In re: Koko Sarkis Babian

FILED JAN 04 2013 1 SUSAN M SPRAUL, CLERK U.S. BKCY. APP. PANEL 2 OF THE NINTH CIRCUIT

3 UNITED STATES BANKRUPTCY APPELLATE PANEL 4 FOR THE NINTH CIRCUIT 5 In re: ) BAP No. CC-12-1226-BePaMk ) 6 KOKO SARKIS BABIAN, ) Bk. No. LA 10-48241-PC ) 7 Debtor. ) Adversary No. LA 10-03244-PC ) 8 ) KOKO SARKIS BABIAN, ) 9 ) Appellant, ) 10 ) v. ) MEMORANDUM* 11 ) VAHE TAMAMIAN; KRIKOR ) 12 TAMAMIAN, ) ) 13 Appellees. ) ) 14 Argued and Submitted On November 15, 2012, 15 at Pasadena, California 16 Filed January 4, 2013 17 Appeal from the United States Bankruptcy Court for the Central District of California 18 Honorable Peter H. Carroll, Chief Bankruptcy Judge, Presiding 19 20 Appearances: Paro Asturian, Esq. of Astourian and Associates Inc. argued on behalf of appellant Koko Sarkis 21 Babian; Theodore Kenrick Roberts, Esq. of Roberts & Roberts argued on behalf of appellees Vahe Tamamian 22 and Krikor Tamamian. 23 Before: BEESLEY,** PAPPAS, and MARKELL Bankruptcy Judges. 24 25 * 26 This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may 27 have (see Fed. R. App. P. 32.1), it has no precedential value. See 9th Cir. BAP Rule 8013-1. 28 ** Hon. Bruce T. Beesley, Bankruptcy Judge for the District of Nevada, sitting by designation.

1 INTRODUCTION*** 2 This case involves two individuals, two separate bankruptcy 3 cases, and two separate adversary proceedings. The individuals 4 were allegedly partners in a business venture to develop 5 condominiums. Finding that they were partners, the same 6 bankruptcy court that rendered a judgment excepting a debt from 7 discharge under Section 523(a)(2)(A) as to one debtor imputed that 8 debtor’s fraudulent conduct to the debtor named in the adversary 9 proceeding from which this appeal arises. Because we conclude 10 that was error, we VACATE the judgment entered in this case, and 11 REMAND this matter to the bankruptcy court for further 12 proceedings. 13 STATEMENT OF FACTS 14 A. The Pre-bankruptcy Proceedings 15 1. The Property. 16 In September 2004, debtor/Appellant (“Debtor”) Koko Sarkis 17 Babian, a.k.a. Krikor Babaoghli, together with Garabed Babian, 18 Ashout Markarian ("Markarian"), and Nazaret Moukhtarian 19 (collectively the “co-owners”) purchased unimproved real property 20 known as 1906-1910 New York Drive, Altadena, CA (the "Property") 21 for $235,000. They purchased the Property with the intention of 22 building condominiums on the Property. The four individuals took 23 title to the Property as tenants-in-common. 24 Prior to purchasing the Property, the co-owners had an 25 *** 26 Unless specified otherwise, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and 27 all Rule references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037. All Civil Rule references are to the 28 Federal Rules of Civil Procedure.

1 unlicensed architect (the “Architect”) investigate whether they 2 could develop four condominium units on the Property. The 3 Architect informed the co-owners prior to purchase that the 4 Property was suitable for only three condos, due to a problem 5 requiring street dedication and widening. 6 Considerable work was needed on the Property before it could 7 be developed. Power poles would potentially need to be relocated 8 and the power lines placed underground. Debris and asphalt on the 9 Property had to be removed before development could begin. The 10 street lights might need to be relocated, or new street lights had 11 to be built. Also, a bus stop and oak tree might have to be 12 removed. 13 In August 2005, the co-owners sought to take advantage of a 14 favorable real estate market and sell the Property for $660,000.00 15 The Property did not sell. 16 On March 19, 2006, Markarian met with a long-time friend, Dr. 17 Odabashian, in Las Vegas and told him that he and what he referred 18 to as his “partners” had the Property for sale for $500,000. 19 Markarian stated the Property was ready for development of three 20 condos and that the plan and permits were ready. As soon as the 21 permits were acquired, which would cost approximately $25,000 to 22 $35,000, construction could begin. 23 Markarian knew that the development-related issues created an 24 impediment to economically prudent development of the Property. 25 He also knew that if a prospective buyer became aware of these 26 impediments, the price would have to be substantially reduced, if 27 the Property could be sold for commercial development at all. 28 Markarian did not mention the development issues or potential

