Opinion
G029257.
11-26-2003
HAROLD YAMANUHA, Plaintiff and Respondent, v. WILLIAM TAKAHASHI, Defendant and Appellant.
Stephan, Oringher, Richman & Theodora, Robert M. Dato; Snell & Wilmer, and Richard A. Derevan, for Defendant and Appellant. Law Offices of Marjorie G. Fuller, and Marjorie G. Fuller, for Plaintiff and Respondent.
William Takahashi appeals from a jury verdict awarding Harold Yamanuha $4 million in compensatory damages and $500,000 in punitive damages for breaching a partnership agreement covering a series of real estate transactions. Seeking dismissal, Takahashi argues the evidence was insufficient to show the existence of a partnership, but we disagree. Takahashi also complains of various evidentiary, instructional, and damage award errors. The jury instruction issues are dispositive. We agree the courts instruction requiring Takahashi to prove by clear and convincing evidence the absence of a partnership with Yamanuha requires reversal. We also agree the instructions on contract interpretation were erroneous. Because we reverse on these grounds, we need not reach the other issues raised on appeal.
I
FACTS AND PROCEDURAL BACKGROUND
The parties relationship began when Takahashi installed a karaoke machine and an alarm system in Yamanuhas business. The two became friends. Takahashi often boasted of his successful real estate investments, and invited Yamanuha to invest with him. Yamanuha agreed. Because Yamanuha was already running a full-time business, he understood he "would be the silent partner," and Takahashi would be, in Yamanuhas words, "the active person." The two initially considered buying and renovating single family homes sold at foreclosure auctions, but decided most of these properties were overvalued.
Takahashi discovered a better project: a distressed 55-unit apartment building for sale on Ross Street in Santa Ana. He provided Yamanuha brochures and broker listings, and the two agreed it was an excellent deal. Takahashi later claimed he and Yamanuha agreed to a series of loans for the purchase and renovation of the apartment building. Under the terms of the loan, upon resale of the building, Yamanuha would be paid back twice the amount he invested. Takahashi purchased the building for $1,125,000, with a $700,000 mortgage to complete the transaction. Yamanuha wrote checks to the escrow company for $165,000 and to the broker for $51,300, but Takahashi held title in his name alone.
Altogether, Yamanuha invested $250,000 to purchase the property and $110,911 to renovate it, for a total of $360,911. Takahashis total investment was $216,562.89, not including the $700,000 mortgage. The two trusted each other to record the amounts each contributed. Takahashi negotiated the purchase, oversaw the renovation, leased the units, and handled the eventual sale of the property. The investment proved lucrative; less than a year after purchase, the property resold for $2.6 million, netting $1,431,513 in cash, plus a promissory note for $290,000.
Yamanuha first learned of the promissory note at trial.
Takahashi proposed rolling the money over into the purchase of the Pacific Point Apartment Complex in Oceanside. He again furnished pictures, brochures, and a listing agreement for Yamanuha to review, and the real estate broker, Alan Reay, also visited Yamanuha to provide information. Yamanuha agreed to the purchase and contributed an additional $200,000 he borrowed from his sister.
During one of Takahashi and Reays visits, Yamanuha wrote out two documents to memorialize his agreement with Takahashi. The first document stated, in Yamanuhas handwriting, "This note acknowledges receipt of $250,000.00 and $200,000.00 and miscellaneous loans of $110,911.00 given to Bill Takahashi from Harold Yamanuha." The second, also by Yamanuhas hand, read: "Partnership Agreement [¶] It is hereby understood that the monies loaned by Harold Yamanuha to William Takahashi will be used to enter into a real estate partnership with percentage to be determined by monies invested. The monies invested is [sic] $560,911.00."
Yamanuha and Takahashi signed this agreement, as did Reay as a witness. Yamanuha later testified the phrase, "with percentages to be determined by monies invested," meant partnership ownership interests were to be determined by actual funds put into any property, not mortgages taken out to purchase the property or "sweat equity" to manage or renovate it.
