Timothy Demartini v. Michael Demartini

• Court: Court of Appeals for the Ninth Circuit
• Decided: July 6, 2020
• Docket: 17-16400
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS JUL 6 2020 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

TIMOTHY P. DEMARTINI; MARGIE Nos. 17-16400 DEMARTINI, 18-15882

Plaintiffs-Appellees, D.C. No. v. 2:14-cv-02722-JAM-CKD

MICHAEL J. DEMARTINI; RENATE DEMARTINI, MEMORANDUM*

Defendants-Appellants.

Appeal from the United States District Court for the Eastern District of California John A. Mendez, District Judge, Presiding

Argued and Submitted December 11, 2019 Pasadena, California

Before: O’SCANNLAIN and PAEZ, Circuit Judges, and SIMON,** District Judge.

Michael and Renate DeMartini appeal from summary judgment on all three

of their counterclaims against Michael’s brother, Timothy DeMartini, and his wife,

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Michael H. Simon, United States District Judge for the District of Oregon, sitting by designation. Margie. Michael and Renate also appeal from a jury verdict against them on

Timothy and Margie’s breach of contract claim. 1 The facts of this case are known

to the parties and we do not repeat them here.

I

Michael and Renate argue that the district court erred by granting summary

judgment on each counterclaim.

A

The district court properly granted Timothy and Margie’s motion for

summary judgment on Michael and Renate’s counterclaim for declaratory relief

insofar as the counterclaim sought the declaration of a “global partnership.” While

there is a genuine issue of material fact as to the scope of the oral partnership

agreement allegedly formed by Michael and Timothy DeMartini in the 1970s, any

such agreement was not one that would create what the district court termed a

“global partnership” extending to the Coan Ranch, Maltman Drive, Dorsey East

Main Street, and 625 Idaho Maryland Road properties and to the DeMartini Auto

Sales, DeMartini RV Sales, and DeMartini Sunshine Body Shop businesses. Fed.

R. Civ. P. 56(a). Michael and Renate failed to produce essential evidence that the

1 We address Michael and Renate’s appeal from the order amending the complaint, severing the partnership dissolution claim, and remanding for resolution in state court in an opinion filed concurrently with this memorandum disposition. See DeMartini v. DeMartini, Nos. 17-16400 & 18-15882, – F.3d – (9th Cir. 2020).

2 profits from these properties and businesses were shared by the couples or that

Michael and Renate participated in the management of such properties and

businesses. See Cal. Corp. Code § 16202 (defining partnership formation); Greene

v. Brooks, 45 Cal. Rptr. 99, 102 (Dist. Ct. App. 1965) (same); see also Celotex Corp.

v. Catrett, 477 U.S. 317, 322 (1986) (establishing that the party with the burden of

proof at trial must “make a showing sufficient to establish the existence of an

element essential to that party’s case” to survive summary judgment).

B

The district court erred, however, by granting Timothy and Margie’s motion

for summary judgment on Michael and Renate’s counterclaim for breach of

partnership. Failing to construe the pleadings of the pro se counterclaimants

liberally, the district court asserted that the breach claim “was predicated on the

existence of a global partnership agreement.” Michael and Renate never used the

term “global partnership.” Their counterclaim asserts a breach of the alleged oral

partnership established by the brothers in the 1970s. Although there is no genuine

issue of material fact as to a partnership agreement comprising the full range of

properties and businesses listed in Michael and Renate’s counterclaim, Michael and

Renate nonetheless produced evidence that the business managing and leasing

commercial real estate at the 12759 parcel was a partnership between the two

couples. Specifically, they produced evidence that could show that the couples

3 shared profits, participated in the management of the property, and held themselves

out as a partnership when leading the property. Such evidence is enough to create a

question of fact as to the existence of a partnership. See Spier v. Lang, 53 P.2d 138,

141 (Cal. 1935); Holmes v. Lerner, 88 Cal. Rptr. 2d 130, 138 (Ct. App. 1999); Bank

of Cal. v. Connolly, 111 Cal. Rptr. 468, 477–78 (Ct. App. 1973). Indeed, before the

post-trial amendment of the district court order, the magistrate judge’s Findings and

Recommendations acknowledged that whether the 12759 parcel was held by a

partnership was an open question of fact.2

A breach of partnership action is a species of the breach of contract action in

which the partnership agreement is the contract. See Gherman v. Colburn, 140 Cal.

Rptr. 330, 342–43 (Ct. App. 1977). The district court erred by concluding that

Timothy and Margie did not breach the contract because “[t]here is no evidence of

a contract with specific terms, i.e., majority vote required for the decisions.” In the

absence of specific terms, partnership agreements conform to a series of default rules

set forth by statute. See Cal. Corp. Code § 16103(a). The alleged breaches—actions

taken by Timothy DeMartini without a majority vote—are either the sort of decisions

made “in the ordinary course of business” that require a majority vote under

2 The magistrate judge erroneously referred to the purported partnership concerning the 12759 parcel as part of the partnership dissolution claim that had been separately remanded to state court. That claim concerned only the 12731 parcel.

