Tri-Growth Centre City, Ltd. v. Silldorf, Burdman, Duignan & Eisenberg, TRI-GROWTH

• Decision Date: 20 December 1989
• Docket Number: No. D008664,TRI-GROWTH,D008664
• Citation: 265 Cal.Rptr. 330,216 Cal.App.3d 1139
• Court: California Court of Appeals Court of Appeals
• Parties: CENTRE CITY, LTD., etc., et al., Plaintiffs and Appellants, v. SILLDORF, BURDMAN, DUIGNAN & EISENBERG, etc., et al., Defendants and Respondents.

Page 330

265 Cal.Rptr. 330

216 Cal.App.3d 1139

TRI-GROWTH CENTRE CITY, LTD., etc., et al., Plaintiffs and Appellants, v. SILLDORF, BURDMAN, DUIGNAN & EISENBERG, etc., et al., Defendants and Respondents.

No. D008664.

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

Dec. 20, 1989.

As Modified on Denial of Rehearing Jan. 18, 1990.

Review Denied April 4, 1990.

Goebel, Shensa & Beale, Louis E. Goebel, Cheryl Shensa, San Diego, for plaintiffs and appellants.

Procopio, Cory, Hargreaves and Savitch, Paul B. Wells, David A. Niddrie, San Diego, for defendant and respondent Scott A. Burdman.

Hansotte, Nostrand & Lange, Kenneth E. Lange, San Diego, for defendants and respondents Silldorf, Burdman, Duignan & Eisenberg.

Jennings, Engstrand & Henrikson, Douglas R. Reynolds, Marilyn R. Moriarty, San Diego, for defendants and respondents Howard J. Silldorf, Lawrence D. Duignan and Jay A. Eisenberg individually and their professional corporations Silldorf, Burdman, Duignan & Eisenberg.

Richard J. Kerman, San Diego, for defendants Jack Hazlitt and Steven E. Rodick.

WORK, Associate Justice.

Tri-Growth Centre City, Ltd. and certain of its partners (hereafter referred to as Tri-Growth or plaintiffs) appeal a summary judgment in favor of the law firm of Silldorf, Burdman, Duignan & Eisenberg et al. (hereafter referred to as the law firm or defendants). Tri-Growth sued to impose a constructive trust and for damages alleging breach of fiduciary duty and interference with prospective economic advantage

after the law firm purchased certain real property (1810 State Street) for which Tri-Growth was negotiating. We hold there are triable issues of material fact requiring reversal of the summary judgment.

FACTUAL AND PROCEDURAL BACKGROUND ¹

Plaintiffs Dallas Wilborn, R. W. Unander, John Carr and Jeffrey Castellaw have been real estate investors over the years. Beginning in 1980, they formed a series of limited partnerships--designated numerically "Tri-Growth Investments I" and continuing through "Tri-Growth Investments XXIV"--which have acquired various parcels of property, primarily apartment buildings. Tri-Growth was formed by plaintiffs in June 1984. The numerically designated investment entities were unrelated to Tri-Growth, the latter which was formed to operate a motel.

Over the years, the law firm provided legal services to the plaintiffs as individuals, and to several of the numerically designated investment entities. However, the law firm never represented Tri-Growth in any legal matter.

In 1976 and 1980, Unander and Wilborn purchased certain parcels on the block bounded by State, Columbia, Elm, and Fir Streets in San Diego, which they later sold to Tri-Growth. A "private placement memorandum," making a private offering of limited partnership interests in Tri-Growth, states the partnership was formed "for the purpose of acquiring certain real property and thereafter constructing and operating a motel on the property." The partnership contemplated acquiring specified parcels on State and Fir streets (including the Unander/Wilborn parcels and other parcels) on which a motel would be constructed. Further, the private offering notes the properties "are currently zoned as 'Central Business District' or 'CBD,' which usually permits construction of high rise structures. It is intended that the motel operation will permit the Partnership to retain these parcels for future development as the urban center of San Diego expands." Tri-Growth acquired the specified parcels and built a motel on the northern half of the block.

1810 State Street, the property in dispute here, is adjacent to the properties purchased by Tri-Growth. There is no mention of 1810 State Street in the private offering memorandum or in the limited partnership agreement.

The private offering memorandum and the limited partnership agreement provide that partners may acquire other real property adjacent to or competing with the partnership's real property. ²

In 1984 Scott Burdman, a partner in defendant law firm, became a limited partner in Tri-Growth.

Although some of the following factual allegations are disputed, all have sufficient support in the materials presented at summary judgment to be triable issues of fact.

