Opinion
NOT TO BE PUBLISHED
APPEAL from a judgment of the Superior Court of San Diego County No. GIC770369 Charles R. Hayes, Judge.
NARES, Acting P. J.
This action involves a partnership dispute between minority partner Karina Vesco (Vesco) and majority partner Lula D. Porter involving the partnership San Diego Community Correctional Center (SDCCC). Vesco filed an action seeking a dissolution of the partnership and Porter and SDCCC filed a cross-complaint also seeking a dissolution. Pursuant to the parties' stipulation, the court appointed an accounting referee and an appraisal referee to determine certain issues. The court thereafter conducted hearings and received evidence and testimony on issues it had reserved to itself. The court issued a statement of decision finding the parties had agreed to the remedy of dissociation and a buyout of Vesco's interest in the partnership under Corporations Code sections 16701 and 16807, subdivision (b) (hereafter section 16807(b)), and awarded Vesco $77,457.97, representing the amount the court found she would have received if the partnership's business and real estate were sold at fair market value, less the balance she owed on her capital account.
All further statutory references are to the Corporations Code unless otherwise specified.
On appeal Porter and SDCCC assert that (1) under sections 16701 and 16807(b), the court should have subtracted Porter's capital account from the value of Vesco's partnership interest; (2) the court erred in finding the real property on which CDCCC conducted business was partnership property; and (3) the court erred in awarding the fees of the accounting and appraisal referees as costs to Vesco. Vesco also appeals, contending the court should have awarded her attorney fees as the prevailing party as one of the partnership agreements contained an attorney fees clause.
Following oral argument in this matter we requested supplemental briefing from the parties on whether the court erred in using the buyout remedy of section 17601 to value the partnership as a going concern, which applies when a partner dissociates from a partnership, where SDCCC was a partnership of two persons and by operation of law dissolved when Vesco left. Both parties agree that under the applicable partnership law there can be no dissociation and buyout in a partnership of two individuals as there is no partnership that remains after one leaves, and the partnership dissolves as matter of law. Vesco asserts that the court thus erred in utilizing the buyout remedy of section 16701, and we should reverse the judgment in its entirety. Porter and SDCCC on the other hand assert that the judgment need not be reversed because (1) the parties agreed to use the dissociation and buyout remedy of section 16701; and (2) Vesco did not assert on appeal the court erred in using this remedy and valuing the partnership as a going concern.
We conclude the court erred in using the dissociation and buyout remedy of section 16701, reverse the judgment, and remand the matter back to the trial court with directions that it enter a judicial dissolution of the partnership under sections 16801 and 16807. Based upon this holding, we need not decide whether the court erred in failing to subtract Porter's capital account from the value of Vesco's partnership interest. In the interests of judicial economy we further conclude (1) the court did not err in finding the real property on which CDCCC conducted business was partnership property; (2) the court did not err in ordering Porter and SDCCC to pay the fees of the accounting and appraisal referees; and (3) the court erred in determining Vesco was not entitled to attorney fees under the contract. Because we are reversing the judgment, however, we do not reach the issues of Vesco's status as prevailing party or whether the amount awarded was reasonable.
FACTUAL AND PROCEDURAL BACKGROUND
To the extent the facts are undisputed, we take them from the court's statement of decision and the referee's report, upon which that statement of decision is, in large part, based.
A. Partnership Agreement
On May 30, 1989, Porter, Claude Cornist and Robbie Edwards entered into a written partnership agreement (May 30, 1989 agreement) to form a partnership to be known as SDCCC, which was to operate a building providing room and board for state parolees. A fourth individual, Richard Gillelen, obtained "approximately $200,000" from Paul A. Vesco, Jr. (Paul Vesco) to "[pay] for the construction of" the building. Although not identified in the May 30, 1989 agreement, at some point "the partnership admitted Richard Gillelen with a 20% partnership interest." The partnership began operating its correctional facility in June 1991, contemplating "gross yearly payments of Six Hundred Thousand Dollars . . . ."
Thereafter, partner Robbie Edwards died. On March 6, 1992, SDCCC, Porter, Cornist, Gillelen, and Edwards's probate administrator entered into a written "Buy and Sell Agreement" (March 6, 1992 agreement).
The March 6, 1992 agreement had two subject matters: First, it specified Porter would purchase Edwards's interest. Second, it confirmed for the first time in a written document Gillelen was a general partner with a 20 percent interest in SDCCC: "SDCCC is a California general partnership whose general partners were Porter, Cornist, Edwards and Gillelen. Gillelen loaned funds to SDCCC(approximately $200,000) . . . ." "[Porter, Cornish and Gillelen] agree that upon the purchase of [Edwards's] Partnership Interest pursuant to this Agreement, the partnership known and presently operating as [SDCCC], whose partners are [Porter, Cornish, and Gillelen] shall be owned in, and the right to partnership profits and ownership of partnership assets shall be determined by, the following percentages: [¶] Partner Interest [¶] LULA PORTER 53-1/3% [¶] CLAUDE CORNIST 26-2/3% [¶] RICHARD GILLELEN 20%."
The March 6, 1992 agreement had an attorney fee clause that provided "[i]f any party brings any action or proceeding against the others to enforce, protect or establish any right or remedy under this Agreement, the prevailing party shall be entitled to recover reasonable attorneys fees and costs as may be awarded. . . ." The March 6, 1992 agreement further stated that it was for the benefit of and binding on successors and heirs: "This Agreement shall inure to the benefit of, and be binding upon, the respective heirs, successors and assigns of the parties hereto."
