Wind v. Herbert

• Decision Date: 10 November 1960
• Citation: 186 Cal.App.2d 276,8 Cal.Rptr. 817
• Court: California Court of Appeals Court of Appeals
• Parties: Michael M. WIND, Murray Klein and Adam S. Campbell, Plaintiffs and Respondents, v. Bow HERBERT et al., Defendants. Bow Herbert and Nancy Herbert, Appellants. Civ. 24569.

Page 817

8 Cal.Rptr. 817

186 Cal.App.2d 276

Michael M. WIND, Murray Klein and Adam S. Campbell, Plaintiffs and Respondents, v. Bow HERBERT et al., Defendants Bow Herbert and Nancy Herbert, Appellants.

Civ. 24569.

District Court of Appeal, Second District, Division 2, California.

Nov. 10, 1960.

Hansen & Dolle, Victor R. Hansen, Los Angeles, for appellants.

Loeb & Loeb, John L. Cole, Jerome L. Goldberg, Los Angeles, for respondents.

FOX, Presiding Justice.

This is an appeal by appellants from an order granting a preliminary injunction ancillary to an accounting, declaratory relief, and dissolution of a limited partnership. The action grows out of the financial operations of a card club in the city of Gardena known as The Gardena Club.

The plaintiffs, Wind, Klein and Campbell, are limited partners; the defendants, Bow Herbert and his wife Nancy, are general partners. Mr. Herbert is also a limited partner and general manager of the club.

The preliminary injunction enjoins the Herberts from doing any of the following acts:

'1. Issuing any checks or drafts drawn against the funds or deposits of The Gardena Club, a limited partnership, without said checks or drafts bearing the signature of either plaintiff Murray Klein or plaintiff Adam S. Campbell;

'2. Withdrawing any funds of said limited partnership from any and all bank accounts in which said funds may be on deposit without said withdrawals being approved by either plaintiff Murray Klein or plaintiff Adam S. Campbell;

'3. Depositing the receipts of The Gardena Club, a limited partnership, in any bank account not requiring the signature or authorization of either plaintiff Murray Klein or plaintiff Adam S. Campbell for withdrawals;

'4. Paying to Bow Herbert or Nancy Herbert any sum of money other than a pro rata payment of profits, if any, and when profits are paid to all partners.'

The verified complaint and affidavits filed in support of plaintiffs' application for a preliminary injunction established, among others, the following facts: That in October, 1952, the city of Gardena issued to defendant Bow Herbert a license to operate a card club. ¹ This license, which is in full force and effect, is held in trust by him for the benefit of all the individuals here involved. Upon the issuance of the said license, plaintiffs and defendants initially formed a partnership known as The Western Properties Company which, together with Mr. Herbert individually, operated a card club known as The Gardena Club. This operation was the predecessor in interest to the partnership involved herein.

In 1955 the card club operation was reorganized into the presently existing limited partnership known as The Gardena Club, a limited partnership. In connection with this new organization, the parties executed a written agreement and assigned all the assets of the partnership to the new organization, which is also managed by Mr. Herbert. The controversy here centers, to a considerable extent, around the provisions of Section Fifteen of the partnership agreement, which reads as follows:

'1. Books of account shall be kept and entries made therein of all monies received or property received by said Limited Partnership and all debts owed by said Limited Partnership and all other transactions of business of said Limited Partnership. Said books of account and all other necessary records shall be kept where said business of the Limited Partnership is conducted and carried on and shall at all times be open for the examination and inspection of all partners.

'2. All moneys of said Limited Partnership shall be deposited in a Partnership Account in California Bank at Gardena, County of Los Angeles, California.

'3. All withdrawals from said account shall be made by check signed by one general partner and Murray Klein or Adam S. Campbell.'

