Opinion
NOT TO BE PUBLISHED
San Mateo County Super. Ct. No. CIV-435448
Pollak, Acting P.J.
Defendant Rajeshkumer Khatri (“Roger”) appeals from a judgment dissolving the KT & RK partnership, a family partnership with his mother and brother, plaintiffs Pradeep Khatri (“Peter”) and Vidyagauri Khatri (“Vidya”). He argues that the trial court erred in adopting certain findings and calculations by the court appointed referee. In a consolidated appeal, he also challenges the denial of his motion to vacate the judgment based on these same arguments. We shall affirm.
Background
The family partnership was established in the 1980’s by Roger and his father. Over the years, the partnership acquired six income properties, including four motels. After the father died in 1993, the partnership interests were owned by Roger and his mother, Vidya. Between 2001 and 2003, disagreements arose within the family causing the parties to divide management responsibilities for the partnership assets. Under a written agreement entered in December 2002, three properties were to be managed exclusively by Roger and the other three were to be managed by Peter. In November 2003, however, Vidya and Peter filed the present action seeking, among other things, to rescind those agreements and dissolve the partnership.
In December 2005, the trial court entered an interlocutory judgment finding that Roger had a 50 percent ownership interest and a 50 percent income interest in the partnership, that Vidya had a 50 percent ownership interest and a 25 percent income interest in the partnership and that Peter had a 25 percent income interest in the partnership. The court rescinded all of the previous agreements between the parties regarding partnership assets and ordered the partnership to be dissolved.
In February 2007, the court appointed a referee to oversee the dissolution of the partnership. The order of appointment specifies the subject matter of the reference as including “(1) appraisals of the six properties; (2) a like-kind exchange of the six properties; (3) property contribution offsets; (4) partnership capital account offsets; (5) resolution of outstanding partnership loans; (6) property tax issues; (7) revenue offsets for business operations under the rescinded agreements; and (8) indemnity and offsets for judgments and other obligations incurred during the partnership.”
In December 2008, the court issued an order specifying additional procedures for carrying out the like-kind exchange of the real properties and dissolution of the partnership. The order provides that “On or before 5:00 pm, January 12, 2009, each party shall mail to the referee and to each other party all tax returns, tax submissions, audits, letters, notices, communications with any tax authorities and the like relating to any city, county, state, federal or any other jurisdiction, from 2003 to the present and all documents relating to actual or claimed offsets, contributions, loans, obligations, indemnity, capital accounts, judgments, dissolution and other such items.”
In March 2009, the court issued another order regarding the accounting. The order provides in relevant part, “In compliance with the [December 2008] order, the parties have submitted voluminous records to referee, together with proposals for the dissolution of the KT & RK partnership... and related accounting matters. The parties’ submissions include proposals for accounting offsets relating to net income received from the rental and operation of partnership properties from 2003 to 2008. The submissions of the parties are inadequate for purposes of effecting the necessary accounting offsets relating to the net income derived from the rental and operation of partnership properties. Accordingly, on or before 5:00 p.m. on the 14th day following service of this order, the parties shall exchange and submit to the referee the following: [¶] a. All profit and loss statements for the period from 2003 to 2008 for the four (4) motel properties, verified under penalty of perjury. [¶] b. A list, verified under penalty of perjury, of all bank accounts into which deposits of any income derived from the rental or operation of partnership properties have been made for the period from 2003 to 2008, or from which expenses relating to the rental or operation of partnership properties have been paid from 2003 to 2008.”
Following entry of the March 2009 order, Peter and Vidya issued subpoenas seeking production of Roger’s records at 10 banks. Roger moved to quash the subpoenas in part on the ground that “the records requested are not limited to the relevant 2003 through 2008 revenue offset time period.” He argued that he and Peter “jointly managed all properties prior to 2001 and each had access to the same information” and emphasized that “reliance on verified tax returns prepared jointly by the parties serve as the most reliable benchmark to determine revenue offsets.” The court denied the motion to quash but limited the time period of the subpoenas to 2003 to 2008.
The referee submitted his final report and recommendation to the court in December 2009. The report recommended that four properties with a combined appraised value of $10.275 million be allocated and transferred to Roger and that the remaining two properties with a combined appraised value of $9,374,285 be allocated and transferred to Vidya.
To determine the amount of the equalization payment necessary to account for the difference in the values of the properties received and for income received and expenses incurred with respect to the properties during the period from 2003 forward when the properties were separately managed, findings were made as follows. Each of the three partners was charged for the value of property received, revenue generated from their separate management of partnership assets from 2003 through 2009, including management fees received, and credited with the value of their capital account as reported on the 2002 joint tax returns, which the parties filed, plus any additional capital contributions made after 2002. Each party’s charges less credits equaled the value of what each received and determined the amount of the necessary equalization payment.
