Opinion
D040361.
11-25-2003
A.B.H. INVESTMENTS, INC., et al., Plaintiffs and Appellants, v. NARVEN ENTERPRISES, INC., et al., Defendants and Respondents.
This action arises out of the bankruptcy reorganization of the El Cortez Motel Limited Partnership (the Partnership), pursuant to which plaintiffs A.B.H. Investments, Inc. (A.B.H.) and Hassanali Dharani (together plaintiffs), as well as others, lost their interests in the Partnership. Plaintiffs assert fraud and other claims against Narven Enterprises, Inc. (the Partnerships managing general partner (Narven)) and Behram Baxter (the president and controlling shareholder of Narven (together defendants)) alleging defendants fraudulently prevented them from participating in the bankruptcy reorganization plan. They also sought declaratory relief against defendants and BF Hospitality, L.P. (BF), the entity that acquired title to the Partnerships assets after confirmation of the bankruptcy reorganization plan.
The trial court granted summary judgment in favor of defendants and BF, concluding the action would upset the bankruptcy reorganization plan and was barred as a matter of law. The trial court also concluded that the applicable statute of limitations barred plaintiffs claims for breach of the partnership agreement, breach of fiduciary duty and declaratory relief. Plaintiffs appeal, contending the trial court erred in granting the motion because their damage claims would not upset the bankruptcy reorganization plan and triable issues of material fact precluded summary judgment on the statute of limitations defense. Plaintiffs also appeal the trial courts order denying their motion to vacate the judgment.
We reverse the judgment in favor of defendants because triable issues of material fact exist as to their statute of limitations defense and plaintiffs claim for monetary damages will not upset the bankruptcy plan. We conclude that summary adjudication is proper as to the fourth cause of action for declaratory relief because the remedies sought would upset the bankruptcy reorganization plan, and thus we affirm the judgment in favor of BF. Based on these conclusions, plaintiffs remaining claim that the trial court erred in denying their motion to vacate the judgment is moot.
FACTUAL AND PROCEDURAL BACKGROUND
The Parties
The Partnership, which was formed by the parties in December 1984, owned and operated a hotel in San Diego known as the Comfort Inn. A.B.H., a general and limited partner of the Partnership, was owned by Hassanali Dharani (a shareholder of A.B.H. and limited partner of the Partnership) and his brothers Amirali Dharani (an A.B.H. shareholder, director and its president) and Badruddin Dharani (a shareholder of A.B.H. and limited partner of the Partnership, now deceased; collectively the Dharani Family).
The Dharani Family has had a long-standing business relationship with Baxter beginning in the early 1980s when Baxters management company, Tribax Management, Ltd. (Tribax), acted as the managing agent for the Dharani Familys Canadian corporations. These corporations merged into one corporation, Laswind, which owned a Canadian apartment building, known as 100 Spadina Road, jointly with Tribax. The 100 Spadina Road joint venture formed Timron Investments Ltd. (Timron) to hold title to the apartment building. Baxter, through Tribax, managed the joint venture and had complete authority over the bank accounts and business affairs for 100 Spadina Road/Timron. Baxter also managed all Laswind business affairs and had complete control over Laswinds bank accounts.
Baxter is also involved with the Dharani Family in a real estate investment known as the San Diego Farah Partners Limited Partnership (Farah Partners). In his capacity as the general partner for Farah Partners, Baxter sued A.B.H. and Amirali in 2000 seeking declaratory relief and damages for breach of fiduciary duty and conspiracy. In that action Laswind and 100 Spadina Road filed a complaint-in-intervention alleging Baxter fraudulently transferred Laswind funds to Farah Partners. This action is apparently still pending in superior court.
The Bankruptcy
In May 1994, the Partnership filed a chapter 11 voluntary petition for bankruptcy reorganization after its lender (the Lender), issued a Notice of Intent to Foreclose on the $2.2 million deed of trust against the hotel. The Comfort Inn franchisor (the Franchisor) also claimed that the Partnership was in default under the franchise agreement and threatened to terminate the franchise unless the Partnership made substantial capital improvements at the hotel.
In January 1995 the Partnership and the Lender entered into a Settlement Agreement whereby the Lender agreed to temporarily suspend its efforts to foreclose on the Comfort Inn and allow the Partnership time to pay off or restructure the mortgage. Plaintiffs learned of the bankruptcy filing via a letter dated February 14, 1995 (the February Letter) sent to A.B.H. from John Morrell, the Partnerships bankruptcy attorney. The February Letter informed plaintiffs of the bankruptcy and their need to invest new capital into the Partnership to avoid losing their partnership interests. The letter also informed plaintiffs that Baxter had settled his personal guaranty of the Partnerships obligations and no longer faced any personal exposure.