1 delays and costs involved in developing the Property, all of which 2 were known to him for many months. Instead, Markarian, indirectly 3 through Dr. Odabashian, told a potential buyer, Vahe Tamamian, 4 that development of the Property needed nothing more than payment 5 of the permits. 6 Markarian wanted to close the sale of the Property quickly. 7 He told Dr. Odabashian to facilitate such a closing and offered to 8 enter into an agreement providing for the following conditions: 9 1.) That the land will be cleared of all excess material and the material hauled from the property by the selling 10 party, 11 2.) that the land be cleared as soon as possible after July 4th so as to make it possible for the purchaser to 12 start with the building of the project, 13 3.) to hold $4,000 of the purchase amount from Mr. Ashout Markarian as a guarantee that such work will 14 be done, and in a timely manner, and 15 4.) that there are no other disclosures the sellers are aware of which would make the building of the project 16 prohibitive. 17 5.) Lastly, it is agreed that if the above conditions are not met, any expenditures arising out of such non- 18 compliance, including, but not limited to attorney fees, interest and delay of initiation of the project will 19 [be] the responsibility of the sellers. 20 Dr. Odabashian drafted the agreement, dated June 29, 2006, which 21 was signed by Markarian and Vahe Tamamian shortly thereafter. 22 On July 30, 2006, Vahe Tamamian and Krikor Tamamian, (the 23 “Appellees”) purchased the Property for $500,000.1 After closing, 24 the Appellees spent six months and over $90,000.00 to clean and 25 remove the asphalt, concrete, and other materials from the 26 27 1 The sale price was $55,000 below the co-owners’ appraised 28 market value on the Property.

1 Property, relocate the power poles, and make necessary street 2 improvements. 3 2. The State Court Proceedings. 4 On February 4, 2008, the Appellees filed a lawsuit against 5 all four co-owners for fraud and breach of warranty, among other 6 claims, in the Los Angeles Superior Court, Tamamian, et. al v. 7 Garabed Babian, et. al, Case #GC040297. All of the co-owners were 8 represented by counsel. 9 The case was heard as a binding arbitration. Markarian was 10 the only co-owner to arbitrate.2 The non-arbitrating co-owners 11 did not participate or otherwise appear through their counsel. 12 a. The Arbitration. 13 The arbitration hearing commenced on January 27, 2010, and 14 continued for several sessions until final submission in late 15 May 2010. On June 17, 2010, the arbitrator issued a thirteen-page 16 Arbitration Award in favor of the Appellees.3 17 b. Confirming The Arbitration Award. 18 On December 7, 2010, the Appellees’ petition to confirm the 19 20 2 During oral argument, Debtor’s counsel explained that 21 Markarian was the only co-owner to sign a mandatory arbitration provision in the closing documents during the sale of the 22 Property to Appellees. 23 3 The arbitration award included in the record in this appeal 24 does not contain any of the exhibits referenced in the arbitration award. Damages awarded were: $4,000.00 for Property 25 clearance; $21,933.00 for relocating the power poles; $65,963.00 for street improvements; $44,977 for carrying cost on loans, loan 26 interest, real estate taxes during delay; and $25,000 punitive 27 damages, totaling $161,873.00. Attorney’s fees of $86,673.37 were allowed. The total award of consequential and punitive 28 damages together with attorney’s fees was $284,546.27.

