Court Opinion

ID: 2811011
Source: CourtListenerOpinion
Date Created: 2015-06-23 21:03:15.035314+00
Date Added: 2024-06-11T11:30:19.261420
License: Public Domain

Filed 6/23/15 Adelman v. Adelman CA2/4
                        NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or
ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.

                     IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                            SECOND APPELLATE DISTRICT

                                                         DIVISION FOUR

RONALD ADELMAN,                                                               B251644

          Plaintiff, Cross-defendant and                                      (Los Angeles County
          Respondent,                                                         Super. Ct. No. LC097376)

          v.

JEROME ADELMAN,

          Defendant, Cross-complainant and
          Appellant.

          APPEAL from a judgment of the Superior Court of Los Angeles County,
Huey P. Cotton, Judge. Reversed and remanded.
          Anaya Law Group, Alana B. Anaya and Jonathan A. Malek for Defendant, Cross-
complainant, and Appellant.
          Law Offices of Alessi & Koenig, Thomas Bayard and Ryan Kerbow, for Plaintiff,
Cross-defendant, and Respondent.
                                         ______________________________
       Jerome Adelman appeals from a money judgment in favor of respondent Ronald
Adelman, his son. Appellant argues that the parties were partners in a restaurant
business, and that he is entitled to set off half of the partnership liabilities against
respondent’s damage award. We agree that the parties formed a partnership, reverse the
judgment, and remand the case to the trial court to consider the parties’ respective rights
and liabilities as partners.

                     FACTUAL AND PROCEDURAL SUMMARY
       Respondent located the restaurant, Maui Grill Chicken, and bought it in February
2010 in the name of his business entity, Scoop Enterprises, LLC. He negotiated the
restaurant purchase and the building lease. Both parties personally guaranteed the lease.
Appellant funded the purchase of the business and all equipment.
       On February 16, 2010, the parties entered into an agreement, drafted by appellant,
which provided that appellant’s “initial ownership” in the restaurant would be 51 percent,
while respondent’s would be 49 percent. The agreement provided further:
       “1. Ron Adelman is to purchase his 49% interest by managing the Restaurant
based on an annual Salary of $50,000.
       “2. The cost of purchasing the Business is the purchase price of $52,500.00 plus
additional equipment of approximately $5,000.00 and Escrow Expenses of $1,000.00.
       “3. Once Ron Adelman has worked off the One-half of the purchase price of the
business then his . . . percentage shall become 50%.
       “4. Ron Adelman is to be the managing partner, which includes the daily oversight
of inventory, employees & general management of the restaurant, and his compensation
shall [be] $50,000.00 annually and said compensation shall commence once he has paid
for his 50% interest. Ron Adelman is to receive an additional 10% of the net profit for
being the managing partner.
       “5. Ron Adelman’s management position and salary of $50,000.00 are to run for a
period of two (2) years, however should said position or salary be changed then he is

                                                2
entitled to a severance payment of $50,000.00 and the value of his ownership interest in
the business.
       “6. Either Partner shall be able to buy out the interest of the other Partner based
upon either their own evaluation of the value of the business or by the use of the Business
Broker chosen by both partners. The cost of the buy out shall be paid within two (2)
years after the Purchase plus interest at a rate to be agreed upon between the Partners, at
the time of the buy out.
       “7. It is further agreed that NO family member may [be] employed in the business
without the agreement of both Partners.
       “8. No profits are to be drawn by either partner until the initial investment of the
Partners has been paid in full and $50,000.00 is in the Restaurant Account.
       “9. The initial first month’s rent is to be paid to Jerome Adelman within 90 days
from the date hereof and is to come from the receipts of the business and further that all
purchases made after payment of the purchase price of the business is to come from the
cash flow of the business.”
       Appellant wanted respondent to earn his partnership interest by managing the
restaurant because he had failed to complete previous business projects. Respondent was
responsible for the restaurant’s day-to-day operations. He opened its bank accounts and
made all cash deposits. He hired all employees. He set up payroll, holding himself out as
the business’s president. He registered the business with the Employment Development
Department representing appellant as having 100 percent ownership, but listing himself
as a partner. Appellant represented himself to respondent and to the Internal Revenue
Service as the sole owner of the restaurant. Respondent was issued a W-2 wage and tax
statement for 2011, showing he was paid $26,385.1
       Despite the provision in the parties’ agreement that rent and purchases would be
covered by the cash flow of the restaurant, appellant paid the restaurant’s rent and