On February 17, 1995, Morrell served plaintiffs with a motion to approve the settlement agreement, describing the settlement and advising them to contact his office to receive any supporting documentation. The bankruptcy court approved the unopposed settlement agreement in March 1995, and in May 1995 the Partnership and the Lender entered into a "Forbearance and Discounted Payoff Agreement" (the Forbearance Agreement), whereby the Lender agreed to restructure the debt and forego foreclosure.
Later that month Morrell served on the plaintiffs a notice of intention to enter into the Forbearance Agreement. No party objected to the notice and the bankruptcy court approved the agreement in June 1995. In August 1995 the Partnership filed a plan of reorganization (the Plan) with the bankruptcy court. That same day, Morrell served on the plaintiffs another notice of intended action describing the Plan. After receiving no objection, the bankruptcy court approved the Plan on November 2, 1995. Under the Plan, the Dharani Family and A.B.H. lost their interests in the Partnership and Narven became the sole owner of the Partnership after contributing $549,228. On April 1, 1998, BF acquired title to the Comfort Inn.
The Complaint Allegations
On December 1, 1999, plaintiffs filed a complaint against defendants alleging causes of action for fraud, breach of fiduciary duty and breach of the covenant of good faith and fair dealing. They later filed a first amendment to the complaint, changing some allegations and adding BF, an entity allegedly created by defendants to take ownership of all Partnership property, to a new cause of action for declaratory relief.
The complaint and first amendment allege defendants misrepresented the amount of money needed to fund the bankruptcy reorganization in an attempt to dissuade plaintiffs from contributing additional capital and thus allow them to become the Partnerships sole owners. Plaintiffs also claim that defendants lied about the availability of Laswind funds that the plaintiffs could have used to contribute to the Partnership and concealed the fact that between 1992 and 1995 Baxter transferred $158,630 of Laswind funds to entities controlled by him without plaintiffs knowledge or authority. Plaintiffs also allege that Baxter wrongfully borrowed $174,590 from 100 Spadina Road. Had plaintiffs known about these "loans," they would have demanded immediate repayment and contributed the funds to the Partnership. The third cause of action for breach of the partnership agreement alleges that defendants wrongful conduct breached the partnership agreement and the implied covenant of good faith and fair dealing contained therein, resulting in damages and the wrongful dissolution of the Partnership.
As a result of the alleged fraud, breach of fiduciary duty and breach of the partnership agreement, plaintiffs claimed they were deprived of equity in the Partnership assets, loss of appreciation on such assets, and the loss of income from its operations. Their breach of the partnership agreement claim also sought the option, under former Corporations Code section 15038 (repealed effective 1999 by Stats. 1996, ch. 1003, § 1.2), to purchase defendants interest and continue the Partnership. The fourth cause of action for declaratory relief against defendants and BF asserted that defendants wrongfully dissolved the Partnership by transferring the Partnership assets to BF. Plaintiffs sought a declaration that BF had no interest in the Partnership and that they were entitled to purchase defendants interest and continue the Partnership.
The Summary Judgment Motion
Defendants and BF moved for summary judgment or in the alternative, summary adjudication, arguing all causes of action failed because (1) the bankruptcy courts confirmation of the Partnership reorganization plan is res judicata and barred the claims; (2) the statute of limitations expired; (3) defendants did not defraud, misrepresent or conceal any material information from plaintiffs; and (4) plaintiffs lost their interest in the Partnership and lacked standing to sue for breach of the partnership agreement and/or wrongful dissolution of the Partnership.
1. Defendants Evidence
The February Letter did not seek a specific sum from the Dharani Family, but Amirali presumed the Partnership wanted the Dharani Family to contribute about $275,000. Although Amirali believed the Dharani Family could have contributed less than $275,000, they did not discuss this possibility with Baxter and they refused to contribute any additional funds. Thereafter, on numerous occasions Baxter discussed with Badruddin and Amirali the Plan and the need to contribute additional capital; they each acknowledged that they had lost their ownership interest in the Partnership due to their failure to contribute additional capital.
Morrell served the three bankruptcy filings on plaintiffs at "13225 Sherman Way, North Hollywood, California 91605," an address where Amirali operated a tire business called Bill Wendell Tires. The partnership agreement, executed in December 1984, expressly required that all notices to limited partners be sent to "the address maintained by the Partnership for such person or at such other address as he may specify in writing, and shall be deemed effective . . . 2 days after deposit in the United States mail, postage prepaid." The partnership agreement "Roster of General and Limited Partners" listed the above address for A.B.H., Hassanali and Badruddin.
The Partnership mailed over 20 checks to plaintiffs at the above address from 1992 through 1995; the Dharani Family never informed Baxter that they were not receiving the checks, and they endorsed and deposited all the checks. The Partnership also mailed IRS Schedule K-1 forms to the Dharani Family at the same address and A.B.H. used the address on its tax returns. The post office never returned any of the bankruptcy notices mailed to plaintiffs, and no one ever informed Baxter that the address was improper or that the Dharani Family could not receive their mail at that address.
