May 22, 2019
Horvitz & Levy obtained a complete reversal of a judgment that would have forced a trust to sell its interest in a real estate investment partnership at below-market value. Based on a detailed analysis of provisions of California’s Uniform Partnership Act and legislative history materials, Horvitz & Levy convinced the Court of Appeal that living trusts may serve as partners under California law.
Plaintiffs Eric Loberg and John Schrillo sued Richard Hallberg, Jr., to force a buyout of his interest in a real estate investment partnership formed by his deceased father and three other dentists in 1975. Loberg, Schrillo, and Hallberg’s father (Dr. Hallberg) were dentists and held interests in a partnership that owned the dental office building where they practiced. In 1994, the partners amended their partnership agreement to allow Dr. Hallberg to assign his partnership interest to his living trust, and to substitute the trustee (then Dr. Hallberg) as a general partner in place of Dr. Hallberg individually. When Dr. Hallberg died 15 years later, litigation ensued over whether, despite the substitution, Dr. Hallberg was still a partner at the time of his death, triggering certain buyout provisions that applied in the event of a partner’s death.
The trial court concluded the trust was not a separate legal entity and that Dr. Hallberg was a partner at the time of his death. The trial court stated it was required to follow Presta v. Tepper (2009) 179 Cal.App.4th 909, 918 (Presta), which held that when a trustee of a living trust enters into a partnership in his capacity as trustee, it is the individual, not the trust, that is the partner. The trial court ruled that the buyout provisions applied and granted the relief sought by the plaintiffs, a forced buyout of Hallberg’s interest in the partnership at below-market value based on the property’s current use as a dental office building instead of its fair market value, which undervalued the property by millions of dollars. Hallberg appealed.
Horvitz & Levy represented Hallberg on appeal and persuaded the Court of Appeal to issue a published opinion reversing the trial court’s judgment in favor of plaintiffs. The court concluded that Dr. Hallberg was not a partner when he died and thus the buyout provisions were not triggered by his death. His trust, or the trustee of his trust, was (and remains) the partner. The court held that, while a trust cannot act in its own name and must always act through its trustee, a trust is a “person” that may associate in a partnership under the Uniform Partnership Act of 1994 (UPA; Corp. Code, § 16100 et seq.), based on the plain language of the UPA’s definition of “person.” The court explained that the clear statutory language is reinforced by other provisions of the statute, as well as by its legislative history.