E-FILEDblogs.reuters.com/alison-frankel/files/2013/07/wongvhrj-pltfSJbrief.pdf · CURIS AND KOK-WAI...

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PLAINTIFFS AUTEN, CURIS AND WONG’S OPPOSITION TO THE FUNDS’ AND CD GP ENTITIES’ MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION

CASE NOS. 1-09-CV139520 AND 1-09-CV140349

Michael E. Baumann (SBN 145830)[email protected] Tanya L. Greene (SBN 267975) [email protected] Sibo Mack-Williams (SBN 269219) [email protected] Kirkland & Ellis LLP 333 South Hope Street Los Angeles, California 90071 Tel.: (213) 680-8400/Fax: (213) 680-8500 Attorneys for Plaintiffs LANE AUTEN, DURAN CURIS, and KOK-WAI (DARREN) WONG

SUPERIOR COURT OF THE STATE OF CALIFORNIA

COUNTY OF SANTA CLARA

KOK-WAI (DARREN) WONG and DURAN CURIS,

Plaintiffs, vs.

HRJ CAPITAL BD, LLC, a Delaware company, et al., Defendants. LANE AUTEN,

Plaintiff, vs.

HRJ CAPITAL BD, LLC, a Delaware company, et al., Defendants.

)) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Case Nos. 1-09-CV139520 and 1-09-CV140349 PLAINTIFFS LANE AUTEN, DURAN CURIS AND KOK-WAI (DARREN) WONG’S OPPOSITION TO THE FUNDS’ AND CD GP ENTITIES’ MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, SUMMARY ADJUDICATION Date: November 2, 2012 Time: 9:00 a.m. Dept.: 1 Judge: Hon. James P. Kleinberg Date Action Filed: April 9, 2009 Date TAC Filed: June 28, 2011 Trial Date: Dec. 3, 2012

E-FILEDOct 15, 2012 3:39 PM

David H. YamasakiChief Executive Officer/Clerk

Superior Court of CA, County of Santa ClaraCase #1-09-CV-139520 Filing #G-47827

By G. Duarte, Deputy

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TABLE OF CONTENTS

Page

I. INTRODUCTION ...............................................................................................................1

II. ARGUMENT .......................................................................................................................4

A. The Defendants Misstate the Law of Agency—If the HRJ Funds Or the HRJ GP Entities Are Principals to HRJ, They Are Bound by Plaintiffs’ Management Fee Agreements Regardless of Whether The Agreements Identify Them...........................................................................................................4

B. The Defendants Misstate the Parol Evidence Rule: This Court Can—And Must—Consider Related Agreements in Determining Whether HRJ Was the Agent of the HRJ Funds. ..........................................................................................5

C. In Executing Plaintiffs’ Management Fee Agreements, HRJ Acted with Actual Authority. .................................................................................................................7

1. Uncontroverted Evidence Establishes that the Agent, HRJ, Understood that It Had Authority to Act on Behalf of the HRJ Funds and The HRJ GP Entities. ..................................................................................................7

2. The Terms of the Fund Partnership Agreements and the General Partner Agreements Establish the Existence of Agency. .............................9

3. The Agency Relationship Between HRJ and the HRJ Funds is Evidenced by the Acts Actually Performed by HRJ on Behalf of the HRJ Funds, and the HRJ Funds’ Ratification of Those Acts. ...................11

4. There is No Dispute that the HRJ Funds and the HRJ GP Entities Controlled HRJ, a Factor Which Also Supports Agency. .........................14

D. In Executing Plaintiffs’ Management Fee Agreements, HRJ Acted With Ostensible Authority. .............................................................................................14

E. The CD GP Entities Are Not Entitled to Summary Adjudication on the Issue of Successor Liability. ...........................................................................................16

1. The CD GP Entities Are Exposed to Successor Liability Even if the HRJ GP Entities Are Not Found to be Principals of HRJ..........................16

2. The Transfer Agreements Shift the HRJ GP Entities’ Liabilities to the CD GP Entities. ..........................................................................................17

3. The CD GP Entities Are Not Entitled to Summary Adjudication on Equitable Successor Liability. ...................................................................18

F. Triable Issues Of Fact Exist As To Whether The CD GP Entities Are Directly Liable For The Tort Claims. ..................................................................................19

G. Settlement With HRJ Does Not Bar Claims Against The HRJ Funds And The CD GP Entities. ......................................................................................................20

III. CONCLUSION ..................................................................................................................20

E-FILED: Oct 15, 2012 3:39 PM, Superior Court of CA, County of Santa Clara, Case #1-09-CV-139520 Filing #G-47827

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CASE NOS. 1-09-CV139520 AND 1-09-CV140349

TABLE OF AUTHORITIES Page(s)

Cases

Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (2001) ................................................................................................................ 18, 19

Benninghoff v. Super. Ct., 136 Cal. App. 4th 61 (2006) .............................................................................................................. 8

Conn. v. Nat’l. Can Corp., 124 Cal. App. 3d 630 (1981) ............................................................................................................. 1

Ermoian v. Desert Hosp., 152 Cal. App. 4th 475 (2007) .......................................................................................................... 16

Fireman’s Fund Ins. Co. v. City of Turlock, 170 Cal. App. 3d 988 (1985) ........................................................................................................... 12

Fundin v. Chicago Pneumatic Tool Co., 152 Cal. App. 3d 951 (1984) ............................................................................................................. 4

Geary St., P. & O.R. Co. v. Rolph et al., 189 Cal. 59 (1922) ............................................................................................................... 4, 5, 6, 13

Hovley v. Frank Meline Co., 83 Cal. App. 441 (1927) .................................................................................................................. 12

In re Coupon Clearing Serv., Inc., 113 F.3d 1091 (9th Cir. 1997) ......................................................................................................... 14

J.L. v. Children's Institute, Inc., 177 Cal. App. 4th 388 (2009) .......................................................................................................... 14

Jacoves v. United Merchandising Corp., 9 Cal. App. 4th 88 (1992) ................................................................................................................ 16

Klinger v. Modesto Fruit Co., 107 Cal. App. 97 (1930) ........................................................................................................ 4, 13, 20

Marshall v. Bernheim, 64 Cal. App. 283 (1923) ................................................................................................................ 4, 5

Mesler v. Bragg Mgmt. Co., 39 Cal.3d 290 (1985) ....................................................................................................................... 20

Meyer v. Ford Motor Co., 275 Cal. App. 2d 90 (1969) ............................................................................................................. 15

Milonas v. Sarantitis, 109 Cal. App. 343 (1930) .......................................................................................................... 4, 5, 6

Myers v. Stephens, 233 Cal. App. 2d 104 (1965) ........................................................................................................... 16

Pacific Ready-Cut Homes v. Seeber, 205 Cal. 690 (1928) ................................................................................................................... 4, 5, 6

Pistone v. Sup. Ct., 228 Cal. App. 3d 672 (1991) ......................................................................................................... 6, 8

Ritter v. Technicolor Corp., 27 Cal. App. 3d 152 (1972) ............................................................................................................. 20


