Case Name: San Giorgio v. Pavlina, et al.
Case No.: 17CV310026

After full consideration of the evidence, the separate statements submitted by the parties, and the authorities submitted by each party, the court makes the following rulings:

This is a dispute between siblings. According to the allegations of the complaint, PAV JAM, LLC (“PAV JAM”) is the general partner of limited partnerships JAM Limited Partnership, S V JAM, LP, CCPO BC LP, and K. M. Pavlina LP (collectively, “limited partnerships”). (See complaint, ¶¶ 6, 19.) The lone members of PAV JAM are plaintiff Julie A. Pavlina San Giorgio (“Plaintiff”) and Stephen J. Pavlina, Jr. (“Stephen”), who each hold a 50% ownership interest. (See complaint, ¶ 19.) Stephen is the manager for PAV JAM. (See complaint, ¶ 20.) During and as a result of Stephen’s management of limited partnership asset The Remington Grove Apartments, Stephen, PAV JAM, Jam Limited Partnership and S V JAM, LP were accused of fraud in Bhayani, et al. v. The JAM Limited Partnership, et al. (Super. Ct. Santa Clara County, 2010, No. 1-10-CV-167490), in which a judgment was entered against Stephen, PAV JAM, JAM Limited Partnership and S V JAM LP—which, again, Stephen managed. (See complaint, ¶ 22, subpara. (a).) The jury found clear and convincing evidence that defendants, including Stephen personally, acted with malice, oppression or fraud in defrauding tenants who resided at the Remington Grove Apartments, and the trial proceeded to a second phase to determine the amount of punitive damages. (June 30, 2015 judgment on jury’s verdict after order dated April 10, 2015, p.2:14-17.) Judgment was entered against the defendants, including Stephen personally, on the fraud cause of action in the sum of $1,739,534.90. (Id. at p.3:15-19.) Thereafter, the judgment was settled by Stephen using funds paid by capital contributions on behalf of the JAM Limited Partnership partners. (Id.) Stephen has yet to return the wrongly diverted funds from JAM Limited Partnership. (See complaint, ¶ 22, subpara. (b).) Stephen also has denied Plaintiff full access to PAV JAM books and records, and has refused to provide a detailed accounting of the handling and whereabouts of revenues received by PAV JAM and the limited partnerships. (See complaint, ¶ 22, subparas. (c) and (d).) Stephen consistently makes decisions as manager of PAV JAM that elevate his personal interests over Plaintiff’s, thereby breaching his fiduciary duty owed to her. (See complaint, ¶ 22, subparas. (e)-(g).)

Stephen’s communications with Plaintiff and his other actions with respect to other professionals, in addition to his persistent mismanagement of the limited partnerships and PAV JAM demonstrate that the siblings cannot agree on the management of the company and are thus at an impasse. (See complaint, ¶¶ 22, subparas. (i)-(l), 25-27.) On May 3, 2017, Plaintiff, as the only other member of PAV JAM, exercised her authority to remove Stephen as manager; however, Stephen has refused to relinquish his position as manager in violation of PAV JAM’s governing provisions, continuing to operate PAV JAM. (See complaint, ¶ 24.) On May 12, 2017, Plaintiff filed a complaint against Stephen and the limited partnerships, asserting causes of action for:

1) Involuntary dissolution of limited liability company;
2) Involuntary dissolution of limited partnerships;
3) Breach of fiduciary duty;
4) Accounting; and,
5) Appointment of a receiver.

Defendant Stephen makes two separate motions for summary adjudication of cause of action. The first motion for summary adjudication is made as to the third through fifth causes of action. The second motion is made as to the second cause of action.

Defendant’s burden on summary judgment

“A defendant seeking summary judgment must show that at least one element of the plaintiff’s cause of action cannot be established, or that there is a complete defense to the cause of action. … The burden then shifts to the plaintiff to show there is a triable issue of material fact on that issue.” (Alex R. Thomas & Co. v. Mutual Service Casualty Ins. Co. (2002) 98 Cal.App.4th 66, 72; internal citations omitted; emphasis added.)