In addition to the $560,911 outlay referenced in the "Partnership Agreement" (consisting of Yamanuhas $360,911 towards Ross Street and his sisters $200,000), Yamanuha put in another $40,780 toward the Oceanside purchase. Thus, Yamanuhas out-of-pocket contributions came to approximately $601,000. Later, Takahashi claimed double this amount, $1.2 million, constituted Yamanuhas share under their loan agreement.
To purchase the Oceanside property, Yamanuha and Takahashi rolled over their $1,431,513 in cash from the Ross Street sale, plus Yamanuhas additional $40,780 and the $ 200,000 he received from his sister. Takahashi also contributed $ 200,000 he received from another party, Robert Cheung. Takahashi further secured $600,000 more from a Kenneth Beard and his parents. Hence, the cash available for the Oceanside purchase was approximately $2.5 million. The purchase price for the Oceanside property was $5,800,000, and the total down payment was $2,100,000, which apparently did not include escrow costs, broker fees, or amounts spent on renovation. Takahashi and the Beards took out mortgages to complete the purchase, taking title as tenants in common.
The Oceanside property required substantial renovation. Takahashi and the Beards spent approximately $1 million upgrading it, but Yamanuha did not put any more money into the project. Five years later, the property sold for $ 13.5 million. After costs and distribution of the Beards share, the net proceeds amounted to nearly $7,000,000. Yamanuha declined Takahashis suggestion they roll the money into another property, and instead requested his share. But the two men disagreed on that figure, despite efforts by Takahashis accountant and Yamanuhas lawyer to resolve the impasse. Takahashi finally told Yamanuha: "`You take 1.2 or take nothing." Yamanuha sued.
At trial, Yamanuhas expert testified Yamanuhas share of the Ross Street proceeds was 62.5 percent based on his $360,911 cash outlay for the Ross Street property, compared to Takahashis $216,583, a 37.5 percent share. The expert factored in the additional cash amounts Yamanuha and Takahashi contributed to the Oceanside acquisition to ascertain each partners percentage share of the Oceanside proceeds. Applying this percentage, the expert concluded Yamanuha was entitled to $4,683,821.
The trial court denied Yamanuhas request for a general verdict. During deliberations, the jury asked whether the special verdicts were "to be answered separately or cumulatively?" The court instructed, "Separately." The jury awarded Yamanuha a total of $4,500,000, which included $500,000 in punitive damages, $ 2 million on a special verdict for breach of the partnership agreement, and $500,000 each on special verdicts for breach of a duty of loyalty, breach of a duty of care, breach of fiduciary duty and concealment of Takahashis intent not to perform according to the partnership agreement.
In posttrial motions, Takahashi argued Yamanuha could not recover "four times on the same theory," therefore Yamanuha was required to make an election of remedies: either $ 2 million for the breach of the partnership agreement, for which there could be no punitive damages, or $500,000 on any one of the other counts, plus $500,000 in punitive damages. After considering the briefs and hearing argument, the court observed: "I truly believe that the jurors intended to award the plaintiff $4 million. And how that can be straightened out, it puts me in a quandary. But with my strong feeling that that was their will, I will do whatever the plaintiff wants." Yamanuha asked the court to correct the verdict to reflect the jurys intent or, alternatively, to enter a judgment notwithstanding the verdict. The court chose the former option and entered a corrected judgment against Takahashi for $4,000,000 in general damages and $500,000 in punitive damages.
Takahashi filed for bankruptcy before the trial court entered judgment. Informed of this development, the court rejected Takahashis contention the automatic stay resulting from his bankruptcy petition barred the trial court from taking further action. On November 30, 2000, the court entered judgment, commenting, "[L]et the bankruptcy court do what they will with it."
