Kim & Harris
Filed 8/6/13 Overland v. Scheper Kim & Harris CA2/2
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and parties from citing or relying on opinions not certified for publication or
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IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND
APPELLATE DISTRICT
DIVISION
TWO
MARK E. OVERLAND,
Plaintiff and Appellant,
v.
SCHEPER KIM & HARRIS LLP,
Defendant and Respondent.
B243970
(Los Angeles
County
Super. Ct.
No. BC445134)
APPEAL from
a judgment of the Superior Court
of
County.
Michael Johnson, Judge.
Affirmed in part and remanded for modification in part.
Law Office
of Douglas G. Gray, Douglas G. Gray; Law Offices of Mark E. Overland, Mark E.
Overland, in pro. per., for Plaintiff and Appellant.
Wilson
Elser Moskowitz Edelman & Dicker, David S. Eisen for Defendant and
Respondent.
___________________________________________________
>
A former partner in a four-partner law firm argues that
upon dissociating he was entitled to a payout of 25 percent of the firm’s value
pursuant to Corporations Code section 16701.
determining plaintiff’s share in the partnership to be 4 percent. We also find that the trial court did not
abuse its discretion by awarding plaintiff less in attorney fees than he
requested.
FACTUAL AND PROCEDURAL BACKGROUND
Facts
The
following factual summary is taken from the trial court’s statement of
decision. Appellant and respondent both
adopt the trial court’s recitation of facts in their appellate briefs.
Overland
Borenstein Scheper & Kim LLP (OBSK) was a limited liability law partnership
that formed on March 15, 2004. The partners were Mark Overland, Mark Borenstein,
David Scheper, and Diann Kim. Each was a
general (or, “equityâ€) partner of OBSK.
OBSK never
had a written partnership agreement or a comprehensive oral partnership
agreement. The partners made decisions
by consensus, with each partner having an equal say.
OBSK did
not require capital contributions by the partners and did not accumulate
working capital from year to year. Fees
and other revenue were used to pay expenses, salaries, and a fixed draw to the
partners. The firm’s only property was
the equipment, furniture, and supplies necessary for its operations.
None of the
partners thought about partnership capital, equity, ownership shares, or any
aspect of their shares of the partnership assets. The predominate asset of the partnership was
profit. Profits were distributed to each
partner at the end of every calendar year.
Some of the partnership’s cash was retained for expected expenses and
obligations, but most was distributed to the partners by December 31. In the last months of each year, partners
agreed between themselves on their respective share of profits. To determine profit distributions, the
partners made a consensus determination of merit, giving heavy weight to each
partner’s financial contribution to the firm.
Because
this system for determining profit shares was merit-based, the actual profit
shares differed from year to year and varied considerably among OBSK
partners. Only in the partnership’s
first year did the partners receive roughly equal shares. Through the years, Overland
received the following share of partnership profits: 2004, 25.5 percent; 2005, 16.807 percent;
2006, 18.31 percent; 2007, 12.1 percent; 2008, 8.3 percent; 2009, 4.0 percent.
In May
2009, Borenstein, one of the founding partners, resigned from OBSK and became a
Los Angeles Superior Court judge. At
that point, the partners had no agreement as to whether a general partner would
receive compensation upon leaving the firm.
Borenstein did not make any specific request for compensation, did not
ask his partners to purchase his interest in the firm, and did not seek any
payment in connection with his dissociation.
The remaining partners ultimately agreed that Borenstein would receive
deferred compensation but not any additional compensation from 2009 profits. They did not set policy by so deciding,
specify any terms that would apply to other partners, or determine that the
partnership would never pay any amount to a departing partner in the future.
Scheper Kim
& Overland LLP (SKO) was a limited liability law partnership that formed
when Borenstein dissociated from OBSK.
SKO operated in the same manner as OBSK.
It never had a written partnership agreement nor a comprehensive oral
partnership agreement. The partners made
decisions by consensus. SKO did not
require capital contributions or accumulate working capital; revenues were used
to pay expenses, salaries, and a fixed draw to the partners, and profits were
distributed to the partners at the end of the year. At the end of 2009, the partners used the same
merit-based system for dividing profits as was used by OBSK, resulting in the
following profit shares: Scheper 68.0
percent; Kim 28.0 percent, and Overland 4.0
percent. In September of 2009, SKO took
on a new partner, Marc Harris, who had the same rights and duties as a general
partner as Scheper, Kim, and Overland,
but who did not receive a portion of the 2009 profits.
On February 16, 2010, Overland
notified the SKO partners that he would dissociate from the firm, and he
requested a buyout of his partnership interest.