Plaintiffs did not attempt to keep themselves informed as to the status of the bankruptcy case, recognizing that they had lost their interests in the Partnership. Baxter, through Narven, was the only partner to commit additional money to the Partnership and for this reason the Plan provided that Narven was the only remaining partner. Baxter obtained the additional capital from an insurance settlement in a personal matter and from personal sources.
2. Plaintiffs Evidence
Badruddin and Hassanali lived in Pakistan and thus all mail went to Amirali at his tire business. After formation of the Partnership, Amirali explained to Baxter that because 13225 Sherman Way was the address for a mall with nine or more businesses, the mailing address needed to include either "Bill Wendell Tires" or "Unit 1" and that mail not including this information might not be delivered. He also provided this information to Baxter by "mail, fax or phone." On one occasion in 1992 or 1993, someone at Narven called Amirali to tell him Narven had A.B.H. checks returned in the mail; after learning that the checks had been sent to "13225 Sherman Way," Amirali again explained that the address needed to include "Bill Wendell Tires" or "Unit 1." Although the A.B.H. tax returns did not include "Bill Wendell Tires" or "Unit 1" in the address, Amarili explained this was a mistake he was unable to get his accountant to correct; further, A.B.H.s fax cover sheet did not specify "Bill Wendell Tires" or "Unit 1" because such information was not necessary in communications with Baxter or with Amarilis brothers.
On February 13, 1995, Baxter sent Morrell a facsimile listing the A.B.H. address as "Bill Wendell Tires, 13225 Sherman Way, North Hollywood, California 91605." Morrell properly addressed the February Letter to A.B.H. at "Bill Wendell Tires" and after Amirali received the letter, he discussed the need for additional capital with Morrell and Baxter, and asked Baxter if they had any money in Canada to contribute. Baxter indicated there was "no money" in Canada and implied he was not willing to take less than one-half of the necessary $550,000 ($275,000).
At that time Amirali was confident that he had $100,000 to contribute and he might have been able to contribute $125,000. Amirali and Badruddin discussed the possibility of contributing less money, but they believed Baxter wanted no less than their original contribution percentage, about $275,000. They decided not to invest any additional funds based on Baxters representation that they had no money in Canada to contribute. After this telephone call Baxter never asked the Dharani Family for additional capital and they believed A.B.H.s investment had been wiped out.
Hassanali, Amirali and Badruddin never received any of the bankruptcy filings. In fact, the proofs of service for the three bankruptcy notices did not list A.B.H., had an incorrect street number ("132256" instead of "13225") for Hassanali, and did not include the designation "Bill Wendell Tires" or "Unit 1" for Badruddin.
In 1992 Badruddin asked his two brothers for money to refurbish the Comfort Inn. Hassanali did not provide the requested funds because Badruddin had not provided any written documentation regarding the financial status of that investment or any of their other investments. Hassanali did not suspect Baxter of any wrongdoing at that time because he had never met Baxter and he trusted his brother to work with Baxter. No one ever discussed with Hassanali the financial difficulties associated with the Comfort Inn, and other than the one request for capital in 1992, there were no other requests for capital contributions for the Partnership before it filed for bankruptcy on May 6, 1994. Baxter never asked the Dharani Family to contribute additional capital to the Partnership and the first and only correspondence received concerning the bankruptcy was the February Letter.
In May 1995 Baxter had 100 Spadina Road/Timron loan the Partnership $ 50,000, masking the transaction by paying the money to his attorney. The attorneys trust account later paid this money to the Lender under the bankruptcy plan. The Dharani Family did not know about these loans. Morrell did not know that the $50,000 payment to the Lender was a loan, indicating that the Lender wanted "new, fresh investment capital" and not additional borrowing. Morrell was "sure" that he discussed the Lenders desire for "new money" with Baxter in 1995. In a sworn declaration filed with the bankruptcy court, Baxter also claimed that he paid $63,000 in attorney fees and $20,392 in post-petition property taxes required under the Plan; however, he admitted at deposition that he did not personally pay the attorney fees and that the Comfort Inn paid the property taxes out of its own income.
In December 1996 Amirali received financial statements from his accountants for 100 Spadina Road/Timron and one financial statement for Laswind for the period ending June 30, 1995. He discovered that as of August 1995, Baxter, and companies that Baxter owned and controlled, owed Laswind a total of $ 155,309. The Partnership also owed Laswind about $16,000, but Laswind was not listed as a creditor on the bankruptcy schedules because Baxter "wrote off" this debt. (Plaintiffs presented these additional facts in their opposition separate statement. Although defendants objected to this evidence as irrelevant, they did not challenge the accuracy of these facts below or on appeal, and have impliedly waived any additional objections thereto.)
