HOLLAND & KNIGHT LLP
`Sarah A. Marsey (SBN 297911)
`Jacqueline Harvey (SBN 322165)
`Ana Dragojevic (SBN 341847)
`560 Mission Street, Suite 1900
`San Francisco, CA 94105
`Telephone: 415.743.6900
`Fax: 415.743.6910
`E-mail: sarah.marsey@hklaw.com
` jacqueline.harvey@hklaw.com
` ana.dragojevic@hklaw.com
`
`Attorneys for Defendants and Cross-Complainants
`CHRIS V. KELLY, Individually And As Co-Trustee
`Of THE KELLY FAMILY TRUST; LARA GAY KELLY,
`An Individual And As Co-Trustee Of THE KELLY FAMILY TRUST
`
`
`ELECTRONICALLY
`F I L E D
`
`Superior Court of California,
`County of San Francisco
`07/19/2024
`Clerk of the Court
`BY: ANNIE PASCUAL
`Deputy Clerk
`
`IN THE SUPERIOR COURT OF THE STATE OF CALIFORNIA
`IN AND FOR THE COUNTY OF SAN FRANCISCO
`
`))))))))))))
`
`
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`MHYF HOLDINGS, LLC, a Delaware limited
`liability company; MATTHEW HUMPHREY,
`individually and as managing member of
`MHYF HOLDINGS, LLC; YING FU,
`individually and as managing member of
`MHYF HOLDINGS, LLC;
`
`Plaintiff,
`
`
`vs.
`
`CHRIS V. KELLY, individually and as co-
`trustee of THE KELLY FAMILY TRUST;
`LARA GAY KELLY, an individual and as co-
`trustee of THE KELLY FAMILY TRUST;
`
`Defendants.
`CHRIS V. KELLY, individually and as co-
`trustee of THE KELLY FAMILY TRUST;
`LARA GAY KELLY, an individual and as co-
`trustee of THE KELLY FAMILY TRUST;
`
`Cross-Complainants,
`
`vs.
`
`NEILL BASSI, an individual; SOTHEBY’S
`INTERNATIONAL REALTY, a California
`Corporation
`
`
`Cross-Defendants.
`
`Case No.: CGC-21-596771
`
`CHRIS V. KELLY’S AND LARA GAY
`KELLY’S RESPONSIVE
`SUPPLEMENTAL BRIEF IN SUPPORT
`OF THEIR DEMURRER TO CROSS-
`COMPLAINT
`
`
`Date: July 26, 2024
`Time: 9:30 a.m.
`Dept: 501
`Judge: Hon. Charles F. Haines
`
`Trial Date: None Set
`
`Complaint Filed:
`
`11/22/2021
`
`
`
`1
`CHRIS V. KELLY’S AND LARA GAY KELLY’S RESPONSIVE SUPPLEMENTAL BRIEF
`IN SUPPORT OF THEIR DEMURRER TO CROSS-COMPLAINT
`
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`560 Mission Street, Suite 1900
`
`Holland & Knight LLP
`
`San Francisco, CA 94105
`
`Fax: 415.743.6910
`Tel: 415.743.6900
`
`
`

`

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`Cross-Complainants and Cross-Defendants Chris V. Kelly and Lara G. Kelly’s (collectively
`“the Kellys”) hereby submit their responsive supplemental brief in support of their Demurrer to
`Cross-Defendants and Cross-Complainants Sotheby’s International Realty, Inc. and Neill Bassi’s
`(collectively “Sotheby’s”) Cross-Complaint against the Kellys.
`I.
`PRELIMINARY STATEMENT.
`As ordered by this Court and confirmed at the hearing on June 13, 2024, the supplemental and
`responsive briefs were “LIMITED TO CITATION TO CASES.” Court Order (June 13, 2024)
`(emphasis added). The Court also requested only case citations where “A SIMILARLY WORDED
`INDEMNITY CLAUSE (I.E. “ALL CLAIMS”) WAS INTERPRETED TO APPLY TO CLAIMS
`ASSERTED BY A PARTY TO THE CONTRACT . . . THERE SHALL BE NO FURTHER
`ARGUMENT OR DISCUSSION OF THE CASES CITED.” Id. (emphasis added).