With respect to revenue received during the period from 2003 through 2008, or “revenue offsets, ” the referee recognized that “[d]isputes exist between the parties as to whether Roger, on the one hand, and Peter and Vidya, on the other hand, have properly reported income earned by the partnership during their periods of separate management of the partnership real properties from 2003 to the present.” The referee rejected most of the parties’ arguments regarding alleged under-reporting, but concluded that “[c]redible evidence does exist... that Roger has under-reported the income from the partnership properties he has managed during the accounting period.” The referee recommended that additional income be imputed to Roger’s gross revenue. After adjusting the amount of revenue attributed to Roger in the manner described below (see p. 12, infra), the referee found that $1,743,600 in net income should be allocated to Roger during the accounting period, and $1,994,387 in net income should be allocated to Vidya.
With respect to capital contribution offsets, the referee stated, “The parties have submitted extensive documentation which they maintain supports their respective claims for offsets resulting from the expenditure of personal funds for capital contributions to the partnership. These submissions were made pursuant to order specifying the accounting period to be from 2003 to the date of the final accounting.... Consistent with the establishment of this accounting period, Roger successfully moved for an order quashing subpoenas issued by Peter/Vidya seeking bank records for period prior to 2003. [¶] Roger has submitted documents which he contends evidence capital contributions he made for a substantial addition to the Hayward Super 8 property which was completed in 2001 and for exterior improvements to the Oakland Economy Inn property in 2002.... [¶]... Although Roger expressly recognizes the 2003 to present accounting period for all other purposes relating to the dissolution of the partnership and the accounting between the partners, he contends that the 2003 to present the accounting period does not apply to the issue of capital contributions. This position taken by Roger... is not consistent with the orders issued herein specifying the accounting period. If an expanded accounting period were adopted for review of capital contributions, any of the partners could go back indefinitely into the past to try to identify capital contributions made from their personal funds. Such a result from the expansion of accounting period as it relates to capital contributions as urged by Roger would be illogical since pre-2003 capital contributions would have been made when the parties all jointly operated the partnership properties and presumably reported any such capital contributions on their common partnership tax returns. In this sense, capital contributions made before 2003 when the parties began separate management and separate reporting on the two groupings of partnership properties should already have been accounted for in the joint partnership tax returns filed for the years prior to 2003.” The referee recommended that Peter and Vidya receive $1,313,241 and Roger receive $8,601 in credit for capital contributions made during the accounting period. A summary in the referee’s report reflected that after taking into account the respective credits and offsets, Peter and Vidya should make an equalization payment to Roger of $122,891.
Roger objected to the referee’s report arguing, among other things, that the referee improperly failed to give him credit for approximately $1.4 million in capital contributions that he made prior to 2003, and that the referee improperly calculated the revenue chargeable to him during the 2003-2008 time period.
On December 31, 2009, following two days of hearing on the parties’ objections to the referee’s report, the court issued an order adopting most of the recommendations of the referee, ordering four of the properties transferred to Roger and the remaining two properties transferred to Vidya, and directing plaintiffs to pay Roger $108,066.25 as an equalizing payment.
Peter and Vidya promptly moved to vacate and modify the order on the ground that it was inconsistent with the factual finding made by the referee that “the parties are entitled to credit for capital contributions made to the partnership.” They argued that while the referee found that during the accounting period they made capital contributions of $1,313,241 and Roger made capital contributions of $8,601, the referee had mistakenly treated the capital contributions as assets received by the partner making the contribution for which that partner was charged rather than as debts of the partnership to that partner for which the partner should be credited. Roger opposed the motion. He argued that prior to the entry of the December 2009 order, many mathematical errors had been asserted and argued by both sides. While he believed the referee’s recommendation was erroneous, he urged the court not to change the December 2009 order for the sake of finality.
On April 9, 2010, the court issued another order finding, among other things, that “the referee’s recommendation did not give the parties credit for the capital contributions related to capital improvements, despite his intention of so doing. The referee’s accounting treats the monies spent by each of the partners as distributions or benefits received as opposed to monies expended, for which the parties are entitled to credit in the accounting.” Having corrected the accounting, the court ordered that “the December 31, 2009, [the] court order is modified to state that Roger Khatri owes Vidyagauri Khatri and Peter Khatri $783,398.50, and that Vidyagauri Khatri and Peter Khatri do not owe Roger Khatri anything.” The new order adds, “Except as otherwise specified herein, the referees’ recommendation dated December 4, 2009, ... and the court’s order of December 31, 2009, ... are both incorporated by this reference and adopted by this court....”
