Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of Los Angeles County No. S.C. 085372 John L. Segal, Judge.
Thelen Reed Brown Raysman & Steiner, Steven B. Katz, Marytza J. Reyes and Thomas J. Weiss for Plaintiffs, Cross-Defendants and Appellants Ray Haeim and Behnam Rafalian.
Russ, August & Kabat and Jules L. Kabat, Eric B. Carlson for Defendant, Cross-Complainant and Respondent Sean Ely, aka Shahram Elyaszadeh.
ZELON, J.
Plaintiffs and cross-defendants Ray Haeim and Behnam Rafalian (Rafalian) appeal judgment awarding Sean Ely (Ely) damages and equitable relief. The jury found that Ely and Rafalian had entered into an oral agreement to form a joint venture for the purpose of purchasing five real properties and awarded Ely damages; after a separate equitable trial, the trial court imposed a constructive trust on one of the properties for Ely’s benefit. Rafalian principally contends the statute of frauds bars Ely’s claims, and the trial court improperly imposed a constructive trust. We affirm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
In March 2004, Ely and Rafalian met for lunch and discussed the purchase of several parcels of real property. The parties’ versions of the agreement substantially differ. According to Ely, they agreed that Ely would contribute $5 million towards the purchase of a portfolio of five properties with Rafalian, and would receive an eight percent rate of return on his capital investment and a 50 percent ownership interest in each of the properties. According to Rafalian, they agreed that Ely would invest $5 million with Rafalian, and that in fact Ely invested that sum in two of the five properties.
Ely is also known as “Shahram Elyaszadeh.”
Rafalian is sometimes known as “Daniel Rafalian.”
1. The Oral Agreement.
Rafalian is the owner of Wholesale Electric Supply, and invests in real estate. Ely was in the business of making loans and ran a business in Westwood known as Mortgage Bankers. The two had known each other for 20 years, and prior to the agreement at issue, Ely had loaned money to Rafalian on a handshake.
Rafalian knew Shaoul Levy, an accountant, who had been active for the past 10 years investing in real estate and putting together real estate syndicates. Levy looked for properties that were undervalued, put them in contract, and found investors to form joint ventures to purchase the properties. Levy was also responsible for the day-to-day management of the properties. Levy had known Rafalian for about 25 years, and had met Ely though Rafalian several years before the transactions at issue. Generally, Levy did not put any money into the properties; instead, he took a finder’s fee that ranges from a 20 to 35 percent interest in the property. Levy’s fee was consideration for finding the project, putting together the purchase, running the property, and making it profitable.
Rafalian introduced Ely to Levy as a “partner” who would be investing in the properties; although Levy could not recall the exact terminology, Rafalian may have referred to Ely as an “investor.” Levy recalled that Ely told him on more than one occasion that he would be contributing $5 million for a series of projects.
In March 2004, Rafalian testified he met Ely in a restaurant for lunch and discussed a real estate venture where they would invest together in real property, or Ely would lend money to Rafalian to acquire property. They had previously driven to Simi Valley to look at a property Rafalian had under contract; Rafalian suggested he would find properties for Ely to invest in. Ely testified that Rafalian invited him to lunch to discuss an offer for properties he was attempting to acquire. Rafalian discussed five properties: the Elko property, the Las Vegas property, a warehouse in Ohio, the Mesa property, and the Carson property. Rafalian told Ely he was looking for a partner to commit $5 million. Ely testified that Rafalian told him such an equity partner would receive eight percent return on capital and a 50 percent equity position in the portfolio of five properties. Ely told Rafalian he had the money and wished to proceed. The total capital contribution requirement for the five properties was $9.4 million, of which Ely was responsible for contributing $5 million.
This property was later replaced in the portfolio with the Beverly Glen property.
Ultimately, Ely’s rate of return differed depending upon the property. For the Las Vegas and Mesa properties, he got six percent; on the Elko and Beverly Glen properties, he was to receive eight percent.
According to Rafalian, he did discuss the five properties at the luncheon with Ely, but “some of those properties, at that time, I didn’t know how much I am paying for them for it was an infancy of negotiation.” He did not think the discussions were legally binding. Ely told him he had $5 million to invest; nothing more was discussed.
