Alki Partners, LP v. DB Fund Services, LLC
4 Cal. App. 5th 574
| Cal. Ct. App. | 2016Background
- Plaintiffs (Alki Partners and assignee Bullfrog) sued their fund administrator (DB Fund Services/DB Hedgeworks, "Hedgeworks") after large losses following failed trades in RMDX and an aborted settlement with counterparty Vatas.
- Under the operative Fund Administration Agreement (Jan. 1, 2002), the client (Alki) — not Hedgeworks — had primary responsibility to determine fair value of illiquid assets when market quotations were not indicative. Hedgeworks used client-provided values to compute NAV and prepare monthly investor statements.
- In Feb.–June 2008 Alki (through its GP Wilfong) instructed Hedgeworks not to provide asset values, to suspend issuing NAVs, and to refer investor inquiries to Wilfong because the Vatas settlement was confidential and unsettled.
- Hedgeworks stopped issuing statements and later resigned effective immediately with Alki’s consent. Plaintiffs alleged breach of contract for (1) failing to value assets/calculate NAV, (2) not advising investors of NAV or reasons for not issuing NAVs, and (3) failing to respond to investor inquiries.
- The trial court granted summary judgment for Hedgeworks (condition precedent: Alki failed to provide values; waiver/estoppel because Alki instructed non-disclosure; limitation of liability clause) and later awarded Hedgeworks $3,027,237.96 in attorney fees under a contractual indemnity clause. Plaintiffs appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hedgeworks breached by failing to calculate/distribute NAVs | Alki says Hedgeworks had a contractual duty to value assets and issue NAVs; triable issue exists | Hedgeworks says it could not calculate NAV without client-provided valuations and Section 2(d) places valuation on Client; failure of condition precedent excuses performance | Held for Hedgeworks: undisputed evidence shows Alki had valuation responsibility and withheld values, excusing Hedgeworks’ NAV duties |
| Whether Hedgeworks breached by not communicating with investors / explaining NAV suspension | Plaintiffs say administrator must protect investors and disclose inability to calculate NAVs despite Alki’s instructions | Hedgeworks says Agreement limits investor communications to when Client instructs; Alki expressly instructed Hedgeworks not to communicate | Held for Hedgeworks: Agreement limited communications to client instructions; Alki instructed non-disclosure, so no breach (and waiver/estoppel) |
| Whether immediate resignation without 60 days’ notice breached contract | Plaintiffs assert Hedgeworks breached by terminating immediately | Hedgeworks notes Alki expressly consented in writing to immediate termination; complaint did not plead this breach theory | Held for Hedgeworks: Alki agreed to immediate resignation; issue not pleaded; summary judgment proper |
| Whether the indemnity clause authorized prevailing-party attorney fees in this breach action | Plaintiffs argued fee recovery required prevailing on cross-complaint for indemnity or clause does not permit fees on contract action | Hedgeworks contended the indemnity/"standard of care" clause allowed fee recovery against Alki for costs resulting from performance/nonperformance | Held for Plaintiffs (reversal on fees): The clause is a standard third-party indemnity and does not expressly provide for attorney fees in an action between the contracting parties; trial court erred in awarding fees |
Key Cases Cited
- Carr Business Enterprises, Inc. v. City of Chowchilla, 166 Cal. App. 4th 14 (Cal. Ct. App. 2008) (indemnity language construed as third-party defense obligation, not a prevailing-party fee clause)
- Myers Building Industries, Ltd. v. Interface Technology, Inc., 13 Cal. App. 4th 949 (Cal. Ct. App. 1993) (indemnity for third-party claims does not imply attorney fees for actions between contracting parties)
- Rideau v. Stewart Title of California, Inc., 235 Cal. App. 4th 1286 (Cal. Ct. App. 2015) (distinguishing third-party indemnity from contractual fee-shifting for disputes between parties)
- Sutherland v. Barclays American/Mortgage Corp., 53 Cal. App. 4th 299 (Cal. Ct. App. 1997) (party cannot treat earlier consent to delay as later breach when other party relied on that consent)
Disposition: Summary judgment affirmed in favor of Hedgeworks on the breach claims; award of $3,027,237.96 in attorney fees reversed and remanded with directions to deny the fee motion.