Kim responded to Overland’s request by stating that she had consulted a
partnership lawyer, Joel McIntyre, who said that it was not likely a buyout
would be due because the firm’s assets were far outweighed by its
liabilities. McIntyre later testified at
the trial in this matter, and stated that he did not recall having any
discussion with Kim about Overland or the firm’s finances, and did not recall
giving Kim any advice of the kind she described.
Overland
dissociated from SKO effective April
30, 2010. The parties
stipulated that, as of that date, SKO’s equity was $2,825,000. At the time he left, Overland owed the firm
$21,084 for insurance premiums that had been paid on his behalf.
The
partnership name became Scheper Kim & Harris LLP (SKH) after Overland
left the firm. On August 27, 2010, SKH formally responded through
its attorneys to Overland’s request
for a buyout of his partnership interest.
SKH refused to pay Overland
any amount, stating that the SKO partners had agreed that a dissociating
partner would receive no payment for his or her interest. The partnership demanded that Overland pay
$21,084 to the firm for unpaid insurance premiums.
In the
final months of 2010, Scheper, Kim, and Harris made their compensation decisions
for the year. They distributed the
firm’s profits among themselves and did not award any profits to Overland
above the draw he received during the first four months of 2010.
The trial and
decision
Overland
filed this action on September 8, 2010. His operative second amended complaint was
filed in February 2011. Following
motions not relevant to this appeal, this action proceeded to a bench trial on
a cause of action for violation of section 16701, with Overland
as the plaintiff and SKH as the only remaining defendant.
Trial
lasted over five days, beginning on April
16, 2012. In May 2012, the
trial court issued a tentative decision and statement of decision, to which
both parties lodged objections. On May
31, 2012, the trial court overruled all objections and declared the statement
of decision final.
The trial
court’s statement of decision was exceedingly thorough. The trial court analyzed the relevant
provisions of California’s Uniform Partnership Act of 1994 (UPA) (§ 16100 et
seq.), and concluded that Overland was entitled to receive a portion of SKO’s
equity equal to his share of the firm’s profits as of the date of his
dissociation. The court found that the
consistent agreement and practice of the partnership was to determine the
partners’ respective profit shares by a consensus determination of merit,
giving heavy weight to their financial contributions, and that the most
reliable and just measure of Overland’s share was the one determined shortly
before his April 2010 dissociation—the 2009 year-end share of 4 percent. This share translated to a buyout amount of
$113,000 (4.0 percent of the firm equity of $2,825,000), less $21,084 for
unpaid insurance premiums, for a total of $91,916.
Additionally,
the trial court awarded attorney fees and expert expenses to Overland. The court noted that Kim falsely told
Overland that the firm had no assets.
Further, the court found Kim’s testimony that the partnership lawyer,
McIntyre, had told her Overland would not be owed a buyout, “entirely
unbelievable.†In finding that an award
of fees and expenses was appropriate, the court wrote: “It appears that SKH has been determined to
completely deny payment to Overland and has been in continual search of a
factual and legal basis for doing so.
SKH has argued that Overland has taken extreme and unjustified positions
during this litigation; the Court has largely agreed and has ruled
accordingly. But SKH set the tone of the
litigation with its unjustified and ever-shifting denials of Overland’s request
for a buyout at any price.†Overland
requested attorney fees, expert fees, and costs in the amount of
$488,521.45. Finding that much of those
expenses were unrecoverable, the trial court awarded a total of $97,145.71 in
fees and costs.
Judgment
was entered on September 13, 2012.
Overland timely appealed.
Overland appeals from the judgment on several
grounds. He argues that, under the UPA,
the trial court was required to award him 25 percent of the partnership value
upon his dissociation. He further
contends that SKH was not entitled to an offset of attorney fees based on an
offer made pursuant to Code of Civil Procedure section 998, and that the trial
court erroneously denied attorney fees incurred by Overland. Finally, he argues that the trial court erred
in awarding prejudgment interest at the rate of 7 percent rather than 10
percent, a point that SKH concedes is correct.
I. The trial court’s value determination was
proper
Overland
contends that the question of whether the trial court correctly determined the
value of his partnership interest is a purely legal one. He urges that a de novo review applies. SKH, on the other hand, argues that the trial
court found that a partnership agreement controlled the issue of how much
Overland would be paid for his interest, and the question of whether such an
agreement existed is factual, subject to the substantial evidence standard of
review.