At the lunch meeting, according to Ely, they did not discuss loans. Their partnership did not have a name and the partnership itself did not acquire any of the properties. Ely understood that under the agreement, they would have five separate LLCs to maintain the five properties. The partnership did not have a business address or books and records.
In a subsequent meeting, Ely testified that they discussed the allocation of the $5 million among the five properties. The first property Rafalian wanted to put under contract was the Las Vegas property. It was a $13 million property, Levy was negotiating with the seller to put it under contract, and they needed about $1.5 million to buy it. The Mesa property was selling for about $3.2 million and they needed $1 million to close escrow. The third property was the Carson property, which had a Super K-Mart, for which they needed about $1 million. The fourth property was the Elko property, for which they also needed $1 million. The fifth property was Beverly Glen (which replaced the Ohio property), for which they needed $600,000, for a total of $5 million.
Although more than one discussion subsequent to the lunch meeting changed the terms of the agreement, neither party ever put anything in writing.
2. The Properties.
According to Ely, he and Rafalian agreed to purchase the following properties:
(1) The “Las Vegas” property, a 345-unit apartment complex known as “Sierra Garden” located in a marginal area of Las Vegas. The building, located about a mile from Wynn’s Casino, needed renovation and management. Title to the Las Vegas property was held in the name of two LLCs, Sierra Garden LLC (holding Levy’s interest and Rafalian’s interest) and PCH USA 26 LLC (holding Ely’s interest). Levy had a 20 percent interest; Rafalian, 30 percent, and Ely, 50 percent. Although he originally intended to put $1 million into the Las Vegas property, because of difficulties with the loan, Ely ultimately put a total of $4 million into the Las Vegas property. The investors sold the property in early 2005, and received their share of the proceeds in accordance with the percentages they had agreed to.
(2) The “Mesa” property, a 64,000 square foot shopping mall in Mesa, Arizona, in which the tenant, a Kroger supermarket, had moved out but was still paying rent. Ely invested a total of $1 million in this property. The property was held by an entity known as 4412 University LLC. Levy had 20 percent, Rafalian 40 percent, and Ely 40 percent. Ely told Rafalian that the LLC agreement mistakenly had his interest at 40 percent; although Rafalian agreed to correct the agreement, he never did. Upon the sale of the property, Ely received 40 percent.
(3) The “Elko” property, a 119,000 square foot shopping mall that contains a 24,000 square foot store that has been vacant for two years. Elko, Nevada is a small rural community; the mall is the biggest mall outside of Reno and Las Vegas. Ely wanted to do an Internal Revenue Code section 1031 exchange, to which Rafalian agreed. Therefore, Ely’s limited liability company PCH USA 26 LLC had sole title to the Elko property. During escrow, there were some difficulties with the funding, so the ultimate percentage interests were 33 percent each to three investors, Rafalian, Ely, and Rafalian’s brother-in-law Ray Haeim.
(4) The “Beverly Glen” or “Los Angeles” property, which consisted of two apartment buildings near the intersection of Beverly Glen and Santa Monica Boulevards. Rafalian intended to develop the property into condominiums and obtained the necessary entitlements to do so. Rafalian did not ultimately involve Ely in the purchase and sale of this property. Instead, Rafalian, who purchased the property with another person, bought it in August 2004 for $3.2 million, and sold it in July 2005 for $4.2 million.
(5) The “Carson” property, a commercial property in Southern California with a 175,000 square foot K-Mart, is located on approximately 18-20 acres. Again, Rafalian did not have Ely participate in the purchase of this property, although Ely had looked at the property in March 2004 and considered it to be the best of the five. In late August 2004, Ely learned that Rafalian had purchased the property for himself. Levy and Rafalian bought the limited liability company that owned the Carson property; Levy owns 20 percent and Rafalian owns 80 percent. When Ely told Rafalian that the Carson property was part of the portfolio of five properties, Rafalian told him the property was in his children’s trust and he had “done what he had to do.” Levy and Rafalian still own the Carson property.
