Contracts
Aug. 13, 2002
Landlord Cannot Sue Firm Partners for Fraud
LOS ANGELES - Former members of an Orange County law firm cannot be sued for fraud for taking partnership draws from their failing firm while they owed money to their landlord, a state appellate court has ruled.
The firm's former landlord, the Annod Corp., had sued the last 10 partners of Hamilton & Samuels of Newport Bach individually in 1999, contending that the partnership draws they took between August 1995 and February 1996, about $400,000 total, should have gone to Annod instead. Hamilton & Samuels folded in 1996.
The partners divided into three groups and filed three separate summary judgment motions. They argued that their lease didn't allow Annod to sue them individually and that the money they took was fair compensation for work they did for the firm. Orange County Superior Court Judge Raymond J. Ikola granted the motions. Annod appealed.
The 4th District Court of Appeal sided with Ikola that Annod's case should not go to trial. In its 18-page published opinion, the appellate court said that the partners had shown the payments were made in good faith and for "reasonably equivalent value." Annod Corp. v. Hamilton & Samuels, 2002 DJDAR 9033 (Cal. App. 4th Dist. Aug. 8, 2002).
"Underlying Annod's fraudulent intent arguments is an obvious complaint that it was simply unfair and inappropriate for the partners to receive partnership draws while failing to pay their rent. This is a moral issue we need not decide," Justice Eileen C. Moore wrote. "Besides, it is a risk Annod knowingly accepted as part and parcel of the lease agreement."
Philip Green, a former partner named in the suit, said he was pleased with the decision.
"The distributions taken by the partners were extremely fair to creditors, and far less than we could have justified based on the work being put in, and the moneys being collected," Green said.
Annod's trial attorney, Timothy Aires of Aires Raynsford in Newport Beach, said Annod was reviewing the decision.
Katherine Gaidos
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