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Southern Pac. Co. v. Von Schmidt Dredge Co., 118 Cal. 368 (1897) ........................................................................................................................... 6

Sunset Milling & Grain Co. v. Anderson, 39 Cal.2d 773 (1952) ..................................................................................................................... 4, 5

Tieberg v. Unemployment Ins. App. Bd., 2 Cal.3d 943 (1970) ........................................................................................................................... 8

Tilley v. CZ Master Ass’n, 131 Cal. App. 4th 464 (2005) .......................................................................................................... 19

Transport Clearings-Bay Area v. Simmonds, 226 Cal. App. 2d 405 (1964) ............................................................................................................. 7

Van’t Rood v. Cnty. of Santa Clara, 113 Cal. App. 4th 549 (2003) ............................................................................................................ 7

Violette v. Shoup, 16 Cal. App. 4th 611 (1993) .............................................................................................................. 7

Statutes

CAL. CIV. CODE § 1642 ......................................................................................................................... 6

CAL. CIV. CODE § 2298 ......................................................................................................................... 7

CAL. CIV. CODE § 2316 ......................................................................................................................... 7

CAL. CIV. CODE § 2319 ......................................................................................................................... 7

CAL. CIV. CODE § 2330 ......................................................................................................................... 5

CAL. CIV. CODE § 2337 ..................................................................................................................... 4, 6

CAL. CIV. CODE § 2338 ....................................................................................................................... 13

DEL. CODE § 15-301(1) ................................................................................................................... 5, 11

DEL. CODE § 15-305 ....................................................................................................................... 5, 11

DEL. CODE § 17-403(a) ......................................................................................................................... 3

Other Authorities

Black’s Law Dictionary (9th ed. 2009) ............................................................................................... 17

REST 3d AGEN § 1.02(b) .................................................................................................................... 8


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I. INTRODUCTION

Defendants HRJ Funds and their general partners, the CD GP Entities, (collectively referred

to herein as “Defendants”) moved for summary judgment or, in the alternative, summary

adjudication on certain of Plaintiffs’ claims. At the threshold, summary judgment is not appropriate

since the motion does not even purport to terminate the entire case against the Defendants.

Defendants do not address or seek judgment relating to Plaintiffs’ allegations of alter ego liability

(Declaration of Ian L. Johnson, dated September 14, 2012 (“Johnson Decl.”), Ex. 1 [TAC] ¶ 68),

employer liability (as between Plaintiffs and the HRJ Funds and HRJ GP Entities) (id. at ¶¶ 185-187,

202), or direct contract liability for the HRJ GP Entities’ failure to pay Plaintiffs management fees

and carried interest (id. at ¶¶ 98-101, 109-111, 119-121). It is the burden of the Defendants moving

for summary judgment to “affirmatively react to each theory [of the plaintiff’s complaint] and

excusing or justifying event, or condition which supports a theory.” Conn. v. Nat’l Can Corp., 124

Cal. App. 3d 630, 639 (1981) (emphasis in original). Summary judgment, therefore, must be denied.

The focus of the Defendants’ motion for summary adjudication is that the HRJ Funds have

no liability as principals for the acts of their agent, and that the CD GP Entities have no liability

because the HRJ GP Entities are not liable as principals. As explained below and in Plaintiffs’

Motion for Summary Adjudication, the uncontroverted evidence establishes that the HRJ Funds and

the HRJ GP Entities acted through agents in dealing with Plaintiffs. As a result, the HRJ Funds are

liable for the agreements made on behalf of the HRJ Funds and the HRJ GP Entities by their agents,

pursuant to which Plaintiffs provided services to the HRJ Funds in exchange for management fees

and carried interest. Similarly, the CD GP Entities are liable as a matter of partnership law for the

obligations of the HRJ Funds and are also liable for the unfulfilled obligations of the HRJ GP

Entities based on various contracts they signed assuming these obligations.

An agency relationship can be established between HRJ and the HRJ Funds or HRJ GP

Entities any one of three ways: (1) express grant of authority; (2) implied authority; or, (3) ostensible

authority. The Defendants fail even to address the undisputed facts establishing each of these three

alternative bases for concluding that the HRJ Funds and HRJ GP Entities are principals acting

through HRJ, their authorized agent. First, Defendants fail to address provisions in the Fund


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Partnership Agreements and the General Partner Agreements whereby the HRJ Funds and the HRJ

GP Entities authorized HRJ to act as its management company, authorized Affiliates of the HRJ GP

Entities such as HRJ to act for the HRJ Funds, and promised that the HRJ Funds would pay for the

services provided to the HRJ Funds by such Affiliates. These provisions give rise to an express

agency relationship whereby the HRJ Funds and the HRJ GP Entities directly authorized HRJ to act

on their behalf. Second, the Defendants fail to offer any evidence—because there is none—refuting

the existence of implied authority. As discussed in Part II.C.1 below, actual authority of an agent

can be based on evidence that the agent HRJ believed it had authority to act for the principal. The

incontrovertible evidence establishes that HRJ believed it had such authority and did in fact act on

the authority given it by the HRJ Funds and the HRJ GP Entities to hire Plaintiffs to provide services

to the HRJ Funds. This is based on the uncontradicted testimony of Harris Barton, Ronnie Lott and

Jeff Bloom, and is an admission that the HRJ Funds and the HRJ GP Entities granted such authority

and that the agent HRJ acted on this authority. Finally, Defendants offer no evidence regarding the

existence of ostensible authority. Plaintiffs’ uncontroverted testimony, confirmed by the testimony

of Barton, Lott and Bloom, is that they reasonably believed that HRJ had authority to bind the HRJ

Funds and the HRJ GP Entities to the obligation to pay management fees to Plaintiffs. Having failed

to address the elements of agency or the evidence establishing both actual and ostensible agency,

Defendants’ motion fails. Moreover, the three arguments Defendants raise in support of their claim

that the HRJ Funds and the CD GP Entities are not bound by the Management Fee Agreements

notwithstanding an agency relationship rely on misstatements of agency law and the parol evidence

rule.

