Banyan Limited Partnership v. Baer
Filed 8/12/13 Banyan Limited Partnership v. Baer CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
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as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF
APPEAL OF THE STATE OF CALIFORNIA
FOURTH APPELLATE
DISTRICT
DIVISION THREE
BANYAN LIMITED PARTNERSHIP et al.,
Plaintiffs and
Appellants,
v.
DAN W. BAER et al.,
Defendants and
Respondents.
G045584
(Super. Ct.
No. 764271)
O P I N I O
N
Appeal from a judgment
of the Superior Court
of
County, Thierry P. Colaw, Judge.
Affirmed.
Law Offices of Dennis
Hartmann and Dennis Hartmann; The Dressler Law Group and Thomas W. Dressler,
Snell & Wilmer, Richard A. Derevan and Todd E. Lundell for Plaintiffs and
Appellants.
Enterprise Counsel
Group, Benjamin P. Pugh, Teddy Davis, and David A. Robinson, for Defendant and
Respondent Dan W. Baer.
Schadrack & Chapman
and C. Michael Chapman for Defendants and Respondents Dan W. Baer, IBT
International, Inc., and Southern California Sunbelt Developers, Inc.
INTRODUCTION
This litigation has
spanned almost two decades. The original
complaint, filed in 1996, arises out of business dealings between Dan W. Baer
and an attorney, David H. Tedder, during the late 1980s and early 1990s. It began as an action filed by Tedder as
general partner of a multitude of Nevada limited partnerships he created for
clients as part of “asset protection†services he provided for those
clients. Tedder sued on behalf of the
limited partnerships to recover on loans they allegedly made to Baer’s
corporations, IBT International, Inc. (“IBTâ€) and Southern California Sunbelt
Developers, Inc. (“SCSDâ€) (hereafter “Defendants†unless the context indicates
otherwise), to acquire real estate owned by the corporations, but in which
Tedder claimed he and Baer were to be partners.
Defendants and Tedder cross-complained against each other seeking to
determine their respective interests in the real estate and their other
business pursuits, which included Tedder’s law firm from which the two men had
agreed to equally split the profits. The
action ended up as one asserting that Baer, as a
non-lawyer
partner in Tedder’s law firm, was liable for Tedder’s breaches of fiduciary
duties to the three law firm clients who funded the limited partnerships, and
who claimed they had each lost millions of dollars entrusted to Tedder as a
result of Tedder’s making self-interested loans of their money.
The action has been
tried in four separate phases over seven years before different judges in the
superior court. It has already been the
subject of two prior appeals in this court (Banyan
Limited Partnership et al. v. Baer et al. (Feb. 7, 2007, G036089) [nonpub.
opn.]; Castlerock Limited Partnership et
al. v. Baer et al. (Dec. 12, 2001, G026308) [nonpub. opn.]),
not to mention the plethora of lawsuits throughout the nation in state courts
and federal courts involving many of the entities and individuals connected to
this action. In one of the phases of
trial, the trial court found Baer’s corporations, IBT and SCSD, were
responsible for five loans made by the Grammer Limited Partnerships totaling about
$1.1 million that were evidenced by promissory notes. In another phase, the trial court determined
Tedder had no interest in any of the real estate owned by IBT or SCSD, and
although Tedder and Baer were partners in Tedder’s law firm, neither could recover
anything from the other. And in the
final phase, the court found Plaintiffs’ breach of fiduciary duty cause of
action against Baer was time barred and they failed to prove Baer breached any
fiduciary duties towards them.
Currently before us are
three separate appeals filed after judgment was entered after the final phase
of trial. In this appeal,
et al. G045584 (Banyan 1), Plaintiffs appeal from the final judgment. In Banyan
Limited Partnership et al. v. Baer et
al. (Aug. 12, 2013, G045797) [nonpub. opn.] (Banyan 2), Baer appeals from the postjudgment order granting the
Grammer Limited Partnerships’ new trial motion and modifying the statement of
decision allowing the Grammer Limited Partnerships to pursue a postjudgment
motion to add Baer as a judgment debtor as an alter ego of his
corporations; and in Banyan et al. v.
Baer et al. (Aug. 12, 2013,
G046428) [nonpub. opn.] (Banyan 3),
the Grammer Limited Partnerships and Baer and SCSD both appeal from the
postjudgment order denying attorney fees related to the second phase
trial.
In this appeal, we
conclude the trial court properly found the one-year statute of limitations
applicable to breach of fiduciary claims against an attorney (Code Civ. Proc.,
§ 340.6) applies and bars Plaintiffs’ breach of fiduciary claims against
Baer. Accordingly, we affirm the
judgment.
FACTS & PROCEDURE
In 1985, Tedder was
managing partner of his law firm
name="_ftnref3" title="">[3]
and Baer, a
non-attorney
businessperson/real estate investor, owned SCSD. Baer retained Tedder to devise an asset
protection/estate plan for him that involved creation of several offshore
Baer-owned trusts and a Cook Island corporation. (Banyan
Limited Partnership et al. v. Baer et al., supra, G036089, p. 3.)
In 1986, Tedder and Baer
orally agreed to combine their efforts, in what they called a joint venture, to
market and mass-produce similar estate planning/financial plans for wealthy
individuals through Tedder’s law firm.
They agreed Tedder would perform the legal services and Baer would
manage the law firm.
Tedder and Baer agreed
the law firm profits would be split equally between them and used to invest in
real estate ventures that Baer would oversee and manage. (Banyan
Limited Partnership et al. v. Baer et al., supra, G036089, pp. 3-4.) Tedder formed the corporation IBT to be the
holding company for those real estate investments. Baer owned 99 percent of the IBT stock, and
Tedder owned one percent of IBT stock.
the profits from any real estate ventures, were to be equally divided between
them. The court eventually found that
because of the profit sharing agreement, Baer was Tedder’s “partner-in-fact†in
the law firm, an arrangement that violated California Rules of Professional
Conduct, rule 1-320 [attorney prohibited from directly or indirectly
sharing legal fees with non attorney] (see also California Rules of
Professional Conduct, rule 1-310 [attorney prohibited from forming partnership
with non attorney if partnership activities include practice of law]).
Between
1986 and 1996, the law firm had many clients but never turned a profit.
profits for his personal use; Tedder contended there were no profits because so
much of the law firm’s time was spent on Baer-related litigation matters, which
Baer expected the law firm to handle for free.
