Opinion
F077602
06-24-2020
KENCO INVESTMENTS, INC., Plaintiff, Cross-defendant and Appellant, v. MARTHA MARSH, as Trustee, etc., Defendant, Cross-complainant and Respondent.
Joseph H. Boyd for Plaintiff, Cross-defendant and Appellant. Wanger, Jones, Helsley, Patrick D. Toole; McCormick, Barstow, Sheppard, Wayte & Carruth and Scott M. Reddie for Defendant, Cross-complainant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 15CECG02521)
OPINION
APPEAL from an order and a judgment of the Superior Court of Fresno County. Jane Cardoza and Kristi Culver Kapetan, Judges. Joseph H. Boyd for Plaintiff, Cross-defendant and Appellant. Wanger, Jones, Helsley, Patrick D. Toole; McCormick, Barstow, Sheppard, Wayte & Carruth and Scott M. Reddie for Defendant, Cross-complainant and Respondent.
The Honorable Jane Cardoza presided over the phase one trial and the Honorable Kristi Culver Kapetan presided over the phase two trial.
-ooOoo-
Kenco Investments, Inc. (Kenco) brought this action against Martha Marsh (Martha), as trustee of the Joseph Haig Boyd Living Trust dated May 30, 1991 (the Trust), to force the Trust to sell its one-half ownership interest in an office complex to Kenco, which owned the other half. Kenco claimed a written partnership agreement between itself and Joseph Haig Boyd (J.H.) compelled the Trust to allow Kenco to purchase the Trust's ownership share. Martha cross-complained against Kenco for partition of the property. A bifurcated bench trial was held, with the complaint adjudicated first. In the first phase of the trial, the trial court found the partnership had dissolved in 1990; therefore, Kenco and the Trust owned the office complex as joint tenants. In the second phase, the trial court ordered partition of the property by sale and awarded Martha one-half of management fees Kenco had been taking to manage the property as an offset against the sales proceeds, finding there was no agreement for Kenco to receive these fees.
On appeal from the order following the first phase of the trial and the interlocutory judgment of partition following the second phase, Kenco contends the trial court erred in (1) finding the partnership had dissolved; (2) ordering partition of the property by sale; and (3) ordering an offset for the management fees. Martha filed a motion to dismiss the appeal from the order on the first phase of the trial only, arguing that order either is separately appealable, and therefore the appeal is untimely, or is not appealable from the judgment of partition. We conclude the order is appealable, and therefore deny Martha's motion to dismiss. Finding no merit to Kenco's contentions, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
In the 1970's, Kenneth Boyd and his father, J.H., began a partnership known as J.H. Boyd & Son. In 1979, Ken formed a corporation named Kenco Investments, Inc. That year, Kenco and J.H. entered into a written partnership agreement for J.H. Boyd & Son (the Partnership).
The Partnership engaged in real estate sales and loans. It also owned a parcel of property located in Kerman, on which sat four separate office buildings (denoted buildings A through D), each with multiple suites that were leased out to commercial tenants with 22 parking spaces around the buildings, and an adjacent parking lot with 30 parking spaces (collectively, the Boyd building or property). Ken was involved in the design and development of the Boyd building, and maintained an office in one of the buildings for over 40 years. As of December 2017, the monthly rents for the Boyd building totaled about $18,000.
The four office buildings share landscaping, a courtyard, and one bathroom at building C. The buildings also share a trash enclosure, a single set of utility lines (gas, water and electricity) and a single sewer line. The buildings are not up to current code requirements with respect to fire protection sprinklers and the Americans with Disabilities Act (ADA). Buildings B and C are of equal size, but do not have the same rentable space, while buildings A and C have superior tenant improvements. Only building C was fully occupied.
According to Ken, J.H. asked to retire from the real estate brokerage part of the Partnership in 1990. Ken claimed he paid J.H. around a half-million dollars for J.H.'s share of the real estate brokerage operation and they stopped working together on that. J.H. and Ken also agreed to stop using the name J.H. Boyd & Son. Ken testified that when J.H. told him he wanted to retire, there were two options: (1) Kenco could buy the building from J.H., as provided in the Partnership agreement; or (2) they could keep the Partnership agreement open as to the Boyd building and J.H. could continue to share in the profits throughout his life. J.H. did not sell his share in the Boyd building to Kenco.
On December 27, 1990, J.H. and his wife executed a document entitled, "Co-Ownership and Management Agreement" (co-ownership agreement). The co-ownership agreement stated that J.H. and Kenco "were joint partners in ... J. H. Boyd & Son until December 31, 1990" and that, "[a]s a consequence of the dissolution of the referenced partnership as of December 31, 1990, it was agreed between the partners that [the Boyd building] would be distributed from the partnership to the parties, each as to an undivided one-half (1/2) interest." The co-ownership agreement further stated Kenco would be responsible for managing the Boyd building and "shall be entitled to receive five percent (5%) of the net rents actually received from tenants occupying the property." The co-ownership agreement presented at trial did not have a signature for Kenco on it. Ken testified he never signed the co-ownership agreement and denied entering into it. Instead, he and J.H. had an oral agreement for Kenco to manage the building.
On the same day J.H. executed the co-ownership agreement, J.H. and Ken executed a grant deed transferring the Partnership's ownership interest in the Boyd building one-half to J.H. and his wife, and one-half to Kenco. In May 1991, J.H. and his wife transferred their one-half interest in the Boyd building to the Trust. Ken was aware of this transfer.
In 1991, Kenco started taking a monthly management fee of $950 for managing the Boyd building, which he claimed was pursuant to an oral agreement with J.H. for Kenco to manage the building. Ken conceded this fee was more than five percent of the net rents, as stated in the co-ownership agreement. Martha was not aware of any writing that authorized Kenco to take management fees.
Joseph Mattes, the certified public accountant for Ken, Kenco and the Partnership, prepared tax returns for the Partnership. Mattes confirmed partnerships are legally required to file tax returns and he did not prepare or file tax returns for the Partnership after 1990. According to Mattes, the Partnership stopped filing tax returns because the "partners agreed to disagree," and J.H. moved to another office in the complex and decided not to do the brokerage business anymore. Mattes also explained that, as part of a partnership tax filing, a "Schedule K-1" is prepared for each partner to show each partner's allocated amounts for the various items of income, credits and deductions. Mattes had not prepared any Schedule K-1's for Kenco or J.H. since 1990.
