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TABLE OF CONTENTS
I . INTRODUCTION 1
II . PROCEDURAL HISTORY AND FACTS 3
A. Original Complaint 3
B. Proposed First Amended Complaint 4
C. The Damages Al legations 6
III. LEGAL STANDARD 7
IV. ARGUMENT 8
A. Wei-Jen's Amendment To Add Her Capacity As Tmstee Of Wei-Jen
Tmst Is Proper, But Unnecessary 8
B. Wei-Jen Tmst, As Limited Partner Of HFE II , Cannot Assert
Either A Direct Action Or A Derivative Action 9
1. Plaintiff Cannot Bring A Direct Aclion Under Johnson v.
Superior Court 10
2. Plainitff Also Cannot Allege A Derivative Action 12
i . The Proper Party To Bring An Action For Damages On Behalf Of
The Limited Partnership Is HFE I I Itself Not The Limited Partner.
I f HFE I I Did Incur Damages, Its Action Is Long Barred By The
Statue Of Limitations 14
V. CONCLUSION 14
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S IVIOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAINT
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TABLE OF AUTHORITIES
STATE CASES
Avikian v. WTC Fin. Corp. (2002) 98 Cal.App.4th 1108 9 Evans v.
Galardi (1976) 16 Cal.3d 300 2, 6 Everest Investors 8 v. McNeil
Partners (2003) 114 Cal.App.4th 411 9, 12, 13 Foxborough v. Van
Atta (1994), 26 Cal.App.4th 217 14 Green I I I v. Rancho Santa
Margarita Mortgage Co. (1994) 28 Cal.App.4th 686 7 Hassoldt V.
Patrick Media Group, Inc. (2000) 84 Cal.App.4th 153 8 Johnson v
Superior Court (1995) 38 Cal.App.4th 463 10, 11, 12 Jones V. HF.
Ahmanson & Co. (1969) 1 Cal.3d 93 9, 13 Keeler v. Schulte
(1957) 47 Cal.2d 801 13 McKoin V. Rosefeh (1944) 66 Cal.App.2d 757
8 Oakland Raiders V. Nat'l Football League (2005) 131 Cal.App.4th
621 7 People V. Rogers (2013) 57 Cal.4th 296 8 Portico Mgmt Grp.,
LLC v. Harrison (2011) 202 Cal.App.4th 464 4, 8 Prince v. Harting
(1960) 177 Cal.App.2d 720 Responsible Citizens v. Superior Court
(1993) 16 Cal.App. 4th 1717 12 Sacramento Suncreek Apartments, LLC
v. Cambridge Advantaged
Properties I I L.P. (2010) 187 Cal.App.4th 1 2, 6 Schuster v.
Gardner (2005) 127 Cal.App.4th 305 .....9 Stockton V. Ortiz (1975)
47 Cal.App.3d 183 7 Thompson Pac. Constr., Inc. v. City of
Sunnyvale (2007) 155 Cal.App.4th 525 7 Wallner v. Parry Prof'Bldg,
Ltd (1994) 22 Cal.App.4th 1446 13, 14 FEDERAL CASES
United States v. Stonehill (1996) 83 F.3d 1156 9 OUT OF STATE
CASES
Adell V. Sommers, Schwartz, Silver & Schwartz, P.C. (1988)
170 Mich. App. 196 12
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAINT
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STATE CODES
Civ. Code 3517 13 Code Civ. Proc. 340.6 14 Code Civ. Proc. 369 8
Code Civ. Proc. 473(a)(1) 7 Corp. Code 15901.04(a) 2 Corp. Code
15910.02, 15910.04 13 OTHER
9 Witkin, Summary 10th (2005) Partn. 16, 34 10 26 A.L.R.4th 264,
1(a) 13
111
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
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I. INTRODUCTION
Plaintiff sued the Woodruff defendants in 2004. Now, in 2014,
she attempts to amend
the complaint by alleging what could have been alleged in 2004,
but was not, without even
attempting to explain why she waited so long. Moreover, what she
seeks to add is wholly
improper as a matter of law. The motion should be denied.