In any event, all agree there were no law firm profits to invest in real
estate. Nonetheless, IBT and/or SCSD
acquired three pieces of property using Baer’s personal money and money
borrowed from some of Tedder’s clients:
(1) an undeveloped 7,500 acre ranch in Kern County (“the Ranchâ€)
acquired by IBT in 1989; (2) an office building in Anaheim (“the Katella
Buildingâ€) acquired by IBT in 1990; and (3) an office park called the John
Wayne Executive Guild Building (“the Guildâ€) acquired by IBT or SCSD in 1993.
At some point in the
late 1980s, Tedder began providing expanded “asset protection services†for
wealthy clients, including Don Grammer, Richard McGrath, and Dan Schoenman. Tedder created numerous limited partnerships
(referred to throughout these proceedings as “controlled accountsâ€) for these
clients of which Tedder (via entities he owned) was general partner with
complete control over the funds. Tedder
would then engage a “labyrinthine use of [the] ‘controlled accounts’ to move
clients’ money around the world in various financial institutions and vehiclesâ€
to protect (i.e., hide) the clients’ assets from current and potential
creditors. Tedder used some of these client
funds (including Plaintiffs’ funds) to make loans to IBT and SCSD to fund
acquisition of the real estate in which he and Baer were supposedly partners.
intricately involved with Tedder’s controlled account scheme, and as Tedder’s
law firm partner he is liable for their alleged losses, the trial court
ultimately found Baer played no role in the creation or management of the
controlled accounts.
Original Complaint
The Tedder/Baer
partnership fell apart in March 1996, as will be described in more detail,
anon. On May 24, 1996, Tedder as
attorney for 15 limited partnerships and four corporations filed a complaint
against Defendants. Most of the original
limited partnership and corporate plaintiffs were eventually dismissed because
they lacked capacity to sue and in an earlier opinion, we affirmed the
dismissals (Castlerock Limited
Partnership et al. v. Baer et al., supra, G026308), leaving the seven
remaining Plaintiffs.
The original complaint
alleged Tedder and Baer formed a “business arrangement†in 1989 to invest in
real estate, with financing Tedder would obtain. Plaintiffs alleged they loaned money to
Defendants to purchase real estate including the Guild and the Ranch. The original complaint alleged Baer agreed
the proceeds from the real estate investments would be used first to pay off
the loans and second to pay off any other obligations, and thereafter, the
profits would be split equally between Tedder and Baer.
The original complaint
alleged Baer, individually and on behalf of IBT and SCSD, had repudiated the
loan agreements, was using the cash flow from the properties for his own
benefit, and was not repaying the loans as agreed. The complaint attached a detailed list of the
loans alleged to have been made to Baer, IBT, and SCSD and the dates each loan
was made. The alleged total of all the
loans made to IBT and SCSD by all the original plaintiffs was $4,109,820.
The original complaint
contained causes of action against Defendants for money lent, seeking to
recover all amounts loaned; for fraud and deceit and unjust enrichment,
alleging Baer was improperly diverting cash flow and equity in the properties
(through new loans and encumbrances) for his own use; and for judicial
foreclosure, seeking imposition of an equitable lien on the properties.
Amended Complaints
The first amended
complaint was filed almost three years later in March 1999. Tedder was no longer representing Plaintiffs,
but all were now represented by attorney Terry M. Moshenko. The first amended complaint contained the
same basic allegations as the original complaint about loans from Plaintiffs to
Defendants, described as orally agreed to “conditional demand loans,†for real
estate acquisition, but added allegations about an agreement between Baer and
Tedder that Baer would manage Tedder’s law firm and be compensated with
one-half of the law firm’s profits. The
first amended complaint alleged an implied term in the Tedder/Baer agreement
was that Baer would act as a “trustee†of Tedder’s interests in the law firm,
and as “trustee†of Plaintiffs’ interests (as lenders) and Tedder’s interests
(as partner) in the real estate acquired with the loan proceeds. The first amended complaint added a cause of
action for breach of fiduciary duty containing a general allegation there was a
fiduciary relationship between Defendants and Plaintiffs and Defendants
breached that duty. The first amended
complaint also added alter ego allegations, i.e., that each corporate
defendant (IBT and SCSD) was a “sham†corporation acting as alter egos of
the individual defendant (Baer).
In April 1999, Moshenko
filed Tedder’s cross-complaint against Defendants containing many of the same
allegations and causes of action as Plaintiffs’ complaint. Numerous amended pleadings were filed over
the next several years.
Meanwhile, while this
litigation was pending, sometime in the late 1990s, the Grammer family filed an
action against Tedder in their home state of Texas, alleging Tedder had
defrauded them of millions. The
plaintiffs in the Texas action included all the individual members of the
Grammer family (Don Grammer, his wife Brenda, and his children Daralyn and
Greg) and numerous limited partnerships including those remaining as plaintiffs
in this action—Banyan, Pear Tree, and Orange Blossom. The defendants included Tedder, his wife, and
various Tedder-related entities; Baer, IBT, and SCSD; and Gary Case (a
certified public accountant who worked with Tedder and Baer). In 2000, Case, Baer, IBT, and SCSD, succeeded
in getting dismissed from the Texas action due to lack of personal
jurisdiction. (See Case v. Grammar (Tex. Ct. App. 2000) 31 S.W.3d 304, 306.)
In 2001, the Grammer
family settled with Tedder and his related entities including his law
firm. The Grammers were represented by
their current counsel, Dennis Hartmann, and Tedder was represented by attorney
Moshenko. The settlement basically
called for Tedder to assign part of his interests in this litigation to the
Grammer family, and the Grammer family released all claims against Tedder and
his entities including his law firm.
Sometime after settlement of the Grammers’ Texas lawsuit, attorney
Hartmann undertook representing all Plaintiffs
in this action (i.e., the Grammer Limited Partnerships, the McGrath Limited
Partnerships, and Birch), and Tedder on his
cross-complaint
against Defendants.