`Despite the unequivocal language in the Court’s order, Sotheby’s’ supplemental brief
`included summaries, analysis, and inaccurate portrayals of the case holdings (i.e., including cases that
`lack both (i) a similarly worded indemnity clause and (ii) an indemnity clause that applies to claims
`asserted by parties to the contract), in direct violation of the Court’s order.
`The Kellys respectfully ask this Court to disregard any and all statements contained within
`Sotheby’s supplemental brief that are not purely citations and direct quotations fitting the above
`requirements.
`II.
`THE INDEMNITY CLAUSE IN THE RESIDENTIAL LISTING AGREEMENT
`ONLY APPLIES TO THIRD-PARTY CLAIMS.
`Pursuant to the Court’s Order, the Kellys hereby list citations supporting their position that
`the indemnification clause contained in the Residential Listing Agreement entered by and between
`the Kellys and Sotheby’s only applies to third-party claims—not direct claims. These cases are
`attached hereto as Exhibits 1 to 9 with the relevant portions of the decision highlighted in yellow for
`the Court’s convenience.1
`
`
`
`1 If the Court accepts Sotheby’s arguments, Kellys respectfully request the opportunity to make their own arguments
`regarding these cases, but absent the Court’s permission they understand any such arguments violate the Court’s order.
`
`2
`CHRIS V. KELLY’S AND LARA GAY KELLY’S RESPONSIVE SUPPLEMENTAL BRIEF
`IN SUPPORT OF THEIR DEMURRER TO CROSS-COMPLAINT
`
`560 Mission Street, Suite 1900
`
`Holland & Knight LLP
`
`San Francisco, CA 94105
`
`Fax: 415.743.6910
`Tel: 415.743.6900
`
`

`

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`III.
`
`List of Cases Supporting Indemnity Only Applies to Third-Party Claims:
`1. Alki Partners, LP v. DB Fund Servs., LLC, 4 Cal.App.5th 574, 601–02 (2016).
`2. City of Bell v. Superior Ct., 220 Cal.App.4th 236, 252 (2013).
`3. Carr Business Enterprises, Inc. v. City of Chowchilla, 166 Cal.App.4th 14, 20–23
`(2008).
`4. Queen Villas Homeowners Assn. v. TCB Prop. Mgmt., 149 Cal.App.4th 1, 6, n.2
`(2007).
`5. Bldg. Maint. Serv. Co. v. AIL Sys., Inc., 55 Cal.App.4th 1014, 1029–30 (1997).
`6. Myers Bldg. Indus., Ltd. v. Interface Tech., Inc., 13 Cal.App.4th 949, 974 (1993).
`7. Varco-Pruden, Inc. v. Hampshire Constr. Co., 50 Cal.App.3d 654, 659-60 (1975).
`8. Paul Ryan Associates v. Catlin Specialty Insurance Co., No. A156755, 2021 WL
`2024610, at *3, *5 (May 21, 2021).
`9. AliveCor, Inc. v. Apple Inc., 603 F.Supp.3d 851, 854–56 (2022).
`SOTHEBY’S’ SUPPLEMENTAL CASES ARE DISTINGUISHABLE.
`Pursuant to the Court’s Order, the Kellys hereby provides rebuttal pin citations in the cases
`contained in Sotheby’s supplemental brief. These cases are also attached hereto as Exhibits 10 to 16
`with the rebuttal portions of the decision highlighted in blue for the Court’s convenience.
`Rebuttal and Distinguishing Citations from Sothebys’ Cases:
`10. Rossmoor Sanitation v. Pylon, Inc., 13 Cal.3d 622, 627 (1975).