       1
         The settled statement, apparently in error, reflects that appellant authorized
payroll to pay him $28,385.

                                              3
financed purchases of supplies and equipment. He advanced in total $95,187.27.
Respondent used appellant’s credit card for purchases in 2011 and 2012. He sold some
equipment and kept the proceeds because he believed appellant owed him money. The
business was never profitable, and it closed in less than two years. When appellant
stopped paying rent, the landlord filed an eviction action. In 2012, the Board of
Equalization charged appellant $7,172.39 for sales tax appellant had failed to pay.
       In an e-mail he sent in April 2011, appellant chastised respondent for counting his
work hours and threatening to quit, and contrasted his situation with that of “manager[s]
in the food business . . . [who] don’t ever have a chance of owning anything.” In January
2012, appellant notified respondent that he would receive an accounting of appellant’s
investment and other loans to the business, respondent’s “partnership obligation,” and
“what you have left from your mgr contract.”
       In May 2012, respondent sued appellant for breach of contract and quantum
meruit, seeking $138,000 in damages. Respondent alleged appellant failed to pay him
any compensation under the original agreement, as well as under a subsequent oral
agreement that increased respondent’s compensation by $38,000 a year. Respondent also
alleged appellant failed to “execute any documentation regarding the transfer of
ownership interest in the restaurant” to respondent. Appellant cross-complained for
breach of contract, breach of fiduciary duty, and breach of the duty of good faith and fair
dealing; he sought dissolution of partnership and accounting. The cross-complaint
alleged that respondent breached the partnership agreement and his duties as a managing
partner.
       The court issued a statement of decision after a bench trial. It found the parties’
agreement ambiguous, and adopted respondent’s interpretation that respondent was hired
as a manager with a salary of $50,000, which was to be applied towards the purchase of
respondent’s interest in the business after the conclusion of the two-year management
period. The court found the interpretation was supported by appellant’s treatment of the
business as his own for federal tax income purposes and by a note on a copy of the
agreement delivered to respondent in April 2011, which stated, ‘“Jerry is 100% owner of

                                             4
the LLC for 2010 since the requirements above were not met by Ron.’ [Exhibit 18].” The
court concluded respondent worked “diligently and consistently,” but because the
business failed in less than two years, he did not work long enough to purchase his 49
percent ownership in the business.
       The court rejected respondent’s contention that he was entitled to $100,000 in
compensation because respondent was to pay that amount in labor for “the opportunity to
[try to] become a partner.” It acknowledged the agreement did not provide clearly what
would happen if the business failed, but nevertheless concluded the severance provision
was triggered by the business’s failure because respondent’s pay was effectively reduced
from $50,000 a year to $0. Respondent was awarded $50,000 in severance pay, plus
$11,615—the difference between the $38,000 in additional pay he had been orally
promised and the $26,385 he received. Because the court concluded respondent was not
a partner, the court ruled against appellant on the cross-complaint.
       Appellant’s motion for new trial was denied, and judgment for respondent was
entered in the amount of $61, 615. This appeal followed.

