## Facts

- Benny Enea owned a one-third interest in 3-D, a general partnership formed in 1980 whose sole asset was an office building.
- The building was used primarily by William Daniels’s law practice and at times by Claudia Daniels and other tenants.
- Enea sued his former partners for breach of fiduciary duty, alleging they leased the partnership’s sole asset to themselves at below-market rates and withheld partnership information.
- The parties stipulated that the partnership’s principal purpose was ownership, leasing, and sale of the building, and that the partnership agreement did not require fair market rent or an intent to maximize rental profits.
- The superior court granted summary adjudication for the Daniels, holding no fiduciary-duty claim could be based on below-market self-renting absent an express agreement requiring fair market rents.
- Enea sought writ relief directing the superior court to vacate the summary adjudication order.

## Issues

1. Whether partners in a general partnership may lease partnership property to themselves at below-market rent, reducing partnership profits, when the partnership agreement does not expressly require fair market rent or profit maximization.
2. Whether California Corporations Code section 16404(e) permits self-interested conduct that otherwise constitutes self-dealing at the partnership’s expense.
3. Whether fiduciary duties under California partnership law arise by operation of law even when not stated in the partnership agreement.

## Decision

- The Court of Appeal granted the petition for writ of mandate.
- The court held the duty of loyalty bars partners from conferring benefits on themselves at the partnership’s expense, including occupying or leasing partnership property at below-market rates.
- The court rejected the view that the absence of a fair-market-rent clause eliminates fiduciary constraints on self-dealing.
- The court held section 16404(e) does not authorize exclusive self-benefit at partnership expense or appropriation of value that would otherwise be distributable partnership profits.
- The court directed the superior court to set aside the summary adjudication order and deny the motion.

## Legal Principles

- Partners’ fiduciary duties, including the duty of loyalty, are imposed by law and are not limited to obligations expressly stated in the partnership agreement.
- Under Corporations Code section 16404(b)(1), a partner must account to the partnership and hold as trustee any benefit derived from use of partnership property, including appropriation of a partnership opportunity.
- Section 16404(e) means self-interested conduct is not automatically wrongful; it does not excuse conduct that diverts partnership value to a partner at the partnership’s expense.
- Renting partnership property to oneself is not categorically forbidden, but charging below-market rent that diminishes partnership returns can constitute disloyal self-dealing.
- A partnership’s asserted emphasis on long-term appreciation does not permit partners to divert current economic benefits (such as market-rate rent) away from the partnership.

## Conclusion

The court held that partners breach the statutory duty of loyalty when they lease partnership property to themselves below market value and thereby reduce partnership profits, even if the partnership agreement is silent on fair market rent and even if the partnership was formed with an expectation of long-term appreciation.


Enea v. Superior Court, 132 Cal. App. 4th 1559 (Ct. App. 2005)