
• Court: California Court of Appeals Court of Appeals
• Parties: Charles BEDOLLA, as Receiver of Parkside Development Company, et al., Cross-Complainants and Appellants, v. LOGAN & FRAZER, a co-partnership, et al., Cross-Defendants and Respondents. Civ. 33832.

Page 59

125 Cal.Rptr. 59

52 Cal.App.3d 118

Charles BEDOLLA, as Receiver of Parkside Development Company, et al., Cross-Complainants and Appellants, v. LOGAN & FRAZER, a co-partnership, et al., Cross-Defendants and Respondents.

Civ. 33832.

Court of Appeal, First District, Division 2, California.

Oct. 15, 1975.

Hearing Denied Dec. 11, 1975.

Kubby, Pritchard & Cohen, Lee J. Kubby, Sunnyvale, Greenberg, Bernhard, Weiss & Karma, Inc., Herbert A. Bernhard, Stephen H. Marcus, Los Angeles, for appellants.

Foley & Foley, Robert M. Foley, San Jose, for respondents.

KANE, Associate Justice.

Cross-Complainants Parkside Development Company, a limited partnership, and Charles Bedolla, receiver for Parkside Development Company (hereinafter 'Parkside' or 'appellant') appeal from the trial court's judgment entered on jury verdicts finding that the claims raised in the cross-complaint were barred by the statute of limitations. The intricate factual background leading to the controversy may be set out as follows:

Commencing in 1953, Richard H. Grant ('Grant') and Way Choy Ching ('Ching') solicited funds from the Chinese American Community in Honolulu, Hawaii, to invest in and develop real estate in California. The vehicle used for this purpose was Parkside, a California limited partnership whose two general partners of record were Wong and Leong. Grant and Ching, who actually conducted the business of the limited partnership, were officially named as Parkside's managers.

From 1953 to 1968 ¹ respondents, a certified public accounting firm, provided services for both Parkside and affiliate entities which were owned or controlled by the limited partners and/or Grant and Ching. In discharge of their professional duties, during the period 1955--1961 respondents issued annual reports on Parkside's financial status. These financial statements clearly indicated that Parkside was sustaining substantial losses, that the partners' capital accounts were decreasing, ² and also that there had been transactions between Parkside, Grant and Ching and various affiliates of both Grant and Ching and the limited Partners.

In the wake of the continuous financial losses, some of the limited partners became dissatisfied. After certain initial steps taken in 1957, in 1960 six of the Hawaiian limited partners retained Leon Chun, a Honolulu attorney, to investigate the matter. Chun referred the case to Greenberg, Shafton and Schlei, a Los Angeles law firm, which, in turn, associated Lee J. Kubby, a Sunnyvale attorney. The attorneys hired Main-La Frentz and Company, a certified public accounting firm, to assist in the investigation. The investigation revealed Inter alia the limited partners had suffered severe losses which had reduced their original $1,125,000 capital investment to $335,000; that there had been self-dealings between Parkside and the affiliate companies in which some of the limited partners and Grant and Ching had interests; that Grant and Ching had made excessive profits on some of these transactions; that Grant and Ching had improperly diverted properties from Parkside to the entities they personally owned or controlled; that Grant and Ching were receiving salaries they were not entitled to receive; and that a number of the limited partners had not received the financial information prepared by respondents.

Based upon the foregoing investigation, the six limited partners instituted a class action on behalf of all 31 limited partners for fraud and breach of fiduciary duty. The action was brought in the United States District Court for the Northern District of California in 1960 (hereinafter 'Chow action'), and named as defendants Grant, Ching, their wives, Leong and two companies (Parkside Plaza Co. and Lado Madera Co.) owned by Grant and Ching.

Following commencement of the Chow action, Mr. Kubby, counsel for plaintiffs, petitioned the federal court for the appointment of a receiver. After extensive hearings held between October 8, and November 15, 1960, on January 9, 1961, C. L. Scranton was named as an 'appointee.' According to the evidence presented in the case at bench, Scranton acted in the capacity of a general partner; had dominion over the books and records of Parkside; signed checks; and was given veto power over the decisions of Grant and Ching.