In Plaintiffs original complaint - filed on June 24, 2004 - she,
the sole plaintiff, pled a
single cause of action for legal malpractice, asserting that the
defendant lawyers' alleged errors
caused a dispute about plaintiffs management and authority to
sell or exchange real property, in
plaintiffs capacity as a trustee of a family tmst (the Harrison
Children's Trust) and as the general partner of a limited
partnership (Harrison Family Enterprises II , or HFE II), while the
defendants represented plaintiff as the respondent in a family law
proceeding. The original
complaint does not even mention that Plaintiff (or Wei-Jen
Revocable Trust) was a limited partner in HFE II , let alone allege
that the limited partnership incurred damages. It does,
however, allege that Plaintiff was the general partner of HFE II
. That allegation in the original
complaint, standing alone should be sufficient to defeat this
motion - why, if plaintiff and her
counsel were aware ab initio that HFE II existed, which of
course they were, and if they
believed that HFE II sustained damages, was it not named as a
plaintiff?
As shown below, plaintiff individually cannot as a matter of law
bring a direct action on
behalf of the partnership. Nor can she bring a derivative action
in her capacity as a limited
partner in HFE II when the predicate for such an action is her
own failure as the general partner
of that entity to file a direct action on behalf of HFE II . She
cannot as a matter of law do what
she is trying to do by this amended complaint, and for that
reason the motion should be denied.
Plaintiff (Wei-Jen (Harrison) Luan, hereinafter "Wei-Jen" or
"Plaintiff) now attempts, through the artifice of also stating that
she is bringing this suit as a trustee of her individual
trust, to amend the complaint and use it as a vehicle to seek
damages allegedly sustained by
HFE II . Plaintiff makes this quite explicit i^ ee Bitzler
Declaration in support of Motions to
Amend, Ex. 3,p. 1, ^ 2). Even if HFE II incurred damages as a
result of Woodruffs negligent advice, HFE II is an entity separate
and apart from both its general and limited partners for
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAINT
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Durooses of suing. (See Cal. Corp. Code 15901.04(a); Evans v.
Galardi (1976) 16 Cal.3d 300, 311; Sacramento Suncreek Apartments,
LLC v. Cambridge Advantaged Properties II, L.P.
(2010) 187 CaI.App.4th 1, 13.) HFE II was and is an essential
party to any proceedings to recover any alleged damages it
suffered. However, it never sued, it was never joined, it cannot be
joined to this action now, and the time for it to sue for those
damages has long since passed. Ironically, it was the
responsibility of the plaintiff as general partner of HFE II to
file suit on
that entity's behalf for its damages. If she, or her prior
lawyer who filed the present lawsuit,
failed to do so, it is not the responsibility of these
defendants to assume, merely because they
are being sued by an individual who is identified as "the
general partner in HFE 11," that they
are being sued by that entity - an entity which by definition
has a legal existence separate from
Wei-Jen, and which is not named as a plaintiff.
If Wei-Jen's intent is only to make clear that she brings this
suit as trustee of her own
personal trust (Wei-Jen Harrison Revocable Tmst, hereinafter
"Wei-Jen Tmst"), then (1) the amendment is urmecessary, (2) the
amendment could probably be done by stipulation, and (3) none ofthe
additional facts attempted now to be pled would have any place or
utility. If that is
all that Wei-Jen wants to do, then she may - but she cannot, in
either a direct or derivative
action, seek any damages sustained by HFE II itself
This was not simply "inartful" drafting of the original
complaint. It is not "inartful" to
omit a plaintiff. An "inartftil" complaint can be remedied -
this one cannot, in the way plaintiff
proposes. Nor is that pleading "antiquated" in the sense that
the legal and factual terrain has
altered materially since 2004. The existence and nature of both
the Wei-Jen Tmst now sought
to be added as a plaintiff and the partnership HFE II , were
facts known to plaintiff when this
complaint was originally filed in June 2004.' These facts have
not changed. In fact, the
original complaint itself alleges in paragraph 8 that "In or
about August 2001, defendants
undertook to advise plaintiff Wei-Jen Harrison and to represent
Wei-Jen, . . . as the general
' Both Portico and Arroyo & Coates sued HFE II before either
of these malpractice cases were filed (See Plaintiffs Request for
Judicial Notice filed concurrently with Motions to Amend, Exs. 2
and 3). HFE II was formed by February 4, 2002, the date papers were
signed by Wei-Jen (See Wei-Jen Declaration in support of Motions to
Amend, Ex. 4).
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAINT
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partner in HFE I I " , yet all it does thereafter is plead
damages allegedly incurred by Wei-Jen
solely in her personal capacity. For example, allegedly as a
result of the defendants'
negligence, Wei-Jen was personally sued by the purchaser in a
muUi-million apartment sale she
initiated on behalf of HCT (her children's trust) without the
authority of her co-tmstee (the children's father) for specific
performance and damages, and by the brokers for the commissions
they lost when the sale was not consummated. In addition, the
children's father
initiated a proceeding in Probate Court seeking to remove and
surcharge Wei-Jen as co-tmstee
of HCT. Wei-Jen alleged she had to incur substantial attomey's
fees and costs responding to
this "trustee removal and surcharge proceeding." Although
Wei-Jen did allege that as a result
of the defendants' delay and lack of success in obtaining an
order that the children's father
complete the real estate transaction she "was compelled to
forego other valuable investment
opportunities", no mention is made of any such damages incurred
by HFE II .
