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Nationally reported case involving the misappropriation of partnership funds by one partner in a real estate development company.

Our client, Plaintiff Stephan Weissberg and the Defendant, Rene Peinado were 10 year friends who decided to jointly do a real estate development project in San Francisco consisting of a conversion of a single family home into 3 condo units. Defendant Peinado was an experienced real developer, and Weissberg was a seismic engineer who had originally simply loaned Peinado $120,000 to purchase the property, but later became an active project member. Weissberg had never developed a residential property before but was to work on the project and share 50/50 in the profits.

Title to the property always remained in Peinado's individual name and when escrow closed on the three units, Peinado took control of the sales proceeds and secretly diverted virtually all the profits of the partnership into a project he owned himself. Peinado repaid Weissberg his original capital contributions (as well as himself), but then stalled and delayed the final accounting (and distribution of the profits) claiming there had been an oral agreement for his separate development company to get a 10% contractor's fee. Peinado further claimed there were numerous other issues that needed to be finalized before profits could be distributed. The accounting process went on for six months before Weissberg realized the profits had been diverted. This lawsuit was then instituted.

We brought the case on five causes of action: Breach of Contract, Breach of Fiduciary Duty, Breach of the Covenant of Good Faith and Fair Dealing, Fraud and Conversion. Both sides sought an accounting. Our liability theory was that Peinado had always planned to divert the money which is why he kept title in his name. Weissberg had agreed to allow title to remain in Peinado's name, but was falsely led to believe it was for Peinado's tax benefit. Weissberg also claimed that Peinado was looking to take advantage of an extremely hot real estate market, shut him out of any new projects (contrary to their understanding about future developments) and that Peinado managed to parlay the profits from the parties joint development into 3 separate projects for himself. Weissberg claimed he never knew about the diversion of the profits, that the oral agreement (for the contractor's fee) never took place, and Peinado's stalling of the final accounting was merely to avoid paying Weissberg his profits. Throughout the two plus years the matter was in litigation, Peinado never paid Weissberg any portion of the profits.

Peinado's position was that he and Weissberg agreed that title should remain in his name (and that Weissberg acquiesced), told Weissberg about using the partnership money in his own deal, and that the parties agreed to treat Peinado's use of the profits as a loan with a high rate of interest. Peinado further claimed that he did not purposefully delay the accounting and that no profits could be distributed until the issue of the 10% contractor's fee could be resolved as well as the continuing liability issues, mechanics liens and other lingering problems with the project. Peinado claimed he always intended to pay Weissberg his portion of the profits, but because Weissberg kept the books in a poor way, a final accounting could not be resolved. Peinado further claimed Weissberg never gave him a final accounting.

We contended that Peinado's wrongful retention of his share of the profits kept Weissberg from realizing significant profits on development projects he was would have done if he had his profits distributed within a couple of months after completion of the joint project. Weissberg was able to do one project, but didn't have enough money to do it himself and took on an equity partner. Weissberg claimed he was unable to realize all the profits he could have made because on the project he did, he had to split his profits with his equity partner. Weissberg further claimed that because of the delay in the accounting process with Peinado he lost a critical window of opportunity in the booming real estate market of 1999 and 2000. Weissberg's damages expert established two alternate damages scenarios in which damages ranged from a low of $760,000 to a high of 2.7 million, depending on what projects Weissberg could have done.

Peinado contended that because Weissberg was an inexperienced developer, his damages were speculative and unrealistic. Peinado further claimed that Weissberg contributed to his own damages by unreasonably delaying his projects, that he didn't need an equity partner and should have simply gotten a construction loan to do the projects he wanted. Peinado argued that Weissberg should recover whatever profits were determined by the Court (less the contractor's fee, which issue went to the jury), plus a reasonable rate of interest for the 2 ½ years Peinado held the money.

The accounting action was tried before the jury, but was decided by the Court. Aside from the contractor's fee, there was relatively little disagreement between the experts about the net profits due to Weissberg, (they were $20,000 apart). The Court determined Weissberg's profits to be $186,000 (exactly half way between the experts figures). The jury was given the final accounting number in order to establish Weissberg's damages.

The jury deliberated on the compensatory damage phase for one day following a nine day trial. The jury first made a factual determination that there was no agreement for the contractor's fee, so the damage award was premised on Weissberg's full share of the profits of $186,000.

The jury returned a unanimous verdict in favor of Weissberg on all five causes of action and awarded $1,370,000 in compensatory damages. The jury unanimously found that there was oppression, fraud or malice on all three tort causes of action (conversion, breach of fiduciary duty and fraud) and punitive damages was then argued.

In the penalty/punitive damage phase of the trial, the evidence was in sharp conflict over Peinado's net worth. Weissberg claimed that Peinado had a net worth of about 1.5 million dollars, and asked the jury to award $215,000 in punitive damages (that amount was Peinado's approximate profits on the project he did with Weissberg). Peinado claimed he had a net worth of only one half million dollars due to the decline in the real estate market, and Peinado's counsel asked the jury to award no punitive damages, as the compensatory award was more than adequate to teach Peinado a lesson.

The jury deliberated 45 minutes on the punitive damages and awarded $230,000 in punitive damages ($15,000 more than we had asked for).

Total award: $1,600,000. (Note: On appeal, the Court of Appeals agreed with Peinado’s argument that the lost profits damages awarded Weissberg were speculative and remanded the case for further determination. The appellate court left intact the punitive damage award. The trial court subsequently reduced the compensatory award to approximately $225,000, which when combined with accrued interest and the punitive damages resulted in a net award of over $500,000.