Pointe San Diego Residential Community, L.P. v. W.W.I. Properties, L.L.C., D044695 (Cal. App. 7/11/2007)

• Decision Date: 11 July 2007
• Docket Number: D044695
• Court: California Court of Appeals Court of Appeals
• Parties: POINTE SAN DIEGO RESIDENTIAL COMMUNITY, L.P. et al, Plaintiffs, Cross-defendants and Appellants, v. W.W.I. PROPERTIES, L.L.C. et al., Defendants, Cross-complainants and Respondents. POINTE SDMU, L.P., Plaintiff, Cross-defendant and Appellant, v. ATLAS HOMES, L.L.C. et al., Defendants, Cross-complainants and Appellants.

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POINTE SAN DIEGO RESIDENTIAL COMMUNITY, L.P. et al, Plaintiffs, Cross-defendants and Appellants, v. W.W.I. PROPERTIES, L.L.C. et al., Defendants, Cross-complainants and Respondents.

POINTE SDMU, L.P., Plaintiff, Cross-defendant and Appellant, v. ATLAS HOMES, L.L.C. et al., Defendants, Cross-complainants and Appellants.

D044695

Court of Appeals of California, Fourth Appellate District, Division One

July 11, 2007

NOT TO BE PUBLISHED

Appeals from a judgment and orders of the Superior Court of San Diego County, Nos. GIC726145, GIC753184, Robert E. May, Judge. Judgment affirmed in part, reversed in part and remanded with directions; orders granting partial new trial and denying attorney fees reversed.

McDONALD, J.

In the 1980's, plaintiff Gosnell Builders Corporation of California (Gosnell) began a real estate project known as Pointe San Diego (project) to develop approximately 1000 acres in the Spring Valley area of San Diego County into a master-planned, mixed use community that would include a commercial business park, a golf course and resort, and 911 single family homes. The property planned for residential development (the residential property) was held by plaintiff Pointe San Diego Residential Community, L.P. (Pointe), a limited partnership affiliated with Gosnell. When the lender financing the project withdrew funding, Gosnell's search for other financing led to negotiations with defendant Palomba Weingarten, and resulted in a complex series of transactions between various Gosnell-related entities and Weingarten-related entities. The goal of these transactions was to enable Gosnell to continue the project with financial assistance from Weingarten and for Gosnell and Weingarten, through their various related entities, to equally share the substantial tax-loss benefits and profits the project was expected to yield. Gosnell was to serve as the development manager of the residential property and for that purpose, entered into a Development Management Agreement (DMA) with defendant W.W.I. Properties, L.L.C. (WWI), a Weingarten-related entity that acquired ownership of the residential property as a result of the Gosnell-Weingarten transactions. The Gosnell-Weingarten transactions also resulted in the formation of plaintiff Pointe SDMU, L.P. (PSDMU), a limited partnership formed to own and develop the "mixed use" property, which was to include multiple-family residential units and commercial businesses in addition to a resort and golf course.¹

The Gosnell and Weingarten coalition did not go well and resulted in the instant litigation, consisting of two separate actions consolidated for trial. In the first action or "residential case," Gosnell and Pointe sued, among others, Weingarten and WWI for declaratory relief, breach of contract, intentional interference with contract, rescission, breach of fiduciary duty, constructive trust, and accounting. The breach of fiduciary duty claim was pleaded alternatively as a direct action by Pointe and a shareholder derivative action by Pointe on behalf of nominal defendant Astra Management Corporation (Astra), a corporation Weingarten controlled and through which Pointe, as a minority shareholder, expected to realize its profits from the development of the residential property. Weingarten and related entities filed a cross-complaint against Pointe, Gosnell and others alleging fraud, conspiracy to defraud, breach of contract, breach of fiduciary duty, slander, and dissolution of partnership.

In the second action or "mixed use case," PSDMU sued Atlas Homes, L.L.C. (Atlas) (an entity formed by Weingarten) and Wenner & Associates (Wenner), the company Weingarten engaged to replace Gosnell as developer of the residential property, alleging trespass, conversion and other causes of action.² Atlas filed a cross-complaint against PSDMU, Pointe, Gosnell and Robert Gosnell for breach of contract and quantum meruit.

The cases were tried to the court in two phases, resulting in a final judgment that, among other things, awarded compensatory damages plus interest to Astra, and punitive damages plus interest to Pointe, against Weingarten on Astra's derivative breach of fiduciary duty cause of action; denied Pointe and Gosnell recovery on claims for breach of an agreement referred to as the "set-aside agreement;" awarded Gosnell damages against WWI and Weingarten for breach of the DMA; and awarded PSDMU damages for conversion, nonpermanent trespass and permanent trespass against Atlas and Weingarten. The judgment was based on four separate statements of decision, including one specifying the factual and legal basis for the court's order granting Pointe, Gosnell and PSDMUs' motion to amend the judgment to name Weingarten as a codebtor with respect to the damages awarded against WWI and Atlas.

