Pynoos v. Massman
| Decision Date | 16 October 2014 |
| Docket Number | B249711 |
| Court | California Court of Appeals Court of Appeals |
| Parties | RITA J. PYNOOS, as Trustee, etc., et al., Plaintiffs and Appellants, v. STEPHEN MASSMAN, Defendant and Appellant. |
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Los Angeles County Super. Ct. No. BC480167)
APPEALS from a judgment of the Superior Court of Los Angeles County. Ralph W. Dau, Judge. Affirmed in part, reversed in part, and remanded with directions.
Kelley Drye & Warren, Andrew M. White, Allison S. Brehm, Damaris M. Diaz, and Joshua M. Keesan for Plaintiffs and Appellants.
Reed Smith, Bernard P. Simons, Margaret M. Grignon, Pavel Ekmekchyan, Anne M. Grignon, and Thuy Tran for Defendant and Appellant.
Morrill Law Firm, Joseph M. Morrill, and Andrew R. Verriere for Amicus Curiae Contra Costa Senior Legal Services on behalf of Plaintiffs and Appellants.
A limited partnership dissolves and distributes its assets. One of the limited partnership interests is held in the name of a living trust. The trust's sole trustee and primary beneficiary is a 90-year-old woman. Can she sue the partnership's general partner for elder abuse when the trust holds the limited partnership interest? We conclude that the trustee/beneficiary may sue for elder abuse. We also address the parties' remaining contentions, and conclude the punitive damages award was properly stricken, but the jury's award of prejudgment interest should be reinstated.
Morris Pynoos (Morris)1 and Stephen Massman (Massman) formed the Kingswood Village-Marina Partnership (Partnership) in 1974 to build and manage a luxury high-rise in Marina Del Rey. Morris and Massman served as general partners, and the Partnership added 30 or so limited partners as capital investors. A few years in, Massman and Morris also became limited partners when they invested additional capital.
By 2002, Morris no longer held any of his interest in the Partnership in his own name. He gave away 3.6 percent of his limited partnership interest, 1.8 percent to each of his sons, plaintiffs Jonathon Pynoos (Jonathon) and Robert Pynoos (Robert). He transferred the remainder—his 10 percent general partnership interest and a 4.4 percent limited partnership interest—into a living trust. When Morris died in 2002, his 10 percent general partnership interest converted to a limited partnership interest. The resulting 14.4 percent limited partnership interest was held in the trust's name. Morris's elderly widow, plaintiff Rita Pynoos (Rita), became the sole trustee and primary beneficiary of the trust.
In 2004, the Partnership sold the high-rise, its sole asset, for a nearly $60 million profit. Because some of the partners agreed to payment in the new owners' stock rather than cash, the net cash profit came to approximately $50 million. Massman, as theremaining general partner, spent the next six years winding down the Partnership. The Partnership distributed cash to its partners in 2004, 2008, and 2010.
The Partnership Agreement (Agreement) laid out how annual profits and losses, as well as proceeds from the sale of the building, were to be allocated and distributed to the partners. Annual profits and losses were to be allocated and distributed according to each partner's proportional interest in the partnership (the so-called "fractional interest"). Proceeds from the sale of property were to be allocated and distributed in a two-step process: The first step looked to the balance of each partner's "capital account," which was a mechanism used to keep track of each partner's deposits and withdrawals of capital as well as profits and losses allocated to that partner; the second step looked to fractional interest.
Massman did not follow the Agreement when distributing the proceeds from the building sale; instead, he relied solely upon fractional interest. This yielded a total distribution of $8.25 million to the trust, and $1.03 million to each Jonathon and Robert. But by skipping the first step, the trust was shortchanged $233,072; Jonathon, $60,842; and Robert, $60,841. Massman received $243,941 too much.
Rita, as trustee for and primary beneficiary of the trust, and her sons (collectively, plaintiffs) sued Massman. Among other claims, they sued for breach of contract, breach of fiduciary duty, elder abuse, and fraud.
Plaintiffs alleged that Massman committed financial elder abuse by wrongly retaining Rita's property when he did not pay the trust what it was due under the Agreement. The trial court sustained a demurrer to this claim without leave to amend because, in its view, plaintiffs were unable to allege that Massman retained the "personal property of an elder."