`11. McCrary Const. Co. v. Metal Deck Specialists, Inc., 133 Cal.App.4th 1528, 1531
`(2005).
`12. Morton Thiokol, Inc. v. Metal Building Alteration Co., 193 Cal.App.3d 1025, 1026–
`27 (1987).
`13. Zalkind v. Ceradyne, Inc., 194 Cal.App.4th 1010, 1023, 1027 (2011).
`14. Tomjanovich v. Coldwell Banker Residential Brokerage Company, et al., No.
`B247887, 2014 WL 4257310, at *1, *5 (Aug. 29, 2014).
`15. Wilshire-Doheny Associates, Ltd. v. Shapiro, 83 Cal.App.4th 1380, 1388, 1390,
`1394–97 (2000).
`
`
`
`3
`CHRIS V. KELLY’S AND LARA GAY KELLY’S RESPONSIVE SUPPLEMENTAL BRIEF
`IN SUPPORT OF THEIR DEMURRER TO CROSS-COMPLAINT
`
`560 Mission Street, Suite 1900
`
`Holland & Knight LLP
`
`San Francisco, CA 94105
`
`Fax: 415.743.6910
`Tel: 415.743.6900
`
`

`

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`
`16. Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547, 549, 550, 553–56
`(2004).
`
`
`Dated: July 19, 2024
`
`
`
`
`
`
`
`
`HOLLAND & KNIGHT LLP
`
`
`
` /s/ Sarah A. Marsey
`Sarah A. Marsey
`Jacqueline N. Harvey
`Ana Dragojevic
`Attorneys for Defendants and Cross-Complainants
`CHRIS V. KELLY, An Individual And As Co-Trustee
`Of THE KELLY FAMILY TRUST; LARA GAY
`KELLY, An Individual And As Co-Trustee Of THE
`KELLY FAMILY TRUST
`
`
`
`4
`CHRIS V. KELLY’S AND LARA GAY KELLY’S RESPONSIVE SUPPLEMENTAL BRIEF
`IN SUPPORT OF THEIR DEMURRER TO CROSS-COMPLAINT
`
`560 Mission Street, Suite 1900
`
`Holland & Knight LLP
`
`San Francisco, CA 94105
`
`Fax: 415.743.6910
`Tel: 415.743.6900
`
`

`

`Exhibit 1
`Exhibit 1
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`
`4 Cal.App.5th 574
`Court of Appeal, Fourth District, Division 1, California.
`
`ALKI PARTNERS, LP, et al., Plaintiffs and Appellants,
`v.
`DB FUND SERVICES, LLC, et al., Defendants and Respondents.
`
`D068063
`|
`Filed 10/24/2016
`|
`Rehearing Denied November 14, 2016
`
`Synopsis
`Background: Investors sued hedge fund's administrator for breach of contract. The Superior
`Court, San Diego County, No. 37–2011–00056561–CU–BC–NC, Timothy M. Casserly, J., granted
`summary judgment in favor of the fund administrator and awarded attorney fees. Investors
`appealed.
`
`Holdings: The Court of Appeal, Nares, J., held that:
`
`[1] investors forfeited their challenge to sufficiency of the evidence by failing to include citations
`to the evidence;
`
`[2] administrator did not breach a contractual duty by failing to calculate net asset values (NAV)
`for the investors' accounts;
`
`[3] administrator did not breach a contractual duty to communicate with investors;
`
`[4] indemnity provision in administrator's contract with fund's operator did not grant a right to
`recover attorney fees against investors as a prevailing party; and
`
`[5] administrator's representation that it was not seeking fees incurred solely to defend claims by
`third party barred the argument that it incurred the same fees in defending claims by investors and
`the third party.
`
`Affirmed in part and reversed in part with directions.
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`1
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`
`Procedural Posture(s): On Appeal; Motion for Summary Judgment; Motion for Summary
`Adjudication; Motion for Attorney's Fees.