Plaintiffs viewed Burdman's law firm as the attorney for the various numerically The individual plaintiffs had been interested in acquiring all the property on the block since about 1979. They made unaccepted offers to purchase 1810 State Street in 1980 and 1983. During 1984 and 1985 after forming Tri-Growth, they concentrated on building the motel on the parcels they had acquired and did not actively pursue acquisition of 1810 State Street. However, acquiring all the parcels on the block became the goal of Tri-Growth once it was formed.

designated investment entities for which the firm had provided services, for as long as those partnerships continued in existence, available for consultation on any legal matters which arose.

When Burdman was deciding whether to invest in Tri-Growth, he learned of the partnership's interest in acquiring the block and building a high-rise tower. In 1985, there was an informal discussion between plaintiffs and the law firm about the idea of jointly purchasing the 1810 State Street property and sharing the property for their respective offices, but the idea was not pursued.

In May 1986, Tri-Growth made an unsuccessful offer on the 1810 State Street property when the asking price was about $700,000. Plaintiffs then put the deal on the "back burner," believing no other developer would purchase the property since Tri-Growth owned other parcels on the block, and that the price and the terms made the purchase unfeasible for another user.

In May 1986, one of Tri-Growth's general partners filed for bankruptcy, causing credit problems for Tri-Growth particularly regarding a past due construction loan. Thus, in September or October 1986, when plaintiffs learned the price of the property had dropped to $595,000, it was not in a financial position to immediately negotiate for its purchase.

However, late in October 1986, it appeared Tri-Growth's financial problems were all going to be resolved; the bankruptcy court had approved the bankrupt general partner's conversion to a limited partner; and Tri-Growth had obtained a loan commitment from Imperial Bank to permanently finance the construction loan on the motel, which plaintiffs thought they would obtain either in late December or early January.

During this time period (late summer, early fall 1986), Burdman had been repeatedly calling Castellaw, aggressively questioning him about the problems with the bankruptcy and the status of the partnership. Castellaw assured Burdman the problems were being resolved and Tri-Growth's motel was doing well. Further, he told Burdman they were negotiating with the owner over the 1810 State Street property and were close to realizing their goal of putting the whole block under one ownership. Castellaw explained to Burdman in great detail how the price of the 1810 State Street property was coming down, and that even if it dropped so low that it became feasible for another user to purchase the property, Tri-Growth could still offer the highest price since Tri-Growth could develop a high-rise on the block.

In late November or early December 1986, plaintiffs were informed the price for 1810 State Street had dropped to $550,000, and since the partnership's affairs were now sufficiently in order to accommodate a purchase, they set a meeting with the seller for December 12. On December 8 or 9, Burdman called Castellaw, and Castellaw told him the bankruptcy court had approved the deal pertaining to the bankruptcy, and Imperial Bank was drawing loan documents and they would record the loan in 1987. Burdman asked him how they were doing with their negotiations on the 1810 State Street property, and Castellaw told him they had it and were going on Friday to buy it and were going to try to arrange a closing date after the first of the year. Burdman told Castellaw his law firm had looked at the property, but one of the attorneys (Silldorf) thought it was too expensive. When Castellaw told him the price was a firm $550,000 and they had it, Burdman abruptly ended the conversation.

The purpose of the December 12 meeting was to assure the seller that plaintiffs At the December 12 meeting, plaintiffs made a commitment to the seller to buy the property. They did not view the seller as having made a commitment to sell to them, although they were given the impression that there were no other serious contenders for the property and that they had the property and would formalize the deal after the seller closed his escrow with the current owner. They were told a law firm had made an offer, but that it was loaded with contingencies and unlikely to fly. They were told they would be given the keys to look at the property the following week. When they were not able to contact, and were not contacted by, the seller's broker during the rest of December (an exceptionally hectic period for the real estate business) they assumed he was waiting until the new year to meet with them and finalize a deal. Their agreement to purchase the property was not contingent on an inspection or on obtaining financing; the partnership was financially ready to immediately purchase.

wanted to buy the property. The seller with whom plaintiffs met on December 12 (Joseph Development Company) was acquiring the property from the current owner (Northview Corporation) as part of an exchange, and Joseph wanted to sell the property as soon as possible after closing escrow with Northview. The seller indicated he wanted to close escrow in 1986 if at all possible. Plaintiffs responded they could not get a loan that quickly, and the seller stated he might be willing to carry a short-term loan. When plaintiffs indicated they did not think it was physically possible to...