                                      DISCUSSION
                                             I
       “[T]he association of two or more persons to carry on as coowners a business for
profit forms a partnership, whether or not the persons intend to form a partnership.”
(Corp. Code, §16202, subd. (a).) The existence of a partnership is an issue of fact to be
determined from the parties’ agreement, conduct, and the surrounding circumstances.
(Persson v. Smart Inventions, Inc. (2005) 125 Cal.App.4th 1141, 1157; Holmes v. Lerner
(1999) 74 Cal.App.4th 442, 454.) A partnership agreement is subject to the general rules
of contract interpretation. (Scudder v. Perce (1911) 159 Cal. 429, 432.) The
determination whether a partnership was formed is reviewed for substantial evidence—
evidence that is relevant and adequate to support that determination. (Young v. Gannon
(2002) 97 Cal.App.4th 209, 225; Bank of California v. Connolly (1973) 36 Cal.App.3d
350, 364.)

                                             5
       Appellant urges us to find that the inclusion of contractual language in the
complaint constitutes a judicial admission that respondent was a partner. We decline to
do so. The doctrine of judicial admissions applies to unequivocal statements of fact, but
not to “[l]egal conclusions and assertions involving a mixed question of law and fact.”
(Stroud v. Tunzi (2008) 160 Cal.App.4th 377, 384; Castillo v. Barrera (2007) 146
Cal.App.4th 1317, 1324.) Where a written contract is incorporated in a pleading, its
meaning is an issue of law for the court to decide. (Davies v. Sallie Mae, Inc. (2008) 168
Cal.App.4th 1086, 1091.) An ambiguous contract may require consideration of extrinsic
evidence. (Cedars–Sinai Medical Center v. Shewry (2006) 137 Cal.App.4th 964, 980.)
As we explain below, the existence of a partnership does not depend solely on the parties’
written agreement; nor is that agreement unambiguous. As the trial court noted, the
agreement is silent about compliance and default, and the parties advanced two very
different theories of its meaning: that respondent became a partner with 49 percent
interest at inception, subject to revocation, or that he was not intended to become a
partner until he bought his 49 percent interest by working as a manager for two years.
The incorporation of the terms of an ambiguous contract into the complaint is not a
judicial admission.
       The trial court adopted respondent’s interpretation that the parties did not form a
partnership because appellant required respondent to work for free for two years in order
to buy his 49 percent interest. That interpretation is flawed.
       Under the general rules of construction, ‘“[c]ourts must interpret contractual
language in a manner which gives force and effect to every provision, and not in a way
which renders some clauses nugatory, inoperative or meaningless.’ [Citation.]”
(Hemphill v. Wright Family, LLC (2015) 234 Cal.App.4th 911, 915.) The parties’
agreement provides for an initial 49/51 percent split in ownership and requires respondent
to purchase his 49 percent by managing the restaurant for two years at a salary of
$50,000. Under the terms of the severance provision, which applies during those first
two years, respondent is entitled to “the value of his ownership interest in the business,”
in addition to the severance payment of $50,000. The court’s conclusion that respondent

                                              6
did not have an ownership interest during the first two years renders the clause regarding
the value of his interest meaningless: had it been intended that respondent would have no
ownership interest during that period, there would have been no reason to provide for a
valuation of his interest.
       Even assuming the parties intended that a partnership arise only after a buy-in
period, that intent is not determinative of the nature of their actual relationship, which the
court failed to consider. The existence of a partnership must be determined from “the
nature of the relation agreed upon rather than the name which the parties have given to
it.” (Constans v. Ross (1951) 106 Cal.App.2d 381, 386.) If the essential elements of a
partnership are established, the parties may not deny its existence. (See e.g. California
Employment Stabilization Commission v. Walters (1944) 64 Cal.App.2d 554, 558 [“It is
the intent to do the things which constitute a partnership that usually determines whether
or not that relationship exists between the parties”].)
       The general elements of a joint venture or a partnership are “(1) joint interest in a
common business; (2) with an understanding to share profits and losses; and (3) a right to
joint control.” (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 819.) A
community of interest exists between partners when they associate to carry on a business.
(Dills v. Delira Corp. (1956) 145 Cal.App.2d 124, 131). That community of interest
empowers each partner to make contracts, incur liabilities, and manage or control the
business. (Smith v. Grove (1941) 47 Cal.App.2d 456, 462.) Partners may contribute
labor or capital, and one partner may relinquish control of the business to the other.
(Mercado v. Hoefler (1961) 190 Cal.App.2d 12, 16–17; Dills v. Delira Corp., supra, at
p. 132.) Unless they agree otherwise, partners typically are not compensated for their
services, on the theory that their contributions offset each other. (Vangel v. Vangel
(1953) 116 Cal.App.2d 615, 631.) Partners also typically agree to share profits and
losses, but no actual sharing of profits is required in the case of a new business that has
no profits. (Holmes v. Lerner, supra, 74 Cal.App.4th at p. 455.)
       The parties’ relationship in this case, from its inception, exhibited all essential
elements of a partnership. Respondent came up with the idea to buy the restaurant,