1 arbitration award against Markarian was granted by the state 2 court, and a judgment issued in conformity with the arbitration 3 award. The court adopted the findings of fact in the arbitration 4 award and supplemental award, and incorporated them into its 5 judgment. No appeal was taken, and the state court judgment 6 against Markarian became final on March 21, 2011. 7 3. Markarian Bankruptcy Case. 8 On February 16, 2011, Markarian filed a Chapter 7 bankruptcy 9 petition. Appellees filed an adversary complaint against 10 Markarian seeking a judgment of nondischargeability under 11 Section 523(a)(2)(A). On January 4, 2012, the bankruptcy court 12 entered a judgment of nondischargeability against Markarian under 13 Section 523(a)(2)(A), based upon the preclusive effect of the 14 findings against Markarian in the state court. The court held 15 that the $248,548.37 award was nondischargeable against Markarian, 16 representing the total of the attorney's fees, actual damages, and 17 punitive damages awarded by the state court. That judgment 18 against Markarian became final and non-appealable on January 18, 19 2012. 20 B. The Babian Bankruptcy Case. 21 On September 8, 2010, Debtor filed a Chapter 7 bankruptcy 22 case. 23 1. The Babian Adversary Proceeding. 24 On December 8, 2010, Appellees filed an adversary proceeding 25 against the Debtor seeking a judgment of nondischargeability under 26 Section 523(a)(2)(A). Debtor filed an answer raising eight 27 affirmative defenses. 28

1 a. The Summary Judgment Motion. 2 On September 30, 2011, the Appellees filed a motion for 3 summary judgment (“Summary Judgment Motion”).4 The Summary 4 Judgment Motion asserts that, pursuant to the doctrine of 5 collateral estoppel, the state court’s fraud judgment against 6 Markarian was preclusive for purposes of the bankruptcy case, and 7 that Markarian’s fraud could be imputed to Debtor, since they were 8 partners. 9 Debtor filed an opposition to the Summary Judgment Motion 10 which was supported by Debtor’s declaration and exhibits. Debtor 11 argued that: 1) there was no partnership with Markarian, 2) he 12 could not be held liable for acts not in the ordinary course of 13 business of the alleged partnership, 3) he could not be held 14 liable since he made no representations to Appellees, and 4) the 15 court cannot give collateral estoppel effect to a state court 16 arbitration award. 17 On February 14, 2012, the bankruptcy court held a hearing5 18 for the purpose of announcing its findings of fact6 and 19 20 4 An earlier motion for summary judgment was heard and denied by the bankruptcy court. The court specifically granted leave to 21 file a renewed motion for summary judgment should additional 22 information arise during discovery in the case. 5 23 The transcript of the February 14, 2012 hearing states that it is a continuation from a prior hearing in which the court had 24 granted summary judgment. The transcript of the earlier hearing is not included in our record. 25 6 Although Civil Rule 56(a), applicable here through 26 Rule 7056, states that a “court should state on the record the 27 reasons for granting or denying the [summary judgment] motion,” that typically does not take the form of making findings of fact, 28 (continued...)

1 conclusions of law. The court’s findings of fact originated from 2 multiple sources. The court stated at the beginning of the 3 hearing that: 4 [t]he following facts are derived from the Debtor’s testimony, and the arbitrator’s finding and award in a 5 prior state court action against – that was pending against all of the defendants, but the state court award 6 was directed to Mr. Ashout Markarian. [Tr. Hrg. (February 14, 2012) at p. 2]. 7 8 At the conclusion of the hearing, the court stated: 9 Finally, we have all of the findings against Mr. Markarian, both in the state court, for which this 10 Court found preclusive effect in the 523(a) action against Mr. Markarian in this court, and upon which the 11 Court based its judgment, finding that the debt of $248,548.37 was nondischargeable against Markarian on 12 January 4th, 2012. 13 [T]he Court adopts its findings of fact and conclusions of law in the Markarian case that supported its judgment 14 entered on January 4, 2012,7 and holds that the debt of Mr. Babian to the Plaintiffs in this adversary 15 proceeding in the amount of $248,548.37, which represents actual damages of $161,873, plus attorney's 16 fees of $86,675.37, is nondischargeable under Section 523(a)(2)(A). [Tr. Hrg. (February 14, 2012) at pp. 13- 17 14]. 18 On April 17, 2012 the bankruptcy court entered summary 19 judgment in favor of the Appellees. The court adopted each of the 20 findings of fact and conclusions of law from the February 14, 2012 21 hearing as well as the court’s findings of fact and conclusions of 22 6 23 (...continued) as summary judgment is appropriate only when there are no facts 24 to be found; that is, when “there is no genuine dispute as to any material fact . . . .” Civil Rule 56(a). 25 7 Although adopted into the court’s findings of fact and 26 conclusions of law in this case, the court’s findings of fact and 27 conclusions of law related to the Section 523(a)(2)(A) judgment in the Markarian adversary proceeding have not been made a part 28 of this record.

