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 Post subject: FT - Bookstein v. Gross (11/2/2004)
PostPosted: Thu Feb 26, 2009 6:39 pm 

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Harvey Bookstein v. Barry Gross,
No. B167486 (Cal.App. 11/02/2004)


November 2, 2004, Filed


PRIOR HISTORY: APPEALS from a judgment of the Superior Court of Los Angeles County Nos. BC235937, BC241869. Judith M. Ashmann, Andria K. Richey, Judges.

DISPOSITION: Affirmed. The judgment is affirmed.

COUNSEL: Schneider & Warren, Stephen A. Schneider, Stacy N. Schnaid for Plaintiff and Appellant.

Schreiber & Schreiber, Inc., Edwin C. Schreiber, Eric A. Schreiber for Defendant and Appellant.

JUDGES: BOREN, P.J.; NOTT, J., DOI TODD, J. concurred.


OPINION: The assignee of an interest in a limited partnership has sued one of the limited partners on various theories. The trial court gave judgment to the limited partner, ruling against the assignee on all of his claims. We affirm because the assignee has, as to each cause of action, either failed to state a claim or failed to show a triable issue of material fact, as a matter of law. We affirm the court's judgment on the cross-complaint [*2] for the same reasons.


The Partnership

The parties to this dispute had interests in a limited partnership, the Wilshire Stanley Company (the partnership), formed in 1977. The partnership's sole asset was a commercial building in Beverly Hills. The partners and their respective interests in the partnership were: respondent Barry Gross (Barry) (8.085 percent); Harold Gross (Harold) (10.065 percent); Lori Gross Abramowitz (Lori) (8.085 percent); the Sydney and Sarah Gross Trust (the Trust) (72.765 percent); and the acting general partner Gross Enterprises, Inc. (GEI) (1 percent). n1 The Gross family members and the Trust are the shareholders of GEI, and Barry serves as its president. Family matriarch Sarah Gross (Sarah) and Barry are cotrustees of the revocable Trust.

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n1 This opinion uses the first names of the Gross family for the sake of convenience.

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Appellant Harvey Bookstein possessed an interest of 8.085 percent in the profits generated by the partnership; however, Bookstein was never [*3] admitted into the partnership, which requires the unanimous written consent of the partners. Rather, Bookstein's interest is in the nature of a gratuitous assignment from the Trust, in 1979, affording him the right--through the Trust--to receive a share of the partnership profits. The assignment denied Bookstein the right to acquire information about the partnership or to inspect the partnership books.

Bookstein's 1993 Lawsuit and 1995 Settlement

In 1993, Bookstein sued the Trust and Barry for breach of fiduciary duty. Barry was sued both individually and in his capacity as a cotrustee of the Trust. A settlement was reached in May 1995. The Trust conceded that it received cash from the partnership. The Trust agreed to execute a $ 575,448 promissory note in favor of Bookstein, reflecting Bookstein's assigned 8.085 percent interest in partnership distributions received by the Trust. The promissory note to Bookstein was secured by the Trust's entire interest in the partnership. The Trust also executed a promissory note in favor of the partnership for $ 7.1 million, plus interest. The note to the partnership specifies that all usual partnership disbursements to the [*4] Trust will instead be used to pay off the Trust's debt.

The Trust defaulted on its promissory note to Bookstein. Bookstein obtained a money judgment against the Trust, due to the default. The judgment entitled Bookstein to foreclose on security granted to him by the Trust, and in 1999, he thereby acquired all of the Trust's 72 percent interest in the partnership. Despite his interest in the partnership, Bookstein was still not a limited partner. Bookstein obtained a charging order from the superior court commanding the partnership to pay any money due to the Trust directly to Bookstein, until the Trust's debt to Bookstein was repaid.

Bookstein's Current Lawsuit

Bookstein sued the partners. He alleges 10 causes of action, seeking: to set aside a fraudulent transfer; to establish a constructive trust; injunctive relief; an accounting; declaratory relief; and damages for breach of fiduciary duty and for breach of contract. Bookstein challenges the Trust's decision to transfer notes evidencing loans made to the Gross children (Barry, Harold and Lori) to Sarah, who then forgave the debts. He alleges that this constitutes a fraudulent transfer of assets. Bookstein claims [*5] that the partners breached their fiduciary duty by selling the partnership's sole asset (its office building) in 2000, and failing to account for Bookstein's 72 percent share of the proceeds from the sale. Bookstein alleges that Barry breached the 1995 settlement agreement by failing to pay Bookstein his share of partnership distributions and by failing to provide Bookstein with the partnership tax returns.