Thereafter, Gillelen signed a writing entitled "Acknowledgment of Ownership Interest in San Diego Community Correctional Facility," which stated: "[A]ll monies invested by him in the above described project were obtained in their entirety from Paul Vesco & held in trust by him on Mr. Vesco's behalf. That he invested these monies for Mr. Vesco in the above described project and that the ownership interest obtained in the project thereby, belongs entirely and solely to Mr. Vesco."
On March 25, 1992, Paul Vesco, Porter, Cornist and Gillelen entered into an "Agreement Re: San Diego Community Treatment Center" (March 25, 1992 agreement). The partners agreed in the March 25, 1992 agreement that Paul Vesco replaced Gillelen as partner, owned 20 percent of SDCCC, and was owed $180,000 on his capital contribution to the partnership. Porter and Cornist were owed $157,000 on their capital contributions. The parties agreed that SDCCC would pay back the partners' capital accounts with interest through "[e]qual amount reduction payments," and they would thereafter share profits according to their percentage share in SDCCC.
In 1997 Porter purchased Cornist's interest in the partnership, raising her interest in the partnership to 80 percent.
B. Porter's Unilateral Increase in Salary
The March 25, 1992 agreement provided that Porter would be paid a salary of $3,000 per month and Cornist would be paid a salary of $2,500 per month. However, after Porter purchased Cornist's interest, she increased her salary to $5,500 a month. Porter did not inform Paul Vesco or ask his permission to increase her salary.
C. Porter's Use of Partnership Funds for Personal Purposes
Although the March 25, 1992 agreement restricted payment of partnership funds to operating expenses and salaries, Porter expended $92,815.25 of partnership funds for personal expenses.
D. Purchase of Real Property
SDCCC conducted business at 502 10th Avenue, leasing that property from the owner, Horace Vasques. In 1996 or 1997 Porter learned that Vasques was interested in selling the property. Without notifying Paul Vesco, Porter entered into an agreement to purchase the property in her own name.
However, the evidence showed that partnership checks were used to make deposits into escrow. A check dated August 8, 1998 was drawn from SDCCC's checking account and made out to "First International Bank Escrow." At her deposition, Porter confirmed she had written the check, but could not remember why it was written out to the escrow company. She wrote a second check from SDCCC's checking account, made out to herself, on which she noted "Bal[ance] of Bus[iness] Down payment" and "502 10th St. Down pmt." Porter admitted in her deposition that check represented "further funds [she] issued out of the partnership checking account to purchase 502 Tenth Avenue." Despite a notice to produce documents reflecting the source of the deposits to escrow, Porter did not produce any responsive documents at her deposition.
However, during the litigation Porter filed a declaration which stated that she "paid the $23,500 in escrow deposits . . . from my personal funds." She attached to her declaration two cashier's checks that did not indicate the source of the funds, but were issued from the partnership's banks.
When the purchase of the property closed, Porter recorded a grant deed in her name. However, the property was recorded on SDCCC's accounting records. SDCCC carried the mortgages on its balance sheet, and SDCCC made all mortgage payments on the property. SDCCC made all property tax payments on the property. SDCCC deducted the interest payments on the mortgages on its tax returns.
E. Porter's Denial of Paul Vesco's Partnership Interest
In August 2000 Porter stopped making payments to Paul Vesco. Paul Vesco demanded an accounting. Thereafter, Porter recorded a fictitious business name statement, which stated that SDCCC was not a partnership but was conducted by "an individual." In her deposition, Porter denied SDCCC was a partnership or that Paul Vesco had any ownership interest in the company.
F. Paul Vesco Files Suit
In July 2001 Paul Vesco filed a complaint against Porter and SDCCC for breach of the partnership agreement, breach of fiduciary duty, accounting and dissolution. In the complaint, Paul Vesco identified the May 30, 1989 agreement, March 6, 1992 agreement, and March 25, 1992 agreement as constituting the written partnership agreement between the parties. Paul Vesco asserted Porter breached those agreements. Porter and SDCCC filed a cross-complaint that also requested a dissolution of the partnership.
Thereafter, during the pendency of this action, Paul Vesco died, and his daughter Karina was substituted in as the plaintiff in this action.
G. Appointment of Referee
Porter and SDCCC brought a motion to appoint an accounting referee. They based the motion upon the fact Vesco had requested a dissolution and Porter and SDCCC also "agree[d] to the dissolution and need for an accounting on the basis of dissolution . . . ." In response, Vesco agreed to the need for an accounting referee for "the trial of this case for dissolution" and that thereafter the court should "enter a stipulated judgment . . . for dissolution."
The parties stipulated to the appointment of an accounting referee to conduct an accounting. The court's order appointing the referee stated that one of the matters the referee was directed to accomplish was to value "the partnership's business under Corporations Code sections 16701[, subdivision] (b) and 16807(b)." The court ordered the appointment of Daniel M. Close, CPA, as the accounting referee.
The court ordered the subject matters included in the reference were (1) an "accounting of the partnership from 1992 through the present;" (2) the "valuation of the partnership's business;" (3) a "review of the parties' claims, a list of which shall be prepared by counsel for the parties and submitted to the accounting referee;" and (4) the "preparation of a report to the Court on these subject matters." The order further stated that SDCCC "shall pay all fees and costs of the accounting referee; and the partnership shall then account for these expenses to the partners' capital accounts, eighty-percent (80%) to PORTER, and twenty-percent (20%) to plaintiff."
H. Claims Submitted to Referee
Vesco submitted the following claims to the referee: (1) SDCCC's accounting records were not accurate; (2) SDCCC owned the 10th Avenue property; (3) Porter improperly paid herself a salary exceeding $3,000 a month; (4) Porter used partnership funds to pay for personal expenses; (5) Porter failed to make equal amount reduction payments on the partners' capital accounts; and (6) Porter and SDCCC failed to properly account to Vesco.