1 law from Markarian’s adversary proceeding. Although it is 2 unclear, the court may have imputed Markarian’s fraud as found in 3 the discharge exception action in his bankruptcy case to Debtor in 4 this case and granted summary judgment on that basis.8 Debtor 5 appealed. 6 JURISDICTION 7 The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 8 §§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C. 9 § 158(a)(1). 10 ISSUES 11 1. Did the bankruptcy court err when it applied the doctrine of 12 issue preclusion from the state court judgement to Debtor? 13 2. Did the bankruptcy court err when it imputed Markarian’s 14 fraud to Debtor? 15 3. Did the bankruptcy court err when it found that Debtor and 16 Markarian were partners? 17 STANDARDS OF REVIEW 18 We review de novo the bankruptcy court’s decision to grant 19 summary judgment. Boyajian v. New Falls Corp. (In re Boyajian), 20 564 F.3d 1088, 1090 (9th Cir. 2009); Lopez v. Emergency Serv. 21 Restoration, Inc. (In re Lopez), 367 B.R. 99, 103 (9th Cir. BAP 22 8 23 It is not entirely clear which of two different fraud judgments against Markarian (the state court judgment, or the 24 Markarian Section 523(a)(2)(A) judgment) the court may have deemed preclusive to the Debtor in this case. The bankruptcy 25 court references both judgments in its statement of issues to be addressed. It appears more likely that the court relied upon the 26 Markarian Section 523(a)(2)(A) judgment. As discussed in more 27 detail below, relying upon the Markarian Section 523(a)(2)(A) judgment would have been error. See, infra Discussion 28 Section “B.”

1 2007). Viewing the evidence in the light most favorable to the 2 non-moving party (i.e., Debtor), we determine whether the 3 bankruptcy court correctly found that there are no genuine issues 4 of material fact and that the moving party is entitled to judgment 5 as a matter of law. Jesinger v. Nev. Fed. Credit Union, 24 F.3d 6 1127, 1130 (9th Cir. 1994); Gertsch v. Johnson & Johnson (In re 7 Gertsch), 237 B.R. 160, 165 (9th Cir. BAP 1999). 8 The availability of issue preclusion is a question of law the 9 BAP reviews de novo. Wolfe v. Jacobson (In re Jacobson), 676 F.3d 10 1193, 1198 (9th Cir. 2012)(citing Dias v. Elique, 436 F.3d 1125, 11 1128 (9th Cir. 2006)). If issue preclusion is available, the 12 decision to apply it is reviewed for abuse of discretion. Dias v. 13 Elique, 436 F.3d 1125, 1128 (9th Cir. 2006). When state 14 preclusion law controls, such discretion is exercised in 15 accordance with applicable state law. Gayden v. Nourbakhsh (In re 16 Nourbakhsh), 67 F.3d 798, 800-01 (9th Cir. 1995). A bankruptcy 17 court abuses its discretion when it applies the incorrect legal 18 rule or its application of the correct legal rule is “(1) 19 illogical, (2) implausible, or (3) without support in inferences 20 that may be drawn from the facts in the record.” United States v. 21 Loew, 593 F.3d 1136, 1139 (9th Cir. 2010) (quoting United States 22 v. Hinkson, 585 F.3d 1247, 1261–62 (9th Cir. 2009)(en banc)) 23 (internal quotation marks omitted). 24 DISCUSSION 25 Debtor raises several arguments supporting his belief that 26 the bankruptcy court erred in granting the Appellees’ Motion for 27 Summary Judgment. For the reasons set forth below, we vacate the 28