Bookstein reached a settlement with Lori, Sarah, and Harold in November 2000, when they agreed to pay Bookstein $ 535,706. Sarah agreed to transfer to Bookstein all of her right, title and interest in the promissory notes executed by her children, with no warranty as to the enforceability or collectibility of the notes. Barry did not participate in the 2000 settlement, so the case continues as to him alone.

Barry filed a cross-complaint against Bookstein, alleging that Bookstein induced Lori and Harold to breach an agreement between Barry and his siblings, thereby interfering with the Gross family's contractual relations.

The Demurrers

Barry demurred to Bookstein's amended pleading. The court sustained without leave to amend the demurrers to the second (constructive [*6] trust), third (injunctive relief), and fifth (accounting) causes of action. The demurrers were overruled as to the remaining causes of action.

Motion For Summary Adjudication

Barry sought summary adjudication of Bookstein's claims. He declares that he executed a $ 2.29 million promissory note in 1992 in favor of the Trust, and that the Trust assigned all right, title and interest in the note to Sarah in 1997, at her request. It is undisputed that Sarah took the notes out of the Trust, pursuant to a written assignment, so that she could deal with them separately as to each child. The Trust gives Sarah the right to withdraw any and all assets, and to amend or revoke the Trust.

In 1998, Sarah informed Barry that she would never enforce promissory notes against her children and did not expect to be paid. She then forgave the notes from Barry and her other children. Barry declared that his mother delivered his note to him, whereupon he destroyed it. There is no documentation: Sarah forgave the debt orally.

Barry maintained that when the partnership sold its office building in 2000, it distributed $ 728,697 to Harold and $ 584,227 each to Lori and Barry. No distribution [*7] was made to Bookstein because Bookstein--as assignee of the Trust--took his share subject to the Trust's $ 7.1 million debt to the partnership. With the offset for this debt, Bookstein was entitled to nothing from the sale of the building. Nevertheless, the partners agreed to place $ 584,227 of the sale proceeds in an account, in anticipation of litigation by Bookstein.

Bookstein countered that Sarah gave conflicting testimony regarding the disposition of the promissory notes. Despite Sarah's 1999 testimony that she forgave the notes, she testified at a deposition in January 2001 that she never relinquished the notes or forgave them. Moreover, even if Barry and Sarah, as cotrustees, transferred the promissory notes out of the Trust and made a gift of them, this amounted to a fraudulent conveyance that rendered the Trust insolvent and unable to satisfy a creditor like Bookstein. Bookstein contended that Barry is personally liable for intentional or negligent misconduct as trustee, and as the alter ego of the general partner GEI.

The Trial Court's Ruling

The trial court granted Barry's motion for summary adjudication. The court found no triable issue as to a fraudulent [*8] transfer of the promissory notes to Sarah, inasmuch as Sarah had full power to remove any and all assets from the Trust, without Barry's consent. Therefore, Barry cannot be liable for the transfer of the notes or for Sarah's decision to forgive them. Furthermore, Bookstein acquired all right and title to the notes in his settlement with Sarah, so there is no transfer to set aside, now that the creditor possesses the notes.

The court found no triable issue as to Bookstein's claim for breach of fiduciary duty. Bookstein is not a member of the partnership and his interest in partnership disbursements--as an assignee of the Trust--is limited and cancelled out by the Trust's $ 7.1 million debt to the partnership. The court rejected Bookstein's claims for declaratory relief, injunction relief and constructive trust. As to Bookstein's claim for breach of a promissory note, the court found that Barry had a valid extension on the note until 2004; therefore, the claim was not ripe because the note had not matured, and a suit cannot be maintained on a debt that is not yet due.

Motion For Summary Judgment

Barry sought summary judgment on Bookstein's last remaining claim, for breach [*9] of the 1995 settlement agreement. The alleged breaches were that Bookstein did not receive his share of partnership distributions, and that he did not receive his partnership tax information in a timely manner. Barry argued that he had no personal responsibility, as a limited partner or as a trustee, to make distributions to Bookstein or provide Bookstein with tax information. Moreover, the court had already found in its ruling on summary adjudication that Bookstein's interest in partnership disbursements was limited and indeed cancelled out by the Trust's $ 7.1 million debt to the partnership. Thus, Bookstein was not entitled to recover any distributions from the partnership, as his interest was no greater than that of the Trust.