What has changed is the realization by plaintiff that her
complaint does not seek
damages on behalf of the partnership HFE II . It never did, and
carmot do so now. HFE II could
have filed suit in its own name for its damages in 2004;
Wei-Jen, who acted as HFE II's general
partner through her personal tmst, does not explain why HFE II
did not do so. In short, the real
party in interest for the claims of HFE II is HFETI, not
Wei-Jen.
II. PROCEDURAL HISTORY AND FACTS
A. Original Complaint.
On June 24, 2004, Wei-Jen filed a legal malpractice action
against Woodmff alleging
that Woodruffs alleged errors "caused a dispute about plaintiffs
management and authority to
sell or exchange real property, in plaintiffs capacity as
trustee of a family trust [HCT] and as the general partner of a
limited partnership [HFE I I ]" while Woodruff represented Wei-Jen
in a marital dissolution inifiated by her former husband, Alan
Harrison ("Alan"). (Original
^ As the Court may recall fi-om hearing the motions for summary
adjudication herein, this removal and surcharge proceeding resulted
not so much as from the attempted sale of HCT's interest in the
Continental Apartments, but from HFE U's acquisition of a 12.5%
interest in those apartments irom Wei-Jen's parents, instead of
offering that opportunity first to the Harrison Children's Trust.
We trust that the Probate Judge's highly critical findings
regarding this breach of plaintiff s fiduciary obligations to her
own children need not be repeated again in detail at this time.
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAFNT
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Complaint ("OC") Tf^ I 1, 8.) The first paragraph of the
original complaint does not allege that the partnership HFE II
sustained any damages. All it alleges is that the purported
legal
malpractice caused a dispute about Plaintiffs "management and
authority to sell or exchange
real property" in her capacity as a trustee of HCT and as
general partner of HFE II. That
dispute. Plaintiff goes on to allege, caused her to sustain
damages. (OC HI 7.)^ Importantly, the original complaint alleges
that Woodruff knew that Wei-Jen and her
daughters had agreed to form another partnership, HFE II , in
which Wei-Jen was general
partner and HCT was a limited partner. Wei-Jen alleged that
Woodruff "negligently failed to
advise and assist Wei-Jen as she tried to fulfill her fiduciary
obligations as general partner of
HFE II and co-trustee of HCT to pmdently manage HCT and HFE II
partnership assets."'* (OC TIIO.) She alleged that Woodmff knew
that Wei-Jen, as general partner of HFE II and co-trustee of HCT,
had entered into contracts to sell the Continental held by HFE II
and HCT, including
making non-refundable deposits exceeding $1 million dollars. (OC
^11.) Wei-Jen further alleges that she was "compelled to forego
other valuable investment
opportunities," which are unspecified. (OC Til7.) These are
clearly alleged to be her damages, not anyone else's. Throughout
the original complaint, there is not one single allegation of
any
damages sustained by HFE II. Now it has occurred to plaintiffs
present counsel that these
damages are not Plaintiffs but damages to a separate entity in
which the plaintiff, apparently
through her individual trust, was the general partner.
B. Proposed First Amended Complaint.
On December 9, 2013, nine and one-half years after the original
complaint was filed.
Wei-Jen served this motion, requesting leave of court to file a
Proposed First Amended
Complaint ("PFAC"). The PFAC adds the allegation that Wei-Jen is
trustee of the Wei-Jen
^ We will not burden the Court and counsel by summarizing all
the remaining factual allegations of that pleading, which appears
as Ex. 4 to Plaintiffs Request for Judicial Notice. Though not
specifically named in the OC, the real estate transaction referred
to within in this complaint refers to the attempted sale of a
Carmichael apartment building known as the Continental. For
clarification, this name is inserted into the allegations from the
OC that follow. These transactions and further history are
described in Portico Mgmt Grp., LLC v. Harrison (2011) 202
Cal.App.4th 464, 467-469. * This motion, of course, does not
address the merits of any of these contentions. Suffice to say that
Woodruff vvas hired as a divorce lawyer.