Separately, the CD GP Entities ask this Court to rule that they have no duty to pay Plaintiffs’

past due or future management fees or carried interest as successors to the HRJ GP Entities. Their

first argument relies on their contention that the HRJ GP Entities are not principals to HRJ. First,

this ignores the fact that the HRJ GP Entities are alleged to be directly liable to Plaintiffs for

management fees and carried interest. (See id. at ¶¶ 98-101, 109-111, 119-121.) Second, if, as

Plaintiffs have proven, the HRJ Funds and HRJ are in a principal-agent relationship, the general

partners of the HRJ Funds are liable as a matter of partnership law. See DEL. CODE tit. 6, § 15-


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306(a) (all partners are liable jointly and severally for all obligations of the partnership); see also id.

at § 17-403(a) (a general partner of a limited partnership has the same rights and powers as a partner

in an unlimited partnership). Once the CD GP Entities became general partners of the HRJ Funds,

they became liable for the obligations of the HRJ Funds, including obligations the HRJ Funds are

bound to through its agent, HRJ, in contracting with Plaintiffs. This alone defeats the CD GP

Entities’ request for summary adjudication. In addition, the CD GP Entities entered into Transfer

Agreements that expressly assumed the unfulfilled obligations of the HRJ GP Entities. These

unfulfilled obligations include (1) the HRJ GP Entities’ breaches of direct contractual obligations to

pay Plaintiffs management fees and carried interest (Johnson Decl., Ex. 1, at ¶¶ 98-101, 109-111,

119-121), (2) the HRJ GP Entities’ obligations to pay Plaintiffs management fees and carried interest

in their role as principals to HRJ (id. at ¶¶ 186-187, 203-204), and (3) the HRJ GP Entities’

obligations, in their role as general partners to the HRJ Funds, to satisfy the obligations of the HRJ

Funds to pay Plaintiffs management fees and carried interest in their role as principals to HRJ and

direct employers of Plaintiffs (id. at ¶¶ 185-186, 188, 202-203, 205).

Finally, the CD GP Entities seek summary adjudication of Plaintiffs’ claims for intentional

interference with contractual relationships and aiding and abetting a breach of fiduciary duty. They

do not dispute the elements of these claims, but assert (as they did before in their demurrer papers)

that their conduct only becomes tortious if HRJ had no right to hypothecate its right to receive

management fees. In the eight months that have passed since this Court first rejected this argument,

the CD GP Entities have found no authority to support the legal proposition that their intentional

interference with Plaintiffs’ contracts is somehow excused because HRJ’s conduct was not wrongful.

They also do not support their underlying premise—that HRJ’s conduct in hypothecating Plaintiffs’

management fees was not wrongful—with any legal authority. It is not even clear from the

argument made that the vested right of Plaintiffs’ in management fees was encumbered at all. As a

result, summary adjudication on these two causes of action is not warranted.


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II. ARGUMENT

A. The Defendants Misstate the Law of Agency—If the HRJ Funds Or the HRJ GP Entities Are Principals to HRJ, They Are Bound by Plaintiffs’ Management Fee Agreements Regardless of Whether The Agreements Identify Them.

For purposes of their first argument, the Defendants concede agency but rely on California

Civil Code § 2337 to insist that the HRJ Funds and the HRJ GP Entities are not bound by the

Management Fee Agreements because these agreements do not evince a plainly inferable intent to

bind the HRJ Funds and the HRJ GP Entities. (Mot. at 11-12.) This is a misstatement of the law.

The law is clear in this regard: “[A] principal may be held liable when it is established that the agent,

acting within the scope of his authority, has made a contract in [sic] behalf of the principal.” Klinger

v. Modesto Fruit Co., 107 Cal. App. 97, 101 (1930); see also CAL. CIV. CODE § 2330. Several

California courts—including the California Supreme Court—have found principals liable for

contracts entered into by their agents, even where such contracts were entered into in the agents’

own name and the principals were not identified. See, e.g., Pac. Ready-Cut Homes v. Seeber, 205

Cal. 690, 695-98 (1928); Geary St., Park & Ocean R.R. Co. v. Rolph et al., 189 Cal. 59, 62-66

(1922); Milonas v. Sarantitis, 109 Cal. App. 343, 344 (1930); Marshall v. Bernheim, 64 Cal. App.

283, 285 (1923). If the HRJ Funds or the HRJ GP Entities are principals to HRJ, then they are

bound by the contracts entered into by HRJ on their behalf.

The two cases cited by the Defendants, Fundin and Sunset Milling, in no way contradict or

even purport to distinguish established authority holding principals liable on contracts even where

the contracts themselves do not identify the principals. In Fundin, for example, the court held that

no agency relationship existed based on the scant allegations in the complaint and did not reach the

issue of whether a principal could use Section 2337 as a shield if an agency relationship had actually

existed between the principal and the agent. See Fundin v. Chicago Pneumatic Tool Co., 152 Cal.

App. 3d 951, 956 (1984). Nor did the court in Fundin hold that an agency relationship can only be

established if the agency relationship is apparent on the face of a contract with a third party where,

as here, such a contract is for the benefit of and within the scope of the authority given by the

principal. Sunset Milling does not support Defendants’ argument. In that case, the principal did not

dispute the existence of the agency, but instead argued that a contract signed by the agent alone did


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not bind the principal even where the agent signed the contract as “representative” of the principal.

Sunset Milling & Grain Co. v. Anderson, 39 Cal.2d 773, 778 (1952). The court simply found that

the principal was bound by the contract signed by its agent. Id. at 778-79. The court did not reach

the issue of whether the principal could be bound based solely on the existence of the agency

relationship in the absence of the word “representative” or the special identification of the principal.

Neither of these cases suggest that an agency relationship in and of itself is insufficient to bind a

principal to the contracts of its agent.

Thus, the real issue requiring this Court’s attention is whether the HRJ Funds and the HRJ

GP Entities acted as principals to HRJ such that an agency relationship existed between the entities,

and whether entering into the Management Fee Agreements fell within the scope of that agency. To

be clear, it doesn’t matter which is found to be a principal to HRJ; the law holds that a partnership is

bound by the acts of its general partner and a general partner is liable for the obligations of the

partnership. See DEL. CODE tit. 6, §§ 15-301(1), 15-305(a) (a partnership is bound by acts of its

partner, and losses or injuries caused to a person due to wrongful acts or omissions, acting in the

ordinary course of business of the partnership or with authority of the partnership); see id. at § 15-

306(a) (all partners are liable jointly and severally for all obligations of the partnership). Thus, if the

evidence demonstrates that an agency relationship existed, whether as a result of express, implied or

ostensible authority, the HRJ Funds and the HRJ GP Entities are bound by the Management Fee

Agreements made by their agent. See CAL. CIV. CODE § 2330; Pac. Ready-Cut Homes, 205 Cal. at

695-98; Geary St., 189 Cal. at 62-66; Milonas, 109 Cal. App. at 344; Marshall, 64 Cal. App. at 285.

B. The Defendants Misstate the Parol Evidence Rule: This Court Can—And Must—Consider Related Agreements in Determining Whether HRJ Was the Agent of the HRJ Funds.

Defendants urge this Court to ignore the overwhelming and uncontradicted evidence

establishing that HRJ was the authorized agent of the HRJ Funds in entering into agreements with

Plaintiffs for the Plaintiffs to provide services to the HRJ Funds. (See Mot. at 12.) But none of the

statutes nor the integration clause they point to prevent this Court from considering the Fund

Partnership Agreements, the General Partner Agreements or the testimony of Barton, Lott, Bloom

and Plaintiffs that establish the existence of the agency relationship. The California Supreme Court


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approved the use of parol evidence to establish that a principal is bound by contracts entered into by

its agent long ago. See S. Pac. Co. v. Von Schmidt Dredge Co., 118 Cal. 368, 371 (1897) (“parol

evidence may be employed to determine whose contract it is, and this even in cases where the

instrument is sufficiently clear in its terms to bind the agent”). Courts have continued to consider

parol evidence for this purpose. See, e.g., Pac. Ready-Cut Homes, 205 Cal. at 694-95 (finding that

the principal was liable on the plaintiff’s contracts where parol evidence showed that the signing

party was the ostensible agent of the principal); see also Geary St., 189 Cal. at 63-65, 71-72 (finding

that the trial court erred in failing to find existence of an agency relationship based on parol evidence

establishing that such a relationship existed); Milonas, 109 Cal. App. at 344 (rejecting appellant’s

argument that the trial court erred in receiving parol evidence to show that the contract was in fact a

partnership transaction).