3. The Trial Courts Rulings
The trial court issued a telephonic ruling granting summary judgment on the ground 11 United States Code section 1144, which governs the method by which a bankruptcy reorganization plan may be revoked, barred all causes of action because plaintiffs request to change ownership of the motel contradicted the bankruptcy reorganization plan. The trial court also concluded that the applicable statute of limitations barred the breach of fiduciary duty and breach of contract claims. After hearing oral argument, the trial court took the matter under submission and then issued a minute order denying summary judgment and summary adjudication of the fraud cause of action, but granting summary adjudication of the declaratory relief claim. The court allowed the parties to file supplemental briefs addressing when plaintiffs remaining causes of action for breach of fiduciary duty and breach of contract accrued. Both sides filed additional briefing; after further consideration, the trial court set aside its prior minute order and granted the summary judgment motion, again concluding that 11 United States Code section 1144 barred all causes of action and that the applicable limitation periods had expired.
After the trial court entered judgment in favor of defendants and BF, plaintiffs filed a motion to vacate the judgment, arguing that defendants supplemental brief exceeded the scope of the trial courts order and amounted to an improper reconsideration motion. Plaintiffs timely appealed after the trial court denied their motion to vacate the judgment.
DISCUSSION
Standard of Review
We review the trial courts decision granting summary judgment de novo (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 860 (Aguilar)), applying the same three-step analysis required of the trial court. (Bono v. Clark (2002) 103 Cal.App.4th 1409, 1431-1432.) After identifying the issues framed by the pleadings, we determine whether the moving party has established facts justifying judgment in its favor. If the moving party has carried its initial burden, we decide whether the opposing party has demonstrated the existence of a triable, material fact issue. (Id. at p. 1432.) We must strictly construe the moving partys evidence and liberally construe the opposing partys evidence (Binder v. Aetna Life Ins. Co. (1999) 75 Cal.App.4th 832, 838-839), and we may not weigh the evidence or conflicting inferences (Aguilar, supra, 25 Cal.4th at p. 856; Code Civ. Proc., § 437c, subd. (c) [all undesignated section references are to this code]). A triable issue of material fact exists if the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof. (Aguilar, supra, 25 Cal.4th at p. 850.) If there is a single issue of material fact in dispute, the motion must be denied. (§ 437c, subd. (c).)
I
Statute of Limitations
The trial court concluded that the two-year limitations period applicable to actions not founded upon an instrument in writing (§ 339) barred plaintiffs breach of fiduciary duty claim because plaintiffs discovered the breach on December 16, 1996, more than two years before they filed their complaint. The trial court also concluded that the four-year limitations period applicable to actions founded upon an instrument in writing (§ 337) barred plaintiffs claims for breach of the partnership agreement and declaratory relief because these claims accrued at the time of the breach and, to the extent the claims were based on defendants alleged wrongdoing prior to and during the bankruptcy confirmation, the action was commenced more than four years later. As discussed below, the trial court erred because these causes of action are governed by the limitation period applicable to claims based on fraud and the statute did not begin to run until plaintiffs discovered the alleged fraud. (§ 338, subd. (d).)
The "cause of action" alleged is the appropriate focus for determining what statutes of limitation apply (§ 312), and it is well established that the applicable statute of limitations is determined by the nature of the right sued upon. (Davies v. Krasna (1975) 14 Cal.3d 502, 515; Day v. Greene (1963) 59 Cal.2d 404, 411.) "Neither the caption, form, nor prayer of the complaint will be deemed conclusive in determining the nature of the liability from which the cause of action flows. On the contrary, the true nature of the action will be ascertained from the basic facts a posteriori." (Agair Inc. v. Shaeffer (1965) 232 Cal.App.2d 513, 516.) What is significant for statute of limitations purposes is the primary interest invaded by defendants "wrongful act." (Barton v. New United Motor Manufacturing, Inc. (1996) 43 Cal.App.4th 1200, 1207.)
A partnership is a fiduciary relationship (BT-I v. Equitable Life Assurance Society (1999) 75 Cal.App.4th 1406, 1410) and a general partner owes limited partners fiduciary obligations, including the duty of good faith and fair dealing. (Johnson v. Superior Court (1995) 38 Cal.App.4th 463, 474.) Since plaintiffs cause of action for breach of fiduciary duty rests upon a fiduciary or confidential relationship, it can be classified as an action for constructive fraud. (Day v. Greene, supra, 59 Cal.2d at p. 411.) Where constructive fraud is the gravamen of a claim, the three-year limitations period (§ 338, subd. (d)) applies. (Day v. Green, supra, at p. 411.) Such a claim does not accrue until the aggrieved party discovers the facts constituting the fraud. (§ 338, subd. (d).)