“The ‘tried and true’ way for defendants to meet their burden of proof on summary judgment motions is to present affirmative evidence (declarations, etc.) negating, as a matter of law, an essential element of plaintiff’s claim.” (Weil et al., Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2007) ¶ 10:241, p.10-91, citing Guz v. Bechtel National Inc. (2000) 24 Cal.4th 317, 334; emphasis original.) “The moving party’s declarations and evidence will be strictly construed in determining whether they negate (disprove) an essential element of plaintiff’s claim ‘in order to avoid unjustly depriving the plaintiff of a trial.’” (Id. at § 10:241.20, p.10-91, citing Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107.)

“Another way for a defendant to obtain summary judgment is to ‘show’ that an essential element of plaintiff’s claim cannot be established. Defendant does so by presenting evidence that plaintiff ‘does not possess and cannot reasonably obtain, needed evidence’ (because plaintiff must be allowed a reasonable opportunity to oppose the motion.) Such evidence usually consists of admissions by plaintiff following extensive discovery to the effect that he or she has discovered nothing to support an essential element of the cause of action.” (Id. at ¶ 10:242, p.10-92, citing Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 854-855.)

The first motion for summary adjudication as to the fourth and fifth causes of action

The notice of Stephen’s first motion for summary adjudication indicates that it is being made as to the third through fifth causes of action. However, the separate statement in support of the motion fails to make reference to the fourth and fifth causes of action, in violation of Code of Civil Procedure section 437c, subdivision (b)(1) and Rule of Court 3.1350, subdivision (d)(1). Accordingly, Stephen fails to meet his initial burden with respect to the fourth and fifth causes of action and Stephen’s first motion for summary adjudication as to the fourth and fifth causes of action is DENIED.

The first motion as to the third cause of action for breach of fiduciary duty

Stephen argues that he is entitled to summary adjudication of the third cause of action for breach of fiduciary duty because: his decision to close the swimming pool at the Remington Grove Apartments is protected by the business judgment rule, and it caused no damage to Plaintiff; he made customary distributions to Plaintiff in the last year; he has always provided Plaintiff access to PAV JAM and the limited partnerships’ financial records; his decision to remove Plaintiff as a signatory on PAV JAM’s bank accounts is within his authority as managing member of PAV JAM, protected by the business judgment rule, and caused no damage to Plaintiff; Stephen at all times cooperated with Mr. Kelly and Mr. Doyle when they worked for the Pavlina family business, and his decision to fire them is protected by the business judgment rule; Stephen did not cause the Bhayani lawsuit, and his decision to settle it is protected by the business judgment rule; Stephen never improperly or unlawfully diverted funds to or from PAV JAM or the limited partnerships; Stephen did not have a duty to disclose a tax dispute to Plaintiff because it was not material to her interests, and in fact, he did disclose all such disputes to Plaintiff; and, Stephen’s refusal to resign as managing partner of PAV JAM is supported by its operating agreement.

In opposition, Plaintiff requests judicial notice of certain documents. The Court GRANTS judicial notice of the judgment in the Bhayani lawsuit. (See Evid. Code § 452, subd. (d).) The Court did not rely on the other documents of which Plaintiff requested judicial notice for Stephen’s first motion for summary adjudication.

Stephen’s separate statement of undisputed material facts in support of the first motion lists nine “issues.” However, none of these issues as listed in the separate statement are “issues of duty” as contemplated by Code of Civil Procedure section 437c, subdivision (f)(1). Parties have not presented a joint stipulation stating the issues to be adjudicated prior to the filing of the motion, the notice of motion does not indicate that it is pursuant to section 437c, subdivision (t), and neither party has submitted a declaration stating that the motion would increase the interest of judicial economy. (See Code Civ. Proc. § 437c, subd. (t)(1)(A).) Instead, Stephen argues that the Court may summarily adjudicate each “distinct wrongful act” because Lilienthal & Fowler v. Super. Ct. (Karr) (1993) 12 Cal.App.4th 1848, stated that a Court may summarily adjudicate “an alleged wrongful act in a cause of action so as long as the act is distinct from another alleged wrongful act included in the same cause of action.” (Def.’s memorandum of points and authorities in support of first motion for summary adjudication, p.8:3-7.) However, Stephen misunderstands Lilienthal. Lilienthal was an action for legal malpractice and was based on legal services provided on two separate and distinct matters regarding two separate properties that had nothing to do with each other. (See Lilienthal, supra, 12 Cal.App.4th at p.1850.) In this situation, the Lilienthal court allowed a moving party to “present a motion for summary adjudication challenging a separate and distinct wrongful act even though combined with other wrongful acts alleged in the same cause of action.” (Id. at pp.1854-1855.) Lilienthal was followed by Hindin v. Rust (2004) 118 Cal.App.4th 1247, which reviewed Lilenthal, explaining that the decision relied upon the primary rights theory. (See Hindin v. Rust (2004) 118 Cal.App.4th 1247, 1257-1258.) Here, unlike Lilienthal and Hindin, the purported acts are not “distinct and separate.” These acts all are the basis for both Plaintiff’s allegations supporting dissolution of the limited partnerships and her breach of fiduciary duty causes of action. As to the breach of fiduciary duty cause of action, they are not separate and distinct as they all support the violation of a fiduciary duty owed to a partner to act reasonably, fairly, and in accordance with the partnership agreements. Thus, the Court will turn to whether Stephen met his initial burden as to the breach of fiduciary duty cause of action.