Pre-Phase 2 Summary Adjudication Motion
case was originally assigned to Judge William F. McDonald. In January 2001, Baer and IBT and SCSD filed
separate motions for summary adjudication of several causes of action in
Plaintiffs’ complaint and Tedder’s cross-complaint, including Plaintiffs’
breach of fiduciary duty cause of action, on the grounds there was no fiduciary
duty between them and Plaintiffs. In
their moving papers, Defendants argued the only fiduciary duty Plaintiffs
alleged was one arising from the debtor/creditor relationship between
Defendants and Plaintiffs, which as a matter of law could not give rise to a
fiduciary duty. IBT and SCSD’s motion
added the only possible fiduciary relationship involved in this case was
between Baer and Tedder as a result of their joint venture. In the Grammer Limited Partnerships’
opposition to Baer’s motion, filed by their current attorney Hartmann (there
were apparently no appearances by the other plaintiffs on this first summary
adjudication motion), they specifically “concede[d] that no fiduciary relationship
exists vis-à -vis . . . Baer.†In their opposition to IBT and SCSD’s motion,
they specifically “[did] not dispute†Defendants’ contention there was no
fiduciary relationship between them and any of the Defendants (including
Baer). The trial court granted IBT and
SCSD’s motion for summary adjudication of the breach of fiduciary duty cause of
action, but denied the motion as to Baer.
The case was then
assigned to Judge C. Robert Jameson. By
the time of the phase 2 trial, the operative complaint was the fifth amended
complaint. The fifth amended complaint
contained many of the same basic allegations as the prior pleadings, but
contained no allegations concerning any agreement between Baer and Tedder
concerning Baer’s participation in Tedder’s law firm or the agreement they
would split the law firm profits. Those
allegations were moved to Tedder’s amended cross-complaint against Baer. The fifth amended complaint described
Plaintiffs as “‘Tedder’s lenders,’†from whom Tedder arranged financing to
acquire the Ranch and the Guild properties.
The fifth amended complaint (as with prior iterations) contained no
allegations Plaintiffs were clients of Tedder’s law firm or that the source of
the loans was money placed by Plaintiffs with Tedder’s law firm for asset
protection. The fifth amended complaint
alleged Tedder had arranged for Plaintiffs’ loans to Defendants to purchase the
Ranch and the Guild. The fifth amended
complaint alleged Tedder was acting on his own behalf and on behalf of Plaintiffs
in making the loans and there was a “‘community of interest’†between Tedder
and the lenders (i.e., Plaintiffs). The
fifth amended complaint also alleged Tedder was the person with standing to
collect on the loans and “he was vested with all necessary right title and
interests in the loan[s], and the right (coupled with the duty) to act to
enforce [the] loan agreements and collect the debts which each loan
represented[.]†The fifth amended
complaint alleged Baer was refusing to repay Plaintiffs’ loans, was misusing
the properties for his own benefit, rather than to repay Plaintiffs’ loans and
to thereafter share the profits from the properties with Tedder. The fifth amended complaint alleged Baer was
a trustee of Plaintiffs’ (as lenders) interests in the loans and the properties
and as such had breached his fiduciary duties toward Plaintiffs.
The fifth amended
complaint contained the following causes of action alleged by all Plaintiffs
against all Defendants: breach of
contract to pay specific loans (second cause of action); fraud and
misrepresentation (third cause of action); negligent misrepresentation (fourth
cause of action); common counts (fifth cause of action); unjust enrichment
(sixth cause of action); constructive trust (seventh cause of action);
equitable lien (eighth cause of action); accounting (ninth cause of action);
breach of fiduciary duty (tenth cause of action);
and conspiracy (eleventh cause of action).
A trial status
conference took place in April 2004, and the resulting order, approved by both
sides, explained the order in which the case would be tried. The first phase would cover “[b]ackground and
history of [the] parties, and the formation of the [j]oint [v]enture between
Tedder and Baer.†The second phase would
cover the claims of the Grammer Limited partnerships “except alter ego and
punitive damages.†Later phases would
consider the claims of the remaining plaintiffs, the issues relating to the
relationship of Tedder and Baer and dissolving their joint venture, any remaining
claims and cross-claims of the parties, and then the court would consider
alter ego claims, punitive damages claims, and any remaining matters.
The phase 2 trial took
place during the summer of 2004. In the
phase 2 statement of decision, the trial court made the following
findings. In 1990, Don Grammer entrusted
$11 million of his and his family’s money to Tedder’s law firm “to develop an
estate plan and to protect the Grammer family’s assets.†Grammer was not aware of the business
relationship between Tedder and Baer.
Tedder formed an array of limited partnerships, with funding that came
from various Grammer family members. Of
the Grammer partnerships remaining in this action, Banyan was capitalized with
$1,990,000 from Don Grammer himself; Pear Tree with $845,299 from Don Grammer’s
son Greg Grammer; and $772,000 from Don Grammer’s daughter Daralyn
Grammer. The rest of the $11 million was
put into the other limited partnerships that were no longer parties to the
action. Tedder was general partner with
complete authority to invest the Grammer Limited Partnerships’ money and
structure loans. The Grammer Limited
Partnerships were to make monthly payments back to the Grammer family totaling
$22,500 a month for living expenses.
They made the payments, but by December 1991, the Grammer Limited
Partnerships lacked “sufficient liquid funds,†so from December 1991 through
early 1996, Tedder caused his law firm to deposit funds into the Grammer
Limited Partnerships accounts so the monthly $22,500 payments could be made.
Tedder set up a series
of loans from the Grammer Limited Partnerships to IBT and SCSD. Five of the Grammer Limited Partnerships
loans were evidenced by promissory notes signed by Baer on behalf of IBT (four
promissory notes of $700,000, $150,000, $150,000, and $25,000) and SCSD (one
promissory note for $70,000). Baer
claimed his signature on the notes had been forged, but the court found it was
authentic. The trial court determined
the Grammer Limited Partnerships were entitled to judgment on the five
promissory notes totaling approximately $1.1 million, with IBT getting credit
for $239,218 in payments it had made directly to the Grammer Limited
Partnerships.
Following the phase 2
trial, Judge Jameson granted a motion for judgment brought by Defendants ruling
judgment should be entered against the Grammer Limited Partnerships in favor of
Defendants on the fourth and fifth causes of action (fraud and negligent
misrepresentation), and on two additional loan claims that were not alleged in
the complaint. The court also ruled
judgment should be entered in favor of Baer on the breach of contract cause of
action as to all loans made.
