Eng v. Brown

Citation230 Cal.Rptr.3d 771,21 Cal.App.5th 675
Decision Date22 March 2018
Docket NumberD071773
CourtCalifornia Court of Appeals
Parties Franklin ENG, Plaintiff and Appellant, v. Michael Patrick BROWN et al., Defendants and Respondents.

Fischbach & Fischbach, Joseph S. Fischbach and Katharine B.K. Lau, Beverly Hills, on behalf of Plaintiff and Appellant.

Law Offices of Edwin Paul and Edwin Paul and Margie L. Jesswein, Tustin, on behalf of Defendants and Respondents.

IRION, J.

Plaintiff Franklin Eng appeals a judgment in favor of defendants Michael Patrick Brown and Gerald Levy following a jury trial. Eng claimed that Brown and Levy breached their fiduciary duties to him as purported partners or joint venturers in the ownership and operation of the Tin Fish Gaslamp, a seafood restaurant in San Diego. The jury found that Eng, Brown, and Levy entered into a partnership or joint venture, but it was terminated when they formed a corporation, B.L.E. Fish, Inc. (B.L.E. Fish), to purchase and operate the restaurant. Eng's claim for breach of fiduciary duty based on a partnership or joint venture was therefore unsupportable.1

Eng contends, among other things, that (1) the trial court erred by denying his request, in a motion in limine, that the court find that the parties created a partnership as a matter of law; (2) the court erred by denying his motion in limine seeking to exclude any evidence or argument that B.L.E. Fish merged with or superseded the partnership; (3) the court erred by granting Brown and Levy's motion to amend their answer to assert an affirmative defense based on merger or supersession; (4) the court erred by denying Eng's motion for directed verdict; (5) the court committed instructional error (and a related error in the special verdict) regarding merger and supersession; (6) the court erred in its response to a juror question during deliberations; (7) the court erred by denying Eng's motion to amend his complaint to add a claim for breach of fiduciary duties based on the parties' corporate relationship; (8) the court erred by denying Eng's motion to strike the testimony of a defense expert witness; and (9) the court erred by denying Eng's ex parte application for the release of juror contact information. For reasons we will explain, we reject Eng's contentions and affirm.

FACTUAL AND PROCEDURAL BACKGROUND

"As required by the rules of appellate procedure, we state the facts in the light most favorable to the judgment." ( Orthopedic Systems, Inc. v. Schlein (2011) 202 Cal.App.4th 529, 532, fn. 1, 135 Cal.Rptr.3d 200.) Additional facts will be discussed where relevant in the following sections.

Eng and Levy, both licensed real estate agents, worked together and became close personal friends. In 2006, Levy listed the Tin Fish Gaslamp restaurant for sale on behalf of its owner. Later that year, Eng and Levy decided to purchase the Tin Fish Gaslamp themselves, along with Brown, who is Levy's nephew. They agreed that Brown would own a majority of the business, 56.667 percent, with Levy owning 33.333 percent and Eng 10 percent.

The group made an offer to purchase the Tin Fish Gaslamp. The offer was made by Brown "[and] or assignee," which was identified only as an entity "to be determined." In the notes, the offer stated that "Agent Jerry Levy will act as a principle [sic ] in this transaction" and "one of the principles [sic ] is also a licensed ... California real estate agent." The seller accepted the group's offer. Escrow was opened, but the group was unable to secure financing.

In January 2007, the group resubmitted an offer to purchase the Tin Fish Gaslamp. The offer was made in the names of Brown and B.L.E. Fish, which had been incorporated the same day. B.L.E. Fish was identified in the offer as a corporation. The offer made the same agent disclosures as the prior offer. The seller again accepted. The parties drafted revised escrow instructions, which also identified B.L.E. Fish as the buyer.

Later that month, Brown and Levy held an organizational meeting for B.L.E. Fish, adopted bylaws, elected corporate officers and a board of directors (all positions being filled by Brown and Levy), and approved the issuance of 100 shares of stock. The directors approved a proposal for B.L.E. Fish to purchase and operate the Tin Fish Gaslamp restaurant. Two months later, Brown, Levy, and Eng signed an election by B.L.E. Fish to be an S corporation under the Internal Revenue Code. Around the same time, Levy filed a fictitious business name statement on behalf of B.L.E. Fish. The statement identified the Tin Fish Gaslamp name, described the business as being conducted by a corporation, and noted that the business had not yet started.