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAfNT
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Tmst (PFAC 112; 118; 1|I0; ^ I 1 ; 1112), and that she brings
this suit also in that capacity. Had the extent of Plaintiff s
proposed amendments stopped there, then there is probably no issue
for the
Court. But she does not stop there. Wei-Jen also adds,
repeatedly, that she (as a trustee of the Wei-Jen Trust) was not
only a general partner of HFE II , but also a limited partner of
HFE II (PFAC t2;1|8; 1110; 1112).
The PFAC now alleges that Wei-Jen Tmst, as general and limited
partner of HFE II , was
a direct and intended beneficiary of defendants' legal
representation. (PFAC 118.) She further alleges that the primary
asset of HCT was an 87.5% interest in Continental and that HFE
II
purchased the remaining 12.5% interest in Confinental (PFAC HIO)
- without advising the Court that it was Wei-Jen's diversion of
this trust opportunity from HCT to a limited partnership
controlled by plaintiff which was a primary target of her
co-tmstee's action to remove and
surcharge her.
Allegedly, the money used to purchase the 12.5%) interest came
from a capital contribution of approximately $495,000 from Wei-Jen,
as trustee of Wei-Jen trust. (PFAC Ijl 1.) Woodruff allegedly
specifically knew that Wei-Jen, as general partner of HFE 11 and as
trustee
of HCT, entered into a contract to sell 100% ofthe Continental
with the plan of immediately
reinvesting the sales proceeds into tax deferred section 1031
like-kind exchanges, one of which
was a specific Phoenix shopping center (Anderson Fiesta). (PFAC
Ull.) Wei Jen, as general partner of HFE II , made a down payment
of $500,000, with a remaining $750,000 due at closing. Woodruff
knew if Wei-Jen, in her multiple capacities, was unable to perform,
she,
along with HFE II and Wei-Jen Tmst, would be exposed to lawsuits
and damages. (PFAC Ull.) She also alleges that at multiple times in
2001-2003, Woodmff negligently failed to counsel
Wei-Jen as to a variety of actions, which alleged negligence
caused damages to Wei-Jen and her
trust, which was both the general and limited partner of HFE II
. (PFAC 1112.) If Woodruff "knew" all these things, so did the
plaintiff, yet even at this late date she
shrinks from naming as a plaintiff her "baby" HFE II , the very
entity that allegedly was
OPPOSITION TO PLAINTIFF WEI-JEN (FL i^RRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAfNT
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damaged by being unable to purchase a tenant in common interest
in Anderson Fiesta - despite
black letter law that a limited partnership is an entity
separate from its partners.^
C. The Damages Allegations.
Paragraph 17 of the OC alleges that, as a result, Wei-Jen - and
only Wei-Jen - incurred
the following damages related to this attempted sale of the
Continental: (1) "the purchaser sued Wei-Jen for specific
performance and damages, claiming in excess of $1 million in
losses"; (2) Wei-Jen incurred attomey's fees in responding to the
suit; (3) Wei-Jen was threatened^ with a lawsuit in excess of
$100,000 from the brokers for lost commissions; (4) Wei-Jen was
subjected to proceedings in Probate Court in which Alan sought to
remove her as co-trustee of HCT; and (5) Wei-Jen was compelled to
forego other valuable investment opportunities.^ (OC 1117.)
Paragraph 17 now alleges that Woodmff s breach of duty caused
substantial damages to
Wei-Jen individually, as tmstee ofthe Wei-Jen Tmst which is the
general and limited partner of
HFE II . Wei-Jen alleges the following damages: (1) "the
purchaser sued Wei-Jen, individually and HFE I I , for specific
performance and damages, claiming in excess of $1 million in
losses;" (2) Wei-Jen, individually, as trustee of Wei-Jen Trust,
and as both the general and limited partner of HFE II , incurred
attomey's fees in responding to the suit; (3) Wei-Jen, individually
and HFE II , was sued by the brokers for lost commissions in excess
of $100,000; (4) Wei-Jen was subjected to proceedings in Probate
Court in which Alan sought to remove her as co-trustee of HCT; and
(5) Wei-Jen was compelled to forego other valuable investment
opportunities. (PFAC 1117.)
To this. Plaintiff added the entirely new allegation that
Wei-Jen, individually, as trustee
of Wei-Jen Trust, and as both the general and limited partner of
HFE II , lost the diminution in
value of their $500,000 down payment in Anderson Fiesta. (PFAC
1117.) "The $500,000 down
Evans, supra, 16 Cal.3d at 311; Sacramenio Suncreek Apartments,
LLC, supra, 187 Cal.App.4th at 13. ^ Wei-Jen was more than just
"threatened" when this allegation was made. She had been sued. Not
only that-HFE II had also been sued. {See Plaintiffs Request for
Judicial Notice filed concurrently with Motions to Amend, Exs. 2
and 3). ' Plaintiff also alleged that she had incurred and would
continue to incur attomey's fees, expert fees, and costs in
litigating the underlying lawsuit. (OC f lT.) She also alleged that
Woodruff failed to properly supervise the expert he recommended.