Roger filed a notice of appeal from the April 2010 order. At the same time, Roger filed a motion to vacate the April 2010 order on the same grounds asserted previously— i.e., that the court failed to properly calculate his claims for capital contributions and improperly calculated his gross revenue. The motion to vacate was denied and Roger filed a second notice of appeal. The two appeals were consolidated for all purposes.
Discussion
1. Scope of the Appeal
Initially, plaintiffs argue that because the April order “merely corrected clerical errors” in the prior order, Roger may not challenge factual findings or conclusions of law first made in the December 2009 order. In their opinion, the scope of Roger’s appeal is limited to “whether there was factual support for the trial court’s amendments to the December 30, 2009 Final Order” as framed by plaintiffs’ motion. We disagree.
Plaintiffs argue that the April order was merely clerical and not a “material and substantial” modification. (See Stone v. Regents of University of California (1999) 77 Cal.App.4th 736, 744.) However, plaintiffs did not file a motion to clarify clerical errors in the April order. They moved “for the court to vacate its order issued on December 31, 2009, and to correct its order pursuant to Code of Civil Procedure section 663.” Under section 663, “[a] judgment or decree, when based upon a decision by the court... may, upon motion of the party aggrieved, be set aside and vacated by the same court, and another and different judgment entered, for... the following cause[], materially affecting the substantial rights of the party and entitling the party to a different judgment: [¶] 1. Incorrect or erroneous legal basis for the decision, not consistent with or not supported by the facts....” When a new judgment is entered under section 663 it supersedes the original judgment and the time for appeal runs from the date of new judgment. (Karsh v. Superior Court of Los Angeles County (1932) 124 Cal.App. 373, 377 [“after the entry of the new and ‘different’ judgment, it became the only judgment in the action by which the parties thereto were bound; from which it follows that it was from the date of the entry of such judgment that the time for appealing therefrom, together with the incidents of such appeal, started to run”].) Accordingly, when the court granted plaintiffs’ motion it necessarily vacated the December order and entered a new order, subject to new time limits for appeal.
Contrary to plaintiffs’ argument, there is nothing inequitable about allowing Roger to challenge the findings originally made in the December order and incorporated into the April order. At the hearing on plaintiffs’ motion to vacate, Roger made clear that he had no intention of appealing the December order, despite his belief that it erroneously shorted him by $2.5 million, and that he would appeal only if the court granted plaintiffs’ motion to vacate and entered a new order. Roger was entitled to rely on plaintiffs’ choice of motion in determining his appellate strategy.
Plaintiffs also argue that the order denying Roger’s motion to vacate is not appealable. There is some confusion regarding the appealability of the denial of a motion to vacate under section 663. (Compare City of Los Angeles v. Glair (2007) 153 Cal.App.4th 813, 820, citing Clemmer v. Hartford Insurance Co. (1978) 22 Cal.3d 865, 890 [“denial of a motion to vacate the judgment and enter a different judgment is not separately appealable”] with Howard v. Lufkin (1988) 206 Cal.App.3d 297, 301 [recognizing long-standing exception to the general rule of nonappealability for the denial of a “statutory motion” to vacate a judgment pursuant to section 663].) We need not reach this issue, however, because the arguments raised by Roger with respect to the denial of his motion to vacate are identical to those raised with respect to his appeal from the April 9 order. We do not consider Roger’s argument that the April order is void because the court lacked authority to grant a motion to vacate to correct erroneous factual findings. This argument was not presented in the trial court and was raised for the first time on appeal in Roger’s reply brief. (In re Marriage of Eben-King & King (2000) 80 Cal.App.4th 92, 117.)
2. 2000-2002 Capital Contributions
Roger contends the court erred in failing to credit approximately $1 million dollars in capital contributions he claims he made to the partnership between 2000 and 2002. As set forth above, the referee’s recommendation excluded these amounts on the ground that the expenses were incurred outside of the accounting period that began in 2003. The court’s April 9 order adopts the referee’s recommendation regarding capital contributions without explanation. At the hearing on Roger’s motion to vacate, however, the court explained its reasoning “for the benefit of the appellate court.” First, the court acknowledged that while its December 2008 order specified a time frame for the accounting of partnership revenues received by the partners, it did not expressly designate a time frame for consideration of capital contributions. The court then added, “I want to clarify on the record because I think your client is certainly entitled to the clarification. Did the court consider the fact there was a discrepancy between the dates used on the income and capital contributions? The answer is yes. Did the court feel that it was appropriate or necessary to make any offsets or corrections to the referee’s calculations because... of that discrepancy? The answer is No. Was it considered and in my thought process in making this order? It was considered and rejected to make any kind of offset about it. [¶] I found and there is not a finding in writing at this point but I am making a finding now that the referee’s actions in using the same date for... capital contributions and income based on the order that he was presented with which contained a date for income was a reasonable thing to do.”