`
`West Headnotes (27)
`
`[1] Appeal and Error
`Judgment of dismissal or nonsuit
`Dismissal of hedge fund's administrator's cross-complaint, after summary judgment in
`administrator's favor on investors' complaint, was sufficiently final for the judgment to
`be appealable, where the record did not indicate the dismissal was accompanied by any
`agreement for future litigation.
`
`2 Cases that cite this headnote
`More cases on this issue
`
`[2] Appeal and Error
`Citation to facts and legal authority in general
`An appellant who fails to cite accurately to the record forfeits the issue or argument on
`appeal that is presented without the record reference. Cal. R. Ct. 8.204(a)(1)(C).
`
`29 Cases that cite this headnote
`
`[3] Appeal and Error
`References to Record
`The purpose of the rule requiring briefs to support any reference to a matter in the record
`by a citation is to enable appellate justices and staff attorneys to locate relevant portions
`of the record expeditiously. Cal. R. Ct. 8.204(a)(1)(C).
`
`23 Cases that cite this headnote
`
`[4] Appeal and Error
`Summary judgment
`By failing to support the factual assertions in their opening brief's legal arguments with
`citations to the evidence, investors forfeited the argument on appeal that the trial court
`erred in granting summary judgment on their breach of contract claim against hedge
`fund administrator, even though the factual portion of investors' opening brief did contain
`citations to evidence. Cal. R. Ct. 8.204(a)(1)(C).
`
`30 Cases that cite this headnote
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`2
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`
`[5] Appeal and Error
`Form and requisites in general
`Citing points and authorities filed in the trial court is not appropriate support for factual
`assertions in an appellate brief. Cal. R. Ct. 8.204(a)(1)(C).
`
`16 Cases that cite this headnote
`
`[6] Appeal and Error
`Form and requisites in general
`Appeal and Error
`Points and arguments
`Points and authorities are not presented under penalty of perjury.
`
`9 Cases that cite this headnote
`
`[7] Trial
`Reception of Evidence
`Matters set forth in points and authorities are not evidence.
`
`16 Cases that cite this headnote
`
`[8] Appeal and Error
`Defects, objections, and amendments
`Courts will decline to consider any factual assertion in an appellate brief that is
`unsupported by record citation at the point where it is asserted. Cal. R. Ct. 8.204(a)(1)(C).
`
`35 Cases that cite this headnote
`
`[9] Contracts
`Discharge of contract by breach
`Hedge fund's administrator was excused from its contractual duty to calculate net asset
`values (NAV) for a fund's investors' accounts, under contract providing that the valuation
`was to be “determined in good faith by the Client in the absence of current quotations,”
`since the investors failed to perform a condition precedent by providing the administrator
`with the values of put options and a security that represented the majority of the fund's
`holdings, and the hedge fund operator believed it would be fraudulent to assign a value
`to the put options.
`
`More cases on this issue
`
`[10] Contracts
`Necessity of performance
`A party's failure to perform a condition precedent will preclude an action for breach of
`contract.
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`3
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`
`7 Cases that cite this headnote
`
`[11] Contracts
`Discharge of contract by breach
`Where one party's contractual obligation is dependent on the prior proper performance of
`the other party, and that other party does not perform, the obligation is excused.
`
`7 Cases that cite this headnote
`
`[12] Contracts
`Acts or Omissions Constituting Breach in General
`Hedge fund's administrator did not breach a provision of its contract with the fund operator
`requiring administrator to perform “investor relations” and to communicate with investors
`on an “as needed” basis and “only when specifically instructed by Client,” in allegedly
`failing to communicate with investors in response to their direct inquiries, or to alert
`investors or agents of the funds of the administrator's inability to calculate net asset values
`(NAV), even if administrator's motive was to secure a performance bonus as it anticipated
`being acquired, where the fund operator instructed the administrator not to send monthly
`statements to investors and not to communicate with investors.
`
`More cases on this issue
`
`[13] Contracts
`Acts or Omissions Constituting Breach in General
`A party's purported motive to breach a contract is not relevant to the issue of whether there
`has been a breach.