1 bankruptcy court’s judgment and remand this matter.9 2 A. Bankruptcy Court’s Application of Issue Preclusion. 3 Debtor argues that the bankruptcy court improperly applied 4 issue preclusion concepts when it adopted the arbitration award 5 findings related to the alleged partnership between Markarian and 6 Debtor. 7 A review of the bankruptcy court's decision reveals that the 8 court conducted no issue preclusion analysis. Nonetheless, the 9 record before us suggests that the bankruptcy court based its 10 decision entirely upon its determinations concerning the existence 11 of a partnership between Markarian and the Debtor, that the sale 12 of the Property took place within the ordinary course of their 13 partnership, and the bankruptcy court’s imputation of Markarian’s 14 fraud as found in the Section 523(a)(2)(A) action in his 15 bankruptcy case to Debtor.10 Under these circumstances, any 16 17 9 Our efforts to substantively review this case have been 18 significantly hampered by the failure of both parties to fully comply with the Federal Rules of Appellate Procedure and the 19 Bankruptcy Appellate Panel Rules. See Fed. R. App. P. 10(b)(2); BAP Rule 8006-1. While we may affirm the bankruptcy court's 20 decision on any basis supported in the record, Barnes v. Belice 21 (In re Belice), 461 B.R. 564, 579 (9th Cir. BAP 2011), neither party has provided us with a complete version of the record on 22 which the bankruptcy court relied in rendering its decision. In this instance, the absence of a complete record has worked 23 against the Appellees’ interests because it has impaired our ability to identify whether there are any alternate grounds for 24 affirmance. 25 10 Although the court identified the issues that it was going 26 to address in its findings and conclusions, the court did not conduct the six step issue preclusion analysis regarding either 27 the state court judgment or the Markarian Section 523(a)(2)(A) adversary proceeding judgment. See, Khaligh v. Hadaegh 28 (In re Khaligh), 338 B.R. 817, 824-25 (9th Cir. BAP 2006), aff’d, 506 F.3d 956 (9th Cir. 2007).

1 reliance upon the arbitration award findings, or the state court’s 2 adoption of those findings, would have been error.11 3 B. Bankruptcy Court’s Determination of Nondischargeability Under Section 523(a)(2)(A). 4 5 The bankruptcy court had before it deposition evidence 6 related to the question of Debtor’s alleged partnership with 7 Markarian and whether the sale of the Property was in the ordinary 8 course of the partnership. The court had no evidence to directly 9 support a finding of fraud, other than the findings of fact and 10 conclusions of law set forth in the arbitration award and state 11 court judgment. Since the bankruptcy court did not consider the 12 six issue preclusion factors identified in Khaligh, supra, it 13 could not have properly relied on the arbitration award or the 14 state court findings. Consequently, the court had no valid basis 15 for determining that the Debtor had committed fraud independent of 16 imputing Markarian's fraud, which is discussed below. 17 1. Imputation of a Partner’s Fraud Under Section 523(a)(2)(A). 18 “[A] debt may be excepted from discharge either when (1) the 19 20 11 Issue preclusion is not applicable in this case. The 21 issues before the bankruptcy court were different from the issues litigated in the state court or in Markarian’s adversary 22 proceeding. Neither the arbitrator, state court, nor bankruptcy 23 court addressed the question of inter-partner imputation. Additionally, an arbitration award cannot have nonmutual issue 24 preclusion effect unless the party that did not participate in the arbitration agrees to such treatment. Vandenberg v. Super. 25 Ct., 21 Cal.4th 815, 836-37, 88 Cal.Rptr. 366, 381, 982 P.2d 229, 242-43 (1999); Berglund v. Arthroscopic & Laser Surgery Ctr. of 26 San Diego, L.P., 44 Cal.4th 528, 537, 187 P.3d 86, 91, 79 27 Cal.Rptr.3d 370, 376 (2008); In re Khaligh, 338 B.R. at 825 n.4. There is nothing in our record reflecting that Debtor agreed to 28 be bound by Markarian’s arbitration award.

1 debtor personally commits actual, positive fraud, or (2) the 2 actual fraud of another is imputed to the debtor under 3 partnership/agency principles.” Tsurukawa v. Nikon Precision, 4 Inc. (In re Tsurukawa), 287 B.R. 515, 525 (9th Cir. BAP 2002) 5 (“In re Tsurukawa II”). Actual fraud may be imputed to a debtor 6 for nondischargeability purposes even where the debtor has no 7 knowledge of that fraud. In re Tsurukawa II, 287 B.R. 525-26. See 8 also, Wheels Unlimited, Inc. v. Sharp (In re Sharp), 2009 W.L. 9 511640 *4 (Bankr. D. Idaho 2009). 10 The United States Supreme Court has long held that partners 11 can bind each other in liability if they commit wrongful acts 12 within the scope of their partnership business. In Strang v. 13 Bradner, 114 U.S. 555, 5 S.Ct. 1038, 29 L.Ed. 248 (1885), the 14 Court held that because there was a partnership relationship and 15 because the wrongdoing involved a partnership transaction, the 16 wrongdoing of a partner was imputed to the innocent debtor 17 partners. The court reasoned that: 18 [e]ach partner was the agent and representative of the firm with reference to all business within the scope of 19 the partnership. And if, in the conduct of partnership business, and with reference thereto, one partner makes 20 false or fraudulent misrepresentations of fact to the injury of innocent persons who deal with him as 21 representing the firm, and without notice of any limitations upon his general authority, his partners 22 cannot escape pecuniary responsibility therefor upon the ground that such misrepresentations were made without 23 their knowledge. 24 Strang, 114 U.S. at 561, 5 S.Ct. 1038. Several courts have relied 25 upon Strang to impute the wrongful conduct of one party to a 26 debtor for purposes of nondischargeability. See, e.g. Tsurukawa 27 v. Nikon Precision, Inc. (In re Tsurukawa), 258 B.R. 192, 197-98 28 (9th Cir. BAP 2001) (“In re Tsurukawa I”); Deodati v. M.M. Winkler

