Thursday, February 14, 2013

Enea v. Superior Court case brief

Enea v. Superior Court case brief summary
132 Cal. App. 4th 1559

The partner sued the real parties in interest, which were his former partners, for breaches of fiduciary duties that consisted primarily of renting partnership property to themselves at less than its fair market value.
The superior court summarily adjudicated the cause of action against petitioner.
The petitioner sought a writ of mandate to set aside the order.

-Enea (plaintiff) sued William and Claudia Daniels (defendants), and his former partners, for breaching their fiduciary duties by renting the partnership's sole asset which was the building that had been converted from a residence into offices.
-The trial court granted the Daniels’ motion for summary judgment.
-The trial court found that California law authorized such conduct, that the Daniels had no duty to collect fair market value rent in the absence of a contract requiring them to do so, and that the primary purpose of the partnership was to hold the property for later sale as opposed to collecting market value rent.
-The court held that the trial court erred in granting the real parties' motion for summary adjudication because they were not categorically entitled to lease partnership property at less than it could yield in the open market.


Are D’s able to lease partnership property to selves or anyone else at less than 
fair market value?

NO -- The partnership is a fiduciary relationship, and partners may not take advantages for themselves at the expense of the partnership.

-The cost to the partnership was the additional rent rendered unavailable for collection from an independent tenant willing to pay the property’s full value.


-The court rejected the real parties' argument which stated that the Corporations Code, §16404, provided the exclusive statement of a partner's obligation to the partnership and to other partners.
-In adopting the RUPA, the California legislature left the articulation of the duty of loyalty to traditional common law processes.
-Further, even if the statutory enumeration of duties were exclusive, it would not entitle the real parties to rent property that belonged to the partnership to themselves at below-market rates.
Section 16404(e), did not empower the real parties to occupy partnership property for their own exclusive benefit at partnership expense, in effect converting partnership assets to their own and appropriating the value it would otherwise have realized as distributable profits.

OUTCOME: The court directed the superior court to set aside its order and deny the motion.

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