(OC HIS.)
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAINT
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payment was converted into a limited partnership interest which
greatly reduced its fair market
value." (PFAC 1117.) Further, Wei-Jen, individually, as tmstee
of Wei-Jen Tmst, and as both the general and limited partner of HFE
II , incurred damages as the 12.5% owner of Continental.
(PFAC 1117.) Wei-Jen, individually, and as trustee of Wei-Jen
Trust, prays for judgment. (PFAC, Prayer.)
However, it is clear throughout the extensive documentation
provided with this motion o
that the alleged damages, if any there are, are damages of HFE
II , not of Wei-Jen.
I I I . LEGAL STANDARD
"The court may, in furtherance of justice, and on any terms as
may be proper, allow a party to amend any pleading." (Cal. Code
Civ. Proc. 473(a)(1).) An application for leave to amend is
committed to the trial judge's sound discrefion, and its mling will
be upheld unless a manifest or gross abuse of discretion is shown.
{See Thompson Pac. Constr., Inc. v. City of Sunnyvale (2007) 155
Cal.App.4th 525, 544.) Though section 473 has received a "very
liberal" interpretation, "[tjhere is a platoon of authority to the
effect that a long unexcused delay is sufficient to uphold a trial
judge's decision to deny the opportunity to amend pleadings,
particularly where the new amendment would interject a new issue
which requires further discovery." {Id.; Green I I I v. Rancho
Santa Margarita Mortgage Co. (1994) 28 Cal.App.4th 686, 692.) The
court's discretion denying leave to amend will be upheld where the
amendment fails to state a cause of action. {See Oakland Raiders v.
Nat'l Football League (2005) 131 Cal.App.4th 621, 652 (trial court
properly denied leave to amend; granting leave would have been an
idle act); see also Stockton v. Ortiz (1975) 47 Cal.App.3d 183,
192-194.) ///
///
///
^ By way of example, see the following exhibits attached to
Wei-Jen's Declaration in support of Motions to Amend: Ex. 20,
Lisfing Agreement with A&C signed by Wei-Jen on behalf of HCT
and HFE II ; Ex. 21, Grant Deed as to 12.5% sold to HFE II; Ex. 22,
WJ states to Alan that she has formed HFE 11 and placed into it
Continental, and also states (p. 3), " I am marketing Continental
on behalf of [HFE II]"; Ex. 32, Anderson Fiesta down payment made
on HFE II check for $500,000; Ex. 35, selling Continental on behalf
of HFE II and HCT; Ex. 45, addendum makes clear Continental is
being sold on behalf of HFE II and HCT; Ex. 64, addendum no. 2
regarding closing date also makes clear that Continental is being
sold on behalf of HFE II and HCT.
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAfNT
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IV. ARGUMENT
A. Wei-Jen's Amendment To Add Her Capacity As Trustee Of Wei-Jen
Trust Is Proper, But Unnecessary.
When title to the assets of a tmst is held by the executor,
administrator or tmstee, the
tmstee of a tmst is the "real party in interesf to bring an
action. {See Cal. Code Civ. Proc. 369; McKoin v. Rosefeh (1944) 66
Cal.App.2d 757, 769-778 ("[I]t is unnecessary for the tmstee in the
pleadings or other proceedings to describe himself as trustee. He
can proceed in the
acfion as though he were the owner of the claim which he is
enforcing. If he does describe
himself as tmstee the description is treated as surplussage.");
see also Hassoldt v. Patrick Media Group, Inc. (2000) 84
Cal.App.4th 153, 171, abrogated on other grounds in People v.
Rogers (2013) 57 Cal.4th 296, 330-331.)^
Thus, there is no need to amend the complaint simply to allege
that plaintiff is suing not
only individually but also as a trustee of a tmst. But of
course, that is not all that plaintiff is
trying to do. Wei-Jen attempts to amend her complaint in this
manner so that she can allege that
she, as trustee of Wei-Jen trust, was a limited partner of HFE
II , and in that capacity seeks
damages allegedly sustained by HFE II resulting from Woodruffs
alleged malpractice. Thus,
Wei-Jen primarily seeks to allege "a cause of action for legal
malpractice, in the trust's name, as
the limited partner of HFE II against the defendants."