After the phase 2 trial,
Judge Jameson retired and the case was assigned to Judge Kim Dunning. The trial court granted Tedder and Grammer
Limited Partnerships’ motion to appoint a neutral receiver to take control of
the assets of the Tedder/Baer joint venture, and we affirmed that order. (Banyan
Limited Partnership et al. v. Baer et al., supra, G036089.) The case was eventually reassigned to Judge
Thierry Colaw.
Phase 3 Trial
In December 2005,
Plaintiffs (now all represented by attorney Hartmann) filed a sixth amended
complaint (the sixth amended complaint) and Tedder (also represented by
Hartmann) filed a fourth amended cross-complaint against Defendants. The sixth amended complaint contained
allegations and causes of action virtually identical to the fifth amended
complaint. As relevant here, the sixth
amended complaint consistently referred to Plaintiffs as “‘Tedder’s lenders’â€
from whom he obtained the financing for real estate acquisition by the
Tedder/Baer joint venture. Tedder’s
cross‑complaint alleged Baer entered into a contract with Tedder’s law
firm “to work for, administer and manage [its]
operations . . . for compensation, with the right
(commencing in the 3rd year of Baer’s employment by the law firm) to receive a
sum equal to
[one-half] the
[law firm] net profits . . . and the obligation to pay
[one-half] of the net obligations/losses [of the law firm].†The cross-complaint alleged the law firm was
Tedder’s property alone. It alleged Baer
had not lived up to his obligations vis Ã
vis the law firm by diverting law firm profits and assets for his own use.
Answer and cross-complaint
Defendants’ answer to
the sixth amended complaint (and Tedder’s fourth amended cross-complaint)
raised numerous affirmative defenses including that all causes of action were
barred “by the applicable statute of limitations, including but not limited to
[Code of Civil Procedure sections] 336a, 337, 337a, 338, 339, 340, and
343.†Defendants filed a cross-complaint
against all Plaintiffs and Tedder, alleging Baer learned in May 1996 that
despite the agreement with Tedder to split the law firm profits, Tedder had
been diverting all the law firm profits for his own use, and Tedder refused to
account for the funds.
phase 3 trial took place in November and December of 2006 before Judge
Colaw. Tedder and Plaintiffs were
represented by attorney Hartmann. The
issues to be tried in phase 3 were identified as those pertaining to the
relationship between Tedder and Baer:
the terms of the agreement between Tedder and Baer, whether Tedder
breached the agreement by failing to provide consideration in the form of law
firm profits or by embezzling the law firm profits, and whether the joint
venture agreement violated legal restrictions on lay persons participating in a
law firm.
In the phase 3 statement
of decision entered May 31, 2007, the trial court found the Baer and Tedder
partnership was to provide legal and investment advice and estate planning
through the law firm, and the central goal of the partnership was to take the
law firm profits and invest them in real estate. The court found there was a complete failure
of consideration on Tedder’s part. The
accounting records showed no law firm profits, and a law firm loss of
approximately $1.7 million over the years, and thus, there were no partnership
profits to invest. Tedder agreed he
never made any personal financial investment in any of the properties. Because there were no profits to invest,
Tedder and Baer devised a “second model or ancillary [p]lan†to fund real
estate acquisition through loans from law firm clients and use anticipated
later profits or cash flow from the law firm to pay off the loans. But neither Tedder, nor the law firm repaid
any of the loans—only Defendants either made payments on the loans, or they
were still Defendants’ obligation.
The trial court observed
that both Tedder and Don Grammer had serious credibility issues—exacerbated by
their agreement for the Grammer family to share in any recovery Tedder had
against Baer. The court noted the
evidence was that of the more than $11 million Grammer had turned over to
accounts controlled by Tedder, $1.1 million could be attributed to loans
made to IBT to purchase the Ranch; and the only evidence was the rest “
described . . . as ‘bad investments.’†The trial court found Tedder had no interest
in any of the real property owned by IBT or SCSD. Additionally, the court found the Tedder/Baer
partnership in the law firm was illegal and thus Tedder could not prevail on
any of his causes of action against Baer arising out of management of the law
firm. The court found Tedder failed to
prove Baer breached any fiduciary duty owed to him.
As for Defendants’
cross-complaint, the trial court found Tedder breached the Tedder/Baer
partnership agreement by failing to provide any law firm profits for
investment. The court also found Baer
had established his claims against Tedder for fraud, breach of fiduciary duty,
and conversion, through extensive evidence demonstrating that Tedder made
numerous false representations concerning his intentions with respect to their
partnership, concealed facts about the source and the distribution of law firm
income, and improperly secreted monies belonging to the law firm to his own
personal use, the use of his family, and to offshore bank accounts, without
Baer’s knowledge or approval. However,
due to the underlying illegality of the law firm partnership agreement, the
court determined “it should leave the parties as they lie[,]†and it denied
Baer any recovery against Tedder.
Post Phase 3 Summary Adjudication Motions
In December 2007, after
the court ruled on phase 3 (but before the final statement of decision was
signed), the Grammer Limited Partnerships moved for summary adjudication of the
sixth amended complaint’s breach of fiduciary cause of action. Similar motions were filed on behalf of the
other Plaintiffs (the McGrath Limited Partnerships and Birch). They now claimed that because Tedder’s
partnership with Baer included being partners in Tedder’s law firm, Baer owed
the same fiduciary duty as Tedder with regard to Tedder’s asset protection
services and the management and investment of the Grammer Limited Partnerships’
money. They claimed Tedder’s making
loans to entities in which he or Baer had a financial interest violated
obligations imposed on a fiduciary by the Probate Code and violated the rules
of Professional Conduct for attorneys which prohibit self-interested
transactions with a client.
In January 2008, Baer
also filed a motion for summary adjudication, seeking a ruling that he owed no
fiduciary duty to the Grammer Limited Partnerships. He argued the theory he owed a fiduciary duty
to the Grammer Limited Partnerships based on Tedder’s management of the
clients’ funds through the controlled accounts, and was liable as Tedder’s partner
for Tedder’s misuse of client funds through self-interested transactions, had
not been pled in any of the complaints.
Moreover, in the pre phase 2 summary adjudication motions, the Grammer
Limited Partnerships had specifically conceded there was no fiduciary
relationship between them and Baer. Baer
asserted the new claim was time-barred under Code of Civil Procedure
section 343 [four years for breach of fiduciary duty claim].