Porter in turn argued that (1) Vesco was not a partner because the March 25, 1992 agreement was not part of the partnership agreement; (2) Vesco was not a partner because Porter, Cornish and SDCCC's bookkeeper understood that Paul Vesco was a lender, not a partner; (3) if Vesco was a partner, the partnership was terminated by virtue of the filing of the complaint; and (4) Porter was entitled to be paid both her and Cornist's salary after she purchased his interest in SDCCC.
I. Referee's Original Final Report
Before he issued his final report, the referee reviewed SDCCC's books and records, met with Porter and SDCCC's bookkeeper, reviewed Vesco's claims, issued a draft report, allowed the parties to review his work papers, and allowed the parties to submit written comments on the draft report.
When the referee issued his final report, he made three findings. First, he determined the fair market value of the partnership business based upon a sale as a going concern, and not including the value of the 10th Avenue property, was $220,000. Second, he determined Vesco was owed $8,999.84 on his capital account and Porter $130,641.14 on her capital account. The referee made allocations to Porter's capital account based on an overpayment to Cornist's capital account and inadequate accounting records, which the referee allocated 100 percent to Porter. Third, the report addressed Vesco's claims.
J. Objections to Report and Court's Order
All parties filed objections to the final report.
Porter objected to the fact the final report had allocated the overpayment and accounting problem to her alone, arguing 20 percent should be allocated to Vesco based upon his ownership interest in SDCCC. Based upon Porter's objection, the referee thereafter changed the allocations to reflect 80 percent to Porter and 20 percent to Vesco.
Additionally, in their objections to the referee's report, SDCCC and Porter asserted that "[t]his court must determine Plaintiff's status as either a dissociated partner seeking a buyout or a partner seeking dissolution and windup of the partnership. Plaintiff claims a right of dissolution under Corporations Code Section 16801[, subdivision] (5)(A), (B) and (C) while the prayer seeks a buyout available only under dissociation."
A review of the complaint shows there was no request in the prayer for a buyout.
In Vesco's reply to Porter and SDCCC's objections Vesco stated, "Contrary to [Porter and SDCCC's] misrepresentations, [Vesco] does not allege any causes of action based upon partner [dissociation] and buy-out under Corporations Code section 16701. [Citation.] The cross-complaint does not allege any such causes of action. [Citation.] [Porter and SDCCC's] claim [they are] entitled to a trial on the issue of 'Dissociation . . . and Buy-out' [citation] has no merit. The issue is not now and has never been an issue in this case." (Italics added.)
Thereafter, in Porter and SDCCC's response to Vesco's objections to the referee's report, Porter and SDCCC stated, "A business valuation is needed only for [a] buyout of a partner's interest. [Citation.] In such event, the business is valued as of the date of dissociation. [Citation.] No buyout occurs where a partnership is dissolved. Plaintiff's complaint alleges causes of action for a judicial dissolution of the partnership, an accounting, breach of the partnership agreement and breach of fiduciary duties. It did not seek [a] buyout as a dissociated partner. [¶] In a mutual or court ordered dissolution of the partnership, there is a winding up of the partnership business, sale of its assets, payment of its liabilities and settlement of its accounts amongst its partners. [Citation.] No valuation of the business is contemplated, required or relevant as the partnership business is to be terminated by sale as a going concern or by liquidation. [Citation.]" In that same response Porter and SDCCC stated, "If a judgment of dissolution of the partnership is given, the business will be sold as a going concern or, alternatively, its assets liquidated for whatever the market will bring. Partnership liabilities will then be paid and any remaining proceeds distributed to the partners according to the statutory scheme. [Citation.] No forced buyout occurs in a dissolution of a partnership."
The court overruled parties' objections, including both parties' position the partnership should be dissolved, stating, "The parties have agreed to a dissociation as evidenced by Counsels' approval as to form of the August 9, 2002 Reference Order and Mr. Wick's August 27, 2002 letter to Referee Close." That letter stated the referee was, among other things, to prepare an "accounting, and the valuation of the 'buy-out price' of Mr. Vesco's interest in the partnership under Corporations Code section 16701[, subdivision] (b) . . . ."
The court also found (1) Vesco was a partner in SDCCC with a 20 percent ownership interest, and (2) SDCCC purchased the 10th Avenue property.
K. Revised Final Report
The referee thereafter filed a revised final report. The revised final report determined the fair market value of SDCCC as a going concern, not including the 10th Avenue property, was $280,000. It also contained revised schedules that determined Vesco's capital account was negative $60,251.83 after 20 percent of the $314,623 in accounting adjustments were allocated to Vesco. Vesco objected to that reduction in his capital account.
L. Appraisal of 10th Avenue Property
The parties stipulated to an appraiser referee to determine the fair market value of the 10th Avenue property. The court ordered SDCCC to pay his fees and that the "parties fee allocation shall remain as previously ordered." The appraiser's report concluded the fair market value of the property was $925,000.
M. Evidentiary Hearing on Porter's Salary
The court held an evidentiary hearing "to determine the factual issues surrounding [Porter's] receipt of $167,500 ($2500 per month from May 19, 1997 to December 31, 2002) as assumed salary of [Cornist]." At that hearing Porter testified as to the basis for her taking that additional salary.
N. Court's Tentative Decision
In January 2006 the court issued its tentative decision.
The court overruled Vesco's objection to the reduction of her capital account. The court found Vesco was a partner that owned a 20 percent interest in SDCCC.
