Jones v. Goodman

• Decision Date: 17 November 2020
• Docket Number: D075907
• Citation: 271 Cal.Rptr.3d 487,57 Cal.App.5th 521
• Court: California Court of Appeals Court of Appeals
• Parties: Trevor JONES, Plaintiff and Respondent, v. Paul GOODMAN et al., Defendants and Appellants.

57 Cal.App.5th 521

271 Cal.Rptr.3d 487

Trevor JONES, Plaintiff and Respondent,

v.Paul GOODMAN et al., Defendants and Appellants.

D075907

Court of Appeal, Fourth District, Division 1, California.

Filed November 17, 2020

Kuznetsky Law Group, Michael David Kuznetsky, Gregory M. Garrison, San Diego, and Mark David Kesten, for Defendants and Appellants.

Murtaugh Treglia Stern & Deily, Michael James Murtaugh, R. Casey Hannegan, and Devin E. Murtaugh Irvine, for Plaintiff and Respondent.

GUERRERO, J.

Trevor Jones contended he was entitled to a percentage of the successful Pura Vida bracelet business established with his former friends and colleagues Paul Goodman and Griffin Thall. He claimed the parties had formed a partnership regarding a bracelet business and sued Goodman and Thall (Defendants) seeking (among other things) a partnership buyout under Corporations Code section 16701.¹ Defendants denied Jones's claims and prevailed at trial. After trial, Defendants sought to recover attorney fees pursuant to section 16701, which authorizes an equitable award of attorney and expert fees "against a party that the court finds acted arbitrarily, vexatiously, or not in good faith." ( § 16701, subd. (i).) The trial court denied Defendants' motion on two grounds: (1) the motion was untimely under applicable rules ( Cal. Rules of Court, rule 3.1702 ), and (2) on the merits, the court declined to find that Jones acted arbitrarily, vexatiously, or not in good faith.

Defendants appeal from the court's denial of their section 16701 fee motion. They contest the court's sua sponte determination the motion was untimely, and they further challenge the court's refusal to find Jones acted arbitrarily, vexatiously, or not in good faith. We reject Defendants' claims of error and affirm the order.

FACTS

Trevor Jones, Paul Goodman, and Griffin Thall were college friends turned entrepreneurs. Jones and Thall owned and operated a website called OUTnSD, and Goodman and Thall owned and operated a bracelet company called Pura Vida. Jones claimed that, in or around 2010, the three men agreed to an "equity swap," wherein Jones received five percent ownership in Pura Vida in exchange for five percent of OUTnSD. According to Goodman and Thall, the men discussed Jones's proposal but did not agree to it. OUTnSD went out of business in 2013, but Pura Vida grew into a successful business.

In May 2016, Jones sued Goodman, Thall, and Creative Genius, Inc. d/b/a Pura Vida Bracelets, and he subsequently dismissed Creative Genius Inc., d/b/a Pura Vida Bracelets from the lawsuit. In his operative amended complaint, Jones claimed the parties "agreed ... to work together as partners in [two business] ventures" (OUTnSD and Pura Vida), the parties' agreement was memorialized in a written agreement, he was entitled to a five percent "partnership interest" in Pura Vida under the partnership agreement, and the parties' intent to form a partnership was "subsequently confirmed by [their] conduct" in working together to make both business ventures successful. Jones asserted claims for breach of the partnership agreement,² breach of fiduciary duties,³ accounting, determination of partnership buyout under section 16701, and declaratory relief.⁴ Jones asserted that Defendants breached the partnership agreement "by taking distributions from Pura Vida for themselves only, without informing [Jones] and to his exclusion." On his breach of partnership agreement claim, Jones asserted he was "damaged in an amount equal to his share of the distributions taken by the Defendants."

Defendants denied all of Jones's allegations. Prior to trial, Defendants made an offer to compromise of over $300,000 under Code of Civil Procedure section 998. Jones declined the offer. Also prior to trial, Defendants moved for summary judgment but were unable to defeat Jones's claims. The parties participated in two rounds of mediation but were not successful in resolving their dispute. The case proceeded to a bench trial in August 2018.

At trial, Jones, Goodman, and Thall each testified, as did dueling business valuation experts. Jones testified that he, Thall, and Goodman had been friends when they attended college together. He and Thall worked together on an internet-based business they created called OUTnSD. When the three of them (and one other friend) traveled to Costa Rica together during the summer of 2010, Goodman and Thall came up with the idea for Pura Vida bracelets; Goodman and Thall arranged to purchase 100 bracelets to import and sell back home.