Initially, Roger argues that the court applied an improper deferential standard to the referee’s recommendation rather than independently determining the proper time frame for capital contributions. The court’s comments quoted above, however, do not support this contention. Rather, the court emphasized that it carefully considered Roger’s objection on the merits and concluded that the accounting period utilized by the referee was reasonable under the circumstances. In essence, the court agreed with the referee’s methodology and adopted it in the final order. The court did not, as Roger suggests, improperly defer to the referee’s “erroneous interpretation” of the court’s prior orders.
Roger also argues that the accounting period utilized by the referee and adopted by the court violates Corporations Code section 16401 because it fails to include offsets for capital contributions that he made prior to 2003. Contrary to Roger’s suggestion, the referee did not determine that Roger was not entitled to credit for capital contributions made prior to the start of the accounting period in 2003. As explained in the referee’s report quoted at length above (p. 4, infra), the referee concluded that the capital account balances reported in the joint partnership tax returns filed in 2002 were the most appropriate indicators of the parties’ capital accounts as of the end of 2002, when joint management of the partnership properties ended. These amounts reflected the contributions and withdrawals that each of the partners had made up to that point in time. Roger argues that he was not required to, and did not, include in the 2000-2002 partnership tax returns capital contributions that he made during those years, and that his failure to do so should not preclude him from receiving credit for those contributions at the time of dissolution. He suggests that he had “no reason to anticipate that he would ever have to claim a credit for [his contributions] from the partnership” because he believed he would be the sole owner of the improved properties under the agreements with plaintiffs that were in effect prior to the filing of this action.
Corporations Code section 16401, subdivision (d) provides, “A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute.”
Based on the record before us, we cannot say that the court abused its discretion in accepting the amounts appearing on the joint partnership tax returns as the value of the partners’ respective capital accounts as of December 2002 and adjusting only for transactions occurring after the partners began operating independently in 2003. The tax returns were joint returns and, whatever Roger’s expectations for the future might have been, there is no apparent reason why he would have failed to include in the returns sizable contributions he made to the partnership during those years. Moreover, as the referee explained, it was not possible to give credit for some pre-2003 transactions without disregarding the ending capital account figures and extending the accounting back into those earlier years, perhaps indefinitely. Doing so would have been illogical and would have created the possibility of double accounting for those transactions. Still further, Roger’s request to separately consider contributions he assertedly made before 2003 was inconsistent with the position he took while the accounting was being conducted. As indicated above, Roger moved to quash a subpoena calling for the records that would have evidenced any such contributions and succeeded in limiting the production of the requested records to the period from 2003 forward. The court was entirely justified in refusing to consider additional contributions he claims to have made before 2003 that he asserts were not reflected in the 2002 joint tax returns.
3. Roger’s Gross Revenue
Roger contends that the court erred by adopting the referee’s recommendation to impute to him approximately $252,000 in additional gross revenue received during the 2002-2008 accounting period. He argues both that the referee exceeded the scope of his authority and that the method used by the referee to calculate the amount of additional income was erroneous.
The referee was appointed pursuant to Code of Civil Procedure section 639, under which the scope of the his authority is limited to “ ‘ “the hearing and decision (or the finding) of the facts as to the account ordered by him [or her] to be examined.” ’ ” (Kim v. Superior Court (1998) 64 Cal.App.4th 256, 262.) While the referee’s power cannot exceed the “constitutional limitations on the delegation of judicial power to a referee” (De Guere v. Universal City Studios, Inc. (1997) 56 Cal.App.4th 482, 499), the referee may make credibility findings as an authorized fact finder. (Settlemire v. Superior Court (2003) 105 Cal.App.4th 666, 673; In re Marriage of Petropoulos (2001) 91 Cal.App.4th 161, 176.) Here, the order of appointment specified that the referee should determine “revenue offsets for business operations under the rescinded agreements.” A subsequent order provided that “If a party defaults by failing to submit and provide documents in full in a timely manner, ... the referee may accept or utilize any reasonable actual, estimated or imputed numbers or data to resolve the items.” The referee’s determination that Roger had under reported his income was well within the scope of the reference.