As stated above, Stephen must demonstrate that the third cause of action lacks merit such that it is completely disposed of. One of the critical issues for the third cause of action is whether Stephen’s alleged actions with regards to the Bhayani lawsuit constitutes a breach of his fiduciary duty owed to Plaintiff. Stephen argues that “Plaintiffs third cause of action for breach of fiduciary duty fails because Mr. Pavlina did not cause the Bhayani lawsuit, and his decision to settle it is protected by the business judgment rule.” (See Def.’s separate statement of undisputed material facts, issue 6; see also Def.’s memorandum of points and authorities in support of first motion for summary adjudication, p.16:4-25.) In support of his argument, he cites to his declaration filed in support of his opposition to the motion for receiver, and portions of his deposition testimony. As to the Bhayani lawsuit issue, the complaint alleges that Stephen mismanaged the rental of residential units at the Remington Grove Apartments such that a judgment in excess of $1.7 million was entered against Stephen personally and against the limited partnerships, but that the judgment was later settled with payment only made by the limited partnerships and Stephen has not returned any funds to the limited partnerships’ accounts in derogation of his fiduciary duty to make management decisions that are fair, reasonable and impartial, and instead elevating his personal interests over Plaintiff’s. (See complaint, ¶ 22, subparas. (a)-(b), (e)-(g).) Paragraph 53 of his declaration only notes that “Defendants believed the [Bhayani] claims were wholly without merit… Defendants’ counsel… defeated a majority of the claims at trial, but the plaintiffs prevailed on other claims… thereafter, in March 2016, [the parties]decided to resolve and settle the case with no admission of wrongdoing… [t]his settlement was approved by the Court thereafter… Plaintiff was kept abreast of and well aware of the lawsuit, reacted sympathetically, and did not object to the settlement or share any concerns or issues with me in connection with the defense of the lawsuit or settlement until now…. I used my judgment as the Managing Member of PAV JAM in addressing and resolving this lawsuit in what I believed to be in the best interest of the family business.” (See Def.’s separate statement of undisputed material facts in support of first motion for summary adjudication, nos. 38 and 40, citing Pavlina decl. in opposition to Pl.’s motion for appointment of receiver and preliminary injunction, ¶ 53.)

Stephen’s testimony also indicates that he was never involved in talking to the tenant, did not decide or approve charges against security deposits, and acted in the best interest of the family business. (See evidence cited by Def.’s separate statement of undisputed material facts in support of first motion for summary adjudication, nos. 36-37, 39.) This evidence does not adequately respond to the allegation regarding the breach of fiduciary duty regarding the use of limited partnership funds to settle his personal liability in the Bhayani lawsuit. As stated above, the jury found clear and convincing evidence that defendants, including Stephen personally, acted with malice, oppression or fraud in defrauding tenants who resided at the Remington Grove Apartments, and the trial proceeded to a second phase to determine the amount of punitive damages. (June 30, 2015 judgment on jury’s verdict after order dated April 10, 2015, p.2:14-17.) Judgment was entered against the defendants, including Stephen personally, on the fraud cause of action in the sum of $1,739,534.90. (Id. at p.3:15-19.) Moreover, the case cited by Stephen in support of the presumption of the business judgment rule, Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, explicitly states that “[a]n exception to the presumption afforded by the business judgment rule accordingly exists in ‘circumstances which inherently raise an inference of conflict of interest’ and the rule ‘does not shield actions taken without reasonable inquiry, with improper motives, or as a result of a conflict of interest.’” (Id. at p. 1045.) Here, the circumstances inherently raise an inference of a conflict of interest such that the presumption afforded by the business judgment rule does not exist without adequate explanation.