On April 2, 2001, the bankruptcy court lifted its stay for certain limited purposes, based on the parties stipulation. Per the bankruptcy courts order, Takahashi and Yamanuha stipulated, in relevant part, to the following facts: "3. The entry of the judgment after the filing of Debtors bankruptcy petition may have been a ministerial act exempt from the automatic stay or may be void as a violation of the automatic stay. [¶] 4. The parties are in agreement that a determination that the judgment is void would simply result in unnecessary fees and costs to both sides. In addition, both sides may wish to file various post-trial motions in the Superior Court and the Debtor desires to prosecute an appeal of the judgment, but these actions have been stayed by the bankruptcy. [¶] 5. Any further action in the Superior Court matter is stayed pursuant to the provisions of title 11 U.S.C. § 362(a) and Debtor is stayed from taking an appeal from the judgment pursuant to the decision of the Ninth Circuit Court of Appeals in [Parker v. Bain (9th. Cir. 1995) 68 F.3d 1131 (Parker)]."
The order concluded: "NOW, THEREFORE, it is hereby stipulated and agreed as follows: [¶] 1. The automatic stay shall be annulled for the limited purpose of validating the Judgment on Special Verdict in open court filed November 30, 2000 to the extent that the filing of such judgment was in contravention of the automatic stay imposed by title 11 U.S.C. § 362(a). [¶] 2. The automatic stay shall be modified to permit either party to file any appropriate post-trial motions or appeals and to prosecute or defend any appeal until entry of a final judgment. Pursuant to title 11 U.S.C. § 108(c) , the time for the parties to file any post-trial motions or to take an appeal do not expire until the later of the end of such period or thirty days after entry of this Courts order approving this stipulation." (Italics added.) The court entered its order approving the stipulation on April 2, 2001.
On May 1, 2001, Takahashi moved to vacate the judgment for a new trial or judgment notwithstanding the verdict (JNOV), which the court denied. Yamanuha served notice of the courts ruling on May 25, 2001. Less than 30 days later, on June 13, 2001, Takahashi filed this appeal.
II
DISCUSSION
A. Timeliness of the Appeal
Yamanuha contends Takahashi filed this appeal beyond the 60 days following a bankruptcy petition allotted to debtors to file "any pleading . . . or perform any other similar act . . . ." (11 U.S.C. § 108(b).) But Yamanuha offers no reason why we should ignore his stipulation section 108(c) applies. As noted above, Yamanuha stipulated in the bankruptcy proceedings: "Pursuant to title 11 U.S.C. § 108(c) , the time for the parties to file any post-trial motions or to take an appeal do not expire until the later of the end of such period or thirty days after entry of this Courts order approving this stipulation." (Italics added.) As we discuss below, the appeal is timely under section 108(c).
Section 108(b) allows a debtor or trustee an additional 60 days from the date of the bankruptcy petition to "file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act . . . ." The purpose of section 108(b) is to allow the debtor or trustee extra time to augment the debtors holdings, and the sums thereby available to creditors, by perfecting claims belonging to the debtor. (See, e.g., In re Dunlap (M.D. Tenn. 1993) 158 B.R. 724, 728 [§ 108(b)s enlargement of time extended debtors right to redeem pawned goods by 60 days from date of bankruptcy petition].) Notably, the grace period "only applies to causes of action that the debtor owned prepetition." (In re Topcor, Inc. (N.D. Tex. 1991) 132 B.R. 119, 126.) Cases cited by Yamanuha such as Autoskill, Inc. v. Natl Educational Support Systems, Inc. (10th Cir. 1993) 994 F.2d 1476 are therefore distinguishable for two reasons. First, Takahashis right to appeal did not arise before filing his bankruptcy petition because the trial court had not yet entered judgment. Second, and more importantly, Takahashis right to appeal was not itself a "cause of action." (In re Topcor, Inc., supra , 132 B.R. at p. 126.) Thus, section 108(b) simply does not apply.
In full, section 108(b) states: "Except as provided in subsection (a) of this section, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period within which the debtor or an individual protected under section 1201 or 1301 of this title may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition, the trustee may only file, cure, or perform, as the case may be, before the later of — [¶] (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or [¶] (2) 60 days after the order for relief." (Italics added.) (See also 11 U.S.C. § 301 [a bankruptcy petition constitutes an "order for relief"].)