The trial court denied
the Grammer Limited Partnerships’ motion for summary adjudication of the breach
of fiduciary cause of action, but granted it as to the issue of whether a
fiduciary duty was owed. The court
concluded Baer and the Baer/Tedder partnership had a fiduciary duty to not
enter into transactions with the Grammer Limited Partnerships pursuant to which
they held an interest adverse to the Grammer Limited Partnerships and had a
duty to comply with Rules of Professional Conduct, rule 3-300. The trial court denied Baer’s motion for
summary adjudication.
Phase 4 Trial
The phase 4 trial took
place from August 17, 2010, to October 5, 2010, before Judge Colaw. Although all remaining causes of action in
the sixth amended complaint and the cross-complaints (except as to Tedder who
by now was in bankruptcy) were at issue in this final phase, the only cause of
action on which any evidence was presented was Plaintiffs’ cause of action for
breach of fiduciary duty. In their trial
brief filed August 13, 2010, Defendants asserted the breach of fiduciary duty
cause of action against Baer was barred by the one-year statute of limitations
contained in Code of Civil Procedure section 340.6, and none of that
section’s tolling provisions applied.
Grammers
Don Grammer testified he
hired Tedder to develop an asset protection plan for his family and in 1990
turned over control of millions of dollars to Tedder. At the time the asset protection plan was set
up, Grammer had a $3 million judgment against him in litigation involving a
former business partner named Perkins, and was involved in different litigation
with a company called Heller Financial.
Greg Grammer testified
(via his deposition) protecting the family’s money from creditors was the goal
of the asset protection services. Greg
Grammer had made the initial contact with Tedder at a seminar and told Tedder
“we were in deep trouble and need an asset protection lawyer to look at all of
[our] stuff.†The family understood they
were completely giving up control over the funds to protect the funds from
potential judgment creditors. Greg
Grammer testified the intention was that once the lawsuits all settled, the
family could begin dismantling the controlled account scheme and then would be
left with basic estate plan and asset protection. Greg Grammer testified that from his perspective,
the legal services Tedder provided “worked because it irritated Heller[,]†and
“kept them at bay while we worked on other things.†Tedder confirmed Don Grammer wanted the plan
set up to protect his assets from potential judgment creditors in current
lawsuits (Perkins and Heller), and he was also concerned about estate tax
issues.
In August 1990, Tedder
formed numerous Nevada limited partnerships of which a Tedder-owned corporation
(Key Enterprises, Inc. or Kingsbury Financial, Inc.) was general partner with
complete control over the partnership assets, and a
Grammer-controlled
limited partnership was the limited partner.
entity would own three to five percent of the limited partnership. Tedder then opened numerous bank accounts,
domestic and foreign, in the names of the various Grammer Limited Partnerships
into which the Grammers’ funds would be deposited and over which Tedder had
complete control. Funds were moved
around by Tedder between various accounts and limited partnerships, often used
for loans to Tedder’s law firm or to Baer’s entities (IBT and SCSD), but when
payments were made back to the Grammers they were not necessarily credited to
the account from which the money originally came. For example, there were occasions where Banyan
loaned money to IBT, but when IBT made a repayment, the funds went directly to
one of the Grammer-controlled limited partnerships.
Don Grammer specified he
wanted $22,500 paid monthly from the Grammer Limited Partnerships to the
corresponding Grammer-controlled limited partnership for family living
expenses. The rest was supposed to be
invested. Don Grammer testified he
understood the funds would be invested “conservatively.†Gary Case, a Certified Public Accountant
who worked out of the Tedder law firm offices, was recommended by Tedder to be
the accountant for the Grammer Limited Partnerships.
Don Grammer testified he
turned over $11 million to Tedder to be placed in the various Grammer Limited
Partnerships. About $1.9 million was
returned via the monthly $22,500 payments.
Don Grammer testified he had no idea what happened to the rest of the
money. At the phase 3 trial, Grammer
testified the rest of the money disappeared in “bad investments†by Tedder, but
at phase 4 he testified it had been stolen by Tedder.
Don Grammer testified
that he knew in 1991 or 1992 that Tedder was using Grammer Limited
Partnerships’ money to make loans to IBT, but he was not aware of Tedder’s law
firm partnership with Baer at the time.
No conflict warnings were given.
But Don Grammer knew the loans to IBT were not evidenced by promissory
notes and they were unsecured.
In 1993, Greg Grammer
moved into office space in Tedder’s law firm to oversee the family’s
business. Unhappy with the quality of
information they were receiving from Case, and with Case’s high fees, the
Grammers hired their own accountant, Kitty Wong. Greg Grammer testified he sometimes saw Baer
at the law firm office. He knew Tedder
and Baer were business partners, Tedder had a partnership interest in the
Ranch, and Grammer money was being loaned by Tedder to IBT in connection with
the Ranch.
Wong testified she
provided Don Grammer with accounting records and tax returns that
contained information on the loans being made.
She described constant transfers of money between the various Grammer
Limited Partnerships and the law firm.
She testified the transfers were always at the direction of a member of
the Grammer family or a law firm employee.
She never spoke to Baer nor did he ever direct her as to transfers of
money to or from the Grammer Limited Partnerships.
The McGraths
Tedder set up a similar
asset protection plan for the family of Richard McGrath, a physician. McGrath agreed he wanted the plan to protect
his assets from malpractice actions.
Additionally, at the time McGrath retained Tedder, the Internal Revenue
Service was pursuing him for about $1.7 million relating to another investment
that had gone awry. Tedder set up 10
domestic (Nevada) limited partnerships and two offshore limited partnerships
for McGrath. Tedder arranged for Case to
be the accountant for the McGrath Limited Partnerships. McGrath testified that by 1990 he gave Tedder
$3.8 million to place in the various limited partnerships, of which about
$1.2 million was placed in the McGrath Limited Partnerships remaining in
this
action—Slevin,
CTM, and Trails End. McGrath had
destroyed most of his records concerning most of the limited partnerships. Although in earlier phases of the trial,
McGrath testified he never received any funds back from Tedder, at the final
phase McGrath testified he had received about $1 million back.
Tedder told McGrath his
money would be invested in secured loans at 12 percent interest and
McGrath would get regular reports on his assets. In 1991, McGrath knew Tedder was loaning his
money to various entities and at no time did he get any documentation (e.g.,
contracts, promissory notes, or deeds of trust) for the loans. The same year, McGrath complained to Case he
could not figure out from the reports he was receiving where his money was, but
he never got an adequate response.