The court rejected Porter's claim that she was entitled to an additional $2,500 in monthly salary after she bought out Cornist's interest in SDCCC: "The Court finds insufficient reliable and trustworthy evidence to support [Porter's] entitlement to the additional $2500.00 monthly compensation claimed by defendant. While [Porter] may claim to have considered [Vesco] a lender and not partner in the enterprise, she is in fact and law bound to the terms of the partnership agreement. She had no right to unilaterally and without notice increase her draw by $2500 per month for duties previously performed by [Cornist]. . . . [T]he Court finds [Porter] is not entitled to this additional compensation . . . ."
The court found the partnership owned the 10th Avenue property, finding Porter's evidence not credible: "Contrary to the testimony of [Porter], the SDCCC partnership purchased the real property located at 502 10th [Avenue], San Diego and not [Porter]. She did not purchase the property for herself as an individual as she claims. The partnership always made payments on the first and second deeds of trust. The partnership always paid the property taxes. SDCCC never paid rent for the use of the property as it had to the former owner. The real property was at all times and in every respect treated as an asset of SDCCC and not the separate property of [Porter]. [¶] Further, [Porter's] claims to have used personal funds as a part of the down payment on the property are not supported by evidence viewed by this court as either reliable or trustworthy. [Porter's] problematic deposition testimony regarding the purchase of the property, her claimed absence of recall and her inability to provide documentation at the deposition raises serious questions regarding her veracity and the bona fides of the very documentation now claimed to support her position. The Court finds [Porter's] personal funds were not used in the purchase of the real property."
The court adopted the appraiser's finding the 10th Avenue property was worth $925,000. The court determined SDCCC's net equity in the 10th Avenue property was $408,548.
The court then found Vesco was entitled to a net award of $77,457.97, based upon 20 percent of the fair market value of the business ($280,000) and 20 percent of the net equity of the 10th Avenue property ($408,548), minus his negative capital account ($60,251.63).
The court also apportioned payment of the referee's fees 80 percent to Porter and 20 percent to Vesco.
O. Statement of Decision
SDCCC and Porter requested the court issue a statement of decision. In doing so, they asserted for the first time that the award to Vesco needed to be reduced not just by Vesco's negative capital account, but also by Porter's positive capital account of $195,548.
The court issued a statement of decision that first found "the May 30, 1989, March [6], 1992, and March 25, 1992 written agreements are hereinafter collectively referred to as the 'SDCCC partnership agreement.' Plaintiff Vesco is the successor in interest to Mr. Gillelen."
The court then rejected Porter and SDCCC's assertion that the award to Vesco should be reduced by Porter's capital account and the parties' assertion the partnership should be dissolved: "The third controverted issue relates to whether pursuant to [section] 16807(b), defendant Porter's capital account balance of $195,766.52 must be subtracted from net of SDCCC partnership profits and losses as part of the determination of the [section] 16701 'buy-out' price. [¶] The answer to this question is in the negative. The present matter involves the dissociation of a partnership and not the winding up of a partnership and dividing its assets. The capital account balance of a non-dissociating general partner is not considered as part of the determination of the 'buy-out' price of a dissociating general partner of a partnership that is not winding up under [section] 16701. This is not a proceeding aimed at dissolving the partnership. This action has been premised upon [] determining the valuation [of] assets to determine the 'buy-out' price for Vesco as a dissociating partner. [¶] The Court's July 15, 2004 Order found that the Parties have agreed to a dissociation as was evidenced by counsel's approval of the reference Order appointing the accounting referee. The parties agreed that the referee was to conduct a financial review of the business records of SDCCC to determine the value of the business to determine the 'buy-out' price of Vesco's partnership interest. At all times the parties have proceeded upon the basis that dissociation not dissolution would be the remedy. It was never the intent of the parties that the entity be dissolved and the net equity be divided between the partners according to their pro rata ownership interests. The partnership continued to do business after December 31, 2002 and continues to do business to this day. The business of the partnership is not being wound up as part of this action. [¶] [Section] 16701 is contained in Article 7 of the Uniform Partnership Act of 1994. Article 7 deals with a partners' dissociation when the entity is not wound up and will continue to do business. It provides that the 'buy-out' price of a dissociating partner be based on a sale of the entire business as a going concern without the dissociated partner if that amount is greater than liquidation value. [Section] 16701 provides in relevant part that if a partner is dissociated from a partnership, the partnership shall cause the dissociated partner's interest in the partnership to be purchased for a 'buy-out' price determined pursuant to subdivision (b) [of section] 16701. Section (b) provides that the 'buy-out' price of 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. This section also provides that interest shall be paid from the date of dissociation to the date of payment. [¶] [Section] 16807, on the other hand, is contained in Article 8 of the Uniform Partnership Act of 1994. Article 8 deals with a completely different factual situation than was presented to this Court. This section deals with the winding up of a partnership's business and deals with distribution to partners after the business of the partnership is wound up."
The statement of decision also reiterated the court's conclusion that SDCCC owned the 10th Avenue property.
The court rejected Porter and SDCCC's contention that the fees of the court-appointed experts should offset the award to Vesco and retained jurisdiction to determine an allocation of the fees as costs.
P. Memorandum of Costs
Vesco filed a memorandum of costs requesting that SDCCC pay for her share of the expert fees, amounting to $25,298.71. Porter and SDCCC opposed the memorandum of costs, arguing Vesco was not the prevailing party and the referee and appraiser fees were not awardable as costs. The court ordered SDCCC pay costs in the amount claimed by Vesco.