Ken denied seeing the co-ownership agreement until shortly before J.H.'s death in March 2015, and claimed he did not know of its existence until Martha delivered it to him. Ken said he wrote Martha after receiving the co-ownership agreement and disavowed it, but he did not know when he sent the writing and he did not send it to his father, who was still alive. Ken believed the Partnership did not terminate until J.H.'s death and the Partnership owned the Boyd building until then.
Ken believed the 1979 Partnership agreement gave Kenco the contractual right to force the Trust to sell its one-half interest in the Boyd building to Kenco, even though no trustee had ever signed the Partnership agreement or entered into a written agreement to allow Kenco to purchase the Trust's interest in the Boyd building.
On July 20, 2015, Ken emailed a number of documents to Martha, including a "Binding Letter of Intent" to purchase the Trust's interest in the Boyd building. The letter stated: "Now that Dad has passed away, I am exercising my rights under Sections 4.05 & 4.06 of the [1979] Partnership Agreement by purchasing the 1/2 portion of The [Boyd building] owned by the Joseph Haig Boyd Living Trust ...." Section 4.05 provided that upon J.H.'s death, Kenco "shall purchase the partnership interest of JOSEPH HAIG BOYD and his surviving spouse," and specified how the payment was to be made, while section 4.06 set out procedures for "establishing a fair price for the purchase of a Partner's interest ...." Ken acknowledged at trial that any right to purchase the Trust's interest in the Boyd building stemmed exclusively from the 1979 Partnership agreement.
Martha responded three days later, stating it was her "understanding that the 1979 partnership agreement has been superseded by the 1990 co-ownership and management agreement." Martha asked Ken to forward to her what he believed to be the operative agreement and any supporting documentation.
This Lawsuit
In August 2015, Kenco filed a complaint against Martha, as trustee of the Trust, stating a single cause of action for "equitable relief to enforce contract" (capitalization omitted). The operative first amended complaint alleges Martha, as trustee of the Trust, breached the 1979 Partnership agreement "by refusing to sell the J.H. Boyd Trust's interest in the Boyd [building] to Kenco." Kenco sought an order compelling the sale of the Trust's interest in the Boyd building to Kenco "pursuant to the terms of paragraph 4.05 of the Partnership Agreement."
Martha, as trustee of the Trust, filed a cross-complaint against Kenco seeking a partition of the Boyd building by sale, with the sale proceeds to be distributed according to Code of Civil Procedure sections 873.810 through 873.850.
Undesignated statutory references are to the Code of Civil Procedure.
The parties agreed to a bifurcated proceeding, with Kenco's complaint first, with the trial court deciding whether a partnership agreement existed and if it applied to this matter.
The Trial on Kenco's Complaint
A court trial on Kenco's complaint was held over two days in February 2017 (the phase one trial). Ken, Mattes and Martha all testified. At the conclusion of testimony, both Kenco's and Martha's attorneys stated they were not requesting a statement of decision, and a briefing schedule was set. The trial court announced its ruling at an April 21, 2017 hearing. The trial court found Kenco failed to show the Partnership agreement continued to be in existence and the evidence established "the partnership was in fact dissolved." Accordingly, the trial court found in Martha's favor in regards to the issue addressed in the bifurcated trial. On May 3, 2017, a written order was filed which stated the trial court found against Kenco and for Martha on Kenco's only cause of action for equitable relief to enforce contract, and Martha was the prevailing party on this claim.
The Trial on Martha's Cross-Complaint
A court trial was held on the cross-complaint over two days in December 2017 (the phase two trial). Ken, Martha, and Mattes all testified, as well as the parties' land use and planning experts, Dirk Poeschel for Martha and Scott Mommer for Kenco.
On August 30, 2017, Ken sent a letter to Olivia Pimentel, the City of Kerman's (City) assistant planner, asking how the Boyd building could be divided into two separate parcels so that Kenco and the Trust could each receive half of the property. Ken enclosed a diagram proposing the property be split with buildings A and B on one parcel, and buildings C and D on the other. Ken also proposed to evenly divide the parking so each new parcel would have 26 parking spaces. Ken asked Pimentel to check with the city engineer to see if this kind of division would be acceptable and any related requirements.
Pimentel consulted with Jerry Jones, a planning consultant with Yamabe and Horn Engineering. In an email to Pimentel, Jones stated he took a cursory look at Ken's inquiry and commented that to split the property: (1) a parcel map would be required; (2) separate wet and dry utility services must be provided to the buildings within each new parcel, as shared services would not be allowed; and (3) the parking lot was too small to be divided as shown, but the new deed for each parcel could be written to include an "undivided" interest in the parking lot parcel, although that would not resolve other issues such as shared trash enclosure use and landscaping. Jones stated the most realistic way to address the shared uses and facilities would be through a covenant or agreement that runs with the land, which would need to be a recorded document signed by all property owners.
Poeschel, a land planning consultant, testified that when a property is owned by more than one person or entity, all owners must agree to any plan to partition the property, otherwise the city or county will not approve and record the new plan. Here, there was no agreement between the two property owners.
Poeschel met with Pimentel and the City's chief building inspector, Mr. Kufis, to discuss Ken's proposal to divide the property in two. Both stated there had been a considerable amount of disagreement between the parties over the years. Poeschel also met or spoke with a number of others, including fire inspector Lori Sawhill, fire protection engineer Justin Beale, civil engineer and land surveyor Mark Greenwood, and general contractor Charles Maxwell.
Based on his discussions and research, Poeschel concluded it was possible to divide the property in two, subject to the owners' agreement and the City's conditions of approval. The parking lot, however, could not be divided. Moreover, the property could not be divided equally, such that it could be partitioned in kind; even the proposal of Kenco's expert, Mommer, did not divide the property evenly. Poeschel explained the property owners must have certain agreements in place before a new parcel map could be recorded, including agreements about use of the parking lot, common area maintenance, landscape maintenance, use of the sewer line and use of the common area bathroom. In addition, parking lot modifications would need to be made to bring the lot up to current standards. Each building would need its own utility services installed, as well as fire protection sprinklers and possibly a one-hour firewall, all at considerable expense. Finally, the property would need to be brought into compliance with the ADA.