The three friends (who were also roommates at the time) discussed an equity swap proposal that would give Jones a small stake in Pura Vida and Goodman a small stake in OUTnSD. Jones said Goodman and Thall thought it was "an amazing idea" that would allow all three of them to participate in the two businesses together because, before the equity swap, only Thall was involved in both businesses. Jones wrote and emailed a proposed agreement. Jones testified the three men signed the agreement around February 2011 just before they made a second trip to Costa Rica, but backdated it to November 2010, and agreed to keep the arrangement a secret because another friend and Goodman's sister were also working on Pura Vida, but only as salaried employees.

Jones introduced as evidence an "Equity (or Equities) Exchange Proposal" agreement dated November 24, 2010, which purported to be signed by all three men. The agreement identifies the "[p]artners" and purpose of their agreement, including "new ideas, new perspective, ... better operations," and the opportunity to "learn twice as much, diversifying our risk." (Capitalization omitted.) OUTnSD is referred to as "Company 1" and Pura Vida as "Company 2," and the parties set forth the anticipated benefits to each business and the expected contributions of the partners.⁵ In the agreement, Jones gave Goodman a five percent "ownership" in OUTnSD and Goodman gave Jones a five percent "ownership" in Pura Vida. The agreement further provides that "[p]ayout is not necessary unless money is being taken or exchanged for whatever reason."

Jones testified that the three men (and another friend) then began working on a third venture together, Flex Watches. Jones focused efforts on Flex Watches, while Goodman and Thall focused on Pura Vida. Jones testified that Goodman had previously offered to swap his 16 percent interest in Flex Watches for Jones's five percent interest in Pura Vida, but Jones refused. Jones later bought out Goodman and Thall's interests in Flex Watches.

On cross-examination, Jones admitted he never invested any money into the Pura Vida business and never requested an accounting of Pura Vida's profits. He never discussed Pura Vida's tax liability with his purported partners or anyone else. There was no documentation to show that Pura Vida was a partnership. Jones never received stock certificates in "Pura Vida Bracelets" or Creative Genius, Inc. He also did not share five percent of his OUTnSD salary with Goodman. Jones explained that he understood the agreement to require the sharing of an "end-of-the-year-type profit, not salaries," but he acknowledged the terms "distribution" and "salary" were not in the written agreement.

Goodman and Thall denied signing the purported partnership agreement, but Thall acknowledged the signatures looked like his and Goodman's. Counsel tried to show that the signatures on the agreement did not match other, known signatures of the two men. Neither party presented a handwriting expert to testify.

Goodman testified that he recalled discussing the potential "equity swap" with Thall and Jones, but decided not to enter into the agreement after Thall told him that Jones "didn't really hold his weight in OUTnSD." Goodman did not think Jones would contribute positively to a partnership. He recalled telling Jones he was not interested in having Jones participate in Pura Vida and did not recall discussing the subject further after that.

Evidence showed that Pura Vida was the fictitious business name for a corporation called Creative Genius, Inc. Articles of incorporation were filed for Creative Genius, Inc. on or about September 21, 2010.⁶ Goodman and Thall signed stock certificates for Creative Genius, Inc. on November 24, 2010, with the company's shares split evenly between the two men. Jones was never a stockholder in Creative Genius, Inc. Jones testified that he knew Goodman and Thall "had a company called Creative Genius, Inc." However, Jones had no recollection of being told there was a company incorporated to do business as Pura Vida before they discussed and entered into their partnership agreement. The three friends frequently discussed their businesses, but not the "legal structure" for the businesses. Goodman testified that he did not recall discussing the incorporation of Creative Genius, Inc. with Jones. Thall testified that, in November 2010, Thall and Goodman went out of town to sign some papers to "finalize Creative Genius, Inc."; he believes "there was a mention" of this plan in Jones's presence, but there was no other time that he discussed the incorporation of Creative Genius, Inc. with Jones.

After trial, the court entered judgment in Defendants' favor and against Jones. The court found that Jones's claim that Pura Vida Bracelets was both a corporation and a partnership was "a legal impossibility," and based on the evidence before it, the company could not be both a partnership and a corporation at the same time. The court additionally found "there was no partnership." More specifically: "there was no evidence that the parties agreed to form a partnership," "there was no evidence that a partnership existed," and "there was no evidence that a partnership operated as a going concern, including no K-1s, no partnership formation documents, no balance sheets, and no profit and loss statements." The court further found that Jones failed to prove the signatures on the purported...