Jones v. Goodman - Case Brief

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Jones v. Goodman

Case Number: D075907

Court: Cal. Ct. App.

Date Filed: 2020-11-17

Case Brief – Jones v. Goodman

Court: COURT OF APPEAL, FOURTH APPELLATE DISTRICT
Date: 2025‑09‑04
Case Number: D075907
Disposition: The appellate court affirmed the trial court’s order denying defendants’ attorney‑fee award under Corporations Code § 16701.

Holding

The court held that the trial court did not err in refusing to award defendants attorney fees because the fee motion was untimely under Cal. Rules of Court § 3.1702 and, even assuming timeliness, Jones’s conduct did not satisfy any of the statutory predicates—“arbitrary,” “vexatious,” or “not in good faith”—required for a discretionary fee award under Corporations Code § 16701(i).

Narrative

Lead – In a dispute that blended partnership law, corporate formation, and the narrow fee‑shifting provision of Corporations Code § 16701, the Fourth District Court of Appeal upheld a trial court’s refusal to penalize a plaintiff who unsuccessfully asserted a five‑percent partnership interest in a booming bracelet company. The decision clarifies two unsettled points for California practitioners: (1) the strict timing requirements for fee motions in partnership‑dissociation actions, and (2) the evidentiary burden required to prove that a litigant acted “arbitrarily, vexatiously, or not in good faith” under the fee‑shifting statute.

Procedural History – Trevor Jones filed a complaint in San Diego Superior Court in May 2016 alleging that he, Paul Goodman, and Griffin Thall had formed a partnership governing two ventures—OUTnSD (an internet‑based business) and Pura Vida (a bracelet company). Jones claimed a written “Equity Exchange Proposal” gave him a five‑percent ownership interest in Pura Vida in return for a five‑percent interest in OUTnSD. After a bench trial in August 2018, the trial court entered judgment for the defendants, holding that no partnership existed and that Jones’s claim was a “legal impossibility” because Pura Vida operated as the corporation Creative Genius, Inc.

Following judgment, defendants moved for attorney fees under Corporations Code § 16701(i), asserting that Jones pursued the buyout claim arbitrarily and in bad faith. The trial court denied the motion on two grounds: (1) the amended fee motion filed on January 11 2019 was untimely under Cal. Rules of Court § 3.1702, and (2) the factual record did not support a finding that Jones acted arbitrarily, vexatiously, or in bad faith. Defendants appealed.

Facts – The three men were college friends who launched separate but overlapping businesses. In 2010 they traveled to Costa Rica, where Goodman and Thall conceived the bracelet line that would become Pura Vida. Jones later drafted an “Equity Exchange Proposal” (dated November 24 2010) that purportedly allocated five percent of each venture to the other parties. Jones testified that the agreement was signed by all three, back‑dated, and kept secret because a fourth friend and Goodman’s sister were also involved as salaried employees.

Goodman and Thall denied ever signing the document; they acknowledged the signatures looked like theirs but offered no handwriting expert testimony. The corporation Creative Genius, Inc., the legal entity behind Pura Vida, was incorporated on September 21 2010, with Goodman and Thall as the sole shareholders. Jones never received stock certificates, never contributed capital, and never participated in the corporation’s tax or accounting matters. He did, however, claim to have assisted with design, marketing, and sales for Pura Vida.

At trial, the court found no documentary or testimonial proof that a partnership existed: no partnership agreement, K‑1s, balance sheets, or profit‑and‑loss statements were produced. The court also held that Jones failed to establish that the signatures on the alleged agreement were genuine. Consequently, the claim for a partnership buyout under § 16701 was dismissed.

Issues – The appellate court addressed two distinct questions:

  1. Timeliness – Whether defendants’ amended fee motion, filed more than 60 days after service of the notice of entry of judgment, violated Cal. Rules of Court § 3.1702(b)(1).
  2. Statutory Predicate – Whether Jones’s conduct satisfied any of the three independent predicates—“arbitrary,” “vexatious,” or “not in good faith”—required for a discretionary fee award under Corporations Code § 16701(i).

Statutory Framework – The California Revised Uniform Partnership Act (RUPA) defines a partnership as “the association of two or more persons to carry on as co‑owners a business for profit” (§ 16202(a)), regardless of the parties’ intent, unless the association is formed under a statute that creates a distinct entity (§ 16202(b)). A partnership may be formed by oral, written, or implied agreement, and the burden of proof lies with the party asserting its existence (Mercado v. Hoefler (1961) 190 Cal.App.2d 12). When a partner dissociates, § 16701 permits a court to order a buyout and, in subsection (i), to award attorney fees against a party that acted “arbitrarily, vexatiously, or not in good faith.” The statute is discretionary; it does not mandate an award.

Court’s Reasoning – Timeliness – The appellate court affirmed the trial court’s application of Rule 3.1702(b)(1), which requires a fee motion to be served and filed within the same period as a notice of appeal (generally 60 days after the notice of entry of judgment). Defendants served the notice of entry on October 22 2018; the 60‑day deadline thus fell on December 21 2018. Their initial fee motion was timely, but the amended motion—adding expert‑fee recovery and increasing the total request—was filed on January 11 2019, well beyond the deadline. The court noted that no stipulation extending the deadline existed, and the trial judge’s discretion to extend the time for good cause was not exercised. Accordingly, the amendment was procedurally barred, and the entire fee request was deemed untimely.