Q. Motion for Attorney Fees
Vesco filed a motion for attorney fees, seeking an order that she be entitled to an award of approximatey $224,000 in attorney fees as the prevailing party. Vesco asserted she was entitled to attorney fees under the attorney fee clause of the March 6, 1992 agreement. SDCCC and Porter opposed the motion, and the court denied it: "Plaintiff's motion for reasonable attorneys' fees as the prevailing party under [Civil Code section] 1717 is denied. Even though the Court found that the partnership agreement is comprised of three separate agreements [Court's 5/16/06 Statement of Decision lodged as plaintiff's Ex. 41], the attorney's fee clause found in the Buy and Sell Agreement by its own terms limits the fee award to 'any action or proceeding against the others to enforce, protect or establish any right or remedy under this Agreement. . . .' [plaintiff's Ex. 8] There is no evidence that this clause would be applied to any other activity outside the four corners of this Buy and Sell Agreement. This is especially true as the Buy and Sell Agreement dealt with [Porter's] purchase of decedent Robbie Edwards['] share in the partnership and the resulting change in the percentage ownership in [SDCCC]."
This timely appeal follows.
DISCUSSION
I. Court's Use of Section 16701
A. Principles of Statutory Interpretation
We review the court's interpretation of a statute under the de novo standard of review. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432.) In construing statutory enactments, we look to the words of the statutes to determine legislative intent and to fulfill the purpose of the law." (In re Alanna A. (2005) 135 Cal.App.4th 555, 563, citing Gooch v. Hendrix (1993) 5 Cal.4th 266, 282; In re Heraclio A. (1996) 42 Cal.App.4th 569, 574.) Ordinarily, when "the language of the statute is clear and unambiguous, we follow the plain meaning of the statute [citation] and need not examine other indicia of legislative intent." (In re Alanna A., supra, 135 at p. 563.)
"However, if the statutory language permits more than one reasonable interpretation, courts may consider various extrinsic aids, including the purpose of the statute, the evils to be remedied, the legislative history, public policy, and the statutory scheme encompassing the statute. [Citation.] In the end, we '"must select the construction that comports most closely with the apparent intent of the Legislature, with a view to promoting rather than defeating the general purpose of the statute, and avoid an interpretation that would lead to absurd consequences."'" (Torres v. Parkhouse Tire Service, Inc. (2001) 26 Cal.4th 995, 1003; see also Harris v. Capital Growth Investors XIV (1991) 52 Cal.3d 1142, 1165-1166.)
"'Finally, we do not construe statutes in isolation, but rather read every statute "with reference to the entire scheme of law of which it is part so that the whole may be harmonized and retain effectiveness." [Citation.]'" (People v. Ledesma (1997) 16 Cal.4th 90, 95, quoting People v. Pieters (1991) 52 Cal.3d 894, 898-899.)
B. Analysis
In 1996 California adopted the revised Uniform Partnership Act of 1994 (RUPA). Section 16701 of RUPA provides in part as to the buyout of a dissociating partner: "(a) If a partner is dissociated from a partnership, the partnership shall cause the dissociated partner's interest in the partnership to be purchased for a buyout price determined pursuant to subdivision (b). [¶] (b) 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. Interest shall be paid from the date of dissociation to the date of payment." [¶] (c) Damages for wrongful dissociation under Section 16602, and all other amounts owing, whether or not presently due, from the dissociated partner to the partnership, shall be offset against the buyout price. Interest shall be paid from the date the amount owed becomes due to the date of payment. [¶] (d) A partnership shall indemnify a dissociated partner whose interest is being purchased against all partnership liabilities, whether incurred before or after the dissociation . . . ." (Italics added.)
Section 16807(b), which governs dissolutions, provides: "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. Except for registered limited liability partnerships and foreign limited liability partnerships, a partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner's account." (Italics added.)
The referee and the court used the buyout remedy of section 16701 for dissociating partners and made an award based on the market value of Vesco's interest at the time of departure, as though the partnership had dissolved and its business had wound up. (§§ 16701, subds. (a) & (b), 16807.)
This was error, however, as Vesco could not dissociate from the partnership because the partnership ceased to exist without her. By definition, a partnership cannot exist absent the "association of two or more persons to carry on as coowners a business for profit . . . ." (§§ 16101, subd. (9), 16202.) RUPA's buyout rule does not apply to a partnership consisting of only two partners. Rather, where a partner's dissociation necessarily effectuates a dissolution of the partnership, the partnership is wound up, the unfinished business is completed, and the partners share in the profits after the winding up is complete. (§ 16701.5, subd. (a) ["Section 16701 shall not apply to any dissociation that occurs within 90 days prior to a dissolution under Section 16801"]; see also 6 West's U. Laws Ann., Pt. 1 (2001) U. Partnership Act (1997) com. 1 to § 603, p. 172 ["after a partner's dissociation, the partner's interest . . . must be purchased pursuant to the buyout rules . . . unless there is a dissolution and winding up of the partnership business"].)
Porter and SDCCC assert that it was proper for the court to use the buyout remedy of section 16701 because the parties stipulated to that remedy. However, as explained in the factual background, ante, at all times the parties sought a judicial dissolution of SDCCC. The motion to appoint a referee was based upon all parties agreeing that a dissolution was necessary. SDCCC and Porter objected to the referee's report on this basis and, in response, Vesco agreed she was seeking a dissolution, not a dissociation.