Barry also sought summary judgment on his cross-complaint for intentional interference with contract. Barry, Harold and Lori had a written contract whereby it was agreed that a $ 584,227 litigation fund would be set up with part of the proceeds from the sale of the partnership office building, to fight Bookstein. If Bookstein was unable to prevail in his claims against the partners, the litigation fund would be divided up among the partners. Bookstein interfered [*10] with this arrangement by inducing Lori and Harold to pay him $ 535,706 from the litigation fund, thereby depriving Barry of his share.

Bookstein asserted that Barry is individually liable to Bookstein for any violations of the 1995 settlement agreement: Barry signed the settlement agreement individually and as a cotrustee. The settlement specifies that all future disbursements shall be made to Bookstein when made to the partners on a pro rata basis in accordance with each partner's percentage interest. Despite this promise, Barry distributed approximately $ 20,000 to each of the partners in September 1999. Bookstein did not receive a distribution. Barry also distributed the proceeds from the sale of the partnership's office building without giving anything to Bookstein. Bookstein argued that the general partner GEI is liable to him, and that Barry is the alter ego of GEI. Finally, Bookstein contended that he is not liable to Barry for intentional interference with contract because Bookstein was unaware that the Gross family had an agreement respecting the division of the proceeds from the sale of the partnership's building.

The Stipulation

The parties stipulated to [*11] judgment in favor of Bookstein on the cross-complaint, after the trial court indicated that Barry was barred by principles of collateral estoppel from pursuing his claim for interference with contractual relations. The stipulation preserves Barry's right to appellate review.

The Trial Court's Ruling

The trial court granted summary judgment in favor of Barry on Bookstein's last remaining cause of action for breach of contract. The court found that the trust promised to perform the obligations specified in the 1995 settlement agreement; Barry did not personally promise Bookstein anything. Even though Barry signed the settlement agreement in his individual capacity, he did so only because he was sued as an individual. As a result, Barry cannot be individually liable for the alleged breaches of the settlement agreement. The court entered a final judgment in favor of Barry, and awarded him contractual attorney fees and costs. Bookstein's timely appeal followed, along with Barry's cross-appeal on the cross-complaint.


Issues Raised on Appeal n2

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n2 Bookstein's appeal does not challenge all of the trial court's rulings. The issues that are not briefed are waived. (Tan v. California Fed. Sav. & Loan Assn. (1983) 140 Cal. App. 3d 800, 811, 189 Cal. Rptr. 775.)

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1.Breach of Contract

Bookstein contends that Barry breached the 1995 settlement agreement by failing to pay Bookstein a pro rata share of partnership distributions and by failing to timely deliver partnership tax returns. The trial court found against Bookstein on this claim, on the grounds that Barry is not personally responsible for carrying out the terms of the settlement.

In the settlement, the Trust agreed to make distributions to Bookstein at the same time that distributions are made to the other partners. The settlement reads: "The Gross Trust agrees not to allow distributions to be made by the Partnership to any partners (including the Bookstein interest) other than on a pro-rata basis in accordance with their percentage interests." The settlement further specifies that "The Gross Trust and its Trustees agree to use their best efforts to cause the Partnership to file the tax returns of the Partnership by April 1 of each year, and to deliver by that date to each partner copies of the tax returns and the related Schedules K-1."

On its face, the settlement contemplates action on the part of the Trust to distribute partnership disbursements and deliver tax returns. [*13] The Trust is not a party to this action. Bookstein concedes in his brief that the settlement is unambiguous on the topic of partnership disbursements. Nevertheless, he maintains that Barry is individually liable because the settlement states, "Each party agrees not to take any action that would interfere with the performance of this Agreement or which would adversely affect the rights provided for in this Agreement."

Barry's alleged failures to act--or his interference with the settlement agreement--arose from Barry's capacity as cotrustee of the Trust or as the chief executive of GEI. Although Barry "personally wrote and signed distribution checks," as Bookstein argues, he did not do so in his individual capacity. Barry acted only in his representative capacity.