                                              7
negotiated the purchase and lease, bought it in the name of his business entity and signed
the lease, which both parties guaranteed. Thus, both parties signed contracts and incurred
liabilities. Each party contributed either capital or labor. Appellant financed the business
throughout its existence; respondent managed it. As the trial court found, respondent was
not entitled to draw salary until he worked off his 49 percent interest in the business
during the first two years. He was then expected to work off half of the purchase price to
reach his 50 percent interest. The expectation that respondent would provide his services
for free to offset appellant’s contribution of capital is consistent with, rather than contrary
to, a partnership arrangement.
       The parties agreed to draw profits only after their initial investment had been paid
off and the business had become profitable. Their intention to share losses may be
inferred from the provision to share profits, with the caveat that where one party provides
labor and the other capital, “neither party is required to reimburse the other for losses
sustained. In the event of loss, the party contributing capital loses his capital and the one
contributing labor loses the value of his efforts. [Citations.]” (April Enterprises, Inc. v.
KTTV, supra, 147 Cal.App.3d 805, 819–820.)
       The court erred in relying on appellant’s representation of the business as his own.
The note denying the existence of a partnership in 2011 is not in the record on appeal, but
a subsequent e-mail indicates appellant did consider respondent a partner in 2012.
Regardless, neither appellant’s subjective views of the relationship, nor his tax decisions
are determinative of the existence of a partnership. (See Corp. Code, § 16202, subd. (a)
[subjective intent to form partnership not a necessary element]; cf. In re Marriage of
Geraci (2006) 144 Cal.App.4th 1278, 1289–1293 [husband’s dba filing for income tax
purposes designating wife as general partner did not create partnership where wife was
unaware of designation and husband carried business on his own].) The court’s
conclusion that no partnership was formed is contrary to the law and evidence.
                                            II
       Appellant argues that respondent is precluded from recovering any damages under
the parties’ agreement because he breached it whether or not it was a partnership

                                               8
agreement. In the alternative, he urges us to offset his losses against respondent’s award.
We decline to consider these arguments on the limited record before us.
       Because appellant proceeds on less than a complete settled statement, he must
“state the points to be raised on appeal; the appeal is then limited to those points unless,
on motion, the reviewing court permits otherwise.” (Cal. Rules of Court, rule
8.137(b)(2).) “Stating the points to be raised on appeal enables the respondent to
determine whether additional portions of the oral proceedings should be included in the
settled statement. [Citation.] Failure to include issues in the settled statement precludes
the appellant from raising them on appeal. [Citation.]” (Von Nothdurft v. Steck (2014)
227 Cal.App.4th 524, 534.)
       The settled statement lists five issues. In the first two, appellant argues
specifically for the applicability of the doctrine of judicial admissions and challenges the
court’s finding that respondent was not a partner in the restaurant. Appellant then asks
whether the court erred in finding for respondent on the complaint and cross-complaint.
The latter questions are so broad that in their totality they cover the entire trial without
giving respondent any notice regarding the specific issues appellant intends to raise on
appeal. Such an approach is inconsistent with the use of a limited settled statement. It
also is unclear from the record whether appellant’s theory at trial was that respondent
materially breached the parties’ agreement regardless of whether it was a partnership
agreement.2