4 California’s default rules or even the sort of extraordinary actions that require

unanimity. Id. § 16401(j). Likewise, Michael and Renate assert breaches of

fiduciary duties that partners also owe by default. See id. § 16404. Thus, there are

genuine issues of fact material to Michael and Renate’s breach of partnership claim,

rendering summary judgment improper.

C

The district court erred, in part, by granting Timothy and Margie’s motion for

summary judgment on Michael and Renate’s defamation counterclaim. According

to the district court, Michael and Renate “failed to create a triable issue of fact as to

the elements of defamation, including the requirement to prove actual damages.”

However, Michael and Renate asserted both defamation per quod, for which actual

damages must be proved, and defamation per se, for which damages may be

assumed. See Contento v. Mitchell, 104 Cal. Rptr. 591, 592 (Ct. App. 1972); Judicial

Council of California Civil Jury Instructions (2020), CACI No. 1704. Contrary to

the district court, Michael and Renate’s failure to create a triable issue of fact as to

actual damages does not defeat a defamation per se claim.

Further, Michael and Renate identified evidence that creates a triable issue on

the other elements of their defamation per se claim. Specifically, they allege that

Timothy told a tenant that Michael embezzled $1600 of partnership funds, stole

Timothy’s Social Security number, and impersonated Timothy. According to

5 Michael’s declaration, such statements were false and known to be false. In addition,

the accusation of criminal conduct like embezzlement, theft, and false impersonation

falls within the grounds for defamation per se set forth under California Civil Code

section 46(1). See Cunningham v. Simpson, 461 P.2d 39, 42 (Cal. 1969); Barnes-

Hind, Inc. v. Superior Court, 226 Cal. Rptr. 354, 358 (Ct. App. 1986) (“Perhaps the

clearest example of [defamation] per se is an accusation of a crime.”).

The remaining allegedly defamatory statements do not survive summary

judgment, however, either because Michael and Renate failed to “support the

assertion” of a genuine dispute as to such a statement’s falsity, see Fed. R. Civ. P.

56(c)(1), or because the statements do not fit any of the enumerated grounds for

defamation per se, see Cal. Civ. Code § 46(1)–(4). Accusations that Michael is a

difficult partner, when made to a tenant who is not alleged to be a potential partner,

do not “have a natural tendency to lessen the profits” of Michael’s real estate or

engineering businesses and are therefore not defamatory on their face. Cal. Civ.

Code § 46(3); Regalia v. The Nethercutt Collection, 90 Cal. Rptr. 3d 882, 888 (Ct.

App. 2009).

II

At the jury trial, the district court categorically excluded as irrelevant any

evidence that the 12759 parcel was held in partnership on the assumption that the

summary judgment ruling settled the question of whether such a partnership existed.

6 The district court also excluded evidence of what the couples owed each other for

the joint management of the 12759 parcel because such evidence would require a

complex equitable accounting and Michael and Renate’s prayer for equitable

accounting had been rejected as part of the summary judgment on the breach of

partnership claim. In the absence of the erroneous grant of summary judgment,

evidence that Timothy and Margie paid off the Westamerica loan with partnership

assets would undoubtedly have been relevant to Michael and Renate’s defenses on

the breach of contract claim, including defenses of failure to mitigate damages and

breach of fiduciary duty.

We reverse the erroneous exclusion of partnership and mitigation evidence,

vacate the judgment on the breach of contract claim, and remand for a new trial

because the exclusion of such evidence “likely tainted the jury’s verdict.” Guerin v.

Winston Indus., Inc., 316 F.3d 879, 885 (9th Cir. 2002). By excluding evidence that

the brothers had operated the 12759 parcel as a partnership, the district court

effectively prevented Michael and Renate from raising any of their defenses except

waiver. Although the jury found that Michael and Renate breached their contract to

reimburse half the balance of the Westamerica loan, “the district court seems to have

preordained that result by preventing [Michael and Renate] from providing the jury

with an alternate explanation.” Id. Specifically, Michael and Renate could not make

their case that the loan was a partnership loan, that Timothy breached his fiduciary

7 duties by depositing partnership funds into a personal account, and that Timothy and

Margie failed to apply partnership funds to the outstanding debt. “Thus, we

conclude that the exclusion of this evidence tainted the verdict and was an abuse of

discretion.” Id.

III

AFFIRMED in part, REVERSED in part, and REMANDED for proceedings

consistent with this disposition.