A trustee is not generally liable to third parties for trust activities. A third party claim arising from an obligation incident to ownership or control of a trust "may be asserted against the trust by proceeding against the trustee in the trustee's representative capacity, whether or not the trustee is personally liable on the claim." (Prob. Code, § 18004.) The statute confers on third parties [*14] the right to proceed against the assets of the trust; it does not confer the right to proceed against the trustee's personal assets. (Haskett v. Villas at Desert Falls (2001) 90 Cal.App.4th 864, 880.) A trustee cannot be held liable for trust obligations unless the trustee is personally at fault, meaning that the trustee intentionally or negligently failed to act in a manner that establishes personal fault. (Ibid.)

Barry's failure, as cotrustee, to make disbursements to Bookstein was not wrongful because Bookstein was not entitled to receive anything. Bookstein's right to receive partnership disbursements was contingent upon the Trust's right to a disbursement. Though Bookstein would like to be treated as an "owner," as if he were a partner, the fact remains that he is not a partner, nor will he ever be a partner, unless he is admitted to the partnership with the unanimous written consent of all the existing partners. Bookstein's status is that of a creditor of an actual partner, the Trust. But the Trust was unable to participate in partnership profit sharing after entering into the 1995 settlement agreement because it owed the partnership over $ 7.1 million. [*15] The partnership was not a party to the 1995 settlement agreement, and was not obligated to pay anything directly to Bookstein: under the terms of the partnership agreement, the partnership only had to share profits among the named partners, which does not include Bookstein. The Trust alone was obligated to Bookstein under the 1995 settlement, and the Trust is not a party here.

Bookstein argues that Barry is personally liable for breaching the 1995 settlement agreement as the alter ego of GEI, the partnership's acting general partner. GEI acted as the general partner, starting in 1997, though it was never admitted into the partnership with the unanimous consent of all of the partners. As noted above, the partnership was not a party to the 1995 settlement; therefore, neither GEI nor Barry, as GEI's president, can be sued for failing to comply with the terms of the settlement.

In sum, Bookstein's claim for breach of the 1995 settlement agreement cannot be maintained. The Trust promised to make disbursements and deliver tax returns to Bookstein: this was not an obligation of the partnership or of Barry personally. Barry cannot be held personally liable either as cotrustee or as the [*16] president of GEI.

2. Breach of Fiduciary Duty

The trial court ruled against Bookstein on his claim for breach of fiduciary duty because Bookstein is not a member of the partnership, so Barry does not have a fiduciary relationship with Bookstein. It is undisputed that Bookstein has never been admitted as a member of the partnership; his interest in the partnership is that of an assignee or creditor of the Trust. As an assignee, Bookstein is only entitled to receive, to the extent assigned, disbursements to which the Trust, as assignor, is entitled. (Corp. Code, § 15672, subd. (a).) This Court has already held that the limits placed on partnership assignees prevent an assignee from maintaining an action against a general partner for breach of fiduciary duty. (Kellis v. Ring (1979) 92 Cal. App. 3d 854, 860, 155 Cal. Rptr. 297.) Bookstein cannot sue Barry for breach of fiduciary duty, as a matter of law.

3. Accounting

The trial court sustained without leave to amend a demurrer to Bookstein's cause of action for an accounting. The assignee of a limited partner is generally not entitled to acquire partnership information [*17] such as business records, tax returns or financial reports, unless there are more than 100 limited partners. (Corp. Code, §§ 15634, 15672, subd. (a); Kellis v. Ring, supra, 92 Cal. App. 3d at pp. 859-860.) The terms of Bookstein's assignment expressly deny him access to partnership books or records. By the same token, if there are sufficient facts pleaded to indicate that the general partner has engaged in theft, actual fraud or other illegal act, an assignee may sue for damages and engage in discovery "to obtain facts showing he was being bilked out of his property or profits." (Id. at p. 860.)

There are no facts pleaded in this case showing theft, actual fraud or other illegal act. As we have already discussed, Bookstein's interest in sharing partnership profits is subject to the Trust's right to receive partnership disbursements. Unfortunately for Bookstein, the Trust owes the partnership over $ 7 million. Needless to say, the partnership is not required to make disbursements to a limited partner that is deeply indebted to the partnership. Thus, Bookstein's right to receive a share of partnership [*18] profits through the Trust is effectively wiped out by the Trust's enormous debt to the partnership. The net proceeds from the sale of the partnership's office building were less than the Trust's $ 7 million debt, not to mention the accrued interest on that debt. There is no point in giving Bookstein an accounting when the Trust is not entitled to recoup any money as a result of its debt to the partnership.