Stephen fails to meet his initial burden as to the first motion for summary adjudication on the third cause of action. Even if Stephen had met his burden, the judicially noticeable facts surrounding this issue demonstrate the existence of a triable issue of material fact. Stephen’s motion for summary adjudication on the third cause of action is DENIED.

Plaintiff’s objections to Stephen’s evidence are not the basis for the Court’s ruling.

Stephen objects to the material facts in Plaintiff’s separate statement of undisputed material facts and Plaintiff’s separate statement of additional material facts. However, to the extent that Stephen is objecting to these material facts, they are not a proper basis for objection. To the extent that Stephen is objecting to the evidence cited within the separate statement, it does not comply with Rule of Court 3.1354. Accordingly, Stephen’s objections are OVERRULED in their entirety.

The second motion for summary adjudication of the second cause of action for involuntary dissolution of the limited partnerships

Stephen’s second motion for summary adjudication of the second cause of action seeks to summarily adjudicate the second cause of action as to each of the limited partnerships on the ground that Plaintiff cannot establish that it is “not reasonably practicable” for the limited partnerships to carry on activities. Corporations Code section 15908.02, subdivision (a) states that “[o]n application by a partner, a court of competent jurisdiction may order dissolution of a limited partnership if it is not reasonably practicable to carry on the activities of the limited partnership in conformity with the partnership agreement.” (Corp. Code § 15908.02, subd. (a).)

The parties acknowledge that there is no case explicitly defining the “reasonably practicable” standard. (See Def.’s memorandum of points and authorities in support of second motion for summary adjudication, p.8:12-13, fn.4.) Stephen contends that, based on language from out of state cases, “courts look to purpose clause to determine if the defined purpose of the entity has been fulfilled or is impossible to carry out.” (See Def.’s memorandum of points and authorities in support of second motion for summary adjudication, pp.8:13, 9:1-18, 10:1-15.) However, a case cited in a footnote of Stephen’s memo, Owen v. Cohen (1941) 19 Cal.2d 147, involved a partnership to operate a bowling alley. (Id. at p. 148.) The trial court determined that the partnership was subject to dissolution because one partner “had ‘so conducted himself in affairs relating to the business’ that it was ‘not reasonably practicable to carry on the partnership business with him.’” (Id. at pp.149-150.) The California Supreme Court affirmed the court’s order granting dissolution of the partnership, stating:

Defendant urges that the evidence shows only petty discord between the partners, and he advances, as applicable here, the general rule that trifling and minor differences and grievances which involve no permanent mischief will not authorize a court to decree a dissolution of a partnership. [Citation.] However, as indicated by the same section in Ruling Case Law and previous sections, courts of equity may order the dissolution of a partnership where there are quarrels and disagreements of such a nature and to such extent that all confidence and cooperation between the parties has been destroyed or where one of the parties by his misbehavior materially hinders a proper conduct of the partnership business. It is not only large affairs which produce trouble. The continuance of overbearing and vexatious petty treatment of one partner by another frequently is more serious in its disruptive character than would be larger differences which would be discussed and, settled. For the purpose of demonstrating his own preeminence in the business one partner cannot constantly minimize and deprecate the importance of the other without undermining the basic status upon which a successful partnership rests. In our opinion the court in the instant case was warranted in finding from the evidence that there was very bitter, antagonistic feeling between the parties; that under the arrangement made by the parties for the handling of the partnership business, the duties of these parties required cooperation, coordination and harmony; and that under the existent conditions the parties were incapable of carrying on the business to their mutual advantage.