We must also examine plaintiffs claim for breach of the partnership agreement to determine the primary interest invaded by defendants alleged wrongful acts. (Barton v. New United Motor Manufacturing, Inc., supra, 43 Cal.App.4th at p. 1207.) Plaintiffs do not identify any particular provision of the partnership agreement breached by defendants. Rather, they generally allege that defendants fraudulent conduct violated the agreement and/or the implied covenant of good faith and fair dealing contained therein, causing them damages and resulting in the wrongful dissolution of the Partnership. Where, as here, the gravamen of the claim is fraud, the three-year provision of section 338, subdivision (d) applies. (See Day v. Greene, supra, 59 Cal.2d at pp. 410-411.) The delayed discovery rule also applies to breach of contract causes of action involving fraud and misrepresentation because plaintiffs cannot reasonably discover the harm flowing from breaches committed in secret until a future time. (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 832.)
Finally, the statute of limitations applicable to the declaratory relief remedy depends on the right or obligation sought to be enforced. (Howard Jarvis Taxpayers Assn v. City of La Habra (2001) 25 Cal.4th 809, 821.) Where the underlying substantive right is timely, the declaratory relief remedy necessarily survives. (Ibid.)
II
Triable Issues of Fact Exist as to Whether Plaintiffs Exercised
Due Diligence in Discovering Their Claims
Under the discovery rule, the accrual of a cause of action is postponed "until the plaintiff discovers, or has reason to discover" the claim. (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.) A plaintiff discovers the cause of action when he or she suspects a factual basis for the claim and the statute begins to run when the plaintiff has notice of facts or circumstances that would put a reasonable person on inquiry. (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110-1111.) Constructive and presumed notice or knowledge is equivalent to knowledge, and the statute will begin to run when the plaintiff has the opportunity to obtain knowledge from sources open to investigation. (Parsons v. Tickner (1995) 31 Cal.App.4th 1513, 1525.)
In fraud cases involving a fiduciary relationship, the duty to investigate may arise later, as a plaintiff "is entitled to rely upon the assumption that his fiduciary is acting in his behalf." (Bedolla v. Logan & Frazer (1975) 52 Cal.App.3d 118, 131.) However, even in cases involving a fiduciary relationship, when a plaintiff becomes aware of facts "which would make a reasonably prudent person suspicious," he or she has a duty to investigate those facts and may be charged with the awareness of such facts as an investigation would have discovered. (Ibid .) Resolution of a statute of limitations defense normally is a question for the trier of fact and summary judgment is proper if the court can draw only one legitimate inference from uncontradicted evidence. (Van Dyke v. Dunker & Aced (1996) 46 Cal.App.4th 446, 451.)
Plaintiffs allege that defendants misrepresented the terms of the bankruptcy reorganization to discourage them from making any new capital contributions and that they relied on Baxters misrepresentations and concealment when they declined to make any such contributions. They also allege that Baxter misrepresented the amount of capital available in Laswind and concealed the transfer of Laswind funds to his corporations. Had they known about these loans, plaintiffs contend they would have demanded immediate repayment and invested these funds into the Partnership.
Defendants argue that the delayed discovery rule cannot apply to these claims because the sworn bankruptcy proofs of service show Morrell properly served plaintiffs with the three bankruptcy notices at their address of record under the partnership agreement. Because the uncontroverted evidence proves the notices were properly addressed and mailed, defendants contend plaintiffs should be charged with knowledge of all matters revealed therein. Plaintiffs admit their allegation regarding non-disclosure of the agreements between the Partnership and its Lender turn on whether they were properly served with the bankruptcy notices, but contend a triable issue of material fact exists regarding whether they received the notices. We agree.
The partnership agreement provides that notices sent to "the address maintained by the Partnership for such person or at such other address as he may specify in writing" are deemed effective two days after deposit into the United States mail. While the partnership agreement does not specify that plaintiffs address includes either "Bill Wendell Tires" or "Unit 1," plaintiffs presented evidence that they informed Baxter, both orally and in writing, of this requirement and explained that mail omitting this information might not be delivered. On February 13, 1995, Baxter sent Morrell a facsimile listing the A.B.H. address as including "Bill Wendell Tires" and the February Letter that Morrell sent to A.B.H. included this designation. However, the undisputed evidence shows that the bankruptcy service list did not include this designation for Badruddin, listed an incorrect street number for Hassanali and did not include A.B.H. at all. Finally, there is evidence that the Dharani Family never received any of the bankruptcy filings.
Based on this evidence, and other conflicting evidence presented by the parties, the trier of fact must resolve the question of whether the Dharani Family received the bankruptcy notices. Because plaintiffs presented evidence showing they specified in writing that all partnership notices sent to them needed to include the designation "Bill Wendell Tires" or "Unit 1" and the undisputed evidence shows this designation was not used for the bankruptcy notices, we cannot conclude, as a matter of law, that the contractual presumption of receipt applies. Moreover, even if plaintiffs had received the bankruptcy notices, or otherwise kept themselves appraised of the bankruptcy proceedings, this information would not have revealed Baxters alleged fraud regarding the availability of funds from the parties Canadian investments.