Ely testified that Rafalian told him that regardless of how the $5 million was allocated, he would have a 50 percent ownership in the portfolio of five properties. Ely wanted his $5 million to be spread among the properties due to the different degree of risk associated with each property.
3. The Complaint and Cross-Complaint; Jury Trial.
On April 29, 2005, Haeim and Rafalian filed their complaint against Ely and his attorney Steve Sokol for breach of contract, specific performance, fraud, constructive trust, unjust enrichment, legal malpractice, breach of fiduciary duty, and constructive fraud. They alleged that they orally agreed with Ely that he would have a 50 percent interest in the Elko property; for purposes of Ely’s section 1031 exchange he could take title to the Elko property alone in the name of his LLC; after the difficulties in escrow he had failed to convey to plaintiffs their combined 66 percent interest in the Elko property. Plaintiffs also alleged they sustained damages in connection with the sale of an unrelated property because they were forced to sell it at a lesser price in order to obtain cash to complete the Elko purchase. Plaintiff sought specific performance of the agreement to convey their interest in the Elko property to them.
Because Haeim is not a party to this appeal, and most of the claims against him were dismissed, we do not discuss those claims except as they relate to the issues on appeal.
On September 1, 2005, Ely filed a cross-complaint against Haeim and Rafalian, alleging claims for breach of contract, breach of fiduciary duty, promissory estoppel, accounting, unjust enrichment, and declaratory relief. Ely alleged breach of the oral agreement to purchase the five properties, and sought his additional 10 percent interest in the Mesa property, his promised 50 percent interests in the Carson and Beverly Glen properties, and punitive damages.
The trial was bifurcated into two phases. The jury heard all claims except for Ely’s claims relating to the Carson property, which were reserved for the second phase equitable trial. Expert testimony established the value of the Elko property at between $4.3 million and $6 million.
The jury returned a special verdict in which they found that (1) Rafalian and Ely entered into an oral agreement for Ely to invest a total of $5 million in exchange for one-half of the ownership of five properties, (2) Ely and Rafalian were partners or joint venturers; (3) Rafalian breached the oral agreement; (4) Ely suffered damages in the amount of $472,500; (5) Rafalian was unjustly enriched, but the amount of such unjust enrichment was zero dollars.
4. The Equitable Trial and Judgment.
Shaoul Levy testified that the CRICKM Carson Trust (Trust) owns the Carson property. The CRICKM Carson Trust is owned by a limited partnership, the 500 Carson Town Center LP, and 500 Carson Town Center LLC. The partnership owns one percent; the LLC owns 99 percent. The general partner is the LLC. The owner of the LLC is Rafalian and Levy’s three children’s trusts (Levy Trusts). The Levy Trusts own 20 percent, while Rafalian owns 80 percent. The Levy Trusts also own 20 percent of the partnership, while Rafalian owns 80 percent. Ray Haeim testified that he was part of the Elko property transaction; Rafalian testified that Haeim was not a party to the Carson property transaction.
The trial court agreed with the jury’s finding that there was a joint venture/partnership to acquire all five properties, including the Carson property. The court entered judgment in favor of Ely on his cross-complaint on his claim for breach of contract, and awarded him $472,500, representing his 50 percent interest of the Los Angeles property and his missing 10 percent share of the Mesa property. The court found Rafalian had breached his fiduciary duty to Ely, but there were no additional compensatory damages. The court found for Ely on his accounting claim against Rafalian, and on his declaratory relief judgment, found that Ely had a 50 percent ownership interest in the Carson property. The court imposed a constructive trust on Rafalian’s interest for the benefit of Ely, and declared Rafalian to be the constructive trustee. The court found that Ely was unjustly enriched with respect to the Elko property in the amount of $457,000.00, and offset that amount against the jury’s award to Ely for a net due to Ely of $15,500.00.
DISCUSSION
Rafalian contends that the statute of frauds bars the enforcement of the oral agreement to purchase real property, and that substantial evidence does not support the finding of a joint venture. In that regard, he also argues that the trial court erred in failing to instruct the jury on the statute of frauds, and that the court, sitting in equity, failed to apply the statute of frauds to Ely’s claims. Further, he argues that the trial court’s equitable judgment enforcing Ely’s ownership interests in the properties with a constructive trust is contrary to the statute of frauds and the provisions of Evidence Code section 662 regarding the presumption that the legal owner of real property is presumed to hold full beneficial title.