`
`2 Cases that cite this headnote
`
`[14] Summary Judgment
`Relationship to pleadings
`Hedge fund's administrator's motion for summary judgment on investor's breach of
`contract claim was not required to refute the theory that administrator breached the
`agreement by not giving 60 days' notice of termination, where that theory was not included
`in the operative complaint.
`
`1 Case that cites this headnote
`More cases on this issue
`
`[15] Costs, Fees, and Sanctions
`
`Contribution, indemnity, and subrogation
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`4
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`An indemnity provision in hedge fund's administrator's contract with the fund's operator
`did not grant the administrator a right to recover attorney fees as a prevailing party in
`operator's breach of contract lawsuit, in providing that operator generally was to indemnify
`administrator for reasonable attorney fees “resulting in any way from the performance or
`non-performance” of administrator's duties under the contract, where the provision did not
`contain the phrase “prevailing party” or refer to an action between the parties for breach
`of the agreement.
`
`6 Cases that cite this headnote
`More cases on this issue
`
`[16] Contracts
`Extrinsic facts
`Interpretation of a written contract is a question of law for the court unless that
`interpretation depends upon resolving a conflict in properly admitted extrinsic evidence.
`
`5 Cases that cite this headnote
`
`[17] Appeal and Error
`Nature or Subject-Matter of Issues or Questions
`Court of Appeal would consider the issue on appeal of whether an indemnity provision
`in hedge fund's administrator's contract with the fund's operator granted the administrator
`a right to recover attorney fees as a prevailing party, even though the operator did not
`raise that argument on appeal and instead argued that an award of attorney fees required
`adjudicating the merits of administrator's cross-complaint for indemnity, since the issue
`was a question of law.
`
`1 Case that cites this headnote
`More cases on this issue
`
`[18] Appeal and Error
`Nature or Subject-Matter of Issues or Questions
`The appellate court has discretion to consider an issue raised for the first time on appeal
`where the relevant facts are undisputed and could not have been altered by the presentation
`of additional evidence in the trial court, and it makes no difference that the issue was first
`raised on appeal by the court rather than the parties, as long as the parties have been given
`a reasonable opportunity to address it.
`
`3 Cases that cite this headnote
`
`[19] Indemnity
`
`Nature of obligation
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`5
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`Generally, “indemnity” is defined as an obligation of one party to pay or satisfy the loss
`or damage incurred by another party.
`
`2 Cases that cite this headnote
`
`[20] Indemnity
`Subject-matter in general
`A contractual indemnity provision may be drafted either to cover claims between the
`contracting parties themselves, or to cover claims asserted by third parties.
`
`2 Cases that cite this headnote
`
`[21] Indemnity
`Construction and Operation of Contracts
`Indemnity
`Intention of the parties
`Indemnity agreements are construed under the same rules that govern the interpretation
`of other contracts, and thus the contract must be interpreted to give effect to the mutual
`intention of the parties, and the intention of the parties is to be ascertained from the clear
`and explicit contract language. Cal. Civ. Code §§ 1636, 1638.
`
`6 Cases that cite this headnote
`
`[22] Indemnity
`Costs and expenses
`Indemnity
`Attorney fees
`Generally, an indemnification provision allows one party to recover costs incurred
`defending actions by third parties, not attorney fees incurred in an action between the
`parties to the contract.
`
`16 Cases that cite this headnote
`
`[23] Indemnity
`Subject-matter in general
`Indemnity
`Attorney fees
`A clause that contains the words “indemnify” and “hold harmless” generally obligates
`the indemnitor to reimburse the indemnitee for any damages the indemnitee becomes
`obligated to pay third persons—that is, it relates to third party claims, not attorney fees
`incurred in a breach of contract action between the parties to the indemnity agreement
`itself.
`
`18 Cases that cite this headnote
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`6
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`
`[24] Indemnity
`Subject-matter in general
`Generally, if the provisions surrounding indemnification language describe third party
`liability, the clause will be construed as a standard third party indemnification provision.