       2
         Were we to consider appellant’s claim that respondent is completely precluded
from recovering damages, we would have to deny it. Appellant has not challenged, and
we do not reach, the court’s application of the severance provision in this case. The
limited record before us shows respondent managed the restaurant until it closed, but
there is no evidence that he brought on its failure. Thus, it cannot be said that he
materially or totally breached the parties’ agreement, so as to completely excuse
appellant’s performance. (See 1 Witkin, Summary of Cal. Law (10th ed. 2005)
Contracts, § 852, p. 938 [any breach that causes measurable injury gives injured party
right to damages, but only material breach is ground for termination by injured party].)
The statement of decision also indicates that damages were awarded in part under a
separate oral contract, evidence of which does not appear in the record on appeal, and
which appellant does not appear to challenge.
                                               9
       Because the court concluded respondent was not a partner, it apparently did not
consider the merits of appellant’s cross-complaint, which was based on the existence of a
partnership and included claims of breach of contract, breach of fiduciary duty and fair
dealing, as well as requests for dissolution and accounting. The proper remedy is to
remand the case to the trial court to rule on the merits of the cross-complaint in light of
our conclusion that a partnership existed.
                                              III
       Appellant moved this Court to enforce a global settlement agreement entered into
the minutes in another case (Adelman v. Adelman [Super. Ct. L.A. County, No.
BC522214]) and purporting to resolve both cases, or in the alternative to stay this appeal
to allow its enforcement. The motion was denied and respondent moved for sanctions
against appellant’s counsel. After considering appellant’s opposition to the motion for
sanctions, we decline to impose sanctions, and we discharge the order to show cause.
       Respondent represents appellant’s motion was an improper attack on the trial
court’s ruling in case No. BC522214 that the settlement agreement was unenforceable.
Appellant, however, claims that ruling pertained to the enforceability of a subsequent
written agreement, not the agreement entered into the minutes. On the limited exhibits
before us, we cannot determine the scope of the trial court’s ruling, nor can we evaluate
the reasons for the parties’ various tactical decisions in case No. BC522214. A
settlement agreement entered into the minutes may be enforced despite any dispute over
the terms of a subsequent written agreement, and it may be enforced through various
means, including under Code of Civil Procedure section 664.63 or in a separate lawsuit in
equity. (Elyaoudayan v. Hoffman (2003) 104 Cal.App.4th 1421, 1431, 1432, fn. 2.)
Section 664.6 is not the proper method to enforce a settlement agreement on appeal.

       3
         Code of Civil Procedure section 664.6 (hereafter section 664.6) provides: “If
parties to pending litigation stipulate, in a writing signed by the parties outside the
presence of the court or orally before the court, for settlement of the case, or part thereof,
the court, upon motion, may enter judgment pursuant to the terms of the settlement. If
requested by the parties, the court may retain jurisdiction over the parties to enforce the
settlement until performance in full of the terms of the settlement.”
                                              10
(See, e.g., Globalist Internet Technologies, Inc. v. Reda (2008) 167 Cal.App.4th 1267,
1271 [noting section 664.6 inapplicable on appeal]; Conservatorship of McElroy (2002)
104 Cal.App.4th 536, 544, quoting In re Marriage of Assemi (1994) 7 Cal.4th 896, 911
[section 664.6 motion to enforce settlement agreement made in trial court].) But on the
record before us we cannot say that the request for a stay to enforce the agreement
entered into the minutes was indisputably without merit or made for an improper motive.
(In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650.)

                                      DISPOSITION
       The judgment is reversed and the case is remanded for further proceedings not
inconsistent with this decision. The parties are to bear their costs on appeal.
       NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

                                                         EPSTEIN, P. J.
We concur:

       WILLHITE, J.

       MANELLA, J.

                                             11