I. SUBSTANTIAL EVIDENCE SUPPORTS THE JURY’S FINDING OF A JOINT VENTURE.
Rafalian contends that a joint venture requires a showing that the parties agreed to a right of joint control, yet here the evidence does not support a finding that Ely was anything more than a passive investor. In that regard, he contends that Ely’s testimony regarding the formation of LLCs to own and operate the properties does not support an inference of a joint venture. We disagree.
As explained in Weiner v. Fleischman (1991) 54 Cal.3d 476, “A joint venture is ‘an undertaking by two or more persons jointly to carry out a single business enterprise for profit.’” Joint venturers are fiduciaries with a duty of disclosure and liability to account for profits. However, the distinction between joint ventures and partnerships is not sharply drawn. Although a joint venture usually involves a single business transaction, whereas a partnership may involve a continuing business for an indefinite or fixed period of time, a joint venture may be of longer duration and greater complexity than a partnership. Nonetheless, from a legal standpoint, both relationships are virtually the same, and accordingly, courts freely apply partnership law to joint ventures when appropriate. (Id. at pp. 482-483.)
In particular, a joint venture exists where there is an agreement between the parties under which they have a community of interest in a common business undertaking, an understanding as to the sharing of profits and losses, and a right of joint control. (Bank of California v. Connolly (1973) 36 Cal.App.3d 350, 364.) “An essential element of a partnership or joint venture is the right of joint participation in the management and control of the business.” Without such right, the fact that one party may receive benefits on account of services rendered or capital contributed does not make him or her a joint venturer. (Ibid.) Whether a joint venture exists is a fact question to be determined from the evidence and inferences that may be derived from it. (Ibid.)
Here, the evidence supports the jury’s finding of a right of control based on Ely’s participation in the real estate investments, even though Levy was responsible for the properties’ day-to-day management. Ely requested and obtained title to the Elko property in the name of his LLC so that he could effectuate an Internal Revenue Code section 1031 exchange; when additional funds were required to close on the Las Vegas property, Ely contributed those funds; Ely requested and obtained a change of his participation level in the Mesa property; and Levy testified that although Levy was generally responsible for the management of the properties, he would consult with Ely and Rafalian. These facts establish that Ely was more than a passive investor.
II. STATUTE OF FRAUDS.
A. The Joint Venture Exception.
The statute of frauds provides that “(a) The following contracts are invalid, unless they, or some note or memorandum thereof, are in writing and subscribed by the party to be charged or by the party’s agent: [¶] . . . [¶] (3) An agreement for the leasing for a longer period than one year, or for the sale of real property, or of an interest therein; . . .” (Civ. Code, § 1624.)
In Kaljian v. Menezes (1995) 36 Cal.App.4th 573 (Kaljian), the court addressed the “joint venture exception” to the statute of frauds. “Cases [addressing the exception] arise in a variety of contexts, and the courts have propounded differing rationales for enforcing oral contracts in such situations. The common factual fundament upon which they rest is the existence of a joint venture or partnership.” (Id. at p. 583.) Kaljian described the following oral agreements that are not within the statute of frauds: (1) An agreement to share profits from the rents or sale of real property; (2) an agreement between joint venturers to purchase property for their joint account; (3) an agreement to create a joint venture which would, as part of its assets, own real property; and (4) an agreement where an owner of real property contributes it to a joint venture for the purpose of operation or sale. (Id. at pp. 583-584.) Kaljian noted that “none of the . . . cases dealt with an agreement which contemplated a transfer of real property from one joint venturer to another. The distinction appears critical.” (Id. at p. 584.)