De Guere v. Universal City Studios, Inc., supra, 56 Cal.App.4th 482, cited by Roger, is distinguishable. In that case, the court recognized that a reference is allowed under Code of Civil Procedure section 639 “because a trained accountant is generally better able to efficiently and inexpensively examine a ‘long account’ than a trial court judge is able to do through adversarial court proceedings. The tension in this area is over how much latitude the accountant referee may exercise in making factual determinations.... The scope of the reference is set by the constitutional limitations on delegation of judicial power to a referee.” (De Guere, at p. 499.) The court there held that the referee exceeded the scope and authority of the reference by making findings on the enforceability of the contract under which the accounting was required, including findings regarding the parties’ intent and whether the contract was one of adhesion. (Id. at p. 501.) In contrast, the referee here confined his findings to those directly relating to the accounting itself.
We also find no error in the method used by the referee to adjust Roger’s gross revenue during the accounting period. The referee adjusted the amount of gross revenue received by Roger during the accounting period after comparing the increase in revenue Roger reported for the properties he was managing with the increase in revenue plaintiffs reported on the properties under their control. He found that between 2003 and 2008, plaintiffs had a cumulative increase in gross receipts of 72.19 percent — an average annualized increase of approximately 12 percent — while Roger reported a cumulative increase of only 8.96 percent — an average annualized increase of approximately 1.5 percent during the same time period. The court found that plaintiffs’ evidence of the understatement of Roger’s revenue was more credible than Roger’s unadjusted figures because the motels for which plaintiffs were reporting income were managed by a third party during the accounting period and because the gross revenue reported by plaintiffs was consistent with expert testimony regarding annual economic trends for comparable economy motels. The referee observed that “No explanation is offered by Roger, or his rebuttal experts, as to why the gross revenues generated by the motel properties under his control in the accounting period performed so poorly in comparison to the motels under the control of Peter/Vidya, or in comparison to the motels of comparable class.... It is difficult to reconcile a performance differential of this magnitude except to conclude that the gross revenues for the motels under Roger’s control were understated.” Accordingly, the referee increased Roger’s reported gross revenue to match the growth rate experienced by the properties under plaintiffs’ control.
Roger suggests that there is no evidence to support the referee’s adjustment because plaintiffs’ expert did not offer an opinion as to the specific amount of income that should be imputed to Roger. Plaintiffs’ expert suggested that the amount of income under-reported by Roger should be calculated by “exclusively compar[ing] the performance of the motels under Roger’s control against ‘market share averages’ of comparable economy motels” that he had compiled. The referee rejected this methodology, explaining that “[a] more direct method of adjusting the gross revenues attributable to the motel properties under Roger’s control would be to apply the percentages of gross motel revenue growth experienced and reported by Vidya to the gross motel revenues reported by Roger. This approach has the advantage of dealing with properties actually known to the parties, and it adopts a method of adjusting Roger’s gross motel revenues in line with the gross motel revenue growth reported by Vidya as supported by the market research complied by [the expert] for similar economy scale motels in the survey area.” No further expert opinion was necessary.
Roger also argues that the referee’s finding is unsupportable because there is no evidence that the properties managed by plaintiffs were comparable to the properties he was managing. The expert’s report, however, supports the referee’s conclusion that the motels under the control of the parties were comparable to each other and were also comparable to the properties he analyzed. Roger objected to the comparison of partnership properties to the properties analyzed by the expert on the ground that “utilizing comparable properties to ascribe income and expenses to the co-owned motel properties [was] unreliable because of differences in location, size, quality, efficiency, etc.” The referee explained that “these factors alone do not explain the wide differential in gross motel revenue growth reported by Roger, on one hand, and Vidya, on the other hand.” Moreover, the expert testified that the motels with which those under Roger’s management were compared were in fact comparable in the relevant respects.
Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, 290, cited by Roger, is distinguishable. In that case, the court observed that “[b]efore evidence of similar businesses may be used to prove loss of prospective profits, there must be ‘ “a substantial similarity between the facts forming the basis of the profit projections and the business opportunity that was destroyed.” ’ ” (Id. at p. 291.) The court held that the “cursory description” of the allegedly comparable businesses were insufficient to establish substantial similarity with plaintiff’s lost opportunity. (Id at p. 290.) In contrast, in this case, as the referee noted, the parties were very familiar with the two sets of motels being compared and the expert presented evidence that they were all of the same class.
Disposition
The April 2009 order and subsequent order denying Roger’s motion to vacate are affirmed. Plaintiffs are to recover their costs on appeal.
We concur: Siggins, J.Jenkins, J.