The Defendants cite two statutes, Sections 2337 and 1642 of the California Civil Code, to

argue that this Court cannot consider parol evidence to determine whether an agency relationship

existed and hence who is bound by the Management Fee Agreements. Neither statute supports the

argument and Defendants’ misapplication of these code provisions is contrary to established case

law. Defendants cite no case applying these code provisions to bar consideration of parol evidence

of the existence of an agency relationship because no such cases exist. Plaintiffs properly rely on the

Fund Partnership Agreements, the General Partner Agreements and the uncontradicted testimony

and documents that support the existence of agency, not to contradict any of the terms of the

Management Fee Agreements themselves, but instead to demonstrate that the agreements were made

on behalf of and with the authority of the principal. See Milonas, 109 Cal. App. at 345 (“[I]t is well

settled that the principal may show that the agent who made the contract in his own name was acting

for him. This proof does not contradict the writing; it only explains the transaction.”); S. Pac. Co.,

118 Cal. at 371 (evidence to prove that a party is acting for another does not contradict the writing);

see also Pistone v. Super. Ct., 228 Cal. App. 3d 672, 680 (1991) (rejecting a purported principal’s

argument that the court could not consider language in a separate agreement in determining whether

an agency relationship existed).


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C. In Executing Plaintiffs’ Management Fee Agreements, HRJ Acted with Actual Authority.

Under California law, an agent is defined as “anyone who undertakes to transact some

business, or manage some affair, for another, by authority of and on account of the latter, and to

render an account of such transactions.” Violette v. Shoup, 16 Cal. App. 4th 611, 620 (1993). The

chief characteristic of an agency is “the authority to act for and in the place of the principal for the

purpose of bringing him or her into legal relations with third parties.” Id. The scope of an agent’s

authority is “everything necessary or proper and usual, in the ordinary course of business, for

effecting the purpose of his agency.” CAL. CIV. CODE § 2319; Van’t Rood v. Cnty. of Santa Clara,

113 Cal. App. 4th 549, 572 (2003). An agency relationship may be formed when an agent has either

actual or ostensible authority. CAL. CIV. CODE § 2298; Van’t Rood, 113 Cal. App. 4th at 570. Here,

actual authority existed where the HRJ Funds and the HRJ GP Entities authorized HRJ to manage

the HRJ Funds’ affairs and to control all of the HRJ Funds’ operations. In addition, ostensible

authority existed where the HRJ Funds and the HRJ GP Entities caused the Plaintiffs to believe that

HRJ was authorized to enter into employment agreements with them on behalf of the HRJ Funds and

the HRJ GP Entities.

1. Uncontroverted Evidence Establishes that the Agent, HRJ, Understood that It Had Authority to Act on Behalf of the HRJ Funds and The HRJ GP Entities.

Actual authority can either be express or implied by the actions of the principal. Transport

Clearings-Bay Area v. Simmonds, 226 Cal. App. 2d 405, 425 (1964). Actual authority is authority

that a principal intentionally confers upon an agent, or intentionally or negligently allows the agent

to believe himself to posses. CAL. CIV. CODE § 2316. The Defendants agree that the inquiry

“focuses on the agent’s understanding of his ability to act for the principal.” (Mot. at 15 (emphasis

in original).) They argue that HRJ did not understand itself as having any authority to bind the HRJ

Funds or the HRJ GP Entities because of a disclaimer of authority located in a Management

Agreement entered into between HRJ and the HRJ GP Entities. (Mot. at 15-16.) But HRJ’s

managing members—the only individuals who could speak to what authority HRJ understood itself

to have—directly refute this limitation in the Management Agreement. Both Lott and Barton state


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that when they signed Plaintiffs’ Management Fee Agreements, they “were acting within the

authority conferred upon [them] by the applicable Fund Partnership Agreements, General Partner

Agreements and Operating Agreements.” UMF 44. The Defendants admit that Barton and Lott

controlled the HRJ Funds, the HRJ GP Entities, and HRJ. (See Mot. at 4.) Consequently, Barton

and Lott represent both the principals and the agent. There is no one else that can speak to the

existence (or non-existence) of authority between these entities. Barton and Lott’s testimony is

dispositive. Essentially, their testimony constitutes admissions by the principals, the HRJ Funds and

the HRJ GP Entities, that HRJ was their authorized agent. Thus, there can be no question that the

HRJ Funds and the HRJ GP Entities conferred authority on HRJ and that HRJ understood that it

could act on their behalf.

Even if Barton and Lott did not declare the existence of authority, the argument that the

disclaimer in the Management Agreements negates agency would fail nonetheless. Disclaimers of

an agency relationship are insufficient to establish the absence of an agency relationship as a matter

of law. See Tieberg v. Unemployment Ins. Appeals Bd., 2 Cal. 3d 943, 952 (1970) (“We recognize

that the terminology used in an agreement is not conclusive, however, even in the absence of fraud

or mistake.”); Pistone, 228 Cal. App. 3d at 680-81 (“[C]ontract recitals of the existence or absence

of agency, while relevant, are never determinative” and California case law “freely allow parties to

contradict ‘clear’ contract language and show their actual relationships.”). See also Restatement

(Third) of Agency § 1.02(b) (2006); cf. Benninghoff v. Super. Ct., 136 Cal. App. 4th 61, 73 n.10

(2006) (“[N]o disclaimer [of an attorney-client relationship] will be effective if [the lawyer] is in fact

performing legal services or offering legal advice.”). Rather, courts consider evidence of the parties’

relationship and how they actually interacted with one another. See Tieberg, 2 Cal. 3d at 952 (“The

trial court here did not rely solely upon the provisions of the contract but held that Lassie in fact

exercised control and direction over the writers. There is substantial evidence to support this finding

of fact.”); Pistone, 228 Cal. App. 3d. at 680 (rejecting principal’s argument that the parties’ contract

expressly disclaimed any contract liability, instead finding that the evidence “taken together raises a

reasonable inference that Nissan acted as an agent for NCDA in contracting with customers”). Here,

as explained below, the parties’ conduct evidences an agency relationship that supplanted any


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purported limitations in the Management Agreements. See infra, Part II.C.3. Moreover, even if the

Management Agreements’ purported limitations could defeat actual authority, they have no effect on

the ostensible authority that existed. See infra, Part II.D.

