Jerman v. O'Leary

George and Brigid O’Leary (defendants) were general partners in Rincon Country Mobile Home Park, Limited (the partnership), a limited partnership. The O’Learys held a 62 percent interest in the partnership, and 36 limited partners collectively held the remaining 48 percent interest. The partnership owned and operated a mobile-home park. In addition to the land that the mobile-home park was on, the partnership owned 25 acres of undeveloped land. The undeveloped land was zoned SR, suburban ranch, which allowed one residence on every four acres. As SR property, the undeveloped land was valued at $95,000. In 1977 the O’Learys obtained a tentative rezoning of the undeveloped property from SR to TH, which would allow the construction of a travel-trailer park. In 1978 the mobile-home park was sold for $4 million. That same year, the O’Learys offered to purchase the undeveloped land from the partnership for approximately $110,000. The O’Learys did not tell the limited partners that the land had been tentatively rezoned and did not have the land reappraised to determine its value as TH property. Alvin and Frances Jerman (plaintiffs), along with other limited partners (plaintiffs), objected to the proposed sale to the O’Learys. The Jermans argued that the undeveloped land was worth up to $400,000 as TH property. The O’Learys sent another purchase offer to the limited partners, explaining that the land had been tentatively rezoned but that the O’Learys were acting in good faith when they offered $110,000 for the land. The sale was approved by a majority of the limited partners. The Jermans challenged the sale, arguing that the O’Learys engaged in self-dealing and breached their fiduciary duty by initially concealing the rezoning and failing to have the land reappraised. The trial court found that the O’Learys breached their fiduciary duty to the limited partners and awarded compensatory damages of $60,650, punitive damages of $10,000, and attorney’s fees of $13,125. The trial court determined compensatory damages by estimating the price at which the O’Learys could sell the land and calculating their net profit. The O’Learys appealed, arguing that the trial court erred in finding that they had breached their fiduciary duty to the limited partners and, further, in calculating damages.