In April 2007, escrow closed and B.L.E. Fish purchased the Tin Fish Gaslamp business for $1.6 million. The next month, Brown, Levy, and Eng executed a management agreement. It stated, in relevant part: "This management agreement designates corporate officers, Michael P. Brown and Gerald W. Levy [,] the exclusive authority to oversee the restaurant business and all daily operations of Tin Fish Gaslamp. B.L.E. Fish, Inc. authorizes only the two corporate officers, Mike Brown and Gerald Levy[,] to make all decisions for the restaurant on behalf of B.L.E.[,] Fish Inc." The agreement stated that it would "remain in full force and affect [sic ] with the authority of the following corporate shareholders until which time the agreement is amended." Brown's, Levy's, and Eng's signatures appear below that statement.

Brown transferred the outstanding shares of B.L.E. Fish to himself, Levy, and Eng in proportion to their ownership interests, with Brown receiving 56.667 shares, Levy 33.333 shares, and Eng 10 shares. Eng had a business card describing him as an "owner" of the Tin Fish Gaslamp. B.L.E. Fish holds annual shareholder and director meetings, maintains corporate financial records, files corporate income taxes, and provides its shareholders with income statements consistent with its S corporation status.

From 2007 through 2010, Eng received approximately $160,000 in distributions from B.L.E. Fish. In 2010, Brown and Levy began to manage the business on a full-time basis. They took salaries as corporate officers and retained a management company they controlled to oversee operations. B.L.E. Fish agreed to pay the management company a percentage of gross sales in exchange for its services. These salaries and management fees were paid before shareholder distributions were calculated. Based in part on these additional expenses, Eng received no distributions in 2011.

Eng retained counsel and filed suit against Brown, Levy, and B.L.E. Fish. Eng alleged that he formed an oral joint venture with Brown and Levy to purchase and operate the Tin Fish Gaslamp. They agreed that Brown and Levy would manage the restaurant and receive a management fee of three percent of gross sales. Eng would own 10 percent of the joint venture, with Brown and Levy owning 57 percent and 33 percent, respectively. Eng alleged that the parties agreed to form an S corporation that would be owned by the joint venture for tax and liability reasons. However, according to Eng, the parties were to remain partners as to each other. Eng further alleged that Brown and Levy had conspired to reduce his distributions by padding the payroll, taking large officers' salaries, and doubling the agreed-upon management fee.

Eng asserted causes of action for (1) partnership dissolution and accounting, (2) constructive fraud, and (3) conversion. Eng's constructive fraud cause of action was based on breaches of fiduciary duties owed to Eng "[b]y virtue of the joint venture agreement." Eng alleged, in relevant part, as follows: "Defendants breached their fiduciary duty to Plaintiff and violated the relationship of trust and confidence by excluding Plaintiff from his interest in the joint venture business and assets and by securing an advantage over Plaintiff by misleading Plaintiff to his prejudice, by misappropriating approximately $400,000 in operating profits, by intentionally hiding plaintiff's K-1, by refusing to allow Plaintiff's daughter to use his in-store credit, and other acts...." Eng later filed a first amended complaint (FAC), which added an "alternative" cause of action for involuntary dissolution of a corporation and an "alternative" shareholder derivative claim for breach of fiduciary duty against Brown and Levy on behalf of B.L.E. Fish. Eng stated he would pursue the derivative claim "if and only if the Court should find[ ] that the wrongful conduct hereinabove alleged belongs to the Corporation and not to the joint venture...."

Brown and Levy filed a demurrer to the FAC on the ground that it did not state facts sufficient to constitute any cause of action. Among other things, they argued that no partnership or joint venture existed among the parties. In addition, they argued, "Even if Plaintiff is correct in asserting the parties were joint venture partners prior to the formation of the corporation, the general rule is well established that a partnership does not continue to exist after the formation of a corporation." They repeated this argument in their reply.2

Eng dismissed his cause of action for involuntary corporate dissolution, and the court sustained defendants' demurrer as to Eng's cause of action for conversion. Eng later dismissed B.L.E. Fish as a defendant, and the court struck its answer to Eng's complaint. Eng appealed the court's order. In an unpublished opinion, this court dismissed Eng's appeal. ( Eng v. B.L.E. Fish, Inc. (Sept. 21, 2015, D066054), 2015 WL 5554590.) This court concluded that Eng misinterpreted the trial court's order, and B.L.E. Fish remained a nominal defendant to Eng's shareholder derivative claim.

Prior to trial, the parties filed a number of motions in limine. One of Eng's motions in limine sought to exclude any evidence or argument relating to a shareholder derivative claim. Eng asserted that any breach of fiduciary...

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