Defendants next argue that the three-year limitations period of section 338, subdivision (d) expired because plaintiffs were aware of facts that would have made a reasonably prudent person suspicious, contending plaintiffs had a duty to investigate those facts and that such an investigation would have revealed their claims. However, examination of defendants arguments and the evidence reveal triable issues of fact that preclude summary judgment.
Defendants contend that plaintiffs refusal to contribute money to the Partnership in 1992 and request for additional financial information from Baxter shows they were suspicious of Baxter. However, Hassanali testified that he had no reason to suspect Baxter of wrongdoing in 1992, and defendants fail to explain how the investigation of "suspicions" in 1992 could have put plaintiffs on notice of fraud that allegedly occurred during the 1995 bankruptcy proceedings.
Defendants point to Hassanalis testimony that he "lost trust" and began to "doubt" Baxter after Badruddin died in April 1996, arguing we should disregard Hassanalis contradictory declaration, which attempts to create a triable issue as to when he suspected Baxter of wrongdoing. Defendants correctly argue that admissions in a deposition are conclusive and cannot be contradicted by contrary declarations submitted in opposition to a summary judgment motion. (Visueta v. General Motors Corp. (1991) 234 Cal.App.3d 1609, 1613.) However, after reviewing Hassanalis deposition testimony, we find no contradiction.
Hassanali testified at his deposition that he started to "doubt" Baxter after his brother died "somewhere around" 1996 because he and his brothers had asked for financial statements but had not received them. In his declaration, Hassanali explained that the "doubt" he referred to was whether Baxter would provide requested financial reports about their San Diego and Canadian investments and that this doubt arose in December 1996 or January 1997 after Amirali received financial statements for Laswind and 100 Spadina Road from their accountants. This explanation does not contradict Hassanalis deposition testimony regarding when he suspected Baxter of wrongdoing because the "somewhere around" 1996 testimony is equivocal and encompasses the alleged discovery date of December 16, 1996. (Price v. Wells Fargo Bank (1989) 213 Cal.App.3d 465, 482 ["[S]ummary judgment should not be based on tacit admissions or fragmentary and equivocal concessions, which are contradicted by other credible evidence"].)
Defendants contend they did not hide the bankruptcy process from plaintiffs to prevent them from contributing additional capital and did nothing to prevent plaintiffs from contributing money during the bankruptcy reorganization. To support this assertion, defendants cited Amiralis deposition transcript wherein he testified that Baxter was always "crying for money" and that he decided not to "invest even a single dollar" until he received "more information." However, a review of the deposition transcript reveals the cited testimony pertained to a Howard Johnson motel at issue in Baxters action against A.B.H. and Amirali. Thus, this evidence does not further defendants arguments.
Even if Amirali was referring to the Partnership, this evidence is subject to differing inferences. A reasonable trier of fact could conclude that Baxter had not sufficiently substantiated his requests for additional capital contributions to the Dharani Family. In the absence of other evidence, we cannot conclude, as a matter of law, that capital requests and delay in providing information coming from a fiduciary and long-time business associate are sufficient to place a prudent person on inquiry notice of a potential claim.
We also reject defendants assertion that evidence showing Baxter concealed information about the Canadian investments is irrelevant because the Canadian entities were completely repaid with interest before plaintiffs filed this action. Plaintiffs alleged, and presented evidence, showing that some of defendants capital contributions to the Partnerships bankruptcy reorganization consisted of unauthorized loans taken from Laswind and 100 Spadina Road/Timron. The fact Baxter repaid these loans before plaintiffs filed this action does not vitiate the alleged fraud and concealment that plaintiffs claim prevented them from participating in the bankruptcy reorganization and ultimately resulted in loss of their Partnership interests.
Defendants also argue that plaintiffs have impermissibly "split" a cause of action because Laswind and 100 Spadina Road filed a complaint-in-intervention against Baxter in the Farah Partners action. That pleading alleges, among other things, that Baxter wrongfully transferred money from Laswind to Farah Partners and has not repaid the loan. Plaintiffs are not seeking recovery of these funds in this action; rather, they seek damages for the usurped business opportunity engendered by Baxters alleged misrepresentation and concealment regarding the availability of any Canadian funds to contribute to the Partnership. There is no "splitting" of a cause of action because different primary rights are involved. (Craig v. County of Los Angeles (1990) 221 Cal.App.3d 1294, 1301-1302.)