4. Fraudulent Transfer

Bookstein did not prevail on his claim of fraudulent transfer. He alleges that the Trust fraudulently conveyed three promissory notes executed by Barry, Lori and Harold to Sarah, without consideration, thereby rendering the Trust unable to satisfy its creditors, including Bookstein. The trial court found no triable issue because Sarah has every right to remove assets from the Trust, at any time.

There are a number of problems with Bookstein's claim. First, the Trust is the entity that conveyed the notes to Sarah, but the Trust is not a party to this action. As we have already discussed in section 1, a trustee like Barry is generally not liable to third parties for trust activities. Moreover, a trustee has no duty to preserve assets in the [*19] trust for the benefit of a claimant with a pending lawsuit. (Arluk Medical Center Industrial Group, Inc. v. Dobler (2004) 116 Cal.App.4th 1324, 1335.) Second, Bookstein now has all right, title and possession to the promissory notes that he claims were fraudulently conveyed. Sarah conveyed the notes to Bookstein when she settled out of this lawsuit. Third, the Trust affords Sarah the right to remove any assets, or to revoke the Trust entirely. The settlor of a revocable trust "effectively retains full ownership and control over any property" in the trust. (Id. at pp. 1331-1332.) Thus, Sarah's removal of the notes from her own trust was not a fraudulent conveyance.

5. Enforcement of Promissory Note

Bookstein sought to enforce Barry's promissory note to the Trust, which Sarah removed from the Trust and later assigned to Bookstein. Barry presented documentary evidence showing that before Sarah assigned the note to Bookstein, she agreed to extend the due date of the note until January 14, 2004, in consideration for an increase in the interest rate paid by Barry. The extension agreement states that it is binding on all assignees.

Bookstein's [*20] lawsuit--and the trial court's judgment--were filed before the January 14, 2000, due date on Barry's note. The court ruled that Bookstein's cause of action on the note was premature. Bookstein is concerned that he will be precluded from renewing his claim on the note, now that it has become due and payable, under principles of res judicata. Bookstein's cause of action on the promissory note was not finally or necessarily decided on the merits by the trial court. His claim did not accrue until some time after January 14, 2004, long after the trial court entered judgment in March 2003. No final judgment could be entered on a claim that had not yet accrued. The claim is not precluded in a future lawsuit, at which point the trier of fact will decide whether Sarah already forgave Barry's debt.

Issues Raised In The Cross-Appeal

Barry's cross-complaint against Bookstein raises a single cause of action for interference with contract, based on Bookstein's alleged wrongdoing in inducing Lori, Harold and Sarah to withdraw money from the partnership's litigation fund and pay it to Bookstein to settle the claims he made against them in this lawsuit. Barry had a stake in $ 140,422 [*21] of the money in the litigation fund.

The trial court found that Barry is precluded from relitigating the issue, based on principles of collateral estoppel. There was prior litigation between members of the Gross family in which Barry moved to enforce the provisions of the Gross family agreement that created the litigation fund. The superior court in the prior litigation ruled that Lori and Harold were entitled to use their share of the litigation fund to settle with Bookstein. Barry argues that the prior ruling does not prevent him from suing Bookstein for interference with contract.

Barry's cause of action requires proof of (1) a valid contract; (2) the defendant's knowledge of the contract; (3) intentional acts of the defendant designed to induce a breach of the contract; (4) an actual breach of the contract; and (5) resulting damage. (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148; Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1126, 270 Cal. Rptr. 1.) Barry cannot show at least two of the required elements. As a result of the prior ruling, it is settled that Lori and Harold did not breach the Gross family agreement when [*22] they paid Bookstein a portion of the litigation fund. Thus, element number four cannot be established: there was no actual breach of contract. Further, Barry cannot show actual damage. Though he alleges that he was deprived of $ 140,000, he concedes in his brief that he was actually able to secure his full portion of the litigation fund in 2003. As a result, Barry was not damaged by Bookstein's settlement with Lori and Harold, because none of Barry's share of the litigation fund was used to pay Bookstein. Barry's claim has no merit.


The judgment is affirmed.


We concur:



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