By 1992, McGrath knew
Tedder was making loans to his entities (to the Legal Forum and to Tedder’s law
firm). He knew Tedder was using his own
entities as conduits to move McGrath’s money around and that by doing so he
made it harder to trace by creditors.
McGrath considered Tedder’s activities to be part of the legal services
he had retained him for.
Although McGrath
testified he did not know Tedder and Baer were partners in Tedder’s law firm,
he knew they were partners in real estate investment. In 1992, McGrath knew loans were being made
to Baer’s company, IBT, to invest in the Ranch, and he knew loans were being
made to Tedder’s company, Van Dan, and to the Legal Forum. McGrath testified that although he at first
got regular reports, by 1994 he was only getting quarterly reports on his
accounts and he stopped getting any reports after 1996.
Sometime around 1995,
McGrath complained to Tedder about the high accounting fees relating to all the
limited partnerships, so Tedder proposed doing a
“roll-up†of
several limited partnerships into one new entity. Tedder recommended an attorney named Kenneth
Reiserer to review the records and prepare the roll-up. McGrath wrote to Reiserer, providing him with
documents he had, asking him to review the entire estate plan “‘including all
loans to Tedder, et al.’†McGrath
acknowledged being told by Reiserer that Tedder’s record keeping was
atrocious. McGrath received a copy of a
letter from Reiserer in April 1996, addressed to Tedder in which Reiserer told
him of the herculean task before him because of the “‘gross
inaccuracies . . . in virtually every aspect of
the . . . planning that was previously done.’†Reiserer complained about the total lack of
documentation of any loans, including the loan transactions between the McGrath
Limited Partnerships and entities associated with Tedder. McGrath conceded he ignored Reiserer because Tedder
said he had documents and all the loans were “secured†even though Tedder could
not produce any documents relating to the loans. McGrath testified he did not know the current
lawsuit had been filed by Tedder on behalf of the McGrath Limited Partnerships
until around 2003. Tedder remained
general partner of McGrath’s partnerships until 2008.
Schoenman
Schoenman passed away
before trial and his testimony was received via his deposition. Around 1990, Schoenman gave Tedder $2 million
to put in offshore investments, and testified it was basically his life
savings. He denied having any creditors
at the time, but he was concerned about the risk of lawsuits against him in the
future.
Tedder formed 12 limited
partnerships for Schoenman into which Schoenman’s funds were placed. Tedder was supposed to invest the money and
make payments back to Schoenman of $5,000 a month for the first six years, and
$10,000 a month after that. Tedder
discussed investing Schoenman’s money in real estate with Baer. Although Schoenman understood that as general
partner, Tedder had absolute control over the investments, there was no
discussion about money being loaned to Tedder or his law firm. Schoenman did not know Baer was Tedder’s
partner in the law firm.
By 1992 or 1993,
Schoenman had become very concerned because there was no documentation for what
was happening with his money, there were too many entities handling
investments, and “the entities were crossing each other as far as one would
become a limited partner in another.†He
knew “something was amiss.†By 1994,
when Tedder moved his operation to Florida, Schoenman was not receiving the
agreed upon payments. He received no
payments after 1994, except a couple small random payments in 2002 or
2003. He testified he received only
about $100,000 back.
In 1994, Schoenman
consulted with attorneys about suing Tedder and Baer, but Schoenman ultimately
decided to not pursue legal action because he believed Tedder’s and Baer’s
knowledge of international banking practices would make it too difficult to collect
on any judgment. Schoenman testified
Tedder never told him about filing this lawsuit against Defendants on behalf of
Birch, and he first learned about it from his current counsel, Hartmann.
Tedder
Tedder testified he
controlled Plaintiffs as general partner.
Either he or Case were signatories on the various bank accounts. Tedder would recommend Case as accountant to
his clients, and when clients wanted to know about their money, he would direct
them to Case for information. Baer was
never mentioned.
Tedder testified his
partnership agreement with Baer was to pool their resources to invest in real
estate. The controlled accounts were not
part of Tedder and Baer’s partnership.
Baer played no role in setting up the controlled accounts, and had no
control over them. Tedder never gave
conflict of interest disclosures to Baer and never discussed with Baer what a
lawyer’s duties were to clients.
Tedder testified the
estate plan/asset protection program he set up for Baer was not similar to the
ones Tedder set up for the Grammers, the McGraths, or Schoenberg. Although the Baer plan involved setting up
trusts and offshore accounts, at no time did it involve Baer placing his family
assets in Tedder’s control via limited partnerships. Tedder testified he believed the asset
protection program he had set up for clients was legal. Additionally, he did not make disclosures
concerning self-interested transactions (i.e., loans to entities in which he
had an interest) because he believed the limited partnership agreements allowed
him as general partner to deal with interested parties.
Tedder agreed he had
told the various clients their funds would be invested only in secured
transactions, but the loans were not secured.
He testified that in 1994 and again in 1995 Don Grammer became extremely
upset with him over the handling of his money and threatened to sue
Tedder. Tedder went to Baer and told him
he had to give Grammer security for the loans.
Baer refused, and at that point, their partnership ended. Tedder considered the Baer/Tedder
partnership over by the time Tedder filed the original complaint on May 24,
1996.
The Accountants
An accountant who worked
for Case from 1991 through 1993, William Bender, testified Case’s office was in
the same building as the Tedder law firm.
Case referred to Baer and Tedder as his partners, but Bender did not
know in what. While Case was starting up
his accounting business, payroll checks came from IBT for two or three
months. Bender testified that in 1993, Tedder
moved to Florida to manage the estate and assets of a different wealthy
client. Up until that time, Case had
weekly meetings with Baer and Tedder at Mimi’s Café in Newport Beach to discuss
“business.†Case would ask Bender for a
“schedule†of the controlled account loans before these meetings, but Bender
was never present at the meetings and had no idea of what took place at
them.
Case was a CPA who
handled accounting for Tedder, Baer, and the law firm. He was also chief financial officer of IBT
and for a few weeks designated president of IBT while Baer was out of the
country. He had some sort of profit
sharing arrangement with Baer and Tedder, alternately described by Case as an
agreement to give them a discount on his accounting fees, or to share some
portion of his accounting firm profits with them. At Tedder’s recommendation, Case was
typically hired as tax accountant for the Tedder controlled accounts, including
Plaintiffs. Case could not recall
disclosing his relationship with Tedder to the clients.