In the Chow action, final judgment was rendered for the limited partners on April 5, 1968. The interests of the two named general partners, who were but the pawns of Grant and Ching, were terminated, and Grant and Ching were found to be De facto partners. The court concluded that Grant and Ching were guilty of fraud and breach of fiduciary duty, and accordingly awarded the limited partners a promissory note in the face amount of $3,000,000, a shopping center having an initial cost in excess of $1,000,000, and money damages in the sum of $1,581,051. At the same time the court appointed Charles Bedolla as receiver for Parkside. In 1970, a trust was established into which all of Parkside's properties, including those recovered from Grant and Ching, were transferred. Mr. Kubby and his associate counsel were given a one-third interest in the trust as their fee for handling the Chow action.

In connection with the Chow action, respondents provided services for Parkside. When the payment of their bill totaling $5,000 was declined by Scranton, the 1964 respondents brought an action against Parkside on an open book account and account stated. Parkside's answer to the complaint and its cross-complaint were filed on August 12, 1969, five years after the initiation of the original action. The cross-complaint praying damages in the sum of $3,162,102 alleged causes of action against respondents for fraud, breach of fiduciary duty and professional negligence, all assertedly committed between March 1, 1953, and September 14, 1960. On July 27, 1970 the court dismissed respondents' complaint for failure to bring the action to trial within five years after the filing of the complaint. On the issues raised by the cross-complaint, a jury trial was had. The trial court bifurcated the issue of statute of limitations and presented that question to the jury before consideration of the merits of the case. After receiving extensive evidence, the jury rendered verdicts for respondents by finding that the claims contained in the cross-complaint were barred by the statute of limitations. The appeal at hand is taken from the judgment entered on the jury verdicts.

As we have already pointed out, Parkside's cross-complaint asserted causes of action based on fraud and professional negligence. While the statutes of limitation for fraud and professional negligence are three and two years respectively (Code Civ.Proc. §§ 338, subd. (4), 339, subd. (1)), in each instance the statute commences to run only when the wrongful acts are discovered or with reasonable diligence could have been discovered (National Automobile & Cas. Inc. Co. v. Payne (1968) 261 Cal.App.2d 403, 409, 67 Cal.Rptr. 784; Moonie v. Lynch (1967) 256 Cal.App.2d 361, 365--366, 64 Cal.Rptr. 55). Since it was alleged in the cross-complaint that the wrongful acts had been committed from March 1, 1953 through September 14, 1960, the cross-complaint on its face fell within the statute of limitations. Accordingly, the trial court instructed the jury that in order to overcome the Prima facie bar, Parkside had the burden of proving that it did not know and should not have known of the material facts before December 30, 1962, as to the professional negligence count, and before December 30, 1961, insofar as the fraud count was concerned. At the same time the trial court also charged the jury that 'to prevent the Statute of limitations from having run and to prove that the Statute of Limitations was tolled, Plaintiff must prove that it, its agents, accountants, investigators, attorneys, predecessors in interest, and the limited partners and appointee who stood in the same position as a general partner of plaintiff or its agents, accountants, investigators and attorneys Did not know or with reasonable diligence should not have known of or discovered the alleged wrongful conduct of defendants prior to December 30th, 1961 on the fraud claim, and December 30th, 1962 on the negligence claim. If plaintiff cannot prove this by a preponderance of the evidence, then your verdict must be for the defendants.' ³ (Emphasis added.)

It seems obvious that the correctness of the aforecited jury instructions is crucial with regard to the determination of the present appeal. Relying on assertions of general legal and equitable policies and cases from outside jurisdictions, Parkside presses the argument that the jury instructions in controversy did not state the proper legal principles. In essence, Parkside contends that the knowledge of the limited partners and their agents should not be imputed to the partnership because (1) under the Uniform Limited Partnership Act (CORP.CODE, S 15501⁴ et seq.) the management and control of the limited partnership is trusted to the general rather than the limited partners (§§ 15507, 15509), the limited partners are not the agents of the limited partnership and are not authorized to act on its behalf (§ 15526); (2) the limited partners, making an investment of capital and subject to liability to the extent of their investment only, are analogous to a shareholder of a corporation. (Lichtyger v. Franchard Corporation (1966) 18 N.Y.2d 528, 277 N.Y.S.2d 377, 383; 223 N.E.2d 869;, 873; 60 Am.Jur.2d, § 371, p. 254), and the corporation, under established law, is not charged with the knowledge of the shareholder (Zinn v. Ex-Cell-O Corp. (1944) 24 Cal.2d 290, 295, 149 P.2d 177; Blood v. La Serena Land and Water Co. (1901) 134 Cal. 361, 370, 66 P. 317); (3) it would be inequitable to bar a limited partnership from bringing an action on account of the composite knowledge of the limited partners, particularly in the instance here...