Court’s Reasoning – Substantive Predicate – Even assuming timeliness, the court examined whether Jones’s conduct met any of the three statutory predicates.

Arbitrary – The court applied an objective standard, asking whether a reasonable attorney could have tenably pursued the claim. While Jones’s claim survived summary judgment and proceeded to trial, the appellate court emphasized that the core issue—whether a partnership existed—was a factual dispute, not a pure legal error. The plaintiff presented a self‑drafted agreement, no corroborating signatures, and no evidence of profit sharing. The court concluded that the claim, though arguable, lacked the “substantial merit” required to deem it arbitrary. Moreover, the statute’s language is disjunctive; a finding of “arbitrary” alone would suffice, but the evidence did not rise to that level.

Vexatious – The term is defined as a suit “instituted maliciously and without good grounds, meant to create trouble and expense for the party being sued.” The court found no evidence of malicious intent. Jones’s testimony reflected a genuine, albeit mistaken, belief that an equity swap had been executed. No fraudulent conduct, forgery, or concealment was proven; the parties even engaged in two mediation sessions, indicating good‑faith settlement efforts.

Not in Good Faith – The court turned to the subjective standard, examining Jones’s state of mind. It noted that Jones had never been a shareholder of Creative Genius, Inc., had never received any distribution, and had not sought an accounting of Pura Vida’s profits. Nonetheless, the trial judge observed that Jones “listened to all the evidence,” “learned a lot,” and “it wasn’t capricious.” The appellate court gave deference to this factual finding, applying the substantial‑evidence standard. Because the record contained ample evidence that Jones honestly believed a partnership existed—supported by his own drafted agreement and the parties’ overlapping business activities—the court concluded that the “good‑faith” predicate was not satisfied.

Standard of Review – The appellate court reiterated that fee‑shifting awards under § 16701 are discretionary and reviewed for abuse of discretion. Objective determinations of legal merit are reviewed de novo, while factual findings on good‑faith are reviewed for substantial evidence. The court found no abuse of discretion in either the timeliness analysis or the substantive predicate analysis.

Conclusion – The appellate court affirmed the trial court’s denial of the fee motion. The decision underscores that, in partnership‑dissociation actions, defendants must file fee requests within the strict 60‑day window and must produce a factual record demonstrating that the plaintiff’s conduct was objectively baseless or subjectively dishonest. Mere disagreement over the existence of a partnership, even when the plaintiff’s claim ultimately fails, does not automatically trigger the fee‑shifting provision.

Impact – Practitioners should note that:

  1. Procedural Vigilance – Fee motions must be filed contemporaneously with the notice of appeal; any amendment expanding the scope of fees must be either stipulated or supported by a showing of good cause.
  2. Burden of Proof for Fee Shifts – The plaintiff’s good‑faith belief, even if unreasonable, can defeat a fee award. Defendants seeking fees must present clear evidence of frivolous or malicious conduct—such as forged documents, false statements, or a pattern of vexatious litigation.
  3. Partnership vs. Corporate Form – The court reiterated that a corporation formed under the Business Corporations Code is not a partnership under RUPA, even if the same individuals are involved in both entities. Parties asserting partnership rights over a corporate venture must produce unequivocal evidence of a separate partnership agreement and the requisite partnership‑type conduct (e.g., profit‑sharing, K‑1s).

Unresolved questions remain regarding the precise line between a “reasonable” but mistaken belief in a partnership and conduct that is “arbitrary” for fee‑shifting purposes. Future appellate decisions may further delineate the evidentiary threshold, especially in cases involving informal equity swaps among friends and start‑up collaborators.

Referenced Statutes and Doctrines

  • Corporations Code §§ 16701, 16701(i), 16202, 16101, 16103, 16601, 16701(b), 16701(g) – partnership‑dissociation, fee‑shifting, definition of partnership, formation, and buyout procedures.
  • California Rules of Court § 3.1702(b)(1), § 8.104(a)(1)(B) – timing requirements for fee motions and notices of appeal.
  • Revised Uniform Partnership Act (California) §§ 16101, 16103, 16202, 16601, 16701 – partnership formation, governance, dissociation, and buyout.
  • Key Cases:
    • Agam v. Gavra (2015) 236 Cal.App.4th 91 – elements of a partnership‑agreement claim.
    • Mercado v. Hoefler (1961) 190 Cal.App.2d 12 – burden of proving partnership existence.
    • Holmes v. Lerner (1999) 74 Cal.App.4th 442 – UPA’s default governance when agreement is silent.
    • Gemini Aluminum Corp. v. California Custom Shapes (2002) 95 Cal.App.4th 1249 – “bad faith” requires objective speciousness and subjective intent.
    • Powell v. Tagami (2018) 26 Cal.App.5th 219 – abuse‑of‑discretion standard for fee awards.
    • Smith v. Selma Community Hospital (2010) 188 Cal.App.4th 1 – interpretation of “frivolous, unreasonable, without foundation, or in bad faith.”
    • James L. Harris Painting & Decorating v. West Bay Builders (2015) 239 Cal.App.4th 1214 – de novo review of statutory fee‑shifting criteria.
    • Coronado v. Corrales (2011) 198 Cal.App.4th 221 – applicability of the UPA to all partnerships formed after 1999.

These authorities collectively shape the appellate court’s analysis of partnership existence, fee‑shifting discretion, and procedural compliance in California partnership‑dissociation litigation.