Plaintiffs also alleged that Massman defrauded them by misleading them into thinking he was complying with the Agreement, which caused them not to review the Partnership's books or seek to appoint a receiver sooner. The trial court sustained ademurrer to this claim without leave to amend because plaintiffs never alleged how the delay in requesting an audit or a receiver damaged them.
The case went to trial on plaintiffs' claims of breach of contract and breach of fiduciary duty.
On the breach of contract claim, Massman did not dispute his noncompliance with the Agreement. Instead, he presented evidence and argued that his noncompliance was justified by (1) the Partnership's prior practice of making distributions solely by fractional interest, and (2) the impropriety of looking to plaintiffs' capital account balances. Massman thought these balances, which were derived from Morris's limited partnership interest, were "out of whack" because Morris's later-created interest never took the tax write-off that all the originally created interests had taken.
On the breach of fiduciary duty claim, plaintiffs presented evidence and argued that Massman did not follow the Agreement and received a bigger distribution than he should have; Massman considered more than one possible way to make the 2008 distribution and chose the one that most favored him; and Massman filed a lawsuit in 2009 on behalf of the Partnership and allocated the cost of that suit to the four limited partners who had positive capital account balances (including plaintiffs), even though the lawsuit helped only those partners who took payment in the new owner's stock.
The jury was instructed on these two theories, on its discretion to award prejudgment interest as to both, and on punitive damages. The jury found for plaintiffs on both claims; awarded compensatory damages equaling what plaintiffs would have received had the Agreement been followed; awarded prejudgment interest; and found that Massman's acts were malicious, oppressive, and/or fraudulent. After a brief, second phase, the jury awarded punitive damages of $500,000 to the trust, and $250,000 to each Jonathon and Robert.
Following trial, the trial court partially granted Massman's motion for judgment notwithstanding the verdict. The court affirmed the breach of contract and breach of fiduciary duty verdicts, but overturned the jury's award of punitive damages and prejudgment interest.
The court vacated the punitive damages award for two reasons—one legal, the other evidentiary. Concluding that the breach of fiduciary duty claim presented at trial was "all based upon" Massman's breach of the Agreement, the court ruled that punitive damages were barred by Civil Code section 3294, subdivision (a)'s requirement that such damages "not aris[e] from contract." The court also found insufficient evidence of malice, oppression, or fraud.
The court vacated the prejudgment interest award because, in its view, the jury's award rested solely on Civil Code section 3288. Because section 3288 only authorizes prejudgment interest for claims not based in contract, the court's finding that plaintiffs' claims were contract-based meant that the interest award was unauthorized.
Everyone appealed.
Our task in reviewing an order sustaining a demurrer without leave to amend is twofold: We ask "whether the complaint states facts sufficient to constitute a cause of action," and "whether there is a reasonable possibility that the defect can be cured by amendment." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
Elders (or their heirs) may sue those who take advantage of them for "financial abuse." (Welf. & Inst. Code, § 15610.30.) "Financial abuse" of an "elder" occurs when a person (1) "[t]akes, secretes, appropriates, obtains, or retains," (2) the "real or personal property of an elder," (3) "for a wrongful use or with intent to defraud, or both." (Id., § 15610.30, subd. (a)(1).) A plaintiff satisfies the first two elements by showing that she was "deprived of any property right . . . regardless of whether the property is held directly or by a representative of an elder." (Id., § 15610.30, subd. (c), italics added.) A "representative" is defined as a person who is "[a] conservator, trustee, or other representative of the estate of an elder" or "[a]n attorney-in-fact of an elder." (Id., § 15610.30, subd. (d).)
Rita contends that the distributions Massman wrongfully retained were her "personal property," even though they were held in the name of the living trust of which she was the sole trustee and primary beneficiary. The trial court disagreed, and drew a distinction between Rita and the trust. We agree with Rita.
Living trusts are express trusts (e.g., Keitel v. Heubel (2002) 103 Cal.App.4th 324, 337; Estate of Heggstad (1993) 16 Cal.App.4th 943, 947-948), and "'an ordinary express trust is not an entity separate from its trustees'" (Presta v. Tepper (2009) 179 Cal.App.4th...
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