`
`5 Cases that cite this headnote
`
`[25] Indemnity
`Attorney fees
`The court will not infer that the parties intended an indemnification provision to cover
`attorney fees between the parties if the provision does not specifically provide for attorney
`fees in an action on the contract.
`
`19 Cases that cite this headnote
`
`[26] Contracts
`General and specific words and clauses
`Ordinarily, where specific words follow general words in a contract, the general words
`are construed to embrace only things similar in nature to those enumerated by the specific
`words.
`
`[27] Appeal and Error
`Costs and fees
`Hedge fund's administrator's argument in the trial court that it was not relying on an
`indemnity provision in its contract with the fund operator to recover attorney fees
`incurred solely to defend claims brought against administrator by a third party barred
`the administrator from arguing on appeal that the trial court's award of attorney fees
`to administrator as a prevailing party on operator's breach of contract claim should
`be affirmed because administrator incurred the fees in defending against not only the
`operator's claims, but also against identical claims by a third party.
`
`See 1 Witkin, Summary of Cal. Law (10th ed. 2005) Contracts, § 847 et seq.
`
`2 Cases that cite this headnote
`More cases on this issue
`
`**154 APPEAL from a judgment of the Superior Court of San Diego County, Timothy M.
`Casserly, Judge. Affirmed in part and reversed in part with directions. (Super. Ct. No. 37–2011–
`00056561–CU–BC–NC)
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`7
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`
`Attorneys and Law Firms
`
`James A. Shalvoy, Manhattan Beach, for Plaintiffs and Appellants.
`
`Pillsbury Winthrop Shaw Pittman, Richard M. Segal, Nathaniel R. Smith, San Diego, Kirke M.
`Hasson and G. Allen Brandt, San Francisco, for Defendants and Respondents.
`
`Opinion
`
`NARES, J.
`
`*577 After allegedly losing millions of dollars in a hedge fund, investors sued the fund's
`administrator for breach of contract, alleging the administrator failed to (1) value the hedge fund's
`assets, (2) advise investors of the hedge fund's net asset value, and (3) respond to investor inquiries
`about the fund. The superior court granted summary judgment in favor of the fund administrator,
`determining the undisputed material facts established no breach of contract. Later, the court
`awarded the fund administrator $3,027,237.96 in attorney fees based upon a contractual provision
`entitled “Standard of Care,” which provides the administrator is to be indemnified for losses,
`including reasonable attorney fees “resulting in any way from the performance or non-performance
`of Administrator's duties hereunder....”
`
`The investors appeal, asserting triable issues of material fact preclude summary judgment.
`They also contend the court erroneously awarded attorney fees. We affirm summary judgment,
`determining the undisputed material *578 facts establish the administrator did not breach the
`applicable contract. However, we reverse the award of attorney fees because the contractual
`language relied upon is a third party indemnity provision that does not create a right to prevailing
`party attorney fees in litigation between the parties to the contract. (See Carr Business Enterprises,
`Inc. v. City of Chowchilla (2008) 166 Cal.App.4th 14, 22–23, 82 Cal.Rptr.3d 128 (Carr).)
`
`FACTUAL AND PROCEDURAL BACKGROUND
`
`A. Introduction—The Parties
`This appeal involves several distinct entities having similar names. The investment fund entities
`are Alki Partners, LP; Alki Capital Partners, L.P.; Alki Fund, Ltd.; and Alki Capital Management,
`LLC. The fund administrators are DB Hedgeworks, LLC, and Hedgeworks Fund Services Limited.
`
`Adding to the potential for confusion, these entities are parties to distinct contracts, one called a
`“Fund Administration Agreement” and the other an “Administrative Services Agreement.” The
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
`
`8
`
`

`

`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`record contains three such contracts, but they differ from each other in material respects. One of
`them is not even signed.
