American Master Lease LLC v. Idanta Partners, Ltd.
225 Cal. App. 4th 1451
| Cal. Ct. App. | 2014Background
- AML (American Master Lease LLC) developed a real-estate FORT business and had an Operating Agreement with a noncompete; Neal Roberts was majority member and manager. Three members (Andrews, Runnels, Franklin) formed the AML Operating Group with operational control.
- The Operating Group secretly formed FORT Properties, Inc. (FPI) in 2004, obtained a nonexclusive license to AML’s business method, and later conducted FORT transactions without AML; the Dunns/Idanta financed FPI and purchased preferred FPI stock.
- AML’s counsel notified Idanta/Dunns in September–October 2004 that the license and FPI transaction were unauthorized and possibly a breach of fiduciary duty; FPI nonetheless executed transactions and defendants received interest and later sold their FPI stock in June 2007 for roughly $5.8 million (disputed collection of full amount).
- AML sued (2007) for aiding and abetting breach of fiduciary duty, interference with contract, unjust enrichment, and related claims. After arbitration with the Operating Group, AML proceeded against the Dunns/Idanta.
- A jury found defendants liable for aiding and abetting breaches by the Operating Group and awarded disgorgement/unjust enrichment of $7,075,891 (the exact figure AML’s expert computed as gross proceeds). Trial court denied JMOL and new trial; appeal followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a non-fiduciary can be liable for aiding and abetting a breach of fiduciary duty | AML: Aider/abettor need not owe the plaintiff a fiduciary duty so long as it knowingly and substantially assisted the breach | Dunn/Idanta: Aider must owe an independent duty to plaintiff, as with civil conspiracy | Court: Yes — aiding and abetting can be imposed on a non-fiduciary who knowingly and substantially assists another’s breach (distinguishing conspiracy) |
| Statute of limitations applicable to aiding and abetting a breach of fiduciary duty | AML: Four-year catchall (or three years if fraud) applies; action timely filed | Defendants: Two-year limitations for interference with contract applies and bars the claim | Court: Limit equals underlying fiduciary claim (three years for fraud, four otherwise); AML’s claim timely filed within three years |
| Availability of restitutionary remedies (disgorgement/constructive trust) against aiders and abettors | AML: Unjust enrichment/disgorgement available to strip wrongdoers of profit; constructive trust appropriate remedy | Defendants: Equitable remedies limited to fiduciary, not aider; jury cannot award disgorgement/constructive trust here | Court: Restitutionary disgorgement/unjust enrichment are available against aiders and abettors; but constructive trust is an equitable remedy for the court, not the jury (instruction error) |
| Proper measure and timing of restitution (what amount must be disgorged) | AML: Jury may award the defendants’ benefits as computed (AML relied on gross proceeds figure) | Defendants: Restitution must be net profit attributable to the wrong; jury must consider purchase price, subsequent payments actually received, expenses, collectability, and other offsets | Court: Measure is net profit attributable to the wrong (disgorgement); trial court erred by instructing jury to value benefits only at time acquired and by forbidding offsets — prejudicial; new trial limited to amount of unjust enrichment ordered |
Key Cases Cited
- Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 7 Cal.4th 503 (1994) (civil conspiracy requires conspirator be legally capable of committing the tort; conspirator must owe duty to plaintiff)
- Casey v. U.S. Bank Nat. Assn., 127 Cal.App.4th 1138 (2005) (elements of aiding and abetting; requires actual knowledge and substantial assistance)
- Berg & Berg Enterprises, LLC v. Sherwood Partners, Inc., 131 Cal.App.4th 802 (2005) (distinguishes aiding and abetting from conspiracy; aider must consciously decide to participate)
- County of San Bernardino v. Walsh, 158 Cal.App.4th 533 (2007) (disgorgement appropriate for profits from breach of fiduciary duty and for third-party participants)
- Saunders v. Superior Court, 27 Cal.App.4th 832 (1994) (California follows Restatement formulation for aiding and abetting liability)
- Uzyel v. Kadisha, 188 Cal.App.4th 866 (2010) (party seeking disgorgement must reasonably approximate wrongful gain; defendant may show deductions)
- Ward v. Taggart, 51 Cal.2d 736 (1959) (wrongdoer’s secret profit recoverable; transactional costs treated differently from purchase price)
- Elliott v. Elliott, 231 Cal.App.2d 205 (1964) (in valuing assets for equitable remedies, trier must consider collectability and solvency when determining true value)
Decision: Affirmed in part, reversed in part; new trial ordered solely on amount of defendants’ unjust enrichment (retrial limited to valuation/disgorgement calculation).