2. The Terms of the Fund Partnership Agreements and the General Partner Agreements Establish the Existence of Agency.

As representatives of the HRJ Funds, the HRJ GP Entities, and HRJ, Barton and Lott’s

statements that they were authorized to enter into Plaintiffs’ Management Fee Agreements on behalf

of the HRJ Funds and the HRJ GP Entities is dispositive. But this Court need not rely solely on the

declarations of Barton and Lott to support a finding of authority. The terms of the various

agreements signed by the HRJ Funds and the HRJ GP Entities discussed below amount to express

authority, but at minimum, support the existence of implied authority. In their moving papers, the

Defendants acknowledge many of these key provisions but fail to address why they do not confer

authority on HRJ. (See Mot. at 13.) Instead, in conclusory fashion, they dismiss these relevant

provisions because the Fund Partnership Agreements do not explicitly mention the Plaintiffs’

Management Fee Agreements. (See id.) The Defendants’ argument misses the mark: again, the

relevant question is whether these provisions confer authority on HRJ. They do. First, the HRJ

Funds conferred broad authority on the HRJ GP Entities to act on the HRJ Funds’ behalf and to bind

the HRJ Funds. UMF 45-49. Second, the HRJ Funds authorized the HRJ GP Entities to exercise

this broad grant of authority through affiliates. UMF 50-51. For example, the HRJ Funds

authorized affiliates to provide services needed for the HRJ Funds to operate. UMF 50-51. An

“Affiliate” under the agreement is “any Person that directly or indirectly through one or more

intermediaries, controls, is controlled by or is under common control with such Person.” UMF 52.

Here, the Defendants admit that the HRJ Funds, the HRJ GP Entities, and HRJ were under the

common control of Barton and Lott (Mot. at 4), so there is no question that HRJ falls within the

definitional scope of “Affiliates” authorized to provide services to the HRJ Funds.

Third, the HRJ Funds promised to pay the compensation of all Affiliates providing services

for the partnership in section 2.07(a), provided it was a “Partnership Expense.” UMF 53.

“Partnership Expenses” include the management fees paid “[i]n consideration for the management


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services rendered” pursuant to the Fund Partnership Agreements. UMF 54. Here, all of the work

done by Plaintiffs constituted management services to the HRJ Funds. UMF 55-61. Pursuant to

section 2.12, Plaintiffs were entitled to rely on the authority of the HRJ GP Entities to use affiliates

to manage the HRJ Funds’ affairs and on the promises of the HRJ Funds to pay all affiliates for

management services. UMF 62.

Fourth, section 2.07(c) expressly authorized the use of a “Management Company” to act in

place of the HRJ GP Entities and the assignment of management fees to that Management Company.

UMF 63. The parties understood that “Management Company” referred to HRJ Capital, LLC. UMF

63. The responsibilities that the HRJ Funds authorized HRJ to perform included identifying

investment opportunities for the HRJ Funds and monitoring the investments made by the HRJ

Funds, opening bank accounts and managing funds in the HRJ Funds’ name, entering into contracts

on behalf of the HRJ Funds, and employing and firing personnel on behalf of the HRJ Funds. UMF

64.

Finally, the hiring of Plaintiffs by HRJ was expressly contemplated by both the Fund

Partnership Agreements and the General Partner Agreements. The Fund Partnership Agreements,

for example, described Curis and Wong as the HRJ Funds’ “Key Men” required to “devote the

substantial majority of [their] business time to HRJ Activities.” UMF 60. “HRJ Activities” were

defined as “the activities of funds sponsored by HRJ Capital and its Affiliates, future funds

contemplated to be sponsored by HRJ Capital and its affiliates, and the respective portfolio

investments of all such funds.” UMF 60. In addition, through the Management Fee Agreements

themselves, the HRJ GP Entities retained the right to fire Plaintiffs, and Plaintiffs were permitted to

be terminated for “cause” if they breached a material provision of any Fund Partnership Agreement

or General Partner Agreement. UMF 65-66. Thus, the HRJ Funds and the HRJ GP Entities did not

merely authorize Plaintiffs’ work for HRJ—they required Plaintiffs to provide their management

services to the HRJ Funds through HRJ and retained the right to fire them if they breached any of

their agreements with the HRJ Funds and the HRJ GP Entities.

The Defendants acknowledge that the General Partner Agreements incorporate Plaintiffs’

Management Fee Agreements but argue that such incorporation “impose[s] obligations in respect of


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those agreements only on…the general partner and the limited partners of the HRJ GP Entity.”

(Mot. at 13; see also UMF 67.) It is unclear what distinction they would like the Court to draw from

this and why this admission alone is insufficient to warrant a finding that the HRJ GP Entities are

bound by Plaintiffs’ Management Agreements. Obligations imposed on the general partners of the

HRJ GP Entities likewise bind the HRJ GP Entities. See DEL. CODE tit. 6, §§ 15-301(1), 15-305(a).

Thus, the Defendants’ own reading supports Plaintiffs’ position that the HRJ GP Entities were bound

by the Management Fee Agreements. And if the HRJ GP Entities are bound by the Management Fee

Agreements, so too are the HRJ Funds for the same reasons—a partnership is bound by the acts of

their general partners. See id. at § 15-301(1).

3. The Agency Relationship Between HRJ and the HRJ Funds is Evidenced by the Acts Actually Performed by HRJ on Behalf of the HRJ Funds, and the HRJ Funds’ Ratification of Those Acts.

The conduct of HRJ in relation to the HRJ Funds also demonstrates the existence of

authority. There is no dispute that HRJ, through Barton and Lott, managed the affairs of the HRJ

Funds and the HRJ GP Entities. UMF 68-75. For example, HRJ opened bank accounts and

deposited and withdrew funds in the name of the HRJ Funds, entered into contracts with third parties

on behalf of, and for the benefit of, the HRJ Funds, employed and terminated employees on behalf of

the HRJ Funds, and incurred expenses and made payments on behalf of the HRJ Funds. UMF 72.

HRJ officers had signatory authority on behalf of the HRJ Funds. UMF 75. Not only did HRJ’s

internal legal counsel, Jeff Bloom, retain the law office that provided legal advice and drafted the

Fund Partnership Agreements, and other various fund documents, but HRJ and the HRJ Funds

shared legal counsel. UMF 76. HRJ hired all of the individuals that performed work on behalf of

the HRJ Funds, including Plaintiffs. UMF 55.

