In 1980, Defendants William Daniels and Claudia Daniels, and other family members, formed a general partnership known as 3-D.

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CASE 16-2

Enea v. Superior Court of Monterey County

Court of Appeals of California, Sixth Appellate District 34 Cal. Rptr. 3d 513 (2005)

In 1980, Defendants William Daniels and Claudia Daniels, and other family members, formed a general partnership known as 3-D. The partnership’s sole asset was a building that had been converted from a residence into offices. A portion of the property had been rented since 1981, on a month-to-month basis, by the law practice of William Daniels (the firm’s sole member). From time to time, the property was rented on similar arrangements to others, including defendant Claudia Daniels. The partnership agreement has as its principal purpose the ownership, leasing, and sale of the only partnership asset—the building. The partnership agreement contained no provision that the property would be leased for fair market value.

The defendants asserted that there was no evidence of any agreement to maximize rental profits.

In 1993, plaintiff Benny Enea, a client of William Daniels, purchased a one-third interest in the partnership from William’s brother, John P. Daniels. In 2001, however, the plaintiff questioned William Daniels about the rents being paid for the property, and in 2003 the plaintiff was “dissociated” from the partnership.

On August 6, 2003, the plaintiff brought an action for damages, alleging that the defendants had occupied the partnership property while paying significantly less than fair rental value, in breach of their fiduciary duty to the plaintiff. The trial court granted the defendants’ motion for summary judgment, and the plaintiff appealed.

425 426

Justice Rushing

For present purposes it must be assumed that defendants in fact leased the property to themselves, or associated entities, at below-market rents…. Therefore the sole question presented is whether defendants were categorically entitled to lease partnership property to themselves, or associated entities (or for that matter, to anyone) at less than it could yield in the open market. Remarkably, we have found no case squarely addressing this precise question. We are satisfied, however, that the answer is a resounding “No.”

The defining characteristic of a partnership is the combination of two or more persons to jointly conduct business. It is hornbook law that in forming such an arrangement the partners obligate themselves to share risks and benefits and to carry out the enterprise with the highest good faith toward one another—in short, with the loyalty and care of a fiduciary. “Partnership is a fiduciary relationship, and partners are held to the standards and duties of a trustee in their dealings with each other.”

“[I]n all proceedings connected with the conduct of the partnership every partner is bound to act in the highest good faith to his copartner and may not obtain any advantage over him in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind.” Or to put the point more succinctly, “Partnership is a fiduciary relationship, and partners may not take advantages for themselves at the expense of the partnership.”

Here the facts as assumed by the parties and the trial court plainly depict defendants taking advantages for themselves from partnership property at the expense of the partnership. The advantage consisted of occupying partnership property at below-market rates, i.e., less than they would be required to pay to an independent landlord for equivalent premises. The cost to the partnership was the additional rent thereby rendered unavailable for collection from an independent tenant willing to pay the property’s value.

Defendants … persuaded the trial court that they had no duty to collect market rents in the absence of a contract expressly requiring them to do so. This argument turns partnership law on its head. Nowhere does the law declare that partners owe each other only those duties they explicitly assume by contract. On the contrary, the fiduciary duties at issue here are imposed by law, and their breach sounds in tort.

The trial court’s order is set aside and the motion for summary judgment by the defendant is denied.

• mgmt520_legalbriefformat-2.pdf

FORMAT FOR CASE BRIEF

Virtually all of the cases in this text (and all legal texts for that matter) are at an Appellate/Supreme Court level (not a trial court), where Issues of Law are resolved, as opposed to issues of fact which are resolved at the trial court level. This suggested format is a slight modification of an outline for Case Briefs used in the legal profession. (Example – Text Pg 4 – Case 1.1)

 Style of Case and Citation:

Example – United States of America v. Martha Stewart and Peter Bacanovic

U.S. District, LEXIS 12538 (2004)

 Court Rendering Final Decision:

Example – U.S. 2nd Circuit Court Of Appeals

 Identification of Parties and Procedural Details: Who is the Plaintiff/Appellant? Who is the Defendant/Appealer? What is the cause of action? Who prevailed in lower

court? Who is appealing to what court?

Example – Original Defendants, Martha Stewart and Peter Bacanovic, are Appealing

their conviction for Insider Trading in the Federal District Court by the U.S.

Department of Justice, and asking for a New Trial based on a Claim of Perjury by the

Prosecution’s Expert Star Witness – Lawrence F. Stewart of the U.S. Secret Service.

District Court found insufficient evidence for invalidating the Jury/Court Decisions,

and Stewart and Bacanovic are Appealing to the U.S. 2nd Court of Appeals.

 Discussion of the Facts: Who did what to whom? What relief is being sought?

Example – Defendants were trading ImClone Stock based on insider information one

day prior to a Public Announcement of damaging financial information regarding

ImClone Corporation. Both Defendants were also accused of lying to FBI Agents

during an investigation of the Insider Trading Claim.

 Statement and Discussion of the Legal Issues in Dispute: What decision of the lower court is being challenged? What specific legal questions is the subject court

being asked to address? Is the question about Common-Law? A Statute?

Example – The Defendants are challenging the District Court’s Denial of their right to

a re-trial based on the presumed Perjury of the Expert Witness. This is a question of

2

Federal Statutory Court Procedure, which did not require an investigation of the

truthfulness of witnesses Testimony.

 Subject Court Final Decision: For Plaintiff? For Defendant? What happens next?

Example – Ruling is in favor of U.S. Prosecutors. The conviction of Martha Stewart

and Peter Bacanovic in District Court is Affirmed. Request for a New Trial is

Denied.

 Summary of This Final Court’s Reasoning: What is the legal basis for the court’s decision? Be sure to include relevant Dissenting Opinions.

Example – The Testimony of Lawrence F. Stewart was not reviewed for Perjury by

the Court of Appeals because his Testimony was not successfully challenged in

District Court, and was supported by three other witnesses. Even if Mr. Stewart had

lied under oath, the Defendants’ Conviction was supported by these other witnesses.

 Business Impact of the Case: How does the result affect US businesses and their policies and practices? How should management react to the decision in this case in

order to avoid future problems, or take advantage of such a situations?

Example – Given Multiple Witness Testimony supporting a certain key fact, a

question of accuracy and/or Truthfulness of one witness’ Testimony that has not been

ruled a crime by the Lower Court, does not support a ruling to overturn a Jury Verdict

and Grant a New Trial.