Poeschel's estimate of the known cost to divide the property was about $137,068. In his opinion, it would make more sense to sell the property, rather than divide it and expose the property to these additional costs. Poeschel, however, admitted he did not investigate the cost of selling the property. There was no option that allowed the property to be sold or divided without any cost, and some costs would be incurred regardless of whether the property was sold or divided. Poeschel opined that under no circumstances would it be cheaper to partition the property as opposed to selling it.
Mommer, a civil engineer, determined it would be possible to subdivide the four buildings, but not the parking lot. He proposed to divide the buildings into four parcels, with one building per parcel, as that would save future subdivision costs, but it also was possible to divide the property into two parcels. According to Mommer, many of the costs Poeschel testified about would be less than Poeschel claimed or would not actually be incurred as a result of subdividing the property into two parcels.
Mommer, however, agreed: (1) the City would not proceed with an application to subdivide the property when the owners do not agree; (2) since the parking lot could not be divided, an easement would be required covering its use, maintenance and upkeep; (3) before the property could be divided, the parties would need an agreement in place regarding common area maintenance, use of the existing sewer line, access over the courtyard, and landscape maintenance; (4) gas, water and electric would have to be separately provided to each parcel; and (5) the buildings would need to be brought into compliance with the ADA.
Ken admitted there may need to be agreements regarding sharing the parking lot, landscape maintenance, use of the courtyard, utilities or sewer, and the parties may not be able to agree as they were adversarial. Ken, however, thought that could be solved. Martha confirmed there were no agreements between the parties, and she was not willing to enter into any additional agreements with Ken to divide the property. Instead, her request, as trustee of the Trust, was to partition the Boyd building by sale in a public auction.
When asked if he objected to the sale of the property, rather than an equal division of the property, Ken stated he "prefer[red] they let me buy the property and save the commission." Ken was asked if he objected to the public sale of the property. Ken responded: "No, I don't object to the public sale of the property. I want to buy it at the full appraisal price, I have said that from day one." When asked whether he said he did not "object to the public sale of the property," Ken stated, "Excuse me, I'm sorry. I didn't hear the word 'public.' I prefer to purchase the property at whatever appraisal price is established by a court's appraiser." Ken was asked whether he still objected to a public sale assuming the court ordered the property sold at a publicly noticed time and location, and he was free to bid on it, Ken answered: "I think, to be very direct with you, I do not have an objection to a public sale."
Ken submitted to the City a proposal to divide the property in half, while his expert, Mommer, proposed to divide the property into quarters. When asked his position regarding partitioning the property, namely, whether he wanted it divided into two or four parcels, Ken responded two. Ken preferred to keep the building where he kept his office for 41 years, but he did not care how the other buildings were distributed. When he submitted the proposal to the City, he assumed he would receive buildings C and D, while the Trust would receive buildings A and B. Ken was willing to enter into a reciprocal easement agreement if that was necessary to split the parking lot and he would agree to cover the cost of parking, if that was what the agreement required. He also was willing to pay to install a bathroom in his building and remove the breezeways.
Martha was unaware of any contract between the Trust or any trustee that would permit Kenco to take a management fee. Ken admitted there was no writing between him and any trustee of the Trust that authorized the payment of management fees. Although Martha had been the trustee of the Trust since 2011, Ken did not recall ever having any discussion or agreement with her about Kenco taking a management fee. Martha did not object to Ken's management of the Boyd building until this lawsuit was filed and no one objected to his collecting the management fees.
On February 23, 2018, the trial court issued its tentative proposed statement of decision. The trial court noted that in this phase of the proceedings, Martha sought to exercise her equitable right to partition the property by public sale, while Kenco sought to have the property "physically partitioned in-kind." In addition, Martha sought an offset in her favor to reimburse the Trust for the allegedly improper management fees paid to Kenco, as well as other expenses she contended were incurred improperly.
The trial court found partition by sale was the most equitable remedy. First, there could not be an equitable division of the property into equal parcels because the parking lot could not be divided, which alone necessitated partition by sale. While Kenco argued in favor of a reciprocal easement, the court could not force one owner to enter into an agreement with the other. In addition, it was obvious these parties did not get along and any such agreement would likely lead to more litigation. While at first glance Kenco's proposal to give each party two buildings appeared equitable, that was not true, as the buildings had different occupancy rates, improvements, and amounts of leasable space. Finally, Poeschel testified a new parcel map that divided the property would trigger compliance issues and the City would not approve any property division that did not comply with City ordinances or zoning requirements, while Mommer testified that prior to approval of a parcel map, the City would require the property to be brought into compliance with the ADA.
The trial court also found division was less equitable than sale, as the trustee established the aggregate economic value of the land would be diminished through physical division. The evidence established partition in kind would require major physical alterations that would detract from the property. For example, Kenco posited installing a one-hour fire rated wall through the middle of the breezeway if the breezeway was not removed, but that would be unsightly and reduce the tenants' available use of the common space area. In addition, separate utilities would have to be installed and each individual building would need its own service and meter. The trial court noted there were numerous other reasons why partition in kind did not make aesthetic or economic sense.
Finally, the trial court found additional equitable relief was warranted. The trial court found it was undisputed Kenco took a $950 per month management fee for at least 26 years, which totaled $296,400, and Martha requested an offset to her sale proceeds based on her 50 percent share of this amount, or $148,200, as well as an offset for other allegedly improper expenditures. The trial court found Martha was entitled to an offset because no specific agreement for the management fees was adduced at trial and no admissible evidence of such an agreement was submitted. The trial court, however, determined it would not offset the other expenses, as they benefitted the property as a whole.
In view of these findings, the trial court's tentative decision was to order partition by sale and an equitable offset of $148,200 to be paid to Martha upon sale.
When neither party filed objections to the tentative proposed statement of decision, the trial court issued an order adopting it as the statement of decision. On April 18, 2018, a judgment on cross-complaint for partition was filed, which ordered the sale, with the court retaining jurisdiction to review the referee's report on the property sale and to order further equitable adjustments the court considered just and appropriate.
