BT-I v. Equitable Life Assurance Society (1999)

BT-I, Plaintiff and Appellant, v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Defendant and Respondent.

[Modification of opinion (75 Cal. App. 4th 1406; 89 Cal.Rptr.2d 811) on denial of petition for rehearing.]

BEDSWORTH, J.-The Equitable Life Assurance Society of the United States (Equitable) petitions for rehearing, arguing we made a bad policy choice in adopting a rule that a general partner's fiduciary duty not to purchase and foreclose partnership debt cannot be waived. A better rule, it suggests, would be that fiduciary duties can be waived if the transaction is fair in light of all of the circumstances. Equitable also takes issue with several out-of-state decisions we drew upon. And, it contends we omitted and/or misstated some facts.

The legal arguments are too late, since Equitable did not make them in its brief. It did not respond to BT-I's contention that such a fiduciary duty existed, nor advance any of the policy reasons it now urges. Likewise, there was no suggestion of the narrower rule Equitable now prefers. Nor did Equitable take issue with the cases from other jurisdictions it now finds wide of the mark. As to the factual points, Equitable does not argue, let alone demonstrate, any material facts were either omitted or wrongly stated.

To remove any possible doubt that Equitable's breach of fiduciary duty was its purchase and foreclosure of partnership debt, and to clarify minor factual points, it is ordered that the opinion filed herein on October 29, 1999, be modified in the following particulars:

1. On page 3, line 3, delete the last sentence which reads: "The office tower was built but not the retail complex." [76 Cal. App. 4th 684f]

2. On page 3, first paragraph, modify the second to the last sentence to read as follows: "Equitable put up $6 million in additional capital and received in return sole title to the retail complex, along with extensive powers giving it the sole right to manage and control the partnership and its assets."

3. On page 4, line 3, the words "or any other bidder" are deleted, and the sentence now reads: "Unknown to BT-I or other bidders, the bank had already agreed to sell the loans to Equitable if it matched the high bid, and further agreed not to deal directly with BT-I."

4. On page 4, second paragraph, second to last sentence, the words "for the project" are to be inserted between the words "offer" and "but" so that the sentence reads: "Three days before the sale, BT-I made a $39 million cash offer for the project but Equitable turned it down, both as lender and on behalf of the partnership."

5. On page 5, first paragraph, first sentence, the words "and foreclosure" are to be inserted between the words "purchase" and "of" so that the sentence reads: "BT-I contends the partnership agreement did not expressly authorize Equitable's purchase and foreclosure of partnership debt, and we should not interpret it to allow such conduct because the fiduciary duties of loyalty and good faith cannot be waived."

6. On page 6, second paragraph, first sentence, the words "and foreclose out one's partner" are to be inserted between the words "debt" and "can" so that the sentence reads: "The question then becomes whether the fiduciary duty not to purchase partnership debt and foreclose out one's partner can be contracted away in the partnership agreement."

7. On page 8, last paragraph, first sentence, the words "and then foreclose" should be added to the end of the sentence so that the sentence reads: "We do not believe the partnership agreement can be read as permitting Equitable to purchase the loans for its own account and then foreclose."

8. On page 8, last paragraph, last sentence, the words "and foreclosure" are to be inserted between the words "purchase" and "of" so that the sentence reads: "Even if [76 Cal. App. 4th 684g] the language were broad enough to justify such an interpretation, we hold a partnership agreement cannot relieve a general partner of its fiduciary duties to a limited partner and the partnership where the purchase and foreclosure of partnership debt is involved."

9. On page 9, first paragraph, third sentence, the words "and foreclosing" are to be inserted between the words "buying" and "the" so that the sentence reads: "But Equitable's conduct in buying and foreclosing the loans went far beyond whatever safe harbor might be found in the partnership agreement."

10. On page 10, second paragraph, first sentence, the words "buy the loans" are deleted and the word "proceed" is inserted in its place, and the word "them" is deleted at the end of the sentence and the words "the loans" are inserted in its place, so that the sentence reads: "Equitable claims it was free to proceed after it offered BT-I the chance to participate in the initial purchase and later, after suit was filed, the opportunity to pay its 30 percent prorata share and have the partnership repurchase the loans."

11. On page 10, second paragraph, fifth sentence, the words "and foreclose" are to be inserted between the words "purchase" and "partnership" so that the sentence reads: "Either route would amount to sanctioning a waiver of the fiduciary duty not to purchase and foreclose partnership debt, and abrogate an obligation fundamental to the nature of the fiduciary relationship."

These modifications do not effect a change in judgment.

The petition for rehearing is denied.

Crosby, Acting P.J., concurred.

[End]