Although the court ruled Pointe and Gosnell were entitled to recover attorney fees, it denied their motion for fees because it found they "failed to satisfy their burden of proving both the existence and the amount of fees to be apportioned to the recoverable claims." After it entered judgment, the court granted in part Pointe and Gosnell's motion for new trial on the issue of damages based on newly discovered evidence.

Weingarten and defendant Atlas Holding Group, Inc. (AHG), a corporation controlled by Weingarten, appeal the judgment and order granting Pointe a new trial on the issue of damages for Weingarten's breaches of fiduciary duty, contending (1) the award of damages to Astra under Pointe's derivative cause of action for breach of fiduciary duty must be reversed because Astra did not suffer legally compensable injury; (2) the award of punitive damages to Pointe on its derivative cause of action for breach of fiduciary duty must be reversed because, as a matter of law, Pointe as a nominal plaintiff in a derivative action suffered no actual damages; (3) the court prejudicially erred by amending the judgment to make Weingarten a cojudgment debtor of WWI and Atlas based on alter ego liability; (4) the court erred by granting Pointe a new trial on the issue of damages for breach of fiduciary duty on the ground of newly discovered evidence; and (5) the cost judgment against AHG is incorrect because there is no judgment of liability against AHG.

WWI and Atlas appeal the judgment, contending (1) the damages awarded to Gosnell for breach of the DMA must be reversed because Gosnell materially breached the DMA as a matter of law and (2) the court prejudicially erred by ruling that PSDMU's complaint adequately pleads a permanent trespass claim and by not ruling that the permanent trespass claim is barred by the statute of limitations. Weingarten raises the same assignment of error regarding the permanent trespass claim in her opening brief.

Pointe and Gosnell appeal the judgment, contending the court committed reversible error by (1) not applying the "benefit-of-the-bargain" rather than the "out-of-pocket" measure of damages to Weingarten's breaches of fiduciary duty on their seventh cause of action; (2) ruling in favor of Weingarten on their claim for breach of the set-aside agreement; (3) not awarding them attorney fees; and (4) granting Weingarten's motion for judgment on Pointe's direct claims for breach of fiduciary duty.

FACTUAL BACKGROUND

By the end of 1990, Gosnell acquired the land and completed its master plan for the project and obtained entitlements and permits to proceed. Gosnell also secured an equity partner for development of the residential property and financing from Long Term Credit Bank (LTCB), a Japanese bank. By 1992 Gosnell had constructed substantial infrastructure and "vertical construction" on the residential property, including curbs and sidewalks, paving, an underground sewer, grading for 44 residential lots, six model homes, a sales office, and a recreation area and fountain.

In 1992 construction on the project stopped because a downturn in the Japanese economy caused Gosnell's equity partner to withdraw from the project. At LTCB's request, Pointe, which held the residential property, filed for Chapter 11 bankruptcy to protect its entitlements and, accordingly, the bank's security interest in the residential property. In 1995, after the bankruptcy case was dismissed, Gosnell and Pointe's search for a new equity partner led to dealings with Colony Capital and its principal, William Rogers, who introduced Gosnell and Pointe to Weingarten. At that time, Pointe owed LTCB $108 million.

Negotiations between Pointe and Weingarten (and their related entities) resulted in a series of transactions and agreements in December 1995 and January 1996, including the following: AHG purchased from LTCB the promissory note secured by the residential property for the deeply discounted sum of $3.8 million and contributed the note to Astra in exchange for 100,000 shares of Astra's common stock. Pointe contributed the residential property to Astra in exchange for 1000 shares of Astra's Class A common stock.³ Astra sold a 31 percent tenancy-in-common interest in the residential property for $1.8 million to B.R. Family Partners (BRFP), a limited partnership of which William Rogers was the general partner. The $1.8 million from BRFP was to be used to develop the residential property.

Astra and BRFP formed WWI and conveyed their interests in the residential property, plus the $1.8 million BRFP invested, to WWI, which then owned 100 percent of the residential property. Astra owned 75 percent of WWI and BRFP owned the remaining 25 percent. Weingarten managed WWI, which was formed for the purpose of acquiring, owning, developing and selling the residential property. The parties intended that profits from the residential property would flow through WWI to Astra as cash distributions under WWI's operating agreement (the WWI Operating Agreement), and then be distributed by Astra as dividends to its shareholders, including Pointe. WWI entered into the DMA with Gosnell on January 17,...