DISCUSSION
I. Appealability of the May 3, 2017 Order
In its notice of appeal, filed on May 7, 2018, Kenco states it is appealing from the May 3, 2017 order entered after the phase one trial and the April 18, 2018 judgment entered after the phase two trial. Martha filed a motion to dismiss the appeal from the May 3, 2017 order only, arguing in the alternative: (1) if the May 3, 2017 order is an appealable order, the appeal is untimely because the notice of appeal was filed more than 60 days after Martha served notice of entry of the order on May 8, 2017 (Cal. Rules of Court, rule 8.104(a)(1)(B)); and (2) if the May 3, 2017 order is not separately appealable, the appeal is premature. Martha asserts that under either scenario, the portion of the appeal related to the May 3, 2017 order must be dismissed.
"[A]n appeal cannot be taken from a judgment that fails to complete the disposition of all the causes of action between the parties even if the causes of action disposed of by the judgment have been ordered to be tried separately, or may be characterized as 'separate and independent' from those remaining." (Morehart v. County of Santa Barbara (1994) 7 Cal.4th 725, 742.) Where judgment is entered separately as to a complaint and cross-complaint, "there is no final, appealable judgment until both have been resolved." (ECC Construction, Inc. v. Oak Park Calabasas Homeowners Assn. (2004) 122 Cal.App.4th 994, 1002; see Angell v. Superior Court (1999) 73 Cal.App.4th 691, 698 ["when a judgment resolves a complaint, but does not dispose of a cross-complaint pending between the same parties, the judgment is not final and thus not appealable"].)
Here, the May 3, 2017 order, which resolved only Kenco's claim in the complaint, was not separately appealable. Accordingly, we reject Martha's claim that the appeal from this order is untimely because it was not filed within 60 days of the date Martha served notice of entry of judgment.
This leaves the issue of whether the order is reviewable on appeal from the April 18, 2018 judgment of partition. Martha concedes the April 18, 2018 judgment is appealable, but contends the May 3, 2017 order cannot be reviewed on appeal from that judgment because the April 18, 2018 judgment does not finally dispose of the parties' claims.
An interlocutory decree for partition of property is a determination of the parties' respective interests in the property, preliminary to a final judgment. (Harrington v. Goldsmith (1902) 136 Cal. 168, 170.) It is conclusive on the questions adjudicated in it and, for all intents and purposes, is a final judgment from which an appeal may be taken, even though it is not the last judgment entered in the action. (Pista v. Resetar (1928) 205 Cal. 197, 199; see Holt v. Holt (1901) 131 Cal. 610, 611-612 [an interlocutory decree of partition is a final judgment as to all questions determined by it].)
Accordingly, section 904.1, subdivision (a)(9), expressly permits a party to appeal "[f]rom an interlocutory judgment in an action for partition determining the rights and interests of the respective parties and directing partition to be made." The interlocutory judgment cannot be reviewed on appeal from the final judgment. (Barry v. Barry (1880) 56 Cal. 10, 11.) Moreover, where an interlocutory judgment in partition has become final, the only matters that may be reviewed on appeal from the final judgment are those that occurred subsequent to interlocutory judgment. (Oliver v. Sperry (1934) 220 Cal. 327, 329-330.)
Applying these principles here, the April 18, 2018 judgment is clearly appealable as an interlocutory judgment. While it is not the final judgment in the action, the only issues that may be reviewed from appeal of the final judgment are matters that occurred subsequent to rendition of the interlocutory judgment. This means that, contrary to Martha's assertion, the May 3, 2017 order may not be reviewed on appeal from the final judgment. Instead, because the May 3, 2017 order adjudicated the rights and interests of the parties, as the trial court's determination that the Partnership dissolved meant the parties were cotenants and Kenco had no right to force the sale of the Trust's interest to it, the May 3, 2017 order was reviewable on appeal from the judgment of partition pursuant to section 904.1, subdivision (a)(9).
The case Martha relies on, Degnan v. Morrow (1969) 2 Cal.App.3d 358 (Degnan), is instructive. There, two partners sued each other to dissolve the partnership and partition certain real property. One partner appealed a judgment that (1) ordered accounting and payment of partnership debts, and made other determinations relating to partnership accounting and dissolution, and (2) determined the partners jointly owned certain real property, partitioned it equally, and ordered a sale and disposition of the proceeds. The judgment did not dissolve the partnership. (Id. at pp. 361-362.)
The appellate court addressed the appealability of the judgment, which clearly was interlocutory in nature because it contemplated a later judicial resolution of disputed matters involving the partnership, as well as further action in partition of the real property. (Degnan, supra, 2 Cal.App.3d at p. 362.) The court determined that because there was no statutory authorization of an appeal from an interlocutory judgment in a partnership dissolution and accounting suit, that part of the judgment was not appealable. (Id. at pp. 362-363.) The part of the judgment that determined the partners' rights and interests in the real property and directed partition, however, was appealable, since an interlocutory judgment in partition actions is made appealable by statute. (Id. at p. 364.)
The appellate court concluded the judgment was severable and allowed a partial appeal from that portion of the judgment determining the partners jointly owned the real property and directing partition of the property. (Degnan, supra, 2 Cal.App.3d at pp. 364-365.) The court explained that to deny an appeal on that part of the judgment "[i]n effect it could preclude any appeal from the determination that the subject real property was joint property and thus subject to partition, for on a later appeal from the final judgment a partition sale may have placed the land, and hence the power to correct error in the determination that it was joint property, beyond the reach of the court." (Id. at p. 364.)
Similarly, here the trial court's finding in the phase one trial that the parties were cotenants was a determination of the parties' rights and interests in the property made appealable from the April 18, 2018 judgment of partition by section 904.1, subdivision (a)(9). To hold otherwise would in effect preclude any appeal from the determination that the parties' held title to the Boyd building as cotenants, rather than partners. An appeal from the final judgment, following sale of the property, would place the power to correct any error in this determination beyond the court's reach. Accordingly, we conclude the May 3, 2017 order is appealable as part of the April 18, 2018 judgment of partition and deny Martha's motion to dismiss. II. The Phase One Trial—Dissolution of the Partnership
Kenco contends the trial court erred in finding the Partnership had dissolved because the Partnership agreement expressly provided that in order to voluntarily withdraw from the Partnership, a partner had to provide written notice of an intent to withdraw, and Martha failed to produce any evidence J.H. provided such notice. Kenco argues that because there is no evidence of a written notice of withdrawal and no evidence of consideration to support an oral modification of the Partnership agreement, as required by Civil Code section 1698, "the only reasonable conclusion is that J.H. Boyd never withdrew from the partnership."