Here, contrary to Rafalian’s contentions, there was no agreement between Ely and Rafalian to transfer the title of real property between them. The parties agreed to form a joint venture which would purchase property and hold it in accordance with pre-established percentage interests. The fact that Ely agreed to purchase property with Rafalian as opposed to from Rafalian is a critical distinction for purposes of the application of the statute of frauds. This case presents a classic fact pattern of an oral joint venture that had as its object the acquisition of real property and the subsequent sharing of ownership and profits. The manner of holding title (in their own names or in the names of various entities set up for the purpose of holding the properties) is not relevant because no transfers of title occurred between the joint venturers -- although the fact the property was held in the names of various trusts and limited liability companies is evidence supporting the existence of the joint venture agreement. Because no transfers of title between Rafalian and Ely occurred and substantial evidence supports the jury’s finding of a joint venture, the joint venture exception to the statute of frauds applies.
In an attempt to defeat this distinction, Rafalian makes much of the difference between an agreement to share in the profits of the joint venture and an agreement to share interests in real property. For purposes of the joint venture exception, the distinction is of no import here because there was no transfer of property between the joint venturers.
For this reason, we reject Rafalian’s contention that the trial court erred in failing to instruct on the statute of frauds as a bar to Ely’s claims. When evaluating a claim of instructional error, we assess the likelihood that the trial court’s instructional error prejudicially affected the verdict, and examine (1) the state of the evidence, (2) the effect of other instructions given, (3) the effect of counsel’s arguments, and (4) any indications from the jury itself that it was misled. (Soule v. General Motors Corp. (1994) 8 Cal.4th 548, 580-581.) “In a civil case an instructional error is prejudicial reversible error only if it is reasonably probable the appellant would have received a more favorable result in the absence of the error.” (Norman v. Life Care Centers of America, Inc. (2003) 107 Cal.App.4th 1233, 1248-1249.)
Here, because there was no evidence in the record of the transfer of any property between Rafalian and Ely, or the agreement to transfer such property, the statute of frauds did not apply to the facts before the jury. Indeed, the jury found a joint venture existed, and thus, even if the instruction had been given, the result would have been the same. Therefore, the failure to instruct could have had no impact on the jury’s findings. On that basis, Rafalian has failed to demonstrate prejudicial error.
B. The Trial Court Did Not Err in Imposing a Constructive Trust at the Equitable Trial.
Rafalian argues the trial court sitting in equity could not, consistent with the statute of frauds, impose a constructive trust on his interest in the Carson property because to do so would be to enforce an oral agreement for the transfer of property. He further argues that the trial court at the equitable trial erred in failing to apply the presumption of Evidence Code section 662 that legal title to property reflects its equitable title, barring the trial court’s imposition of a constructive trust on his interest in the Carson property. He contends the presumption applies to joint ventures in which one joint venturer claims he holds an equitable interest in the title of another joint venturer. (See, e.g., Tony v. Nolder (1985) 173 Cal.App.3d 791; Tannehill v. Finch (1987) 188 Cal.App.3d 224.) We disagree.
Evidence Code section 662 provides that “The owner of the legal title to property is presumed to be the owner of the full beneficial title. This presumption may be rebutted only by clear and convincing proof.”
First, as discussed above, the oral joint venture agreement to purchase real property was outside the statute of frauds. Next, even assuming Evidence Code section 662 applies, Rafalian forfeited his Evidence Code section 662 argument by failing to raise it in a timely manner. The record discloses that Rafalian did not argue for the application of the heightened evidentiary requirement of Evidence Code section 662 until his post-trial motion to vacate or modify the judgment or for new trial. He argued that he had not raised it before because he believed that the heightened evidentiary standard was not an issue; he understood under the state of the evidence and the statute of frauds that Ely only had an interest in the profits from the properties, not in any of the properties themselves such that a constructive trust was at issue. However, this argument is inconsistent with the evidence at trial, where Ely testified to his promised 50 percent ownership interest, and contrary to the jury’s verdict, which found Ely had a 50 percent interest. Furthermore, Rafalian should have raised the argument with the court prior to the commencement of the equitable trial to give the trial court an opportunity to evaluate his arguments and determine whether to apply the clear and convincing evidence standard if the court deemed it appropriate. Rafalian’s failure to timely raise the argument forfeits the issue. (Imperial Bank v. Pim Electric (1995) 33 Cal.App.4th 540, 546.)
DISPOSITION
The judgment of the Superior Court is affirmed. Respondent is to recover his costs on appeal.
We concur: PERLUSS P. J., WOODS J.