Moreover, to the extent the parties mistakenly stipulated to a buyout remedy under section 16701 in the referral order, we are not precluded from reversing the judgment. A trial or appellate court is not bound to accept a stipulation if it is based on an "erroneous rule of law." (California State Auto. Assn. Inter-Ins. Bureau v. Superior Court (1990) 50 Cal.3d 658, 664; Garabedian v. Los Angeles Cellular Telephone Co. (2004) 118 Cal.App.4th 123, 128 .) For example, in Valdez v. Taylor Auto. Co. (1954) 129 Cal.App.2d 810, the buyer of a used car sued for the alleged failure of the dealer to obtain public liability and property damage insurance on the sale of the automobile to plaintiff. (Id. at p. 812.) The parties stipulated that the jury be instructed that if they found a tort, the verdict should be for $18,465. (Id. at p. 814.) The Court of Appeal held that this was a stipulation as to a conclusion of law, and, because it was erroneous, it was not binding upon it. (Id. at pp. 819-822.) As the Court of Appeal stated in that case, the stipulation was a "nullity" (id. at p. 820) because "'[w]hen a particular legal conclusion follows from a given state of facts, no stipulation of counsel can prevent the court from so declaring it.' [Citation.]" (Id. at p. 819; see also Robinson v. Sacramento City Unified School Dist. (1966) 245 Cal.App.2d 278, 287 [ambiguous stipulation, contrary to statutory definition, which would have controlled major issue in the case]; Burrows v. State of California (1968) 260 Cal.App.2d 29, 33 [ambiguous stipulation based on erroneous legal assumptions that would have destroyed plaintiffs' case].)
In Oakland Raiders v. City of Berkeley (1976) 65 Cal.App.3d 623, the principal issue was whether a city tax on professional sports events was a valid revenue-raising measure or was an improper regulation of property controlled by the Regents of the University of California. The taxpayer asserted that the city's counsel had stipulated that the tax was regulatory. The Court of Appeal held that any such stipulation was ineffective, stating, "The interpretation of the Constitution, statutes, and ordinances is a subject within the authority of the courts, not the parties." (Id. at p. 629.)
Similarly in this case, to the extent the parties stipulated to use the dissociation statute, it was not binding upon either the trial court or this court, as it was an incorrect statement of law as the buyout remedy of section 16701 was not available for use in this action to dissolve the partnership.
Porter and SDCCC also assert we may not reverse the judgment in this matter based upon the trial court's erroneous use of the remedy provided by section 16701, subdivision (b) because Vesco never asserted such error on appeal. This contention is unavailing.
If a court of appeal finds reversible error it can reverse even where it is favorable to a respondent that has not cross-appealed where the appealed portion of the judgment is "so interwoven" and connected with the unappealed portion that the court's reasoning must apply equally to both points. (In re Marriage of Garrity and Bishton (1986) 181 Cal.App.3d 675, 690.) Thus, on a husband's appeal from the trial court's valuation of his wife's law practice, the court reversed the valuations for both as both valuations were based on the same incorrect formula. (Ibid.)
Moreover, an appeal from a part of the judgment brings before the court all the nonseverable parts of the judgment so that, despite the partial appeal, all nonseverable "interdependent" portions are subject to appellate review. (Gonzales v. R. J. Novick Constr. Co. (1978) 20 Cal.3d 798, 805.) Thus, a "reviewing court will consider and act upon the entire judgment when necessary to accomplish justice." (Everly Enterprises, Inc. v. Altman (1960) 54 Cal.2d 761, 765.)
In this case SDCCC and Porter assert the court erred in failing to set off Porter's capital account against the award of Vesco's share of the value of the partnership as a going concern. However, a determination of whether the court erred in doing so necessarily requires a determination in the first instance whether the court was using the correct code section. Therefore, we cannot in this case do justice by resolving only that part of the order declining to reduce the award to Vesco by the value of Porter's capital account.
Moreover, although they did not originally appeal on this basis, Porter and SDCCC agree in their supplemental briefing that, absent an agreement of the parties, it was error for the court to use the dissociation remedy. Accordingly, we may now review this issue, the matter having been briefed by Porter, SDCCC and Vesco.
II. Ownership of 10th AvenueProperty
A. Standard of Review
In assessing whether the court erred in determining, based upon disputed facts, that the 10th Avenue property was purchased by the partnership, we apply the substantial evidence standard of review. (Estate of Joseph (1998) 17 Cal.4th 203, 217.) "When a trial court's factual determination is attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether, on the entire record, there is substantial evidence, contradicted or uncontradicted, which will support the determination . . . ." (Bowers v. Bernards (1984) 150 Cal.App.4th 870, 873-874, italics omitted.)
B. Analysis
Section 16204, subdivision (c) (section 16204(c)) provides: "Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership or of one or more partners with an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership." (Italics added.) By contrast, section 16204, subdivision (d) provides: "Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person's capacity as a partner or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes." (Italics added.)
The presumption in section 16204(c) "is intended to apply when partnership credit is used to obtain financing and when partnership cash or property is used for payment." (9 Witkin, Summary of Cal. Law (10th ed. 2005) Partnership, § 27, p. 602.) Thus, "[p]roperty acquired with partnership funds is partnership property, in spite of the fact that it may be bought in the individual names of the partners. [Citations.] [¶] Real property held in the individual names of partners, acquired from partnership funds and devoted to the exclusive use of the partnership business, is held in trust for the benefit of the partnership." (Rishwain v. Smith (1947) 77 Cal.App.2d 524, 534.)
Here, substantial evidence supports the court's determination that the 10th Avenue property was purchased by Porter as a partnership asset. The court determined that when the property was offered for sale, Porter failed to disclose the partnership opportunity to Paul Vesco. Partnership funds were used to make deposits to escrow. Partnership funds were used to make all payments on the first and second mortgage. Partnership funds were used to pay all property taxes. The real property and payments made on it were recorded on the partnership's accounting records. The interest payments on the mortgages were deducted on SDCCC's tax returns. These findings were supported by Porter's deposition testimony, partnership checks, and SDCCC's balance sheet and accounting records.