Plaintiffs' affidavits reveal that prior to November 30, 1959, defendant Bow Herbert established with the California Bank, at Gardena, three separate bank accounts with the funds of said club, denominated as: Finance Account, Payroll Account, and Expense Account. The finance account was set up by said defendant so as to require the signature of plaintiff Klein as well as his own for withdrawals from said account, but no signature other than that of defendant Bow Herbert was required for withdrawals from either the payroll or expense accounts. Plaintiffs made demand upon said defendant that he comply with the provisions of Section Fifteen, supra, to the effect that all withdrawals shall be made by check signed by one general partner and either plaintiff Klein or plaintiff Campbell; that said defendant refused to comply with such demand; that thereupon plaintiffs furnished the California Bank the requisite signature cards for such payroll and expense accounts; that said defendant Herbert refused to change the structure of said accounts so as to make the signature of Klein or Campbell necessary for withdrawals from said accounts; that the California Bank then requested that all said partnership accounts be removed from said bank; that thereafter said defendant Herbert removed said accounts to the Bank of America, in Gardena, and established them under the same designations as had theretofore prevailed; that said defendant Herbert had instructed said bank to permit plaintiff Klein to affix his signature to checks for withdrawals from the finance account but only as an alternate and not as a mandatory signature. Thereupon plaintiffs demanded that Herbert establish these accounts so as to make the signatures of either Klein or Campbell necessary for withdrawals from each of said partnership accounts. Defendant Herbert refused to comply with said demand. Subsequently, the Bank of America requested that all said accounts be removed from its bank. In compliance with said request, defendant Herbert removed all partnership funds to an account in the Bank of Tokyo of California, which account is designated 'Bow Herbert, Special Account'; that said defendant Herbert is now depositing partnership receipts in said account and making disbursements therefrom; that said account requires only the signature of defendant Bow Herbert in order to make withdrawals. Plaintiffs further state that they did not ascertain until the latter part of January, 1960, the existence of said special account or the bank in which the partnership funds had been deposited after the removal of the accounts from the Bank of America. Plaintiffs also state that they have no way of determining the nature or propriety of the disbursements being made by defendant Bow Herbert from said account; that despite demands made upon him by plaintiffs, he has refused to explain, verify or account for the disbursements of partnership funds; that by reason of his absolute control over the receipts and disbursements of the Gardena Club said defendant is in a position to entirely dissipate said funds.

Plaintiffs assert that defendant Bow Herbert is charging against said partnership funds sums in excess of $1,000 per month for 'public relations'; that said charges are unverified and unexplained although demands have been made by the plaintiffs upon defendant for explanation.

Plaintiff Wind states that he has been informed by the accountant for the partnership that said 'public relations' charges are unverified and therefore non-deductible items for income tax purposes; and that he had been informed by the personal secretary of said defendant that a portion of the moneys charged as 'public relations' is received directly by said defendant. These expenditures are made from the expense account.

Plaintiff Klein states that this account is set up so as not to require any signature for withdrawals other than that of Bow Herbert in order to withhold from plaintiffs any information relative to the nature of said 'public relations' expenditures and to whom said expenditures are made.

It is further stated in plaintiffs' verified complaint that defendants Bow and Nancy Herbert have charged numerous personal living and traveling expenses to said partnership. The complaint also states that defendant Bow Herbert has drawn and charged said partnership with personal salaries in excess of $65 a day for periods of time which are known to said defendant but which are unknown to the plaintiffs; that the partnership agreement does not provide for the drawing by said Bow Herbert of personal salary, and that therefore such drawings of salary payments are unauthorized. Certain other charges are made by the plaintiffs against the defendants but they need not here be delineated.

In his affidavit, defendant Bow Herbert states, inter alia, that for a period of approximately five years all income and proceeds of the business were deposited in a bank account known as the Finance account; that checks drawn thereon were required to be signed by a general partner and a special partner; that from this account checks were customarily drawn for deposit in the special accounts known as the Payroll account and Expense account; that as a matter of convenience the checks drawn on these two latter accounts were signed only by a general partner; that no objection was made to this procedure by any of the plaintiffs until a few months prior to the initiation of this litigation. He further states that by reason of threatened litigation, both the California Bank and the Bank of America declined to carry the partnership accounts, and that in order to opperate the partnership business it was necessary for him to obtain another banking facility. Bow Herbert further states that at the inception of the partnership and throughout its existence and up until a few months prior to the instant litigation, the parties had all agreed that an expenditure of approximately $1,000 a month for public relations was both...