The terms
of a partnership are controlled first by the partnership agreement. If a partnership does not have an agreement,
or if the agreement is silent on certain matters, then the UPA governs. “The UPA allows partners to deviate from its
default provisions by negotiating such deviations in a contractual partnership
agreement.†(Rappaport v. Gelfand (2011) 197 Cal.App.4th 1213, 1225.) “[R]elations among the partners and between
the partners and the partnership are governed by the partnership
agreement. To the extent the partnership
agreement does not otherwise provide, this chapter governs relations among the
partners and between the partners and the partnership.†(§ 16103, subd. (a).)
The trial
court here found that the partnership did not have an agreement as to “whetherâ€
Overland was “entitled to compensation for his interest.†Since there was no such agreement on this
issue, the relevant UPA provision applied.
Pursuant to section 16701, a partnership is to cause a “dissociated
partner’s interest in the partnership to be purchased for a buyout price
determined pursuant to subdivision (b).â€
Thus, the partnership had an obligation to purchase Overland’s
interest.
Since SKH
was obligated to purchase Overland’s partnership interest, the question became
what the value of that interest was.
Section 16701, subdivision (b), provides: “The buyout price of a dissociated partner’s
interest is the amount that would have been distributable to the dissociating
partner under subdivision (b) of Section 16807 if, on the date of dissociation,
the assets of the partnership were sold at a price equal to the greater of the liquidation
value or the value based on a sale of the entire business as a going concern
without the dissociated partner and the partnership was wound up as of that
date.†In turn, subdivision (b) of
section 16807 states in relevant part:
“Each partner is entitled to a settlement of all partnership accounts
upon winding up the partnership business.
In settling accounts among the partners, the profits and losses that
result from the liquidation of the partnership assets shall be credited and
charged to the partners’ accounts. The
partnership shall make a distribution to a partner in an amount equal to any
excess of the credits over the charges in the partner’s account.†Therefore, the buyout price is dependent on
how much would remain in the partner’s account following the settlement process
required by section 16807, subdivision (b).
To
determine the balance of a partner’s account, one must look at the partner’s
share of profits and losses. Section
16401, subdivision (a)(1), states that a partner’s account includes “the
partner’s share of the partnership profits.â€
Further, Comment No. 3 to section 807 of the Uniform Partnership Act,
the model provision upon which section 16807 is based, states: “[P]rofits and losses resulting from the
liquidation of the partnership assets must be credited or charged to the
partners’ accounts, according to their respective shares of profits and
losses.†(6 West’s U. Laws Ann. (2001)
U. Partnership Act, com. to § 807, p. 207.)
Thus, reading section 16701, subdivision (b), in conjunction with
section 16807, subdivision (b), it is clear that the amount Overland was to
receive upon dissociation was dependent on his “share†of partnership profits.
The parties
stipulated that the value of the partnership was $2,825,000 on the date of
Overland’s dissociation. Overland argues
that he should have been awarded 25 percent of that amount, because section
16401, subdivision (b) states: “Each
partner is entitled to an equal share of the partnership profits and, subject
to Sections 16306 and 16957, is chargeable with a share of the partnership
losses in proportion to the partner’s share of the profits.†This section could possibly apply, however,
only if there was no agreement as to what Overland’s share was. (See § 16103, subd. (a).)
We agree
with SKH that the trial court made the factual determination that the parties
was. Consequently, our review is not
strictly de novo, as urged by Overland, but instead we examine whether
substantial evidence supported the trial court’s conclusion. (See Brewer
v. Murphy (2008) 161 Cal.App.4th 928, 935.)
“Where [the] statement of decision sets forth the factual and legal
basis for the decision, any conflict in the evidence or reasonable inferences
to be drawn from the facts will be resolved in support of the determination of
the trial court decision.†(
Cal.App.3d 351, 358.)
The trial
court supported its decision that Overland was entitled to a buyout price
equivalent to 4 percent of the firm equity as follows: “Overland contends that his buyout price
under § 16701(b) should be based upon a share of SKO’s profits that is equal to
his other partners. . . . There is no
factual support for this position, and it is contrary to the clear intention of
the partners. Except for the first year
of operation, the OBSK and SKO partnerships never distributed their profits in
equal shares. The partners always
determined their profit shares by a consensus determination of merit, giving
heavy weight to the partners’ financial contributions to the firm. This resulted in vastly different profit
shares. Adopting Overland’s equal share
approach would be directly contrary to the consistent agreement and practices
of the partnership. . . .