In arguing the court erred in determining the 10th Avenue property was an asset of SDCCC, Porter points to her declaration wherein she stated that she used her personal funds to purchase the 10th Avenue property. However, the court found the declaration contradicted her deposition testimony and documentary evidence showing SDCCC made all payments on the property. Further, the documents attached to her declaration consisted of cashier's checks drawn from SDCCC's banks that did not identify them as having come from her personal account. Thus, the court did not err in determining that her declaration was not credible, particularly in light of SDCCC's own records showing that it made all payments on the property, and the fact it was carried on its books as a partnership asset.
III. Award of Referee Fees as Costs to Vesco
A. Standard of Review
We apply an abuse of discretion standard when reviewing a court's decision to allow or not allow costs. (El Dorado Meat Co. v. Yosemite Meat and Locker Service, Inc. (2007) 150 Cal.App.4th 612, 617.) Whether a cost item is "'"reasonably necessary to the conduct of the litigation" is a question of fact for the trial court, whose decision will be reviewed for abuse of discretion. [Citations.]'" (Baker-Hoey v. Lockheed Martin Corp. (2003) 111 Cal.App.4th 592, 605 (Baker-Hoey).) An appellate court will not disturb discretionary rulings of the trial court and thereby divest the court of its discretionary power unless appellant can demonstrate a clear abuse of discretion amounting to a miscarriage of justice. (Denham v. Superior Court (1970) 2 Cal.3d 557, 566.) Abuse of discretion "'implies . . . capricious disposition or whimsical thinking.'" (In re Cortez (1971) 6 Cal.3d 78, 85.) Discretion is abused only where it appears that the trial court "exceed[ed] the bounds of reason, all of the circumstances before it being considered." (Loomis v. Loomis (1960) 181 Cal.App.2d 345, 348.)
B. Analysis
Evidence Code section 730 provides in part: "When it appears to the court, at any time before or during the trial of an action, that expert evidence is or may be required by the court or by any party to the action, the court on its own motion or on motion of any party may appoint one or more experts to investigate, to render a report as may be ordered by the court, and to testify as an expert at the trial of the action relative to the fact or matter as to which the expert evidence is or may be required. The court may fix the compensation for these services, if any, rendered by any person appointed under this section, in addition to any service as a witness, at the amount as seems reasonable to the court."
Evidence Code section 731, subdivision (c) provides: "[i]n all civil actions, the compensation fixed under Section 730 shall, in the first instance, be apportioned and charged to the several parties in such proportion as the court may determine and may thereafter be taxed and allowed in like manner as other costs." (Italics added.)
Further, Code of Civil Procedure section 1033.5, subdivision (a)(8) provides: The following items are allowable as costs under Code of Civil Procedure section 1032: [¶] . . . [¶] (8) Fees of expert witnesses ordered by the court. . . ."
Code of Civil Procedure section 1033.5, subdivision (c)(4) provides: "Items not mentioned in this section and items assessed upon application may be allowed or denied in the court's discretion."
Several Courts of Appeal have held that the fees of various court-appointed assistants necessary for the conduct of civil litigation, including accountants, constitute statutory costs that may be awarded to the prevailing party. (See Gibson v. Bobroff (1996) 49 Cal.App.4th 1202, 1207-1210 [private mediator]; Winston Square Homeowner's Assn. v. Centex West, Inc. (1989) 213 Cal.App.3d 282, 292-293 [special master for discovery and settlement]; ABC Egg Ranch, Inc. v. Abdelnour (1963) 223 Cal.App.2d 12, 19 [accountant]; Most Worshipful Lodge v. Sons etc. Lodge (1956) 140 Cal.App.2d 833, 834-835 [referee]; Estrin v. Fromsky (1942) 53 Cal.App.2d 253, 255 [accountant].)
However, courts have allowed such fees as being within the discretion of the court, as opposed to defining them as court appointed "experts" under Code of Civil Procedure section 1033.5, subdivision (a)(8). (ABC Egg Ranch, Inc. v. Abdelnour, supra, 223 Cal.App.2d at p. 19, abrogated on other grounds in Weiner v. Fleischman (1991) 54 Cal.3d 476, 485; Estrin v. Fromsky, 53 Cal.App.2d at p. 255.) Indeed, as SDCCC and Porter point out, in Baker-Hoey, supra, 111 Cal.App.4th 592, the Court of Appeal held that the fees of a discovery referee were not considered expert fees under Code of Civil procedure section 1033.5, subdivision (a)(8). While that case held that discovery referees were not court appointed "experts" within the meaning of section Code of Civil Procedure section 1033.5, subdivision (a)(8), it also concluded courts still have discretion to award or deny them as costs under Code of Civil Procedure section 1033.5, subdivision (c)(4), so long as they are reasonable and necessary to the litigation. (Baker-Hoey, supra, 111 Cal.App.4th at pp. 603-606.) SDCCC and Porter do not contend that it was an abuse of discretion for the court to allow the accounting and appraisal referee's fees as costs under Code of Civil Procedure section 1033.5, subdivision (c)(4) for not being reasonable or necessary to the litigation. Therefore, the court did not abuse its discretion in awarding the accounting and appraisal fees as costs.
IV. Denial of Vesco's Motion for Attorney Fees
A. Standard of Review
We review a court's decision as to whether the language of a contract entitles a party to attorney fees under the de novo standard of review. (Exxess Electronixx v. Heger Realty Corp. (1998) 64 Cal.App.4th 698, 705.)
B. Analysis
Civil Code section 1717, subdivision (a) provides: "In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce that contract, shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to other costs. [¶] Where a contract provides for attorney's fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract." (Italics added.)