HRJ also acted as the HRJ Funds’ agent in business transactions involving millions of

dollars. A prime example is the July 2009 sale involving none other than the CD GP Entities. Prior

to the sale, HRJ operated its fund of funds business by making capital commitments to underlying

investment funds. UMF 77. Instead of raising the capital necessary to fulfill these commitments,

HRJ (along with its affiliates) borrowed money from SVB to fund capital calls to fund managers,

otherwise known as an over-committment strategy. UMF 77. These loans were secured only by the


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assets of HRJ and its affiliates. UMF 78. Due to an inability to fundraise effectively, HRJ’s over-

commitments became unmanageable and unsustainable. UMF 79. HRJ and SVB began looking into

the possibility of restructuring the outstanding loans between HRJ and its affiliates and SVB. UMF

79. Ultimately, CDHRJ, GP, LLC, the general partner to the CD GP Entities, purchased HRJ’s

assets through a foreclosure sale by SVB. UMF 80. As part of this transaction, HRJ’s affiliate,

Eleven Rings, transferred its debt obligations with SVB over to the HRJ Funds, with the HRJ Funds

assuming the debts that had been originally owed to SVB by HRJ and its affiliates. UMF 81. The

loan contracts were between SVB and HRJ and HRJ affiliates. UMF 78. The contracts did not

name the HRJ Funds as borrowers or obligors on the credit lines. UMF 78. Nonetheless, in

information circulars sent to the limited partners, HRJ described itself as having “the ability to cause

the Funds to, consistent with successful past practice, employ an over-commitment strategy in

combination with recycling of proceeds to manage liquidity needs of the Funds’ portfolios.” UMF

82. The HRJ Funds were aware that HRJ was representing itself as the HRJ Funds’ agent with the

ability to bind the HRJ Funds on debts incurred in the name of HRJ and its affiliates. The HRJ

Funds never discharged HRJ for any transgressions in connection with the debt transfers or

challenged the debt transfers. For their part, the CD GP Entities and their general partner, CDHRJ

GP, LLC, accepted this representation and consummated the transaction through which the debt

incurred by HRJ and its affiliates became the debt of the HRJ Funds. Both the HRJ Funds and the

CD GP Entities are estopped from now denying the existence of an agency relationship with HRJ.

See Hovley v. Frank Meline Co., 83 Cal. App. 441, 443 (1927) (“A man cannot hold another out

before the public as his agent having authority of a general character and take the benefits of his acts

when he considers them favorable to him and repudiate his agent’s acts when he considers them

unfavorable.”).

Ratification of an agent’s acts establishes the existence of authority from the principal. See

Fireman’s Fund Ins. Co. v. City of Turlock, 170 Cal. App. 3d 988, 1002 (1985) (disapproved on

other grounds by Vandenberg v. Super. Ct., 21 Cal. 4th 815 (1999)) (“A principal ratifies an agent’s

acts when he knows of the acts and accepts the benefits which flow from them.”) (emphasis in

original). Here, managers of each of the HRJ Funds and HRJ GP Entities (Barton and Lott) were


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aware that HRJ was acting on their behalf, including the fact that they had entered into Management

Fee Agreements with Plaintiffs. UMF 72. The services Plaintiffs performed directly benefitted the

HRJ Funds. UMF 55-61. For example, Plaintiffs were the individuals that actually managed the

HRJ Fund investments, monitored fund performance, and supported marketing and investor relations

efforts. UMF 55-61.

The Defendants’ motion is devoid of any evidence regarding the parties’ relationship that

suggests the absence of an agency relationship. For example, even if one assumes that management

fee payments had been made by HRJ in the past and were considered an “HRJ expense” (Mot. at

14), this is not compelling evidence of the absence of agency. Agency statutes contemplate that

agents will take on obligations of the principal (i.e., paying the principal’s debts) and at times, may

fail to fulfill them. See CAL. CIV. CODE § 2338. If and when this occurs, the principal is responsible

for “wrongful acts committed by such agent in and as a part of the transaction of such business, and

for his willful omission to fulfill the obligations of the principal.” Id. Because the written

agreements and parties’ course of conduct support the existence of an agency relationship, the fact

that HRJ paid Plaintiffs in the course of carrying out its agency and fulfilling its principal’s

obligations supports rather than contradicts the existence of the agency relationship. See, e.g., Geary

St., 189 Cal. at 64 (“[Agent] assumed the obligation to the corporation to pay the balance remaining

unpaid upon the subscription price….He assumed this obligation in carrying out his agency and it

came within the scope of his powers as such agent.”). Now that HRJ has stopped fulfilling their

principals’ obligations, the HRJ Funds and their current general partners, the CD GP Entities, are

responsible for them.

For similar reasons, the Defendants’ argument that Plaintiffs initially sued HRJ and not the

HRJ Funds or CD GP Entities (Mot. at 14-15) is irrelevant. By law, Plaintiffs were within their

rights to sue either the agent or the principal or both on their Management Fee Agreements. See

Klinger, 107 Cal. App. at 101 (both the agent and the alleged principal may be properly joined in an

action for the purpose of determining their relationship and liability). That Plaintiffs’ counsel chose,

in 2009, to name HRJ as a defendant first and later named the Defendants is irrelevant to the

consideration of whether an agency relationship existed back when HRJ executed Plaintiffs’


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Management Fee Agreements.

4. There is No Dispute that the HRJ Funds and the HRJ GP Entities Controlled HRJ, a Factor Which Also Supports Agency.

Another factor in “determining the existence of an agency relationship is the degree of

control exercised by the principal over the activities of the agent.” In re Coupon Clearing Serv.,

Inc., 113 F.3d 1091, 1099 (9th Cir. 1997). The Defendants admit that the element of control is

established here. (Mot. at 4 (diagram demonstrating that Barton and Lott presided over all of the

relevant entities, including the HRJ Funds, the HRJ GP Entities, and HRJ).) Through Barton and

Lott, the HRJ Funds and the HRJ GP Entities were able to control HRJ’s operations, including who

HRJ hired, fired and paid. Thus, the evidence is undisputed that the HRJ Funds exercised control

over both HRJ and Plaintiffs.

In sum, the undisputed facts establish an actual agency relationship between HRJ and its

principals, the HRJ Funds and the HRJ GP Entities, and Plaintiffs have submitted their own motion

for summary adjudication based on these undisputed facts. But at minimum, these facts create a

triable issue of fact as to whether an actual agency relationship existed.

D. In Executing Plaintiffs’ Management Fee Agreements, HRJ Acted With Ostensible Authority.

An actual agency existed between the HRJ Funds and HRJ, but even if one did not, there

would still be an ostensible agency between the parties. “An agency is ostensible when a principal

causes a third person to believe another to be his agent, who is really not employed by him.” J.L. v.

Children's Inst., Inc., 177 Cal. App. 4th 388, 403 (2009); see also CAL. CIV. CODE § 2300. For

recovery to be had against the principal for the acts of an ostensible agent, three requirements must

be met: “[t]he person dealing with an agent must do so with a reasonable belief in the agent's

authority, such belief must be generated by some act or neglect by the principal sought to be charged

and the person relying on the agent's apparent authority must not be negligent in holding that belief.”

J.L., 177 Cal. App. 4th at 403-404. Ostensible agency is established by the statements or acts of the

purported principal. Id. at 404.