Section 4.03 of the Partnership agreement provides: "A Partner may voluntarily withdraw from the Partnership by giving the other Partner at least ninety (90) days written notice of his intent to do so."
As Martha points out, neither party requested a statement of decision. In the absence of such a statement, an appellate court will presume the trial court made all factual findings necessary to support the judgment for which substantial evidence exists in the record, i.e., the necessary findings of ultimate facts will be implied and the only appellate issue is whether substantial evidence supports the implied findings. (Shaw v. County of Santa Cruz (2008) 170 Cal.App.4th 229, 267.) Although the trial court's oral comments in rendering judgment may be valuable in showing the trial court's theory, they cannot be used to impeach the judgment on appeal. (Id. at p. 268.) In reviewing for substantial evidence, "[i]t is not our task to weigh conflicts and disputes in the evidence; that is the province of the trier of fact." (Howards v. Owens Corning (1999) 72 Cal.App.4th 621, 630.) Alternatively stated, we do not evaluate the credibility of the witnesses or otherwise reweigh the evidence. (Id. at p. 629.) Rather, "we defer to the trier of fact on issues of credibility." (Lenk v. Total-Western, Inc. (2001) 89 Cal.App.4th 959, 968.)
Kenco's argument rests on the premise that the trial court's decision was grounded on an improperly amended Partnership agreement. The trial court, however, did not find the agreement had been modified, but rather that the Partnership had dissolved by mutual agreement of the parties and the parties established a different relationship with respect to the Boyd building, namely, that of cotenants. That finding, as Martha asserts, is supported by substantial evidence. The co-ownership agreement, which J.H. signed, expressly states the Partnership dissolved as of December 31, 1990. At the same time J.H. signed the co-ownership agreement, both J.H. and Ken executed a grant deed transferring title of the Boyd building from the Partnership to themselves individually, and J.H. later transferred his interest to the Trust. In addition, J.H. and Ken stopped using the Partnership's name, J.H. Boyd & Son, and Ken began taking a management fee, which was not provided for in the Partnership agreement. Finally, the CPA for the Partnership confirmed he stopped filing tax returns for the Partnership after tax year 1990 and he had not prepared Schedule K-1's for J.H. or Kenco since 1990. While Ken denied that the Partnership had dissolved, the trial court was not required to accept his testimony and instead could rely on the actions of the parties in finding the Partnership was no longer in existence.
Since the Partnership dissolved by mutual agreement of the parties, J.H. was not required to provide written notice that he was voluntarily withdrawing from the Partnership agreement. Accordingly, the trial court did not err in finding the Partnership agreement was no longer valid. III. The Phase Two Trial—Partition by Sale and Award of Management Fees
Kenco contends the trial court erred in the phase two trial by ordering partition of the Boyd building by sale and ordering Kenco to reimburse the Trust for the management fees paid to Kenco since 1991.
A. General Principles Regarding Partition Actions
"A co-owner of real or personal property may bring an action for partition. (Code Civ. Proc., § 872.210.) 'The primary purpose of a partition suit is ... to partition the property, that is, to sever the unity of possession. [Citations.]' [Citation.] 'Partition is a remedy much favored by the law. The original purpose of partition was to permit cotenants to avoid the inconvenience and dissension arising from sharing joint possession of land. An additional reason to favor partition is the policy of facilitating transmission of title, thereby avoiding unreasonable restraints on the use and enjoyment of property.' " (LEG Investments v. Boxler (2010) 183 Cal.App.4th 484, 493.) While a partition action is of statutory origin, it is an equitable proceeding. (Cummings v. Dessel (2017) 13 Cal.App.5th 589, 596-597 (Cummings); see § 872.140 ["The court may, in all cases, order allowance, accounting, contribution, or other compensatory adjustment among the parties according to the principles of equity."].)
"If the court finds that the plaintiff is entitled to partition, it shall make an interlocutory judgment that determines the interests of the parties in the property and orders the partition of the property and, unless it is to be later determined, the manner of partition." (§ 872.720, subd. (a).) A partition may be in kind, i.e., physical division of the property or, "if the parties agree or the court concludes it 'would be more equitable,' the court may order the property sold and the proceeds divided among the parties." (Cummings, supra, 13 Cal.App.5th at p. 597.) If the court determines a sale of the property "would be more equitable than division of the property" (§ 872.820, subd. (b)), the court may order the property "sold at public auction or private sale," depending on which would be "more beneficial to the parties" (§ 873.520).
" 'As a rule, the law favors ... partition in kind, since this does not disturb the existing form of inheritance or compel a person to sell his property against his will.' " (Cummings, supra, 13 Cal.App.5th at p. 597; §§ 872.810, 872.820.) " 'The presumption is that land held in common tenancy can be equitably divided between the parties by allowing each a tract in severalty, equal to his interest in the whole, measured by value.' " (Cummings, at p. 597.) While that presumption continues, " '[i]n many modern transactions, sale of the property is preferable to physical division since the value of the divided parcels frequently will not equal the value of the whole parcel before division. Moreover, physical division may be impossible due to zoning restrictions or may be highly impractical....' " (Butte Creek Island Ranch v. Crim (1982) 136 Cal.App.3d 360, 365 (Butte Creek).)
The party who seeks a sale of the property, rather than a physical division, has the burden of proving it would be "more equitable" to sell the property rather than divide it. (Butte Creek, supra, 136 Cal.App.3d at p. 365; Williams v. Wells Fargo Bank & Union Trust Co. (1943) 56 Cal.App.2d 645, 647; §§ 872.810, 872.820.) To compel a sale, the party must show either: (1) a division into subparcels of equal value cannot be made, or (2) dividing the land would substantially diminish each party's interest, such that each cotenant's portion would be of substantially less value than that received on a sale. (Butte Creek, at pp. 366-367.)