(Owen v. Cohen (1941) 19 Cal.2d 147, 152; see also Moore v. Moore (1961) 190 Cal.App.2d 129, 131 (stating that “from the time of the inception of the partnership in January, 1955 to December, 1956, the appellant’s conduct led to constant bickering and serious arguments between the appellant and the other partners… [d]uring this period of time appellant withdrew profits against the wishes of the other partners… [t]here was also testimony that as a result of appellant’s abandonment of the partnership the business became disorganized and lost revenue… [t]his evidence is legally sufficient to support the findings and conclusion of the trial court that the partnership was dissolved”); see also Jacoby v. Feldman (1978) 81 Cal.App.3d 432, 443 (in discussing whether it was “reasonably practicable to carry on the business in partnership, the court affirmed finding for basis for dissolution, stating that “[d]issolution has been upheld where there was misappropriation of partnership funds [citation], the taking of secret profits [citation], sale of partnership assets [citation] and fraud practiced by one partner upon another [citation]”); see also Wallace v. Sinclair (1952) 114 Cal.App.2d 220, 228 (stating that “[w]here bitter and antagonistic feeling between partners has developed to the point that the partners cannot continue the partnership to their mutual advantage and both give notice terminating the partnership, a dissolution thereof is the equitable solution of an ugly situation and should be decreed”); see also Navarro v. Perron (2004) 122 Cal.App.4th 797, 801 (stating that “[w]here the court determines it is not reasonably practical to carry on the partnership, the court has no discretion to deny a partner’s application to dissolve it”).)

Stephen solely relies on two portions of Plaintiff’s deposition testimony regarding the identification of property or assets of the family businesses in danger of being lost, or a management issue related to the family business about which the parties disagree. (See evidence cited by Def.’s separate statement of undisputed material facts in support of second motion for summary adjudication, nos. 6, 7, 13, 14, 20, 21, 27, 28.) However, Stephen fails to address the allegations of the second cause of action regarding Stephen’s alleged denial of access to critical information necessary for the protection of her interests (see complaint, ¶ 45, subd. (c)), systematic concealment and withholding of information (see complaint, ¶ 45, subd. (d)), the deterioration of the parties’ relationship such that they are unable to communicate with one another and cannot agree as to who should be the manager of PAV JAM (see complaint, ¶ 45, subd. (e)), and the deadlock in the management of PAV JAM and the limited partnerships (see complaint, ¶ 45, subd. (f)). Stephen fails to meet his initial burden with respect to the second motion for summary adjudication of the second cause of action.

Even if Stephen had met his initial burden, there is voluminous evidence that the parties have a bitter and antagonistic feeling towards each other to the point where the partners cannot continue the partnership to their mutual advantage. As previously indicated above, judicially noticeable facts demonstrate that there is a triable issue of material fact as to whether Stephen has violated his fiduciary duties owed to Plaintiff with regards to the use of partnership funds to settle his personal liability in the Bhayani lawsuit. Moreover, there is evidence that: Stephen distrusts Plaintiff such that that distrust extends to the limited partnerships’ advisors (see Webster decl., exh. 17 (Def.’s depo”), exh. 20); Stephen explicitly states that the relationship has deteriorated to the point that Plaintiff “ha[s] joined the special exclusive club of NO RELATIONSHIP” (See Def.’s depo, exh. 21 (emphasis original and in 20 point font type); Stephen explicitly states that he is “tired of the grief and aggravation and stalling; it is time for [Plaintiff] and [Stephen] to split for good” (id.); Stephen explicitly noting that as of June 14, 2016, the parties “do not talk anymore” (id.); Stephen explicitly informing limited partnership advisors that he “no longer communicate[s] with my sister, Julie A. Pavlina, anymore” (Def.’s depo, exh. 22 (also stating “I no longer communicate with my sister about anything because she chose to stop communicating FIRST”); Stephen’s treatment of Plaintiff has changed because “I let my mother and sister get away with it before because they had the majority vote. But, over my dead body, I will not let my sister do the same now. I am tired of the BS of mother telling me that I was doing a Great Job, and later hammering me about doing a poor job. My sister has lately been more critical of me over the last ten months” (id.); Stephen feels that the parties “were not a team at all” (id.); Stephen notes that “[i]t is a sad situation” and that there “is a current impasse in communications between my sister and I” (id.); Stephen claiming that he is “in control of and well aware of what needs to be done:” (id.); in response to the limited partnership’s accountant’s decision to hire an appraiser on behalf of the trust, Stephen states that “it would be my strong recommendation to back off… Do you want a war with me?” (Def.’s depo., exh. 27).

Stephen’s second motion for summary adjudication of the second cause of action is DENIED.

Stephen’s objections are made to the material facts in Plaintiff’s separate statement of undisputed material facts and Plaintiff’s separate statement of additional material facts. However, to the extent that Stephen is objecting to these material facts, they are not a proper basis for objection. To the extent that Stephen is objecting to the evidence cited within the separate statement, it does not comply with Rule of Court 3.1354. Accordingly, Stephen’s objections are OVERRULED in their entirety.

The Court shall prepare the Order.