Eng v. Brown
21 Cal. App. 5th 675
Cal. Ct. App. 5th2018Background
- Eng, Levy, and Brown agreed to buy the Tin Fish Gaslamp; ownership split 56.667% Brown, 33.333% Levy, 10% Eng. Escrow closed after B.L.E. Fish, Inc. (an S corporation) was formed and purchased the restaurant.
- B.L.E. Fish held corporate meetings, issued shares to the three in the agreed proportions, had a management agreement designating Brown and Levy as officers, paid salaries/management fees, and made shareholder distributions.
- Eng sued alleging an oral partnership/joint venture and breach of fiduciary duty (constructive fraud), alleging Brown and Levy reduced his distributions through excessive salaries/fees. He dismissed his derivative corporate claim pre-trial.
- At trial the jury found a partnership/joint venture existed but that it was terminated/superseded by formation of B.L.E. Fish; judgment entered for defendants.
- On appeal Eng challenged multiple rulings: denial of his motion to find partnership as matter of law and to exclude evidence of supersession; allowance of defendants’ amendment to plead supersession as an affirmative defense; denial of his directed verdict motion; certain jury instructions and special verdict wording; denial of leave to amend to plead corporate-fiduciary claims; admission of defense expert testimony; and denial of juror-contact disclosure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Court should find partnership as a matter of law (deny jury question) | Eng: undisputed facts established partnership pre-incorporation | Brown/Levy: evidence supports corporate formation from the outset; fact question exists | Denied — partnership formation is a question of fact; no reversible error in letting jury decide |
| Exclude evidence/argument that corporation superseded partnership (not pled) | Eng: supersession not pled as affirmative defense, so should be excluded | Brown/Levy: supersession was litigated earlier and is part of the case; can be pleaded/amended | Denied — court later treated supersession as affirmative defense and allowed amendment; no prejudice shown |
| Allow amendment to plead supersession during trial | Eng: amendment unfair, contradicts defendants’ prior denials | Brown/Levy: defense was asserted throughout; amendment corrects legal theory, not new facts | Allowed — no abuse of discretion; amendment merely formalized an existing defense and caused no prejudice |
| Directed verdict on supersession (plaintiff sought) | Eng: defendants failed to prove corporation superseded partnership | Brown/Levy: ample evidence of incorporation and corporate operation; burden on Eng to show preincorporation agreement to preserve partnership | Denied — substantial evidence supported supersession; directed verdict improper |
| Jury instruction / special verdict wording re intent to terminate partnership | Eng: jury should be instructed that defendants must prove intent to terminate on incorporation | Defs: law requires proof of incorporation; if incorporation shown, plaintiff must show preincorporation agreement to preserve partnership | Denied — plaintiff’s proposed instruction misstated law; incorporation generally terminates partnership unless proponent proves survival intent |
| Court response to juror question and post-verdict juror contact | Eng: court’s answer confused jurors; requested juror contact after verdict to investigate confusion | Defs: court’s response cited correct instructions; plaintiff failed to seek juror info earlier and did not show good cause | Denied — court’s response appropriate; denial of juror-contact disclosure not an abuse of discretion (no diligence/good cause shown) |
Key Cases Cited
- Persson v. Smart Inventions, Inc., 125 Cal.App.4th 1141 (Cal. Ct. App. 2005) (generally, a partnership does not survive incorporation absent a preincorporation agreement or evidence corporate form was disregarded)
- Elsbach v. Mulligan, 58 Cal.App.2d 354 (Cal. Ct. App. 1943) (recognizes exception where corporation is mere agency and preincorporation agreement preserves partner rights)
- Mindenberg v. Carmel Film Productions, Inc., 132 Cal.App.2d 598 (Cal. Ct. App. 1955) (nonsuit affirmed where corporation promptly formed and corporate formalities respected; no evidence partnership continued)
- Cavasso v. Downey, 45 Cal.App. 780 (Cal. Ct. App. 1920) (insufficient proof that partnership continued after incorporation)
- Asamen v. Thompson, 55 Cal.App.2d 661 (Cal. Ct. App. 1942) (party alleging incorporation/supersession must prove it to rebut continuing partnership presumption)
- Newing v. Cheatham, 15 Cal.3d 351 (Cal. 1975) (legal standard for directed verdict; review considers evidence in light most favorable to nonmoving party)