(Plaintiffs Joint Memorandum of Points and Authorifies in support
of Motions to Amend, 12: 5-7.)
But as a matter of law, whether as an individual or cloaked as a
trustee of a trust,
whether in a direct or in a derivafive action, under these facts
Plaintiff cannot sue as a limited
partner for a partnership's damages. The mofion should be
denied.
See also Portico Mgmt. Grp., LLC, supra, 202 Cal.App.4th at 473
(a case in which Wei-Jen herself was a party): "In contrast to a
corporation, which the law ofl:en deems a person, a trust is not a
person but rather a fiduciary relationship with respect to
property. [Citations.] Legal title to property owned by a trust is
held by the trustee . . . . A . . . trust... is simply a collection
of assets and liabilities. [Citations.] [A]n ordinary express tiust
is not an entity separate from its trustees. [Citations.] A trust
itself cannot sue or be sued. [Citations.] As a general rule, the
trustee is the real party in interest with standing to sue and
defend on the trust's behalf [Citations.] A claim based on a
contract entered into by a trustee in the trustee's representative
capacity,. . . may be asserted against the trust by proceeding
against the trustee in the trustee's representative capacity . . .
. [Citations.]" (intemal quotations omitted).
8 OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST
AMENDED COMPLAfNT
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B. Wei-Jen Trust, As Limited Partner Of HFE II, Cannot Assert
Either A Direct Action Or A Derivative Action.
Generally, a limited partner can either file: (1) a direct
action individually for injury to its interest as a limited
partner, or (2) a derivative action filed on behalf of the limited
partnership for injury to the limited partnership for which the
limited partnership has failed (or reftised) to sue. {See Schuster
v. Gardner (2005) 127 Cal.App.4th 305, 311-312.) The two actions
are mutually exclusive, meaning the right of recovery belongs
either to the limited
partner (direct action) or to the limited partnership
(derivative action). {See Id. at 312.) An action is derivative if
the gravamen of the complaint is injury to the partnership and not
to the partner individually; the rights sought to be vindicated are
those of the partnership. {See Id. at 313; 5ee also Everest
Investors 8 v. McNeil Partners (2003) 114 Cal.App.4th 411, 425,
citing Jones V. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 106.) A
limited partner's derivafive acfion is similar to a shareholder's
derivative acfion. {See Everest Investors 8, supra, 114 Cal.App.4th
at 425.)
In Avikian v. WTC Fin. Corp. (2002) 98 Cal.App.4th 1108,
1115-1116, plaintiff shareholders, in a direct action, sued
defendant officers alleging that they looted corporate assets and
entered into self-serving deals to sell assets to third parties.
The claims were held to be derivative in nature. {See Id. at 1116.)
Plainfiffs' "own damages, the loss in value in their investments in
[the corporation], were merely incidental to the alleged harm
inflicted upon [the corporation] and all its shareholders."
{Id.)
"Well-established principles of corporate law prevent a
shareholder from bringing an
individual direct cause of action for an injury done to the
corporation or its property by a third party." {United States v.
Stonehill (1996) 83 F.3d 1156, 1160.) Under California law, a
limited partner cannot bring a direct action for damages against
management "on the theory their
alleged wrongdoing decreased the value of his or her
[partnership share] (e.g., by reducing [partnership] assets and net
worth." {Schuster, supra, 127 Cal.App.4th at 312.) "A different
rule would authorize multidinous litigation and ignore the [limited
partnership] entity." {Id. at 312.)
OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST AMENDED COMPLAINT
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c I. Plaintiff Cannot Bring A Direct Action Under Johnson v.
Superior Court. Plainfiff cites Johnson v Superior Court (1995) 38
Cal.App.4th 463, 479, for the
proposition that "a limited partner of a limited partnership can
bring a direct action, in their own
name for legal malpractice." (Plaintiffs Joint Memorandum of
Points and Authorities in support of Mofions to Amend, 12: 7-9.)
But (1) this was not the holding of the case, (2) in Johnson the
attomey represented the partnership as an entity, and (3) in
Johnson, since the general partner would not bring an action
against the attomey on behalf of the partnership, the
only remedy available to the limited partner would be a
derivative action.^ '^ {See Johnson, supra, 38 Cal.App.4th at
478-479.) That is what Wei-Jen cannot do here.