The Bankruptcy Reorganization Plan Does Not Bar Plaintiffs
Claims for Monetary Damages
A confirmed bankruptcy reorganization plan is construed as a contract (Hillis Motors, Inc. v. Hawaii Auto. Dealers Assn (9th Cir. 1993) 997 F.2d 581, 588), and it can only be revoked on a complaint filed within 180 days after the order is entered and only on grounds that confirmation was obtained by fraud. (11 U.S.C. § 1144.) A court may not enlarge the 180-day period (Fed. Rules, Bankr. Proc., rule 9006, subd. (b)), nor is the period subject to tolling based on alleged failure to discover grounds for revocation. (In re 680 Fifth Ave. Associates (Bankr. S.D.N.Y. 1997) 209 B.R. 314, 322.) All parties to a confirmed plan are bound thereby whether or not they accepted the plan (11 U.S.C. § 1141(a)), and the doctrine of res judicata will bar any attempt by the parties or those in privity with them to relitigate any of the matters that were raised or could have been raised in the bankruptcy proceeding. (Miller v. Meinhard-Commercial Corp. (5th Cir. 1972) 462 F.2d 358, 360.) Parties to a confirmed plan include the debtor; any entity issuing securities or acquiring property under the plan; and any creditor, equity security holder, or general partner in the debtor. (Ibid.) Equity security holders include limited partners in a limited partnership. (11 U.S.C. § 101(16).)
Because of the need for finality in bankruptcy proceedings, actions that attempt to revoke a confirmation order are subject to the 180-day limitations period in 11 United States Code section 1144. (In re Emmer Bros. Co. (D. Minn. 1985) 52 B.R. 385, 391.) However, the Bankruptcy Act does not bar participants injured by fraud from seeking damages or other relief under common law theories in state or federal courts. (Id . at p. 392.) Such an action will not be barred by res judicata where "the alleged fraud could not have been asserted in the bankruptcy proceedings, the underlying factual claims were not actually adjudicated, and the relief sought would not upset the confirmed plan of arrangement." (Ibid.)
Defendants contend that plaintiffs action is barred by res judicata because it fails all three parts of the above test. They argue that the alleged fraud could have been asserted during the bankruptcy proceeding because plaintiffs had the opportunity to investigate Baxters alleged misrepresentations and raise their concerns during the bankruptcy, and that plaintiffs factual claims were actually discussed and adjudicated by the bankruptcy court. They also contend that the relief requested by plaintiffs would upset the Plan and amounts to an improper effort to "redivide the pie." As discussed below, we conclude that the doctrine of res judicata does not bar this action and plaintiffs claims for monetary damages would not upset the Plan. However, to the extent plaintiffs seek a declaration that they are the rightful owners of all Partnership property, they lack standing and the requested relief would upset the Plan.
Our earlier discussion shows that, at a minimum, a triable issue of material fact exists as to whether plaintiffs could have asserted their claims in the bankruptcy proceeding. Because the bankruptcy court confirmed the Plan in November 1995, before plaintiffs discovered the alleged fraud and concealment in December 1996, their claims could not have been asserted in the bankruptcy proceeding, nor could these claims have been actually adjudicated. Defendants citation to Baxters promise within the Plan and the bankruptcy disclosure statement to provide new value does not show that the bankruptcy court adjudicated defendants alleged misrepresentations and concealment regarding the source of this funding.
The trial court construed the complaint as an improper attempt to revoke the Plan, concluding that the limitations period of 11 United States Code section 1144 barred all claims. Defendants contend this conclusion must be upheld because plaintiffs claims constitute a disguised attempt to revive their former Partnership interests and are barred as a matter of law, pointing out that plaintiffs seek not only money damages but also a declaration that the Partnership is the true owner of the Comfort Inn.
The seminal question is whether plaintiffs can obtain any remedy under their complaint without upsetting the bankruptcy plan. In deciding this question, we must analyze the allegations and the requested relief to determine if the claims would materially impact the Plan. (In re Circle K Corp. (Bankr. D. Ariz. 1995) 181 B.R. 457, 462.) In In re Circle K Corp., the bankruptcy court dismissed creditors motion to revoke a confirmed plan for fraud as moot, but concluded "plaintiffs may proceed on a damages claim theory." (Id. at pp. 459-460.) The creditors then amended their suit against the debtor and affiliated companies to claim damages for fraud during the confirmation process. (Id. at p. 463.) The bankruptcy court held that the amended claims were not barred by 11 United States Code section 1144 and refused to dismiss the action because the remedies sought did not require revocation of the plan, indicating the court could fashion a damage remedy that did not upset the plan if the plaintiffs were successful. (In re Circle K Corp., at p. 462.)