To satisfy the first test, the party must show the land cannot be divided equally. (Butte Creek, supra, 136 Cal.App.3d at p. 366.) "This test is not met by evidence that a portion of the property is not equal to the whole, for that is always the case in a partition action. Nor is this test met by evidence that the land is not 'fungible' or uniform in character." (Ibid.) The second test is a "purely economic test" of "whether a partition in kind would result in a cotenant receiving a portion of the land which would be worth materially less than the share of the money which could be obtained through sale of the land as a whole." (Id. at p. 367.) No economic prejudice can be shown if the party demanding sale can receive a portion of the land through physical division which could be sold for a sum equal to the amount the party could realize through sale of the entire parcel. (Ibid.)
"The standard of review for an interlocutory judgment of partition is abuse of discretion." (Cummings, supra, 13 Cal.App.5th at p. 597.) "Under that standard, '[t]he trial court's "application of the law to the facts is reversible only if arbitrary and capricious." ' " (Ibid.) " '[A] disposition that rests on an error of law [also] constitutes an abuse of discretion.' " (Ibid.)
B. Partition by Sale
Applying the first test, the trial court found the property could not be divided equally because the adjacent parking lot could not be divided, which alone necessitated partition by sale. This finding is supported by substantial evidence. The Boyd building consists of four commercial buildings with tenants, all of whom require parking. It is undisputed that the adjacent parking lot cannot be divided; instead, the parties would need to agree to an easement for shared use and maintenance of that parking lot before the City would approve an application to divide the property. As Martha points out, given the significant history of animosity between the parties, it was not unreasonable for her to be unwilling to enter into any agreement with Ken or Kenco. As such, there is no agreement to share the parking lot.
Without the ability to divide the adjacent parking lot, it would have to be awarded to one party to the exclusion of the other. Such an award would necessarily result in an unequal division because it would leave the tenants in two buildings with limited parking. (See, e.g., Sting v. Beckham (1949) 94 Cal.App.2d 823 [trial court did not err in ordering partition by sale where dividing the land would have required an award of a water well to one party to the manifest prejudice of the other party, as the value of the well greatly exceeded the value of the remaining land].) The trial court reasonably could find that the parking lot, being indivisible yet inextricably linked to the Boyd building's overall value, rendered the property "so situated that a division into subparcels of equal value cannot be made." (Butte Creek, supra, 136 Cal.App.3d at p. 366.)
Kenco does not dispute the parking lot must be divided in order to create an equitable division. Kenco, however, asserts the trial court "erred in deciding that physical partition was impossible," as it could and should have created a "parking easement," which "is a legally recognized easement that would accomplish the very purposes of the partition and allow for a physical partition of the property."
At trial, the experts agreed the parking lot could not be divided, but the parties could agree to an easement for shared use of the parking lot. Poeschel explained the agreement usually was a private one that covered things such as the types of vehicles that could utilize the parking lot, liability insurance, and maintenance. In addition, the agreement would provide the tenants could not be unreasonably restricted in their use of the parking lot. Poeschel further explained the easement would be nonexclusive, which would open the parking lot up to guests and the public, and the City likely would require nonexclusive access to the lot.
In its posttrial brief, Kenco argued partition in kind was possible with respect to the adjacent parking lot. Noting that a referee appointed to carry out the property division was allowed by statute to create easements necessary to effectuate the purposes of the partition, Kenco asserted it could be given title to the adjacent parking lot and the referee could create an easement designating a number of parking spaces for the Trust's exclusive use.
In finding the property could not be divided equally, the trial court rejected Kenco's argument in favor of an easement, as it could not force one owner to enter into an agreement with the other, and it was obvious the parties did not get along and any such agreement would likely lead to more litigation. The evidence established that in order to divide the property, the City would require the parties to agree to a nonexclusive easement with respect to the parking lot. As Martha asserts, forcing the property owners into a contractual agreement would undermine " '[t]he primary purpose of a partition suit ... that is, to sever the unity of possession.' " (Cummings, supra, 13 Cal.App.5th at p. 596.)
None of the authorities Kenco cites support its contention that the trial court could have created an easement with respect to the parking lot absent the parties' agreement. Once the court orders division or sale of the property, it appoints a referee to carry out its order. (§ 873.010, subd. (a).) The referee may, if it would be to the advantage of interested parties, designate a portion of the property as a public or private way, road, or street, and also may recommend closing roads on the property and allocate the portion of the property occupied by those roads. (§ 873.080, subd. (a).) When division is ordered, the referee is required to divide the property and "allot the several portions to the parties, quality and quantity relatively considered, according to their interests in the property as determined in the interlocutory judgment." (§ 873.210.) The referee is required to file a report with the court which includes, among other things, "[a]ny recommendation as to opening and closing public and private ways, road, streets, and easements." (§ 873.280, subds. (a) & (b)(3).) The court may then confirm or modify the report and enter judgment of partition accordingly, or set aside the report and order a new one. (§ 873.290.)
Thus, a referee is statutorily authorized to create an easement for a private or public way when effecting a division of property. (Machado v. Title Guarantee & Trust Co. (1940) 15 Cal.2d 180, 184.) An easement has also been created that grants the owner of one divided parcel the right to obtain water from a creek flowing on the other owner's divided parcel and carry it away in pipes. (Parker v. Swett (1922) 188 Cal. 474, 478.) This does not mean, however, the court has the power to require parties to enter into an agreement for a nonexclusive easement, such as the one contemplated here.
Kenco contends when partitioning property, an easement may be granted for the benefit of one property owner to the other's detriment "so as to ensure that the benefiting party maintains the same rights it had prior to the partition," citing Mesmer v. Uharriet (1916) 174 Cal. 110, 112. That case, however, says no such thing and did not even involve creation of an easement on partition of the property. Instead, the case concerned the owner of one tract of land attempting to establish an easement by way of necessity over another owner's tract of land years after the two tracts were partitioned. (Id. at pp. 111-112.)
Kenco asserts the trial court could have created an exclusive easement for parking, citing Renden v. Geneva Development Corp. (1967) 253 Cal.App.2d 578 and Blackmore v. Powell (2007) 150 Cal.App.4th 1593. Neither case, however, involved a court-created easement when partitioning property. (Renden v. Geneva Development Corp., at pp. 580-581, 584 [parties created parking easements in existing parking area]; Blackmore v. Powell, at pp. 1596-1597, 1599 [interpretation of meaning of "easement for parking and garage purposes" that was created by a grant deed; appellate court upheld the trial court's finding that the easement authorized its holder to build a garage for the holder's exclusive use].)