In Neptune Society Corp. v. Longanecker (1987) 194 Cal.App.3d 1233 (Neptune Society), the plaintiff entered into a limited partnership agreement with the defendant to provide low cost crematory services. The partnership agreement consisted of five writings: a written partnership agreement, three promissory notes, and an addendum to a promissory note. (Id. at pp. 1238-1239.) One promissory note and the addendum contained fee clauses that stated that the defendant agreed to pay attorney fees in any action "to collect this note or any portion thereof . . . ." (Id. at p. 1250.)
The defendant subsequently stopped making payments on the notes and under the partnership agreement, and the plaintiff brought suit to recover monies due under the promissory note and partnership agreement. (Neptune Society, supra, 194 Cal.App.3d at p. 1239.) The defendant cross-complained for rescission of the partnership agreement. (Ibid.) The trial court found for the defendant on the complaint and cross-complaint, rescinding the partnership agreement. (Id. at pp. 1239-1240.)
On appeal, this court held that because the defendant was the prevailing party on the cross-complaint, and two of the promissory notes contained attorney fee clauses, the defendant was entitled to attorney fees. We held that because "the promissory notes were inherent parts of the agreement, which is the subject matter of the litigation, the attorney's fees provisions are properly construed as applying to the entire contract." (Neptune Society, supra, 194 Cal.App.3d at p. 1250.)
This court's holding in Neptune Society was based upon the rule of contract interpretation, stated in Civil Code section 1642, that "[s]everal contracts relating to the same matters, between the same parties, and made as parts of substantially one transaction, are to be taken together." Based upon this statute and Civil Code section 1717, other Court of Appeal decisions have awarded attorney fees to the prevailing party where only some of the documents comprising a transaction contained an attorney fee clause. (See Torrey Pines Bank v. Hoffman (1991) 231 Cal.App.3d 308, 325-326 [upholding award of attorney fees to guarantors based upon attorney fee clauses in a related promissory note and deed of trust and even though guarantors were successful in proving the guarantees were void and unenforceable]; South Bay Transportation Co. v. Gordon Sand Co. (1988) 206 Cal.App.3d 650, 660-661 [holding an award of contractual attorney fees required where the attorney fee clauses were in invoices or bills of lading, not main contract between the parties].)
Likewise in this case, the court found three written agreements, including the March 6, 1992 agreement that contained the attorney fee clause, taken together, constituted the partnership agreement. The March 6, 1992 agreement not only spoke of Porter's purchase of Edward's interest, it was the first written document confirming Gillelen, Paul Vesco's predecessor interest, had a 20 percent interest in SDCCC. The March 6, 1992 agreement stated that it inured to the benefit of all successors in interest and heirs, which would be Paul Vesco, and then, upon his death, Vesco. Vesco, through this action, sought to enforce the terms of the March 6, 1992 agreement. There was no rational reason for concluding that the attorney fee clause in that agreement did not apply to the entire contract, and to this litigation.
Porter and SDCCC assert the court was correct in denying attorney fees to Vesco because the attorney fee clause in the March 6, 1992 agreement was "narrow," and not intended to cover disputes related to the partnership agreement. They argue the language of the attorney fee clause can only be interpreted as applying to actions seeking to enforce the terms of that agreement. This contention is unavailing for three reasons.
First, the action did seek to enforce the terms of the March 6, 1992 agreement. It sought to establish, contrary to Porter's contention, that Vesco had a 20 percent interest in SDCCC. It is the March 6, 1992 agreement that memorialized that fact in writing.
Second, as the court found, the March 6, 1992 agreement was one of three agreements that made up the partnership agreement. Therefore, under this court's decision in Neptune Society, it was an "inherent part" of the partnership agreement, and, under Civil Code section 1717, subdivision (a), it must be construed as applying "to the entire contract."
Third, the attorney fee clause's language that it applied to any action seeking to "enforce, protect, or establish any right or remedy under this agreement" is not as narrow as Porter and SDCCC suggest. "[F]or example, an attorney fee provision applicable to 'any dispute under the agreement' is sufficiently broad [that it is] not limited to an action brought to enforce the agreement." (Gil v. Mansano (2004) 121 Cal.App.4th 739, 744) It is akin to broad attorney fee clauses that apply to any action "arising out of" an agreement. (Ibid.; see also Santisas v. Goodin (1998) 17 Cal.4th 599, 607 ["arising out of the execution of the agreement"]; Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1342 ["to which 'this Agreement gives rise'"].) Such a clause is sufficiently broad to make its terms apply to the partnership agreement as a whole. (Thompson v. Miller (2003) 112 Cal.App.4th 327, 335-336 [clause covering any "dispute under" a contract broad enough to include both tort and contract claims].) The court erred in determining the March 6, 1992 did not entitle Vesco to attorney fees in this action.
Vesco also asserts that she is entitled to the full amount of attorney fees she sought in the trial court because (1) she is the prevailing party in this action, and (2) the fees expended were reasonable. SDCCC and Porter argue that (1) the trial court did not determine "the question of whether [Vesco] was the prevailing party," (2) "appellate review is not the forum for adjudicating such an issue," (3) Vesco was not the prevailing party, and (4) the fees were not necessary or reasonable. Based upon our reversal of the judgment in this matter, it is premature to address the issue of whether Vesco is the prevailing party in this matter. That determination, as well as the amount of any attorney fee award, must await the judicial dissolution.
DISPOSITION
The judgment is reversed and the matter remanded for a judicial dissolution of SDCCC. The order determining Vesco was not entitled to attorney fees under the partnership agreement is also reversed. Vesco shall recover her costs on appeal.
WE CONCUR: AARON, J., IRION, J.