As recognized by the parties stipulation, section 108(c) is controlling. That section addresses the time "for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor . . . ." (Italics added.) Specifically, the section lengthens the time for "continuing a civil action . . . against the debtor" until: (1) "the end of such period" fixed by nonbankruptcy law for doing so, "including any suspension of such period," or (2) "30 days after notice of the termination or expiration of the [bankruptcy] stay . . . ." (§ 108(c).) An appeal of a civil judgment is a continuation of the action against a debtor, but the automatic stay resulting from a bankruptcy petition suspends the debtors ability to appeal. (See Parker, supra, 68 F.3d at pp. 1135-1136 ["We need not spill a great deal of ink discussing the assertion . . . that an appeal by the debtor cannot constitute the continuation of an action against the debtor. This Court, as well as seven other courts of appeals, has concluded that the automatic stay can operate to prevent an appeal by a debtor when the action or proceeding below was against the debtor"], original italics, fn. omitted.) The bankruptcy stay thus operated to suspend the period in which Takashi could appeal.
In full, section 108(c) provides: "Except as provided in section 524 of this title, if applicable nonbankruptcy law, an order entered in a nonbankruptcy proceeding, or an agreement fixes a period for commencing or continuing a civil action in a court other than a bankruptcy court on a claim against the debtor, or against an individual with respect to which such individual is protected under section 1201 or 1301 of this title, and such period has not expired before the date of the filing of the petition, then such period does not expire until the later of — [¶] (1) the end of such period, including any suspension of such period occurring on or after the commencement of the case; or [¶] (2) 30 days after notice of the termination or expiration of the stay under section 362, 922, 1201, or 1301 of this title, as the case may be, with respect to such claim." (Italics added.)
Once the stay was lifted, Takahashi filed a motion to vacate the judgment for a new trial or JNOV, which the court denied. Yamanuha served notice of the courts ruling on May 25, 2001. Takahashi had 30 days within which to file his appeal. (Cal. Rules of Court, rule 3(a)(1), (b)(1), and (c)(1)(A).) He did so by filing his notice of appeal on June 13, 2001. The appeal was thus timely, and we therefore turn to the merits.
B. Substantial Evidence
Takahashi challenges the sufficiency of the evidence to support the finding there was a partnership. Relying on well-established authority, Takahashi correctly argues "[a]n essential element of a partnership . . . is the right of joint participation in the management and control of the business." (Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 364, italics added.) We note the trial court properly instructed the jury on this element, reciting verbatim the applicable statutory language: "Each partner has equal rights in the management and conduct of the partnership business." (See Corp. Code, § 16401, subd. (f).) But while a right of control is essential, each partner need not exercise it. To the contrary, partners are free instead "to allocate responsibility among themselves as they see fit." (Victor Valley Transit Authority v. Workers Comp. Appeals Bd. (2000) 83 Cal.App.4th 1068, 1076.) Here, Yamanuha testified he was a full, albeit silent partner, and had agreed Takahashi would be "the active person," and thus the jury reasonably could conclude Yamanuha had the right of joint management and control but chose not to exercise it. The credibility of the witnesses was a matter for the jury to determine, and it is not our role to reweigh it. (Stokus v. Marsh (1990) 217 Cal.App.3d 647, 656 [credibility determinations belong to trier of fact].) Takahashis argument lacks merit.C. The Jury Instructions Regarding the Alleged Partnership Agreement
1. The Instructions Were Erroneous
Takahashi contends the trial courts instructions concerning Yamanuha and Takahashis alleged written and oral "Partnership Agreement" were erroneous. We agree. The first instruction on this topic stated prominently: "USE OF THE WORD `PARTNERSHIP IN AN AGREEMENT DOES NOT CREATE A PARTNERSHIP." The instruction continued, "Even if the parties used the word `partnership and state in their writing that a partnership is being formed, a partnership will not result if the totality of the circumstances are not sufficient to create a partnership. Simplylabeling a document as a `partnership agreement does not create a partnership relationship between the parties. The nature of the instrument is not to be determined by what the parties call it." (Italics added, hereafter the "Labeling Instruction.")