[¶] The partners of OBSK and SKO
never distributed their profits in equal shares, and imposing that approach in
this case would be entirely inconsistent with the partners’ agreement and
intent. . . . Using the
firm’s actual profit share is particularly appropriate in this case, because
the distributable assets of SKO (like OBSK) were based on profits from the
firm’s collections and not from property, capital accounts or other assets
contributed by the partners.â€
The trial
court correctly recognized that a partnership agreement can be written, oral,
or implied. (§ 16101, subd. (10).) Substantial evidence supported the conclusion
that by oral and implied agreement each partner had an individual, unique share
of profits largely dependent on his or her financial contribution to the
firm. Awarding Overland 25 percent
of the partnership value, as he sought, would have been contrary to this
agreement.
Having
found that Overland had a unique share, the trial court analyzed the evidence
to determine what that share was.
Substantial evidence supported the trial court’s conclusion that
Overland’s share was 4 percent. The
court had a number of different percentage shares to choose from in making its
decision. For example, in 2007, Overland
received 12.1 percent of partnership profits, in 2008 he received 8.3 percent,
and in 2009, 4.0 percent. The court did
not err by selecting the 2009 share of 4 percent, given that it was
determined only several months before Overland’s dissociation.
firm’s distributable assets were composed almost entirely of profits, not
capital accounts or assets contributed by the partners, the 2009 profit share
was a particularly appropriate measure to use.
II. The fee award was
appropriate
In the
context of a buyout dispute, the court may assess reasonable attorney fees and
costs, “in amounts the court finds equitable, against a party that the court
finds acted arbitrarily, vexatiously, or not in good faith.†(§ 16701, subd. (i).) The trial court relied on this provision in
assessing $97,145.71 in fees and costs against SKH and in favor of Overland.
Overland
sought to recover $488,521.45 in fees and costs. He argues that the trial court erred by
refusing to award fees and costs he incurred after SKH made a settlement offer
under Code of Civil Procedure section 998 of $359,000, which Overland
rejected. Citing In re Marriage of Green (1989) 213 Cal.App.3d 14, 24, in which it
was held that Code of Civil Procedure section 998 does not apply to family law
cases because the trial court has much broader authority to award fees and
costs than in typical civil cases, Overland argues that Code of Civil Procedure
section 998 could not apply in the instant case, because section 16701,
subdivision (i), vests the trial court with broad equitable authority to award
fees and costs.
There is no
need for us to determine whether Code of Civil Procedure section 998 applies to
a fees and costs award under section 16701, subdivision (i), however, precisely
because subdivision (i) vests the trial court with broad equitable
authority. In its ruling on the fees
award, the trial court stated that, in light of the settlement offer, it would
reduce Overland’s request to the amount ultimately awarded, even if Code of
Civil Procedure section 998 did not apply.
Given the record before us, we cannot say that the trial court abused
its discretion by awarding an amount of fees and costs that it determined was
equitable. (See Meister v. Regents of University of California (1998) 67
Cal.App.4th 437, 450 [trial court’s denial of attorney fees incurred after
settlement offer was made was not arbitrary or irrational].)
Overland’s
further contention that he should have been awarded fees for the time he spent
representing himself also fails. The
fact that Overland was not the lead attorney on this case, and simply assisted
his own attorney in researching and drafting legal documents, does not
distinguish this matter from the long line of cases holding that an attorney
representing himself may not recover from an opposing party for the time he
spends litigating a matter on his own behalf.
(See Trope v. Katz (1995) 11
Cal.4th 274, 284-285; Taheri Law Group v.
Evans (2008) 160 Cal.App.4th 482, 493-494; Witte v. Kaufman (2006) 141 Cal.App.4th 1201, 1207-1210.)
Accordingly,
we find that the trial court’s fees and costs award was proper.
III. Prejudgment interest
Lastly,
appellant contends that the trial court erred by awarding prejudgment interest
at the rate of 7 percent. As SKH
correctly concedes in its respondent’s brief, section 16104, subdivision (b),
provides that, in cases in which an obligation to pay interest arises under the
UPA and the interest rate is unspecified, the rate shall be as specified in
Civil Code section 3289, i.e., 10 percent.
On remand,
therefore, the trial court shall correct the judgment to reflect a prejudgment
interest rate of 10 percent.
DISPOSITION
The matter
is remanded to the trial court for modification of the judgment to reflect a
prejudgment interest rate of 10 percent.
In all other respects, the judgment is affirmed. The parties shall bear their own costs on
appeal.
NOT TO
BE PUBLISHED IN THE OFFICIAL REPORTS.
BOREN,
P.J.
We concur:
CHAVEZ, J.
FERNS, J.*
name="_ftn1" title="">[1] Unless otherwise noted, all statutory
references are to the Corporations Code.
conclusion, we need not determine the propriety of the trial court’s further
conclusion that this was the “most equitable†measure of Overland’s share.
