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Pellegrini v. Weiss 
Filed July 29, 2008
Court of Appeals of the State of California, Sixth Appellate District
Cite as 2008 SOS 4562
 
MOU Evidenced the Fiduciary Duty Among Joint Ventures

David J. Weiss and George Pellegrini entered into a joint venture agreement for the purchase and development of real property in the Aptos hills called Telford Ranch.  The Telford Ranch was owned by a corporation known as Telford, Inc., which was a wholly owned subsidiary of the corporation CKM, Inc.  

The only shareholders in CKM, Inc., were Randy Cook, owning 85 % of the outstanding shares, and Ken Marks, owning 15 % of the remaining shares.

Cook and Marks were interested in selling Telford Ranch to Weiss and Pellegrini but wanted to structure the sale as one for stock in CKM, Inc., rather than a straight sale of the real property. Weiss and Pellerini acceded to the proposal and thus following a year of negotiations, the terms of the sale were agreed upon among the parties.  

While these negotiations with Cook and Marks were being finalized, in November 2000, Pellegrini and Weiss formalized their joint venture agreement in an MOU.

In February 2001, acting as an attorney for Telford, Inc, Weiss filed a statement of domestic Stock Corporation with the California Secretary of State, naming himself and Pellegrini as sole directors of both Telford, Inc. and CKM, Inc.

Meanwhile, on February 2001, Weiss contacted Atty. Robert Schalk, a tax specialist, to address taxation and corporate issues related to Telford, Inc, and CKM, Inc.  Schalk recommended that they immediately transfer Telford Ranch from Telford, Inc. to CKM, Inc., and dissolve Telford, Inc.  Weiss acceded to the recommendation of Robert Schalk but Pellegrini did not acquiesce.

The parties eventually came to an impasse.

Respectively, on March 7, 2002 and March 19, 20, Weiss filed a statement of domestic stock corporation concerning Telford, Inc. and CKM Inc. with the California Secretary of State stating that he and his wife, Patricia Weiss would now be the officers and directors of Telford, Inc and  CKM, Inc .

On March 22, 2002, Weiss and Patricia Weiss executed a certificate of election of wind up and dissolve, and certificate of dissolution regarding both Telford, Inc. and CKM, Inc.  In doing so, they certified under penalty of perjury that they constituted a majority of the directors in office.  

Weiss then voided Pellegrini’s stock certificate, which represented 87.5 shares of CKM, Inc, and withdrew money from the corporate bank account, removing $40,000 and placing it into an account to which Pellegrini had no access.

In April 2003, Pellegrini filed suit against Weiss in Santa Cruz Superior Court alleging claims of breach of contract, breach of fiduciary duty, and fraud.  Weiss counter sued Pellegrini for restitution and rescission.

On May 6, 2005 following trial, the jury returned a verdict in favor of Pellegrini on the breach of fiduciary claim only, awarding him $300,000 in damages.  Pellegrini brought a motion for attorney fees that were denied by the trial court on the ground that there was no legal basis to award fees.

Weiss asserts numerous errors on appeal like the assertion that the verdict was inconsistent, the amount of damages was excessive, and date for the running of interest on the judgment was incorrect.

On this cross-appeal with the Court of Appeals of the State of California, Sixth Appellate District, Pellegrini asserts the trial court erred in denying his motion for attorney fees.

In affirming the judgment of the of the trial court, the Court of Appeals of the State of California, Sixth Appellate District held that:

•    Where plaintiff and defendant testified they worked together for common purpose of developing real estate for profit and entered into an MOU clearly stating that both would work together toward common goal of acquiring, developing, and selling specific property and providing a profit sharing formula, substantial evidence supported the finding of fiduciary duty between parties as joint ventures.

Substantial evidence demonstrated that defendant breached this duty by attempting to oust plaintiff as CEO of corporation formed by parties that owned property at issue, canceling plaintiff’s stock certificate in corporation, and transferring funds from corporate bank account to one plaintiff could not access.  

•    Where parties’ MOU was only agreement upon which plaintiff asserted a cause of action for attorney fees and only agreement incorporated by reference into complaint, and MOU did not contain an attorney fee provision, plaintiff had no legal basis for fee award sought.




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