Regarding oral communications, an instruction provided: "CALLING EACH OTHER A PARTNER DOES NOT CREATE A PARTNERSHIP [¶] The fact that the parties may have referred to each other as partners does not compel the finding that a partnership existed. The use of the term `partner in the popular sense, or as a matter of business convenience, does not necessarily imply that a legal partnership should result."
The Labeling Instruction is correct as far as it goes, but should have included a full explanation of the law, as shown in Smith v. Grove (1941) 47 Cal.App.2d 456 (Smith). "The nature of the instrument is not to be determined by what the parties called it. [Citation.] Its nature is to be determined by its legal effect. The legal effect of an instrument claimed to be a contract of partnership must be measured by the rules of law applicable thereto. The first rule is statutory. A partnership is `. . . an association of two or more persons to carry on as co-owners a business for profit. [Citation.]" (Id. at p. 461, italics added.) This definition is now codified in section 16202 of the Corporations Code.
Rather than directing the jurys attention to the elements of a partnership, the courts additional instructions fatally contradicted the correct statement of law in the Labeling Instruction. These additional instructions — all proposed by Yamanuha —focused on contract interpretation. For example, the court instructed the jury that "[t]he language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity" and that "[w]hen a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible . . . ." But these instructions conflict with the Labeling Instructions mandate that "[t]he nature of the instrument is not to be determined by what the parties call it."
Similarly, the court erred in giving another instruction submitted by Yamanuha: "The words of a contract are to be understood in their ordinary and popular sense, rather than according to their strict legal meaning; unless used by the parties in a technical sense, or unless a special meaning is given to them by usage, in which case the latter must be followed." (Italics added.) The notion that the words, "partners" or "partnership," were to be understood in their ordinary and popular sense is contrary to the jurys duty to determine whether the elements of a partnership existed, regardless of how the parties described their relationship.
The same flaw was repeated in another instruction: "A contract having been deliberately executed is presumed correctly to express the intention of the parties. The burden of overcoming such presumption rests upon him who seeks to avoid its plain terms by clear and convincing evidence." (Italics added, hereafter the "Presumption Instruction.") Again, the issue for the jury was not to accept the "plain terms" of the parties designation of themselves as "partners" in the "Partnership Agreement," but rather to ascertain whether a partnership existed under the Corporations Code.
The instruction cited Taff v. Atlas Assur. Co. (1943) 58 Cal.App.2d 696 (Taff), which we discuss below.
Worse, the Presumption Instruction improperly shifted the burden of proof from Yamanuha to Takahashi. Takahashi was required to show by clear and convincing evidence that a partnership did not exist under the plain terms of the Agreement. But the correct burden of proof for establishing the existence of a partnership is the ordinary civil standard of a preponderance of the evidence. (See Weiner v. Fleischman (1991) 54 Cal.3d 476, 483 ["`[i]ssues of fact in civil cases are determined by a preponderance of testimony"]; see also Evid. Code, § 115 ["Except as otherwise provided by law, the burden of proof requires proof by a preponderance of the evidence"].) And, as is ordinarily the case, the burden rests upon the party asserting the existence of the partnership, not the defendant. (See Evid. Code, § 500.)
Yamanuhas reliance on Taff , supra, 58 Cal.App.2d 696 is misplaced. In Taff, a jeweler sought to reform his insurance policy to delete a clause excluding coverage for negligence. He claimed the clause was contrary to his expressed desire for the broadest possible policy. The case has no bearing here. Takahashi did not seek reformation of his agreement with Yamanuha; rather, the issue for the jury was to determine whether a partnership in the legal sense was formed by the parties. Taff is inapposite and the court erred in giving an instruction based on its holding.