Merely because it is possible for parties to create an easement for parking does not mean the trial court could have required the parties to enter into an agreement for a nonexclusive easement. While Kenco asserts the trial court could have partitioned the Boyd building by awarding the parking lot to one of the parties and granting the other an exclusive easement to a portion of it, this, however, is still not an equitable division, as one party is being given title to more property than the other. Moreover, such an easement was not possible, as Poeschel testified the City likely would require any easement to be nonexclusive.
In sum, Kenco has not shown that the trial court abused its discretion when it found the property could not be divided equally because the adjacent parking lot could not be divided. Therefore, the trial court did not err in ordering partition by sale. We need not address the other basis the trial court cited for its order.
We note that Martha contends it was proper for the court to order the Boyd building sold because the parties "affirmatively agreed" it should be sold, not partitioned, citing to her testimony that her request was to have the property partitioned by sale and Ken's testimony that he did not have "an objection to a public sale." This testimony, however, was taken out of context. Instead, it appears Ken did not object to a sale of the property because he intended to purchase it. Through his other testimony, he maintained the property should be partitioned in kind.
C. The Management Fees
Kenco challenges both the trial court's ability to award the management fees and its decision to award the fees as an offset to the Trust's share of the sales proceeds.
1. The Trial Court's Ability to Award Management Fees
Kenco contends the trial court lacked "jurisdiction" to order reimbursement of the management fees because the cross-complaint did not allege Kenco had been taking unauthorized management fees. Kenco asserts the request for reimbursement of management fees was made at the time of trial and had it been aware the legitimacy of those fees was being called into question, it could have produced evidence to show Ken had an agreement with J.H. to collect fees for managing the property. Kenco concedes the trial court has broad powers under section 872.140, but asserts those powers do not extend "beyond the jurisdictional limitations of the issues raised in the complaint," citing Finney v. Gomez (2003) 111 Cal.App.4th 527 (Finney).
As a threshold matter, we address Martha's contention that Kenco forfeited these issues by failing to either object to the statement of decision or ask the trial court to address them. Citing the doctrine of implied findings, Martha asserts because Kenco failed to raise the issues of the complaint's lack of allegations and the lack of notice in its posttrial brief, and these issues were not addressed in the statement of decision, Kenco cannot raise the issues here.
Martha misapprehends the reach of the doctrine of implied findings. "[I]f a party fails to bring omissions or ambiguities in the statement of decision's factual findings to the trial court's attention, then 'that party waives the right to claim on appeal that the statement was deficient in these regards,' and the appellate court will infer the trial court made implied factual findings to support the judgment." (Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 59.) "In contrast, a party does not waive objections to legal errors on the face of the statement of decision by failing to respond to it." (Ibid.) Because Kenco did not object to the statement of decision, we may consider legal errors that appear on the face of the decision and whether the trial court's express or implied findings of fact are supported by substantial evidence. (Ibid.) Thus, we are not foreclosed from reviewing Kenco's claims of error merely because it failed to object to the statement of decision.
Kenco raised Martha's failure to allege an offset for management fees in its motions in limine filed in both phases of the trial. In the phase one trial, Kenco filed a motion in limine to exclude any evidence relating to money Kenco or Ken may have received relating to the Boyd building, which Martha sought as an offset. Kenco argued such evidence was irrelevant to its contractual right to purchase the Boyd building. In addition, Martha's answer failed to allege offset as an affirmative defense and she did not file a cross-complaint seeking monetary damages. When addressing the in limine motions at the outset of the phase one trial, Kenco's attorney agreed with the trial court that given the bifurcation of the complaint and cross-complaint, the motion in limine was irrelevant to the phase one trial.
Kenco refiled the motion in limine in the phase two trial, asking the trial court to exclude evidence relating to fees Kenco or Ken may have charged for management of the Boyd building, which Kenco expected Martha to claim as an offset in the partition action. Kenco argued the evidence was irrelevant to partition of the Boyd building, and the cross-complaint did not mention any malfeasance in regards to Kenco's management of the Boyd building. Kenco argued it would be unduly prejudiced if Martha were able to present this evidence, because Kenco had not been afforded an opportunity to answer such allegations or present an adequate defense.
In arguing the motion in limine, Kenco's attorney contended it would be "highly prejudicial" for Martha to present such evidence, as Kenco did not have notice of the claim and therefore it was not able to gather evidence to contradict the claim. Martha's attorney argued the claim was in the cross-complaint under the prayer for relief, the claim for management fees was based on the absence of a written agreement for such fees to be taken, and this was an adjustment within the court's equitable powers. The trial court denied the motion.
It is undisputed that the cross-complaint does not contain any factual allegations regarding Kenco's management of the Boyd building or its collection of management fees. Martha, however, asserts the prayer for relief in the cross-complaint sufficiently encompassed her offset claim. Martha points out the prayer states she sought, among other things, the "[d]istribution of the proceeds of sale according to Code of Civil Procedure §§ 873.810-873.850," and "[s]uch other relief as deemed proper by this Court or as may be required by justice." Martha reasons that because section 873.820, subdivision (d) provides for the "[d]istribution of the residue among the parties in proportion to their shares as determined by the court" (italics added), and section 872.140 allows the court to "order allowance, accounting, contribution, or other compensatory adjustment among the parties according to the principles of equity," the trial court's finding that the Trust was entitled to an offset for the management fees was consistent with the issues raised in the complaint.
See, e.g., Furia v. Helm (2003) 111 Cal.App.4th 945, 957 ["the court may grant the plaintiff any relief consistent with the case made by the complaint and embraced within the issues"]; Wright v. Rogers (1959) 172 Cal.App.2d 349, 367-368 [the court's jurisdiction to grant any particular relief does not depend on the prayer but on the issues raised in the complaint and "any relief consistent with the issues raised may be granted regardless of the prayer"].