The Defendants state that conduct by HRJ, Barton and Lott cannot establish ostensible

authority. (Mot. at 17.) This argument is perplexing in light of their admissions that Barton and Lott


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controlled the HRJ Funds and the HRJ GP Entities. (Id. at 4.) The Defendants are apparently

operating under the false assumption that HRJ, the HRJ Funds, and the HRJ GP Entities are

completely separate entities with separate representatives that act on their behalves, but the

Defendants make no attempt to identify any other individual representative of the HRJ Funds or the

HRJ GP Entities that could create ostensible authority under these circumstances. If Barton and Lott

are the individuals that controlled the HRJ Funds and the HRJ GP Entities, then surely, it is their

conduct that is relevant to establish ostensible authority.

Here, the HRJ Funds and the HRJ GP Entities, through Barton and Lott, engaged in conduct

that generated a reasonable belief in the Plaintiffs that HRJ was the HRJ Funds’ agent. First,

Plaintiffs received copies of the agreements signed by the HRJ Funds and the HRJ GP Entities

containing all of the provisions discussed in Part II.C.2. UMF 83. All of these contractual

provisions that Plaintiffs were privy to engendered a reasonable belief in Plaintiffs that the work they

did was authorized by the HRJ Funds, and that Barton and Lott’s retention of them through HRJ was

likewise authorized by the HRJ Funds. UMF 84.

Second, in addition to the written contracts, the circumstances under which Plaintiffs entered

into their Management Fee Agreements also gave the appearance that such agreements were

authorized by the HRJ Funds and entered into on their behalf. “[W]here…an agent is by his

principal put in charge of a business as the apparent manager thereof, he is clothed with apparent

authority to do all things that are essential to the ordinary conduct of such business at that place, and

third persons, acting in good faith, and without notice of or reason to suspect any limitations on his

authority, are entitled to rely on such appearance.” See Meyer v. Ford Motor Co., 275 Cal. App. 2d

90, 102 (1969). The HRJ Funds and the HRJ GP Entities put HRJ in charge of their business as the

apparent manager thereof. The same individuals—Barton and Lott—controlled the HRJ Funds, the

HRJ GP Entities, and HRJ. (Mot. at 4; UMF 11.) HRJ also operated out of the same location as the

HRJ Funds. UMF 85. Moreover, Plaintiffs’ salaries and management fees were paid out of monies

paid by the HRJ Funds to HRJ. UMF 86-87. Indeed, it was the HRJ Funds that directly benefitted

from the capital raised by Plaintiffs. UMF 55-61. It was therefore reasonable for Plaintiffs to

believe that HRJ was acting as an agent where HRJ managed the affairs of the HRJ Funds, the


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various entities were run by the exact same managing members, they operated out of the same

location, and had similar names. See Ermoian v. Desert Hosp., 152 Cal. App. 4th 475, 509 (2007)

(finding it “objectively reasonable” for the third party to believe that the agent was that of the

principal’s where the agent’s professionals were also employees of the principal, the principal and

agent were located across the street from each other, and the agent and principal used the same

name).

Moroever, the HRJ Funds and the HRJ GP did nothing to put Plaintiffs on notice to the

contrary. See Jacoves v. United Merch. Corp., 9 Cal. App. 4th 88, 103 (1992) (“A principal is also

liable when the principal knows the agent holds himself or herself out as clothed with certain

authority and remains silent.”). For example, no one ever told Plaintiffs that Barton and Lott did not

have authority to act on behalf of the HRJ Funds, and Plaintiffs were never shown the Management

Agreements with the purported limiting language. UMF 88. As a result, Plaintiffs were entitled to

rely on the apparent authority of HRJ and are not bound by the Management Agreement’s

limitations. See Myers v. Stephens, 233 Cal. App. 2d 104, 115 (1965) (a person dealing with an

agent that is clothed with ostensible authority is entitled to rely upon that authority and “is not bound

by undisclosed limitations”).

E. The CD GP Entities Are Not Entitled to Summary Adjudication on the Issue of Successor Liability.

1. The CD GP Entities Are Exposed to Successor Liability Even if the HRJ GP Entities Are Not Found to be Principals of HRJ.

The CD GP Entities claim that if the HRJ GP Entities are not liable as principals for the

breaches and torts of HRJ, there is no liability that can shift to the CD GP Entities as successors.

(Mot. at 18.) This is incorrect. The CD GP Entities continue to face exposure if the HRJ Funds are

found to be principals on Plaintiffs’ Management Fee Agreements. The CD GP Entities are the

current general partners of the HRJ Funds so if the HRJ Funds are responsible for Plaintiffs’

management fees and carried interest, the CD GP Entities are liable for the management fees that

have accrued from the date they took over, and will continue to accrue in the future. See DEL. CODE

tit. 6, § 15-306(a). Likewise, if the Plaintiffs prevail on their legal theory that the HRJ GP Entities

are directly responsible for their carried interest payments (see Johnson Decl., Ex. 1, at ¶¶ 98-101,


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109-111, 119-121) and the HRJ Funds’ derivative liability therefrom, a theory that is unaddressed by

the Defendants’ motion which focuses entirely on management fees, then the CD GP Entities would

also be responsible for those payments as well because that is another obligation that passes to the

current general partners of the HRJ Funds under Section 15-306(a) of the Delaware Code. Thus, the

CD GP Entities are wrong when they state that “there is no liability that could shift to the CD GP

Entities as successors” if the HRJ GP Entities are not held liable as principals. (See Mot. at 18.) In

any event, for the reasons discussed above, Parts II.C-D, the HRJ GP Entities are liable as principals

so this argument fails altogether.

2. The Transfer Agreements Shift the HRJ GP Entities’ Liabilities to the CD GP Entities.

The CD GP Entities claim that the Transfer Agreements do not impose liability on them

because the CD GP Entities only “agree[d] to pay and perform all unperformed obligations and

liabilities of the [HRJ GP Entities] under and pursuant to the [Fund Partnership Agreement].” (Mot.

at 18.) From there, they argue that because the Plaintiffs’ compensation arose under the

Management Fee Agreements, they did not assume those obligations. To the contrary, the obligation

to pay Plaintiffs’ management fees arose under the Fund Partnership Agreements.

Black’s Law Dictionary defines “pursuant to,” the key phrase at issue here, as “[i]n

compliance with; in accordance with; under[;]…[a]s authorized by.” Black’s Law Dictionary (9th

ed. 2009). As explained above, see supra Part II.C.2, the obligations to pay Plaintiffs management

fees and carried interest was “authorized by” the Fund Partnership Agreements. By way of the Fund

Partnership Agreements, the HRJ Funds authorized the HRJ GP Entities to provide management

services to the HRJ Funds. By way of those same agreements, they also authorized the HRJ GP

Entities to engage affiliates such as HRJ to provide management services to the HRJ Funds.

Pursuant to the authority granted to HRJ by the Fund Partnership Agreements, HRJ did, in fact, hire

employees to provide management services for the HRJ Funds, including Plaintiffs, and promised to

pay management fees in return. The HRJ GP Entities also entered into General Partner Agreements

whereby they promised to pay Plaintiffs carried interest as part of their compensation for providing

management services to the HRJ Funds. UMF 89. Thus, the obligations found in the Management


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Fee Agreements and the General Partner Agreements actually arose “under and pursuant to” the

Fund Partnership Agreements.