1 & Assoc. (In re M.M. Winkler & Assoc.), 239 F.3d 746, 748-49 (5th 2 Cir. 2001); BancBoston Mortg. Corp. v. Ledford (In re Ledford), 3 970 F.2d 1556, 1561 (6th Cir. 1992). 4 In In re Cecchini, a § 523(a)(6) case, a partner's wrongdoing 5 that occurred in the ordinary course of the partnership business 6 was imputed to an innocent partner for nondischargeability 7 purposes. Impulsora Del Territorio Sur, S.A. v. Cecchini (In re 8 Cecchini), 780 F.2d 1440, 1444 (9th Cir. 1986), abrogated on other 9 grounds, Kawaauhau v. Geiger, 523 U.S. 57, 60, 118 S.Ct. 974, 10 140 L.Ed.2d 90 (1998). More recently, in In re Tsurukawa II, this 11 panel held that a spouse’s fraud could be imputed to the other 12 spouse under agency principles when they are also business 13 partners. In re Tsurukawa II, 287 B.R. at 527. Thus, Markarian’s 14 fraudulent conduct can potentially be imputed to Debtor, his 15 alleged partner, by applying basic partnership principles.12 16 2. The Bankruptcy Court’s Determination of Partnership Between Markarian and Debtor. 17 Debtor attacks the bankruptcy court’s determination that 18 Markarian and Debtor were partners, arguing that Debtor was a 19 passive investor and engaged in no activity on behalf of the 20 21 12 In California, each partner is an agent of the partnership and binds the partnership for all acts in the ordinary course of 22 the partnership’s business. Cal. Corp. Code § 16301(1)(West 23 2006). All partners are jointly and severally liable for all obligations of the partnership. Cal. Corp. Code § 16306(West 24 2006). A partner acting outside the ordinary course of business can still bind the partnership if the act was authorized by the 25 other partners. Cal. Corp. Code § 16301(2)(West 2006). Consistent with this concept “[a] partnership is liable for loss 26 . . . caused to a person . . . as a result of a wrongful act or 27 omission . . . of a partner acting in the ordinary course of business of the partnership or with authority of the 28 partnership.” Cal. Corp. Code § 16305(a)(West 2006).

1 alleged partnership. Debtor asserts everything the Debtor did was 2 consistent with co-ownership, not partnership, and notes that 3 taking title to the Property as tenants in common13 was 4 inconsistent with a finding of partnership. Debtor is correct. 5 Genuine issues of material fact exist regarding whether the Debtor 6 and Markarian were partners. 7 Debtor relies upon several California statutory provisions to 8 show that he and Markarian were mere co-owners of the Property, 9 not partners. For example, joint ownership of property does not, 10 by itself, establish a partnership. Cal. Corp. Code, 11 § 16202(c)(1) (West 2006). Nor does sharing gross returns, by 12 itself, establish a partnership. Cal. Corp. Code § 16202(c)(2) 13 (West 2006). Although a person receiving a share of profits from 14 a business is presumed to be a partner, the presumption disappears 15 if the profit arises solely from an increase in the value of the 16 collateral, as it did in this case. Cal. Corp. Code 17 § 16202(c)(3)(E) (West 2006). Thus, neither joint ownership nor 18 sharing profits are dispositive in determining if there was a 19 partnership. 20 Here, the parties took title to the Property as tenants in 21 common. In California, holding real property as tenants in common 22 is mutually exclusive with holding title as a partnership. “An 23 interest in common is one owned by several persons, not in joint 24 ownership or partnership.” Cal. Civ. Code § 685 (West 2007). 25 There is also a rebuttable presumption that property is not 26 13 27 Cal. Civil Code § 685 provides “[a]n interest in common is one owned by several persons, not in joint ownership or 28 partnership.” Cal. Civil Code § 685 (West 2007)(emphasis added).