`
`Thus, to say “Hedgeworks” or “Respondents” breached “contracts” with “Alki”—as plaintiffs
`often assert in their briefs, is confusing at best, and potentially misleading.
`
`**155 To clarify, the following persons or entities are involved in this appeal:
`
`1. Alki Partners, LP
`Alki Partners, LP (also known as Alki Capital Partners, L.P.) is a limited partnership in the business
`of operating a hedge fund. 1 Hereafter, we refer to Alki Partners, LP, and Alki Capital Partners,
`L.P., as Alki Partners.
`
`2. Alki Capital Management, LLC
`Alki Capital Management, LLC (Alki Capital) was the general partner of Alki Partners until
`approximately September 2008.
`
`*579 3. Scott Wilfong
`Scott Wilfong is the president of Alki Capital. Wilfong was also the portfolio manager for Alki
`Partners. Wilfong had sole authority to make investment decisions for Alki Capital and Alki
`Partners.
`
`4. DB Fund Services, LLC, formerly known as DB Hedgeworks, LLC
`DB Fund Services, LLC, formerly known as DB Hedgeworks, LLC (Hedgeworks), is a
`company that provided administrative services to Alki Partners under a contract entitled “Fund
`Administration Agreement” dated January 1, 2002.
`
`5. Bullfrog Research, LLC
`Bullfrog Research, LLC (Bullfrog) became the general partner of Alki Partners in September 2008.
`Bullfrog is also the assignee of certain claims and causes of action of individuals who are limited
`partners of Alki Partners.
`
`6. Alki Fund, Ltd.
`Alki Fund, Ltd. (Alki Fund) is a Cayman Islands company, an “offshore hedge fund.”
`
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`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`
`7. Hedgeworks Fund Services Limited
`Hedgeworks Fund Services Limited (HFSL) is a Cayman Islands limited liability company. HFSL
`provided administrative services to Alki Fund under a contract entitled “Administrative **156
`Services Agreement” dated August 1, 2005.
`
`B. Summary Judgment and Summary Adjudication Rulings
`In May 2014 the court issued the summary judgment ruling that is the basis for the instant
`appeal. However, in March 2014 the court made several rulings on a separate motion for summary
`judgment and summary adjudication. As a result of those March 2014 rulings, which are not
`challenged here, some of the entities and contracts noted ante are no longer involved in this case.
`
`For example, in the March 2014 ruling, the court granted summary judgment in favor of HFSL
`on the grounds it was dissolved before plaintiffs' action was commenced. Thus, HFSL is out of
`the case.
`
`*580 The court also granted summary adjudication in favor of Hedgeworks against Alki Fund
`on the grounds no contract existed between them. As a result, the court dismissed claims alleged
`by Alki Fund. Alki Fund is out of the case.
`
`There are other important results of these March 2014 rulings. The administrative services
`agreement dated August 1, 2005, between Alki Fund and HFSL is not relevant in this appeal. That
`August 1, 2005 contract does not determine Hedgeworks's contractual obligations to Alki Partners
`because the court has already adjudicated that Hedgeworks is not a party to that contract, and that
`ruling is not challenged on appeal.
`
`The only contract that is relevant here is the fund administration agreement dated January 1, 2002,
`between Alki Partners and Hedgeworks. In their response to Hedgeworks's separate statement
`of undisputed material facts, plaintiffs concede this point, agreeing it is “undisputed” that the
`agreement is the contract for administrative services between Hedgeworks and Alki Partners. 2
`
`With these preliminary matters clarified, the relevant facts are summarized below.
`
`C. The Alki Partners Hedge Fund
`Alki Partners was created to acquire, invest in, and sell or otherwise trade in securities, defined
`broadly to include “investment instruments and vehicles of every kind and nature, foreign or
`domestic, whether publicly or nonpublicly traded....”
`
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`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`Alki Capital, the general partner of Alki Partners, was given vast authority in running Alki Partners.