In Johnson, attomey Neils was originally retained by the general
partner of a limited partnership, MHP. {See Id. at 468-469.) At
some point in the course of this relationship, it was undisputed
that Neils represented MHP as a whole. {See Id. at 469) The limited
partners had purchased interests in the partnership as a tax
shelter; the only asset of the partnership was a ground lease in an
industrial park. {See Id. at 468.) At some point, the fee owner of
the park offered to sell the underlying fee to MHP. (See Id.) This
offer was communicated only to the general partner, and the general
partner did not advise the limited partners of this very profitable
opportunity. {See Id.) Instead, the general partner advised the
limited partners that the tax consequences had become adverse. (See
Id.) He then gave them an opportunity to sell their interests to
MHP; if they did not sell he asked that they contribute substantial
added capital. {See Id. at 468-469.) It became clear that he was
trying to force the limited partners out and exclude them from this
opportunity. {See Id.)
The general partner of MHP became concemed that he may need to
disclose additional
The court in Johnson does say that the limited partners can sue
"either in their own right or on a derivative theory." {Id. at
479.) But what the court seems to have in mind by a direct action
is a suit "in equity." (Id. at 478-479, citing Prince v. Harting
(\960) 177 Cal.App.2d 720, 736-737.) Prince did not involve suing
an attorney or anyone other than partners. Prince is cited in 9
Witkin, Summary I Oth (2005) Partn. 34, p. 608, for the proposition
under the "Former Rule" that subject to exceptions a partner could
not maintain an action at law regarding a partnership tt-ansaction.
Witkin contrasts that with the Uniform Partnership Act of 1994,
which was not effective until 1999, and thus not effective when the
Johnson opinion was issued. (See Witkin, supra, 16, 34, pp.,
591-592, 608.) In any event, the equity actions contemplated appear
to be for dissolution and accounting. (See Prince, supra, 177
Cal.App.2d at 732-733). These would not appear to be direct actions
by a limited partner seeking to recover the partnership's alleged
damages, which is what Plaintiff is attempting here.
10 OPPOSITION TO PLAfNTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST
AMENDED COMPLAINT
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information to the limited partners, and asked attomey Neils for
advice. (See Id. at 469) Neils prepared a letter, the goal of which
was to satisfy the general partner's fiduciary obligations.
(5ee M ) This letter was circulated to the limited partners,
requesfing that they either sell their interest or contribute
substantial additional capital to MHP. {See Id.) This letter did
not disclose the investment opportunity to the limited partners.
{See Id. at 468.)
In response to the letter all but one of the limited partners
sold their interests in the partnership. {See Id. at 470.) The
general partner resolved the outstanding partner's issues, and then
dissolved the partnership. {See Id.) The limited partners sued,
contending that the letter concealed the sale opportunities, which
were available to the partnership at the time they sold.
{See Id. at 467.) They sued the general partner for breach of
fiduciary duty, and sued the attomey for negligence, fraud and
breach of fiduciary duty for assisting in the preparafion of the
letter." {See Id.)
The question before the court was whether Neils, in the course
of his representation of the limited partnership, had established
an attomey-client relationship with the individual
partners. {See Id.) The court applied a balancing test, weighing
several factors to conclude that under the facts presented, Neils
had a duty of loyalty to the partnership and to all partners in
terms of their entitlement to benefits from the partnership. {See
Id. at 476-479.) This was based primarily on the nature of
representation that Neils rendered - he performed legal services
and rendered legal advice to the general partnership itself with
respect to its negotiations. {See Id. at 478.) His presumed client
was MHP (the partnership) rather than the general partner. {See
Id.) The court went on to say that if the services Neils perfomied
benefited the general partner to the detriment of the partnership,
then he would have violated his duty to the partnership, and the
partnership would have had a cause of action against Neils. {See
Id.) Failing the institution of such, the limited partners could
have brought a derivative action. {See
" The Court analyzed and then dismissed two theories under which
duty might have been found: (I) privity and (2) fiduciary
relationship. {See Id. at 471-474.) Upholding the privity rule, the
court said that the limited partners were not the intended
beneficiaries of the lawyer's retention. {See Id. at 472.) Rather,
the intended beneficiary and client was the general partner. {See
Id.) Second, the court disagreed that there could be a fiduciary
relationship between the lawyer for the general partner and the
limited partners, because of the risk of conflicts of interests.
{See Id at 473-474.)
11 OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST
AMENDED COMPLAfNT
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named as the plaintiff, it is the limited partnership which
derives the benefits of the action."