1 partnership property, “even if used for partnership purposes,” if 2 the property is “acquired in the name of one or more of the 3 partners, without an indication in the instrument transferring 4 title to the property of the person's capacity as a partner or of 5 the existence of a partnership and without use of partnership 6 assets. . . .” Cal. Corp. Code, § 16204(d) (West 2006). Here, 7 the Property was titled in the names of the four individuals as 8 tenants in common. As such, there was a rebuttable presumption 9 that the Property was not partnership property.14 10 Notwithstanding the statutory provisions relied upon by the 11 Debtor, the bankruptcy court and Appellees rely upon other 12 statutory provisions to show that a partnership existed between 13 Markarian and the Debtor. 14 In California, “[t]he association of two or more persons to 15 carry on as co-owners of a business for profit forms a 16 partnership, whether or not the persons intend to form a 17 partnership.” Cal. Corp. Code § 16202(a) (emphasis added). Thus 18 two or more individuals carrying on as co-owners of a business for 19 profit may form a partnership, even if they did not intend to form 20 one. “[C]o-ownership of any sort, as well as profit-sharing, are 21 factors tending to establish partnership.” In re Tsurukawa II, 22 287 B.R. at 521. 23 Additionally, being passive in business dealings does not 24 25 14 In California, “[a] partner is not a coowner of partnership property and has no interest in partnership property 26 that can be transferred, either voluntarily or involuntarily.” 27 Cal. Corp. Code § 16501. Munkdale v. Giannini, 35 Cal.App.4th 1104, 1111, 41 Cal.Rptr.2d 805, n.6 (Cal.App. 1 Dist. 1995) (The 28 partnership owns its property and the partners do not).

1 prevent a finding of partnership. “[A] partnership can exist as 2 long as the parties have the right to manage the business, even 3 though in practice one partner relinquishes the day-to-day 4 management of the business to the other partner.” In re Tsurukawa 5 II, 287 B.R. at 522 (citations omitted). 6 Ultimately, the existence of a partnership is a question of 7 fact, determined from the parties' agreement, their conduct, and 8 the surrounding circumstances. Holmes v. Lerner, 74 Cal.App.4th 9 442, 454, 88 Cal.Rptr.2d 130, 139 (Cal.App. 1 Dist 1999). Since 10 there was no written agreement, the existence of the partnership 11 in this case must be gleaned from the parties conduct and the 12 surrounding circumstances. 13 It is well settled in California that a partnership may be formed by parol even though its sole purpose is to 14 deal in real estate. If a partnership is formed and real property is dedicated to partnership use and is 15 used by the partnership for its sole benefit, the fact that title was acquired by one or more of the partners 16 with their private funds or was owned by them as tenants in common prior to the formation of the partnership will 17 not necessarily defeat the claim of the partnership to ownership of the property in the absence of an express 18 agreement that it should remain property of those in whose names title stood. Under such circumstances the 19 owners of the legal title hold the property in trust for the partnership. 20 21 Swarthout v. Gentry, 62 Cal.App.2d 68, 78, 144 P.2d 38, 43 22 (Cal.App. 4 Dist. 1943) (citing Bastjan v. Bastjan, 215 Cal. 662, 23 668, 12 P.2d 6127 (Cal. 1932)) (citations omitted)(emphasis 24 added); En Taik Ha v. Kang, 187 Cal.App.2d 84, 91, 9 Cal.Rptr 425, 25 430 (Cal.App. 2 Dist. 1960) (Ranch property came to the parties as 26 tenants in common, but that character was destroyed when the 27 parties operated it as partnership property and it became a 28 partnership asset.). See also, Strand v. Clark, 2010 W.L. 2496390