Case testified he,
Tedder, and Baer had weekly meetings at which they would discuss the upcoming
cash flow needs of the law firm and the joint venture real estate
investments. Case testified Baer had no
involvement in the Tedder controlled accounts; Tedder kept complete control
over them. Case’s accounting records
pertaining to the controlled accounts were never brought to the Mimi’s Café
meetings.
Baer
According to Baer,
Tedder and Baer’s partnership began to sour for many reasons. In 1991 or 1992, Tedder told Baer and Case,
Don Grammer was threatening to sue the law firm on the loans. Then Tedder told Baer he had reached an
agreement with Don Grammer to stave off litigation by paying the Grammers
$22,500 a month until all the loans were repaid. Baer and Tedder would have to forgo their
monthly salary to make sure the law firm had sufficient funds to pay the
Grammers. Baer believed the $22,500 a
month payments were repayments of loans the Grammer Limited Partnerships made
to IBT.
In 1993, Tedder told
Baer he had sold the estate planning business to Charles Givens for
$5 million. Baer never received any
portion of the money. Baer began
demanding that Tedder “come clean†on where the law firm revenues had gone, but
he would not. Finally, in late 1995, Don
Grammer called Baer and demanded Baer arrange for the law firm to pay the
Grammer family more money. Because Baer
believed the Grammer Limited Partnerships loans had been repaid, Baer sought
the accounting records from Tedder and Case necessary to determine how much was
still owed. Tedder could not, or would
not, provide the information.
Baer and Tedder had a
final meeting in March 1996. According
to Tedder, he “insisted†Baer provide security for the debts owed to the Grammers
and other clients, but Baer refused to do so until he received a full
accounting of the monies Tedder had taken out of the law firm. Tedder considered that meeting to constitute
the end of his partnership with Baer, and he filed this lawsuit two months
later.
Phase 4 Ruling
In the statement of
decision entered on February 24, 2011, the court observed Plaintiffs’ principal
contention in the phase 4 trial was that Baer was vicariously liable for
Tedder’s breaches of his fiduciary duties.
They asserted Tedder’s asset management services were part of the
services offered by the Tedder/Baer law firm partnership. Moreover, they asserted Baer directly
participated in the management of their assets; knew their assets were being
improperly diverted by Tedder; and never intended to repay the monies loaned to
IBT and SCSD. Baer contended Tedder’s
asset management services were outside the scope of the Tedder/Baer partnership
and the claim for breach of fiduciary duty was barred by the applicable
one-year statute of limitations of Code of Civil Procedure section 340.6.
The trial court
concluded the breach of fiduciary duty cause of action was not pled within the
one-year statute and there were no grounds for tolling. The court found Grammer and McGrath had hired
Tedder to conceal their assets from creditors and taxing authorities. They knew Tedder fashioned a labyrinth of
limited partnerships for the purpose of moving their assets to various
locations to avoid attack by creditors.
Grammer and McGrath had significant credibility problems.
The court found Grammer,
McGrath, and Schoenberg all knew before May 1995 that Tedder was “probably
cheating them.†The court found the
breach of fiduciary duty cause of action in the operative sixth amended complaint
did not relate back to the original complaint filed in May 1996. The original complaint never alleged any
ultimate facts that apprised Baer he was going to be sued on a theory that, as
Tedder’s partner, he was vicariously liable for Tedder’s breaches of professional
duties in mishandling his law firm client’s funds. The only ultimate facts alleged against Baer
was that through his entities IBT and SCSD he was liable to repay loans made to
his entities.
The court also concluded
Baer was not involved in management of the controlled accounts. The evidence on this point, the testimony of
Tedder, Case, Berens, and Wong, was uniform that Baer played no role in the
controlled accounts. The court went on
to observe it was Tedder who filed the May 1996 complaint against Baer—the
“mastermind of [the] controlled accounts scheme . . . was
on the same side of this lawsuit as [Plaintiffs].†There was no credible evidence Baer received
compensation or division of profits from Tedder’s asset protection services;
the only evidence was that IBT and SCSD accepted “‘loans’†from Tedder’s
clients. The original complaint (and all
subsequent complaints) alleged Plaintiffs were lenders and Baer’s entities were
borrowers responsible for repaying loans.
Finally, the court found,
“This case appeared to be a collusive lawsuit between Tedder and [P]laintiffs
to get money from Baer that Tedder himself had bilked from [P]laintiffs,
without participation by Baer. Some of
the money did indeed go to IBT and SCSD as loans, among numerous others who
received money from the
Tedder-controlled
accounts. Baer is already obligated to
pay those loans back though his entities as determined by Judge Jameson in
[phase 2]. In this case nearly everyone
changed his story at some point. [P]laintiffs
had the burden of proof and were heavily handicapped by their association and
reliance on Tedder, his actions, his destruction of records, and his testimony
as well as by their own credibility problems.
All of the [P]laintiffs either hid records or destroyed them, some on
purpose, some over the lengthy course of this trial through poor record
keeping. The effect of all of this on
the trier of fact was a failure of proof as to [P]laintiffs’ case . . . .â€
The court’s statement of
decision also included a finding Plaintiffs had affirmatively abandoned any
claims that Baer was an alter ego of his corporations, IBT and SCSD,
because they presented no evidence on this claim.
Judgment; Postjudgment Motions
After the phase 4
statement of decision was entered, the Grammer Limited Partnerships filed a
motion for new trial asking the court to strike the finding in its statement of
decision that Plaintiffs had abandoned their alter ego claim. They later filed a second motion for new
trial on the grounds Baer’s statute of limitation defense had been waived
because he did not specifically plead Code of Civil Procedure
section 340.6 in his answer.
The trial court entered
final judgment on May 31, 2011, on all causes of action in the complaint
(except those involving Tedder and his wife, as those had been severed due to
Tedder’s bankruptcy).
name="_ftnref8" title="">[8] The court entered judgment for each of the
Grammer Limited Partnerships against IBT on the breach of contract and common
counts causes of action in accordance with Judge Jameson’s phase 2 August 30,
2005, statement of decision as follows:
Banyan was awarded $700,000; Orange Blossom was awarded $175,000; and
Pear Tree was awarded $150,000. Pear
Tree was also awarded $70,000 against SCSD.