{Id., quoting Wallner v. Parry Prof'Bldg, Ltd (1994) 22
Cal.App.4th 1446, 1449.) The limited partnership is an
indispensable party to a derivafive action on its behalf
{See Keeler v. Schulte (1957) 47 Cal.2d 801, 803 (decided in the
context of a corporafion).) An action is derivative if the gravamen
ofthe complaint is injury to the partnership and not to the partner
individually, and the rights sought to be vindicated are those of
the partnership, but
which the partnership refuses to enforce. (26 A.L.R.4th 264,
1(a); see also Everest Investors 8, supra, 114 Cal.App.4th at 425,
citing Jones, supra, 1 Cal.3d at 106.)
To satisfy the substanfive requirements needed to maintain a
derivative suit, Wei-Jen
Tmst must establish that she made a demand on the general
partners to enforce the right of the
limited partnership (or that the demand would be futile), and
what the response was or that the general partners did not act
within a reasonable fime. (Cal. Corp. Code 15910.02, 15910.04.)
Wei-Jen Tmst, as both general and limited partner, carmot satisfy
this requirement - she would
essentially have to make a demand upon herself and/or sue
herself Instead, she seeks to take
advantage of her own wrong, her failure or refiisal to act.'^ To
safisfy the procedural
requirements to maintain a derivative action, Wei-Jen Tmst would
have been required to name
the limited partnership as a nominal defendant. Again, it has
failed to satisfy these
requirements, and cannot maintain a derivative action.
Plaintiff seeks to add a new class of damages to her complaint -
the damages allegedly
sustained by HFE II . But those are damages belonging to HFE II
, the limited partnership, not to
Wei-Jen personally (or to her individual tmst). It is really HFE
II which should (must) have brought a lawsuit for its damages. But
it is way too late, which Wei-Jen recognizes. Thus, we
have the present attempt at an "end-around." If, Wei-Jen hopes,
she can add the allegation that
she is a trustee and is suing as a tmstee of the Wei-Jen Trust,
and since the Wei-Jen Tmst is a
limited as well as general partner in HFE II , then maybe she
can recover damages for HFE II -
damages which she, as general partner of HFE II , never bothered
to seek before on behalf of
HFE II .
"No one can take advantage of his own wrong." (Cal. Civ. Code
3517.)
13 OPPOSITION TO PLAfNTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST
AMENDED COMPLAINT
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CASE NAME: CASE NO.:
PROOF OF SERVICE
LUAN V. WOODRUFF, et al. Sacramento County Superior Court, Case
No.: 05AS03035
I am employed in the County of Sacramento. I am over the age of
eighteen years and not a party to the within above-entitled action.
My business address is 2180 Harvard Street, Suite 560, Sacramento,
CA 95815.
I am familiar with this office's practice whereby the mail is
sealed, given the appropriate postage and placed in a designated
mail collecfion area. Each day's mail is collected and deposited in
a United States mailbox after the close of each day's business.
On the date set forth below, I served the following: OPPOSITION
TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR LEAVE TO F I L E
FIRST AMENDED COMPLAINT
X United States Mail - on all parties in said action by placing
a true copy of the above described document(s) enclosed in a sealed
envelope in the designated area for outgoing mail addressed as set
forth below.
_ By FACSIMILE (telecopier) - by personally sending to the
addressee's facsimile number a tme copy of the above-described
document(s). Federal Express - on all parties in said action by
placing a tme copy of the above-described document(s) in an
authorized area for pick-up by an authorized express service
courier the same day it is collected and processed in the ordinary
course of business as set forth below.
X Personal Service - By personally delivering or causing to be
delivered a tme copy of the above-described document to the
person(s) and at the address(es) set forth as shown below.
Via U.S. Mail James R. Kirby, I I , Esq. SEGAL & KIRBY LLP
400 Capitol Mall, Suite 1600 Sacramento, CA 95814 Tel:
(916)441-0828 Fax: (916)441-0886 [email protected] Attorney
for Defendant Howard Stagg IV
Via Personal Delivery Edward Freidberg, Esq. Brett E. Bitzer,
Esq. Freidberg Law Corporation 601 University Ave., Suite 274
Sacramento, CA 95825 Tel: (916)929-9060 Fax:(916) 929-9068
efreidberg(fl)freidberglawcorp.com bbitzer(a),freidberglawcorp.com
Attornev for Plaintiff Wei-Jen (Harrison) Luan
I declare under penalty of perjury that the foregoing is tme and
correct and that this declaration was executed on January 29, 2014,
at Sacramento, Califomia.
REBECCA CALLAHAN
16 OPPOSITION TO PLAINTIFF WEI-JEN (HARRISON) LUAN'S MOTION FOR
LEAVE TO FILE FIRST
AMENDED COMPLAINT