Kenco does not dispute that the trial court had the power to order an offset for the management fees pursuant to section 872.140, and to include that offset in its distribution of the sale proceeds pursuant to the parties' proportionate shares. Kenco's complaint is that without the factual allegations concerning the claimed offset, its due process rights were violated because it did not have notice Martha would attempt to obtain an offset for the management fees on the ground no agreement for such fees existed. The record established, however, that Kenco did have actual notice of Martha's offset claim well before trial, and therefore Kenco cannot show prejudice from any failure to include allegations concerning the offset in the cross-complaint.
Kenco does assert the court's powers under section 872.140 are limited to the cross-complaint's allegations. It does not cite any authority, however, to support this proposition. Its reliance on Finney, supra, 111 Cal.App.4th 527 is misplaced, as that case specifically addressed the ability to recover damages beyond those alleged in the complaint on a default judgment. In Finney, the appellate court held that section 580 limited the monetary relief available on a default judgment in a partition action to the specific dollar amount requested in the complaint. (Finney, at p. 534.) Thus, while a plaintiff may generally be entitled to an accounting when requesting a partition under section 872.140, nothing in that provision allowed the court to "dispense with the notice requirements provided for in default judgments by section 580." (Finney, at p. 539.) Since the plaintiff did not provide sufficient notice to the defendant he was seeking an accounting, as the complaint and prayer did not request such relief, the plaintiff's damages were limited to the specific amount demanded in the complaint. (Ibid.)
As set forth above, at the phase one trial Kenco filed a motion in limine to preclude Martha from offering any evidence "regarding any monetary offsets from earnings" of Kenco or Ken for money they may have received relating to the Boyd building, in part because Martha failed to seek such relief in her cross-complaint or answer to the complaint. During Ken's testimony at the phase one trial, Ken confirmed Kenco had been taking a monthly management fee since 1991 and claimed it was authorized. When asked where the Partnership agreement said Kenco was authorized to take a management fee, Ken testified he and J.H. "agreed that for the work that I was going to do, that a fee of $950 was reasonable. And I did that for 25 years and reported it every year, and my father has never objected to that. This is something only Martha is objecting to." Ken confirmed he was aware Martha was objecting to him taking a management fee and when asked if he became aware "[m]ore than a year ago," Ken responded, "[s]omewhere around there."
When asked to confirm whether he continued to take the management fee over Martha's objection, Ken's attorney objected based on relevance, stating: "We've already discussed the issue of offsets, Your Honor, and that we've agreed that would be postponed until the second part of this case. I don't see any relevance in the taking of a management fee .... Relevance." The trial court overruled the objection and Ken answered, "Yes." Ken was then asked if there was anything in writing, other than the oral agreement with his father, that authorized Kenco to take a $950 per month management fee. Ken responded there was nothing between he and Martha, and also confirmed there was nothing in writing between he and J.H. as trustee. Asked a different way, Ken confirmed there was nothing in writing in which Martha authorized or his father expressly consented to Kenco taking the management fee.
Thus, Kenco knew in February 2017 that Martha was claiming the management fees as an offset in the partition action and she objected to Kenco taking the fees. While Kenco now claims it did not know Martha was seeking reimbursement of the fees that were collected, this is belied by Kenco's attorney's statement to the court that the issue of offset for management fees would be addressed in the phase two trial. Kenco also claims it did not know Martha would claim an agreement for such fees did not exist. Kenco knew, however, the authority for such fees would be called into question based on the questions posed to Ken in the phase one trial. At that time, Ken testified the agreement for management fees was an oral one and there was nothing in writing authorizing Kenco to take $950 per month in management fees. Since Kenco was aware of Martha's position at least as of the phase one trial, Kenco had about 10 months between February 2017 and the start of the phase two trial to compile whatever evidence it needed to defend its position about taking management fees. Given the record, it is disingenuous for Kenco to now claim that it "did not know that this remedy was being sought at trial," and it "was deprived of the opportunity to gather and submit the evidence to support its position."
Since Kenco had notice that Martha was claiming offset for the management fees, the trial court did not err in denying its motion in limine and exercising its power to award an offset for such fees.
2. The Award of Management Fees
Finally, Kenco contends the trial court erred in finding no specific agreement authorizing Kenco to receive a $950 per month management fee had been adduced at trial. Kenco asserts the trial court "failed to notice" the evidence of such an agreement, as Kenco's and J.H.'s course of conduct established an implied agreement to take a monthly management fee of $950, and Mattes confirmed the existence of such an agreement.
When Kenco began taking the management fee in 1991, the Partnership was dissolved and Kenco and J.H. held title to the Boyd building as joint tenants. " 'The rule is clear ... that in the absence of an agreement, express or implied, a cotenant is not entitled to compensation for services rendered in the care and management of the cotenancy property.' " (Combs v. Ritter (1950) 100 Cal.App.2d 315, 317; see Broffman v. Newman (1989) 213 Cal.App.3d 252, 263-264; Steeve v. Yaeger (1956) 145 Cal.App.2d 455, 464.) " ' "An exception to this rule exists where one cotenant performs services which neither the law nor the relation of cotenancy imposes upon him. But leasing the property, collecting rentals, and looking after repairs do not fall within the exception." ' " (Combs v. Ritter, at p. 317.)
Kenco had no admissible evidence of an express agreement to take management fees. Ken admitted there was no written agreement that permitted Kenco to take a management fee. While Ken claimed he had an oral agreement with J.H., the trial court ruled in the phase two trial any evidence of an oral agreement was inadmissible under Evidence Code section 1261, since J.H. was deceased. Kenco claims Mattes confirmed Ken had an agreement with J.H. that allowed Kenco to take the management fee. The cited testimony, however, established only Mattes's belief that one partner can take a management fee from the other "[b]y an agreement." It did not establish the existence of an agreement between Kenco and J.H. While the evidence established Ken took the $950 per month management fee for at least 26 years, which was reported on J.H.'s and Kenco's tax returns, the trial court reasonably could find this did not establish an actual agreement for Kenco to take that amount in management fees.
Ken does not challenge the trial court's evidentiary ruling on appeal.
In sum, the trial court did not err in finding there was no agreement for Kenco to take the management fee and therefore Martha was entitled to an offset of those fees.
DISPOSITION
The May 3, 2017 order and April 18, 2018 judgment are affirmed. Costs on appeal are awarded to respondent.
/s/_________
DE SANTOS, J. WE CONCUR: /s/_________
PEÑA, Acting P.J. /s/_________
SMITH, J.