`For example, the limited partnership agreement gives Alki Capital exclusive authority to determine
`the value of the partnership's assets:
`
`“10.6 Valuation. The value of the assets and liabilities of the Partnership shall be determined
`by the [g]eneral [p]artner in good faith and such determination shall be conclusive and binding
`on all of the [p]artners....”
`
`The limited partnership agreement also gives Alki Capital “full, exclusive and complete authority
`in the management and control of the business of the [p]artnership ... and [it] shall make all
`decisions affecting the [p]artnership.”
`
`*581 From 2002 to September 2008, Wilfong, as owner of Alki Capital, had the sole authority
`to make investment decisions for Alki Partners.
`
`Only wealthy and sophisticated investors were eligible to become limited partners in Alki Partners.
`The minimum investment was $250,000. The offering was available only to investors having a net
`worth in excess of $1.5 million. Before being accepted into the limited partnership, an investor had
`to demonstrate that he or she was an “accredited investor,” sophisticated in financial and business
`matters generally and in investing in securities.
`
`The Alki Partners' offering circular warned potential investors in all uppercase letters, “THESE
`SECURITIES ARE SUBJECT TO A HIGH DEGREE OF RISK.” Elsewhere, the circular
`explained that the general partner “has broad discretion to employ any [s]ecurities trading or
`investment techniques” many of which “are high-risk activities that could result in substantial
`losses under certain circumstances.” After providing biographical information about Wilfong, the
`offering circular states, “The [p]artnership's performance depends, to a great extent, on the ability
`and experience of Mr. Wilfong in making investment decisions.”
`
`**157 D. The Hedgeworks Fund Administration Agreement
`Alki Partners entered into a contract with Hedgeworks entitled “Fund Administration Agreement,”
`dated January 1, 2002 (the Agreement). The Agreement refers to Alki Partners as “Client” and to
`Hedgeworks as “Administrator.” The Agreement provides that “No provision of this Agreement
`may be amended, modified, waived or discharged except as agreed to in writing by the parties.”
`
`Under the Agreement, Hedgeworks agreed to perform certain accounting and administrative
`functions for Alki Partners. In the ordinary course of business, each month Alki Partners (or its
`prime broker) would provide Hedgeworks with values for the fund's assets. 3 If the value of a
`particular asset was not available on the securities exchange or market, or if Alki Partners believed
`the reported value was not indicative of fair value, Alki Partners had the right under the Agreement
`
` © 2024 Thomson Reuters. No claim to original U.S. Government Works.
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`Alki Partners, LP v. DB Fund Services, LLC, 4 Cal.App.5th 574 (2016)
`209 Cal.Rptr.3d 151, 16 Cal. Daily Op. Serv. 11,235, 2016 Daily Journal D.A.R. 10,526
`to provide Hedgeworks its own valuation. Schedule A, paragraph 2(d) of the Agreement provides
`in part:
`
`“The value of assets will be recorded at their fair value as determined in good faith by the
`Client in the absence of current quotations or if Client[ ] concludes that such quotations are not
`indicative of fair value by reason of illiquidity of a particular security or other factors.”
`
`Consistent with this provision, Wilfong testified in deposition, “I'm the one that valued it.
`Hedgeworks had nothing to do with the valuation.”
`
`*582 In turn, Hedgeworks would take the asset values provided by Alki Partners, factor in
`monthly expenses and any other adjustments, and calculate the net asset value (NAV) of the
`fund. Under schedule A.2. of the Agreement, Hedgeworks was required to prepare limited partner
`statements on a monthly basis. Based on the fund's NAV, Hedgeworks would calculate individual
`investor balances and prepare monthly statements of account that it would send to each limited
`partner investor.
`
`Hedgeworks issued the last such statements in mid-February 2008 for the month ending January
`31, 2008. It is undisputed that these statements were accurate. The witness plaintiffs designated
`as the person most knowledgeable about their claims could not identify any situation where
`Hedgeworks failed to provide information Alki Partners requested or did something prohibited by
`the Agreement. Wilfong testified the statements Hedgeworks sent to invest