1 (Cal.App. 2 Dist. 2010). Accord, Cal. Civ. Code Section 686 (West 2 2006).15 3 The bankruptcy court determined numerous facts to be 4 undisputed based on the Debtor's deposition testimony, as well as 5 the arbitration award and other evidence adopted into the record 6 which is not available for our review. As discussed above, any 7 reliance upon the arbitration findings was improper. As such, the 8 facts the court relied on were undisputed only if the Debtor's 9 deposition testimony supports that conclusion. The court 10 determined the following facts to be undisputed based on the 11 Debtor's deposition testimony: 12 The Debtor, Mr. Babian, concedes that the Debtor co-owned the property with Markarian and other parties. 13 . . . 14 * * * * * 15 The Debtor concedes that it shared the profits of the sale of the property. The Debtor's deposition testimony 16 admissions -- deposition testimony and admissions establish that a partnership existed with respect to the 17 property as a matter of law. 18 The Debtor testified that he saw the chance to purchase the property for $235,000 as a good investment 19 opportunity. An opportunity to, quote: 20 "Make some money." close quote 21 In response to a question regarding his intentions in purchasing the property with the other co-owners, he 22 states, quote: 23 ". . . I was told there is a good opportunity. That I should put some money in, and we 24 25 15 “Every interest created in favor of several persons in their own right is an interest in common, unless acquired by them 26 in partnership, for partnership purposes, or unless declared in 27 its creation to be a joint interest, as provided in Section 683, or unless acquired as community property.” Cal. Civ. Code § 686 28 (West 2007) (emphasis added).

1 probably can build it and sell it. And so, you know, I invested some money in order to 2 make some money out of it." 3 Deposition, page 11 at lines 19 to 23. 4 The evidence shows that the property was bought for $235,000 by Markarian, the Debtor, and two other 5 parties, as co-owners in 2004, and they held title as tenants in common. According to the Debtor's (sic) 6 testimony, each party had a 25-percent interest in the property. The Debtor further admits that the parties 7 originally intended to build and sell condominium units on the property. 8 The co-owners never built the condos. However, the 9 undeveloped property was eventually sold to Plaintiff for $500,000. Each co-owner received proceeds of 10 $125,000, which corresponds to each co-owner’s 25-percent interest in the property. 11 Moreover, the Debtor designated the business association 12 as a partnership in the property ownership status, Form 1099 from Colonial Escrow, which is the form that the 13 Debtor himself filled out. 14 Additional undisputed facts in the record that potentially support 15 the bankruptcy court’s determination that the Debtor and Markarian 16 had formed a partnership include that the co-owners had hired an 17 architect to both conduct a site evaluation (before they bought 18 the Property) and do design structural work on condominiums, and 19 that the parties were pursuing necessary building permits, 20 communicating with Con Edison, and resolving the bus stop problem. 21 Many of the facts the bankruptcy court relied upon are 22 equivocal, in that they relate directly to a California statute 23 that provides that such a fact is either not by itself evidence of 24 a partnership16, creates a rebuttable presumption that property is 25 not partnership property17, or is mutually exclusive with a 26 27 16 Cal. Corp. Code, §§ 16202(c)(1), (2), and (3). 28 17 Cal. Corp. Code, §§ 16204(d).

1 partnership18. Only one fact stands out as unambiguously 2 supporting a finding of partnership - the 1099 Form that was 3 filled out by the Debtor identifying the Property as being 4 partnership property. However, that fact, alone, is insufficient 5 to support summary judgment. 6 Debtor argued that each of the facts noted by the bankruptcy 7 court is evidence of both co-ownership and of partnership. We 8 agree. Debtor also correctly argues that the bankruptcy court was 9 compelled to view the evidence and these facts in Debtor’s favor. 10 When Debtor’s deposition testimony is viewed in the Debtor’s 11 favor, we conclude that genuine issues of material fact remain 12 unresolved regarding whether there was a partnership between 13 Markarian and the Debtor. 14 It is worth noting that the bankruptcy court had the benefit 15 of significantly more evidence to evaluate and with which to 16 render its decision. Unfortunately, that evidence is not present 17 in our record. The paucity of evidence included in the record in 18 this case has hindered our review and compels our conclusion on 19 this appeal. 20 Having determined that genuine issues of material fact remain 21 regarding the alleged partnership between Markarian and Debtor, we 22 need not reach the remaining issues raised by Debtor. 23 CONCLUSION 24 For these reasons, the summary judgment entered by the 25 bankruptcy court is VACATED, and this matter is REMANDED. 26 27 18 28 Cal. Civil Code § 685.