3. The CD GP Entities Are Not Entitled to Summary Adjudication on Equitable Successor Liability.

The CD GP Entities state that Plaintiffs cannot establish inadequate consideration because

discovery has not unveiled any facts relating to the consideration paid by the CD GP Entities. (Mot.

at 18-19.) But the CD GP Entities offer no evidence to support their argument. The California

Supreme Court has made clear that a moving defendant must produce “evidence” that the other party

is unable to establish an element rather than rely on mere argument. See Aguilar v. Atlantic

Richfield Co., 25 Cal. 4th 826, 854-855 (2001) (“Summary judgment law in this state, however,

continues to require a defendant moving for summary judgment to present evidence, and not simply

point out that the plaintiff does not possess, and cannot reasonably obtain, needed evidence.”). Here,

the CD GP Entities point to no admissions by Plaintiffs that they have discovered nothing to support

an “inadequate compensation” argument. Their claim that Plaintiffs “have identified no facts in their

discovery responses relating to that consideration or its adequacy” is misleading. (See Mot. at 18-

19.) Indeed, the CD GP Entities have never propounded a single interrogatory to Plaintiffs asking

for facts supporting their contentions that the CD GP Entities are successors to the HRJ GP Entities

or for facts supporting that the consideration paid was inadequate, nor did they ever propound a

single request for admission requiring Plaintiffs to admit to the lack of evidence demonstrating

inadequate consideration. Consequently, the CD GP Entities are unable to demonstrate, through

evidence, that Plaintiffs cannot establish inadequate consideration to support their successor liability

claim.

In addition, the CD GP Entities may not rest on assertions that the Plaintiffs do not possess

the needed evidence. They must also show that “the plaintiff cannot reasonably obtain needed

evidence.” Aguilar, 25 Cal. 4th at 854 (emphasis in original). The CD GP Entities do not even

attempt to argue that Plaintiffs cannot reasonably obtain evidence of inadequate consideration

because they cannot make such an argument in good faith. On October 29, 2012, the Plaintiffs are

scheduled to take the deposition of the person most qualified for CDHRJ GP, LLC and Capital


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Dynamics. UMF 90. In its role as general partner of the CD GP Entities, CDHRJ GP, LLC signed

the Transfer Agreements which transferred general partnership from the HRJ GP Entities to the CD

GP Entities. UMF 91. One of the topics noticed by Plaintiffs is the Transfer Agreements. UMF 92.

The PMQ should therefore be prepared to testify regarding various aspects of the Transfer

Agreements, including the consideration exchanged in connection with the Transfer Agreements.

Thus, Plaintiffs can reasonably obtain evidence of inadequate consideration. Because the CD GP

Entities have not proven both that Plaintiffs do not possess evidence of inadequate consideration and

are unable to obtain such evidence, they are not entitled to summary adjudication on the issue of

successor liability.

F. Triable Issues Of Fact Exist As To Whether The CD GP Entities Are Directly Liable For The Tort Claims.

The CD GP Entities do not challenge any particular element of the Plaintiffs’ intentional

interference claim or aiding and abetting claim. (See Mot. at 19-20.) Because the CD GP Entities

have failed to challenge a single element of Plaintiffs’ intentional interference claim and aiding and

abetting claim, they have not met their burden to make a prima facie showing that there are no

triable issues of material fact and they have not caused the burden to shift to Plaintiffs to present any

evidence on the elements of these claims. See Aguilar, 25 Cal.4th at 850-51; Tilley v. CZ Master

Ass’n, 131 Cal. App. 4th 464, 478 (2005). Additionally, the CD GP Entities do not present a

“complete defense” to either the intentional interference or aiding and abetting claims. The CD GP

Entities’ argue that because the Management Fee Agreements do not prevent HRJ from

collateralizing its management fees, the CD GP Entities’ alleged conduct cannot be tortious or

wrongful by extension. (Mot. at 19-20.) The Court’s rationale for rejecting this argument at the

demurrer stage, see 2/3/12 Order After Hearing at 6:9-13, is as true today as it was when the Court

issued the order. “Even if the Fee Agreements do not expressly prohibit such collateralization, that

does not mean the CD GP Entities cannot be held tortiously liable if they intentionally collateralize

funds that include Plaintiffs’ share of management fees in order to stop Plaintiffs from getting paid

what they are contractually owed under the employment agreements with HRJ.” Id. As explained

above, the CD GP Entities do not present any evidence that HRJ could rightfully collateralize funds


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CASE NOS. 1-09-CV139520 AND 1-09-CV140349

that included Plaintiffs’ share of the management fees; the Management Fee Agreements themselves

do not say this. More importantly, the CD GP Entities cite to no law that stands for the proposition

that one can hypothecate monies in which another’s rights have already vested. Having failed to

negate the elements of Plaintiffs’ claims or establish a complete defense to them, the CD GP Entities

are not entitled to summary judgment on the intentional interference claim or the aiding and abetting

claim.

G. Settlement With HRJ Does Not Bar Claims Against The HRJ Funds And The CD GP Entities.

The HRJ Funds and the CD GP Entities argue that because Plaintiffs settled with HRJ, such a

settlement bars suit against the HRJ Funds and CD GP Entities. (Mot. at 20.) Settlement and release

of an agent does not exonerate a principal. Mesler v. Bragg Mgmt. Co., 39 Cal. 3d 290, 303-304

(1985) (“A judgment. [sic] in favor of the agent means that under our system of law the plaintiff

should not recover under the circumstances presented. A settlement has no such implication; it

means simply that the parties have agreed to resolve their problems outside the courtroom. Thus

liability of the principal - or parent corporation in the alter ego situation - has not been disproved.

The liability of the principal (or parent) is not affected by the route the agent (or subsidiary) chooses

to take in disposing of the action.”) (internal citations omitted); Ritter v. Technicolor Corp., 27 Cal.

App. 3d 152, 154 (1972) (“[T]he liability of a principal for the tortious acts of his agent, even though

wholly vicarious, survives release of the agent”). None of the case law cited by the HRJ Funds and

the CD GP Entities supports their argument. The opinion in Klinger merely states that

“[p]rosecuting a claim to judgment against an agent alone” “will be deemed to constitute an election

to hold the agent which will relieve the principal from further liability.” Klinger, 107 Cal. App. at

100-101. Neither the Klinger nor the Ewing decisions offer any opinion as to whether a settlement

would have the same effect and thus, they cannot be read to be inconsistent with Mesler’s statement

of the law.

III. CONCLUSION

For all the reasons set forth in this Opposition, Plaintiffs respectfully request that the Court

deny the motion of the HRJ Funds and the CD GP Entities in its entirety.


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DATED: October 15, 2012 KIRKLAND & ELLIS LLP

By: /s/ Tanya L. Greene Michael E. Baumann (145830) Tanya L. Greene (267975) Sibo Mack-Williams (269219) Attorneys for Plaintiffs LANE AUTEN, DARREN WONG and DURAN CURIS


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