2. The Error Was Prejudicial
Yamanuha argues that even if the instructions were erroneous, there was no miscarriage of justice requiring reversal. (See Cal. Const., art. VI, § 13.) As recognized by our Supreme Court, "Particularly serious forms of error might `almost invariably prove prejudicial in fact. But it does not follow that courts may `automatically and monolithically treat a particular category of civil instructional error as reversible per se. Article VI, section 13 of the California Constitution requires examination of each individual case to determine whether prejudice actually occurred in light of the entire record." (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580.) Prejudice occurs when it is reasonably probable the error affected the verdict. (Ibid.)
Here, the record shows palpable prejudice. While Yamanuha called himself the "silent partner" and the title of the written "Partnership Agreement" suggested a partnership, there was evidence in Yamanuhas own handwriting that: "This note acknowledges receipt of $250,000 and $200,000 and miscellaneous loans of $110,911.00, given to Bill Takahashi from Harold Yamanuha." (Italics added.) It is not clear whether by "note" the parties meant simply an abbreviated writing or rather something akin to a promissory note. Moreover, the terms of the "Partnership Agreement" stated its objective was the creation of a "real estate partnership," but characterized the money Yamanuha provided Takahashi as "monies loaned" and "invested."
With the evidence thus in relative equipoise, "it is quite probable that the jury utilized the tie-breaking tool necessary to our system of fact-finding: When in doubt, find against the party with the burden of proof." (Buzgheia v. Leasco Sierra Grove (1997) 60 Cal.App.4th 374, 394 (Buzgheia) [noting evidence there "stood in relative equipoise"].) The problem here is that the jury received conflicting instructions on the burden of proof. The court properly gave BAJI No. 2.60 generally stating Yamanuha had the "burden of proving by a preponderance of the evidence all of the facts necessary to establish" his claim a partnership existed. But as discussed, the Presumption Instruction told the jury the opposite was true: Takahashi had to prove by clear and convincing evidence a partnership did not exist under the plain terms of the "Partnership Agreement." As observed in Buzgheia, "`It is particularly difficult to overcome the prejudicial effect of a misstatement when the bad instruction is specific and the supposedly curative instruction is general. [Citation.] It is where the specific instruction is good, and the general one bad, that an error `is usually held cured. [Citation.]" (Buzgheia, supra, at p. 395.)
Compounding the problem, the courts other instructions were similarly in conflict. While the Labeling Instruction correctly advised the jury the parties relationship was not determined by how they described it, the contract interpretation instructions were exactly to the contrary and therefore erroneous. "The giving of an erroneous instruction is not cured by the giving of other correct instructions where the effect is simply to produce a clear conflict in the instructions and it is not possible to know which instruction was followed by the jury in arriving at a verdict. [Citations.]" (Hargrave v. Winquist (1982) 134 Cal.App.3d 916, 924.) Here, given the state of the evidence, we conclude it is reasonably probable the improper instructions, which were detrimental to Takahashi, compromised the verdict.
Seeking to salvage the verdict, Yamanuha stresses Takahashi did not object to the instructions below. But erroneous instructions are "deemed excepted to" (Code Civ. Proc., § 647) and the party harmed "`need not have objected to the instruction or proposed a correct instruction of his own in order to preserve the right to complain of the erroneous instruction on appeal. [Citation.]" (Mattco Forge, Inc. v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 841, italics omitted.) Reversal is therefore required.
Takahashi also complains evidence of settlement negotiations should not have been admitted and the trial court erred in excluding Yamanuhas admission he was a lender in a separate but similar real estate transaction. Because we have determined the instructional errors require reversal, we decline to address these contentions. Similarly, while we note the special verdict form was flawed insofar as it permitted separate damage awards for an indivisible harm, our remand for a new trial moots both this point and Takahashis arguments concerning punitive damages.
III
DISPOSITION
The judgment is reversed. Appellant shall recover his costs on appeal.
We concur: RYLAARSDAM, ACTING P. J. and OLEARY, J.