With pre and postjudgment interest, the judgment in favor of the Grammer
Limited Partnerships now exceeds $3.5 million.
The court entered judgment in Defendants’ favor on all remaining causes
of action as to the Grammer Limited Partnerships and on all causes of action as
to the McGrath Limited Partnerships and Birch.
Plaintiffs filed a notice of appeal from the May 31 judgment (the appeal
before us). Defendants filed a
cross-appeal from the judgment but later dismissed it.
The court subsequently
denied the Grammer Limited Partnerships’ new trial motion as to their request
to strike Baer’s statute of limitations defense, but granted the motion as to
their request to strike from the statement of decision the finding they
affirmatively abandoned their alter ego claim and granted them a new trial
as to the alter ego issue only.
Baer separately appeals from the order granting new trial on the
alter ego claim (Banyan 2, supra, G045797).
The Grammer Limited
Partnerships and Baer and SCSD, filed a motions for attorney fees under Nevada
Law, which governed the promissory notes on which the Grammer Limited
Partnerships recovered. The trial court
denied both motions and the Grammer Limited Partnerships, Baer, and SCSD appeal
from the order (Banyan 3, supra, G046428).
DISCUSSION
Statute of Limitations
Code of Civil Procedure section 340.6 applies to the breach of
fiduciary duty claim.
Plaintiffs contend the
trial court applied the wrong statute of limitations to the breach of fiduciary
duty claim against Baer. They argue Code
of Civil Procedure section 340.6, the one-year statue applicable to an action
against an attorney arising out of performance of professional services, does
not apply because Baer is not an attorney and the breach of fiduciary duty
cause of action was not premised upon the provision of legal services. Instead, Plaintiffs contend the only
applicable limitations period is the catch-all four‑year provision found
in Code of Civil Procedure section 343 and under that provision the breach of
fiduciary claim is timely. We disagree.
“Whether a [particular]
statute of limitations applies ordinarily is a question of law. [Citation.]â€
(Embarcadero Mun. Improvement
Dist. v. County of Santa Barbara (2001) 88 Cal.App.4th 781, 789.) Code of Civil Procedure section 340.6, subdivision
(a), provides, “An action against an attorney for a wrongful act or omission,
other than for actual fraud, arising in the performance of professional
services shall be commenced within one year after the plaintiff discovers, or
through the use of reasonable diligence should have discovered, the facts
constituting the wrongful act or omission, or four years from the date of the
wrongful act or omission, whichever occurs first.â€
Plaintiffs’ breach of
fiduciary duty cause of action against Baer that was presented at the phase 4
trial was premised upon the theory attorney Tedder violated his obligations of
loyalty to his clients by engaging in self-interested transactions—making loans
of client funds to entities in which he (and Baer) had a financial
interest. Plaintiffs asserted the making
of these self-interested loans without client consent violated both the
California Rules of Professional Conduct, rule 3-300 [avoiding acquiring
interest adverse to client without disclosure and written consent], and Probate
Code section 16004 [trustee may not take part in transaction in which he has
interest adverse to beneficiary].
Stoll v. Superior Court (1992) 9 Cal.App.4th 1362 (
corporation to help it locate and purchase a ski resort. The attorney did not disclose to the
corporate client that he had already entered into a finder’s fee agreement with
the owner of a ski resort for the sale of the resort. After the sale was complete, the attorney
obtained his finder’s fee as a result of litigation against the former
owner. The corporation then sued the
attorney alleging he breached his fiduciary duties by acquiring a pecuniary
interest adverse to a client without written consent, having an undisclosed
relationship with another party interested in the subject matter of his
client’s representation, failing to disclose the conflicting interests in
writing, and charging an “‘unconscionable fee’†to the corporation while at the
same time expecting a lucrative finder’s fee from the adverse party to his
client. (Id. at
pp. 1365-1366.) The appellate court concluded “although
styled as a breach of fiduciary duty, the misconduct
alleged . . . is nothing more than professional malpractice
subject to the one-year statute.†(
one-year after the corporate client learned of the finder’s fee agreement, it
was time barred.
In Quintilliani v. Mannerino (1998) 62 Cal.App.4th 54 (
provide both legal and non-legal administrative consulting services under an
independent contractor agreement. (
negligence as to the non-legal administrative services was not subject to Code of
Civil Procedure section 340.6, but the claims for breach of contract,
breach of fiduciary duties, and negligent misrepresentation were, because the
contract for legal and non-legal services was “inextricably intertwine[d]†and
fiduciary obligations “arose solely from the[ ] attorney-client relationship[
].†(Id.
at pp. 67-69.)
Plaintiffs argue
a shorter statute of limitations for actions involving acts and omissions
arising out of the practice of law—to counteract “the potential of lengthy
periods of potential liability†and “thereby reduce the costs of malpractice
insurance†(id. at p. 1368),
Plaintiffs argue because Baer is not a lawyer, the concern is not present.
We do not think Code of
Civil Procedure section 340.6 can apply so narrowly, particularly under
the circumstances of this case. “‘[T]he
gravamen of a complaint and the nature of the right sued on, rather than the
form of the action or relief deman
| Description | This litigation has spanned almost two decades. The original complaint, filed in 1996, arises out of business dealings between Dan W. Baer and an attorney, David H. Tedder, during the late 1980s and early 1990s. It began as an action filed by Tedder as general partner of a multitude of Nevada limited partnerships he created for clients as part of “asset protection†services he provided for those clients. Tedder sued on behalf of the limited partnerships to recover on loans they allegedly made to Baer’s corporations, IBT International, Inc. (“IBTâ€) and Southern California Sunbelt Developers, Inc. (“SCSDâ€) (hereafter “Defendants†unless the context indicates otherwise), to acquire real estate owned by the corporations, but in which Tedder claimed he and Baer were to be partners. Defendants and Tedder cross-complained against each other seeking to determine their respective interests in the real estate and their other business pursuits, which included Tedder’s law firm from which the two men had agreed to equally split the profits. The action ended up as one asserting that Baer, as a non-lawyer partner in Tedder’s law firm, was liable for Tedder’s breaches of fiduciary duties to the three law firm clients who funded the limited partnerships, and who claimed they had each lost millions of dollars entrusted to Tedder as a result of Tedder’s making self-interested loans of their money.[1] |
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