To determine whether plaintiffs claims would modify or revoke the Plan, we start by reviewing the general effects of plan confirmation, namely, (1) discharging of the debtor, (2) vesting the estates property in the debtor, and (3) freeing the estates property from all prior claims. (11 U.S.C. § 1141.) Next, we note that plaintiffs claims allegedly arose during the confirmation process and are against nondebtors. Finally, other than their declaratory relief claim and a portion of their breach of partnership agreement claim, plaintiffs seek money damages equal to the value of the Partnership interests lost through defendants alleged fraud. Clearly, plaintiffs damage claims would not modify or upset the Plan because they do not affect distributions made to creditors under the Plan. (In re Circle K ., supra, 181 B.R. at p. 461.) If we were to accept defendants arguments that any award of damages for their alleged fraud would revoke the Plan, then defrauded parties would be without any legal remedy where wrongdoers in a bankruptcy proceeding successfully conceal their fraud for 181 days. This cannot be, nor is it, the law.
The more difficult question is whether plaintiffs declaratory relief cause of action would upset the Plan. Plaintiffs seek a declaration that BF has no interest in the Partnership and that they be allowed to purchase BFs interest and continue the Partnership because defendants wrongfully dissolved the Partnership and transferred its assets to BF. Plaintiffs seek a similar remedy in their breach of partnership agreement cause of action. Because these claims for relief were based on the alleged wrongful dissolution of the Partnership, the trial court concluded that plaintiffs were not real parties in interest because they lost their ownership rights when the bankruptcy court confirmed the Plan in 1995, noting that any damages flowed from the reorganization and not the subsequent dissolution.
Plaintiffs now seek to regain their Partnership interests allegedly lost when defendants dissolved the Partnership and transferred its assets to BF. They rely on Gherman v. Colburn (1977) 72 Cal.App.3d 544 for the proposition that a partner who has wrongfully dissolved a partnership in contravention of a partnership agreement may be held liable to another partner for breach of the partnership agreement. While we do not quarrel with this general proposition, plaintiffs overlook the fact that they lost their Partnership interests when the bankruptcy court confirmed the Plan in 1995, not when defendants subsequently dissolved the Partnership. Thus, plaintiffs lack standing to seek this relief because they no longer had a monetary interest in the Partnership at the time of its dissolution. (In re Mission Heights Investors Ltd. Partnership (Bankr. D. Ariz. 1996) 202 B.R. 131, 138 (Mission Heights).)
Moreover, this requested relief would upset the bankruptcy reorganization because the Plan has been fully consummated by payment to all Plan creditors. (Mission Heights, supra, 202 B.R. at p. 138.) Plaintiffs in Mission Heights, the heirs of a preconfirmation limited partner of the debtor, alleged that the debtors general partner retained his interest in the debtor by a false promise to infuse cash and property. (Id. at pp. 135, 137.) Plaintiffs predecessor-in-interest elected not to participate in the reorganization by contributing new value to the debtor and he lost his interest in the debtor. (Id . at pp. 137-138.) As a result of this alleged fraud, plaintiffs sought restatement of their equity interest, participation in all profits realized since confirmation and an accounting. (Id . at p. 137.)
The bankruptcy court in Mission Heights concluded that plaintiffs lacked standing to bring the action because they no longer had a monetary interest in the debtor, the creditors relied on the plan provisions and the relief sought would "require a disgorgement of substantial sums already paid out and a return to the status quo ante." (Mission Heights, supra, 202 B.R. at p. 138.) Because plaintiffs similarly seek restatement of their equity interest via their declaratory relief cause of action, this claim fails for the same reasons, and summary adjudication of the fourth cause of action for declaratory relief is proper.
While defendants assert plaintiffs breach of partnership agreement cause of action fails because it requests a similar remedy, this claim also seeks compensatory damages resulting from defendants alleged preconfirmation wrongdoing. We know of no authority requiring summary adjudication of a cause of action merely because part of the relief sought may be improper. (See DeCastro West Chodorow & Burns, Inc. v. Superior Court (1996) 47 Cal.App.4th 410, 422 [summary adjudication of one or more components of damage claim which does not dispose of entire cause of action is not permitted].) For this reason, summary adjudication of plaintiffs third cause of action for breach of the partnership agreement cannot be granted.
Finally, we note that plaintiffs sole cause of action against BF is for declaratory relief. Because this claim fails as discussed above, there is no need to discuss this defendant separately except to note that the relation-back doctrine does not apply because plaintiffs added BF to the complaint over four years after plaintiffs claims accrued in December 1996 and about three years after they filed their original complaint. (Woo v. Superior Court (1999) 75 Cal.App.4th 169, 176 [amended complaint adding a new defendant does not relate back to the filing of the original complaint and the statute of limitations as to such new defendants is determined by the date the amended complaint was filed].)
DISPOSITION
The judgment in favor of defendant BF is affirmed. The judgment in favor of defendants Baxter and Narven is reversed. The trial court is directed to enter summary adjudication in favor of Baxter and Narven as to the fourth cause of action for declaratory relief. Appellants claim that the trial court erred in denying their motion to vacate the judgment is moot. BF is entitled to its costs on appeal and appellants are entitled to costs on appeal as against defendants Baxter and Narven.
WE CONCUR: HUFFMAN, Acting P. J., NARES, J.