Sherwood Partners v. EOP-MarinaBusinessCenter
Plaintiff (Sherwood), as an assignee for the benefit of the creditors of an insolvent entity called WhatsHotNow.com (tenant), filed suit against tenants landlord, defendant and respondent EOP-Marina Business Center, L.L.C. (EOP), for return of tenants security deposit in the amount of $324,000. The trial court entered judgment in favor of Sherwood. The Court of Appeal reversed and remanded the case, directing the trial court to enter judgment in favor of EOP, allowing it to retain the security deposit. (Sherwood Partners, Inc. v. EOP-MarinaBusinessCenter (July 8, 2005, B175899) [nonpub. opn.] (Sherwood I).
On remand, the trial court granted EOPs motion for costs and attorney fees in the amount of $323,000 based upon an attorney fee provision in the written lease agreement between tenant and EOP. The trial court found that Sherwood and tenant were jointly and severally liable for the costs and attorney fees. Sherwood appeals the award of costs and fees against it personally. Sherwood does not appeal the award against tenant, WhatsHotNow.com.
Court reverse. As an assignee for the benefit of creditors, Sherwood did not assume the underlying liabilities of tenant. (Credit Managers Assn. v. Brubaker (1991) 233 Cal.App.3d 1587, 1594-1595 (Brubaker).) Thus, Sherwood cannot be personally liable for the award of attorney fees pursuant to the written lease between EOP and tenant. The widely used procedure of an assignment for the benefit of creditors would be eviscerated if an assignee like Sherwood were required to assume the underlying liabilities of the assignors insolvent business. (Ibid.)
Moreover, court conclude that as an assignee for the benefit of tenants creditors, Sherwood was a trustee of an express trust. (Credit Managers Assn. v. National Independent Business Alliance (1984) 162 Cal.App.3d 1166, 1171.) Code of Civil Procedure section 1026, subdivision (b), quoted below in the Discussion, does not permit an award of costs and attorney fees against a trustee of an express trust absent mismanagement or bad faith by the trustee in the action. Because Sherwood did not engage in mismanagement or bad faith in the prosecution of this action, pursuant to section 1026, subdivision (b), Sherwood is not personally liable for EOPs costs and attorney fees.
Court therefore remand the case to the trial court with direction to enter a new and different judgment stating that Sherwood, as assignee for the benefit of creditors, is not personally liable for the award of costs and attorney fees in favor of EOP.
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